The Week Ahead – Economic Tectonics

Welcome to “The Week Ahead” where we take a moment to provide our thoughts on what we can expect in markets and the economy during the upcoming week.

I recently stumbled across an interactive website that allows you to view what the globe likely looked like tens or even hundreds of millions of years ago. Since human beings have spent so little time on Earth, it is easy to forget how dramatically everything changes given enough time. Many people will remember back from school that the most recent major supercontinent was called Pangea, but there have been several others: Pannotia, Rodinia, Columbia and more. Every 400 million years, the Earth’s crust goes from expansion to contraction leading to a collision of the continents and the eventual formation of a supercontinent. According to NASA, the next supercontinent known as Amasia, is already forming and will assemble in approximately 100 million years.

This cycle of contraction followed by expansion is also how economies evolve and grow over time, albeit in a much more episodic and unpredictable manner. The business cycles are shorter than 400 million years, but they have been getting longer. We are now in the 108^th month of the economic expansion; the second longest on record. The longest was 1991-2001 at 120 months. Will this economic expansion exceed that record? Given the strong economic dynamics: low unemployment, GDP growth trending up and fiscal stimulus in the form of tax cuts; we think the odds are fairly good.

For this week ahead, we have several key indicators we are anticipating. One of the most interesting is the Weekly Jobless Claims, which comes out on Tuesday. Jobless claims are a statistic that counts people filing to receive unemployment insurance benefits. Last month, this statistic hit a 48-year low, and is one of the reasons we do not see a recession on the horizon. Of course, these strong data are the reason why the Federal Reserve is continuing to increase interest rates as a way to cool off the U.S. economy before inflation becomes a problem. It is extremely likely we will see another quarter point hike in September followed by another one in December. The Fed has announced it would like to hike four additional times in 2019, but will certainly remain mindful of the economic data, and could stop raising rates if continents begin to collide.

Data deck for August 13 – August 17: