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Factory output accelerating…..Federal
Reserve out this morning providing June data on factory production which
accelerated at its fastest rate in more than two years. Economists see this
data as further evidence that U.S. manufacturing sector is strengthening and
will drive economic growth in Q3.
What’s the point? Manufacturing
sector, export growth, and housing are now among the three most important
drivers of the U.S. economy. Reports in recent months indicate that manufacturing
is leading the economic recovery, and business capital investment is expected
to grow at over twice the rate of the overall economy. There are investment
implications for this which implies a greater weighting in portfolios towards
industrial and technology sectors, and somewhat lower emphasis on consumer
discretionary, at least over the next year or so. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&Date=20140716&ID=17779446&topic=TOPIC_ECONOMIC_INDICATORS&isub=3
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Homebuilder confidence surges….NAHB
homebuilder confidence index increased substantially in June, reflecting
increased confidence by homebuilders in the outlook for home purchases and
construction, and that the housing sector may be regaining its footing and
economists see significant pent-up demand for housing.
What’s the point? Housing
is an important driver of the overall economy. The slowdown in housing over the
past 18 months was due to combination of factors, including weather, job growth
and higher mortgage rates, that held back the recovery. The fact that housing
may now be poised to re-accelerate has positive implications for the overall
economy. Economists predict the housing sector should grow at 2-3 times the rate
of the overall economy in next two years. This adds further support to our
continued belief that economic growth should accelerate in 2H-14 to a
“moderate” pace of 2.5-3%. Link: http://money.msn.com/business-news/article.aspx?feed=AP&date=20140716&id=17780172
What’s the point? Yellen’s comments were pretty much in line with expectations. Her comments regarding the economy continue to reflect the concerns the Fed has over long-term unemployment, consumer confidence, and the housing sector. Yellen intimated that the Fed would continue to be transparent about its policies and its views towards how changes in the economy will affect policy. This is more open than the Fed has even been, and we believe it is good thing as it helps to reduce market speculation and confusion over Fed policy, which can increase market volatility. So, it looks like “more of the same” of, in a word, “moderate”: moderate economic growth, moderate inflation, moderation in Fed policy, and continued gradual money flows out of bonds into stocks seeking higher return. Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140715&id=17776187
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June
retail sales reflect improvement……Commerce Department reported that retail
sales for June looked solid again, with “core” sales (ex autos) rising a solid
0.4% after increasing by the same amount
in May.
What’s the point? The June retail sales
report reflects a consumer spending environment that is OK, certainly not
booming. It does support the Fed’s view that the economy is improving albeit at
a moderate pace. In her testimony today, Fed Chair Janet Yellen stressed that
one of the Fed’s larger concerns is the low level of consumer confidence
pertaining to job prospects and wage growth. Despite this, it appears consumer
spending growth should remain “moderate” (2-2.5%) and should contribute to what
we expect will be further moderate economic growth (2.5-3% range). Link: http://money.msn.com/business-news/article.aspx?feed=OBR&date=20140715&id=17775352
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