The US Economy Continues to Blow Hot and Cold
Fallout from Greece Just 1 Issue Awaiting US Equity Investors
Recent data are positive
While US data continue to be mixed (durable goods and the Chicago Fed’s National Activity Index were both soft last week), most of the recent economic evidence suggests the US has recovered from its first quarter economic contraction. For instance, last week, both existing and new home sales exceeded expectations, and personal spending notched its strongest gain in six years.
Market Realist: The US economy continues to blow hot and cold.
The CFNAI (Chicago Fed National Activity Index) is a weighted average of 85 national economic activity monthly indicators. In contrast to backward-looking statistics such as GDP (gross domestic product), it’s a forward-looking metric that’s supposed to give some indication of the shape the economy will take in the coming months. It’s an obscure but useful economic statistic.
As you can see in the graph above, the index has been stuck in negative territory for the last few months, indicating the recovery may not be as strong as expected. Manufacturing (XLI) (DIA) is one of the sectors that’s still stuttering.
Recently, however, we’ve started to see consumption picking up, which is a great sign. The labor market remains strong. In May, non-farm payrolls increased by 280,000—exceeding analysts’ estimate of 226,000. This could mean that the March figure was merely a blip. Also, average hourly earnings increased 0.3% month-over-month and 2.3% year-over-year to $24.96.
Better consumption figures, coupled with a robust labor market, mean that a September rate hike remains the most likely scenario. Higher rates would probably cause more volatility (VXX) in the short term. But while better economic news could cause stocks (IVV) (VTI) to correct in the short term, it certainly would be good for the US economy in the long run.
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