- The U.S. economy picked up speed in the second quarter after a slow start to the year. The preliminary estimate for Q2 GDP growth came in at 2.6%, more than double the first quarter’s 1.2% increase. Healthy consumer spending, especially on clothing and furniture, was the most important driver of GDP improvement. Solid business investment was another positive factor. The only weak spot was the slower pace of housing construction compared to a year ago.
- The Conference Board Leading Economic Index for the U.S. increased by 0.6% in June to 127.8. (2010 = 100), following increases of 0.2% in both April and May. This suggests continued growth in the U.S. economy and a possible improvement in GDP growth for the second half of the year.
- With a historically low unemployment rate of 4.4%, the U.S. labor market is firing on all cylinders. The current number of job openings nationwide is near record-high levels, and the ratio of unemployed workers to job openings stands at 1.2x, the lowest level since 2000. Wage inflation is currently running at 2.5% year-over-year, outpacing the 1.6% inflation rate of the national economy. Workers are enjoying real wage gains.
- The U.S. Consumer Confidence Index reached 121.1 in July. Consumers are optimistic about the strong labor market and continued housing price increases. The index hit a 16-year high in March of this year. This month’s reading is the second highest since 2000.
- The Fed Funds rate remains in a range of 1.00-1.25% after the Federal Reserve decided to leave it unchanged at their July meeting. The Fed has raised rates twice this year, once in March and again in June. We expect the Fed to raise rates at least one more time in the second half of 2017 as the labor market continues its positive trend.
- The Federal Reserve is preparing to begin the process of reducing its balance sheet. The Fed currently holds $4.5 trillion of Treasury and mortgage bonds acquired during its quantitative easing program. Until now, the interest from these bonds has been used to purchase additional bonds. In a number of recent speeches, Fed Governors have suggested that the Fed will halt these incremental purchases at some point in the second half of 2017. The impact of this change is unclear, but it may put upward pressure on interest rates.
* 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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