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Half-Time Report

Blogger David Kohl wants producers to watch second-half 2017 economics.

It may be hard to believe, but the first half of 2017 is over.  We are into the second half and seem to be moving at the same brisk pace.  As we look towards the end of the year, it is helpful to consider where the economic signals and where they point. 

As an overall observation, the West Coast and Southern economies are doing quite well. In contrast, the flyover states, with their economies centered on agriculture, manufacturing, and energy, are modest at best. 

The LEI (Leading Economic Index) is one of the indicators for future growth and is in a positive range, signaling a strong economy through the fall. The PMI (Purchasing Managers Index) is above 50 which indicates growth in the near future.

The unemployment rate (U-3) is at 4.3 percent, its lowest level in recent years.  Even the U-6 indicator, which is a broader indicator that includes discouraged workers, is 8.4 percent; a favorable position.   However, job creation has been on a roller coaster for the first part of 2017 and mostly under the 200,000 mark that indicates a strong, vibrant economy.

Housing starts are an important sector of the economy as the housing industry represents one in seven jobs directly or indirectly.  This indicator is still under the ideal metric of 1.5 million annual starts, currently ranging from 1.1 to 1.25 million annually.

As measured by the Consumer Price Index (CPI), inflation has ranged from 2.7 to 1.9 to percent.  These numbers place inflation in the “goldilocks zone;” not too hot and not too cold, but just right.  

The Index of Consumer Sentiment as measured by the University of Michigan survey shows a very confident metric that drives about 70 percent of the domestic economy. Undoubtedly, summer travels to vacation resorts or via the airlines will clearly confirm an overall strong economy.   

In spite of a confident consumer, the GDP (gross domestic product) continues to struggle at 1.2 percent for the first quarter. The second quarter is projected to be similar. This economic metric should be closely watched to determine whether regulatory relief and other directives of the current Administration will result in positive growth.

As the month of June closes, the expansion of the economy continues to grow as it has for the past 90 plus months.  In fact, this is the third largest expansion period in history.  Expansion may be in a position to break into triple digit months, but only time will tell.   

P.S. Inflation and unemployment numbers could trigger at least two more hikes in interest rates this year by the U.S. Federal Reserve. If you are on variable rate financing, be sure to include these increases into your sensitivity analysis on cash flow.

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