Your Weekly Update

If I were a trader I might be nervous, or maybe excited, or, more likely perhaps, confused right about now. For event risk, or event opportunity (depending on my attitude/strategy), is presently heightened---to say the least.

For example:

Should Greece not bow to its creditors' demands, or vice versa, the tiny country would, at a minimum, find itself in a world of intermediate-term hurt. Which---in my humble opinion---would also, its tininess notwithstanding, put a short-term hurt on global financial markets in a big way, contrary to what a number of bleary-eyed pundits have predicted.

And/or:

Should the Fed heed the signals found in recent economic data and bump up interest rates earlier than traders presently anticipate (and begin replenishing its arsenal [with which to fight future recessionary battles] in the process), the market will likely correct in noteworthy fashion---in my humble opinion, that is.

There's more, but we'll stick with the top two for now.

Ah, but if I were an investor, I'd be feeling fine and dandy right about now. For I'd know that in the time horizon for which I've committed the equity portion of my portfolio (the rest of my life, or the lives of my heirs, as my case may be), Greece's present saga will have become all but forgotten, the Fed will have adjusted interest rates many times over, and all manner of event risk will---as it always has---ebb and flow whilst I allow my well-balanced portfolio to ride the inevitable tides. The tides inherent in the ownership of the companies that will stock a desiring world with goods and services in the years to come.

If you identify with the latter, please feel free to stop reading here and go about your business. As the following is for those who, for whatever reason(s), need clarity on the goings-on of the day.

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What really matters:

Personal consumption comprises two-thirds of  U.S. gross domestic product. Therefore, if you want to narrow the state of the American economy down to its most important indicators, you'd follow those that pertain to employment, to consumer attitudes and to consumer spending. Narrow it even further and you'd simply go with employment.

I.e., you can do as I do (as I feel I must) and dive into the minutia of the PMIs (purchasing managers indices) to try and firmly grasp present trends. Or, better yet, you can skip straight to the employment components. For regardless of what the survey respondents say about new orders, backlogs, input costs, etc., if they're hiring they're optimistic.

You can do as I do and track the sales, earnings, balance sheets and forward outlooks from industry leaders to try and glean the prospects for, say, the tech sector, financials, transportation, retail, etc. Or you can simply skim the consumer sentiment surveys and track consumer spending to gauge the prospects for future corporate earnings---for it's consumers who consume the stuffs of the aforementioned sectors.

You can do as I do and spend the major portion of your waking hours assessing the economy the world over from virtually every conceivable angle (oddly, I love this stuff). Or, well, you can have a life!

Bottom line: If businesses are hiring and if consumers are, naturally, consuming (let's hope they save a little as well) you'll want to own the stocks of the companies that are doing the hiring and that are producing the goods that the hirees' will be consuming: Such as housing-related, technology, transportation, retail, leisure and financial companies.

If, on the other hand, businesses are laying folks off and consumers are cutting their consumption, you'll want to own the companies that produce the stuff that folks have to buy regardless of their financial state: Such as consumer staples, healthcare and utilities.

As for the present state of what really matters. The U.S. economy is looking pretty decent, as the following from my economic log suggests:

JUNE 22, 2015

EXISTING HOME SALES for May jumped 5.1% to 5.35 million (annually). The year-over-year increase was 9.2%, which is the second strongest increase (after March's) in nearly two years.  Single family home sales were very strong, with 32% of all sales coming from first-time homebuyers---which is a very bullish sign for housing. Inventories remain quite light at 5.1 months worth of sales.

JUNE 23, 2015

NEW HOME SALES jumped nicely, 2.2%, to 546k (annualized), vs 517k last month and a 525k consensus estimate. New home inventory sits at a very low 4.5 months of sales. As I suggested (at the start of the year) it might, the housing market appears to be accelerating at a very strong pace in 2015.

JUNE 24, 2015

MORTGAGE PURCHASE APPLICATIONS rose 1% last week. Refinances increased 2%. Weekly apps is a very noisy statistic. The trend this year for purchase apps has been decidedly higher, which supports my optimism over housing.

JUNE 25, 2015

WEEKLY JOBLESS CLAIMS have been consistently running below 300k for weeks. That's a hugely positive indicator for the labor market, and the economy. Coming in last week at 271k, with a 4-week average of 273.75k. Continuing claims are running near historic lows at 2.247 million, with a 4-week average of 2.237 million. The unemployment rate for insured workers remains near a record low of 1.7%.

PERSONAL INCOME AND OUTLAYS came in stellarly for May. This supports my recent comments suggesting that underlying trends point to the consumer coming to life in terms of economic activity. The following Econoday commentary speaks to the various factors. My one contention is with the last sentence that suggests the doves (those who think the Fed should not raise rates soon) have little to worry about due to a low-running PCE price index. While that makes sense on the surface, the stuff that's brewing of late (weak production growth amid rising employment costs) spells inflationary pressure coming. Companies will have to begin investing in productivity enhancing capital or we will have issues in the not-too-distant future:

The consumer came to life in May, boosted by a 0.5 percent rise in personal income and helping to support a 0.9 percent surge in personal outlays that reflects heavy spending on autos and retail goods. And gains are not inflationary, at least yet, based on the very closely watched core PCE price index which edged only 0.1 tenth higher in May and is at a very benign 1.2 percent year-on-year rate which is actually down a tenth from an upward revised April. 

Components on the income side are very solid with wages & salaries up 0.5 percent in the month. Both proprietors' income and rental income show especially strong gains. Spending components show special strength for durables, again tied especially to autos, and also strong gains for non-durables, here tied to higher pump prices. Spending on services once again shows an incremental gain.

Turning back to PCE prices, the overall price index looks a little hot in May at plus 0.3 percent but the year-on-year rate is unchanged at only 0.1 percent. That's right, that's the year-on-year rate at only the most incremental level of inflation. And the 1.2 percent year-on-year core appears to be moving in reverse, down 1 tenth in each of the last two reports and further away from the Fed's 2 percent target.

Consumers, in an expression of their confidence, dipped into their savings to spend, with the savings rate down 3 tenths to 5.1 percent. This is a good report for the bulls, showing a strong non-inflationary bounce for the second quarter. This report won't be keeping the doves up at night and does not move forward the Fed's coming rate hike.

THE BLOOMBERG CONSUMER COMFORT INDEX confirms my suspicion  that the consumer is feeling better about his/her present prospects. Here's the release:

Consumer Comfort in U.S. Increased Last Week by Most Since April

By Erin Roman

(Bloomberg) -- Consumer confidence rose last week by the most since the beginning of April as Americans’ views of the buying climate and their finances improved.

The Bloomberg Consumer Comfort Index increased to 42.6 in the period ended June 21 after climbing to 40.9 the prior week. The turnaround follows an almost 8 point drop since reaching an eight-year high in mid-April.

“Motoring in tandem with gasoline prices, consumer sentiment moved in the right direction after a two-month downturn, boosted by better ratings of finances and, particularly, the buying climate,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement.

Prices at the gas pump are leveling off after advancing about 40 cents a gallon since early April, contributing to the biggest one-week improvement in buying attitudes in more than two years. A stronger labor market and rising home prices are making households more upbeat about their finances and the economy.

The comfort index’s buying climate gauge, which measures whether now is a good time to purchase goods and services, increased to 37 this week from 34.2, the biggest gain since April 2013.

Part of the reason for the increase can be found at service stations, where the nationwide average price of a gallon of gasoline is stabilizing around $2.80, based on data from the auto group AAA.

Personal Finances

The gauge of personal finances rose to 56.4, the highest since mid-April, from 54.8. A measure of consumers’ views on the current state of the economy advanced to 34.3 from 33.7 the prior week.

Confidence among homeowners was particularly strong, with that measure increasing by the most since January. The housing market is gaining momentum, with purchases of new properties in May rising to the highest level in seven years.

Near-record stock prices are making wealthier Americans more upbeat. Comfort among those earning more than $100,000 a year increased 3.9 points in the latest period after a 4.9 point gain -- the biggest two-week jump since 2010.

Sentiment improved in five of seven major income groups last week while better job prospects led to more sanguine attitudes among the employed and unemployed alike. Confidence of respondents looking for work climbed to a six-week high.

Employers in May added jobs at the fastest pace in five months, while a record number of help-wanted signs in April pushed job openings above hires for the first time ever, according to two Labor Department reports.

JUNE 26, 2015

THE UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT INDEX confirms my optimism over the consumer's growing optimism. Coming in at 96.1 for June. This is huge news for the U.S. economy's prospects going forward. Econoday's summary vividly tells the story:

Optimism is absolutely as strong as it gets giving a major boost to consumer sentiment which jumped well beyond forecasts, to 96.1 vs Econoday's median consensus for 94.6 and high-end forecast of 95.2. The expectations component, reflecting strong optimism for the jobs market, is an absolute standout, at 97.8 for a 12-year high and an 11.0 point surge from mid-month and a 13.6 point surge from final May. The 13.6 point spread is the largest monthly gain since March 1991.

The current conditions index also shows a very strong gain to 108.9 vs 106.8 at mid-month and 100.8 for final May. The current conditions was slightly higher in January though the 8.1 point gain from final May is the strongest since December 2013. Gains in this component point to gains for May-to-June readings on jobs and consumer spending.

In a further surprise, all this strength isn't triggering inflationary expectations which, compared to final May, are down 1 tenth for the 1-year outlook to 2.7 percent and down 2 tenths for the 5-year outlook to 2.6 percent. Both of these are very low readings for this report.

This is a stunning report, lining up with other recent positive indications on the consumer including jobless data and yesterday's strength in income and spending, the latter including big spending on autos. The consumer is very upbeat -- earning more and spending more.

Yes folks, despite the election-season doom and gloom you're hearing from certain circles, while not robust mind you, the U.S. economy is clearly on the mend! Which, ironically, makes for near-term market uncertainty as the Fed grapples over when to raise its benchmark interest rate.

The Stock Market:

Non-US markets have measurably outperformed the U.S. major averages (save for the NASDAQ Composite  Index) year-to-date. Don’t be surprised if that remains the story throughout most of the year---given many foreign markets' cheaper valuations, early-stage recoveries and, yes, accommodative central banks. That said, there are a number of potential international hot buttons that could easily delay the narrowing of the gap between the valuations of U.S. and non-U.S. securities. That’s why we think long-term and stay diversified!

Here’s a look at the year-to-date price changes (according to CNBC) for the major U.S. indices---and for non-U.S. indices and U.S. sectors---using index ETFs as our non-U.S. and sector proxies:

Dow Jones Industrials:  +0.38%

S&P 500:  +2.11%

NASDAQ Comp:  +7.94%

EFA (Europe, Australia and Far East):  +8.05%

FEZ (Eurozone):  +7.03%

VWO (Emerging Markets):  +3.07%

Sector ETFs:

Here’s a look at the year-to-date results for a number of U.S. sector ETFs:

IYH (HEATHCARE):  +12.21%

XHB (HOMEBUILDERS):  +9.38%

XLY (DISCRETIONARY):  +7.97%

XLK (TECH):  +2.20%

XLB (MATERIALS):  +1.67%

XLF (FINANCIALS):  +0.65%

XLP (CONS STAPLES):  -0.12%

XLI (INDUSTRIALS):  -2.67%

XLE (ENERGY):  -3.89%

IYT (TRANSP):  -10.01%

XLU (UTILITIES):  -11.50%

The Bond Market:

As I type, the yield on the 10-year treasury bond sits at 2.47%. Which is 8 basis points higher than where it was when I penned last week's update.  

TLT, an ETF that tracks an index of long-dated U.S. treasury bonds, saw its share price (which moves inversely to yields) decline a whopping 3.23%  last week (down 8.49% year-to-date).  As I keep repeating, I see bonds in general sporting a risk/return trade-off that makes going out on the yield curve not worth the risk.

Once again, here's the reminder on volatility I posted earlier in the year:

In last weekend’s commentary I attempted to put a rough January into proper perspective by urging you to view the stock market as an “antifragile” (benefits from stress) entity. Again, periodic market downturns are an essential aspect of the long-term investing process. As I stated in our year-end letter, and several commentaries since, I expect financial markets in 2015 to exhibit the kind of volatility that will challenge the resolve of many a short-term investor. Good thing you and I think long-term!

One additional note on volatility: The past couple of weeks I’ve shared with you the very short-term results for markets and sectors. I do this with a bit of hesitation, as I in no way want to give the impression that you, nor I for that matter, should base our long-term investment decisions on short-term movements in markets or their sectors. It can, however, serve as a reference point for how the markets are, or are not, responding to the data (which is why I, as a professional, track the short-term). As you may have noticed, my beginning of the year optimism over non-US and the housing sector (to name two), and pessimism over utilities, appears to be justified by recent results. I need to strongly (very strongly!) emphasize that I was not predicting what we’ve experienced these few short weeks into 2015. My optimism or concerns are based on factors such as valuations, trends, monetary policy and cyclicality—and my comfort in making allocation recommendations rests on the view that our clients are not short-minded investors (it can take awhile, if at all, for the market to reward what I believe to be good fundamental logic) who mistakenly believe that any human being possesses a capacity for market timing. Some people get lucky from time to time, but without exception, market timers are wrong far more often than they are right. The path to long-term investment success is fraught with bumps and potholes. The ones who successfully make the journey take it slow and never over-compensate when steering through and around the inevitable obstacles along  the way.

Here are last week’s U.S. economic highlights:

JUNE 22, 2015

THE CHICAGO FED NATIONAL ACTIVITY INDEX for May improved slightly to -.17 from a revised -.19 in April. Here's Econoday:

There was net improvement in May's run of economic data but not much at least based on the national activity index which comes in at minus 0.17 vs a downward revised minus 0.19 in April. The 3-month average is telling the same story of weakness, at minus 0.16 vs a revised minus 0.20 in April.

Much stronger payroll growth, at 280,000, was May's highlight but the gain was offset by a 1 tenth tick higher in the unemployment rate to 5.5 percent which leaves the month's total employment contribution to the index unchanged at plus 0.10. Other readings were also little changed and all soft: production-related indicators at minus 0.17 vs April's minus 0.19, sales/orders/inventories at zero vs minus 0.1, and personal consumption & housing at minus 0.09.

The big bounce, according to today's report, that was expected following the transitory factors of a very soft first quarter has yet to appear.

EXISTING HOME SALES for May jumped 5.1% to 5.35 million (annually). The year-over-year increase was 9.2%, which is the second strongest increase (after March's) in nearly two years.  Single family home sales were very strong, with 32% of all sales coming from first-time homebuyers---which is a very bullish sign for housing. Inventories remain quite light at 5.1 months worth of sales.

JUNE 23, 2015

DURABLE GOODS ORDERS (THE ADVANCED READING) FOR MAY was basically uninspiring. While booking a 1.8% decrease on the headline, ex-transportation (airplane orders were way off), orders were up .5%.

THE JOHNSON REDBOOK RETAIL REPORT continues to come in soft week-on-week, up 1.6% last week. As I've stressed of late, this report stands out as one that doesn't jibe with other recent consumer data. The report cites higher expectations in the coming survey due to Father's Day.

THE FHFA HOUSE PRICE INDEX FOR APRIL shows home prices, up .3%, up 5.3% year-over-year. I expect this statistic to gain steam measureably going forward based very strong data from the housing sector.

MARKIT'S MANUFACTURING PMI (JUNE'S FLASH READING) remains in expansion mode at 53.4. However, that's slightly off last month's 53.8 and below the consensus estimate range of 54-55.5. The slowing centered on production growth, as opposed to orders, which picked up. The report cites caution due to the impact of the strong dollar on exports. Energy equipment production has turned down sharply.

NEW HOME SALES jumped nicely, 2.2%, to 546k (annualized), vs 517k last month and a 525k consensus estimate. New home inventory sits at a very low 4.5 months of sales. As I suggested (at the start of the year) it might, the housing market appears to be accelerating at a very strong pace in 2015.

RICHMOND FED MANUFACTURING INDEX  for June improved to 6, from 1 in May. The new orders component rose 9 points to 11. Backlogs came in up 6, which is what has been a rare positive reading. While the manufacturing data remains mixed, mixed is an improvement over what we've seen on balance this year.

JUNE 24, 2015

MORTGAGE PURCHASE APPLICATIONS rose 1% last week. Refinances increased 2%. Weekly apps is a very noisy statistic. The trend this year for purchase apps has been decidedly higher, which supports my optimism over housing.

THE FINAL GDP READING FOR Q1 showed the economy contracting, but not as much as the second revision showed, -.2% vs -.7%. Q2 GDP will rebound.... Economists to mixed on to what extent. I've heard predictions as low as 2% and as high as 3%.

CORPORATE PROFITS for Q1 came in at $1.891 trillion, up 9% year-over-year.

CRUDE OIL INVENTORIES dropped again last week by 4.9 million barrels. However, based on builds in GASOLINE +.7 mbs and DISTILLATES +1.8 mbs the crude draw has largely to do with refineries running at high capacity.... which they are, at 94%... Crude actually dropped (due to the builds in oil biproducts) in price on the news.

JUNE 25, 2015

WEEKLY JOBLESS CLAIMS have been consistently running below 300k for weeks. That's a hugely positive indicator for the labor market, and the economy. Coming in last week at 271k, with a 4-week average of 273.75k. Continuing claims are running near historic lows at 2.247 million, with a 4-week average of 2.237 million. The unemployment rate for insured workers remains near a record low of 1.7%.

PERSONAL INCOME AND OUTLAYS came in stellarly for May. This supports my recent comments suggesting that underlying trends point to the consumer coming to life in terms of economic activity. The following Econoday commentary speaks to the various factors. My one contention is with the last sentence that suggests the doves (those who think the Fed should not raise rates soon) have little to worry about due to a low-running PCE price index. While that makes sense on the surface, the stuff that's brewing of late (weak production growth amid rising employment costs) spells inflationary pressure coming. Companies will have to begin investing in productivity enhancing capital or we will have issues in the not-too-distant future:

The consumer came to life in May, boosted by a 0.5 percent rise in personal income and helping to support a 0.9 percent surge in personal outlays that reflects heavy spending on autos and retail goods. And gains are not inflationary, at least yet, based on the very closely watched core PCE price index which edged only 0.1 tenth higher in May and is at a very benign 1.2 percent year-on-year rate which is actually down a tenth from an upward revised April. 

Components on the income side are very solid with wages & salaries up 0.5 percent in the month. Both proprietors' income and rental income show especially strong gains. Spending components show special strength for durables, again tied especially to autos, and also strong gains for non-durables, here tied to higher pump prices. Spending on services once again shows an incremental gain.

Turning back to PCE prices, the overall price index looks a little hot in May at plus 0.3 percent but the year-on-year rate is unchanged at only 0.1 percent. That's right, that's the year-on-year rate at only the most incremental level of inflation. And the 1.2 percent year-on-year core appears to be moving in reverse, down 1 tenth in each of the last two reports and further away from the Fed's 2 percent target.

Consumers, in an expression of their confidence, dipped into their savings to spend, with the savings rate down 3 tenths to 5.1 percent. This is a good report for the bulls, showing a strong non-inflationary bounce for the second quarter. This report won't be keeping the doves up at night and does not move forward the Fed's coming rate hike.

PERSONAL CONSUMER EXPENDITURES (PCE) PRICE INDEX: Core 1.2% year-over-year.

MARKIT'S FLASH SERVICE SECTOR PMI FOR JUNE remained solidly in expansion territory (above 50) at 54.6. However, the pace slowed notably from May. Hiring is still a plus, but as much of a plus as prior months this year. Going-forward sentiment seemed to wane a bit, which to me is surprising given other indicators. It'll be interesting to see if service sector activity indeed trends slower in the coming months. One pressing point is the reported spike in input costs---the fastest in 18 months. While the general sentiment is music to Fed dove's ears, the input cost spike is not....

THE BLOOMBERG CONSUMER COMFORT INDEX confirms my suspicion  that the consumer is feeling better about his/her present prospects. Here's the release:

Consumer Comfort in U.S. Increased Last Week by Most Since April

By Erin Roman

(Bloomberg) -- Consumer confidence rose last week by the most since the beginning of April as Americans’ views of the buying climate and their finances improved.

The Bloomberg Consumer Comfort Index increased to 42.6 in the period ended June 21 after climbing to 40.9 the prior week. The turnaround follows an almost 8 point drop since reaching an eight-year high in mid-April.

“Motoring in tandem with gasoline prices, consumer sentiment moved in the right direction after a two-month downturn, boosted by better ratings of finances and, particularly, the buying climate,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement.

Prices at the gas pump are leveling off after advancing about 40 cents a gallon since early April, contributing to the biggest one-week improvement in buying attitudes in more than two years. A stronger labor market and rising home prices are making households more upbeat about their finances and the economy.

The comfort index’s buying climate gauge, which measures whether now is a good time to purchase goods and services, increased to 37 this week from 34.2, the biggest gain since April 2013.

Part of the reason for the increase can be found at service stations, where the nationwide average price of a gallon of gasoline is stabilizing around $2.80, based on data from the auto group AAA.

Personal Finances

The gauge of personal finances rose to 56.4, the highest since mid-April, from 54.8. A measure of consumers’ views on the current state of the economy advanced to 34.3 from 33.7 the prior week.

Confidence among homeowners was particularly strong, with that measure increasing by the most since January. The housing market is gaining momentum, with purchases of new properties in May rising to the highest level in seven years.

Near-record stock prices are making wealthier Americans more upbeat. Comfort among those earning more than $100,000 a year increased 3.9 points in the latest period after a 4.9 point gain -- the biggest two-week jump since 2010.

Sentiment improved in five of seven major income groups last week while better job prospects led to more sanguine attitudes among the employed and unemployed alike. Confidence of respondents looking for work climbed to a six-week high.

Employers in May added jobs at the fastest pace in five months, while a record number of help-wanted signs in April pushed job openings above hires for the first time ever, according to two Labor Department reports.

By region, comfort climbed in the Northeast by the most since Feb. 8, and rose for a fourth week in the South. Sentiment in the Midwest registered the biggest gain since the end of March.

The Bloomberg Comfort Index, presented on a scale of zero to 100, is a four-week rolling average and based on a national sample of 1,000 adults. The report’s gauges have a margin of error of plus or minus 3.5 points.

NATURAL GAS INVENTORIES continue to rise: by 75 billion cubic feet last week.

THE KANSAS CITY FED MANUFACTURING INDEX doesn't support other recent surveys that report a stabilization in the manufacturing sector---at least not in the Tenth District. The strong dollar's negative affect on exports catches much of the blame. Here's Econoday:

The Kansas City manufacturing index remains depressed, at minus 9 in June vs minus 13 and minus 9 in the two prior readings. If there is a positive, it's that new orders are only marginally in the negative column at minus 3. But everything else is mostly in the deep part of the negative column including production, at minus 21, and shipments at minus 15. The workweek is in contraction as is hiring. Price readings are mixed with raw material costs jumping, which is consistent with other reports, and little change for prices of final goods.

Weakness in exports, the result in part of the strong dollar, continues to be a major negative for the manufacturing sector. This report offers a separate reading on export orders and it's at minus 5, up a bit from minus 9 and minus 12 in the two prior reports.

Early indications on this month's manufacturing sector are mixed with slightly more however, including today's report, pointing to another month of bumps. Watch for the final regional Fed indication on June's manufacturing sector with Monday's Dallas Fed report.

THE FED BALANCE SHEET grew by $7.2 billion last week. RESERVE BANK CREDIT grew by $8.5 billion.

M2 MONEY SUPPLY grew by $29.5 billion last week.

JUNE 26, 2015

THE UNIVERSITY OF MICHIGAN CONSUMER SENTIMENT INDEX confirms my optimism over the consumer's growing optimism. Coming in at 96.1 for June. This is huge news for the U.S. economy's prospects going forward. Econoday's summary vividly tells the story:

Optimism is absolutely as strong as it gets giving a major boost to consumer sentiment which jumped well beyond forecasts, to 96.1 vs Econoday's median consensus for 94.6 and high-end forecast of 95.2. The expectations component, reflecting strong optimism for the jobs market, is an absolute standout, at 97.8 for a 12-year high and an 11.0 point surge from mid-month and a 13.6 point surge from final May. The 13.6 point spread is the largest monthly gain since March 1991.

The current conditions index also shows a very strong gain to 108.9 vs 106.8 at mid-month and 100.8 for final May. The current conditions was slightly higher in January though the 8.1 point gain from final May is the strongest since December 2013. Gains in this component point to gains for May-to-June readings on jobs and consumer spending.

In a further surprise, all this strength isn't triggering inflationary expectations which, compared to final May, are down 1 tenth for the 1-year outlook to 2.7 percent and down 2 tenths for the 5-year outlook to 2.6 percent. Both of these are very low readings for this report.

This is a stunning report, lining up with other recent positive indications on the consumer including jobless data and yesterday's strength in income and spending, the latter including big spending on autos. The consumer is very upbeat -- earning more and spending more.