U.S. Economy Update. March Monthly Update Based On Leading Regional Manufacturing Indices.

Transcription

1 U.S. Economy Update March 2018 Monthly Update Based On Leading Regional Manufacturing Indices

2 What Is This Report About? (1/2) This presentation is discussing the latest results of the five most important regional manufacturing reports. Empire State, Philadelphia, Kansas City, Richmond and Dallas All indicators are leading which means that you are about to find out what we can expect to happen in the future. They even predict the number one leading indicator of the US economy: the ISM manufacturing index.

3 What Is This Report About? (2/2) I made an average of all indices to give you a less volatile and more precise outlook. The following topics will be discussed: Composite index New orders Shipments Employment (new) Future capital expenditures Prices paid/received Note that the indicators presented will have a meaningful impact on the segment they are covering. Higher composite outlook -> stronger GDP growth Higher shipments -> tailwind for transportation stocks Higher prices received -> higher CPI inflation

4 Composite Index The composite index took a rather big hit of almost 5 points in March (down to 19.6 from 24.2 in February). Only the Empire State index showed an improvement from 13.1 to All other indices were either unchanged (Kansas) or lower. It seems that the next ISM print is going to be close to However, it is too early to call the next growth slowing trend. Simply because it is still possible to get above-average growth for an extended period of time.

5 Shipments Shipments hit their lowest level since August of 2017 after going sideways for the past few months. At this point it seems that we could see lower levels going forward. Furthermore, it is once again important to mention that two regional surveys (Philadelphia & Empire State) increased from 15.5 to 32.4 and 12.5 to 27.0 which took a lot of pressure off the composite index given that the other indices declined by roughly 50%.

6 New Orders New orders are back at January levels after hitting 21.3 in February. At this point, it looks like we can expect ISM new orders to come in slightly above 60. Just like the composite index it is not clear whether this is the start of a growth slowing cycle or just a break at above-average levels.

7 Employment This month I decided to add employment. It seems that the index was right after all given that it predicted the most recent employment surge of more than 300K new jobs in February. Furthermore, the index is still at rock solid levels which supports further job growth in March and beyond. Also note the comment from the most recent Dallas survey. I think it perfectly tells the current story of employment shortage and stronger growth.

8 Future Capital Expenditures Capital expenditures are the reason I am not calling for a immediate growth slowing cycle. Capital expenditures dropped 1.3 points to 35.5 in March which is still one of the highest levels since the start of this index in 2001.

9 Prices Paid & Received Prices received dropped a bit from 23.5 to 21.4 in March. However, they are still indicating that consumer prices are about to soar higher. So are producer prices who had another increase to 47.3 points. Overall, this means that the pressure on bonds remains very strong despite bonds gaining some strength during the most recent stock market sell-off.

10 Conclusion Official ISM likely to hit 58.5 in March US economy shows first signs of weakness even though it is too early to call it growth slowing Consumer and producer prices are very likely going to accelerate further More pressure on government bonds and so called yield trades like consumer staples Companies will increasingly have to produce more efficiently in order to stay competitive in this inflation acceleration environment

11 The End

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