The Fed’s favorite measure of inflation, the personal consumption expenditure price index — more comfortably referred to as the PCE deflator — climbed above the Fed’s 2% inflation target in February, a feat last accomplished in early 2012. By contrast, a year ago, in February 2016 the 12-month change for prices was less than 1%. Going back another year we see that in February 2015, it was up a meager 0.4% from the same period in 2014. If you’re thinking this is related to energy prices…well, you would probably be wrong: the PCE deflator only considers ‘Core’ prices. That means energy as well as food prices are not included in the calculation. “Core” prices rose 0.2% in February, and are up 1.8% from a year ago. These data should give the Fed comfort that it made the right decision in raising rates earlier this month. In fact, their comfort level seems to have risen to the point that it is now focusing on a total of four, rather than three, hikes in 2017.

On the spending front, February’s tepid 0.1% increase is little reason for concern. Spending on goods was unchanged in February while spending on services rose a modest 0.1%. It didn’t help that the U.S. saw the second warmest February on record, which held down utility output once again. On the earnings side, income gains remain healthy, increasing 0.4% in February. The gains in income were led by private-sector wages & salaries and also rental income. In the past year, overall personal income is up 4.6%, private wages & salaries are up 6.0%, while government benefits are up a slower 3.8%.

If President Trump wants faster growth, he needs to slow the growth of (or outright reduce!) government benefits. The one consistent dark cloud in the income reports has been government redistribution. Before the ‘Panic of 2008’, government transfers – things like Medicare, Medicaid, Social Security, disability, welfare, food stamps, and unemployment insurance – were roughly 14% of income. In early 2010, they peaked at 18.5%. Now they’re around 17%, but not falling any further. Redistribution hurts growth because it shifts resources away from productive ventures and, among those getting the transfers, weakens work incentives.

Another interesting number in recent economic news was that which was reported by the Chicago Purchasing Managers Index — which measures manufacturing sentiment in that region. It rose to 57.7 in March from 57.4, hitting the highest reading since January 2015. Also, Monday’s Institute for Supply Management report showed its healthy trend continuing. The ISM measures manufacturing on a national level.

And the bottom line?  Activity is picking up, employment and wages are rising, and policy looks to be headed in a positive direction. What’s not to like? It has been a very healthy start to 2017.

Market Minute 4/7/2017 – On the Other Hand

You may recall that, from time to time, we highlight concerns with the US or world economy. Regretfully, I must say that this is — on the edge — of being one of those times…maybe.

This week I read articles on that stated two highly respected asset managers have concerns about a possible slowing US economy. CEOs Larry Fink (Blackrock) and Jamie Dimon (JPMorgan Chase) are quoted as being worried that the slowness with which the new administration is moving to cut taxes and government regulations is likely to make investors move to the sidelines, which of course, will slow the markets growth.  And to that I say – good news!  As long as we have a few people who are not convinced that markets are strong and headed up, we feel pretty confident in the upward direction. I will be concerned on the day that I pick up a newspaper or read an internet headline that says “Everyone thinks markets are headed up!”  But, that day appears to be rather far off.  We are expecting continued growth as we move into the middle of the current year.   



Ronald P. Denk, CFP®
Investment Advisor
Denk Strategic Wealth Partners
Phone (602) 252-8700
Fax (602) 252-8701
Toll-Free (877) The-Denk
10000 N. 31st Avenue, Suite C-262

Phoenix, AZ 85051

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