Saturday, July 16, 2016

MAD Weekly Review

Well it seems everything has cooled off as we enter the dog days of summer. Except for the Dow Jones and S&P 500 reaching all time highs this week. I bet if you asked many people in June we'd see new highs in July they'd have laughed. The only exception is the Nasdaq which has lagged the last year, and still a couple hundred points from it's high reached last summer. I guess technology is not everyone's favorite dog right now.

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Now let's take a look at some economic numbers. The initial jobless claims continues to come in low at 254k new unemployment claims. When we look at the 4 week continuing claims average we can see that this number is actually below pre-recession levels.  Let us not forget the strong 287k non-farm payroll number we received last week. Hiring is alive and well.

Obviously this on its own does not mean the economy is firing on all cylinders. That's evident by the GDP number for one.  It does however note a shift in the trend of the labor market.  At this point in time it's rather obvious to me that structural unemployment is the cause for a lot of labor market angst.  The labor market is shifting to where if you do not have certain skills you are not a hire-able candidate.  That will only increase on the low end as the push for minimum wage makes it price competitive for management to replace labor with computers and machines.

Remember all those jobs lost during and right after the recession? Most companies cited they would figure out ways for increased efficiency.  That's code for "We have found a software program, machine, or some combination of both that can do your job; or will allow another person to do your job plus their original duties."

Anyway back to some economic data. We received a slew of releases Friday. They include CPI, Retail Sales, Capacity Utilization, Industrial Production, Business Inventories, and Consumer Sentiment. All closely watched indicators by the Fed, which I might add released their Beige Book this week.

The Fed Beige Book and comments basically stated that economic activity continued albeit at a modest pace.  So all in same story. Economic activity is expanding, but at a slower than liked pace. The summary mentioned softening in consumer spending. I'm not quite so sure on that and we'll see why in a bit.

CPI is frequently mentioned by the Fed, as they watch it quite regularly. Headline inflation came in at 0.2%. A positive number, but not as strong as I think the Fed is looking for from a historical basis.
The problem with inflation is it's still coming in positive, but it's not coming in at the same rate "normally" required to raise rates if you listen to the Fed. I think inflation is low for a few reasons. One is the strong dollar causing price deflation in a few areas, and the velocity of money. I'll visit this area in a future post with more detail. But make no mistake, prices have been rising.

Retailer Sales(ex-auto) came in strong at .6% higher than May, and 2.4% from June 2015. You can read the full report here, and trust me it's some good quick reading. So maybe the Fed want's to see stronger growth. But I'd consider this a good number. Definitely good enough to keep the economy humming at a reasonable pace. I'd be more concerned if the savings rate was dropping, but that hasn't materialized yet. Hidden in the report were some strong numbers in non-store retailer sales up over 14%, and strong personal care store sales up 8.4%.

Lastly  I'll go over Industrial Production and Capacity Utilization.  IP has really slowed from its headier days in 2014 & 2015. Still this country is manufacturing quite a bit, and really not slowing major signs of a recession. CU on the other has rebounded for awhile, although it's sad to see the long term decline it's been in since the 1970's.

So all in not bad. Not overly strong where I'd expect 4% GDP growth, but the economy just isn't in terrible shape. It's a shame many people haven't been able to feel like the economy is treating them right, but some of that is symptomatic of poor personal choices too.

That's all for now. Have a great weekend!

The MAD Consultant

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