Joseki

Commentary

Quarterly Economic Update

 

We produce The Leopard View, a quarterly economic update with key assertions and commentary, for our clients and network. A few highlights from our most recent edition...


 

Current Economic Assertions and Changes (26 Nov 2018)

10-year U.S. Treasury rate is 3.06%, up 18 basis points (bps) or 6.25%

WSJ prime rate is 5.25%, up 25 bps; up 100 bps or 23.53% since one year ago

Real U.S. GDP growth (annualized) for Q3 (BEA first estimate 26 Oct) is 3.5%; 2017 GDP growth (same period) was 2.3%

CPI inflation 2.5% for 12 months ended October; expected inflation (nominal yields minus real yields) for the coming 12 months 2.04%

The U.S. Dollar vs major currencies index is 92.00, up2.17% annualized for Q3 and up 2.34% from one year ago

U.S. unemployment is 3.7%, down 5.13% from last quarter; the highest unemployment rate of the past decade was 10.0% in Oct 2009

Labor force participation is 62.9%, unchanged from prior quarter; historical peak was 67% Q1 2000

Brent crude oil price is $62.19 per barrel, down 14.41% from last quarter and up 24.38% from a year ago

U.S. real household debt as a percentage of assets is 12.5%, down 4.58%; historical peak was just over 20% in 2008/2009 

U.S. equities (broad market) are up 1.78% YTD and up 5.64% trailing 12 months

Corporate profits are up 6.38% year-over-year (Q2 2018, Federal Reserve Bank of St. Louis)

S&P Case-Schiller U.S. National Home Price Index is 205.81, up 5.77% year-over-year through August 2018, 11.48% greater than previous peak of 184.62 in July 2006

S&P Case-Schiller Las Vegas Home Price Index is 188.2, up 13.87% year-over-year through August 2018 (previous peak 234.71 September 2006)

Nonfarm business labor productivity increased at a 2.2% annual rate in Q3 2018; up 14.19% since the low of the “great recession” (Q4 2008)

 

Selected Commentary

Economy: strong GDP growth 2019-2020 (≥3.5% real annual GDP growth, possibly ≥4%); continued growth in entry/lower level jobs that the media will report as people are losing because average earnings will fall; statistics from a group of currently employed people at any level will show growth in income since the current Administration took office (2017); average U.S. stock market value increase of ≥8% annually next 5-7 years

Interest rates: the normal real interest rate for 10-year instruments is 2.5% - 3.5%; based on this we can anticipate interest rates increasing until the 10-year Treasury is in the 4.5% - 6.0% range, assuming inflation of 2.0% - 2.5%.; interest rates for corporate debt are now approximately 4.2%, anticipate corporate 10-year rates of 7% in 2-3 years

Technology: developing and emerging technologies (practices) is a domain we must all interpret to adjust our offers, practices, narratives and strategies in order to be competitive; this article explains why measured productivity may be less than actual productivity gains with technology

“The individual has always had to struggle to keep from being overwhelmed by the tribe. If you try it, you will be lonely often, and sometimes frightened. But no price is too high to pay for the privilege of owning yourself”. Friedrich Nietzsche