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Monthly Economic and Investment Outlook

July 2021 Economic and Investment Outlook.

United States

  • The June nonfarm payroll report was well received by the financial markets as 850k jobs were created. The private sector added 662k jobs, bringing total employment to 145.8 million. The unemployment rate edged modestly higher to 5.9% as the labor force participation rate remains stubbornly low at 61.6%. There are currently 9.3 million job openings with 9.5 million unemployed Americans.
  • The Federal Reserve’s forward guidance for 2021 year over year U.S. real GDP growth is now 7%. The Fed sees Personal Consumption Expenditures (PCE) inflation of 3.4% year over year. The FOMC predicted in June 2020 that the increase in PCE for 2021 would be between 1.4% and 1.7%. Cornerstone Macro is forecasting 9% real GDP growth for the U.S. in 2021, slowing to 4% in 2022.
  • The June U.S. ISM Manufacturing PMI index fell 0.6 percentage points to 60.6%, from May’s reading of 61.2% (13th consecutive month of economic expansion). The Prices Index registered 92.1%, up 4.1 percentage points from May’s 88%. This was the highest reading since July 1979 (93.1%). The elevated Prices Index represents continued supplier pricing power and scarcity of supply chain goods. The New Orders Index was down while the Production Index was up, slightly narrowing the gap between orders and production. The Employment Index (49.9%) contracted after six straight months of expansion, a reflection of the significant difficulties companies are facing in attracting and retaining labor.

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  • Global growth will slow as the unprecedented stimulus over the past 15 months abates. The U.S. and Eurozone are leading global economic activity as the Eurozone reopens, particularly in the travel and leisure sectors.
  • According to Eurostat, the Eurozone’s unemployment rate, while still elevated, fell more than expected in May to 7.9%, down from 8.1% in April. Economists had expected a decrease to 8.0%.
  • China growth will remain moderate, as reflected in slowing money, credit, and government spending growth. Beijing does not want a booming economy and will work hard to prevent a bust.
  • The Caixin Purchasing Managers’ Index (PMI) fell 0.7 percentage points in June to 51.3%, similar to the government’s official China Federation of Logistics and Purchasing Managers’ Index (CFLP) of 50.9%. Some of the weaknesses resulted from new export orders, which were negatively impacted by COVID-related port closures.
  • According to the International Monetary Fund (IMF), emerging economies will grow faster this year than previously forecast, but many outside Asia will lag their developed peers. Smaller emerging economies are raising interest rates, in an effort to support their currencies.

Fixed Income

  • When will the Fed start tightening to limit inflation and slow an overheating economy? Will they begin tapering the $120 billion per month purchases of government treasuries and mortgage-backed securities in late 2021 or not until 2022? Chairman Powell is an advocate of the go-slow approach. It appears the Fed is more focused on full employment than inflation.
  • The Fed Funds futures market now forecasts that the first Fed Fund rate hike will occur in October 2022, with two additional rate hikes in 2023.
  • The amount of liquid assets in the financial markets is staggering. While the M2 growth rate is slowing, it continues to rise to record highs. M2 is up $5 trillion from January 2020 through May 2021. Demand deposits ay all commercial banks are up $2.4 trillion over this same time period.
  • During May, the average hourly earning (AHE) for lower-wage workers was $25.60, about 50% of the higher wage worker at $51. However, over the past two years, lower-wage workers’ AHE is up 9.3% compared to 4.8% for the higher-wage workers.

Tactical Fixed Income Allocation

  • Duration slightly below the appropriate benchmark in an interest rate environment which appears poised to be edging higher.
  • Slight overweight to investment grade corporates – capture incremental income.


  • According to Yardeni Research, industry analysts are currently estimating that S&P 500 operating earning per share will rise 60.5% during Q2, slow to 22.9% in Q3, and 16.6% in Q4. Earnings per share will rise 37.2% this year, and 11.6% next year. Strong, but slowing earning growth when equity valuations are near historical highs could be a headwind for equity performance.
  • Current equity markets are supported by historically low interest rates, healthy consumer spending and confidence, strong revenue and earnings growth, and an expanding and reopening economy.

Tactical Equity Allocation

  • Neutral weight in U.S. Large Cap stocks with a slight emphasis to value-over-growth.
  • Remain slightly underweight International Developed and Emerging Markets, although valuations remain attractive relative to U.S. equities. International Developed is experiencing relatively slower growth while Emerging Markets may be pressured as China focuses on giant tech companies, financial stability rather than liquidity, and a non-appreciating yuan.
  • Exposure to gold, which serves as a hedge against monetary or fiscal policy error, debt monetization, and higher inflation. Beneficiary of real negative interest rates.

Notices & Disclosures
1 - Past performance is no guarantee of future results.
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3 - This material is provided for general information and educational purposes. The material has been extracted from various sources that F.N.B. Investment Advisors, Inc. believes reliable, but we cannot guarantee the accuracy, completeness, or integrity of the material. The information in these materials may change at any time without notice.
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