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Anticipation of a mere 25-basis-point increase in the federal funds rate has become the focus of the financial markets.

The push/pull of rising consumer spending and falling business investment has combined to provide lackluster annualized growth.

The economy has added 1.5 million jobs year to date, with 2.5% wage gains.

Initial reports indicate GDP rose 2.9% in Q3, echoing 2012 when government spending boosted GDP before the presidential election.

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ECONOMIC SNAPSHOT

It is unsurprising that the Federal Open Market Committee was reluctant to raise interest rates near a national election. What is surprising is that anticipation of a mere 25-basis-point increase in the federal funds rate has become the dominant narrative and focus of the financial markets. We seem addicted to artificially low rates and paranoid about even minor fluctuations.

The push/pull of rising consumer spending and falling business investment has combined to provide lackluster annualized growth. Business profits fell 1.9% in the second quarter versus the same period in 2015, when profit margins appear to have reached their cyclical peak. Q2 productivity also fell 0.6%. S&P 500 profits have fallen for four consecutive quarters and business investment has declined for three. Nondefense capital goods spending excluding aircraft, a good measure of business capital investment, declined 1.2% in September. The ISM Manufacturing Index, which signals a contraction when below 50, dropped from 52.6 in July to 49.4 in August, then topped 50 in September.

Yet the economy has added 1.5 million jobs year to date, with 2.5% wage gains. Consumer spending and median household income have both risen. In fact, the recent median income rise is the largest annual gain in 17 years, on par with a 3.7% increase from 1997 to 1998. Aggregate net household assets are a record $89.1T. Initial reports indicate GDP rose 2.9% in Q3, echoing 2012 when government spending boosted Q3 GDP before the presidential election but slowed to drag the economy in Q4.









20 FAST FACTS

1 The $2.9T hedge fund industry suffered a third consecutive quarter of net withdrawals as its performance lagged the S&P 500 by half.
2 New SEC rules to enhance money market liquidity raised borrowing costs 60%; $400B exited the sector.
3 Retail sales remain flat with major brick-and-mortar brands reporting lower quarterly revenue and store closures as online shopping continues to grow.
4 Wal-Mart in August announced purchase of online retailer Jet.com for $3.3B.
5 U.S. port volumes have been flat as stores trim inventories; YTD growth slowed to 2.2% in July, and freight and rail shipments declined 2.6% versus same-month 2015.
6 Outstanding Chinese debt reached 255% of its GDP, or $28T — as much as the combined commercial banking systems of the U.S. and Japan.
  7 South Korea’s Hanjin Shipping (7.8% market share) filed for bankruptcy; Maersk’s profit dropped 90% as its shipping unit swung to a loss.
8 Bank of England cut benchmark interest to 0.25% — the lowest level in 322 years — as post-Brexit stimulus.
9 Blackstone Group is seeking to raise $5B for its first non-traded REIT.
10 Home prices recovered to within 2% of the previous peak, yet homeownership rate fell to 51-year low of 62.9% in Q2.
11 The U.S. deficit, projected to be $549B or 3.0% of GDP, widens as tax receipts fall due to declining corporate profitability.
12 The International Monetary Fund officially added the Chinese Yuan to its basket of reserve currencies.
13 102 American and Canadian oil and gas companies have gone bankrupt since 2015, 58 so far in 2016 involving more than $50B in debt. American producers last year wrote down $177B in assets.
14 Commercial property sales volume fell 2% YOY in Q3, marking three quarters of contraction, as cap rates continue to fall for most property types, according to Real Capital Analytics.
15 A shortage of newly issued product and recent market rally has AAA CMBS Swap spreads trading at around 105 basis points, down from 175 in March.
16 There is growing interest in affordable residential product aimed at Baby Boomers, such as DR Horton’s launch of “Freedom Homes” in Houston starting at $256,000.
17 Uber launched self-driving cars in September in Pittsburgh, and Uber-owned startup Otto delivered 2,000 cases of Budweiser by self-driving truck in October.
18 Since 2000, REITs have returned an average of 12% annually. That beat No. 2 earner high-yield bonds, which returned 7.9%; large-cap U.S. stocks returned 4.1%.
19 The global population of billionaires grew 6.4% in 2015 to include 2,473 individuals controlling a combined $7.68T, the Wealth-X Billionaire Census found.
20 A few European companies have issued bonds raising more money than they are required to pay, creating negative interest deals.
Tom McNearney

the BRIEFING is an aggregation by Tom McNearney, Transwestern chief investment officer, of other articles and reports. Tom leads Transwestern’s capital market efforts for development and investment nationwide. Tom also serves on the firm’s investment committee and board of directors, and he directs the execution and expansion of the firm’s principal investment activities across the country.

TRANSWESTERN

the BRIEFING
THE NATIONAL ECONOMY AT A GLANCE
NOVEMBER 2016


DISCLAIMER
Copyright © 2016 TRANSWESTERN. All rights reserved. No part of this work may be reproduced or distributed to third parties without written permission of the copyright owner. The information contained in this report was gathered by Transwestern from various sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such information and expressly disclaims any responsibility for any inaccuracy contained herein.


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