The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.6 percent in January, following a 0.5 percent increase in December, and a 0.2 percent increase in November. Eight of the ten components increased in January suggesting economic growth over the next six months.

The positive contributors, beginning with the largest contributor, were the interest rate spread, building permits, average weekly initial claims for unemployment, the ISM® new orders index, average consumer expectations for business conditions, stock prices, the Leading Credit Index™, and manufacturers’ new orders for consumer goods and materials. The only negative contributor was manufacturers’ new orders for nondefense capital goods.  And the best news is that while politics has created change in our government, the economy is responding positively and corporate profits continue to grow, as we are in the 3rd quarter of positive earnings growth.

As to other data that we consider and you should too:

  • GDP: We continue to expect GDP’s floor to be around 2.2% in 2017;
  • Consumer Prices: A bigger than expected 0.6% month-over-month increase in consumer prices for January pushed the annual CPI (consumer price index) inflation rate to a five-year high of 2.5% from 2.1%.  However, almost half of the increase in the headline number is the result of a 7.8% month-over-month surge in gasoline prices.  Excluding food and energy, core prices rose 0.3%, with the core inflation rate climbing from 2.2% to 2.3%;
  • Industrial Production: Industrial production fell 0.3% in January almost entirely to a renewed weather-related slump in utilities.  The 5.7% plunge in month-over-month utilities output in January reversed the 5.1% month-over-month jump in December.  This was the biggest drop in 11 years and was caused by unseasonably warm weather lessening the demand for heating;
  • Retail Sales: Retail sales grew stronger than expected to 0.4% in January, a sign that consumer spending will continue to provide solid support to GDP growth in Q1 2017;
  • Housing Starts: Housing starts fell 2.6% in January to 1.25 million units pace after posting an impressive 11.3% gain in December. When we look into the numbers, the more volatile multi-family housing starts pulled back while single family starts rose 1.9%.  Rising housing permits data indicates this reduction is temporary.  Overall and for the year, we expect housing starts to increase to 1.22 million units from 1.17 million units in 2016;
  • Business Inventories: Business inventories grew 0.4% in December showing signs that businesses are feeling more confident.  Total sales were up 2% with increases across the supply chain.  Inventories have boosted growth, but are expected to have a negligible impact on GDP growth in 2017.

Lastly, the Federal Reserve will continue to garner attention in 2017.  Right now, we don’t expect a rate hike in the 1st quarter of 2017 and we would likely predict that we won’t see one until June, but Fed Chair Janet Yellen in her February Congressional testimony kept open the possibility of an increase in March, “at our upcoming meetings, the Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with…expectations, in which case a further adjustment of the fed funds rate would likely be appropriate.”  Of course, we can always count on the Fed to make their future actions unclear, allowing the VisionQuest Team to have some “very interesting and intellectual conversations,” as Steve Peters, our Founder & CEO, likes to say.

In closing, the key take-away is that the current economic data continues to show an expanding domestic economy and a reason for all of us to remain optimistic relative to the economy and markets.  If you have any questions at all, please don’t hesitate to contact me directly at 919.433.3560 or at jgauthier@vqwealth.com.

Jon Gauthier
Senior Vice-President
VisionQuest Wealth Management