Economic Update: First Quarter 2017

In our last report, we mentioned that there was positive optimism that global economies were in an upswing. The data now is starting to support the optimism for the U.S. and other world economies. Corporate profits continue to improve, reinforcing the end of the corporate earnings slowdown. Retail sales (auto and consumer durable purchases) are strong and the labor market continues its positive trend. In what is being interpreted as a positive sign the Fed raised its benchmark rate for a second time in three months. In February the Chicago Fed’s National Activity Index came in much stronger than expected rising from -0.02 to 0.34 (readings above zero indicate above trend growth). This index is a weighted average of 85 existing monthly indicators of national economic activity. With the average growth rate for both January and February well above zero, the economic activity for the first quarter is expected to be above trend. Data on durable goods, which was released the third week of March, points to increased spending on equipment adding to the positive effect on growth. Further, nondefense goods shipments (excluding aircraft) were up an annualized 8.8% compared to the previous three months.

Manufacturing also gave us a reason to celebrate as the Kansas City Fed’s manufacturing activity index moved from 14 to 20. The all-time high is 23 which was reached in March, 2011.

Possibly countering some of this positive news is consumer spending. Personal consumption rose at an annual rate of 3.5% during the last quarter of 2016. However, indications show this will decline for the first quarter of 2017. This slowdown in spending is not unexpected as the warmer than normal weather so far this year has reduced the consumption of utilities. As mentioned above, auto and consumer durables purchases remained strong. Job growth figures for March put growth at 98,000 as opposed to the estimate 180,000. However, unemployment fell to 4.5% from 4.7%. Economist feel the slow-down in jobs growth is an indication the labor market is returning to a more sustainable level.

The Global Purchasing Managers’ Index (see chart below) continues to show improvement in most parts of the world. A score above 50 indicates economic activity is accelerating. The U.S. and China data, while still accelerating, have settled down slightly. Meantime both developed and emerging international economies are moving forward from earlier readings. This is particularly true for the Euro region.

According to the International Monetary Fund (IMF) economic growth in emerging markets could accelerate to 4.6% in 2017 compared to 4.2% in 2016 and 4.0% in 2015. The Organization for Economic Co-operation & Development (OECD), reported an increased focus on infrastructure spending both in the United States and globally could spur commodity demand which is closely related to some emerging markets equities.

This is not to say there are not concerns. As mentioned in our Market and Asset Class Overview article, optimism over the new administration in Washington and its pro-business stance has yet to see any real results. Globally, there remains concerns that the populist trend that started with the Brexit vote and U.S. election could continue in upcoming elections. Despite these apprehensions we believe there is a positive trend of growth encompassing the globe that will continue to broaden.

For a more detailed look at the market in the quarter just ended, read our Market and Asset Overview here.

Unless stated otherwise, any estimates or projections (including performance and risk) given in this presentation are intended to be forward-looking statements. Such estimates are subject to actual known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those projected. The securities described within this presentation do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in such securities was or will be profitable. Past performance does not indicate future results.