Hurricanes!

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Much of the nation has been transfixed in recent days by the destruction wrought by Hurricane Harvey, its 50+ inches of rainfall, and the ensuing record flooding.  Harvey will probably end up being the most expensive natural disaster in American history at an estimated cost of around $200 billion. "You had the greatest rainfall ever measured in the continental United States" said Dr. Joel Myers, Accuweather's founder and president. In addition to the damage to houses, businesses, and automobiles (1,000,000 vehicles are estimated to have sustained flood damage!) Harvey also hit the distribution supply chain across the country, affecting the countries largest port and an estimated 10% of all truck shipments nationally. We would not be surprised to see these recent weather events contribute to some upward pressure on general price levels in future months.

Meanwhile, recent economic data points have been strong. The latest revision of US second quarter GDP was for 3% growth (above estimates). Business and consumer spending is strong (and recovery and restoration spending related to Harvey will likely add to this and increase the general spending level in the economy). The headline unemployment rate continues to decline with a current reading of 4.3%. 

The US Federal Reserve seems reluctant to hike interest rates too aggressively, in large part due to perceived "weakness" in overall price levels as measured by the CPI and PCE. The normally newsworthy Jackson Hole central banker meeting was quiet this year. However the combination of strong spending, possible constraints on the supply of goods and materials (including importantly gasoline), and an increasingly tight labor market might change things at some point. Gold was strong (+4%) and is now up more than 10% on the year. Many of the industrial metals have moved upwards even more with aluminum (+10%), palladium (9%), platinum (7%) and copper (+7%) leading the way. Copper is shown below. After experiencing years of weakness beginning in 2011, the economically sensitive metal has reversed trend and is now rising strongly.

(Additional investment specific commentary follows for client subscribers)

References:

https://www.cnbc.com/amp/2017/08/31/hurricane-harvey-likely-most-expensive-natural-disaster-in-us-history-accuweather.html
https://www.bloomberg.com/news/articles/2017-09-01/u-s-manufacturing-expanded-in-august-at-fastest-pace-since-11
https://www.bloomberg.com/news/articles/2017-09-01/not-so-august-report-fails-to-shake-faith-in-u-s-labor-market

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