September 2018
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National Non-Operating Observations
The U.S. economy continued its strong run in August. The Bureau of Economic Analysis increased its second quarter GDP growth estimate from 4.1 percent to 4.2 percent, the biggest single-quarter GDP growth estimate since 2014. U.S. employment continued the consistent growth it’s shown since early 2011, reporting 201,000 new jobs in August, slightly higher than the 12-month trailing average. U.S. unemployment held steady at 3.9 percent, marking the fifth consecutive month this measure has been at or below 4.0 percent.
Foreign trade developments have been hanging over the capital markets for several months. The U.S. and Mexico reached a tentative agreement on revisions to NAFTA in late August, but negotiations with Canada are ongoing. Trade tensions with China persist, with limited near-term prospects for resolution. In mid-September, the Trump Administration announced measures affecting an additional $200 billion of Chinese imports.
Emerging markets have been a recent focus of investors, with Argentina and Turkey suffering sizeable currency depreciations against the dollar, driving fears of contagion in other economies and debt crises in countries with large dollar-denominated obligations.
Federal Reserve Chair Jerome Powell spoke in August at the Jackson Hole Economic Policy Symposium to reiterate the approach of gradual increases of the target range for the federal funds rate, and a theme of risk management to monetary policy. Federal Open Market Committee (FOMC) minutes released in August did not change the view of two additional rate hikes this year. The next FOMC meeting will be held on September 25 and 26. A recent survey of economists puts the odds of a rate increase at 91 percent.
†2Q 2018 Estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

August 2018
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
World stock markets have rallied since the 2008-09 financial crisis and have shown strong, coordinated growth since the 2016 U.S. election. Interest rates across the world have also fallen to historic lows. Both these developments have been positive for equity and fixed income investment portfolios. Despite sizeable decreases in the early part of the year, U.S. markets have picked up in recent months, with the S&P 500 index up 8.5 percent year-to-date (with 7.3 percent of that increase since June). World markets have not seen the same strong growth as the U.S., with the MSCI World Index up only 3.4 percent year-to-date, and the MSCI Emerging Markets Index down 8.8 percent year-to-date (with 2.9 percent of that decrease occurring in August). These trends reflect currency and growth concerns in several large emerging market countries. Strong earnings growth from U.S. companies in 2018 and a positive overall macroeconomic picture have continued to support the stock market. Markets have not been impacted materially by ongoing trade discussions and the implementation of tariffs between many of the world’s largest economies. As these events continue to unfold, it’s possible that capital markets experience greater volatility as investors evaluate their varying impact.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
Capital markets borrowing levels, as approximated here by the '30-yr U.S. Treasury' and '30-yr MMD Index,' are dependent upon macroeconomic conditions, including inflation expectations, GDP growth and investment opportunities elsewhere in the market. For August, the 30-yr U.S. Treasury decreased by 0.09 percent (ending at 3.02 percent) and the 30-yr MMD Index increased by 0.01 percent (ending at 3.02 percent). Both these indices are near their respective 12-month highs, but rates have moved within a relatively tight band over the past year—MMD has fluctuated within a 0.54 percent range while Treasuries have fluctuated within a 0.40 percent range over the same period.
Investment flows into and out of mutual funds directly impact the appetite and portfolio composition of long-term investors. Fund inflows generally are moderate and consistent over some time horizon; fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in selling bonds at lower prices and driving yields up. Flows for this year have varied slightly, but recent months have seen sizeable positive net inflows, with an average of $1.77 billion per month since May.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
National Observations
National Observations
©2018 Kaufman, Hall & Associates, LLC
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