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December Small Business Optimism and November JOLTS report

KEY DATA: NFIB Index: -2.6 points/ Job Openings: -46,000; Hires: -104,000; Quits: -13,000

IN A NUTSHELL: “Despite a modest decline in optimism, small business owners remain exuberant and that should lead to greater job growth, if they can find the workers.”

WHAT IT MEANS: Small is good, at least when it comes to job creation, so near record levels of small businesses optimism is something to celebrate. Yes, the National Federation of Independent Businesses Small Business Optimism index did recede in December, but it remained near record highs. That was reached right after the Reagan tax cuts were passed, so you can probably say that small business owners are big on tax cuts. They would like to hire more workers, but they continue to be constrained by the lack of qualified workers, especially in construction and manufacturing. What is interesting in the report was the difference between actual conditions and optimism. Earnings growth is slowing, sales are moderating and costs, especially wages and compensation, are rising. Yet there is optimism about future sales. Owners are making plans to hire more workers, yet 54% of the respondents said they could find few or no qualified applicants. As for capital spending, there has yet to be a surge in plans to invest.

The lack of workers that small businesses are finding is a universal issue. While the number of job openings eased in November, it remained extremely high. It is likely the slowdown in hiring is due to the lack of labor turnover. Despite what appears to be an employee market, workers are just not quitting their jobs and making themselves available to the highest bidder. On top of that, the rate of layoffs and discharges is almost at an historic low. There is just no churn in the market and that is restricting the ability of companies to find “qualified” workers.

MARKETS AND FED POLICY IMPLICATIONS: Over the next few months, workers will start seeing their paychecks boosted by the tax changes. For some it will be minimal but for many it may be enough to generate stronger spending. Meanwhile, businesses will be making plans for the surge in after-tax earnings that will be staying in their bank accounts. We are seeing a variety of announced plans, ranging from workers bonuses to massive stock buybacks. What is likely coming is a flood of mergers and acquisitions. In a perverse way, that may be good for the labor market as lots of workers will lose their jobs, adding to supply. It is going to take a long time for the effects and consequences, intended or not, of the tax changes to become clear. Until then, the exuberant investor will likely remain that way. As for the Fed, it looks like it still is all about inflation or expected inflation. I suspect it will take an extended period of above target price increases to get the Fed to tighten as many as three to four times this year. But that is not out of the question. My forecast of at least three moves last year won me lunch and I am betting another lunch on four moves this year.

December Jobs Report and November Trade Deficit

KEY DATA: Payrolls: +148,000; Private: +146,000; Revisions: -9,000; U-Rate: 4.1% (Unchanged); Wages: +0.3%/ Trade Deficit: $1.6 billion wider

IN A NUTSHELL: “While the headline job gain number may have disappointed, the average over the last three months was still very strong.”

WHAT IT MEANS: We are starting to get the final 2017 data with the first big one being the jobs numbers. To many, the 148,000 jobs created was a disappointment. But this is a classic example of why you need to understand the pattern of the data, not just look at headline number. Yes, there were fewer positions added than many had forecast, but the jobs numbers are volatile. Over the last three months, an average of 204,000 new positions were created. That is very strong job growth that is likely not sustainable. In December, the job gains were led not just by health care, but also by robust increases in construction and manufacturing. These sectors are helping carry the load and show that the fundamental economy is in good shape. They also offset a large decline in the faltering retail sector.

A second reason to be confident about the economy is the unemployment rate, which remained at an extremely low 4.1%. As a result, wage increases are picking up. The 2.5% increase over the year may not be as high as most workers would like, but it is getting there. The stable participation rate is also a good sign. It is likely that a growing number of people are entering the workforce as to offset the rising boomer retirement rate. Still, with the labor force expanding at a modest 0.5% pace over the year, it will be hard to maintain strong job and economic growth for a sustained period.


While the trade deficit widened again in November, it did so for all the right reasons. The world economy is finally in synch and that means we have growing markets across the world. Exports expanded solidly with every major category posting gains. The rise was not simply due to increasing petroleum prices. But the strong U.S. economy is also sucking in goods from the far corners of the world and as is usually the case, doing so faster than we can sell to foreigners. The only category of imports that was down was food.

MARKETS AND FED POLICY IMPLICATIONS: Supposedly, there is a vast army of potential workers sitting around who have skills, who can pass drug and background checks and who want to work. If you believe that, I am selling even more shares in my next Broadway show. The idea that the “animal spirits” will cause job growth to soar would make sense if there weren’t a shortage of workers already. Unless companies are making up the story that their biggest problem is finding qualified workers, we are not likely to see the hoped-for 200,000 or more job gains per month. Firms are already laying few people off so they may have to find ways to keep people from retiring or quitting. That can only be done by making it worth the workers’ while to stay on. In other words, by paying up. To the extent bonuses are used and that doesn’t show up in average hourly wages, we may be looking at bad wage data. So, watch the quarterly Employment Cost Index, which next comes out on January 31st. That does a little better job at getting at total compensation. This is important because it is clear from the latest Fed minutes that there is a schism at the Fed over how much to raise rates this year. Accelerating labor compensation costs would worry even the doves at the Fed. So, don’t assume the less than expected headline job growth number will be a moderating factor in Fed rate hike thinking.

December Private Sector Jobs, Layoff Notices and Weekly Unemployment Claims

KEY DATA: ADP: +250,000/ Layoffs: 32,423/ Claims: +3,000

IN A NUTSHELL: “If this is not a tight labor market, I don’t know what is.”

WHAT IT MEANS: Tomorrow is employment Friday and it will provide us with another reading not just on job gains but also on wages. But first we need to see if demand for workers is holding up and it looks like that is the case. ADP’s reading on private sector job gains for December came in well above expectations. The increases were robust in both small and mid-sized business, while larger firms added jobs solidly. Looking across industries, only the information services sector posted a decline. Construction, manufacturing, professional and business services, trade and health care all added lots of new workers. In other words, the labor market is in great shape.

A clear indicator of how tight the labor markets are is the Challenger, Gray and Christmas job cut report. December layoff notices were modest and the total for the year was down by over 20% from the 2016 pace to the lowest level since 1990. Helping out was the rise in energy prices and the energy sector’s stability accounted for almost 90% of the difference in layoff notices over the year.

Jobless claims edged up last week and the level is a touch elevated. That is odd given the lack of job cuts and the high demand for workers. Still, when adjusted for the size of the labor force, the level remains quite low. Firms are simply not cutting their workforces.

MARKETS AND FED POLICY IMPLICATIONS: The Fed members have been puzzling over whether the labor market is at or near full employment. The extent of slack, if there is any, is critical because more rapidly rising wages would put pressure on prices, forcing the FOMC to hike interest rate faster and greater than the markets expect. Well, the data seem to indicate the labor market is really tight. Layoff notices are near record lows, as are unemployment claims. The need to hold on to their workers is also helping the job growth numbers. Keep in mind, monthly employment changes are the difference between payroll increases and decreases and those can occur for any reason, including hiring, firing, business births or business deaths. When the job cut numbers are low, it allows for the job increases to be higher as it reduces the number of people looking for jobs as well as job openings. Think of what the job openings would be if firms were more aggressive in their firings. I would be surprised if tomorrow’s report shows anything near what ADP says were the job gains, but it should be a good report nonetheless. But I will be watching the unemployment rate and hourly wage data. If the rate declines and wages rise faster, which is likely, the Fed is going to start worrying about wage inflation. Jerome Powell may not be taking over with the same level problems that either Ben Bernanke of Janet Yellen faced when they assumed the Fed’s reins, but he still could be in for a very difficult time. The markets are not expecting more than a couple of rate hikes this year but more and more economists, including myself, think that there will be at least three and possibly even four. Investors have been looking past interest rate moves. They didn’t expect the three we got last year but passed them off as irrelevant. If we get another three or four this year, will they continue to be so bullish?

December Supply Managers Manufacturing Survey, Help Wanted OnLine and November Construction

KEY DATA: ISM (Manufacturing): +1.5 points; Orders: +5.4 points/ HWOL: +229,700/ Construction: +0.8%

IN A NUTSHELL: “The economy carried a lot of momentum into 2018 and that growth will be boosted by the tax cuts.”

WHAT IT MEANS: It is shaping up to be a very good year. The data for the December are starting to come in and they look really good. The Institute for Supply Management’s manufacturing index rose nicely, driven by a strong gain in new orders. Both export and import demand were up solidly. With orders rising, production expanded at an accelerated pace. The only negative, if it really is one, was a deceleration in the pace of job gains. Still, manufacturing firms are hiring at a solid pace and the growing order books should lead to even better payroll increases going forward.

The Conference Board’s measure of online job ads rose in December. There had been a nearly two year decline in want ads, but that started turning around in the spring. It looks like the pattern is clearly up again. Geographically, the increases were in almost every state and all metro areas reported. Eight of the ten occupations also showed increases in online advertisements. With unemployment falling and advertising rising, the pressure on firms to find qualified workers is high and worsening.

Construction activity continues to soar as well. The value of new construction jumped in November with private activity leading the way. Both residential and nonresidential building rose solidly. The increase in office and commercial building points to growing confidence in the staying power of the expansion.

MARKETS AND FED POLICY IMPLICATIONS: The economy is in really good shape. It is hard to find a sector that is weak. Even vehicle sales, which were expected to slow in December, appear to have come in at a very strong pace, possibly the second highest of the year. That implies fourth quarter growth should be in the 3% range and could exceed it. And once the tax cuts start hitting worker paychecks, we could see some acceleration in demand. Meanwhile, companies will have to figure out what to do with their large increases in profits that were created by the tax reductions. How they spend that largesse will determine the extent to which the economy grows this year. Will they be put to good use by funding capital spending or will they be squandered on stock buybacks and dividend increases, which increase stock prices but not productive capacity or efficiency? How much goes to workers versus executives or owners of capital will also determine the extent to which consumer demand rises. However that works out, growth should be in the 3% range this year and maybe greater. But as I like to say, no good deed goes unpunished. That pace of growth would drive the unemployment rate down below 4% and by year’s end, the 50-year low of 3.4% could be in sight. If that doesn’t raise wages, nothing will. And if that happens, the Fed will be raising rates more than expected. But for now, let’s enjoy the strong economic numbers, which should help keep investors quite happy.

Revised 3rd Quarter GDP, December Philadelphia Fed Manufacturing Index, November Leading Indicators, October Home Prices and Weekly Jobless Claims

KEY DATA: GDP: 3.2% (down 0.1 percentage point)/ Phila. Fed: +3.5 points/ LEI: +0.4%/ Home Prices (Over-Year): +6.6%/ Claims: +20,000

IN A NUTSHELL: “There seems to be no end to the strong data.”

WHAT IT MEANS: Another day of numbers, another round of strong data. The second revision to third quarter GDP showed basically the same growth rate that had been seen in the previous two iterations. That is really a surprise. There is normally a great set of changes as a broader sample of data come in. The changes were relatively modest, though there was a somewhat larger downward change to the gross domestic income measure. That seems to indicate that income growth is not quite as solid as the goods and services measure. Regardless, this was the second consecutive above-3% growth pace and it is consistent with the other data that are showing the economy is accelerating.

Will this strong growth continue? Even without the tax bill, there was every reason to think growth could hold up, at least for a while. The Philadelphia Fed’s early December reading of Mid-Atlantic manufacturing improved quite solidly. Importantly, confidence rose, most likely driven by a pick up in new orders. This area doesn’t have a lot of manufacturing, but the index does give us some insight into national trends and it is fair to say the sector is accelerating.

A second sign of strong future growth comes from the Conference Board’s Leading Economic Index, which rose again in November. The solid increase came on top of a huge, hurricane recovery increase posted in October. It is telling us that growth could accelerate over the next six months.

And then there is housing. The Federal Housing Finance Agency’s Home Price Index popped in October, mirroring the other home prices measures we have seen. The beleaguered Middle Atlantic region has finally joined the party, but the West Coast is where prices are simply soaring out of sight. In that area, we are probably in bubble mode.

Finally, there was a surge in unemployment claims last week. But that was on top of one of the lowest readings we have seen, so there is nothing to made of the jump. The labor market is tight.

MARKETS AND FED POLICY IMPLICATIONS: The year is ending on a high note. Growth is strong almost across the board. The impacts of the tax bill will not likely be seen before mid-year 2018 as the lower taxes show up in weekly paychecks, not all at once. Yes, some companies are giving out bonuses, but those only temporarily increase spending power. They look big, but for companies making billions, it is not a lot. Unless the bonuses are more widespread, they are not likely to do much for personal income. But raising the minimum wage does add to costs and income growth on a continuing basis. We need a lot more companies announcing that they are raising their minimum wage before we can conclude that spending will rise more solidly than it has been. Forecasts of 2018 growth are coming in and they range from about 2.5% to 3.5%. Oddly, I am pretty much in the middle, at 2.9%. I don’t usually wind up at consensus but that is where I am. In other words, next year is shaping up to be a really good one and it may even exceed the 2015 growth rate of 2.9%.

December 12-13 2017 FOMC Meeting

In a Nutshell: “The Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent.”

 Decision: Fed funds rate maintained increased to 1.25% to 1.50%.

Not surprisingly, Federal Reserve Chair Janet Yellen went out with a bank, or a rather a rate hike. The FOMC announced that it was raising the target range for the federal funds to 1.25% to 1.50%. This constitutes the third rate hike this year, pretty much what most of us expected going into the year.

What was interesting in today’s releases was the sharp upward revision to the Fed’s expectations on economic growth next year. Instead of increasing at a 2.1% pace, which was the median forecast in September, the members now put it at 2.5%. That upward revision is in line with the projections of most economists when you factor in a tax bill. While the Committee didn’t specifically mention fiscal policy in its statement, Chair Yellen did say she thought a tax cut could be modestly positive next year. She didn’t think it would change the growth path afterward, which is also consistent with both the members’ forecasts and that of most private sector economists. There could be some greater growth, but echoing her view, it would be limited.

What was interesting is that the Fed believes that its rate policy will not only allow inflation to rise to its target of 2% in the medium term, nothing new there, but continue “supporting strong labor market conditions”. As one reporter pointed out, that could mean the Fed already thinks the labor market is strong enough and could become concerned if the unemployment rate goes lower. Strangely, despite the upping of growth and the lowering of their expected 2018 unemployment rate, the members have not altered their inflation forecast. One of the questions asked at her last press conference was whether Chair Yellen thought the unchanged inflation rate was inconsistent with lower unemployment rates and faster growth. Her answer was essentially that the Fed was unclear why the inflation rate had not accelerated lately, which to me means that a sudden spurt could create real concern. Finally, the so-called dot-plot called for about three rate hikes next year. That would be consistent with the forecast of decent (2.5%) growth but no major acceleration in inflation. Any deviation from either would likely mean more hikes.

Lastly, I think Janet Yellen did a wonderful job as Fed Chair. There were more than a few times I disagreed with her positions, but her leadership was outstanding and she leaves the Fed with an economy that is growing solidly and a financial system that is much more stable than when she started. It is hard to quarrel with her results, especially given that fiscal policy was in a state of gridlock during her term and economic policy was squarely on the back of the Fed. Well Done!

(The next FOMC meeting is January 30-31, 2018.)

November NonManufacturing Activity and October Trade Deficit and Home Prices

KEY DATA: ISM (NonManufacturing): -2.7 points; Orders: -4.1 points/ Trade Deficit: $3.8 billion wider/ Exports: down 0.1 bil.; Imports: up $3.8 bil./ Home Prices (Over-Year): +7.0%

IN A NUTSHELL: “All segments of the economy are doing just fine, though the surge in housing prices is a concern.”

WHAT IT MEANS: In the week where we get the employment data, most other numbers don’t usually create a stir. Still, there are some critical data being released this week. The Institute for Supply Management’s Non-Manufacturing Index is one of them. This follows the services sector, agriculture, mining and construction, so it is most of the economy. Activity did decelerate a touch in November but the October level was the highest ever. The November number can be characterized as really, really strong. Orders are still growing solidly, even if somewhat slowly, order books are filling and hiring is still pretty good. When you combine the nonmanufacturing report with the previously released manufacturing numbers, it is clear the economy is moving ahead quite strongly.      

A growing economy tends to suck in goods from around the world and that is the case with the U.S. economy. Imports rose solidly in October, led by a surge in demand for oil, consumer goods and vehicles. Softness in capital goods imports raises questions about the strength of business investment. Meanwhile, exports were essentially flat. The burgeoning energy export sector was the one bright spot as sales of food products, vehicles, capital and consumer goods were all down. Adjusting for prices, the fourth quarter started off with a pretty big deficit that could restrain growth.

If you are looking to buy a home you probably know that prices are rising and CoreLogic’s October Home Price Index report confirmed that reality.  Prices were up 7% over the year, the fourth consecutive month of above 6% growth. You have to go back to June 2014, during the tail end of the post-recession surge, to find the last time prices have risen so fast for so long. With mortgage rates still very low, homes on the market in short supply and the economy in good shape, the sharp rise in prices is not surprising. As long as people simply don’t want to sell their homes, the number of listings will be limited and these price increases will not only be sustained but we will probably see them accelerate. That raises questions about a bubble forming. It hasn’t yet, but it is something to watch.

MARKETS AND FED POLICY IMPLICATIONS: Businesses are doing quite well. Activity is strong, profits are solid and optimism is high. Clearly, if we do not cut taxes right away, we are going to fall right into a recession. Okay, I am a cynic. I don’t think you cut taxes just to hype the stock market. I believe you reform the tax structure to make the economy more efficient. I will continue to argue that point especially since the tax bills that have been passed do little for efficiency and lots of big company stock prices. As Jim Cramer, of CNBC fame noted, “…it may not be good for the workers, but boy is it good for the stock market“. Worse, as most economists are pointing out, it may generate faster growth in 2018, but coming when there are labor shortages, the likelihood is that inflation will accelerate as will market rates and Fed rate hikes. So I will keep raising the warning. As for investors, it is all about the tax bills. That may change with Friday’s employment report. The consensus is for another strong number in the 200,000-range. I don’t think we will get anything near that. I have it more in the 160,000-range. We have a few days to debate that number.

October Housing Starts and Permits

KEY DATA: Starts: +13.7%; 1-Familly: 5.3%; Multi-Family: 36.8%; Permits: +5.9%; 1-Family: +1.9%; Multi-Family: +13.9%

IN A NUTSHELL: “With home construction back on track, one of the softer segments of the economy is picking up steam.”

WHAT IT MEANS: Home construction had been in a funk for a number of months, but that seems to be changing. Indeed, residential investment, as it is called in the GDP report, restrained growth in the second and third quarters. However, builders have suddenly found reasons to put shovels in the ground. Housing starts soared to the second highest pace in over a decade in October. Much of the increase came from the ever-volatile multi-family segment, which surged by 37%. While the single-family component didn’t rise nearly as much, the gain was still quite good. Geographically, there were some discrepancies and oddities.   In the Midwest and South, all segments were up solid. But in the Northeast, single-family starts tanked but multi-family construction more than tripled. And in the Midwest, total activity decline as single-family starts fell sharply.

Looking outward, the rise in permit requests indicate that home construction should remain firm, though it is doubtful that future gains will look anything close to what we saw in October. Even with the surge in construction, the number of permits requested by not yet used still rose. Indeed, permit requests were slightly higher in October than starts. It is likely that housing will add to growth in the fourth quarter.

MARKETS AND FED POLICY IMPLICATIONS: I keep hearing from our learned members of Congress that we desperately need a tax cut because growth is terrible and we people are desperate for jobs. Either I am living in a parallel universe or they are just blowing smoke, but that is just not the case. This isn’t 2009. The economy is moving ahead solidly and as I constantly point out, the issue isn’t available jobs it’s qualified workers. But, of course, in Washington, letting facts get in the way of a good political speech would be tantamount to treason, so we will have to keep listening to the babble. Interestingly, since the tax cuts go largely to upper income households, who will not spend nearly as much of the after-tax income gains as lower and middle-income families, that could wind up being a benefit. The increase in consumer demand will be muted. And from reports coming out of meetings that administration officials have had with business leaders, not a whole lot of the tax cuts cuts will go to new investment. Paying down debt seems to be the usage of choice. I suspect that a lot of the increased profits will, as usual, be used to raise dividends, buy back stock and expand merger and acquisition efforts. So maybe my concerns about the economy picking up too much steam given the lack of workers is overblown. But think about this: The deficit will rise even more than expected if the retained taxes don’t go to new economic activity while at the same time, the Fed is shrinking its balance sheet. That seems to argue for rising supply, falling prices and increasing interest rates. That cannot be great for the economy or equities. Just a thought.

October Industrial Production and Import/Export Prices, November Philadelphia Fed Survey and Home Builders Index and Weekly Jobless Claims

KEY DATA: IP: +0.9%; Manufacturing” +1.3%/ Import Prices: +0.2%; Export Prices: 0%/ Philadelphia Fed (Manufacturing): -5.2 points/ NAHB: +2 points/ Claims: +10,000

IN A NUTSHELL: “With manufacturing surging, housing solid and inflation near target levels, it is clear the economy can withstand additional rate hikes.”

WHAT IT MEANS: While everyone seems to be focusing on the tax bill as it relates to business spending, I am more concerned that a major tax cut could create enough of a sugar high to cause inflation to accelerate. That could cause the Fed to move next year more often than expected. My worry is based on the already tight labor market and what looks like continued solid economic growth. Industrial production jumped in October led by surges in the vehicle, petroleum, chemicals, computers, apparel and furniture sectors. Put simply, most of manufacturing, whether it was durables or nondurables, was up sharply. This was a broad based increase that really does grab your attention.

Reinforcing the industrial production report was the Philadelphia Fed’s survey of manufacturers. Yes, the index did recede, but it is still high. More importantly, the components were strong as orders rose faster and hiring remained solid, though not as strong as it had been. Looking forward, confidence about not just future activity, but hiring and just about everything else, was up.

On the housing front, the National Association of Home Builders’ index increased to its second highest level in over twelve years. Only this year’s March index was higher. Builders seem to have regained their confidence, though I hope it is not irrational. I don’t think that will be the case. CoreLogic reported that home equity wealth reached its highest level in history. Homeowners have the ability to move, if they want to.

As for inflation, pressures ebbed a bit in October. Import prices rose but not significantly. There is pressure on in the petroleum and related sectors as well as metals. On the export side, farmers got a big gain in prices but that was just about it.

 Jobless claims were up last week, but the level remains extraordinarily low.

MARKETS AND FED POLICY IMPLICATIONS: The economy is in good shape. The issue is neither growth nor jobs. Growth is solid and firms cannot find workers. So you need to ask what will happen if the economy surges as a result of tax cuts being implemented. Where will the added production come from if firms cannot get the workers already and productivity is in the tank? Maybe inflation doesn’t accelerate, but being an economist, I still think that markets actually work. So remember the old saying: “Be careful what you wish for, you just may get it”. The Fed needs to normalize its balance sheet and interest rates and faster growth and inflation are just the tickets they need to do so as rapidly as they want to.

October Retail Sales, Consumer Prices and Real Income

KEY DATA: Sales: +0.2%; Less Vehicles: +0.1%/ CPI: +0.1%; Less Food and energy: +0.2%/ Real Earnings: -0.1%

IN A NUTSHELL: “Prices may not be rising sharply, but they are increasing enough to restrain purchasing power and household spending.”

WHAT IT MEANS: We are starting to get the first set of fourth quarter numbers and right now they are not anything to write home about. Retail sales rose modestly in October and much of the gain came from sales of vehicles. Until we know about the extent of the flood replacement purchases, the vehicle component has to be viewed with caution. Once the replacement process is over, demand could tumble. The spending report was a bit misleading. For some strange reason, sales on the Internet were actually down. Also, falling gasoline prices reduced sales in that component. Meanwhile, in addition to the strong vehicle demand, people spent a lot of money on clothing, sporting goods, health care and furniture. And, they ate like crazy as spending at restaurants and supermarkets jumped.

On the inflation front, consumer costs didn’t increase a whole lot in October. Declines in gasoline prices, clothing and new vehicles offset increases in shelter, medical and used vehicles prices. Food costs were down in almost every category, including cupcakes. The breadth of the decline was odd and needs to be watched. It could mean they will be up next month. Excluding food and energy, the so-called core index, household prices increase a little faster. Since October 2016, the overall Consumer Price Index is up 2.0% while the core rose 1.8%, both pretty much at the Fed’s target.

Despite the modest rise in prices, household spending power declined in October. Real earnings, which adjusts for inflation, fell as wages were flat. Over-the-year, they are up only 0.4%. Need I say it again? Yes. It is hard to sustain strong economic growth if households don’t have the money to spend and right now, they don’t. They are maintaining their consumption levels by reducing their savings pace and that is not good news for future growth.

MARKETS AND FED POLICY IMPLICATIONS: There simply is not enough information to determine if we will once again se a growth rate near or even above 3% in the fourth quarter. The consumer is going to have to do a lot better if growth is going to be strong in the final quarter of the year and there is little reason to be confident that will be the case. Wage gains are moribund, energy pressures continue to build and labor shortages point to modest job increases. The one good thing we have going is that there is now a worldwide expansion. Almost all regions of the global economy are actually in phase and growing. That should help exports. Businesses are likely to wait and see what the tax bill actually contains, especially since some of the tax breaks may be put off for a year. Investors are becoming more cautious about the tax plans as they keep changing. As for the Fed, there is every reason to think that another rate hike will occur at the December 12-13 meeting. The economy has enough strength that there is no reason to slow the normalization process.