By: Dividend Sensei
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Weekly Economic/Market/Earnings Data Review
Another week of generally positive news that didn’t move the market much. In fact the S&P 500 was up just 0.19%, understandable given that we’re at record highs and at frothy valuations.
Manufacturing continued to benefit from a weaker dollar, with the ISM index beating expectations at 56.3, indicating moderate growth.
Meanwhile pending home sales rose 1.5%, while the big news of the week was yet another stronger than expected jobs report.
Payrolls increased 208,000, higher than expected, with unemployment declining to 4.3%, and wages yet again rising 2.5%, slightly better than the 2.4% expectation.
This weak wage growth was also seen in personal income which was flat for the month.
Meanwhile earnings season continues to roll on and the news continues to be good.
With 84% of S&P 500 companies reporting, 72%, and 70% of companies have beaten EPS and revenue expectations, respectively.
In fact, thus far earnings are up 10.1% year-over-year, marking the 3rd straight quarter of accelerating earnings growth.
In fact, EPS growth has been so strong that despite the S&P 500 rising in the past few weeks the forward PE ratio has declined from 17.8 to 17.7.
As for the full year 2017, analysts are now expecting 5.5% sales growth with 9.5% EPS growth, which is not bad at all given the age of the current economic cycle.
As for GDP growth, both the Atlanta and New York Fed’s continue to forecast solid growth for the rest of the year.
New York Fed GDP NowCast: 2.0% for Q3 (up 0.1% from last week)
Atlanta Fed GDPNow: 3.7% preliminary estimate.
Keep in mind that the Atlanta Fed model is notorious for reducing estimates as the quarter moves along, so I would say that the 2.0% New York estimate is likely to prove far more accurate.
Meanwhile, the risk of a recession in the short-term (1.51%) and the longer-term (9 month) risk of a recession is also insignifigant.
If anything, the economic data points to the risk of a recession declining to its lowest levels nearly a decade. Meanwhile inflation expectations remain near the Fed’s target rate, giving increased reasons for optimism that the current slow but steady monetary policy normalization is not harming the economic expansion.
In other words, it’s slow and steady as you go, 2% GDP growth and a strong job market as far as the eye can see. Hopefully that will give the labor market time to fully recover and get wages growing faster, around the 3.5% YoY rate that we normally see with unemployment this low.