Raymond James
Economic Research
What about the dollar? In the short-term central bank
policies are a key factor in exchange rate movements.
However, the Fed has only raised short-term interest rates by
25 basis points. Dollar strength cannot be pinned on monetary
policy alone. Capital outflows from emerging economies have
fueled dollar strength and the flight to safety has lowered longterm Treasury yields. Europe’s migrant crisis and the UK’s June
referendum on whether to stay in the European Union should
dampen economic enthusiasm across the Atlantic.
So, the U.S.
remains an attractive location for global capital.
U.S. Dollar (December 31,2013 = 100)
145
140
135
stronger dollar
150
150
145
Mexican Peso
140
135
130
130
Canadian Dollar
125
125
120
120
115
115
110
110
105
105
Chinese Yuan
100
95
100
Source: Federal Reserve, Raymond James
Jan-14
95
Jan-15
Jan-16
The dollar appears to be having a more significant impact
on U.S. exporters, particularly for those exporting to our largest
trading partners.
The cumulative strength in the dollar and
softer global demand will remain significant headwinds. The
U.S. exports a lot of food and raw materials to the rest of the
world and the prices of these have fallen sharply.
Monthly
trade data are notoriously choppy, but January figures showed
a steeper decline in exports across sectors. Still, that should
not be enough to derail the overall economic expansion.
The National Bureau of Economic Research’s Business
Cycle Dating Committee determines the official start and end
dates for recessions. In calling recessions, the BCDC stresses
employment and real personal income, both of which have
continued to trend strongly higher.
Gauges used to predict
recessions have been a little more mixed recently, but most do
not suggest a strong likelihood of recession. The yield curve,
the single best indicator of recession, remains positively sloped.
Construction activity is improving. Jobless claims remain low.
The stock market is down, a necessary but not sufficient
condition for a recession (the late Nobel Laureate Paul
Samuelson once quipped that the stock market had predicted
nine of the last five recessions).
Still, there is some fear that we may talk ourselves into a
recession.
Certainly, if every consumer decided to save 5% or
10% more of his or her income, we would have a depression
(by saving more, consumers would be spending less, and that
spending is someone else’s income). However, strong job
growth, a pickup in wage growth, and lower gasoline prices
should continue to propel consumer spending growth – and
that’s 70% of Gross Domestic Product. Businesses do have to
act on expectations.
Orders for capital goods rebounded in
January, but the trend is lower. Much of that reflects the
contraction in energy exploration and the impact of slower
global growth and a strong dollar. However, firms geared
toward domestic demand may have become cautious.
There is
plenty of evidence of cash hoarding and delayed capital
projects – the key question is whether that will be temporary.
Despite financial market developments, the U.S. economic
outlook has not changed much – and despite continued
concerns about the rest of the world, the U.S. economy is
mostly self-contained.
Risks remain weighted to the downside,
but the expansion is likely to proceed at a moderate pace.
GDP ( contributions)
consumer durables
nondurables & services
bus. fixed investment
residential investment
Priv Dom Final Purchases
government
exports
imports
Final Sales
ch. in bus.
inventories
1Q15
0.6
0.1
1.0
0.2
0.3
2.0
0.0
-0.8
-1.1
-0.2
0.9
2Q15
3.9
0.6
1.9
0.5
0.3
3.9
0.5
0.6
-0.5
3.9
0.0
3Q15
2.0
0.5
1.6
0.3
0.3
3.2
0.3
0.1
-0.4
2.7
-0.7
4Q15
1.0
0.3
1.1
-0.2
0.3
1.7
0.0
-0.3
0.1
1.2
-0.1
1Q16
2.1
0.4
1.6
0.2
0.4
3.1
0.2
-0.5
-0.1
2.3
-0.2
2Q16
2.0
0.3
1.5
0.4
0.3
2.9
0.2
-0.2
-0.3
2.2
-0.2
3Q16
2.3
0.3
1.5
0.4
0.3
2.7
0.3
0.2
-0.4
2.4
-0.1
4Q16
2.4
0.3
1.4
0.4
0.2
2.6
0.3
0.2
-0.4
2.4
0.0
1Q17
2.4
0.3
1.4
0.4
0.2
2.6
0.2
0.2
-0.4
2.4
0.0
2Q17
2.4
0.2
1.4
0.4
0.2
2.6
0.2
0.2
-0.3
2.4
0.0
2015
2.4
0.4
1.7
0.4
0.3
3.3
0.1
0.1
-0.8
2.2
0.2
2016
2.5
0.3
1.6
0.2
0.3
3.0
0.2
-0.1
-0.2
2.2
-0.2
2017
2.3
0.2
1.4
0.4
0.2
2.6
0.2
0.2
-0.3
2.4
0.0
Unemployment, %
NF Payrolls, monthly, th.
5.5
190
5.4
251
5.1
192
5.0
282
4.9
206
4.8
185
4.7
180
4.7
175
4.7
170
4.8
165
5.3
229
4.8
187
4.8
163
Cons. Price Index (q/q)
excl. food & energy
PCE Price Index (q/q)
excl.
food & energy
-2.9
1.7
-1.9
1.0
2.4
2.3
2.2
1.9
1.4
1.8
1.3
1.4
0.8
2.2
0.4
1.3
-0.3
2.5
0.3
2.0
1.5
1.8
1.5
1.7
1.9
1.8
1.8
1.7
2.0
1.9
1.9
1.7
2.1
1.9
2.0
1.7
2.1
1.9
1.9
1.7
0.1
1.8
0.3
1.3
1.0
2.1
1.1
1.7
2.0
1.9
1.9
1.7
Fed Funds Rate, %
3-month T-Bill, (bond-eq.)
2-year Treasury Note
10-year Treasury Note
0.11
0.0
0.6
2.0
0.13
0.0
0.6
2.2
0.14
0.0
0.7
2.2
0.16
0.1
0.8
2.2
0.38
0.3
0.8
1.9
0.40
0.4
1.0
2.3
0.63
0.6
1.2
2.4
0.68
0.8
1.4
2.7
0.92
0.9
1.6
3.1
1.15
1.2
1.9
3.2
0.13
0.1
0.7
2.1
0.52
0.5
1.1
2.3
1.29
1.3
2.1
3.3
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