U.S. Stability May Call For Rate Hike, Aiding Dollar

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Includes: UUP
by: Andrew Sachais

Summary

Employment in the U.S. is growing at a steady pace.

Moreover, consumer spending is also improving.

With the U.S. economy gaining momentum, the Fed may raise rates in 2015, benefiting the dollar.

The U.S. economy looks fairly stable by current measures, possibly raising the possibility of a 2015 rate hike, benefiting the dollar. The U.S. currency is represented by PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP).

In June, the ADP employment figure came in at an annual pace of 2.42%, relatively unchanged from the previous month's reading of 2.43%. Since 2011, the employment measure has stabilized at a steady pace, leading employment to higher levels than prior to the financial crisis, seen below. Many believe that the constant pace of growth in employment is signaling stronger economic momentum.

"The economy has shifted back into solid growth mode. A strong June jobs number would make it clear the economy can absorb a rate hike and the Fed can move at any time it wants," according to Reuters.

Data provided by the Federal Reserve

Moreover, consumer spending is also on the rise. In the most recent month, the total vehicle sales figure came in at an annual pace of 6.56%, below the previous month's reading of 6.76%. Growth in vehicle sales has remained at elevated levels since 2010, seen below. Strong spending also puts pressure on the policymakers to act in coming months.

"Overall auto sales slowed to a still-hefty seasonally adjusted annual rate of 17.16 million units in June from May's best-in-a-decade pace of 17.80 million units, according to Autodata Corp. June sales marked the third month in the last four to run above the 17 million units mark.

Economic reports, including employment, consumer spending, confidence and housing, have assumed a strong note in recent months, suggesting growth was gaining steam," according to Reuters.

Data provided by the Federal Reserve

Finally, alongside improving consumer data, business investment is also on the rise. In May, the construction spending figure came in at an annual pace of 2.99%, above the previous month's reading of 2.68%. Construction spending has slowed from over 6% growth in the summer of 2014, but remains elevated. Construction should aid the second quarter economic growth measure.

"Gains were broad-based, but more pronounced in the private nonresidential segment. Economists said that should offset the drag on second-quarter growth from weak oil and gas drilling.

Construction spending looks set to add significantly to second-quarter GDP growth," according to Reuters.

The U.S. economy is gaining momentum, according to current measures. Consumers are becoming healthier as both employment and household spending readings expand. Additionally, the private sector is improving, as is seen in the construction spending measure. With the U.S. economy gaining momentum, the Federal Reserve could raise the lending rate in 2015, pushing the dollar higher.

Data provided by the Federal Reserve

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