Key Trends and Factors Entering 2017

Last update on: Oct 24 2019

As we head into the last few weeks of the year, here are a few points to keep in mind about the economy and markets.

  • ŸForecasts and predictions aren’t worth much. The Brexit vote, U.S. election and Italian referendum were forecast to be major market-changers. The changes didn’t really happen, except that in the United States the markets moved in the opposite direction most experts predicted before the election. Read Philip Terlock’s books on predictions and forecasts if you want more insight on why experts so frequently are wrong.
  • ŸThe U.S. economy continues its modest self-sustaining growth. We’ve had steady increases in wages and spending. Plus, consumer confidence surveys indicate most households are confident about both the current situation and the next six months or so.
  • The labor market continues to heal. There still are too many people working part-time who want to work full-time, but the overall employment rate is very low. This is putting upward pressure on wages, which is good for consumers, but it could reduce profit margins.
  • We’re also seeing some signs that deflation is in the past. Inflation has been slowly and steadily rising near the Fed’s target. I expect that to continue as many of the deflationary tailwinds of the last few years are disappearing.
  • Currency changes are going to be significant in the next few years. Since central banks have no room left to reduce interest rates to boost growth, they will continue to look for ways to reduce currency values. The dollar already had a sharp rally since the election. It’s probably overdone for the short-term, but over the next few years the dollar is likely to be strong against most other currencies. That hurts profit margins and sales potential for U.S.-based global firms.

Those are the key factors to know for the rest of this year and into 2017.

The Data

Analysts took what they wanted from last week’s Employment Situation reports, because both good and bad results were in there. The unemployment rate had a sharp decline to 4.6%, but that’s largely because of a drop in the labor force participation rate. The number of jobs created came in around expectations. The big disappointment in the report is a decline of 0.1% in average hourly earnings and no change in the average work week. The dip in earnings is the first in 2016 and makes the year-to-date growth only 2.5%. Household earnings growth and spending have been the main supports of the economy.

The JOLTS (Job Openings and Labor Turnover Survey) is more detailed than the monthly Employment Situation reports but is a month behind. For October, there were reductions in both job openings and hirings. Employers continue to report that they aren’t filling openings, because they can’t find the employees they want.

New unemployment claims declined by 10,000, keeping the four-week average just above 250,000.

The non-manufacturing segment of the economy continues to perk along. The ISM Non-Manufacturing Index increased a sharp 2.4 points to 57.2. Most of the segments of the index were very positive, indicating the economy remains in a self-sustaining growth phase. The PMI Services Index actually declined 0.2 to 54.6. But that level still indicates solid growth.

Productivity finally registered a solid 3.1% increase for the third quarter, which is the best number since the second quarter of 2015. But unit labor costs increased 0.7%. So, the increase in productivity didn’t improve profit margins.

In the week’s only manufacturing report, Factory Orders rose 2.7%. After excluding the volatile transportation sector, the increase was a solid 0.7%, and last month’s number was revised higher. The disappointment in the report is that core capital goods, a measure of business investment, rose only 0.2%.

Consumers continue to increase their borrowing through credit cards, according to the Consumer Credit report. Auto and student loans continue to be the main sources of borrowing. But credit card use increased about 6% this year, indicating high confidence and higher incomes among households.

The Markets

U.S. stocks rallied again. The S&P 500 returned 1.91% for the week ending with Wednesday’s close. It’s up 5.37% in the last month. The Dow Jones Industrial Average gained 2.13% for the week. The Russell 2000 gained 3.26%. The All-Country World Index returned 2.30%. Emerging market equities gained 1.97%.

Long-term treasuries gained 0.34% for the week. They’re down 7.64% for the last month. Investment-grade bonds returned 0.52% for the week. Treasury Inflation-Protected Securities (TIPS) returned 0.19%. High-yield bonds returned 1.40%.

The dollar declined 1.33% for the week.

Energy-based commodities rose 1.81%. Broad-based commodities gained 2.20%. Gold was flat for the week.

Bob’s News & Updates

This is the last week of the holiday sale for my latest book. Amazon.com sells the second edition of “The New Rules of Retirement” between $18 and $20, plus shipping. I’m offering autographed copies for only $20 per copy, and we pay the shipping. This offer is limited to the first 200 books. The highly-acclaimed second edition continues to receive five-star and four-star ratings on Amazon. The book is ideal for anyone who is either retired or planning for retirement. It’s a great gift for friends and family.

Send a check for $20 per book to Retirement Watch, LLC, P.O. Box 222070, Chantilly, VA 20153. We pay the shipping. Be sure to include your return address.

Or you can order directly from Amazon.

I’ll be making some speaking appearances in 2017. The first will be at the MoneyShow Orlando, February 8-11, 2017, at the Omni Orlando Resort at ChampionsGate. Use my priority code, 042315, and mention it when you call 1-800-970-4355 to register.

Some Reading for You

Here’s a five-minute video of how two economists view Christmas and gift giving.

This article explains how one man used various international financial tools to hide $400 million from his wife during a divorce.

Here are the details of how OPEC negotiated its latest production deal.

I comment and link to these and other items on my public blog at http://www.bobcarlson.net.

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