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With the non-farm payrolls (NFP) report just around the corner, I figure today’s as good time as any to take a closer look at the world’s largest economy.

Do the FOMC members have legit reasons to be as hawkish as they are these days? Let’s find out!

Growth

  • The second GDP estimate confirmed Q4’s 1.9% growth, which is slower than Q3’s 3.5% increase and the expected 2.1% uptick.
  • Consumer spending – already the biggest GDP contributor – added more in the second estimate (1.7% to 2.05%) while business investment (0.30% to 0.17%) and government spending (0.21% to 0.00%) contributions were revised lower. Meanwhile, trade (-1.7%) remains the biggest drag since Q2 2010.
  • The economy grew by 1.6% in 2016, the slowest since 2011, after expanding by 2.6% in 2015.
  • The Trump administration pledged “a return to 4% annual economic growth” though U.S. Treasury Secretary Steven Mnuchin warned that we won’t see 3%+ growth until 2018.

Employment

  • The NFP report came in at a 4-month high but downward revisions to December and November’s figures mean that there are 39,000 less jobs provided than previously reported.
  • Labor force participation rate rose for a third consecutive month to its 4-month high in January.
  • Retail (+46K) and construction (+36K) industries added the most jobs for the month, while the government marked a second monthly decline (-10K) for job creation.
  • The 4-week moving average of initial jobless claims is now at its lowest levels since 1973.
  • Wage growth remains tepid and still barely keeps up with inflation.

Inflation

  • Consumer prices accelerated for the sixth consecutive month in January to its highest levels since March 2012.
  • On a monthly basis, January’s 0.6% growth is the highest since February 2013.
  • Higher gasoline prices accounted for almost half of the monthly CPI jump though prices for shelter, apparel, and new vehicles also helped.
  • Core personal consumption expenditure (PCE), the Fed’s closely-watched report, dipped in January as consumers eased up on utilities and durable goods. It’s now close but still below its 2.0% target.

Businesses

  • Orders for durable goods posted its first growth in three months in January, thanks to a 6% jump in transportation.
  • Regional manufacturing PMIs are posting notable highs in February:

    NY mfg PMI – highest since Sept 2015

    Philly Fed mfg PMI – highest since Jan 1984

    Richmond Fed mfg PMI – highest since March 2016

    Chicago PMI – highest since Jan 2015

  • Sentiment in the manufacturing sector continues to improve in February as rising prices and optimism over the administration’s fiscal policies boosted new orders and shipments.
  • Services PMIs aren’t so rosy. The service sector is seeing slowdown in growth thanks to business owners having mixed sentiment over the new administration. Both the ISM and Markit indices showed weaker employment components.

Consumers

  • Retail sales might have grown at a slower pace in January but its broad-based advance hinted that consumers can continue to prop up the economy in Q1 2017.
  • 10 out of 13 retail sales components showed growth in January, led by notable increases in sales from gasoline stations, restaurants, and electronics and appliance stores offsetting the drop in motor vehicle purchases.
  • Consumer confidence took a hit in January thanks to a shaky start for the Trump administration. It has improved in February though, with the CB index improving from 111.6 to 114.8 for the month.
  • Personal spending eased January thanks to a decline in purchases of durable goods (like autos) while spending on services fell flat for the month.

Trade

  • Shipments of advanced technology goods boosted exports to its highest since April 2015.
  • Exports to OPEC (+26.5%), the EU (+10.1%), and Japan (+4.2%) increased but shipments to Brazil (-14%), China (-4.1%), Canada (-2.8%), and Mexico (-2.5%) slipped in December.
  • Imports shot up to its highest since March 2015 led by imports of goods automotive vehicles, parts, and engines.
  • Uncle Sam recorded trade deficits with ALL of its main trade partners (China, EU, Japan, Mexico, Canada).
  • For 2016, the U.S. saw a 0.4% increase in trade deficit. Exports is up by 2.3% for the year while imports fell by 1.8%.
  • Among the main trading partners, Uncle Sam’s deficit rose with Mexico and Japan but narrowed with the EU, Canada, and China. Take note though, that the gap with China accounts for more than 3/5 of the overall trade deficit.

TL;DR? Here’s a neat summary for ya!

US economy

Based on the figures above, we can understand why the Fed is keen on removing monetary stimulus this year.

Consumer prices continue to rise on the back of rising oil prices and stronger spending, while more workers are looking for and are finding jobs. Wage growth needs some (okay, a lot of) improvement, though.

Other indicators are also pointing to growth. Business investments, for example, are buoyed by President Trump’s plans to increase infrastructure spending, lower taxes, and reduce regulations. Consumer spending – the economy’s biggest driver – also continues to thrive amidst steady hiring, low borrowing costs, and rising confidence.

Meanwhile, Uncle Sam’s deteriorating trading trends underscore the importance of renegotiating trade agreements. However, Trump would have to tread carefully to avoid a wave of protectionism that would limit demand for U.S. exports.

Next week we’ll see the non-farm payrolls for February. Pay close attention to wage growth, as it could affect the pace of consumer spending.

Oh, and don’t forget to tune in to the Fed members giving speeches today! While economic reports are all well and good, market players will likely pay closer attention to the folks dictating monetary and fiscal policies.