By Mark Schniepp
August 2015
The Expansion has Kicked into Higher Gear
The U.S. economy continues to make steady and consistent progress. Strength is evident across most sectors and markets, especially the labor market where a full employment economy is now less than a year away.
Reviewing this newsletter a year ago ( the August 2014 edition), I wrote:
The evidence to date in 2014 indicates that the economy is in its best condition and growing at its fastest sustained pace since 2007. Employment is now expanding at a rate that would bring the economy to full employment in two years or less.
• Consumer confidence is at a 7-year high
• The growth of manufacturing remains positive including job creation
• The financial markets appear very healthy as the bull market takes a needed breather this summer
• Treasury bond yields have recently declined and are lower today than a year ago
• Over the last 12 months, inflation is running at a rate of 1.4 percent
• Existing home sales were higher for the third straight month in June and home price appreciation is still running positive, at 4.3 percent
Today, a full year later, not much has changed. Consumer confidence has slipped some, largely because of the “breather” that the stock market is taking again this summer. Nevertheless, the bull market has not been vanquished. The Nasdaq is 100 points from its all time high. The S&P 500 index is about 20 points from its all time high. Interest rates are sinking again. Oil prices are below $50/barrel again. Inflation over the last 12 months has been an imperceptible 0.1 percent, and home sales in June jumped to their highest level since before the last recession.
Since 2011, gold prices have been on the decline as the U.S. recovery gradually picked up momentum and investors “rebalanced” their portfolio away from gold and into stocks. The rapid downturn in gold prices during July also reflects investor expectations of an interest rate hike by the Fed this year. The Fed is still expected to begin tightening monetary policy in September.
There is no whiff of a slowdown in the economy. If there was, you’d see it in the financial markets. And although the broader indexes like the S&P and Nasdaq have generally moved laterally since May, volatility has been remarkably absent from the market. International events like a possible Greek exit from the euro zone or a bear market in Chinese stocks are just not big or bad enough to impact the U.S. economy.
Source: Ventura County Star, September 12, 2014, front page
Nearly a year ago at the Ventura County Economic Forecast Conference, the news was decidly upbeat. Since then, there have been no real surprises in the economy’s progress or in the forecast for 2015 and the year ahead. We continue to expect a tightening labor market, higher wages and salaries, a strengthening housing market, more consumer spending, and rising interest rates.
Households are in a Strong Position to Increase Spending
The creation of jobs is strong and broad-based, and wage growth will accelerate more significantly as the economy approaches full employment. Household debt is about as low as it has ever been, and many homeowners have locked in the exceptionally low interest rates by refinancing their mortgages.
Because stock prices are near record highs, and house prices are rising solidly throughout the nation and especially in California, higher asset values make us feel wealthier and more comfortable to spend. Consumers also have plenty of savings, having stashed away most of what they saved on lower gasoline costs over the last 6 months (except in California where the premium to the average U.S. price has now widened from 37 cents on February 1st to over $1.10 per gallon today: $2.63 versus $3.71).
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Upcoming Economic Forecast Conference
2015 Ventura County
September 10, 2015
Westlake Hyatt, 7:30 AM
Have you ever had to obtain financing for your business or to buy commercial real estate or apartments? Are you thinking about it? We are going to present a comprehensive picture of the current commercial lending environment, the demand for hard and soft money, and how that is all changing in the marketplace, this year and next.
Mark Schniepp will also update the outlook for the California and Ventura County economies.
- Where are we now in the business cycle?
- Is the housing market going to improve with the threat of higher interest rates?
- What can you expect over the next year regarding worker recruitment and compensation?
The California Economic Forecast is an economic consulting firm that produces commentary and analysis on the U.S. and California economies. The firm specializes in economic forecasts and economic impact studies, and is available to make timely, compelling, informative and entertaining economic presentations to large or small groups.
