Ivy Financial GroupMichael ZoliCERTIFIED FINANCIAL PLANNER™Investment Consultant1-800-692-6802

-1-

V I E W P O I N T

May / 2015Vol. 82, No. 64THE ECONOMY

Editor’s Note: The Argus Viewpoint this month includes slides from our quarterly Institutional Outlook presentation.

STRONGER ECONOMIC GROWTH AHEADAs in early 2014, adverse weather dampened retail sales growth, inventories and production. The13% surge in the Fed’s Broad US dollar index hit foreign profit translations and foreign orders tosome extent. The 50% plunge in crude oil stalled order growth and investment in energy exploration.First-quarter real GDP will not fall, but growth is expected to slow to just 1% or 2%. We expecteconomic growth to rebound in coming quarters.

� Real consumer spending should pick up; retail sales ex-gas remain strong.• Payrolls expanded an impressive 261 thousand per month in the past 12 months.

• Real disposable income surged 6.6% in the latest statistical quarter.

� Lower energy prices benefit non-energy sectors. Low prices will boost consumer income, andcut operating costs for transportation, distributors, manufacturing and utilities.

� The higher level of the US dollar also has positive consequences—the US is a net importer. Lowerforeign prices benefit retailers and importers of all raw and finished goods.

� We see a rebound in cap-goods orders. The fall in energy prices and the rise of the dollar havedampened business orders, but not as much as the strong dollar period in 2011-12.

• We think the US dollar has peaked and will trend lower; energy prices are at or near bottom.

• Markit Economics reports that “robust” domestic demand has offset weakness in export orders.

• Small-business optimism is rebounding, as are intentions to hire, borrow and invest.

� We see improving growth abroad. Global PMIs point to almost half of S&P 500 profits comingfrom abroad. Fifty-seven percent of all US trade is now done with emerging markets.

INVESTMENT PRODUCTS ARE NOT FDIC INSURED; NOT GUARANTEED; MAY LOSE VALUE.COPYRIGHT 2015 ARGUS RESEARCH COMPANY

-2-

VIEWPOINT

EMPLOYMENT TRENDS SUPPORTIVE

� Nonfarm payrolls rose just 129 thousand in March, falling below 200 thousand in thequarter — but other job metrics were stronger.

• ADP payrolls rose 189 thousand last month, averaging 207 thousand/month in the first quarter.

• Annual growth in payrolls averaged 261 thousand/month in the year ending March, just off thecyclical high of 269 thousand in Feb.

� The official U3 unemployment rate was unchanged at 5.5%, but broader jobless ratesall fell.

• The U4 & U5 jobless rate fell to 5.9% and 6.7%, respectively, their lowest levels since mid-2008.

• The U6 jobless rate fell to 10.9%. This rate, which includes “forced” part-time workers, has fallenby 1.4% in the past year, vs. just 0.7% for U3.

-3-

VIEWPOINT

JOBS & INCOME TO BOOST SPENDING

� As in the first quarter of 2014, adverse weather in much of the US probably explainsthe slowing in real consumer spending in early 2015. Lower gas prices explain the rest.But strong job gains and the surge in real incomes augur strong consumer spendingahead.

• Quarterly growth of real consumer spending has fallen off from the 4.4% cyclical peak in Q4. Weexpect about 2.25% growth in the March quarter.

• Job growth just off cyclical highs and 6.6% growth in real disposable income should lead to astrong rebound in spending, as occurred in second, third and fourth quarters of 2014.

-4-

VIEWPOINT

RETAIL SALES EX-GASCONTINUE TO EXPAND

� As energy prices have slumped, gasoline sales have fallen sharply. Gas sales plunged2.4%, 12.5% and 8.6% in the past three quarters. The declines have affected retailsales growth significantly, but ex-gas they remain firm.

• Total retail sales averaged just 2.2% growth in the first quarter, down from 4.6% in the thirdquarter last year. From 13% in 2013, gas spending fell to just just 8.1% of retail sales in Q1.

• Retail sales ex-gas averaged 5.3% growth in the first quarter, compared to 5.3% and 5.6% growthin the past two quarters. [Higher and lower year/year growth rates in January and March wereaffected by the extremely weak January in 2014 and the strong rebound in March 2014.

-5-

VIEWPOINT

HOMEBUYERS BRAVE THE BAD WEATHER

� In spite of adverse weather in the Northeast and Midwest, New Home sales in Februaryreached a seven-year high, before slipping in March. With Building Permits nearcyclical highs, we expect housing to contribute to economic growth in comingquarters.

• More jobs, more New Home sales. New Home sales have jumped 20% since July as total payrollssurged 261 thousand per month in the past two quarters..

• Building Permits just off a seven-year high. Bad weather slowed Housing Starts in February andMarch but forward-looking Building Permits remain just under the February cyclical peak.

• Existing Home Sales jumped 6.1% in March, reaching an 18-month high.

-6-

VIEWPOINT

INDUSTRIAL ORDERSMAY BE NEAR BOTTOM

� After Energy and Technology, Industrials (and Capital Goods in particular) have oneof the highest exposures to foreign markets. As the dollar stabilizes, we think orders forCap Goods should firm up.

• The slide in Cap Goods orders corresponds with the 13% surge in the Fed’s Broad Dollar sincemid-2014. Even so, orders ex-Aircraft have fallen less than they did after the 10% dollar rise in2011-12.

• The plunge in crude oil prices also has contributed to the drop in energy-related capital goodsorders, but a low in crude oil should stem the decline in these orders.

• The plunge in aircraft orders already may be reversing. The US dollar impact may be offset byimproving economic growth abroad and the drop in the operating cost of aircraft and transportequipment.

-7-

VIEWPOINT

US POLICY PERSPECTIVE

� As we approach a Presidential election in 2016, we expect to see important changesin both fiscal and monetary policy this year.

• US fiscal policy will become slightly less restrained. Total real government spending is growingagain on the strength of increased State & Local expenditures.

• Restraint on Federal Government spending is likely to ease. In the two years before a presidentialelection, Congressional parties are generally more willing to make policy concessions in returnfor expansion of popular, vote-winning spending programs.

• Defense, and other areas, may see “adjustments” to their sequester. The Republican majority willlikely support reducing corporate tax rates. The Democrats will likely support raising minimumwages and increasing “tax expenditures” for higher education or job retraining.

• The Federal Reserve will begin the process of tightening monetary policy. Even so, policy willremain extremely accommodative. Tightening may not begin until September, and Fed gover-nors suggest the pace of tightening will be slow.

• The strength of the US dollar could slow the Fed’s timetable. However, we think the dollar mayhave peaked in mid-March. Although the Fed’s Broad Dollar is down just 2.5%, the greenbackhas fallen against all but one of our 26 major trading partners since then.

• Initial Fed tightening is unlikely to have a significant adverse impact on stocks, at least until itappears that interest rates will push above the rate of inflation. That should not happen untilmid-2016, at the earliest.

VIEWPOINT