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Is the Economy Accelerating, the Inverse of Popular Narrative?

Is the economy accelerating, the inverse of popular narrative?  August’s ISM non-manufacturing index rose to the second highest level since 2005.  The backlog jumped to the greatest point since 2007 and the new order index is now at a 10 year high.  This index measures about 88% to 90% of the economy and such levels are consistent with 4.5% growth.

While I don’ think growth is that strong given the ISM manufacturing index that is posting lower numbers because of the dollar and slower growth in the emerging markets.  This index represents about 12% of the economy and is suggesting growth is around the 1.5% to 2% range.

As stated above, emerging markets are slowing however growth in the advanced economies of the US, Japan and Europe has continued to pick up. These countries/regions represent about 70% of global production.

Today the all-inclusive August labor report is released.  Analysts are expecting a 5.2% unemployment rate and a 62.6% labor participation rate.  Will this data validate recent statistics that the economy is recovering at a pace faster than most expect?

Turning to the markets, Wednesday afternoon CNBC interviewed the head of the SEC.   I found his comments fascinating.  It was strongly inferred the recent volatility can be partially blamed upon the full implementation of the Volcker Rule, implementation that occurred around the end of July. 

Second, the Commissioner commented about the impact of HFTs/ETFs are having upon the markets, stating that “more has to be done” regarding the leveling of the playing field between the HTFs and traditional firms, adding that HTFs have greatly contributed to current volatility.

Can I remotely suggest two different thoughts?  First all regulations have unintended consequences, consequences that are perhaps worse than the “issues” that these regulations were originally designed to control.  Second, is this unleveled playing field bordering on the edge of manipulation where the odds are stacked against all but a chosen few?

Yesterday’s trading was again volatile albeit the volatility ranged between unchanged and a 200 point advance closing about 20 points higher.  Oil ended the session about $0.50/higher to just under $48/barrel.

Last night the foreign markets were down.  London was down 1.66%, Paris down 2.15% and Frankfurt down 2.09%.  Japan was down 21.5% and Hang Sang down 0.45%.

The Dow should open moderately lower with concerns over the payroll data, fearing if data is too strong, the odds of a change in monetary policy rises.  The data is released at 8:30.  The 10-year is up 6/32 to yield 2.14%.

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Ken Engelke

Chief Economic Strategist Managing Director

The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.