The latest Beige Book suggests that the U.S. economy is still growing at or above its long-term trend, indicating that some of the “transitory factors” that held the U.S. economy back in the first quarter of 2015 have faded and that some upward pressure on wages is perhaps beginning to emerge. Overall, the Beige Book described the economy as expanding at a “modest or moderate” pace in most districts. In general, optimism regarding the economic outlook far outweighed pessimism throughout the Beige Book, as it has for the past two years or so.
The Beige Book is a qualitative assessment of the U.S. economy and each of the twelve Federal Reserve (Fed) districts. We believe the Beige Book is best interpreted quantitatively by measuring how the descriptors change over time. The latest edition of the Fed’s Beige Book was released Wednesday, July 15, 2015, ahead of the July 28 – 29 Federal Open Market Committee (FOMC) meeting. The qualitative inputs for the July 2015 Beige Book were collected from late May 2015 through July 3, 2015; thus, they captured a period of:
- Increased financial market volatility due to Greece’s debt problems
- Disappointing U.S. economic data for May and June 2015 following the first quarter disruptions (port strike, bad weather, strong U.S. dollar)
- Some stability in oil prices, with oil near $60 per barrel during the reference period
- A 21% decline in Chinese equity prices, which prompted fears of a recession in China
- The U.S. Supreme Court’s Affordable Care Act (ACA) decision
The global markets and economy may be able to move higher for the remainder of the year, with accommodative monetary policy and well-contained inflation providing tailwinds. The U.S. looks set to extend its not-too-hot, not-too-cold recovery, while Japan is benefiting from stimulus and pro-market reforms. Although economic conditions in Europe remain fragile and uneven, growth looks to be improving somewhat, and we believe the European Union has the tools to prevent a broader Europe contagion should the Greek bailout resolution fall apart. Meanwhile, economic reforms and policy shifts in many emerging markets are contributing to improved growth prospects and investment opportunities, but these transitions are long term and challenging, calling for a selective and risk-managed approach. While China has been the focus of recent scrutiny, we believe a hard landing is not imminent, given the arsenal of stimulative tools that could be deployed by the Chinese government.
As we look to the second half of the year, there is no reason to expect markets to move away from risk-on, risk-off tendencies. Markets are likely to remain volatile due to continued political turbulence in the Euro zone and uncertainty surrounding China. Evidence of stronger U.S. economic growth would have to materialize to allow the Federal Reserve to raise rates before yearend. Reflecting this view, we remain constructive on certain growth equities, and select liquid alternatives.
John Hess 
Falgun Jariwala 
Managing Principal Managing Director
jhess@nsinvestors.com fjariwala@nsinvestors.com
www.nsinvestors.com www.nsinvestors.com
- The views expressed are provided for information only and are not to be used or considered as an offer or solicitation to buy or sell securities or investment products. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you consult your financial advisor.
- All performance referenced is historical and is no guarantee of future results.
- All indices are unmanaged and may not be invested into directly.
- The economic forecast set forth in this presentation may not develop as predicted, and there can be no guarantee that strategies promoted will be successful.
- Stock investing involves risk including loss of principal.
1. Data available on U.S. Census Bureau website:https://www.census.gov/construction/nrs/new_vs_existing.html