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Economic Fundamentals Remain Robust: Despite the Tariffs

"Economic Fundamentals Remain Robust: Despite the tariffs, U.S. small business expansion plans are continuing to surge. CEO and consumer confidence remain elevated despite the constant barrage of trade concerns over the last six months. While these surveys could fall in the coming month, we suspect they will remain at generally positive levels. Manufacturing PMI New Orders, a gauge of the business cycle, has had readings higher than 60 for 13 consecutive months. This is the longest stretch since the early 1970s and continues to affirm a sustained uptrend in economic activity. Loan delinquencies (Commercial & Industrial) are in decline and lending standards are easing. While this behavior is more typically associated with the earlier days of an economic cycle than the middle portion, it shows that credit conditions remain loose despite central bank tightening. To that end, capital spending trends appear quite healthy and should be an important driver for equities in the second half of the year.  It isn’t just business activity that looks healthy. The labor market, the plow horse of this recovery, continues to tighten. The unemployment rate of 3.8% is near its lowest level in 20 years and could approach the lowest levels in 50 years by 2019. For the first time on record, there are more job openings than unemployed persons. Initial jobless claims as a percent of total employment are at their lowest level ever. Against this backdrop, compensation continues to trend upward. Wages increased 2.7% and total hours were up 2.1% in May, making annual earnings rise by 4.8% over the last year. This is more than enough to keep consumer spending trends healthy for the foreseeable future." (The Long View: Wall of Worry Obscures Solid Fundamentals dated June 28, 2018 by Jeffrey Schulze CFA, Director & Investment Strategist with ClearBridge Investments, LLC)


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