Economic Update – Q2 2018
What we’re watching:
As the second longest economic expansion on record in the United States entered another year, questions around potential catalysts for greater gains arose. With economic data still solid, and the effects of the corporate tax cut not yet fully felt, the case for equities remains intact.
A focus on global central bank policy remains a prudent approach. Now that the move towards tighter monetary policy has begun, the pace and method of tightening will determine the reaction in bond and stock markets.
The threat of a government shutdown, adoption of tariffs, and an unclear path on immigration policy have created recent volatility in the U.S. markets. With mid-term elections on the horizon, the divide between Republicans and Democrats could have a meaningful impact on investor sentiment.
U.S. GDP for the fourth quarter of 2017 came in at +2.5% quarter-over-quarter compared with a third quarter reading of +3.2%. Driving the deceleration in growth was strong consumption, which clocked in at +3.8%, but led to higher imports and a decline in inventories.
Growth expectations for first quarter GDP are approximately +2.5%, although estimates have shrunk based on data pointing to modestly weaker consumption and business investment in the quarter.
Manufacturing remains in expansionary territory, as the Institute for Supply Management’s manufacturing survey closed the quarter at 59.3. However, new orders and employment dipped from February, when the survey topped the 60 mark.
Eurozone manufacturing, too, weakened modestly from February to March, falling from 58.6 to 56.6. Indications are that the sentiment component of the measure may have weakened based on concerns around protectionist measures initiated by the U.S.
Consumer confidence fell modestly to close the quarter. The Conference Board’s March survey declined to 127 from 131 in February, due to drops in both the index for current conditions and future conditions, likely reflecting increased volatility in the equity market.
Employment remains strong, averaging an additional 202,000 jobs each month for the first quarter of 2018, despite only adding 103,000 jobs in March. With the employment rate holding steady at 4.1% in March for the sixth straight month, wages should continue an upward trend.
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