As the glow fades from holiday festivities and New Year's celebrations the view forward in 2015 is now becoming clear, more of the same. Sounds boring but when you consider what the returns from the prior four years were, I'll take “more of the same” any day, month and year.
Where we are and our outlook.
GDP. The US economy likely finished out the calendar year 2014 with a 2 5/8%-2 ¾% annual growth rate if fourth quarter growth comes in the expected 3%-3 ½% range rate of expansion. After a surprise weather related contraction in the first quarter the economy bounced back strongly reflecting increasing underlying strength which topped out at 5% in the third quarter. We anticipate the trend to continue into 2015 with growth for the year finally topping 3% annualized growth driven by strong consumer demand and an uptick in capital expenditures.
Leading Economic Indicators (LEI)– LEI increased to +.6% in November pointing to a continuation of the “much of the same”. This should portend a continuation of an improving growth trend. Novembers release followed Octobers +6% and +.8% in September. Economist Ken Goldstein of the Conference Board noted the LEI signals moderate growth that is somewhat restrained by income growth. Real income growth is up +.8% year over year.
Industrial Production (IP)– IP jumped +1.3% in November year over year. IP has grown +5.2%, the best showing since 2011. The gains were led by automobile manufacturing which popped +5.1%. Ex-auto's IP still had a solid showing of +.9%. Capacity Utilization tightened up with the increased manufacturing demand to 80.1% or +.8% the best since 2010. The excess factory capacity present throughout this current recovery has been sopped up so any continued strength may finally spark the inflation rate closer to the Federal Reserve's target range.
Inflation- Still no problems on this front. The Federal Reserve will just have to wait as the plunge in commodity prices in general and specifically oil and energy related products continue to put downward pressure on all inflation indices. Great news for consumers and commercial users of these feedstocks.
Employment. Job creation once again turned in a solid showing. In 2014 Non-Farm payrolls averaged better than 240,000 on a monthly basis, ex-Decembers figures (due out this coming Friday). The prior three month average for the September to November period clocked in an even better rate of 270,000 adds with November scoring the strongest gains of 321,000. We look for Friday's Non-Farm figure to come in right around trend growth of 240,000.00. At the same time weekly unemployment claims have been anchored under 300,000 for some time signaling more workers finding new jobs. Both very positive signals. We'd still like to see the participation rate tick up along with a decline in the population now receiving disability checks. This program's rolls ticked up strongly as many unemployed individuals applied for disability benefits once ultra-long term unemployment benefits expired.
