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Weekly Economic Update for January 19, 2015

WeeklyMarketUpdate.jpgWHAT HAPPENED TO RETAIL SALES?

Wall Street was surprised by the news of December’s 0.9% retreat, especially given November’s (revised) 0.4% advance. Minus auto buying, the decline was 1.0%. Economists surveyed by Briefing.com had forecast a gain of 0.1%. The plunge came even with holiday sales, cheap gas, strong hiring and increasing optimism about household economic prospects (see below). This disappointment raises concerns about the strength of Q4 consumer spending.1,2

    

CONSUMER PRICES TAKE A BIG DIP

December saw the Consumer Price Index decrease 0.4%, its largest monthly pullback since December 2008. That brought its 2-month decline to 0.7%. Falling gas prices were a major influence, of course – on Friday, AAA announced a nationwide average price of just $2.08 for a gallon of regular unleaded. The University of Michigan’s consumer sentiment index hit an 11-year peak last week with a preliminary mark of 98.2.1

            

DRAMA FOR CURRENCIES, A BIG GAIN FOR GOLD

The Swiss National Bank rocked the currency markets Thursday by abruptly lifting its cap on its franc. In the minutes after the announcement, the Swiss franc gained 25% on the dollar and 30% against the euro while Germany’s DAX index fell 250 points. Perhaps the SNB anticipates a stimulus from the European Central Bank. COMEX gold futures were up 4.5% last week to $1,276.90 at Friday’s close; WTI crude settled at $48.69 on the NYMEX Friday.3,4

Weekly Economic Update for January 12, 2015

WeeklyMarketUpdate.jpgANOTHER GOOD JOBS REPORT

America’s best year for hiring since 2000 wrapped up with 252,000 more people finding work in December. Labor Department data showed the jobless rate declining to 5.6% last month (the U-6 rate tracking the unemployed and underemployed decreased to 11.2%). The economy added 2.53 million non-farm payroll jobs in 2014, representing 1.9% net employment growth. October and November hiring totals were respectively revised up to 261,000 and 353,000. December did see wages slip 0.2%; private sector average hourly earnings increased just 1.7% during 2014.1

    

DECEMBER SEES ISM SERVICES PMI RETREAT

The latest Institute for Supply Management’s non-manufacturing purchasing manager index came in at 56.2 – still strong, but well under the November reading of 59.3. Tempering that disappointment is the fact that ISM’s services index has shown sector growth for 59 consecutive months.2

           

OIL DIPS BENEATH $50

The price of West Texas Intermediate crude fell 8.2% last week on the NYMEX. A barrel was valued at just $48.36 at Friday’s close. With OPEC doing nothing to reduce output, investors are left wondering when the steep losses will end. Gold did very well last week, rising 2.5% on the COMEX to settle Friday at $1,216.10.3

Weekly Economic Update for January 5, 2015

WeeklyMarketUpdate.jpgLATEST ISM FACTORY PMI IS A LETDOWN

The 3.2-point December descent of the Institute for Supply Management’s manufacturing index may not be as troubling as it first appeared to Wall Street. Purchasing managers surveyed by ISM noted that labor disputes at west coast ports held up raw material and hard goods shipments last month. At 55.5, the index still pointed to a growing factory sector even though it missed expectations (it came in 1.5 points beneath the forecast of economists polled by MarketWatch). The ISM factory PMI averaged 55.8 in 2014 for its best year since 2010.1,2

  

CONFIDENCE UP AS 2014 ENDS

In December, the Conference Board’s consumer confidence index reached 92.6, approaching a seven-year high that the CB recorded in October. In addition, the CB’s index measuring the outlook on current economic conditions hit a high unseen since February 2008. November’s reading was revised up to 91.0 from the prior 88.7.3

         

AN UPTURN FOR PENDING HOME SALES

According to the National Association of Realtors, they rose 0.8% in November – much better than October’s 1.1% retreat. October’s S&P/Case-Shiller home price index showed a 4.5% annual gain in its 20-city version, the smallest in two years; the nationwide gain was 4.6%, down from 4.8% in the September edition.3,4

Quarterly Economic Update for Q4, 2014

SwagertyGardner_Website_QuarterlyUpdate_Icon.jpgTHE QUARTER IN BRIEF
The last quarter of 2014 brought more volatility to the stock and commodities markets. The S&P 500 and Dow both gained more than 4%, outperforming quite a few of the major foreign indices. Oil prices took a dive, along with prices of other key energy futures. The pace of home sales slowed and year-over-year home price gains grew smaller. Tumbling energy shares and a pandemic exerted more strain on equities than the end of QE3. New economic worries arrived for the European Union, Russia and Japan. Our economy looked solid, showing less unemployment, more consumer spending and impressive growth.1

    

DOMESTIC ECONOMIC HEALTH
America was clearly getting back on its feet economically. Unemployment declined only 0.1% between September and November, but at 5.8%, November’s jobless rate was down 1.2% year-over-year. (The overall jobless rate, or U-6 rate, dipped to 11.4% in that month.) Job creation really picked up in fall: there were 243,000 new hires in October, 321,000 in November. Hourly earnings rose 0.4% in November, indicating decent wage growth at last.2

 

Consumers were spending freely, enjoying a reduction in gas prices that gave them a little more discretionary income. On December 31, AAA’s Daily Fuel Gauge Report measured an average price of $2.26 a gallon for unleaded fuel; falling pump prices had saved households more than $14 billion. The Commerce Department measured a distinct rise in personal spending – up 0.3% for October, 0.6% for November and 3.2% for Q3 – and household spending certainly played a part in the terrific final GDP numbers for Q2 (4.6%) and Q3 (5.0%).3,4

 

A consumer with more income can prove more confident and more ready to make discretionary purchases. That implication was borne out by fall figures from the Commerce Department showing retail sales up 0.3% in October and 0.7% in November, and advancing household confidence surveys. The University of Michigan consumer sentiment index rose from 84.6 to 93.6 across Q4 and the Conference Board’s consumer confidence index moved from (a revised) 89.0 to 92.6. Households certainly didn’t have much inflation pressure to worry about. By November, the annual gain in the headline Consumer Price Index was just 1.3% (it was 1.7% for the core CPI).5,6

   

Turning from the consumer to the producer, Q4 saw the Institute for Supply Management’s much-observed PMI Producer Price Index move from 56.6 (October) to 59.0 (November) to 58.7 (December), all indicating strong sector growth. ISM’s services index went 58.6-57.1-59.3 across the last three months, flashing the same kind of signal. On the downside, core capital goods orders, minus aircraft, were off 1.9% in October and flat in November. Producer prices flattened in November, leaving the headline Producer Price Index up but 1.4% year-over-year.4,5

   

While stocks rebounded fast from a severe October drop in reaction to the Ebola virus reaching the U.S., quarterly gains looked to be in jeopardy last month as the oil selloff gained momentum. Then Federal Reserve inserted a new passage into its December policy statement: it would be “patient in beginning to normalize the stance of monetary policy.” It also left the phrase “considerable time” in place. What did investors glean from this? A broad assumption that the central bank would likely wait until mid-2015 or later to adjust interest rates.7

Weekly Economic Update for December 29, 2014

WeeklyMarketUpdate.jpgTHE ECONOMY IS BOOMING

Looking at two vital indicators, it becomes hard to draw any other conclusion. In its final estimate, the Commerce Department put Q3 growth at 5.0% – the best quarterly GDP since Q3 2003, following a 4.6% expansion in Q2. Consumer spending was up 3.2% in the third quarter, business investment up 8.9%. Speaking of personal spending, the latest Commerce Department figure on that was also impressive – a November gain of 0.6%, complemented by a gain of 0.4% in personal income. Growth and household spending may not be quite as notable in December or Q4, but the recovery is definitely in full swing.1,2

  

GREAT GROWTH DOESN’T SPUR FALL HOMEBUYING

Existing home sales fell for only the second time in eight months in November, and the decline was sharp: the National Association of Realtors announced a 6.1% slip. New home purchases fell 1.6% last month according to the Census Bureau, marking their first down month since July.3

         

CONSUMER SENTIMENT HOLDS STEADY

At 93.6, the University of Michigan’s last consumer sentiment index reading of 2014 was a tiny bit below expectations. Economists polled by MarketWatch had forecast the final December index to come in at 93.8, unchanged from a month earlier.2

Weekly Economic Update for December 22, 2014

WeeklyMarketUpdate.jpgONE WORD TURNS STOCKS AROUND

That word was “patient,” and it was found in the Federal Reserve’s December 17 policy statement. The Federal Open Market Committee again pledged to take “a considerable time” to raise interest rates in the absence of easing, but added that it would also be “patient” in making a move. At the central bank’s final press conference of 2014, Fed chair Janet Yellen noted that several FOMC meetings might pass without any increase in the benchmark interest rate. Investors celebrated: the Dow soared 288 points Wednesday and another 421 points Thursday.1,2

    

LOWER PRICES FOR THE HOLIDAYS

Inexpensive gasoline makes life easier for consumers, and its effect was felt in the Consumer Price Index. The CPI’s 0.3% November retreat was its largest monthly pullback in five years. Less inflation pressure gives the Fed less incentive to adjust the federal funds rate.1

               

HOUSING STARTS, BUILDING PERMITS DECLINE

Was it the weather? That could have been one factor for the 1.6% November dip in groundbreaking measured by the Commerce Department. Building permits were down 5.2% last month. November’s decrease snapped three straight months of housing starts at a million-per-year pace, something unseen since early 2008.3

         

A LITTLE PATIENCE GOES A LONG WAY

A long way toward righting the stock market, that is. Thanks largely to the Fed’s reassuring policy statement, the DJIA rose 3.03% across five days to settle at 17,804.80 Friday. Major weekly gains were also logged by the S&P 500 (3.41% to 2,070.65) and NASDAQ Composite (2.40% to 4,765.38). How about oil? Light sweet crude for January delivery climbed 4.4% on the NYMEX Friday, closing at $56.52. Gold lost 2.2% across five days on the COMEX, settling Friday  at $1,196.00.4,5  

Weekly Economic Update for December 15, 2014

WeeklyMarketUpdate.jpgAMERICANS BUY MORE, SENTIMENT INDEX SOARS

Commerce Department data showed retail sales jumping 0.7% for November – the best monthly advance recorded in a year. More good news came from the University of Michigan – its initial December consumer sentiment index came in at 93.8, way up from 88.8 at the end of last month. The improvement may reflect relief at falling gas prices as well as added belief in the economy.1

  

WHEN WILL OIL HIT BOTTOM?

Last week saw the International Energy Agency lower its estimates for 2015 global oil demand, and so NYMEX crude for January delivery finished Friday’s trading day at just $57.81 a barrel. At Friday’s close, oil was down 12.94% MTD and 25.90% over the past 30 days. COMEX gold futures, on the other hand, were up 4.75% MTD and settled at $1,222.50 Friday.2,3

               

WHOLESALE PRICES DIP

The Producer Price Index is yet another indicator affected by cheap oil. It declined   0.2% in November, taking the annualized gain down to 1.4%. The core PPI was flat last month and up 1.8% in a year.1

        

CRUDE PRICES DRAG DOWN STOCK PRICES

Bears freely roamed Wall Street last week, with a major selloff occurring Friday. In fact, December 8-12 represented the worst week for the Dow since 2011. The 5-day losses across the major indices were severe: DJIA, 3.78% to 17,280.83; S&P, 3.52% to 2,002.33; NASDAQ, 2.66% to 4,653.60.2,4  

Quarterly Economic Update for Q3, 2014

SwagertyGardner_Website_QuarterlyUpdate_Icon.jpgTHE QUARTER IN BRIEF
Stocks ultimately advanced across Q3 2014 with the S&P 500 closing at a new peak of 2,011.36 on September 18. Still, the 3-month gain of the index was minor at 0.62%. A raft of indicators showed the economy in reasonable health, but not so healthy that the Federal Reserve was motivated to alter its exit plan for QE3. Home sales were up and down in the quarter; prices of key commodities fell. Overseas manufacturing gauges left Wall Street unimpressed; performance of foreign stock indices varied greatly. Questions emerged about how well the aging bull market might fare with oncoming shifts in U.S. monetary policy.1,2

 

DOMESTIC ECONOMIC HEALTH
The Federal Reserve described the interval between the end of easing and the eventual alteration of the benchmark interest rate as a “considerable” time. “No news” at the Fed was good news for stocks.3

 

Household confidence surveys were in disagreement. The University of Michigan’s consumer sentiment index advanced from 82.5 at the end of June to 84.6 as September wrapped up; the Conference Board’s consumer confidence index went from a (revised) June mark of 86.4 to 86.0 in September.4

 

By September, the jobless rate was down to 5.9%, 0.2% beneath where it was in June. Employers added 243,000 new workers in July, 180,000 in August, and another 248,000 for September. The U-6 rate (unemployed + underemployed) had dipped to 11.8% by the end of the quarter.5

 

Weekly Economic Update for December 8, 2014

WeeklyMarketUpdate.jpgECONOMY ADDS 321,000 JOBS

November 2014 was the best month for hiring since January 2012. Analysts polled by MarketWatch had projected payrolls expanding by 235,000 jobs last month, and that forecast was trumped. While seasonal jobs constituted 50,000 of the new positions, professional and business hires comprised 86,000 more. The Labor Department also found average hourly wages rising 0.4% last month (though they were still just up 2.1% in 12 months). More hiring gains like this might lead the Federal Reserve to tighten a bit sooner than investors anticipate. The jobless rate (which the Labor Department determines from a different survey of households) stayed at 5.8% in November, but the U-6 rate including both the jobless and underemployed ticked down to 11.4%.1,2

     

FACTORY, SERVICE SECTORS STAY HEALTHY

November brought a major gain for the non-manufacturing PMI maintained by the Institute for Supply Management: it advanced 2.2 points to 59.3. ISM’s factory PMI dipped from October’s 59.0 reading to 58.7, still far above the 50 mark that delineates expansion from contraction. A MarketWatch survey of economists projected both PMIs to come in at 57.7.2,3

              

GOLD RALLIES, OIL RETREATS FURTHER

Across December 1-5, the precious metal gained 1.3% on the COMEX, ending the week at $1,190.40 an ounce. That happened even as the greenback hit a 5-year high versus a number of key currencies Friday, reducing gold’s lure. Oil prices declined again – NYMEX crude settled Friday at a 5½-year low of $65.84 a barrel.4

Weekly Economic Update for December 1, 2014

WeeklyMarketUpdate.jpgCAUTIOUS SPENDING, BUT IMPRESSIVE GROWTH

Personal income and personal spending both rose 0.2% in October, according to the Commerce Department. Not too impressive? Maybe, but the federal government’s second estimate of Q3 GDP was. Pair the newly revised 3.9% reading with the final 4.6% mark for Q2, and you get the best 6 months for the economy since 2003. The Federal Reserve’s personal consumption expenditure (PCE) price index was only up 1.4% in the past year; the Fed has set its annual consumer inflation target at 2.0%.1

    

CONSUMER SENTIMENT BAROMETERS RISE & FALL

At 88.7, the Conference Board’s November consumer confidence index slipped badly from October’s 94.5 mark. In better news, the University of Michigan’s consumer sentiment index notched a monthly gain of 1.9 points with an 88.8 final November reading.2

              

HOUSING MARKET CONTINUES TO NORMALIZE

Last week, September’s 20-city S&P/Case-Shiller home price index showed a 4.9% yearly rise, much less than the double-digit annual gains seen in the March and April editions. Pending home sales, as measured by the National Association of Realtors, were down 1.1% for October; that is the third retreat in five months. October did see a third straight monthly advance in new home buying; sales were up 0.7% according to the Census Bureau.2

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