U.S.EconomyUpdateFebruary2018

MonthlyUpdateBasedOnLeadingRegionalManufacturingIndices

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WhatIsThisReportAbout?(1/2)

• Thispresentationisdiscussingthelatestresultsofthefivemostimportantregionalmanufacturingreports.• EmpireState,Philadelphia,KansasCity,RichmondandDallas

• Allindicatorsareleadingwhichmeansthatyouareabouttofindoutwhatwecanexpecttohappeninthefuture.TheyevenpredictthenumberoneleadingindicatoroftheUSeconomy:theISMmanufacturingindex.

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WhatIsThisReportAbout?(2/2)

• Imadeanaverageofallindicestogiveyoualessvolatileandmorepreciseoutlook.• Thefollowingtopicswillbediscussed:

• Compositeindex• Neworders• Shipments• Futurecapitalexpenditures• Pricespaid/received

• Notethattheindicatorspresentedwillhaveameaningfulimpactonthesegmenttheyarecovering.• Highercompositeoutlook->strongerGDPgrowth• Highershipments->tailwindfortransportationstocks• Higherpricesreceived->higherCPIinflation

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CompositeIndex

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Afteraslow-downinJanuary,weseethatthecompositeindexhasgainedstrength.Theindexroseto24.2afterhitting20.7inJanuary.ThispointstoastrongISMindexcloseto60.0points.Italsoshowsthatwearenotatthestartofanewgrowthslowingcycleasyouwillseewhenlookingattheotherindicatorsinthispresentation.

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Shipments

Justlikethecompositeindex,weseethatshipmentshavegainedsomemomentuminFebruary.Theindexrosefrom20.2inJanuaryto23.0inFebruary.Thisindicatesfurtherstrengthintheshipmentsindustryandcouldbeastrongtailwindfortransportationstocksoverthenext1-3months.

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NewOrders

AftertakingaratherbighitinJanuary,wearefinallyseeingastronguptick.Neworderssoaredfrom15.5inJanuaryto21.3inFebruary.ThisindicatesthatthelatestISMnewordersreadingof65.4isafairnumberandlikelytobeunchangedinFebruary.ItalsoconfirmsthattheeconomyisstrengtheningagaininFebruary.

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FutureCapitalExpenditures

ThefirstthingIthoughtwhenIlookedatmyupdatedgraphisthatImessedupsomecalculations.However,Ididnot.Futurecapitalexpendituresareactuallyat36.8versus35inJanuary.Thereisnobetterconfirmationofthecurrentgrowthtrend.Weareseeinghighergrowthandthetrendhasnotturnedagainstusasmacrobearshavebeentellingusforafewmonthsnow.

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PricesReceived

Pricesreceivedareaverygoodindicationofrealconsumerpriceindex.NotethatIaddedyear-on-yeargrowthofconsumerprices.InFebruary,wesawafurtheraccelerationfrom22.5to23.5.Thisisanotherindicationthatconsumerpriceswillgomuchhigherfromthispointon.Iwouldnotbesurprisedtoseegrowthbetween3-4%overthenextfewmonths.

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PricesPaid

Afterindicating5%growthinJanuary,wehavereachedthehighestlevelsince2011at45.9points.Thisindicatesalmost10%higherproducerpricesandshouldbeabigdriverbehindevenhigherconsumerpricesgoingforward.Personally,Ihopethatthismonthisjustanoutliergiventhetremendouspressureoncompaniestocutcoststostaycompetitiveinthisenvironment.Otherthanthat,itisprettyobviousthattheinflationaccelerationcallisworkingoutreallywell.

Conclusion

• OfficialISMlikelytohit60.0inFebruary• USeconomyremainsrocksolidwithsupportfromstrongshipments,newordersandfuturecapitalexpenditures.• Consumerandproducerpricesareverylikelygoingtoacceleratefurther• Morepressureongovernmentbondsandsocalled’yieldtrades’likeconsumerstaples• Companieswillincreasinglyhavetoproducemoreefficientlyinordertostaycompetitiveinthisinflationaccelerationenvironment

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TheEnd

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WantToKnowMoreAboutEconomicIndicators?• Article:EstablishASolidMacroViewUsingTheTop-DownMethod• https://seekingalpha.com/article/4033524-establish-solid-macro-view-using-top-method

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