June 18, 2014 | By Scott Minerd, Global CIO
U.S. economic data continues affirming our positive outlook for the U.S. economy. The Job Openings and Labor Turnover Survey showed that the number of job openings waiting to be filled in the United States rose by 289,000 to 4.5 million in April -- the highest since September 2007 -- as employers sought more workers to satisfy demand in a growing economy. As those positions get filled in the coming months, we can expect a dip in the U.S. unemployment rate. At first blush, the less-than-expected rise in retail sales of 0.3 percent for May seemed uninspiring. However, sometimes the devil is in the details and the revisions can be more important than the headlines. April retail sales were revised upward to a 0.5 percent increase, supporting our positive outlook for second-quarter GDP growth.
Overseas, there are renewed signs of life in China’s economy. I have long contended that China would likely turn to renewed export growth to offset domestic demand problems. Supporting my view, exports grew in May by 7 percent from the same month last year and the trade balance expanded rapidly, thanks to improving economies in Europe and the United States. China has enacted a number of policies in recent months to support the housing market and overall economic growth, and the latest data -- including rising retail sales and industrial production -- seem to confirm that conditions are improving.
The latest round of monetary policy actions by the European Central Bank should be positive for the euro zone, and indirectly for the United States. In Europe, the risk is that the euro will depreciate, which makes buying U.S. Treasury bonds and other U.S. assets attractive for European investors as interest rates are significantly higher in the United States than in Europe. Indeed, yields on Irish 10-year debt have at times drifted below that of U.S. Treasuries, underscoring this interest rate differential.
On balance, the global economy appears to be firing on all cylinders. In the current environment, U.S. stocks and bonds should continue performing well. However, with most U.S. fixed-income assets now richly priced, we must guard against the pitfalls of overvaluation. For now however, as I wrote in my Market Perspectives commentary last week, the outlook remains positive.
With domestic demand dampened by a slowing housing market and troubles in the banking sector, China must reaccelerate exports to keep economic growth rates at acceptable levels. Luckily for Beijing, economic improvements in the United States and Europe are coming just in time to boost exports. While China needs more reforms to ensure sustainable economic growth, the brighter outlook for the euro zone and the United States, which together account for nearly one-third of Chinese exports, should help the Chinese economy in the near term.
Source: Haver, Guggenheim Investments. Data as of June 18, 2014.
This article is distributed for informational purposes only and should not be considered as investing advice or a recommendation of any particular security, strategy or investment product. This article contains opinions of the author but not necessarily those of Guggenheim Partners or its subsidiaries. The author’s opinions are subject to change without notice. Forward looking statements, estimates, and certain information contained herein are based upon proprietary and non-proprietary research and other sources. Information contained herein has been obtained from sources believed to be reliable, but are not assured as to accuracy. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Guggenheim Partners, LLC. ©2014, Guggenheim Partners. Past performance is not indicative of future results. There is neither representation nor warranty as to the current accuracy of, nor liability for, decisions based on such information.
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