2017 Forecast: The FUTURE is ….
January 17, 2017SHI Update 1/25/17: Steady as She Goes
January 25, 2017
Trump’s inauguration is this Friday. But he’s already moving markets!
Not in office yet, Trump has no problem tweeting, creating conflict and generally stirring the pot. Boeing, Ford, GM, Congressman John Lewis, or the value of the US dollar…they’re apparently all on the table.
But he hasn’t mentioned ridiculously expensive steaks, or my SteakHouseIndex. Not once! I may sue. 🙂
Welcome to this week’s Steak House Index (SHI) update.
By the way, I think you know I’ve migrated this BLOG to a new URL – https://www.steakhouseindex.com/ The reading experience on the site is much better than in the email form. I suggest you click the preceding link and give it a try!
Why You Should Care: The US economy and US dollar are the foundation of global economics: our nominal GDP is over $18.5 trillion a year. Is it growing or shrinking? Is it possible to know – before the quarterly GDP releases from the BEA?
The objective of the SHI is simple: To predict the direction of this behemoth ahead of official economic releases. But while the objective is simple, the task is not.
BEA publishes GDP figures the instant they’re available. Unfortunately, it is a trailing index. The data is old news; it’s a lagging indicator.
‘Personal consumption expenditures,’ or PCE, is the single largest component of the GDP. In fact, the majority of all GDP increases (or declines) usually result from (increases or decreases in) consumer spending. Thus, this is clearly an important metric to track.
I intend the SHI is to be predictive, anticipating where the economy is going – not where it’s been. Thereby giving us the ability to take action early. Not when it’s too late.
Taking action: Keep up with this weekly BLOG update. If the SHI index moves appreciably – either showing massive improvement or significant declines – indicating expanding economic strength or a potential recession, we’ll discuss possible actions at that time.
The BLOG: Do you ever think about the US dollar? Whether it’s ‘strong’ or ‘weak’? Or even what these terms mean?
I guarantee you will think about it when you travel to other countries. Not that long ago, traveling the UK was extremely expensive. For an American spending the US dollar (USD).
The year was 2004 and I was traveling with my wife and one of my daughters. She was “doing” a summer program at Cambridge University in England. At that time, one English Pound cost about $2. Which means, for example, a ‘Caffe Mocha’ at Starbucks in London, priced around 3.60 Pounds cost ME over $7. Ouch. Don’t even ask about hotel rooms or expensive English steaks. Staggering.
Today, one Pound will cost you about $1.25. Which means that ‘Caffe Mocha’ will cost me only $4.50.
And the Euro is almost at ‘par’ with the USD today. Almost 1 for 1.
The USD is strong today. Meaning compared to other currencies, it buys more than it did before:
Here’s a chart of the Bloomberg ‘Dollar Index’ for the past 5 years. As you can see, until the middle of 2014 the index was near 80. Today it is over 100. That’s a 25% increase. Which means it’s cheaper for an American to travel in the UK or Europe today, but it does adversely impact US companies doing business around the globe.
Trump believes a strong dollar makes the US less competitive with our trading partners, like China, Mexico and Europe. Said another way, a strong dollar makes imports from China, Mexico and Europe less expensive for American’s to purchase. And it makes our exports more expensive for our trading partners to buy.
Which, over the long-term, impacts our trade deficit, potentially US jobs, and (in theory) our economy as a whole.
On the other hand, a strong USD makes oil cheaper, manufacturing inputs (like commodities) cheaper, and in general, holds down the costs of various consumer staples, all of which has the effect of keeping inflation down.
So it’s a mixed bag. Like most economic and financial issues. Which I hope President-Elect Trump takes to heart once in office.
Of course, steaks are neither cheaper or more expensive these days … because our steaks are USDA Grade A! No imports here! Made right here in the good ol’ US of A!
And how are they selling? Let’s take a look:
Like hotcakes! Steaks and lobster mashed potatoes are flying off the shelves! Once again, Mastros Ocean Club is fully booked. You can’t get a table on Saturday night before 9:15 pm. And, sorry ‘Capital Grille’, but once again you are bringing up the rear.
Our SHI reading this week is a positive 8. A very strong reading for the second week in January. Here’s our trend to date:
As Mr. Trump takes office, he’s lucky to be inheriting a US economy firing on all cylinders. Consumers are spending money!
Of course, many would argue the economic benefits from this success are not equally distributed. All Americans are not benefiting. Perhaps. But that discussion is outside the scope of the SHI. Maybe we’ll cover the ‘Gini Index’ in a future blog – it’s an interesting topic. (You might want to google it.)
No, for now we’ll simply conclude consumer spending is hot, hot, hot…and our Steak House Index reflects a strong economy and solid foundation.
– Terry Liebman
2 Comments
So what I got out of that … we should go back to Europe! 🙂
Really informative article post.