By: Dividend Sensei
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Weekly Economic Data Review
Overall it was a very solid week for economic news.
The two biggest positives were the ISM manufacturing index and the monthly jobs report.
The ISM manufacturing index rose to 57.8, both beating expectations and signaling a 4.6% GDP growth rate (if it were to continue that high all year). A number over 50 represents expansion, and the weaker dollar combined with strong increases in demand and pricing across numerous sectors signals solid economic growth.
Meanwhile the monthly jobs report came in much better than expected at 222,000 for the month, with the previous two months getting upgraded by 47,000. The labor force increased by 361,000 as marginal workers returned to job seeking, increasing unemployment to 4.4%, while wage growth remained at a respectable 2.5% year-over year.
The Fed’s long-term target is 3.5% wage growth and 2% inflation for 1.5% real wage growth (signaling rise living standards). Currently we’re tracking at 1.1% real wage growth, which while lower than the target, is still decent and better than in recent years.
In addition, Q2 earnings have kicked off, and while only 7% of S&P 500 companies have reported so far, most of those are coming in above expectations on both sales and earnings.
In fact here’s how earnings growth looks by sector:
- Energy: 387.5%
- Tech: 10.5%
- S&P 500: 6.5%
- Finance: 6.0%
- Basic Materials: 5.0%
The only sectors reporting negative growth are: utilities (-0.1%) and consumer discretionary (-2.2%)
Of course there was some bad news as well, notably: hotel occupancy dipped, and factory orders declined a worse than expected 0.8%.
In terms of what that means for economic growth the New York and Atlanta Feds disagreed, with New York upgrading its growth outlook, while Atlanta lowered its’s a tad.
New York Fed GDP NowCast: 2.0% for Q2 1.8% for Q3 (Q2 up 0.1% Q3 up 0.2%)
Atlanta Fed GDPNow: 2.7% for Q2 (down 0.3% from last week)
Meanwhile the risk of a recession, based on the leading indicator super index (which tracks 9 leading economic indicators), in the next three to four months is 2.36%, down 4 basis points from last month, but up from 1.65% last quarter.
Still, that’s a very low rate, and when combined with other positive economic meta reports indicate that the chances of a recession in 2017 remain very low.