Who Gets the Blame for Inflation

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

January 18, 2022

Consumer prices rose 7.0% in 2021, the largest increase for any calendar year since 1981. As a result, politicians across the political spectrum are working overtime to find someone to blame and attack.

Some politicians on the left are blaming “greedy” businesses for inflation. But we find this explanation completely ridiculous. Of course, businesses are greedy, in the sense that they’re run by people who are free to maximize their earnings!

But businesses are no greedier today than they were before COVID. In the ten years before COVID, the consumer price index increased at a 1.8% annual rate; in the twenty years before COVID, the CPI rose at a 2.1% annual rate. Both figures are a far cry from 7.0%.

Those blaming greedy businesses for higher inflation have no rational explanation for why businesses somehow missed all the opportunities to raise prices faster in previous decades but suddenly had a “eureka moment” and decided to do so in 2021. Under this economically illiterate theory, think of all the profits they’ve voluntarily foregone for decades.

Meanwhile, think about the rapid increase in workers’ pay in 2021, when average hourly earnings rose 4.7%. Did workers suddenly become greedier, too? Is all this greed contagious? Can we stop it by wearing masks? What does the CDC have to say?

But the political left is not alone in misunderstanding higher inflation. Some politicians on the right are saying the inflation is due to the huge surge in COVID-related government spending and budget deficits. Part of this is likely tactical: by blaming government spending and deficits, they can reduce the odds of passing the Biden Administration’s Build Back Better proposal, which they’d like to see defeated.

What they’re missing is that there is no consistent historical relationship between higher spending, larger deficits, and more inflation. Yes, inflation grew in the late 1960s after the introduction of the Great Society programs. But government spending also soared in the 1930s under Roosevelt’s New Deal, without a surge in inflation. Budget deficits soared in the early 1980s and inflation fell. The Panic of 2008 led to a surge in government spending and deficits and inflation remained tame.

So, if it’s not greed or government spending, by itself, then what is causing higher inflation? We think it’s loose monetary policy. The M2 measure of the money supply has soared since COVID started. That is the (not-so-secret) policy ingredient that has converted extra government spending and deficits into more inflation rather than higher interest rates.

That, in turn, makes it important to follow the path of monetary policy this year and beyond. In recent weeks, a number of Fed policymakers have hinted at rate hikes starting in March, including Mary Daly, the president of the San Francisco Fed and considered a dove. Rule of thumb: when the doves get hawkish and start hinting at rate hikes, it’s time to believe the hints.

The futures market in federal funds is pricing in four rate hikes this year. For now, we think the most likely policy path is three hikes – 25 basis points each: in March, June, and December, with a hiatus for the mid-term election season.

In addition, we think the Fed finishes up Quantitative Easing (QE) in March and starts Quantitative Tightening (QT) around mid-year. The easiest and most straightforward way for the Fed to do QT would be by selling Treasury and mortgage backed securities to the banks and having the banks buying them send their reserves back to the Fed. The Fed can then erase those reserves from its balance sheet. That would result in the Fed holding fewer bonds as assets while being liable for fewer reserves, reducing its overall balance sheet. Instead, the Fed will probably take a more complicated path of not rolling over some assets when they mature, which means the Fed will have to coordinate its operations with the Treasury Department.

The key to remember, though, is that a few rate hikes and some modest QT will still leave monetary policy too loose. “Real” (inflation-adjusted) short-term rates will still be negative while actual short rates remain well below the trend in nominal GDP growth (real GDP growth plus inflation).

The Fed has its work cut out for it. Its goal is to execute a reduction in inflation while sticking a soft-landing for the economy. A year from now, we’ll have a much better idea whether it can meet both these goals.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

1-18 / 7:30 am Empire State Mfg Survey – Jan 25.0 27.0 -0.7 31.9

1-19 / 7:30 am Housing Starts – Dec 1.650 Mil 1.682 Mil 1.679 Mil

1-20 / 7:30 am Initial Claims – Jan 15 225K 210K 230K

7:30 am Philly Fed Survey – Jan 19.0 20.0 15.4

9:00 am Existing Home Sales – Dec 6.430 Mil 6.550 Mil 6.460 Mil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Job Market Making Progress

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

January 10, 2022

Many analysts were disappointed by last Friday’s job report for December, but we think the headline masks an overall report that shows continued improvement in the labor market and a possible surge in small-business start-ups and entrepreneurship.

Nonfarm payrolls rose 199,000 in December versus a consensus expected 450,000. Payroll growth was revised up a combined 141,000 in October and November, which brought total growth to a still short, but respectable, 340,000. This was the fourth time in the last five months that payrolls missed consensus expectations.

However, even as payrolls have recently fallen short, civilian employment, an alternative measure of jobs, has been rising fast, including a gain of 651,000 in December and an increase of 1.09 million in November.

Over long periods of time, and after some revisions, the two surveys closely mirror each other, but in the short run they often deviate. Reading too much into one survey over the other, and every short-term gyration in the data, is a mistake. This is especially true when we account for COVID.

The design of the civilian employment survey makes it better able to capture small-business start-ups and we think that’s a potential reason for slow recent growth in payrolls: entrepreneurs are leaving established businesses (some of whom are supposed to fill out the payroll survey) and setting up their own shops (which can’t fill out the payroll survey because the Labor Department doesn’t know enough about them yet).

One possibility is that people who’ve been working from home feel less attached to large employers and are more willing to strike out on their own. Or maybe it’s a concern about some big company requiring vaccines that’s making some workers leave these employers. Only time will tell.

Either way, we think more small-business start-ups is a good sign for future job growth.

Overall, we think job growth will be strong in 2022. Payrolls rose 537,000 per month in 2021 (and should be revised up in the next couple of months). For 2022, we expect job growth of 325,000 - 350,000 per month, so that by late 2022 total jobs finally exceed the pre-COVID peak. Meanwhile the jobless rate should fall to 3.5%, where it was right before COVID.

Normally job growth this fast would be associated with very rapid real GDP growth, as well. But this is not a “normal” economy. Lockdowns have damaged supply chains severely and the government has grown substantially in the past couple of years, with federal spending setting peacetime records as a size of GDP. Add in the Federal Reserve and its money printing and demand surged. The regulatory state is growing faster, too. This increase in the size of government, even if some of it is (hopefully) temporary will come with a cost. And we think that means slower productivity growth (output per hour) in 2022.

Think about it from the perspective of many businesses, which have struggled to hire the workers they need. They have more of an incentive to keep their most marginal (lowest productivity) employees in the hopes of being able to eventually train them into future profitability. Business beggars can’t be choosers, and less selectivity will create a headwind for output per hour even as the labor market continues to heal.

In turn, that means profits should grow but not nearly as quickly as in 2021. We are still bullish, but we also know that no bull can run forever. And while some think some weak data signals the end, looking beneath the surface is important.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

1-12 / 7:30 am CPI – Dec +0.4% +0.5% +0.8%

7:30 am “Core” CPI – Dec +0.5% +0.4% +0.5%

1-13 / 7:30 am Initial Claims – Jan 9 200K 205K 207K

7:30 am PPI – Dec +0.4% +0.3% +0.7%

7:30 am “Core” PPI – Dec +0.5% +0.2% +0.7%

1-14 / 7:30 am Retail Sales – Dec 0.0% +0.3% +0.3%

7:30 am Retail Sales Ex-Auto – Dec +0.2% +0.3% +0.3%

7:30 am Import Prices – Dec +0.2% -0.3% +0.7%

7:30 am Export Prices – Dec +0.3% +0.3% +1.0%

8:15 am Industrial Production – Dec +0.2% +0.1% +0.5%

8:15 am Capacity Utilization – Dec 77.0% 76.8% 76.8%

9:00 am Business Inventories – Nov +1.3% +1.3% +1.2%

9:00 am U. Mich Consumer Sentiment- Jan 70.0 70.6 70.6

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

S&P 500 outpaces COVID-19 woes, soars more than 25% in 2021

Markets and Investing

January 03, 2022

The year ended on a high note for the Dow and S&P 500 despite economic challenges posed by the coronavirus and extreme weather events.

While the traditional end of year Santa Claus equity rally may not have been as pronounced as we typically see, it may have just come early. Thus far, we’ve seen both the Dow Jones Industrial Average and the S&P 500 notch new highs in December with underlying market sectors firmly in the green.

Despite the challenges posed by coronavirus variants and extreme weather events, 2021 saw the best economic growth since 1984, muted market volatility and the S&P 500 delivering a return of approximately 27% over the course of the year. Raymond James Chief Investment Officer Larry Adam expects inflation to peak by early next year, which should alleviate pressure on the Federal Reserve (Fed) in the upcoming tightening cycle and would be supportive of domestic equity markets overall. The situation remains fluid, but there’s general optimism that the global reopening will continue and inflationary pressure will subside. Both will be key factors for markets, economic growth and corporate earnings throughout 2022.

This year-end equity boon didn’t come easy. We saw some volatility amid faltering negotiations to advance President Biden’s Build Back Better legislation and rising geopolitical tensions between Russia and the Ukraine, which have the potential to escalate in the near term. We believe that U.S. lawmakers may eventually unlock a deal in the new year, says Washington Policy Analyst Ed Mills. However, investors can expect to see short-term economic headwinds emerge in the meantime, and consumer sectors may stumble as the monthly child tax credit payments are set to expire as well.

Energy policy

As negotiations in D.C. drag out, clean energy companies in the U.S. market may not be able to count on a decade-long extension of the wind and solar tax credits, a more generous electric vehicle tax credit, or new tax credits for low-carbon fuels and green hydrogen. These provisions may be revived in some form but that remains to be seen. This is a sharp contrast to the European Union climate policy, notes Energy Analyst Pavel Molchanov. For example, Germany’s new coalition government announced plans to phase out coal and mandate 80% renewables in the electricity mix by 2030.

Inflation and interest rates

The overall market feel has not changed a great deal. Inflation is rooted in select products/industries, yet interest rates remain subdued for a myriad of reasons that include inflation longevity doubts, global interest rate disparity, sovereign bias toward amassing debt levels and more complex demographic rationales.

The Fed began to taper the pace of its monthly asset purchases and financial markets seem to have priced in rate hikes sooner than later. The central bankers have stated hikes won’t occur until tapering is complete, most likely around May. Given that monetary policy has been so influential to equity markets post-credit crisis, the Fed’s hawkish pivot from ultra-lenient policy could come with more moderate returns and normal volatility/choppiness over the coming year, notes Joey Madere, Senior Portfolio Analyst, Equity Portfolio & Technical Strategy.

Around the world

Overseas markets faced similar challenges (e.g., a sharp rise in COVID-19 cases; higher gas prices; heightened inflationary pressures), yet European equity markets hit new 2021 highs during December. Corporate earnings growth for 2022 is anticipated to be above 10%, aided by a combination of general global export recovery and the current low level of both the euro and the pound against both the dollar and the Chinese yuan.

During 2021, over 40 global central banks raised interest rates, predominantly in the emerging markets, reflecting both economic recovery and higher inflation. With economic growth rates in China continuing to slow, we believe the world’s largest emerging market is more likely to reduce its interest rates further during 2022.

The bottom line

We expect normal volatility and pullbacks in the year ahead, along with continued sector rotation. Overall conditions are likely to remain healthy, and investors can use these periods to opportunistically and thoughtfully add vetted positions. If you have any questions about your financial plan, please reach out to your financial advisor.

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small cap securities. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges, which would reduce an investor’s returns. Small cap securities generally involve greater risks. International investing is subject to additional risks, such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks. These risks may be greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification.

Welcome to 2022: The Winds of Change

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

January 3, 2022

Welcome to 2022! We can’t imagine a more transformative year for America. After two years of unprecedented government actions, the winds of change are blowing hard. The economy has been buffeted by short-term factors since 2020; this year, long term fundamentals should re-assert themselves as the most important drivers of economic and financial performance.

First, the obvious: COVID and COVID-related rules should have much less influence on our lives twelve months from now than they do today. Seems like everyone knows someone who has tested positive (vaccinated, or not). Cases are at record highs, but hospitalizations and deaths are not. This is good news.

Second, President Biden’s Build Back Better plan to increase entitlements and taxes seems mired in the DC muck. It’s still possible that a plan totaling something like $1.5 trillion or more gets passed. But we think that’s unlikely. More likely? Either nothing at all, or a much smaller bill. Put yourself in the shoes of relatively moderate Democrats in Congress – being forced to vote on tax hikes in an election year is difficult, and reluctance is going to grow every week as 2022 unfolds.

Third, the mid-term election in November could dramatically limit the ability of the Biden Administration to get much done in 2023-24. Given the history of mid-term elections as well the election returns in 2021 (gubernatorial and state legislative races in New Jersey and Virginia, as well some races elsewhere), the most likely possibilities seem to be either a GOP Wave or a GOP Tsunami. Either would mean no more tax hikes and that all legislation would have to be bipartisan to pass, which should mean lots of gridlock.

Fourth, look for an economic contest between waning fiscal “stimulus” packages, rising employment and healing supply chains. The excess demand from massive government spending will decline in 2022, while supply chains appear to be healing. Business inventories are finally rising again (they need to do so after falling dramatically in 2020 and earlier in 2021) and it’s hard to imagine chipmakers not ramping up production to meet enormous demand.

Fifth, the Federal Reserve has its work cut out for it. It’s most recent “dot plot” suggests three rate hikes this year (25 basis points each) and the futures market for federal funds agrees. The big question is whether Fed policymakers have the guts. Given that the Biden Administration is trying to pack the Fed with as many doves as they can appoint, we’d take the “under,” and think the Fed will probably raise rates only twice this year.

Sixth, it’s important to watch profits, which are at an all time high. Remember, some of the strength in corporate results of late is due to temporary and artificial government spending blowouts. Meanwhile, more jobs, lower unemployment, and lower participation could mean higher wages take a slice out of corporate earnings. We still expect profit growth of 10% or more in 2022, but this is well below what we saw in 2021.

And last, of course, are the wildcards: Will China invade Taiwan? Will Russia invade Ukraine? We think the former is very unlikely, with the possible exception of some tiny uninhabited islands off the coast of Taiwan. The latter? If your name isn’t Vladimir Putin, you don’t know the answer. Either of these could cause a temporary sell-off, but neither would change the fundamentals. The winds of change are still tailwinds.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

1-3 / 9:00 am Construction Spending – Nov +0.7% +0.7% +0.4% +0.2%

1-4 / 9:00 am ISM Index – Dec 60.2 60.3 61.1

afternoon Total Car/Truck Sales – Nov 13.1 Mil 12.0 Mil 12.9 Mil

afternoon Domestic Car/Truck Sales – Nov 10.7 Mil 9.5 Mil 10.4 Mil

1-6 / 7:30 am Initial Claims – Jan 1 199K 198K 198K

9:00 am ISM Non Mfg Index – Dec 67.0 67.6 69.1

9:00 am Factory Orders – Nov +1.5% +1.2% +1.3%

1-7 / 7:30 am Non-Farm Payrolls – Dec 400K 390K 210K

7:30 am Private Payrolls – Dec 370K 370K 235K

7:30 am Manufacturing Payrolls – Dec 33K 25K 31K

7:30 am Unemployment Rate – Dec 4.1% 4.0% 4.2%

7:30 am Average Hourly Earnings – Dec +0.4% +0.4% +0.3%

7:30 am Average Weekly Hours – Dec 34.8 34.8 34.8

2:00 pm Consumer Credit– Nov $22.5 Bil $22.0 Bil $16.9 Bil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Greedy Innkeeper or Generous Capitalist

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

December 23, 2021

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was “no room for them in the inn.”

Some people think Mary and Joseph were mistreated by a greedy innkeeper, who only cared about profits and decided the couple was not “worth” his normal accommodations. This version of the story (narrative) has been repeated many times in plays, skits, and sermons. It fits an anti-capitalist mentality that paints business owners as greedy, or even evil.

It persists even though the Bible records no complaints and there was apparently no charge for the stable. It may be the stable was the only place available. Bethlehem was over-crowded with people forced to return to their ancestral home for a census – ordered by the Romans – for the purpose of levying taxes. If there was a problem, it was due to unintended consequences of government policy. In this narrative, the government caused the problem.

The innkeeper was generous to a fault – a hero even. He was over-booked, but he charitably offered his stable, a facility he built with unknowing foresight. The innkeeper was willing and able to offer this facility even as government officials, who ordered and administered the census, slept in their own beds with little care for the well-being of those who had to travel regardless of their difficult life circumstances.

If you must find “evil” in either of these narratives, remember that evil is ultimately perpetrated by individuals, not the institutions in which they operate. And this is why it’s important to favor economic and political systems that limit the use and abuse of power over others. In the story of baby Jesus, a government law that requires innkeepers to always have extra rooms, or to take in anyone who asks, would “fix” the problem.

But these laws would also have unintended consequences. Fewer investors would back hotels because the cost of the regulations would reduce returns on investment. A hotel big enough to handle the rare census would be way too big in normal times. Even a bed and breakfast would face the potential of being sued. There would be fewer hotel rooms, prices would rise, and innkeepers would once again be called greedy. And if history is our guide, government would chastise them for price-gouging and then try to regulate prices.

This does not mean free markets are perfect or create utopia; they aren’t and they don’t. But businesses can’t force you to buy a service or product. You have a choice – even if it’s not exactly what you want. And good business people try to make you happy in creative and industrious ways.

Government doesn’t always care. In fact, if you happen to live in North Korea or Cuba, and are not happy about the way things are going, you can’t leave. And just in case you try, armed guards will help you think things through.

This is why the Framers of the US Constitution made sure there were “checks and balances” in our system of government. These checks and balances don’t always lead to good outcomes; we can think of many times when some wanted to ignore these safeguards. But, over time, the checks and balances help prevent the kinds of despotism we’ve seen develop elsewhere. Neither free market capitalism, nor the checks and balances of the Constitution are the equivalent of having a true Savior. But they should give us all hope that the future will be brighter than many seem to think. (We’ve published a version of this same Monday Morning Outlook during Christmas week, each year, since 2009.)

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-30 / 7:30am Initial Claims – Dec 25 NA NA 205K

8:45am Chicago PMI – Dec 62.0 63.4 61.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

2022: Moderate GDP, Persistent Inflation

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

December 20, 2021

From 30,000 feet, the COVID lockdown and re-opening played out pretty much like we thought. GDP collapsed in the first half of 2020, then exploded in the third quarter, followed by strong, but erratic, quarterly growth ever since. The fourth quarter data, when it’s released in January, will show 2021 had the fastest GDP growth, and highest inflation, since the 1980s.

As a reminder, this is not a normal business cycle and shouldn’t be treated like one. We have never locked down businesses, we have never seen such a rapid peacetime expansion of federal spending, and we have rarely seen such a huge increase in the M2 measure of money.

Shutting down the economy destroys supply chains because they work best with a free flow of information. And paying people not to work after the economy is open makes it worse. Small businesses have suffered much more than large companies, so while profits and stock prices are at, or near, all-time highs, real GDP will still end 2021 lower than it would have if COVID had never happened. Meanwhile, inflation under COVID has been much higher than the pre-COVID trend.

Normally, government involvement in an economy does not alter its path so much from quarter to quarter, or year to year. Sure, Fed rate hikes, or tax rate changes must be accounted for, but the massive nature of government interference in the economy since March 2020 has made us all Keynesians now. Factoring in how much spending is borrowed from the future, how much new money the Fed is printing, and whether tax rates will become more punitive is all part of any forecast.

For example, some of our economic peers are now saying 2022 growth will be slower than it otherwise would have been because Joe Manchin has said “no” on the Build Back Better plan. Their forecast argues that fewer government handouts will reduce spending and therefore GDP growth.

We think that is simplistic analysis. Yes, fewer handouts will lead to a reduction in deficit spending. However, with 11 million job openings, it will likely lead to more actual employment. So, any slower growth from less government spending will be offset by more growth from the private sector, which will help supply chains. At the same time, without BBB, tax rates will not rise, which is a positive for longer-term growth.

Putting it all together, we expect real GDP to rise at about a 3.0% rate in 2022. Why slower than 2021? Because 2021 was artificially boosted by big deficit spending. Why not slower than 3.0%? Because small businesses will bounce back and the BBB tax hikes and distortionary spending are now less likely.

For inflation, it looks like the Consumer Price Index will be up in the 6.5 - 7.0% range this year. The consensus among economists is that will slow to 2.7% next year, but we think inflation will run 4.0% or more. On a granular level, look for the rental price of housing, which makes up more than 30% of the CPI, to be a key driver of inflation for the next few years. In addition, we expect oil prices will move higher again as regulatory ambiguity related to environmental rules curbs exploration.

For the job market, look for solid job growth to continue. Job openings remain plentiful and, slowly but surely, some of the people who have left the labor market should get pulled back in by rising wages. Look for about 325,000 – 350,000 jobs per month next year. Don’t get too excited, though; at that pace, at the end of 2022, we’ll be barely 700,000 jobs above the pre-COVID level. Not impressive for a time period of almost three years. Yes, the unemployment rate should get down to the 3.5% the Federal Reserve expects by the end of 2022, equaling the pre-COVID rate, but it’ll be with much lower labor force participation, so 3.5% is not as impressive as it sounds.

Put it all together and we have an inflation problem that is obviously not “transitory” and economic growth that’s a glass half full: good growth versus historical measures but not yet enough to get us back to where we would have been if COVID had never happened.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-22 / 7:30 am Q3 GDP Final 2.1% 2.1% 2.1%

7:30 am Q3 GDP Chain Price Index +5.9% +5.9% +5.9%

9:00 am Existing Home Sales – Nov 6.530 Mil 6.490 Mil 6.550 Mil

12-23 / 7:30 am Initial Claims – Dec 18 205K 197K 206K

7:30 am Personal Income – Nov +0.4% +0.5% +0.5%

7:30 am Personal Spending – Nov +0.6% +0.6% +1.3%

7:30 am Durable Goods – Nov +1.8% +1.9% -0.4%

7:30 am Durable Goods (Ex-Trans) – Nov +0.6% +0.6% +0.5%

9:00 am New Home Sales – Nov 770K 769K 745K

9:00 am U. Mich Consumer Sentiment- Dec 70.4 70.4 70.4

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Faster Taper, Setting Up for Rate Hikes

First Trust Economic Research Report

Brian S. Wesbury - Chief Economist

Robert Stein, CFA - Deputy Chief Economist

December 15, 2021

A renominated Powell is a different Powell. The Federal Reserve didn't raise interest rates today, a policy move we think is overdue, but it made major changes that set the stage for multiple rate hikes in 2022 and beyond.

First, the Fed doubled the pace of tapering to a speed where it could completely end quantitative easing by March, rather than in June. That's important because the Fed has said it wants to finish tapering before it considers raising rates. An earlier end to QE means a potential earlier start for rate hikes.

Second, the Fed's "dot plots," which show the pace of rate hikes expected by policymakers, now suggest three rate hikes in 2022 (assuming they're 25 basis points each), another three hikes in 2023, and two more in 2024. That contrasts sharply with the dot plot from September, when policymakers were evenly split on whether there'd be any rate hikes at all in 2022 and suggested a total of four rate hikes in 2022 and 2023, combined.

Third, the Fed officially removed from its statement the reference to inflation being "transitory," but maintained a reference to "supply and demand imbalances" as the key factor behind elevated inflation. Demand-driven inflation is exactly the kind of inflation for which policymakers think rate hikes are appropriate.

Fourth, the Fed statement added that "[W]ith inflation having exceeded 2 percent for some time, the Committee expects it will be appropriate to maintain [short-term rates near zero] until labor market conditions have reached levels consistent with the Committee's assessments of maximum employment." In turn, the Fed maintained its view that the long-run average unemployment rate is 4.0% while changing its economic forecast to show the job market hitting 4.0% in the Spring. It's almost as if the Fed wants to limit its own discretion about raising rates. Putting this altogether, it sure looks like the Fed will be ready to start raising rates by June, if not earlier.

Fifth, the Fed went out of its way to make changes to the statement that "talked up" the economy, referring to solid job gains and a substantial decline in unemployment. At the press conference, Powell noted "high inflation," "strong growth," and "rapid progress toward maximum employment."

Before today, we had thought that Fed policymakers would chicken out of raising rates more than once next year. But, given the tenor of today's Fed statement – including the use of the labor market as a guide for when they think rate hikes could start, the sharp change in the dot plots, as well as Powell's willingness to sound hawkish in the press conference – we think two or three rate hikes is a reasonable projection for 2022.

Yes, economic circumstances may change. The Fed anticipates 4.0% real GDP growth next year and we think the economy will probably come in slower. But the Fed also expects 2.6% PCE inflation next year and we think actual inflation will come in higher. Net-net, we think there's ample room for rate hikes, although we still doubt the Fed would raise rates during a stock market correction.

Ultimately, we view today as good news for the long-term health of the US economy. The Fed is behind the curve on fighting inflation, tapering should already be over, and rate hikes should already have begun. Today's changes and positioning by the Fed are long overdue, but a big step in the right direction.

The Fed needed to end its pandemic monetary response at some point and today's news is welcome in that regard. However, we are puzzled slightly by the market response. Stocks rose sharply and bond yields barely budged. It's almost as if now that the Fed has stopped saying transitory, the market has decided that inflation really is transitory.

We aren't so sanguine. Yes, we still think stocks will end 2022 higher (5,250 for the S&P 500), but inflation is not going to go away easily. And it is hard to imagine a world where bond yields stay significantly below inflation forever. So, we will take the near-term victory of a more sane Federal Reserve policy, but still question the ability of policymakers to bring the US economy in for a perfectly soft landing.

This report was prepared by First Trust Advisors L. P., and reflects the current opinion of the authors. It is based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.

S&P 5,250 - Dow 40,000

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

December 13, 2021

We were bullish in 2021 and bullishness obviously paid off. As of the Friday close, the S&P 500 is up more than 25% so far this year. Meanwhile, a 10-year Treasury Note purchased at the end of 2020 has generated a negative total return, as interest earnings have been more than offset by capital losses.

The reason we were bullish a year ago even amid widespread fears about COVID-19, is because we stick to fundamentals, assessing fair value by using economy-wide profits and interest rates, what we call our Capitalized Profits Model. And, one year, later, we are still sticking with fundamentals. Our year-end 2022 call for the S&P 500 is 5,250 (up 11.4% from last Friday), and we expect the Dow Jones Industrial Average to rise to 40,000.

The Capitalized Profits Model takes the government’s measure of profits from the GDP reports, discounted by the 10- year US Treasury note yield, to calculate fair value. Corporate profits for the third quarter were up 20.7% versus a year ago, up 22.3% versus the pre-COVID peak at the end of 2019, and at a record high.

The key question then becomes what discount rate should we use? If we use 1.50%, roughly the current 10-year Treasury yield, our model suggests the S&P 500 is grossly undervalued. But, with the Federal Reserve still holding short-term interest rates at artificially low levels, the 10-year yield might be artificially low, as well.

So, to be cautious, we plug in some alternative higher long term interest rates. Using third quarter profits, it would take a 10-year yield of about 2.75% for our model to show that the stock market is currently trading at fair value. And that assumes no further growth in profits.

We expect the 10-year Note yield to finish 2022 in the vicinity of 2.00%. Nonetheless, we have chosen to use a more conservative discount rate of roughly 2.50%. Using third quarter 2021 profits, that creates a fair value estimate for the S&P 500 of 5,250. And this does not take into account higher profits in the year ahead.

The bottom line is that although we remain bullish, we are not quite as bullish as in recent years, projecting an increase in stocks of 11.4% from Friday’s level. We haven’t had a 10% correction in 2021, and, although we never try to time the market, we wouldn’t at all be surprised by one happening at some point in 2022. Moreover, the stock market is likely to grapple with either higher short-term rates in 2022 or, in the alternative, a Federal Reserve that is even further behind the inflation curve, risking a higher peak for short-term rates sometime in the future.

Another issue is the battle between fading fiscal stimulus and a gradual return to normalcy. The budget deficit will still be very large this year even if the Democrats-only “Build Back Better” proposal doesn’t pass. But the deficit will be much smaller than the past two years. That will generate a short-term headwind for growth. Meanwhile, more businesses should be getting back to normal and small business start-ups gradually replacing businesses that were killed off by overly strict COVID rules.

On net, this adds up to a scenario that is likely to be constructive for equities. We’ve been bullish since 2009 but we are not perma-bulls. There are clouds on the horizon, and at some point in the next few years, we may be (temporarily) bullish no more. In the meantime, though, the clouds are on the horizon, not overhead. Equities have further to run.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-14 / 7:30 am PPI – Nov +0.5% +0.6% +0.6%

7:30 am “Core” PPI – Nov +0.4% +0.3% +0.4%

12-15 / 7:30 am Retail Sales – Nov +0.8% +0.8% +1.7%

7:30 am Retail Sales Ex-Auto – Nov +0.9% +1.1% +1.7%

7:30 am Import Prices – Nov +0.7% +0.3% +1.2%

7:30 am Export Prices – Nov +0.5% +0.8% +1.5%

7:30 am Empire State Mfg Index – Dec 25.0 27.3 30.9

9:00 am Business Inventories – Oct +1.1% +1.2% +0.8%

12-16 / 7:30 am Initial Claims – Dec 12 198K 194K 184K

7:30 am Housing Starts - Nov 1.565 Mil 1.570 Mil 1.520 Mil

7:30 am Philly Fed Survey – Dec 30.0 27.6 39.0

8:15 am Industrial Production – Nov +0.7% +0.7% +1.6%

8:15 am Capacity Utilization – Nov 76.8% 76.9% 76.4%

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stock of companies maintained and reviewed by the editors of the Wall Street Journal. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Financial Resolutions for 2022

Retirement and Longevity

Start the new year right by reviewing and revamping your financial plan.

Instead of hauling out those familiar New Year’s resolutions about keeping a journal or drinking more water, how about focusing on your financial well-being? Here’s a set of resolutions that can help ensure your long-term financial confidence.

Update your beneficiaries

If you don’t correctly document your beneficiary designations, who gets what may be determined by federal or state law, or by the default plan document used in your retirement accounts. When did you last update your designations? Have life changes (divorce, remarriage, births, deaths, state of residence) occurred since then?

Update your beneficiary listings on wills, life insurance, annuities, IRAs, 401(k)s, qualified plans and anything else that’d affect your heirs. If you’ve named a trust, have any relevant tax laws changed? Have you provided for the possibility that your primary beneficiary may die before you? Does your plan address the simultaneous death of you and your spouse? An estate attorney can help walk you through these various scenarios.

Create flexible liquidity

Cash has inflation and opportunity tradeoffs, but a lack of access can cause greater problems if you find yourself needing to draw from your investments. Finding a balance in line with your life and goals is important to avoid disrupting your long-term plans.

The right liquidity strategy will be different for every investor and could incorporate cash reserves, cash alternatives, highly liquid securities, lines of credit, margin loans or even structured lending. Multiple institutions and account owners can be used to hold more than $250,000 with FDIC guarantees.

Evaluate your retirement progress

What changes are needed given your current lifestyle and the market environment? Don’t fixate solely on your assets’ value – instead, drill down into what types of securities you hold, your expected cash flows, your contingency plans, your assumed rate of return, inflation rates and how long you’re planning for. Retirement plans have many moving parts that must be monitored on an ongoing basis.

Review your account titling

Haphazard account titling can create problems down the line. If one partner dies and an account is titled only in their name, those assets can’t be readily accessed by the survivor. The solution may be creating joint accounts, but it’s not always that simple. Titling has implications across a range of estate planning issues, as well as other situations such as Medicaid eligibility and borrowing power, too.

Develop a charitable strategy

Giving comes from the heart, but you can also do well when doing good. For example, consider whether or not it’d make sense to donate low-basis stocks in lieu of cash, or learn about establishing a donor advised fund to take an upfront deduction for contributions made over the next several years. Give, but do so with an eye toward reducing your tax liability.

Spark a family conversation

Sustaining the benefits of wealth for generations is nearly impossible without a mutual understanding among family members. Consider creating a family mission statement that outlines the shared vision for your wealth and legacy. This should include nonfinancial topics, too, like your values, expectations and important life lessons.

Digitize your record keeping

You likely receive emails, letters reports and updates from multiple accounts. Consider going paperless and centralizing important files in one place to reduce frustration and ensure easy access when needed. Your advisor may have access to secure storage tools that can help.

Invest with your values

Your portfolio should reflect what matters to you – and that can mean anything from avoiding particular industries to actively pursuing an ESG (environmental, social and governance) investing approach. So whether you want to promote the transition to clean energy, advocate for diversity and inclusion in the workplace, or support companies with strong data privacy practices, your portfolio can be tailored to reflect those priorities.

Check in with your advisor

Your advisor can offer specialized tools, impartiality and experience earned by dealing with many market cycles and client situations. Communicate openly about what’s happening in your life today and what may happen in the future. It’s difficult to manage what they aren’t aware of, so err on the side of over-communicating and establish a regular check-in schedule for the year ahead.

These suggestions are a helpful starting point, but no two long-term plans are identical – so reach out to your advisor for more specific guidance about progressing toward your goals in 2022.

This material has been created by Raymond James for use by its financial advisors.

Volatility and Fear

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

December 6, 2021

At the close on Friday, the NASDAQ Composite Index was down 6.1% and the S&P 500 was down 3.5%, from their recent all-time record highs. The 10-year Treasury yield, which was 1.67% as recently as the week of Thanksgiving, was yielding 1.35% at the close on Friday. Oil prices have fallen about 22% from their highs and Bitcoin was down about 28% over this past weekend.

Some investors are worried about the Omicron variant of COVID-19, and maybe further variants to come. But many are concerned about the Federal Reserve speeding-up its pace of tapering quantitative easing, which could set the stage for interest rate hikes in 2022. Meanwhile, the odds of passing President Biden’s signature fiscal plan – the so-called Build Back Better proposal – appear to be no better than 50%, down significantly from earlier this year.

What this reminds us of is the “stop-go” Keynesianism of the 1970s, where policymakers would whipsaw between goosing the economy through loose money and extra government spending, then battling the ensuing inflation by tightening monetary policy, slowing the growth of spending, or even by raising taxes. This ping-pong policymaking was not healthy for the stock market: the S&P 500 increased at a 1.6% annual rate in the 1970s as consumer prices rose 7.4%.

In recent weeks, the stock market has decided the economic pain associated with an eventual tightening of fiscal and monetary policy is more likely to come sooner rather than later. Investors realize the budget deficit in the year ahead is likely to be much smaller than the past couple of years, which will be good for the long-run but could be an economic headwind in the near future.

Meanwhile, the Fed meets next week and recent testimony by Fed Chairman Jerome Powell indicates it will likely hasten the pace of tapering. One theory is that the Fed could finish tapering as early as March next year. That’s consistent with the futures market for federal funds, which appears to be pricing in two or three rate hikes in 2022 (assuming the rate hikes are 25 basis points each).

We think taking the economic pain earlier rather than later is the better option. The next report on consumer prices arrives on Friday and we are estimating an increase of 0.7% in November. If we’re right, that would mean consumer prices are up 6.8% from a year ago, the largest increase for any twelve months since the early 1980s.

The longer the Fed waits to address this, the harder it will be to stop. In the early 1980s, Paul Volcker ended up pushing the federal funds rate to nearly 20%, which caused a brutal set of recessions. Some tightening now, versus more tightening later, would signal wisdom in managing monetary policy.

We also think the economy could handle both a faster taper and earlier rate hikes. Remember, even when it’s tapering, the Fed is still expanding its balance sheet, it’s just doing so at a slower rate. Meanwhile, with inflation approaching 7%, the “real” (inflation-adjusted) federal funds rate is lower than it ever was in the 1970s.

But mark us down as skeptical about two or three rate hikes in 2022. Policymakers and politicians may be willing, but the flesh is weak. After the last time the Fed finished a tapering operation, back in 2014, it raised rates only when the 10-year Treasury yield was above 2.00%, not below. It’s hard seeing the Fed getting aggressive with rates with the 10-year yield south of 2.00% and, right now, we’re at about 1.4%. Maybe the Fed will raise once; two or three times seems like a stretch, even if the economy could handle it and inflation suggests more rate hikes are needed.

Sooner or later, though, the US will have to pay a price for COVID era looseness in both money and fiscal policy. For now, we’re betting more of the pain comes after 2022.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-7 / 7:30 am Int’l Trade Balance – Oct -$66.8 Bil -$67.6 Bil -$80.9 Bil

7:30 am Q3 Non-Farm Productivity -4.9% -5.3% -5.0%

7:30 am Q3 Unit Labor Costs +8.3% +8.8% +8.3%

2:00 pm Consumer Credit– Oct $25.0 Bil $20.0 Bil $29.9 Bil

12-9 / 7:30 am Initial Claims – Dec 5 220K 235K 222K

12-10 / 7:30 am CPI – Nov +0.7% +0.7% +0.9%

7:30 am “Core” CPI – Nov +0.5% +0.5% +0.6%

9:00 am U. Mich Consumer Sentiment- Dec 68.0 68.4 67.4

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Thoughts on the Market

A Chilling End to November

Larry Adam, CFA, CIMA®, CFP®, Chief Investment Officer

November 30, 2021

Continuing the weakness experienced over the last week, equity markets traded lower again today as the S&P 500 has declined ~3% from the recent high notched just seven trading days ago (November 18). The recent pullback in the market is primarily driven by two factors: the increase in COVID concerns and the Federal Reserve (Fed) potentially tightening monetary policy faster than previously expected. Our latest thinking on the market is below. Click on the link to read the whole article!

https://www.raymondjames.com/-/media/rj/dotcom/files/advisor%20opportunities/totm-11-30-21

Riding the COVID Rollercoaster

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 29, 2021

On Friday, news of a COVID-19 variant identified in South Africa, and the announcement of new travel restrictions, sent markets reeling. This is obviously not the only variant, and it won’t be the last, either. In our opinion, it’s not the new variant that is the problem, but the government’s potential reaction to it. Oil prices fell 13% on Friday, pricing in a potential new round of lockdowns.

We’re obviously not scientists, but what seems clear is that vaccines have underdelivered on their promise of ending the pandemic. Yes, relative risks for hospitalization and death are reduced (though not eliminated) after the jab, but fully vaccinated individuals can still get and spread the virus. This means the “zero COVID” strategy that public health officials have been pursuing since the pandemic began needs to change.

At this point, what seems likely is that COVID will gradually become like the flu, where there is a vaccine/booster available each year depending on what strain is most likely to be prevalent. Providing the public with accurate information about risk factors surrounding age and comorbidities is more important than ever.

However, our fear as economists is that certain urban areas in the US could be stuck in a cycle of fear, with each new variant leading to more draconian measures. This is where policymakers and individuals with disproportionate influence live, and their mindsets have become gradually divorced from the rest of the population. Just look at the packed stadiums at college football games.

Most importantly, is this how people want to live? Economic planning for businesses has become impossible. Individual travel plans can be disrupted at any moment. Maybe you are already fully vaccinated and are not overly concerned about mandates. What about when boosters become required to maintain your fully vaccinated status? Dr. Fauci recently hinted that this would be the case. Where is the offramp to normal life at this point?

Fortunately, we think widespread shutdowns are unlikely in response to this or any variant. Recent election returns in New Jersey and Virginia suggest the American public is fed up with the overly cautious policy mix chosen by officials in the past year and a half, including widespread shutdowns and tough mask rules.

Another round of shutdowns could turn a political environment that we believe favors a Republican wave in 2022 into a Republican tsunami. Democratic political strategists will be cautioning their party’s leaders not to court fate. Although it’s not our base case at this point, it’s not outside the realm of possibility that another harsh shutdown would lead to a filibuster-proof Senate majority for the GOP in 2025.

Put it all together and we think investors need to continue to be ready to ride the COVID rollercoaster. Given record high profits, we still believe stocks are relatively cheap. That doesn’t mean there won’t be dips, though, or even corrections. But when they happen, they should still be considered buying opportunities.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-30 / 8:45 am Chicago PMI – Nov 67.0 66.4 68.4

12-1 / 9:00 am ISM Index – Nov 61.2 60.9 60.8

9:00 am Construction Spending – Oct +0.4% +0.5% -0.5%

afternoon Total Car/Truck Sales – Nov 13.4 Mil 13.6 Mil 13.0 Mil

afternoon Domestic Car/Truck Sales – Nov 10.3 Mil 10.2 Mil 10.1 Mil

12-2 / 7:30 am Initial Claims – Nov 27 240K 220K 199K

12-3 / 7:30 am Non-Farm Payrolls – Nov 550K 535K 531K

7:30 am Private Payrolls – Nov 536K 525K 604K

7:30 am Manufacturing Payrolls – Nov 45K 35K 60K

7:30 am Unemployment Rate – Nov 4.5% 4.5% 4.6%

7:30 am Average Hourly Earnings – Nov +0.4% +0.4% +0.4%

7:30 am Average Weekly Hours – Nov 34.7 34.7 34.7

9:00 am ISM Non Mfg Index – Nov 65.0 65.4 66.7

9:00 am Factory Orders – Oct +0.5% +0.6% +0.2%

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Goodrich and Associates Holiday Hours

Our office will be closed in celebration of Thanksgiving! On Thursday, November 25th through Friday, November 26th we will be out of the office. We are back to regular hours on Monday, November 29th. Thank you and have a wonderful holiday!

Make Your Retirement Contributions Count

November 22, 2021

Dear Friends and Clients,

For the 2021 tax year, individual investors can contribute up to $6,000 to either a traditional or Roth IRA. If you’re age 50 or older, you can contribute an extra $1,000. I wanted to remind you so you can take full advantage of your ability to save toward retirement. Contributing as much as you can as early as possible allows those assets more time to potentially grow and compound. Keep in mind that contributions generally must be made before you file your tax return in April.

You may also contribute up to $19,500 to applicable 401(k), 403(b) and 457 plans, SAR-SEP plans and the federal government’s Thrift Savings Plan. The catch-up contribution limit for individuals age 50 or older is $6,500. Employee contributions to qualified plans generally must be made by December 31.

Review the below 2021 Retirement Plan Limits document for more details.

If you have any questions about these limits or your retirement planning in general, feel free to contact me.

Sincerely,

Matt Goodrich, Financial Advisor

President, Goodrich & Associates, LLC

Branch Manager, RJFS

Raymond James financial advisors do not render advice on tax matters. Please consult a qualified professional regarding tax matters.

Thankful, But Watchful

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 22, 2021

As Americans gather among family and friends to celebrate Thanksgiving, we all have much to be thankful for.

Twenty-one months after COVID-19 led to massive lockdowns across the US, vaccines are now widely available thanks to the private enterprise system. In addition, new highly effective treatments are coming to market, which could minimize the risks associated with COVID-19 for both the highly-vulnerable as well as those who’d prefer not to take the vaccine.

Meanwhile, entrepreneurs and businesses of all sizes had to squeeze about a decade’s worth of innovation into a year to overcome both COVID itself as well as draconian measures taken to (supposedly) limit the spread of the disease. So much so that the number of workers on payrolls is still down 4.2 million versus February 2020 (the last month pre-COVID). But this reflects worker decisions, more than worker demand. Total employment plus total job openings are just 1.3 million below pre-COVID levels.

Meanwhile 232 years after the Constitution was ratified we continue to enjoy the blessings of the American Founders’ wisdom. The separation of powers means no president is a dictator, neither the ones you vote for or against, even in the face of a health threat that many still perceive as severe. Witness the recent suspension of extremely burdensome OSHA rules that would have required private companies to impose vaccine mandates on their workers or, in the alternative, authoritarian-style mask and testing requirements, even as every adult who wants a vaccine can get one and young people face very little risk.

Then there’s the federal system of overlapping jurisdiction between the federal government and the states that allows for some variety in public policy, in part responsible for the movement of people between the states toward places where people are more free, both in general, as well as with respect to COVID.

But all of the things we should be thankful for don’t add up to a reason to be complacent. Inflation is obviously a bigger problem than it’s been in decades and no one should be confident that they know exactly the course of treatment the Federal Reserve will ultimately apply. Near the end of next year, we will all have a clearer picture of how persistent and high inflation really is, and whether tapering does anything to bring it down.

Our belief is that inflation is not temporary. The only question is whether the Fed chooses to bring policy back to normal quickly or slowly. We expect the Fed to kick the inflation can down the road for some period of time. Whether that is just until 2023, or until a new administration in 2025, is still debatable. Either way, the US will end up with a period of slower growth at some point in the years ahead.

So for now, be thankful. We remain bullish on equities and the economy. A bear market or recession in 2022 is very unlikely. But don’t be complacent. Be watchful and be ready to shift, as always, if circumstances change.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-22 / 9:00 am Existing Home Sales – Oct 6.200 Mil 6.300 Mil 6.340 Mil 6.290 Mil

11-24 / 7:30 am Initial Claims – Nov 20 260K 262K 268K

7:30 am Q3 GDP Second Report 2.2% 2.3% 2.0%

7:30 am Q3 GDP Chain Price Index 5.7% 5.7% 5.7%

7:30 am Durable Goods – Oct +0.2% -0.4% -0.3%

7:30 am Durable Goods (Ex-Trans) – Oct +0.5% +0.4% +0.5%

7:30 am Personal Income – Oct +0.2% +0.3% -1.0%

7:30 am Personal Spending – Oct +1.0% +1.0% +0.6%

9:00 am New Home Sales – Oct 0.800 Mil 0.800 Mil 0.800 Mil

9:00 am U. Mich Consumer Sentiment- Nov 66.9 67.0 66.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Inflation Returns

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 15, 2021

Inflation is back and worse than it’s been in decades. Consumer prices rose 0.9% in October and are up 6.2% in the last twelve months. Two more months of moderate increases, and the CPI will be 6.5% in 2021, the highest inflation since 1982.

As a result, after surging in the earliest stages of the pandemic, “real” (inflation-adjusted) average hourly wages have been trending downward since peaking in April 2020 and are down 1.2% in the past year. In fact, real average hourly wages are up only 1.5% since February 2020 (pre-COVID) versus a gain of 2.3% in the twenty months before COVID arrived.

One of the Keynesian justifications for applying a very loose monetary policy was to run the economy “hot,” in order to offset damage from COVID itself and pandemic lockdowns. But this has apparently backfired as inflation accelerated rapidly. It looks like workers are the ones getting burned.

The Federal Reserve, however, says inflation is going to drop next year. And we think the Fed is probably right about the direction of inflation; prices should go up next year, but not as fast as this year.

Why? Think of oil, for example, which ended last year at $48 per barrel (for West Texas Intermediate) and closed on Friday at $81. Could oil prices move up again in 2022? Sure. Will they go up almost 70% like they have so far this year? Probably not. Then there are the massive supply-chain issues, particularly with computer chips, that have disrupted the automobile market. Prices for new cars and trucks are up 9.8% from a year ago; prices for used cars and trucks are up 26.4%. Higher semiconductor production should curb price increases next year and prices might even fall modestly in this sector.

The problem is that the most recent forecast from the Federal Reserve (released September 22) suggests its favorite inflation measure will only be 2.2% next year, which translates into an increase of about 2.5% for the Consumer Price Index (CPI). Sorry…put us down supporting the “Over.”

We think the Fed is making the same mistake it made last year. At the end of last year, the Fed projected that its favorite measure of prices would be up 1.8% in 2021, which translates into roughly a 2.0% increase in the Consumer Price Index (CPI). Oops! Not even close.

The M2 measure of the money supply is up almost 40% from where it was in February 2020, substantially faster than the pre-COVID trend. Ultimately, this is the root cause of the inflation we’re seeing. Yes, the extra government spending matters, too. But it matters because the Fed is monetizing the extra debt related to that spending; otherwise, it’d just be transferring demand from one group to another.

We think CPI inflation will run around 4.0% next year and might continue to do so for multiple years until either the extra M2 growth passes through the economy or the Fed somehow drains some of the extra M2 from the monetary system.

The same thing happened in the 1970s, when the Fed believed that rising inflation was transitory, and therefore did not slow growth in the money supply. As long as the Fed thinks inflation is transitory, it will not drain money from the system. Although the Fed is “tapering,” that just means the expansion of its balance sheet will proceed at a slower pace, not that the balance sheet will actually shrink.

Look for housing rents to be a key source of inflation in the years ahead. Housing rents – both for actual tenants as well as the imputed rent of homeowners – were both artificially low last year due to limits on evictions. Now that the limits on evictions are over, the rental value of real estate will rise more quickly, and rents make up more than 30% of the CPI.

The Fed has let inflation take root in the US economy. We don’t expect to be back at the Fed’s 2.0% target anytime soon.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-15 / 7:30 am Empire State Mfg Survey – Nov 22.0 26.0 30.9 19.8

11-16 / 7:30 am Retail Sales – Oct +1.4% +1.5% +0.7%

7:30 am Retail Sales Ex-Auto - Oct +1.0% +0.3% +0.8%

7:30 am Import Prices – Oct +1.0% +0.9% +0.4%

7:30 am Export Prices - Oct +1.0% +0.9% +0.1%

8:15 am Industrial Production – Oct +0.8% +1.2% -1.3%

8:15 am Capacity Utilization – Oct 75.9% 76.0% 75.2%

9:00 am Business Inventories - Sep +0.6% +0.7% +0.6%

11-17 / 7:30 am Housing Starts – Oct 1.580 Mil 1.579 Mil 1.555 Mil

11-18 / 7:30 am Initial Claims – Nov 14 260K 264K 267K

7:30 am Philly Fed Survey – Nov 23.9 26.5 23.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Tuesday Results and the 2022 Economic Outlook

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 8, 2021

In spite of what listening to the mainstream media might make you think, the voting public doesn’t change much from year to year or election to election. As a result, when leaders try to take policy too far in one direction, without enough public support, they often get punished at the polls. That’s our takeaway from the Virginia and New Jersey gubernatorial and down-ballot state legislative elections last week.

Here are five key political lessons from Tuesday. First, if former President Trump isn’t running, (or in office) it’s hard for Democrats to use him as a bogeyman to scare voters. Second, white working class and rural voters will turn out in high numbers without Trump on the ballot and in favor of more conventional GOP candidates.

Third, early signs suggest the GOP continues to make headway with Hispanic voters. One of the counties in New Jersey that shifted the most toward the GOP was Passaic County, with some towns with heavy concentrations of Hispanic voters leading the way. As a result, according to at least one political betting market, Republicans are now favored to win the Senate seats in Arizona and Nevada, even though both seats will have incumbent Democrats running for re-election.

Fourth, Republicans may have won in Virginia this year, but it is still a blue state. Four years ago, when Trump was in office, the Democrats won Virginia by nine points; this year the GOP won by two points. The party that wins by nine and loses by two is still the majority party.

And last, the GOP is in excellent position to win the House next year and probably the Senate, as well. Usually, the Virginia governor’s race is a harbinger of which way the mid-terms will go. If Republicans see nationwide gains that are equivalent to the gains they made in Virginia, they’d easily win the House.

However, the mid-term elections are still a year away. The Congress and the President still have plenty of time to enact legislation they agree on, before submitting themselves to the voters. That happened late last week when the House rubberstamped a “bipartisan” $1 trillion infrastructure spending bill passed this summer by the Senate, sending it to President Biden’s desk. This bill will generate extra spending for highways, mass transit, airports, water systems, Amtrak, broadband, electric vehicle charging, and “renewable” energy.

This spending shifts resources from the private sector to the public sector, and to the extent that this is paid for by Federal Reserve money printing, it will push inflation higher. However, this bill did not create new entitlements, and is a small part of total nominal GDP over the next 10 years – which the Office of Management and Budget pegs at $282 trillion. In spite of this spending, the budget deficit should be substantially smaller in 2022.

Meanwhile, the larger, fully partisan plan to raise taxes and create new entitlements has lost momentum. Right now, we put the odds of passage of this much more economically harmful legislation at less than 50%, in part because of last week’s election results.

However, this legislation remains a threat to the forecast for 2022 and beyond. As does monetary policy. The financial markets appear to expect two or three rate hikes in 2022. But personnel changes, and political pressure, at the Federal Reserve will make it less hawkish. As a result, we are looking at one rate hike very late next year, but no more than that.

In addition, businesses across the country must be wondering what’s going to happen with the Biden Administration’s draconian COVID-related OSHA rules, which mandate vaccines for “private” companies of over 100 employees. This would deter some workers from seeking jobs while making it much more costly for many businesses to hire.

Oddly, these new rules coincide with the arrival of new treatments that should make the vaccine debate obsolete. A federal court has temporarily put the rules on hold. Hopefully, for the job market’s sake, policymakers rethink the rules and decide to withdraw them.

From a forecasting point of view, 2021 was simple. Solid economic growth, higher inflation, and a bull market in stocks have been our mantra all year along. As we focus on 2022, the Fed is still pumping money, interest rates remain low, and the economy continues to add back the jobs it lost during lockdowns. At the same time, election results show a backlash against bigger government. For 2022, we watch with cautious optimism.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-9 / 7:30 am PPI – Oct +0.6% +0.7% +0.5%

7:30 am “Core” PPI – Oct +0.5% +0.3% +0.2%

11-10 / 7:30 am Initial Claims – Nov 6 260K 270K 269K

7:30 am CPI – Oct +0.6% +0.5% +0.4%

7:30 am “Core” CPI – Oct +0.4% +0.3% +0.2%

11-12 / 9:00 am U. Mich Consumer Sentiment -Nov 72.5 72.0 71.7

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

October Market Review

November 2, 2021

Dear Friends and Clients,

The major domestic equity indices climbed steadily through October, a confident step forward from September’s stumble even as supply issues created intermittent voids on supermarket shelves and broad patches of uncovered tarmac at car dealerships.

Strong corporate earnings reports set the stage at the start of the month, and the release of a low gross domestic product (GDP) growth estimate at the end of the month did not blunt the markets’ upward march. The S&P 500 and Dow Jones Industrial Average both set new record highs in October, and the NASDAQ Composite was not far behind.

September was the first equity market decline in eight months, and the worst month for the S&P 500 since March 2020, but fears cooled. As a result, October rode optimism from the aforementioned earnings reports, the diminishing of a threat of onerous tax hikes and early signs that inflation and supply chain concerns have peaked.  

Economic growth, however, remains harried by some lingering concerns. Supply chain difficulties and a tight labor market may continue to restrain economic growth and add to near-term inflation pressures.

But growth appears to be regaining momentum as COVID-19 cases decline. The demand for goods increased throughout the pandemic and, counter to expectations, has remained strong, amplifying supply issues.

Let’s see where the headline indices stand for the year.

Now onto the specifics:

Shaping the big bill

October saw the acceleration of negotiations on a reconciliation bill in Congress, with momentum shifting toward a package slightly below $2 trillion with lessened overall tax impact. Key lawmakers’ opposition to heightened corporate and individual tax rates means we are less likely to see them included in the deal, but the negotiations are still producing market volatility over some policy details. These will not likely be resolved until the bill is finalized.

An up October across the world

As in the U.S., European equity markets had a strong October, reversing some of September’s losses. Most equity markets in Asia and emerging economies also grew through the month. China continues to face significant levels of uncertainty over the scope of ongoing government policy changes, including unknowns about the impact on its property market.

Bond matters

Yields for 2-year and 10-year Treasuries moved closer together, creating a potential sweet spot for adding incremental yield while keeping duration risk in check – an appealing balance amid historically low rates.

There was very little spread change in either the investment-grade space or the high-yield space, which is trading with very narrow spreads compared to historical averages. This continues the trend that investors are not getting paid to take on credit risk or duration risk.

Climate questions

The 2021 United Nations Climate Change Conference, or COP26, started on Oct. 31 and runs through Nov. 12. This gathering, the largest climate conference in six years, is expected to drive news and market movement, particularly in light of different climate change targets between developed and emerging markets.

A rally for the average stock

A consistent theme in the pandemic era has been that steadily growing indices created somewhat of a false front to the cyclical churn below the surface. There were the big gainers driving the pushes and – in various degrees – everyone else. October’s rally, however, saw broader participation in these gains and the “average stock” reached new record highs.

The bottom line

October demonstrated how the climb can be filled with obstacles but still reach new heights. In brief:

• No new major concerns emerged in October, though we have more information on the ones we’ve been watching.

• Supply chain disruptions have continued longer than expected – blunting GDP growth – and will likely last into 2022.

• Inflation may lead the U.S. Federal Reserve and other central banks to raise short-term interest rates earlier than expected, though nothing conclusive has been announced.

Unequivocally, October was a strong month for domestic equities, reflecting generally improving conditions and confidence as we deal with the long and winding tail of the COVID-19 pandemic. Obstacles are always present, but thoughtful investors take inventory, challenge their assumptions and continue to plan out their next move.

As always, I will keep you up to date with news and events important to your investments and financial plan. If you have any questions about this market recap, or anything else, please reach out at your earliest convenience.

I am grateful for your continued trust and for the opportunity to help you pursue your financial goals and well-being.

Sincerely,

Matt Goodrich, Financial Advisor                

President, Goodrich & Associates, LLC       

Branch Manager, RJFS

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Consumer Price Index is a measure of inflation compiled by the U.S. Bureau of Labor Studies. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small-cap securities. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges, which would reduce an investor’s returns.

Material prepared by Raymond James for use by its advisors.

Eyes on the Fed

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 1, 2021

Investors will be focused on the Federal Reserve this week and our expectation is that it will finally announce an overdue tapering of quantitative easing. In addition, we expect Chairman Jerome Powell to make it clear in the press conference that he expects tapering to be completed by mid-2022.

Inflation is clearly a problem. The CPI is up 5.4% from a year ago. When October data arrive the year-ago comparison will likely be 5.7%, the largest increase since the early 1990s. Some of this is “transitory,” but not all of it, not by a long shot. Housing rents were held down artificially until early September, due to limits on evictions. Once nationwide eviction limits ended, rents escalated in September and we expect more of the same for the foreseeable future. That’s important because rents make up more than 30% of the CPI.

Given the likely pace of inflation in October, the “real” federal funds rate (the funds rate adjusted by inflation) is running at about -5.6%. That’s a record low, even more deeply negative than the -5.0% in early 1975 and -4.8% in mid-1980, both of which were at the end of recessions, not almost a year and a half into a recovery, like we are right now.

In other words, the current economic environment doesn’t just warrant tapering, but rate hikes. Unfortunately, rate hikes aren’t happening anytime soon. We wouldn’t be surprised by just one rate hike at the very end of 2022, but the start of a hiking cycle could also be postponed until 2023.

First, the Fed is very unlikely to raise rates until after it’s done tapering, so that alone delays hikes until at least mid-2022.

Second, we think the Fed will be reluctant to start hiking a few months before the mid-term elections.

And third, personnel changes at the Fed will likely give the Fed a more dovish tilt in 2022. There’s already a vacancy on the Fed Board, two openings to fill for bank presidents in Dallas and Boston, and we think Trump-appointees Richard Clarida and Randy Quarles will be gone by mid-2022, due to the expiration of their terms as Vice Chairman and Vice Chair for Supervision, respectively.

The problem with monetary policy is that the M2 measure of money is up 36% since February 2020, versus a trend of about 6% annualized pre-COVID. That surge in M2 is like a cow that’s been eaten by a snake…gradually moving through. As long as the Fed doesn’t regurgitate the extra money, the cow isn’t going away, which, in this case, means a devaluation of money relative to goods and services.

That doesn’t mean higher inflation forever, but it does mean a prolonged period of higher inflation until the extra M2 is fully digested by the economy.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-1 / 9:00 am ISM Index – Oct 60.5 60.6 60.8 61.1

9:00 am Construction Spending – Sep +0.3% +1.0% 0.0%

11-2 / afternoon Total Car/Truck Sales – Oct 12.5 Mil 12.9 Mil 12.2 Mil

afternoon Domestic Car/Truck Sales – Oct 9.5 Mil 9.7 Mil 9.1 Mil

11-3 / 9:00 am Factory Orders – Sep +0.5% +0.3% +1.2%

9:00 am ISM Non Mfg Index – Oct 62.0 62.0 61.9

11-4 / 7:30 am Initial Claims - Oct 30 275K 280K 281K

7:30 am Int’l Trade Balance – Sep -$80.1 Bil -$81.9 Bil -$73.3 Bil

7:30 am Q3 Non-Farm Productivity -3.2% -3.2% +2.1%

7:30 am Q3 Unit Labor Costs +7.0% +7.8% +1.3%

11-5 / 7:30 am Non-Farm Payrolls – Oct 450K 400K 194K

7:30 am Private Payrolls – Oct 408K 400K 317K

7:30 am Manufacturing Payrolls – Oct 29K 25K 26K

7:30 am Unemployment Rate – Oct 4.7% 4.6% 4.8%

7:30 am Average Hourly Earnings – Oct +0.4% +0.5% +0.6%

7:30 am Average Weekly Hours – Oct 34.8 34.8 34.8

2:00 pm Consumer Credit– Oct $16.0 Bil $17.5 Bil $14.4 Bil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Slower Growth in Q3

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

October 25, 2021

Keynesianism can temporarily giveth, but ultimately always taketh away…and then some.

When the US fell into the COVID crisis, the federal government went on a massive spending binge. Pre-COVID, in the twelve months through March 2020, federal outlays were $4.6 trillion, or 21.4% of GDP. In the next twelve months outlays soared to $7.6 trillion, or 36.2% of GDP. Outside of wartime, we know of no other time when the government has ramped up spending that much or that fast. As a result, as well as very easy money, the economy partially bounced back faster than it would have in the absence of the extra spending.

But the extra spending was like an opioid given to a car crash victim, temporarily masking the economic pain caused by government-imposed shutdowns. Ultimately, there is no free lunch when it comes to spending, and the economic bill is already starting to come due.

As recently as early August, the consensus among economists was that real GDP would grow at about a 7% annual rate in the third quarter, even faster than it grew in the first half of the year when the government was passing out checks like it was going out of style. Now, as we set out below, we’re estimating that the economy grew at only about a 2% rate.

Consumption: Car and light truck sales fell at a 61.6% annual rate in Q3, largely due to supply-chain issues, while “real” (inflation-adjusted) retail sales outside the auto sector were roughly unchanged. The good news is that although we only have reports on spending on services through August, it looks like real services spending should be up at a solid rate. Putting it all together, we estimate real consumer spending on goods and services, combined, increased at a tepid 0.9% annual rate, adding only 0.6 points to the real GDP growth rate (0.9 times the consumption share of GDP, which is 69%, equals 0.6).

Business Investment: The third quarter should continue growth led by investment in business equipment. Investment in intellectual property should also gain, as usual, but commercial construction should be down for the quarter. Combined, business investment looks like it grew at an 3.8% annual rate, which would add 0.5 points to real GDP growth. (3.8 times the 13% business investment share of GDP equals 0.5).

Home Building: Residential construction looks like it slowed slightly in the third quarter. That’s not due to less demand – sales are trending higher and inventories remain very low – but instead reflects supply-chain issues and lingering problems getting people to work, given unusually high jobless benefits that only ran out nationally late in the third quarter. We estimate a contraction at a 2.1% annual rate in Q3, which would subtract 0.1 point from real GDP growth. (-2.1 times the 5% residential construction share of GDP equals -0.1).

Government: It’s hard to translate government spending into GDP; only direct government purchases of goods and services (and not transfer payments like extra unemployment insurance benefits) count when calculating GDP. We estimate federal purchases grew at a 0.6% annual rate in Q3, which would add 0.1 point to real GDP growth. (0.6 times the 18% government purchase share of GDP equals 0.1).

Trade: A faster economic recovery in the US earlier this year as well as the labor shortage have spurred a rapid recovery in imports, which are at an all-time high. At present, we’re projecting that the surge in imports relative to exports will subtract 1.3 points from real GDP growth in Q3.

Inventories: Inventories look like they fell again in Q3 as businesses with supply-chain issues keep having to dip into inventories to meet demand. However, inventories didn’t fall as rapidly as they did in Q2, and in the arcane world of GDP accounting, that means inventories will make a positive contribution to growth, which we are estimating at 2.2 points.

Add it all up, and we get 2.0% annualized real GDP growth for the third quarter, nowhere close to the “sugar high” 6.5% annual rate of growth in the first half of the year.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

10-26 / 9:00 am New Home Sales – Sep 0.757 Mil 0.756 Mil 0.740 Mil

10-27 / 7:30 am Durable Goods – Sep -1.0% -2.2% +1.8%

7:30 am Durable Goods (Ex-Trans) – Sep +0.4% +0.1% +0.3%

10-28 / 7:30 am Initial Claims – Oct 24 289K 295K 290K

7:30 am Q3 GDP Advance Report 2.8% 2.0% 6.7%

7:30 am Q3 GDP Chain Price Index 5.3% 4.6% 6.1%

10-29 / 7:30 am Personal Income – Sep -0.2% +0.4% +0.2%

7:30 am Personal Spending – Sep +0.6% +0.4% +0.8%

8:45 am Chicago PMI 63.5 65.5 64.7

9:00 am U. Mich Consumer Sentiment- Oct 71.4 71.4 71.4

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.