Economic Outlook – March 2017

March 7, 2017 Economic Outlook
  1. Economic data continues to surprise to the upside. Manufacturing activity in February grew at its fastest pace in 30 months. The ISM Manufacturing index came in better than expected at 57.7, its highest level since August of 2014. Business and consumer confidence surveys continued to trend higher, and unemployment claims reached the lowest levels since March 1973. We anticipate GDP growth will accelerate in the second half of this year.

  2. The Federal Reserve’s favorite measure of inflation, the core Personal Consumption Expenditures (PCE) index, rose in January, but still remains quite tame. The PCE index jumped 0.4% in January, pushing the increase over the last 12 months to 1.9% from 1.6% in December. The rate of inflation is now close to the Fed’s 2% long-term target, and if it keeps moving higher, the central bank could raise interest rates more aggressively. Regardless, we believe the ECB will remain accommodative for the remainder of the year. We currently expect two to three 0.25% rate hikes this year.

  3. Eurozone headline inflation has also increased, reaching the highest level in four years. The ECB president Mario Draghi has kept interest rates below zero for nearly three years amid a bid to stimulate growth in the eurozone’s weaker economies. He is under more pressure now to scale back the European Central Bank’s bond buying program. Regardless, we believe the ECB will remain accommodative for the remainder of the year.

  4. A major factor in higher global commodity prices so far has been oil, which hit a 13-year low in January 2016 and has nearly doubled since. Despite evidence of compliance with the OPEC led production cuts, pressure from increasing U.S. production and hefty stockpiles may keep a lid on further price appreciation, however.


  5. Market expectations regarding the timing and pace of rate hikes in the U.S. have zoomed higher. 2-Year treasury yields reached the highest interest level since 2008 after New York Fed President William Dudley acknowledged in an interview that “the case for monetary policy tightening (had) become a lot more compelling.” Traders in early March put the odds of a rate hike at the next Fed meeting later this month at more than 80%, up from 34% at the end of February.


Sources: Bloomberg LLC, FACTSET, U.S. Department of Labor, Institute for Supply Management

* This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.

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