Confidence in the economy is on the rise in the U.S, in Europe and even in Japan, and various data sets undergird a solid foundation for the rosy projections that the positive outlook will be sustained through 2017.
The bulk of the positive trends in the marketplace are the result of positive activity seen in 2016. In the last month, retail sales climbed 0.4%, while retail activity improved 5.6% over the last year, even without the support of auto sales that had been sustaining the retail community. Now, consumers are busy buying all manner of things and seem geared to do so through the spring. Retailers are expecting a good year and maybe even the best they have seen since the recession.
Meanwhile, industrial production has been realizing decent gains—the Purchasing Managers’ Index (PMI) is at 56, the highest it’s been in over two years. Even more encouraging: the New Orders Index is now above 60. Factory orders are up 0.2% despite the fact that demand for autos and auto parts is somewhat lower than it has been. The mining sector of the industrial production trio was also up by 0.4% over last year. This is significant given that it has been a sector that has dragged on the economy for several years now. The per-barrel price of oil has not returned to the heights once occupied, but near $60 a barrel is almost double what it was just about a year ago.
The third data point supporting the notion of growth is that inflation is showing some real growth. There was growth of 2.5% in January, the fastest pace since 2012. The Fed has been seeking inflation near or slightly over 2%—thus far, the measures have fallen a little short. Their preferred measure is the Personal Consumption Expenditure, which stands at 1.6%. The Fed is looking at the core rate of inflation and does not consider items like food and fuel as these prices can be extremely volatile from one month to the next. Without some inflation, it is hard for producers to raise prices and wages while consumers adopt a “wait and see” attitude as they expect prices to keep falling or at least remain steady.
– Chris Kuehl, Ph.D., NACM economist