Second Quarter GDP and Employment Costs

KEY DATA: GDP: +1.2%; Consumption: +4.2%; Private Investment: -9.7%; Consumer Inflation: +1.9%/ ECI (Over Year): +2.3%; Wages: +2.5%

IN A NUTSHELL: “The consumer is spending, but the failure of the corporate sector to invest is restraining growth.”

WHAT IT MEANS: The economy is moribund – maybe. Second quarter growth was well below expectations, but the details are not as negative. First of all, households went out and spent money like crazy on everything. Energy, even adjusting for prices, was the only major category posting a decline. But then there was the business community. Investment in structures and equipment fell sharply. There was a moderate increase in spending on intellectual capital. But the real killer in the report was a huge reduction in inventories, which cut growth in half. This was the first drop in inventories in nearly five years. In addition, government at all levels throttled back spending. Interestingly, the trade deficit actually narrowed, which helped growth. Exports rose modestly while imports were down a touch. Even with the business sector cutting back for the third consecutive quarter, the key measure of the domestic economy, final sales to private domestic purchasers, was up solidly. That shows the heart of the U.S. economy is still moving ahead decently despite the weak topline number. Consumer inflation rose at the fastest pace in two years but over-the-year, it is still well below the Fed’s target rate.

On the labor compensation front, employment costs rose moderately in the second quarter. Looking at the data over the year, though, there was a sharp acceleration in wages and salaries, especially in the private sector. The government, in contrast, has kept wage gains from accelerating, though it is doing a worse job in controlling benefits. At least on the wage side, the increases are back to what was common in much of the 2000s. In contrast, benefit costs are growing at less than half the previous decade’s pace. And I thought health care costs were surging.

MARKETS AND FED POLICY IMPLICATIONS: Today’s numbers create a real conundrum for the Fed. Overall growth is too low for the members to argue a rate hike is needed or even warranted. But the report’s composition implies there is decent underlying growth as government spending is not faltering and inventories will be rebuilt. Inflation remains low, but has accelerated. Labor costs are also on the rise, which should tell Chair Yellen that the slack is disappearing. But most importantly, the annual revisions to GDP, which came out in this report, show how the Fed’s use of current data is a true mistake. While annual growth rates for the past few years were not change significantly, some of the quarterly numbers were revised sharply. For example, most of us were calling for a rate hike in the first half of 2015, but the Fed backed off because growth was supposedly weak. First quarter growth was 0.6% – at least that is what everyone thought. Wrong! After criticism by Steve Liesman of CNBC that the first quarter numbers seemed to be systematically understated, the government went back and researched the issue. He was right and now the Bureau of Economic Analysis puts first quarter 2015 growth at 2%. Would the Fed have nudged up rates if it knew that was the real growth rate? Possibly. More importantly, in an environment of volatile data and major revisions to numbers (GDP revisions average about 1.2 percentage points!), basing monetary policy on current data is like driving with a broken windshield: Don’t be surprised if you wind up in a ditch. But this Fed doesn’t seem to be overly concerned about using suspect data and this dumb data dependency will likely continue. As for investors, they will probably look at the top line number, say the sky is falling and react accordingly.

July 26-27 2016 FOMC Meeting

In a Nutshell: “Near-term risks to the economic outlook have diminished.”

Rate Decision: Fed funds rate range maintained at 0.25% to 0.50%

Well, the “data driven” Federal Open Market Committee met again and was driven by the data. Since the numbers were better between the June meeting and today, the Committee determined that the economy was getting better – again. Not a surprise. One thing this group has been consistent about is its one meeting the sky is falling, the next meeting the sun is coming out approach to economic analysis. This was the good economy meeting that comes after the worrisome economy meeting.

As for the economy, the members were actually fairly positive about things. Here is what they said: “Information received since the Federal Open Market Committee met in June indicates the labor market strengthened and that economic activity has been expanding at a moderate rate. Job gains were strong in June following weak growth in May. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months. Household spending has been growing strongly but business fixed investment has been soft.” This contrasts with the largely worrisome description of the economy in the June 14-15 meeting. As for Brexit or other international fears that have prevented rate hikes over the past year, the members seem to have said “never mind” and dropped those issues into the factors they are monitoring – which are just about anything that could cause a problem that would provide an excuse to do nothing.

So, what will the Fed do this year? This statement was positive on the economy and pessimistic about, well nothing. By saying that the “near-term risks to the economic outlook have diminished”, the members have opened the door, once again, to a rate hike. There are two more employment reports between now and the September meeting. We get second quarter GDP this week but that was last quarter and the members will need to see solid third quarter growth as well. And, of course, some country could come down with an ingrown toenail that would terrify the Fed. So, while it is likely the economy will be strong enough for the Fed to raise rates in September, it is hard, right now, to predict that.

Today’s statement seems to indicate we should get at least one increase this year. If that doesn’t come in September, then the December meeting is likely since the November meeting is one week before the election. How a rate hike would help or hurt either candidate is beyond my comprehension (if you can figure it out, please tell me), but this Fed takes no chances on anything.

(The next FOMC meeting is September 20-21, 2016.)

June Durable Goods Orders and Pending Home Sales

KEY DATA: Orders: -4%; Excluding Aircraft: +0.3%; Capital Spending: +0.2%/ Pending Home Sales: +0.2%; Year-over-Year: +1%

IN A NUTSHELL: “Big-ticket demand remains soft and that needs to change if the economy is to pick up steam.”

WHAT IT MEANS: The manufacturing sector has been buffeted by a variety of issues, including the strong dollar and the collapse of energy prices which led to energy-sector capital spending dropping precipitously. The energy-sector cut backs may be stabilizing a bit with the move back up in prices. However, there are still reductions occurring that are restraining overall investment demand. Durable goods orders fell sharply in June, but the major reason was a sharp reduction in the very volatile aircraft segment. Excluding both civilian and defense orders, which don’t lead to a short-term change in activity given the long lead times for these products, orders actually rose. While that sounds good, the increases were not that broadly based. Continued solid vehicle sales led to a jump in vehicle orders and there was an increase in electrical equipment and appliances. But there was a reduction in orders for metals, computers and communications equipment. Demand for machinery was essentially flat. As for business capital spending, if you exclude government and aircraft, it was up modestly. Up is nice, but there doesn’t seem to be a major drive on the part of the companies to invest heavily.

On the housing front, the National Association of Realtors reported that pending home sales moved up a touch in June after falling sharply in May. The index surged in April but came down to more a typical level in May and the June index continues what has been a slow, but steady rise over the past few years. That said, there is little reason to expect a major uptick in sales, if only because there is a dearth of inventory.

MARKETS AND FED POLICY IMPLICATIONS: The Fed’s FOMC meeting statement is expected in a few hours, so investors will not likely react a whole lot to these data. Will they have an impact on what the Committee says? Probably not. The housing market is getting better, but sales are not that great an indicator of the state of the sector since there are a limited number of homes for sale. The limited supply is viewed as the major restraint to sales growth and is the reason we are seeing such solid increases in prices.   Until the energy sector stabilizes, there will be limited growth in durable goods orders. Nothing new there. In any event, the Fed members seem to search every meeting for something to worry about. While most of the issues they were so concerned about at the last meeting have faded, that doesn’t mean they will say conditions have firmed enough to start thinking about normalizing rates. So investors will wait and see and react to the statement. 

June Existing Home Sales and Leading Indicators, July Philadelphia Fed Manufacturing Activity and Weekly Jobless Claims

KEY DATA: Home Sales: +1.1%; Prices: +4.8%/ Leading Indicators: +0.3%/ Phila. Fed: down 7.6 points/ Claims: -1,000

IN A NUTSHELL: “With the housing market improving and the labor market firming, it will be interesting to see what the Fed says after next week’s FOMC meeting.”

WHAT IT MEANS: Apparently, what happens in May, stays in May. The sharp slowdown in hiring has disappeared and the softening in other areas looks like it was transitory. We see that once again in the plethora of data released today. Take housing, which is a key segment of the economy. The National Association of Realtors reported that existing home sales rose modestly in June. However, that was the fourth consecutive month of gains. The sales pace was the strongest in over nine years. So far this year, sales are up by 4.6% compared to the first six months of 2015, which is not too shabby. Prices are also up solidly. That prices are continued to increase at a decent pace was reinforced by the latest Federal Housing Finance Agency’s House Price Index, which rose by 0.2% in May and was up by 5.6% over the year. There are a variety of price measures created from a number of different sources and they tend to differ a bit on magnitude.   They all seem to show a firming in prices, though.

The May malaise led to a decline in the Conference Board’s Leading Economic Indicators Index. But that didn’t last long as it turned around in June. The index doesn’t say robust growth will follow, but it does indicate that we should expect moderate to solid gains in activity in the months ahead.

On the Manufacturing front, the Philadelphia Federal Reserve Bank’s July measure of manufacturing activity fell. However, the details were actually decent. Orders are now increasing moderately after having been down. Employment has stabilized and optimism about the future improved. So why respondents thought that business conditions softened in late June and early July is a mystery.

Finally, there was another decline in the weekly jobless claims number. It is hard to see that it could go much lower given the size of the economy and the normal worker turnover that occurs. Basically, firms are not letting anyone go except for exceptional circumstances.

MARKETS AND FED POLICY IMPLICATIONS: The FOMC meets next week and the members get a chance to once again backtrack from their comments about the economy they made in the previous meeting. This seems to be a pattern. The economy is good, then there are risks, then those risks have faded and the economy is getting better, then there are new risks, and so on. Isn’t it great that the Fed is data dependent in a world of volatile data? There is little (likely no) chance the members will do anything about rates next week. But I do expect them to put their feet in their mouths again, as conditions will likely change between July and the September meeting. But it is fun to watch the waffling every six or seven weeks. Actually, it is not. I love waffles, but only for breakfast, not in my central bankers. I would like some thinking that is not so impacted by short-term issues. Yes, inflation is still below target, but it is accelerating. Critically, the economy is in good shape and capable of handling another rate hike, when or if this group of turtles ever get out of their shells.

June Housing Starts and Permits

KEY DATA: Starts: +4.8%; 1-Family: +4.4%; Permits: +1.5%: 1-Family: +1%

IN A NUTSHELL: “Housing is wandering along, but progress continues nonetheless.”

WHAT IT MEANS: Home construction may not be a booming business, but it is hardly soft either. Housing starts rose solidly in June, though the large gain came only after the May numbers were revised downward. There were increases in both the single-family and multi-family segments, which was nice to see. Looking across the nation, however, it is hard to find any clear pattern to what is happening in this sector. The Northeast continues to roller coaster along, posting a 46% increase in starts. Of course, that came after a 33% drop in May, so you can see how it is hard to come to any judgment about the state of affairs there. There was also a double-digit increase in construction in the West, the second consecutive solid gain. But that was after two large declines. More moderate declines in the Midwest and South kept the national increase down. As for future construction, permit requests were up modestly, but have lagged construction since January. That does not point to any major future acceleration in activity. Builders are using their permits and the number of homes under construction and the number of homes completed is up sharply from June 2015.

MARKETS AND FED POLICY IMPLICATIONS: Builders are building, it just may be that they are not selling as many as fast as they have hoped. Housing starts this year have increased by over 7% compared to the first half of last year. That is a pretty solid gain. But we have seemingly hit a lull and permit requests and construction activity is no longer accelerating sharply. We see that in the attitudes of homebuilders. The National Association of Home Builders’ Index eased in June and has largely wandered aimlessly since peaking last October. Builders’ optimism is solid but not rising and that is seen in the construction numbers. The level of starts could stand to rise at least 25% before the market would start looking simply strong. It would take a 50% increase before it was getting too hot. Thus, there is a lot of room to run and it holds out hope that the construction sector can keep adding to growth. However, with Millennials more interested in renting than owning, the upside potential may be limited and we may have to go through a more modest growth cycle before enough decide they really do want to buy. Until then, with mortgage rates low and expected to stay pretty low for an extended period, the outlook is for housing to growth moderately for the next few quarters. This steady growth forecast, though, puts no pressure on the Fed to do anything. As for investors, it’s the start of the silliest of seasons, where the wives of candidates can suddenly develop the exact same life story with the exact same world views. Amazing how that happens. Do we really have to go through this election campaign?

June Retail Sales, Consumer Prices and Real Earnings

KEY DATA: Sales: +0.6%; Excluding Vehicles and Gasoline: +0.5%/ CPI: +0.2%; Excluding Food and Energy: +0.2%/ Real Hourly Earnings: -0.2%

IN A NUTSHELL: “The slow and steady rise in inflation continues and with consumers spending, firms should be able to sustain those price increases.”

WHAT IT MEANS: Another day, another indication that consumers are back out shopping ‘ill they’re tired and inflation is steadily accelerating. Retail sales rose strongly in June and it wasn’t simply because gasoline prices were up. The increases were spread across a variety of categories. The nice weather got people out fixing up their homes, visiting malls, replacing old furniture and playing sports. When they got tired, they shopped online and hit the supermarkets so they could barbecue. Clothing store sales fell, but prices were down. The only weak segment was restaurants, which appear to have hit a major slow spot after years of solid increases. Core retail sales, which exclude the more volatile vehicle and gasoline purchases, rose strongly, pointing to a very solid second quarter consumption number.

On the inflation front, prices continue to rise in a steady manner.   Energy costs were up but electricity prices fell, likely reflecting the lag in cost declines and price reductions. The strong vehicle sales took their toll on used car prices as a flood of trade-ins showed up at dealerships. Food prices fell in the supermarkets but rose at restaurants. Services costs were up sharply, led by medical expenses. Excluding food and energy, consumer prices were up 2.3%, the eighth consecutive month this measure has been above the Fed’s 2% target. The overall index, though, continues to show no signs are acceleration and remains in the 1% range.

Real hourly earnings fell in June, a real disappointment for workers. Wages were flat and with prices rising moderately, worker income purchasing power.

MARKETS AND FED POLICY IMPLICATIONS: A rebounding consumer and rising inflation should provide the Fed with some reason to discuss the possibility that maybe the members might consider a rate hike sometime in the future. Since this Fed sees only evil and when good shows up, it’s viewed as transitory and is dismissed, don’t expect a sudden rush of members saying that the fears expressed at the June FOMC meeting may have been overblown. The members are more concerned that there are other surprises out there that they don’t know about (which is why they are surprises) and so they have to keep their guard up.

Fed Policy Commentary: I am concerned about the Fed’s current approach and here is why. There are two major risks the Fed faces if it sticks with its no/slow rate hike policy. The first is the traditional one, that inflation accelerates past its target. I suspect most Fed members could live with inflation above 2% for an extended period. They can always raise rates quickly and don’t forget, there is no upper bound to interest rates – think Paul Volcker. The doves continue to discuss inflation and its low level.

But there is a second risk: The expansion entered its eighth year and is getting old. Brexit is a prime example of things that can go wrong. The Fed members used Brexit as an excuse to stand pat. But that is not the right way to look at it. If Brexit causes the EU to split apart, which I don’t think will happen, it could send Europe into recession and that could lead to a U.S. recession. What tools would the Fed have to fight that recession? Not the interest rate tool. Instead, we could be back into a world of quantitative easing. Will we need QE4,5,6,7,8,9 or whatever? Will QE work the next time around? This is the risk that the Fed is discounting and the reason I am so outspoken about the need to raise rates every chance possible, not just when the time is perfectly right.

June Producer Prices and Weekly Jobless Claims

KEY DATA: PPI: +0.5%; Excluding Food and Energy: +0.3%; Energy: +4.1%; Goods: +0.8%; Services: +0.4%/ Claims: flat

IN A NUTSHELL: “The days of falling prices are pretty much over and the labor market is strengthening, which raises the question, is anyone at the Fed paying attention?”

WHAT IT MEANS: A lack of inflation and a softening of job gains worried the Fed at its June meeting. Well, as usual and not surprisingly, conditions have changed. Wholesale prices jumped in June as energy costs surged. But it wasn’t just oil as the increases were spread across just about every category of goods and services. You have to look hard to find any grouping that posted a decline in costs. That contrasts with just a few months ago when the opposite was true. Looking down the road, the inflation pipeline is beginning to fill as unfinished goods costs jumped as well. While the pathway from producer costs to consumer prices is hardly direct, rising wholesale prices are clear signs that the disinflationary pressures created by falling energy prices and the rising dollar have dissipated sharply.

On the labor market front, the June surge in job growth may be no aberration. Jobless claims remained at record lows, when adjusted for the size of the labor force. Firms are not cutting their workforces and that bodes well for the July employment report.

MARKETS AND FED POLICY IMPLICATIONS: Come out, come out wherever you are! That was the phrase used by kids who played “hide and seek”. (Do kids play that anymore?) The members of the Fed, who fear anything that is not normal and hide from it, may want to peak out from under their rocks. Conditions are changing and two of the Fed’s terror’s, a lack of inflation and a soft labor market, are turning around. The labor market seems to be picking up steam and while inflation is not likely to surge, a steady upward drift in the rate should be sustained. And if oil can get to $50/barrel, we are likely to see the top line inflation number reach the Fed’s 2% target. That could happen in the fall. In addition, the path to Brexit looks like it could be long and tortuous as new British prime minister Theresa May indicating she will not trigger Article 50 to leave the EU until the end of the year. That may be wishful thinking, but it points out that the process could be drawn out. If it is, the uncertainty will be extended but there will be more time to address the issues. Is the Fed really going to wait for months while this issue runs its course? If not, then the Fed should start focusing once again on the domestic economy. The FOMC members may not know second quarter growth at the July 26, 27 meeting, but no matter how solid it turns out to be, one quarter of growth would not be enough to force a rate hike. But signs that the economy is rebounding would matter if job growth is sustained in July and August and inflation continues to trend upward. That could put the September meeting in play, though I am not banking on that. As for the markets, with indications the economy is in good shape, we should see equity investors smiling and bond buyers fading. Then again, the political conventions are coming, reminding us that the economy and the markets still have to contend with the political uncertainty.

June Private Sector Jobs, Layoffs and Weekly Jobless Claims

KEY DATA: ADP Jobs: 172,000; Small: 95,000; Small: 25,000/ Layoffs: 38,536/ Claims: Down 16,000

IN A NUTSHELL: “The only thing that seems to be holding back the labor market is skittishness on the part of large corporate CEOs.”

WHAT IT MEANS: Tomorrow is the “all-important” employment report and after the May debacle, we could really use a good one. That could happen, as the recent labor market data have been quite good. Earlier this week, the Institute for Supply Management reported that nonmanufacturing companies increased their hiring, which echoed their manufacturing report. Also, the Paychex/IHS small business index jumped in June. Today, we got three reports that all pointed to stronger job growth.

The ADP private sector job number came in above expectations. Small and medium sized businesses added workers solidly. The only laggard was the large corporate sector, especially firms that employ 1000 workers or more. Big company CEOs have been the least optimistic for much of this recovery and their failure to actively hire, which stands in stark contrast to small business employers, is what is restraining the economy.

Challenger, Gray and Christmas reported that layoffs in June were down almost 15% from June 2015. The number of job cuts slowed in the past two months as the energy sector stabilized. Remember, the payroll change is the difference between job losses and gains, so the smaller the number of layoffs, the larger the gain. Of course, these are just announcements and there is a lag between notices and actual reductions, if those reductions actually occur.

Finally, unemployment claims plummeted and we are back at record low levels when you adjust for the size of the labor force. That reinforces the view that firms are holding on to their workers tightly.

MARKETS AND FED POLICY IMPLICATIONS: Despite two consecutive modest job growth numbers, the labor market does not seem to be faltering. The apparent willingness of small business owners to bring on new workers is a clear sign that the economy is moving forward solidly. Indeed, second quarter GDP should be pretty good, showing that at least the domestic U.S. economy is in good shape. But will a strong job number and solid GDP growth matter to the Fed? Probably not. The members are like pinballs, bouncing from one temporary crisis to the next. Whether it was China, or the equity markets, or emerging markets, or a GDP or job slowdown or now Brexit, none of which changed the course of anything, the Fed told us that it would act cautiously. With the Brexit issue needing time to run its course, and the Fed indicating in the minutes of its June meeting that it wanted to know more about the potential impacts of Brexit, the likelihood of a Fed move anytime soon has disappeared. Really, if in order to raise rates again, the Fed members need a perfect world of solid U.S. job and economic growth, above-target inflation and no problems anywhere around the world, why don’t they just come out and admit they have no desire to raise rates. The chances of all those things occurring at once are slim. But, Chair Yellen and her merry band of skittish monetary authorities will continue the fiction that every meeting is “a live one”. Please, get your act together and just come out and say that the Fed would rather risk having few bullets when the next downturn occurs than raising rates and risking that the economy falters. That is the choice the members are facing and they routinely vote to keep the chamber empty.

June NonManufacturing Activity and Online Help Wanted and May Trade Deficit

KEY DATA: ISM (NonManufacturing): +3.6 points; Orders: +5.7 points; Hiring: +3 points/ HWOL: -226,700; Trade Deficit: $3.8 billion wider

IN A NUTSHELL: “With activity rebounding in services and strengthening in manufacturing, it is unclear why firms are not looking for more workers.”

WHAT IT MEANS: Friday’s employment report is a critical one given the uncertainty created by the Brexit vote. If you believe those at the forefront of business activity, the nation’s supply managers, the June job gain should be a pretty good one. Today, the Institute for Supply Management (ISM) report on the non-manufacturing portion of the economy was much better than forecast. That came after last Friday’s report that manufacturing activity and hiring picked up in June. Orders surged, including both imports and exports, activity jumped and hiring rose solidly. In other words, the sector showed clear signs of accelerating from its more moderate growth pace of the past few months. Indeed, the overall index hit its highest level since last November. The only negative aspect of the report was that backlogs eased, which was odd given the robust rise in new demand. Still, when you are talking about most of the economy, it is good to see that conditions are firming.

Despite the indications that hiring was improving across the economy, at least according to the ISM, the Conference Board reported that online want ads dropped precipitously in June. There has been a major decline in advertising for positions this entire year. I had been assuming that it made no sense to advertise for openings that could not be filled because of the lack of workers. Now, though, the length and breadth of the decline makes me wonder if we are indeed in the middle of a major hiring cut back. We should have a better idea on Friday whether the supply managers or the online want ads better represent what is happening in the labor market.

The trade deficit widened more than expected in May. Much of that had to do with the increase in petroleum prices. In addition, there was a jump in non-monetary gold imports, which doesn’t mean much. However, the large rise in consumer goods imports points to an improving household sector, which bodes well for U.S. growth. Exports were off slightly, with declines reported in most categories. The rest of the world is still buying lots of goods from the U.S., but not at a growing pace. Adjusting for price changes, the average for the first two months of this quarter remains below the first quarter’s average, so trade could add to growth.  

MARKETS AND FED POLICY IMPLICATIONS: The economy is in good shape, despite the sturm and drang in the markets. Brexit’s aftershocks are creating uncertainty in the equity markets and a worldwide rush to the security of U.S. Treasuries. Interest rates are cratering as the 10-year note has set new record lows. That is great for those of us, including myself, who are refinancing. But it also shows the Fed has little control over the yield curve. When uncertainty strikes, the safest port is U.S. assets and that means the Fed can only sit and watch. It also points out that movements in the yield curve may have little meaning for the U.S. economy. Until the implications of Brexit are clearer, volatility in the markets is likely to continue. And since market volatility paralyzes the Fed, don’t expect any rate hikes for a while, even if the economy really is solid and job gains rebound.  

June Supply Managers’ Manufacturing Survey and May Construction Spending.

KEY DATA: ISM (Manufacturing): +1.9 points; Orders: +1.3 points; Hiring: +1.2 points/ Construction: -0.8%; Private: -0.3%

IN A NUTSHELL: “With manufacturing coming back, it looks like the early year economic swoon is over.”

WHAT IT MEANS: Manufacturing has been battered by the collapse of the energy sector and the strength of the dollar, but those factors may be moderating. The Institute for Supply Management reported that manufacturing activity improved solidly in June. New orders and production increased strongly and that led to hiring to finally kick in again. The employment index had been negative for most of the past year, so this may be a sign that firms are seeing strong enough demand to add to their payrolls. Indeed, with new orders running at a very high level, we payroll gains could accelerate, especially since order books are filling again.

Construction spending fell in May, led by a drop in government spending. Distressingly , construction of key infrastructure items such as transportation, highways and streets, waste and sewer, power and water were all down not just in May but also over the year. It is hard to grow the economy strongly if the government doesn’t invest in future-growth generating infrastructure, and that seems to be happening.

MARKETS AND FED POLICY IMPLICATIONS: The Fed was cautious in June, in part because of the softening job gains, led by contracting manufacturing payrolls. But it looks like manufacturing is coming back and that should stabilize if not lead to rising industrial employment. We will get an idea about that next Friday when the June employment report is released and I do expect a solid increase in manufacturing. Regardless, if manufacturing production really is accelerating, that would indicate the U.S. economy is on the rise and the Fed has to keep its eye on the target, which is U.S. economic growth. Of course, if government doesn’t want to spend money on what just about everyone agrees are necessary infrastructure projects, not only will near-term activity be slowed but long-term growth will be limited as well. Investors should be buoyed by the manufacturing improvement and maybe they will recognize that the U.S. economy can withstand the impacts of Brexit.

Linking the Economic Environment to Your Business Strategy