September 2016 Monthly Outlook – A Tale of Two Economies

As summer comes to a close we put together a video update on some of the key things happening over the balance of the year – including the change of our broker/dealer, upcoming healthcare insurance open enrollment periods, and the US elections.  Here is a link to the video:  https://youtu.be/ssyihYXBelo    Here is a link to our update on health insurance open enrollment: https://youtu.be/LodXhfxRg0I

Turning our attention to September 2016.

It appears the US is experiencing a Tale of Two Economies.  One is the consumer and the other is manufacturing.

The consumer economy looks very solid.  On August 31, 2016 the Conference Board announced that its consumer confidence index rose to 101.1 in August, up from 96.7 in July, and the highest level in over a year.  The chart below, courtesy of Bespoke Investment Group,  looks inside the index at how consumers feel about 2 key areas – Jobs and Income.  All 3 indicators – Jobs Plentiful; Jobs plentiful minus jobs hard to get; and Income Increase minus Income Decreased –  are rising and have reached levels last seen back in 2007.

9.2.2016_MONTHLY_OUTLOOK_CHART_2

Another aspect that I am encouraged by is the low level of debt consumers are carrying.  The chart below, from the Federal Reserve, shows that the level of consumer debt payments as a percentage of their incomes has declined to a level not seen since 1980.  Many consumers have taken advantage of the current low levels of interest rates to refinance their homes and other debts.  The fact that less income needs to go towards paying debts means more income is available for spending and investing.

9.2.2016_MONTHLY_OUTLOOK_CHART_1

On the downside the US manufacturing sector declined in August after five months of expansion and construction spending was flat for July. Manufacturing continues to be negatively impacted by weak global demand. The energy sector remains under pressure, as oil prices fluctuate in the $40/barrel range.

While the lack of strength in the manufacturing sector is concerning, the strength in the consumer sector, which accounts for 70% of the economy (GDP), leads me to remain constructive on the US economy.

On the investing front, in equities I am seeing a gradual shift from the more defensive sectors (utilities, telecoms) in more growth oriented sectors (technology, healthcare).  Accordingly, I am making subtle adjustments to your portfolio.  As for interest rates, I think there is a slight chance that the Federal Reserve will raise short-term interest rates 0.25% in September, but a December 2016 hike is more likely.  Either way, I don’t anticipate a 0.25% increase to have a major impact on the markets.  I continue to believe the outlook is better for equities than for fixed income investments.

Please let me know if you have any questions on this outlook or on your portfolio.

 

September Calendar of Events   (comments and additions for future months are always welcome)

Summer is over and kids are going back to school  – please be careful on the roads.

 

Sep 5th              Labor Day

Sept 11th          Patriot Day- honoring those who lost their lives on 9/11/01

Sept 12th          Eloise and my 8th anniversary

Sept 21st          International Day of Peace – consider lighting a candle for peace

Sept 22nd         Autumn begins

 

I hope you find this information useful.   Feel free to share this information with family, friends and colleagues.

Sources:  Bespoke Investment Group, Raymond James & Associates