Ignore the Noise

by Laura Ehrenberg-Chesler on September 6, 2018

in Earnings,Economic Indicators,Employment,Foreign Markets

If one can ignore the noise of the day, and ignore of all the distractions, the economy is clicking on all cylinders.
Here are some facts and commentary from Ed Yardeni yesterday:

I’ve said it before, and I’ll say it again: “There is method in Trump’s madness.” Hamlet said it first in 1602: “Though this be madness, yet there is method in it.” The difference this time is that I expect a happier ending than in Shakespeare’s play. President Donald Trump’s policies are boosting US economic growth despite his escalating trade war, which is depressing economies in the rest of the world. This is putting pressure on the rest of the world to come to terms with Trump’s demands for fairer and more bilateral trade. The risk is that Trump’s policies may be causing a widespread emerging markets crisis. We live in interesting times:

(1) US. Real GDP rose by 4.2% (saar) during Q2, and is on track to grow by 4.7% during Q3, according to the 9/4 GDPNow estimate, up from 4.1% on August 30. Nonfarm productivity rose 2.9% (saar) during Q2, and may be on track to do about the same during Q3. The long-awaited productivity rebound may be underway. If so, supply-siders should rejoice, and I will join them in their celebration.

For now, we can rejoice in yesterday’s M-PMI, as August readings exceeded 60.0 for the overall index (61.3), production (63.3), and new orders (65.1). Employment was solid at 58.5. The overall index was the highest since May 2004!

This is great news for the y/y growth rate of S&P 500 revenues per share, which is highly correlated with the M-PMI. The former was up 10.3%, the best reading since Q3-2011. As Joe and I have noted before, this is the kind of strength that typically occurs during recoveries, not this late into an economic expansion.

Also rejoicing are American consumers. Debbie and I average the Consumer Sentiment Index and the Consumer Confidence Index to derive our Consumer Optimism Index (COI), which remained at a cyclical high during August. The current conditions component of the COI rose to the highest reading since December 2000.

Consumers are happy because their “jobs hard to get” response plunged to 12.7% in August, the lowest since March 2001, implying that the unemployment rate may be on the way to falling to 3.0%”

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