July Job Openings and August Small Business Index

KEY DATA: Openings: +54,000; Hiring: +69,000/ NFIB: +0.1 point

IN A NUTSHELL: “Small businesses remain optimistic and are hiring, even as the labor market tightens.”

WHAT IT MEANS: The August below-expectations jobs report was a disappointment to some but a reality check to others. The simple fact is that firms are hiring but are having massive problems finding workers in an ever-expanding economy. The Job Openings and Labor Turnover report, commonly called JOLTS, is one of the more closely watched releases that the government produces, especially by Fed Chair Yellen. The July report highlighted all the issues in the labor market. Hiring was solid, as we saw with the July jobs report. But more importantly, job openings reached their highest level on record. Firms cannot add workers fast enough to close the needs gap. The job openings rate, which is the number of openings as a percent of employment and openings, was up sharply over the year in a wide variety of industries. One of the problems facing firms is that workers are still pretty much locked into their current positions. The quit rate, which you would expect to rise in a tight labor market, ticked up but remained in the range it has been for the entire year. With companies unwilling to bid for workers from other firms, there is little reason to leave and that is limiting the availability of qualified workers.

Job gains should remain decent going forward as small business optimism is still quite high. The National Federation of Independent Business’ index edged up in August, led by a jump in the percentage of those that felt now is a good time to expand. To do that, firms are looking to invest more, which for small businesses is a strong sign of confidence. Firms would like to hire but labor quality remains a huge problem. Interestingly, while businesses are raising wages, expectations of future increases are falling. Maybe they think they have done enough. I suspect they will be disappointed.

MARKETS AND FED POLICY IMPLICATIONS: Until we start getting September numbers, the data will basically be good only for knowing how the condition of the economy going into the hurricanes. But the numbers tell us nothing about what we will see in the next six months. Indeed, it really makes no sense to react to these data. Keep in mind, Texas and Florida have the second and fourth highest state GDPs. Together, they account for about 14% of total U.S. GDP and employment. In other words, when they have problems, it has an impact on national economic activity. And their economies have taken a lickin’, though they will start tickin’ again soon. All we know right now is that going into the hurricanes, the economy was growing at a moderate pace and the labor markets were tight. After the initial downdraft in growth, the rebuilding process will hype spending. Think of all the houses, appliances, furniture, household products, motor vehicles, commercial and industrial buildings and so on have to be replaced. But at the same time, many businesses will never come back and many jobs will be lost permanently. But that would also free up a lot of workers to take other jobs, possibly easing the labor shortage in some areas. So as you can see, how this all shakes out is unclear, but it is likely to add to growth by the end of this year and well into the first half of next.

August NonManufacturing Activity and July Trade Deficit

KEY DATA: ISM (NonMan.): +1.4 points; Orders: +2 points; Employment: +2.6 points/ Trade Deficit: up $0.1 billion

IN A NUTSHELL: “The economy was doing fine before Harvey hit and if Irma causes major damage, it could be many months before we know the actual trend growth rate.”

WHAT IT MEANS: Well, coming into the worst phase of the hurricane season, the economy was doing fine. How we will come out of it is anyone’s guess right now. In August, the Institute for Supply Management reported that non-manufacturing activity rebounded from the downdraft it hit in July. Orders increased, production rose and backlogs built, all pointing continued good growth in the months ahead. This report mirrored the manufacturing numbers that were released last Friday. About the only negative in the report was that the level of the index was below the average for the past twelve months. It is still solid, but we may not see any major acceleration in growth going forward.

The U.S. trade deficit widened a teensy bit in July as both imports and exports declined. That is not good news. We want to see both expand as it would indicate both the U.S. and world economies are growing faster. On the export side, we sold a lot more food and aircraft, but fewer cell phones and motor vehicles. We imported more food, cell phones and computer products, but our demand for foreign oil, steel, vehicles and pharmaceutical products dropped. The trade deficit with most countries and regions widened, which should not make the president happy. It hit an eleven-month high with China even though exports expanded.

MARKETS AND FED POLICY IMPLICATIONS: The climate may not be changing, but in the span of two weeks, a hurricane dropped the most amount of rain on the continental U.S. in recorded history and the strongest Atlantic storm on record is bearing down on Florida. These extreme climate events will have real impacts on the pattern and level of growth and will modify trends in the data. The great losses in Texas and potentially Florida would slow growth in the third quarter and into the fourth. But as rebuilding efforts kick into high gear, spending in a variety of sectors will expand at unusually high levels. Going forward, it will be important to dismiss the headline number and figure out what is real and what is fake news, I mean, temporary factors. That complicates the Fed’s decision-making process as it will be hard for the members to have a good handle on growth. And the uncertainty could last through the fall as some of the data are lagged a month. This will be especially true if Irma or any of the remaining storms hit the mainland and cause major damage. All we can say right now is going into September, the economy was moving ahead moderately. Investors should use data for the next few months only to understand where things are, not necessarily to forecast what will happen going forward.

 

August Employment Report, Manufacturing Activity, Consumer Sentiment and July Construction

KEY DATA: Payrolls: +156,000, Revisions: -41,000; Unemployment Rate: 4.4% (up from 4.3%); wages: +0.1%/ ISM (Manufacturing): +2.5 points; Orders: -0.1 points/ Confidence: up 3.4 points/ Construction: -0.6%

IN A NUTSHELL: “The jobs report was not disappointing as the increases are now closer to the moderate growth we are seeing in the economy.”

WHAT IT MEANS: Since the July employment numbers were released, I have been saying I cannot figure out where all those workers are coming from if businesses are complaining that they cannot find qualified employees and job openings are at record highs. Well, it turns out that the government got a little carried away when estimating payroll increases for June and July and revised those numbers downward. BLS may have gotten it right in August. Yes, the number of new positions added was well below expectations, but it is right in line where it should be given the labor shortage and moderate growth pace. Indeed, the August increase may have been a little high the second biggest increase was in manufacturing, the vehicle sector in particular. Given the slowdown in sales, don’t be surprised if vehicle companies cut back on hiring in September. There weren’t any other sectors that added above-average jobs. As for the rise in the unemployment rate, it was minor, though minimal labor force growth is not a good sign. The participation rate was stable. Finally, wage growth remains minimal and troubling.

The manufacturing sector picked up steam in August. The Institute for Supply Management’s index rose solidly, led by strong hiring. That confirms the jobs increase reported in the August employment report. However, while production is booming, orders grew less rapidly and inventories soared, so we could see a softening in this sector going forward.

The University of Michigan’s Consumer Sentiment Index rose in August, confirming the increase reported by the Conference Board. Interestingly, respondents indicated that current conditions are softening, even if they are still raising their hopes about the future.

Construction slowed in July. Weakness in nonresidential activity more than offset a solid rise in housing. This is important because business investment in structures added to growth in the spring. That could turn around this quarter.

MARKETS AND FED POLICY IMPLICATIONS: Today’s employment data gets us closer to economic reality. The job numbers didn’t fit with other data, so the downward revisions were not surprising. The August growth rate is what we should be seeing and closer to what I expect going forward. That doesn’t mean the economy is slowing: It isn’t. It’s just that job gains now better reflect economic growth and the tightness in the labor market. This report is also more in line where the Fed expected, so it shouldn’t change any views. The FOMC members are more worried about wages than jobs and right now, compensation remain moribund. The next meeting September 19-20 and I don’t expect any rate hike, though we might get some indication when balance sheet reductions will start.

July Spending, Income and Pending Home Sales, August Layoffs and Weekly Jobless Claims

KEY DATA: Consumption: +0.3%; Disposable Income: +0.3%; Prices: +0.1%/ Pending Sales: -0.8%/ Layoffs: 33,825/ Claims: +1,000

IN A NUTSHELL: “It looks like the economy is sustaining the momentum created in the spring as consumers are still spending decently.”

WHAT IT MEANS: Can the economy keep it up? GDP expanded quite solidly in the second quarter, led by strong consumer spending and robust business investment. While the investment numbers are not yet out, it looks like the consumer is still hitting the stores and websites, though not at the pace we saw in the spring. Consumption rose moderately in July. When adjusted for price gains it was good but not that great even though inflation remains contained. Still, spending on both durable and nondurable goods was robust. It was just that demand for services was mediocre. Consumers, though, can maintain that decent pace. Disposable income continues to grow as wage and salary gains were strong for the third time in four months. The concern, though, is that the savings rate continues to decline, so how long people will keep up the spending pace is uncertain.

The roller coaster that is the housing market continues its up and down ride. The National Association of Realtors reported that pending home sales fell slightly in July. Declines were in three of the four regions, with only a small gain in the West. Over the year, there was an increase only in the Northeast. It looks like home sales will not pick up much, if at all, in the next couple of months.

Businesses continue to hold on to their workers tightly. Challenger, Gray and Christmas reported that layoff announcement did rise in August, both over the month and the year. But so far this year, planned payroll reductions are down over 26% compared to the first eight months of 2016. Retailers have announced the largest number of layoffs this year, but that is slowing. The services sector is also running well ahead of 2016 numbers. In contrast, the energy sector has cut its layoff announcements by 87%.

Weekly jobless claims rose minimally last week and remain near record lows.

MARKETS AND FED POLICY IMPLICATIONS: The expansion continues unabated, but it is beginning to look like we may not see growth at or above the 3% pace posted in the second quarter. Houston is going to create some noise in the data for quite a while. The metro area is so large that reductions in some sectors or increases in others can affect the monthly, seasonably adjusted data. The numbers don’t account for major natural catastrophes. So, it is really hard to know what third and fourth quarter growth will come in at. That said, the overall impact might not be large, as much of the rebuilding will occur over many months if not years. I had flood insurance but it still took many weeks to get just the first check after Sandy flooded the first floor. Some homes took years to be rebuilt. Imagine the situation in Houston where most people don’t have insurance. It could take a long time to get things done, even if Congress acts quickly. Thus, investors will have to parse the data over the next few months really carefully to separate out the temporary factors from the underlying trend. As for tomorrow’s jobs report, the expectations are that it will be a good one with about 175,000 new positions added and the unemployment rate remaining at 4.3%. I think that forecast is high and it will be closer to 150,000.

 

Revised Second Quarter GDP Growth and August Private Sector Jobs and Help Wanted OnLine

KEY DATA: GDP: 3.0% (Up from 2.6%); After Tax Profits (Over-Quarter): +1.3%/ ADP: +237,000; Large: 115,000/ HWOL: down 125,900

IN A NUTSHELL: “Solid growth in the spring has led to better job gains this summer.”

WHAT IT MEANS: The economy grew a little faster this spring than initially thought. GDP hit the 3% pace, led by a major upward revision to consumer spending. Households really did spend money; the government just didn’t count all of it. Unfortunately, income gains were sluggish and the declining savings rate raises questions whether people can continue shopping at the solid pace we saw in the spring. There were also some decent improvements in most categories of business investment, but the government slowed things down more than thought. After tax corporate profits grew moderately over the quarter, but were up a strong 8.6% from second quarter 2016. Companies are doing just fine and an additional moderate gain in the third quarter could lead to record profit levels.

The solid economy has created better than expected job gains and that may have continued in August. ADP estimates that firms added employees at a robust pace as large corporations went on a hiring binge. The large-firm gain was one of the largest on record, so don’t get too carried away with the forecast. The increases were in just about every industry, so this was a strong report.

Looking forward, even if we get a strong August jobs report, the increases may not to be sustainable. The Conference Board reported that online job ads continued to drop sharply in August. The declines were across all regions and in most occupations. In other words, firms everywhere are turning away from advertising job openings. That may be due to slowing demand or firms giving up trying to fill all the openings they have because of the labor shortage. Either way, it is hard to see how the economy can keep adding more than 200,000 jobs each month that the ADP numbers indicate.

MARKETS AND FED POLICY IMPLICATIONS: The economy is in good shape and firms are making plenty of money, so what is the problem? It is slow wage growth. And that raises the question: Do we need tax cuts or tax reform? Clearly, we don’t need tax cuts, which does little or nothing to long-term growth. Reform is needed, but it has to be directed in ways that improves efficiency, not adds simply to corporate profits. Firms have the money to spend and credit is readily available for firms of all sizes, so we don’t need “reform” that hypes short-term investment, especially since there is no reason to think it will lead to faster wage gains. Instead, reform needs to be structured in a way to provide the firms with the incentive to plan for the long-term. These decisions must be based on economic not tax gain factors. Will that happen? I doubt it. Instead, tax cuts will likely be sold as tax reform and that is not good for the economy or the budget. Meanwhile, investors will be focused on shorter-term issues, such as Friday’s jobs number. I still don’t see how firms are actually hiring so many workers, so I think Friday’s payroll gain number will disappoint. We shall see.

August Consumer Confidence, Small Business Hiring and June Housing Prices

KEY DATA: Confidence: +2.9 points; Current Conditions: +5.8 points/ Jobs Index: -0.02%/ National Home Prices (Over-Year): +5.8%

IN A NUTSHELL: “Despite the chaos in Washington, consumers remain upbeat and that holds out hope that spending will be solid this quarter.”

WHAT IT MEANS: Washington is a mess and nothing is getting done on anything, while Houston is in the midst of a massive disaster that will require months if not years to overcome (given my experience with super storm Sandy), but consumers remain upbeat. The Conference Board’s Consumer Confidence Index rose in August as respondents’ perception of current conditions picked up sharply. The current conditions index is near its all-time high. Business conditions and the labor market are both seen as having gotten better. However, looking outward, impressions were more mixed as to the availability of jobs and the likelihood that economic activity will accelerate. The cut off point for the survey was August 16th, so any impact of Charlottesville and Houston may not have been fully factored into the numbers.

Friday we get the August jobs numbers and today Paychex released its index of small business employment. The measure declined for the sixth consecutive month, though the decline in August will modest. That raises questions about how many new jobs will be reported on Friday, as it is hard for the solid payroll gains we have seen to be sustained if the small business sector isn’t adding workers.

The housing data, including sales and construction, have been bouncing around, but one number has been on a fairly steady upward trend: Prices. That pattern was reinforced as the S&P CoreLogic Case-Shiller U.S. National Home Price Index rose solidly in June and over the year. Sixteen of twenty major metro areas reported prices increases over the month. Only Atlanta, Chicago, Cleveland and New York were down, on a seasonally adjusted basis. The national index is now 4.3% above the prior, housing bubble peak.

MARKETS AND FED POLICY IMPLICATIONS: All thoughts are with Houston, but as is the case with investors and economists, the catastrophe is being looked at in terms of the impact on the markets and growth. As is usually the case with natural disasters, the short-term impact is likely to be negative. But the rebuilding will create massive amounts of new activity. It is also likely that Congress will pass a major recovery bill. (It is doubtful the Texas Congressional delegation will require the increases in spending be met by spending cuts elsewhere, as many did with Sandy. Those of us who were flooded out and had to live through that debate have not forgotten those no votes.) So the fourth quarter should see a lot of activity that would not have happened without the storm. Thus, we could see a slight reduction in third quarter growth but a faster fourth quarter and a little better first half of 2018. Investors will parse that as to who will be the winners and losers, especially since there will likely be a lot of home and infrastructure-rebuilding occurring paid for by a lot of insurance claims and government assistance.

July Industrial Production and Leading Indicators and Weekly Jobless Claims

KEY DATA: IP: +0.2%; Manufacturing: -0.1%/ LEI: +0.3%/ Claims: -12,000

IN A NUTSHELL: “Softening vehicle sales are weighing down the manufacturing sector.”

WHAT IT MEANS: The Federal Reserve released the “minutes” of the last FOMC meeting yesterday and it seems there is a lot of uncertainty about what to do next and when to do it. In particular, there was great debate about the slowdown in inflation, why it is happening and what that means for the pace of rate hikes and balance sheet reduction. It is no longer clear that in September, the Committee will announce when it will be starting the process of balance sheet normalization. It had been the consensus that we would get something next month.

If the Fed is to start the reducing its bond holdings and continue raising rates, the economy and inflation may have to pick up steam. If or when that will happen remains uncertain after today’s data. While industrial output rose moderately in July, it was largely due to improving utility and energy production. Weak vehicle sales, which led to a sharp reduction in assemblies, are holding back not only transportation but also those sectors, such as metals, that feed into vehicle production. Large increases in apparel output (likely an anomaly) and chemicals kept total output from tanking. Basically, the manufacturing sector may be expanding but it is hardly booming.

While the industrial production data didn’t point to any major improvement in growth, the Conference Board’s Leading Economic Index did indicate that activity should pick up. After posting a large rise in June, the index rose solidly in July, led by rising financial indicators. As the press release noted, “the U.S. economy may experience further improvements in economic activity in the second half of the year”.

As for the labor market, unemployment claims fell sharply last week, reaching record low levels when adjusted for the size of the labor force. The labor market is tight but wage gains are not rising, which is confusing to an economist – or at least me.  

MARKETS AND FED POLICY IMPLICATIONS: So, we have uncertainty in manufacturing, but strength in financial indicators pointing to stronger growth. However, yesterday’s report on July housing starts and permits was a real downer. Both fell, which was a surprise. This segment of the economy had been showing signs of strength. Well, maybe not. When you put it all together, it is hardly clear whether we can get to the administration’s goal of 3% growth for more than even one quarter. We might see something close to that in the current quarter, but unless incomes growth faster, that pace would not be sustainable. And if we continue on the 2.25% growth path, businesses may be able to hold the fortress against faster wage gains. The potential for greater labor cost pressures, in conjunction with the unwinding of some temporary factors that the Fed believes is currently restraining inflation, is what has driven the belief that the normalization process can continue unabated. But for some at the Fed, patience is running thin and they are saying that maybe the process should be slowed. The next meeting is September 19-20 and that one may take on even greater importance, as we need further guidance on what the Fed’s normalization schedule might look like. This might also be Janet Yellen’s last meeting before a new Fed Chair is nominated. If, as expected, it is not Yellen, that could introduce another dynamic into the discussions.

 

July Retail Sales, Import/Export Prices and August HomeBuilders Index

KEY DATA: Sales: +0.6%; Non-Vehicle: +0.5%/ Imports: +0.1%; Nonfuel: -0.1%; Exports: +0.4%; Nonfarm: +0.3%/ NAHB: 68 (Up 4 points)

IN A NUTSHELL: “The economy seems to be picking up steam, finally.”

WHAT IT MEANS: Economists have been saying, thinking and basically hoping that growth would improve during the second half of the year and that might be happening. Retail sales, which had been sluggish for much of the first half of 2017, rose solidly in July. Better vehicle sales were just one of the reasons. Online retailers as well as furniture, supermarkets, home improvement, sporting goods and health care stores reported strong gains. People even ate out more, though they didn’t stuff themselves. Amazingly, department stores showed a robust increase and these were supposed to be ghost towns. There was some weakness, as sales of gasoline and electronics and appliances were off. Still, the breadth of the increases was impressive. When you ad that to upward revisions to previous months, it is clear that households are emptying their wallets at an expanding pace.

On the inflation front, there still is very little. Import prices ticked up a touch in July, but largely because energy costs jumped. Excluding fuel, the cost of foreign products was off a little. Food prices are on a steady upward climb and that does not bode well for supermarket prices going forward. Vehicle prices were down again and nonvehicle consumer goods costs were flat. In other words, there is minimal price pressure coming from imports. On the export side, we did see a nice rise in not only farm sales but for many other products sold to the rest of the world.

The housing market looks like it is rebounding. The National Association of Home Builders’ index jumped in August. Sales are rising and that has improved builders’ confidence. That said, the index seemed to be artificially low in June and July and the gap up didn’t even get us back to the May level.

MARKETS AND FED POLICY IMPLICATIONS: The economy is on the rise. Even the New York Fed’s manufacturing index pointed to stronger summer growth, though one would hardly point to this region as a key player in the nation’s industrial revitalization (if there really is one). Also, as I have pointed out several times before, wage gains just aren’t keeping up with spending and that is forcing households to cut back on their savings. So how long the economy can grow at a faster pace without better income increases is unclear. Still, investors should really like the data. As for the Fed, that is a different story. Yes, import prices did rise, but not for most goods. The dollar has weakened and we could see some pick up in import costs, but it is unlikely to be enough, by themselves, to drive inflation much higher. The Fed members would love to see inflation above 2% for an extended period so they can go about their business of normalizing rates and the balance sheet. But for now, they will have to be content with saying that inflation will reach the target in the medium term, however long that may be.  

July Consumer Prices and Real Earnings

KEY DATA: CPI: +0.1%; Less Food and Energy: +0.1%/ Real Earnings: +0.2%; Over Year: +0.7%

IN A NUTSHELL: “The only thing saving consumers is low inflation as spending power is going largely nowhere.”

WHAT IT MEANS: Inflation remains well under control. Yesterday we saw that wholesale costs were soft and today’s consumer price report also pointed to minimal inflation pressures. The Consumer Price Index rose modestly in July. While energy prices edged down, food costs increased moderately. (The all-important bakery component surged, so my diet is safe.) Excluding food and energy, prices were up minimally. Looking at the details, several components stood out. Prices of medical commodities and services continue to surge. The deceleration in medical costs had been going on for quite some time but that is no longer the case. On the other hand, costs of both new and used vehicles keep falling. The slowdown in demand and the large number of vehicles coming off leases are pressuring the sector. Households are also being buffeted by large increases in vehicle insurance. Clothing prices were up in July but for the year, they are still down.

While they wait for wage gains to accelerate, workers can be thankful for the modest inflation. Hourly wages rose moderately and only part of that gain was lost to the low inflation. Still, the increase over the year of real, or inflation-adjusted earnings is pathetic. For all of 2017, real hourly earnings have expanded by less than 1%. Households are earning more, but some of the gains are coming from working longer. Even when you add the rising hours worked to the gain in wages, family spending-power has increased by just over one percent. That is why so many people are unhappy.

MARKETS AND FED POLICY IMPLICATIONS: The Fed may want inflation to pick up, but that would not be good news to households. Wages are growing modestly and the only way spending power has increased at all is that inflation has remained below the Fed’s target rate. As I have noted on countless occasions, it is hard for the economy to grow much more than 2% if earnings are largely flat and that is still the case. Real wages had accelerated during 2015, but the gains have slowed over the past eighteen months. Consumers have had to reduce their savings rate to maintain their lifestyles. That is not good news. So we are stuck in the same trap that we have been in for several years now: Wages are rising modestly so consumption is mediocre. That is keeping growth down, limiting business pricing power and causing inflation to decelerate. The slow growth is also enabling businesses to restrain wages and allow job openings to go unfilled. The Fed members really want inflation to rise above 2%. But if that happens without a concomitant increase in wages, consumer purchasing power will decline, slowing growth. Essentially, the driver of stronger growth appears to be, at least to me, better wage increases. That would expand demand and growth, induce workers to work harder not just longer, improve productivity, pricing power and profits and induce greater investment. That’s my theory and I am sticking to it.

July Producer Prices and Weekly Jobless Claims

KEY DATA: PPI: -0.1%; Goods: -0.1%; Services: -0.2%/ Claims: +3,000

IN A NUTSHELL: “The Fed keeps saying inflation will rebound, but right now, there is little hard data to think that will happen soon.”

WHAT IT MEANS: The members of the Fed are convinced inflation will rebound in the months ahead. Even today, New York Fed President William Dudley repeated that refrain. And I agree that should happen. But it would be nice if there were some data to support that belief. Producer costs went nowhere in July. The weakness in goods costs continued. Yes, food and energy prices declined over the month, but excluding those volatile components, finished goods costs were up only modestly. The big surprise in the report was the drop in services prices. Transportation, warehousing, government, you name it, services costs were down. This decline was so widespread and so odd, given that services had been leading the inflation push, that I am just not certain what is going on. Looking outward, there is not a whole lot of pressure at the intermediate or crude goods levels.

Jobless claims edged up last week, but the level is still quite low, reflecting the tightness in the labor market. This is important because yesterday, the second quarter productivity and labor costs report was released. Labor costs rose only moderately in the second quarter after having surged in the first. Adjusting for inflation, hourly wages, while up in the second quarter, are still down compared to last year. While the Fed members think that some temporary factors will unwind that will start the upward trend in inflation, to sustain the higher rate, wages will have to rise faster. The latest data just don’t say that is happening.

MARKETS AND FED POLICY IMPLICATIONS: Inflation pressures are modest, whether they be producer costs or labor compensation. Job openings are soaring but that hasn’t forced businesses to either raise wages or even increase their recruiting intensity, which DHI reported. Firms are hiring, despite their complaints that they cannot find qualified workers, but they are not paying more for either their new employees or upping the wages of their current workers. That is showing up in the generally decent earnings numbers. But how long that can continue given productivity growth is modest is anyone’s guess. I have been wrong on the wage issue for so long, I no longer say that compensation is about to surge. (Of course, whenever I back off from a forecast, it usually comes true, so don’t be surprised if wages rise faster in the third quarter.) Regardless, inflation, consumer spending and Fed policy all are dependent on wage increases and if they stay low, the Fed will be pressured to go very slowly as it hikes rates and shrinks its balance sheet. As for investors, if earnings stay good, that is all that is needed to keep up the euphoria.

Linking the Economic Environment to Your Business Strategy