Strong Economic Data Continues

Jul 02, 2021 | Nick Scholte


Reflecting this strength, all six individual indicators in RBC Dominion Securities' proprietary 'Recession Scorecard' are solidly "flashing green" for the economy.

To my clients:

It was a mixed week for North American stock markets with the Canadian TSX finishing down 0.02% (not the extra "0"); the U.S. Dow Jones Index finishing up 1.0%; and the U.S. S&P 500 finishing up 1.7%.

As has been consistently the narrative the past many months – the economic recovery continues and there is no U.S. recession in sight. Absent a U.S. recession, equities should be given the benefit of the doubt. RBC Dominion Securities proprietary scorecard for recession reveals all 6 of the individual indicators are solidly in expansion mode (i.e. flashing “green”) with the underlying arithmetic further indicating that material deterioration in the economic outlook must occur for any single one of these indicators to even begin flashing “yellow”. Given the continued strength of the outlook, portfolios remain over-weighted equities (i.e. stocks).

Regarding new data this week, there are three items of importance: U.S. Employment handily beat expectations with 850,000 new jobs created in June; weekly jobless claims (the trend in which is perhaps RBC’s favourite indicator of looming recession) continued to decline, hitting a pandemic era low of 364,000 new claims (readings of this level and lower are typical of “normal” times); and the monthly ISM Manufacturing report, though modestly missing expectations, at 60.6 nonetheless came in above 60 for the 5th month in a row. Readings above 60 for manufacturing are, historically, very strong and indicative of healthy expansion in the broader economy.

Frankly, the only looming concern I can identify is the U.S. Federal Reserve’s pending slowdown in its bond buying program. Such programs, known as quantitative easing, have become a staple of economic support the past decade ever since the 2008 financial crisis. The heightened stimulus such programs offer is simply not needed at present levels and there is sure to be an announcement in the coming months of the Fed’s plans to unwind the program (otherwise known as tapering). When the announcement comes, it may engender some volatility in the markets but, as I have been recommending since the end of 2020, clients should do their best to look through the volatility.

That’s it for this week. All the best and remain safe,


Nick Scholte, CIM, FCSI

Vice-President & Portfolio Manager

Scholte Wealth Management
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