Management Views
In last week’s Outlook, we mentioned that we would be preoccupied with the US and global economies over the next 6 months. There is a real push and pull between the employment, inflation and general economic performance.
In the US, the consumer is two-thirds of the economy. Recently, we have seen strong data from that segment. Retail Sales number was very strong last month and has been relatively stable on a year-on-year basis since the spring. Inflation has also been moderating somewhat. The Federal Open Market Committee’s (FOMC) preferred measure of inflation, the US Personal Consumption Expenditure Index (PCE), peaked in the spring of 2022 (5.4%) and has since dropped to 4.4%. The target has historically been designated at approximately 2%, so there is still some distance to go (and prices do seem to be stubborn); nonetheless, the trend is currently in the right direction. The employment market is also very strong with Weekly Initial Jobless Claims back below 200k. The Unemployment rate (3.6%), as we noted last week, is at a 70-year low. However, this can all be balanced against increasing interest rates, sluggish manufacturing, high debt levels and a shortage of skilled labour, all of which continues to make investors nervous.
We like the Purchasing Managers Indices as a potential view of the future. PMIs consist of several different monthly surveys of managers from businesses in manufacturing or services and asks questions of 400 companies (in multiple countries) for 20 segments of their businesses. Managers mark 1 for improvement, 0.5 for no change and 0 for deterioration. The data is compiled together and a score above 50 indicates expected improvement over the coming months, while a score below 50 indicates contraction. We place PMI data for various countries in Figure 1.
- The blue lines represent composite data for international countries, and you can see that they have stabilized recently at just over 50. This is positive.
- The green lines split the US into manufacturing and services. Services have recently stabilized at 50.5.
- The thick green line is US Manufacturing. It is obviously stuck in a downward trend (47.8) so some difficulty remains in this sector.
“This means that” for the time being, we feel better about the outlook for the global economy than in the US. We would view improvement of PMI data in North America as very constructive. Next week is the end of earnings season in North America. We will review the results and add the analysis to this discussion.
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Changes in Leverage. We are increasing the asset ceiling to 2.0 times the market value of equity for Pathfinder International Fund and Pathfinder Real Fund to be consistent with Pathfinder Partners’ Fund and Pathfinder Resource Fund.
*All returns are time weighted and net of investment management fees. Returns from the Pathfinder Partners’ Fund and Partners’ Real Return Plus Fund are presented based on the masters series of each fund. The Pathfinder Core: Equity Portfolio and The Pathfinder Core: High Income Portfolio are live accounts. These are actual accounts owned by the Pathfinder Chairman (Equity) and client (High Income) which contain no legacy positions, cash flows or other Pathfinder investment mandates or products. Monthly inception dates for each fund and portfolio are as follows: Pathfinder Core: Equity Portfolio (January 2011), Pathfinder Core: High Income Portfolio (October 2012) Partners’ Fund (April 2011), Partners’ Real Return Plus Fund (April, 2013), and Partners’ Core Plus Fund (November 2014).
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