The escalating trade war with China has continued to grab attention, though overall volatility has been relativity muted throughout the third quarter of 2018. The S&P 500 and Dow Jones indices posted new highs in late September, a welcomed sign as we approach the seasonally-strong fourth quarter.
GDP Growth – Quarter 3 GDP growth is estimated to register in the low 4% range, per the Atlanta Fed’s forecasting model, the second consecutive quarter of above 4% growth.
Employment & Wages – Unemployment remains at 3.9% and dropping, evidence of a tight labor market. Wage growth has ticked up slightly, leading to larger paycheck for employees. Inflation dropped slightly from July, at 2.9% to 2.7% in August.
Oil – Gasoline prices held at an average of $2.85 per gallon, with a slight drop likely due to seasonal patterns and blend changes. WTI crude oil pricing has been erratic, with geopolitical concerns and the usual OPEC scrimmages introducing additional volatility.
Trade Deficit – The U.S. trade deficit is expected to widen 5%-6% in 2018. A strong economy is increasing consumer spending, driving an increase in imports and a strengthening dollar. At the same time, exports have declined very slightly, led by soybeans and aircraft. Year-to-date, our trade deficit is about 7% higher than 2017.
This has certainly been the year of geopolitical headlines. It’s hard to flip on the TV or radio without being pummeled by stories of trade wars and political impropriates. That said, the economy has continued to impress, and earnings have followed suit. There are a couple bright spots we would like to point out:
GDP Growth – US GDP Growth for the 2nd quarter came in at a robust 4.1%. This is the fastest growth we have seen in a number of years.
Earnings Growth – Average earnings growth for companies in the S&P 500 came in around 21%, year-over-year. This is an astounding number. Although, we would temper it just a little with the fact that the economy went through a 2nd quarter lull in 2017.
Consumer Spending – Americans like their “things” and the continued strength of the economy has given our consumers more discretionary dollars to spend. They are doing their part and companies like Nike and William Sonoma are showing it in their earnings.
Unemployment – Unemployment continues to stay VERY low, by historical standards. When there’s this much demand for labor, it often translates to wage pressures. This can lead to inflation, so it bares watching.