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An Important Update on the Economy

March 17, 2017

It's Friday and that means it's time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don't worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let's take a look at this week's big headlines:

The Fed's Interest Rate Decision

The Fed dominated the news this week. On Wednesday, the Federal Open Market Committee (FOMC) raised key interest rates by 25 basis points to a range of 0.75%to 1.00%. The new range for the Federal Funds rate was viewed as "dovish." Even through Fed Chairman Janet Yellen said that three interest rates hikes were possible in 2017, she signaled that 2% is no longer a ceiling on inflation. This essentially means that the Fed won't be quick to react to inflationary pressures. Yellen clearly is very cautious and does not want to rattle financial markets, which is good news for investors.

Producer Price Index

Speaking of inflation, the Labor Department reported that the Producer Price Index (PPI) rose 0.3% in February, which was significantly higher than economists' consensus estimate of a 0.1% rise. Wholesale food prices rose 0.3% and energy prices rose 0.6% in February. Excluding food and energy prices, core wholesale prices rose only 0.1%. The PPI is now running at a 2.2% annual pace, which is the highest annual rate since March 2012.

Consumer Price Index

The Labor Department also announced that the Consumer Price Index (PPI) rose 0.1% in February, which was in line with economists' consensus estimate. This also represented the smallest monthly increase since July 2016. Energy prices declined 1% in February, led by a 3% decline in gasoline prices. Excluding food and energy, the core CPI rose 0.2% in February. In the past 12 months, the CPI is now running at a 2.7% annual pace, which is the highest rate since February 2012.

Retail Sales

The Commerce Department reported that retail sales rose only 0.1% in February. This was the smallest monthly increase in retail sales in six months. In fact, just four of the 13 industries surveyed reported an increase in sales. In February, sales at electronics and appliance stores declined 2.6%, while gas station sales declined 0.6% and auto sales slipped 0.2%. Excluding gas stations and auto sales, overall retail sales rose 0.2% in February.

A delay in federal tax refunds was cited as one reason that retail sales decelerated in February, after rising a revised 0.6% in January and 1% in December. In the past 12 months, retail sales rose at a healthy 3.7% annual pace, so there is no need to believe that consumer spending will continue to decelerate, since consumer confidence remains high. However, due to weak February retail sales, economists are expected to cut their first-quarter GDP estimates.

Index of Leading Economic Indicators

The Conference Board announced that its index of leading economic indicators (LEI) rose 0.6% in February, which was significantly better than economists' consensus estimate of 0.4%. This was the sixth straight monthly rise; LEI is now at its highest level in a decade. Fully, nine out of 10 LEI components rose, with only building permits declining. The Conference Board stated that "…widespread gains across a majority of the leading indicators points to an improving economic outlook for 2017, although GDP growth is likely to remain moderate."

That's all I have for you this week; I'll be in touch again next week with the latest ratings updates out of Portfolio Grader.

Have a great weekend,

Louis Navellier

Louis Navellier

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