August 2013 Economic Outlook

Sweeney, Greg

Read our Economic Outlook, a monthly newsletter authored by Greg Sweeney, CFA, chief investment officer at Bell State Bank & Trust. Sweeney holds a bachelor’s degree in business from the University of North Dakota, is a CFA charter holder, and is a 27-year veteran of the Investment Management team.


Federal Reserve Monetary Policy

  • At the next Federal Reserve meeting on September 17, we expect the Fed to leave rates unchanged between zero and 0.25%. The Fed continues to indicate that rates will remain near these lows until 2015, but dissension remains among the Fed members on this subject.


  • The most recent year-over-year consumer price index (CPI) shows inflation at 1.8%. When the number is released in August, it could touch 2%. We expect to see figures announced in September and October to be below this level.

Economic Activity

  • A trend toward a more positive social mood appears to be present in both the economy and the stock market. The bond market does not appear to have the same positive social mood at this time.
  • Annualizing real gross domestic product (GDP) growth for the first half of the year amounts to 1.4%. This is not the kind of number that would suggest the economy is behind the recent highs in the stock market.
  • Leading economic indicators show gradual improvement. Average weekly manufacturing hours worked represent 27% of the index. The thinking is that manufacturing leads the business cycle because employers tend to adjust work hours before increasing (or decreasing) their workforce. That thinking may lose some influence today for a couple of reasons. First, to maintain profits, employers have been looking for efficiencies wherever they can find them, so they are using more technology and automation. Second, employers are reluctant to hire due to unknown affordable care act costs. Third, employers are reluctant to hire because the outlook for future growth prospects is still cloudy. To back up these statements, we point to the capacity utilization index, which has not moved out of its present range for 18 months.
  • Initial jobless claims are slowly declining along with the unemployment rate, yet the percentage of the population employed continues to decline and is currently at levels last seen in the early 1980s.


Fixed Income

  • With the recent rise, Treasury rates are remaining elevated longer than anticipated. Losses are showing up on investor statements. Remember, coupon income determines about 90% of bond returns over a full market cycle. When the 10-year Treasury is 1.6%, it does not provide much of an income base.

Stock Market

  • Record highs in the stock market are daily headlines now. Will it keep moving, or is it time for a pause? The relative strength measurement is moving into the overbought level, but this was the case in mid-July as well, and the market continued to push higher.
  • We still have a hard time connecting economic activity to the level of the stock market. Other influences that come into play are corporate buybacks, leverage or margin buying of stocks, support from quantitative easing (QE) and overall flows of dollars into the stock market.

View previous Economic Outlook newsletters.

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