Week in Review
Week Ending: Friday, September 1, 2017
Recap & Commentary
Domestic equity markets enjoyed strong gains aided by renewed talk of tax reform and a “goldilocks” employment report.
On Tuesday, President Trump once again laid out his vision for tax reform. While light on details, Trump called for slashing the corporate tax rate from 35% to 15% and eliminating “loopholes and complexity that primarily benefit the wealthiest American and special interests”. “This is our once-in-a-generation opportunity to deliver tax reform for everyday hard-working Americans”, he declared.
Second quarter GDP was revised to 3.0% from 2.6% reported initially. Economists had been expecting a revised figure of 2.8%. The upward revision reflected improvements in consumer spending and non-residential fixed investments that were partly offset by a downward revision to state and local government spending. At 3.3%, consumer spending reached its highest level since second quarter of last year.
Friday’s employment report, showed that employers added 156k new jobs in August. Though down from the prior two months, and lower than the consensus forecast of 180k, it demonstrated that employers continue to hire at a meaningful rate. The report was viewed as a “goldilocks” one by many in that it wasn’t strong enough to pull forward expectations regarding the timing of the Fed’s next rate hike, nor was it weak enough to raise concerns about the underlying strength of the economy. In many respects it confirmed the ongoing trend of the economy expanding at a modest pace.
Economic Bullet Points
Data out of the housing sector was slightly negative, with Case-Shiller HPI barely positive M/M as prices have begun to moderate. Construction Spending saw a headline decline due to weakness in nonresidential spending.
The factory sector continues to see strength as the ISM Manufacturing Index came in at the best reading in over 6 years, with all components healthy and factory payrolls unusually strong.
Data outside of the factory sector was generally positive; GDP was revised higher to a 3.0% annualized rate, above 2.8% expectations, with strength centered around consumer spending. Aside from weak inflation, Q2 saw a solid reversal of Q1’s weak 1.2% rate, and shows positive momentum going into Q3. Personal Income & Outlays was mixed in the month, with income up and in-line with expectations, and spending slightly below expectations. On the consumer side, Sentiment fell just below expectations, but is still higher than the previous two months’ readings, as optimism over income prospects seem to outweigh negative events in the news as of late, including violence in Charlottesville and tensions with North Korea. Consumer Confidence was very solid, near March’s high, a level unmatched since December of 2000. Employment was a particular positive of the report, and a dip in inflation expectations the only negative.
Labor market data showed slight moderation, the Employment Situation report showed nonfarm payrolls missing expectations in August, the prior two months were revised down. Nevertheless, employment data remains very strong. A particular positive in the report was a surge in manufacturing payrolls, which was correctly signaled by regional factory reports. Jobless Claims remain at historic lows, although Hurricane Harvey is expected to drive claims higher in the coming weeks.
- The 4.3% unemployment rate from July 2017 was the lowest that the U.S. has reported since February 2001. The country’s jobless rate was 4.1% or lower during all 12 months of calendar year 2000.
Market Indices Week of 9/1
S&P 500 1.4%
Russell 2000 2.6%
MSCI EAFE 0.6%
MSCI EM 0.6%
Barclay’s Agg. 0.1%
US Dollar Index 0.1%
10-Yr Yield 2.12%
Oil ($/bl) $47
Gold ($/oz) $1,333
The Week Ahead
- Factory Orders
- ISM Non-Mfg. Index
- International Trade
- Jobless Claims
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