Camelot Portfolios Talking Points

US GDP Growth Continues in Q2, Q1 2017 GDP State Breakdown

Last Friday, the Bureau of the Economic Analysis reported the US expanded 2.6% in the second quarter of 2017 (Bureau of Economomic Ananlysis). This increase in GDP is greater than the revised Q1 2017 GDP and greater than last year’s Q2 growth (Economics).  Positive contributions to growth of GDP came from personal consumption, federal government expenditures, and nonresidential fixed investment.  Detractors were state and local government and residential fixed investment (Bureau of Economomic Ananlysis). Personal consumption constituted 69.1 percent of total GDP while government consumption made up 17.4 percent of Q2 GDP (Bureau of Economomic Ananlysis).

US GDP Growth Continues in Q2, Q1 2017 GDP State Breakdown

Last Friday, the Bureau of the Economic Analysis reported the US expanded 2.6% in the second quarter of 2017 (Bureau of Economomic Ananlysis). This increase in GDP is greater than the revised Q1 2017 GDP and greater than last year’s Q2 growth (Economics).  Positive contributions to growth of GDP came from personal consumption, federal government expenditures, and nonresidential fixed investment.  Detractors were state and local government and residential fixed investment (Bureau of Economomic Ananlysis). Personal consumption constituted 69.1 percent of total GDP while government consumption made up 17.4 percent of Q2 GDP (Bureau of Economomic Ananlysis).

GDP in the majority of states increased in the first quarter. Texas lead the charge with 3.9 percent change in Q1, and Nebraska decreased by -4.0 percent (Bureau of Economic Analysis). Looking at a regional perspective, the Sunbelt, South East, and Midwest continue to grow, and the Great Plains region detracted in the first quarter (Bureau of Economic Analysis).

Yield Curve Movements

Interest rates have seen some significant changes in 2017 compared to the last several years. Short term interest rates have continued to rise thanks to decisions made by the Federal Reserve. The 75 basis point rise over the past year has flattened the nominal yield curve throughout the durations. To put this in perspective, the 5 minus 1 year term steepness in January 2016 was 98 basis points (Federal Reserve). In August 2017, this spread decreased to 58 basis points (Federal Reserve). Another significant move along the yield curve is the entire shift upwards over the past year (Federal Reserve).

Corporate investment grade and high yield fixed income spreads continue to tighten as well. Current spreads between high yield and treasury spot are 3.60 percent (Federal Reserve). Last year, spreads widened likely due to energy companies’ risk of default, but this has subsided even though crude prices remained depressed (FRED Economic Data). Other reason behind tighter spreads is stronger fundamentals by companies versus credit metrics (Putnam).

While spreads are tightening in some areas, Libor is continuing to shift upward over the past year. In July 2017, the 3 month Libor stood at 1.31 percent (Federal Reserve). This upward shift has also compressed the spread between 3 month treasuries and 3 month Libor, also known as TED spread. At the end of July the TED spread was 16 basis points (FRED Economic Data). This is a decrease from a five year high in September 2016 of 48 basis points (FRED Economic Data).

Data Source: Treasury.gov

Data Source: Treasury.gov

Compiled by the Camelot Portfolios Investment Committee

Darren Munn, CFA, Chief Investment Officer

Eric Kartman, Research

Drew Steinman, CPA, Trader/Research

Zach Hartenburg, Analyst

Frank Echelmeyer, MBA, CKA®, Advisor Consultant

-for Broker/Dealer and RIA use only-

 References

Bureau of Economic Analysis. GDP by State: Q1 2017. 2017. 2017.

Bureau of Economomic Ananlysis. Q2 2017 GDP. 2017. 2017.

Economics, Trading. Trading Economics. May 2017. 2017.

Federal Reserve. Libor Rate 1 month. 2017. 2017.

FRED Economic Data. TED Spread. August 2017. 2017.

Putnam. Fixed Income Outlook. 2017. 2017.

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