The Practical Economist

ECONOMIC & MARKET ANALYSIS - August 14, 2017

Economic & Market Analysis

Latest Economic Indications

S&P 500 Index - The Index finished at 2441.32, down 1.4% from last week.

US Dollar Index - The Index finished at 93.10, down 0.4% from last week.

Gold - Gold finished at 1271.05 up 0.2% from last week.

Commodities - The Index finished at 83.70, up 0.5% from last week.  

10-Year Government Bond Yield - The yield finished at 2.19%, down 7 basis points from last week.      

Wouldn't it be convenient if all important economic data happened to come out in a way that demonstrated a consistent and discernible trend? Of course, it doesn't work that way.

Over the last fortnight, the most important economic data was employment, inflation, and income.  This is all, of course, important stuff!

The first thing to know is that the ranks of the net newly employed rose 126,000 last month.  That's a very good figure.  However, just please know that the Employment Rate is still struggling, at 60.3%, and is unchanged since March.

Personal Income in June was good.  Adjusted for Inflation, it rose 2.2% and this is certainly respectable.  And Consumer Spending, adjusted for Inflation, rose a good 3.6%.  These, truly, are good numbers.

So why do you sense a "but?"

It's this: In June, Core Inflation, rose at a diminishing rate, and very consistent with our forecast for a slowdown.  We're not even going to try to engage with someone who has a dissenting voice.  If you think you can make a case for a strengthening economy in the face of disinflation in core products combined with a (mildly) declining Dollar, we invite you to make a fool of yourself. 

And the Market?

The easiest way in to understand it is to know that commodities (including gold) rose...on the lower dollar.  The lower dollar, itself, is a reflection of market phlegmatism illustrated in the lower S&PP 500 Index.

Of course the real question is what drove the yield on the 10-year rate lower.  Especially given that the 10-year rate moved lower more than the 3-month yield fell, this should be interpreted as a confirming indication of how phlegmatic the market is.

Keep a steady thought: until things change, the indication is toward a softening, not a contraction.