What I’m Watching This Week – 28 March 2016

The Markets (as of market close March 25, 2016)

After five consecutive weeks of gains, stocks cooled as each of the major indexes listed here slid into negative territory by the close of last week. With the latest downturn, only the Dow is ahead of its 2015 year-end closing value. Several of the markets were closed for Good Friday. Favorable reports on the GDP and new home sales could spur the market this week.

The price of crude oil (WTI) had a volatile week, yet it is clearly trending upward as the price increased again last week, closing the week slightly ahead at $39.59 a barrel, $0.24 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,218.70 by late Friday afternoon, down from the prior week’s closing price of $1,256. The national average retail regular gasoline price increased for the fifth week in a row, selling at $2.007 per gallon on March 21, 2016, $0.046 over the prior week’s price but $0.450 under a year ago.

Market/Index 2015 Close Prior Week As of 3/25 Weekly Change YTD Change
DJIA 17425.03 17602.30 17515.73 -0.49% 0.52%
Nasdaq 5007.41 4795.65 4773.50 -0.46% -4.67%
S&P 500 2043.94 2049.58 2035.94 -0.67% -0.39%
Russell 2000 1135.89 1101.67 1079.54 -2.01% -4.96%
Global Dow 2336.45 2327.69 2279.29 -2.08% -2.45%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.98% 1.90% -8 bps -36 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Following a strong month for existing home sales in January, which had yielded the highest annual rate in six months, the National Association of Realtors® reported that existing home sales fell 7.1% in February. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, dropped to a seasonally adjusted annual rate of 5.08 million in February, down from 5.47 million in January. Despite last month’s large decline, sales are still 2.2% higher than a year ago. The drop in sales is largely attributable to low supply levels and increasing asking prices. The median existing-home price for all housing types in February was $210,800, up 4.4% from February 2015 ($201,900). February’s price increase marks the 48th consecutive month of year-over-year gains. Total housing inventory at the end of February increased 3.3% to 1.88 million existing homes available for sale, which is still 1.1% lower than a year ago (1.90 million).
  • The new home sales market gained strength in February as the annual sales rate for new single-family houses increased to 512,000–2.0% ahead of January’s revised rate of 502,000 but 6.1% below the rate for February 2015. The median sales price of new houses sold in February increased over 6.0% to $301,400, while the average sales price came in at $348,900. The seasonally adjusted estimate of new houses for sale at the end of February was 240,000. This represents a supply of 5.6 months at the current sales rate.
  • Orders for durable goods (expected to last at least three years) fell 2.8% in February from January’s revised figures, according to the latest report from the Commerce Department. Low oil prices, a strong dollar, and overall financial volatility are the leading contributors to the decline. January’s spike in durable goods orders may have been an exception, as goods orders have otherwise fallen three of the past four months. Also, new orders for capital goods decreased 1.8%–an indication that business investment also pulled back in February.
  • An anticipated surge in the manufacturing sector in March apparently did not materialize, according to the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index™. The index, at 51.4, is indicative of “subdued growth” in the manufacturing sector, up marginally from February’s 51.3 reading. The index reading of 51.7 for the first quarter is the weakest improvement over any quarter since the third quarter of 2012. Slightly stronger rates of output, new business, and employment growth were offset by the sharpest decline in pre-production inventories since January 2014.
  • The gross domestic product can fluctuate with each release as new data is integrated. As such, the third estimate of the fourth-quarter 2015 GDP increased at an annual rate of 1.4%. Last month’s “second estimate” had the GDP increasing 1.0%. In the third quarter, real GDP increased 2.0%. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, residential fixed investment, and federal government spending that were partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
  • For the week ended March 19, there were 265,000 claims for unemployment insurance, an increase of 6,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 12 was 2,179,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

As the month of March and the first quarter come to a close, there are several important economic reports to consider. The week starts with the latest information on consumer income and spending, and the Census Bureau’s report on international trade in goods. Federal Reserve Chair Janet Yellen may reveal more information on the Fed’s perspective of the economy and the status of interest rates when she speaks to the Economic Club of New York. The week closes with the latest report on the employment situation for March, which will likely have some impact on the equities markets to kick off the month of April.

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What I’m Watching This Week – 21 March 2016

The Markets (as of market close March 18, 2016)

After a fifth consecutive week of gains, both the S&P 500 and the Dow have finally surpassed their 2015 year-end closing values. The Dow gained 389 points to close up 2.26%, while the S&P 500 increased 1.35% over the prior week. In fact, each of the indexes listed here posted gains by last week’s end and are edging toward positive territory for the year. Late-week gains were likely influenced by the Fed’s decision to refrain from raising interest rates, at least until it meets again in April.

The price of crude oil (WTI) is clearly trending upward as the price increased again last week, closing the week at $39.35 a barrel, $0.86 ahead of the prior week’s closing price. The price of gold (COMEX) increased by last week’s end, selling at $1,256 by late Friday afternoon, up from the prior week’s closing price of $1,251.10. The national average retail regular gasoline price increased for the fourth week in a row, selling at $1.961 per gallon on March 14, 2016, $0.120 over the prior week’s price but $0.492 under a year ago.

Market/Index 2015 Close Prior Week As of 3/18 Weekly Change YTD Change
DJIA 17425.03 17213.31 17602.30 2.26% 1.02%
Nasdaq 5007.41 4748.47 4795.65 0.99% -4.23%
S&P 500 2043.94 2022.19 2049.58 1.35% 0.28%
Russell 2000 1135.89 1087.56 1101.67 1.30% -3.01%
Global Dow 2336.45 2287.17 2327.69 1.77% -0.37%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.98% 1.87% -11 bps -39 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • Following its March meeting, the Federal Open Market Committee decided to maintain the current target range for the federal funds rate at 0.25%-0.50%. On the plus side, the Committee noted that economic activity has been expanding at a moderate pace, with favorable growth in household spending, the housing sector, and the labor market. However, in maintaining the current interest rates, both the Committee and Chair Janet Yellen observed that business fixed investment and net exports have been soft, global economic and financial developments continue to pose risks, and inflation continues to run below the Committee’s 2.0% target rate.
  • An indicator of inflationary trends, producer prices for goods and services fell 0.2% in February, with goods decreasing a noteworthy 0.6%. According to the latest report from the Bureau of Labor Statistics, prices, less food, energy, and trade services, inched up 0.1% in February following a 0.2% gain in both December and January. For the 12 months ended in February 2016, final demand prices for all categories of goods and services remained unchanged. However, over the same period, prices, less food, energy, and trade services, rose 0.9%–the largest 12-month advance since a 0.9% increase in July 2015.
  • Looking at the prices for goods and services from the perspective of what the consumer is spending, retail and food services sales fell 0.1% in February from January’s revised total. However, compared to a year earlier, sales are up 3.1%. Nevertheless, consumer spending in 2016 has not gotten off to a strong start, especially following January’s revised retail sales figures, which fell 0.4% following a prior advance estimate of +0.2%. While relatively low gas prices have given consumers more money to spend, other economic factors may be influencing consumers to remain a bit cautious with their spending.
  • The Consumer Price Index (CPI) for February declined 0.2%, according to the Bureau of Labor Statistics. However, over the last 12 months, the index has increased 1.0%. The energy index, particularly the gasoline index (-13.0%), was the major cause of the seasonally adjusted decline in the all items index, more than offsetting increases in the indexes for food and for all items less food and energy (core CPI). In fact, the core CPI increased 0.3% for the month, the same increase as in January. While not overwhelming, gains in the core CPI, an indicator of particular interest to the Fed, continue to show some inflationary pressure as it inches toward the Fed’s target rate of 2.0%.
  • The industrial sector is still weak, but showing signs of gaining some momentum. The latest report from the Federal Reserve on industrial production reveals an overall decrease of 0.5% in February after increasing 0.8% in January, largely attributable to declines in utilities and mining. However, manufacturing production rose 0.2% after gaining 0.5% in January. Over the last 12 months, manufacturing production is up 1.8%. Capacity utilization for the industrial sector decreased 0.4 percentage point in February to 76.7%, a rate that is 3.3 percentage points below its long-run (1972-2015) average of 80%.
  • The latest report on the housing sector was a mixed bag, as new home construction starts increased 5.2% in February from a month earlier–the highest level since last September. Single family home construction increased 7.2% for the month, to its highest level since November 2007, while multifamily units (apartments and condominiums) gained only 0.8%. On the other hand, new applications for building permits dropped 3.1% in February–not a good omen for future home construction. Privately owned housing completions in February were 4.2% below the revised January estimate, but are 17.5% above the February 2015 rate.
  • Home builders’ collective opinion of the housing market hasn’t changed much in March from February, according to the National Association of Home Builders advance Housing Market Index (HMI). The HMI reading for March remained at 58–the same as February’s reading. A reading of 50 or better indicates builders generally view housing conditions as positive. However, this reading remains at its lowest level since May. According to NAHB Chairman Ed Brady, “the single-family market continues to make slow but steady progress. However, builders continue to report problems regarding a shortage of lots and labor.”
  • The latest Job Openings and Labor Turnover Survey (JOLTS) for January reveals that job openings rose to 5.5 million (260,000 more than December), while hires and separations (quits, layoffs, and discharges) decreased to 5.0 million and 4.9 million, respectively.
  • The March preliminary results for the University of Michigan’s Index of Consumer Sentiment show consumer confidence is easing due to increased concerns about prospects for the economy as well as the expectation that gas prices would inch upward during the year ahead. The latest index reading of 90.0 is 1.7 percentage points below February’s index reading and 3.0 percentage points behind the index for March 2015.
  • For the week ended March 12, there were 265,000 claims for unemployment insurance, an increase of 7,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims was 2,235,000, an increase of 8,000, for the week ended March 5.

Eye on the Week Ahead

The week begins with a focus on the housing sector, including the latest reports on existing home sales and new home sales. The week closes with the “third” estimate for the fourth-quarter 2015 GDP.

What I’m Watching This Week – 14 March 2016

The Markets (as of market close March 11, 2016)

Both the large-cap Dow and S&P 500 posted gains for the fourth consecutive week, helped by a late rally at week’s end. The latest run of gains has pulled the Dow and S&P 500 to within 1.22% and 1.06% of their 2015 year-end levels. The Global Dow, possibly boosted by additional stimulus measures announced by the European Central Bank, gained 1.2% and is also closing in on its 2015 closing value. The midcaps also posted marginal gains of under 1%, and remain farthest away from their 2015 year-end levels compared to the other indexes listed here.

The price of crude oil (WTI) is clearly trending upward as the price increased again last week, closing the week at $38.49 a barrel, $2.16 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,251.10 by late Friday afternoon, down from the prior week’s closing price of $1,260.10. The national average retail regular gasoline price increased for the third week in a row, selling at $1.841 per gallon on March 7, 2016, $0.058 over the prior week’s price but $0.646 under a year ago.

Market/Index 2015 Close Prior Week As of 3/11 Weekly Change YTD Change
DJIA 17425.03 17006.77 17213.31 1.21% -1.22%
Nasdaq 5007.41 4717.02 4748.47 0.67% -5.17%
S&P 500 2043.94 1999.99 2022.19 1.11% -1.06%
Russell 2000 1135.89 1081.93 1087.56 0.52% -4.25%
Global Dow 2336.45 2260.08 2287.17 1.20% -2.11%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.87% 1.98% 11 bps -28 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • In a further effort to boost its sagging economy, the European Central Bank initiated additional stimulus moves intended to spur the eurozone’s low inflation. Only three months after instituting similar–though less comprehensive measures–the latest ECB program includes cutting interest rates and increasing its monthly bond purchases. ECB President Mario Draghi said the latest stimulus measures are intended to “further ease financing conditions, stimulate new credit provision and thereby reinforce the momentum of the euro area’s economic recovery and accelerate the return of inflation to levels below, but close to, 2.0%.” With euro area inflation dropping to -0.2% in February from 0.3% in January, Draghi cautioned that the Governing Council will closely monitor price-setting behavior and wage developments to “ensure that the current low inflation environment does not become entrenched in second-round effects on wage and price-setting.” How these moves will affect the eurozone economy and the U.S. equity markets remains to be seen.
  • The Treasury statement for February shows the federal deficit is at $192.6 billion. There was a surplus of $55 billion in January. The deficit for fiscal 2016 (October through February) sits at $353 billion. Compared to the first five months of fiscal 2015, receipts for fiscal year 2016 are up 5.3%, while outlays are up 1.86%.
  • S. import prices (for goods bought in the United States but produced abroad) fell 0.3% in February following a 1.0% drop in January, according to the latest information from the U.S. Bureau of Labor Statistics. The February decrease was mostly led by declining fuel prices. The price index for exports of goods made in the United States and sold abroad decreased 0.4% in February, after falling 0.8% the previous month. Import prices actually gained 0.1% excluding food and fuels–the first positive reading since last May. Generally, falling import prices are a strike against rising inflation. Low oil prices and a strong dollar continue to keep prices of goods down for U.S. buyers.
  • Claims for unemployment insurance and the insured unemployment rate are down. For the week ended March 5, there were 259,000 initial claims for unemployment insurance, a decrease of 18,000 from the prior week’s revised level of 277,000–the lowest level since last October. The advance seasonally adjusted insured unemployment rate dropped to 1.6% for the week ended February 27. Also for the same week, the advance number for continuing unemployment insurance claims was 2,225,000, a decrease of 32,000 from the week ended February 20.

Eye on the Week Ahead

There’s plenty of information available this week, including the outcome of FOMC meeting. Reports on producer prices, retail sales, industrial production, and the Fed’s announcement from its latest meeting are sure to have some influence on equities.

What I’m watching This Week – 7 March 2016

The Markets (as of market close March 4, 2016)

Equities continued to show life as each of the major indexes listed here posted gains over the prior week. Favorable reports from the employment and manufacturing sectors may be quelling investor fears of an imminent recession. For the week ended March 4, each of the indexes listed here advanced at least 2.20%, with the Russell 2000 and Global Dow leading the way with gains of 4.31% and 4.42%, respectively. With each weekly advance, the indexes are moving closer to their 2015 year-end values.

The price of crude oil (WTI) increased again last week, closing the week at $36.33 a barrel, $3.49 ahead of the prior week’s closing price. The price of gold (COMEX) gained by last week’s end, selling at $1,260.10 by late Friday afternoon, down from the prior week’s closing price of $1,222.80. The national average retail regular gasoline price increased for the second week in a row, selling at $1.783 per gallon on February 29, 2016, $0.053 over the prior week’s price but $0.690 under a year ago.

Market/Index 2015 Close Prior Week As of 3/4 Weekly Change YTD Change
DJIA 17425.03 16639.97 17006.77 2.20% -2.40%
Nasdaq 5007.41 4590.47 4717.02 2.76% -5.80%
S&P 500 2043.94 1948.05 1999.99 2.67% -2.15%
Russell 2000 1135.89 1037.18 1081.93 4.31% -4.75%
Global Dow 2336.45 2164.45 2260.08 4.42% -3.27%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.76% 1.87% 11 bps -39 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The news from the employment sector continues to be favorable based on the latest report from the Bureau of Labor Statistics. Total nonfarm payroll employment increased by 242,000 in February, while the unemployment rate was unchanged at 4.9%. The number of unemployed persons, at 7.8 million, was unchanged from the prior month. For 2016, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 831,000, respectively. A negative item from the report shows average hourly earnings for all employees on private nonfarm payrolls declined by $0.03 to $25.35 in February, following an increase of $0.12 in January. Nevertheless, average hourly earnings have risen by 2.2% over the year.
  • January was far from robust when it came to international trade, as exports were down 2.1% and imports fell 1.3% leading to a goods and services trade deficit of $45.7 billion–up $1.0 billion from December. According to the Census Bureau, the January increase in the goods and services deficit reflected an increase in the goods deficit of $1.1 billion to $63.7 billion and an increase in the services surplus of $0.1 billion to $18.0 billion. Year-over-year, the goods and services deficit increased $2.1 billion, or 4.8%, from January 2015. Once again, a strong dollar and relatively low oil prices have impacted the U.S. trade deficit.
  • The Bureau of Labor Statistics released its report on productivity and costs for the fourth quarter of 2015. Labor productivity, which is the measure of the production of goods and services per hour of labor, decreased at a 2.2% annual rate during the fourth quarter. While output increased 1.0%, hours worked increased 3.2%. Unit labor costs in the nonfarm business sector increased 3.3% in the fourth quarter of 2015, reflecting a 1.1% increase in hourly compensation and a 2.2% decrease in productivity. Nevertheless, from the fourth quarter of 2014 to the fourth quarter of 2015, productivity increased 0.5%.
  • Favorable news came from the manufacturing sector as new orders for manufactured goods increased $7.5 billion, or 1.6%, to $463.9 billion in January, according to the latest report from the Census Bureau. This increase followed two consecutive months of decreases. Shipments of manufactured goods rose for the first time in seven months, jumping $1.4 billion, or 0.3%, in January.
  • The Purchasing Managers’ Manufacturing Index (PMI) is based on a survey of purchasing managers from several companies in an attempt to get a read on the manufacturing sector of the economy. The Markit U.S. Manufacturing Purchasing Managers’ Index™ fell from 52.4 in January to 51.3 in February, marking the second lowest reading since October 2012. A slowdown in manufacturing output and new business growth contributed to the receding index.
  • The Institute for Supply Management (ISM) also produces a PMI, which contracted in February for the fifth consecutive month. The February ISM PMI® registered 49.5%, an increase of 1.3 percentage points from the January reading of 48.2%. A reading of less than 50.0% is indicative of contraction, so while February’s PMI is slightly ahead of January’s reading, the manufacturing sector is contracting nonetheless, but at a slower pace when compared with January. The last time the ISM Manufacturing Index was at least 50% was September 2015.
  • The Non-Manufacturing Index from the Institute for Supply Management indicates growth in February at 53.4%. Similar to the PMI, a reading above 50.0% indicates growth. The index for January was 53.5%. Thus, February’s index reading reflects growth, but at a slower rate. The indexes for business activity and new orders each showed growth in February, while the Employment Index decreased 2.4 percentage points to 49.7% from the January reading of 52.1%. The non-manufacturing sector includes industries such as services, construction, mining, and agriculture.
  • The National Association of Realtors® Pending Home Sales Index fell 2.5% in January to 106.0, compared with December’s index of 108.7. The index is still 1.4% higher than the index from a year earlier. Lawrence Yun, chief economist for the NAR, cited several possible reasons for the January pullback, including a winter blizzard in the Northeast, an increase in home prices, and minimal inventory of homes available for sale.
  • According to the latest figures from the Census Bureau, construction spending during January came in at a seasonally adjusted annual rate of $1,140.8 billion, 1.5% above the revised December estimate of $1,123.5 billion and 10.4% ahead of January 2015. Residential construction remained at about the same level in January as the prior month, while nonresidential construction increased 1.0% above December’s revised estimate. Public construction made a significant jump of 4.5% ahead of December’s revised estimate.
  • For the week ended February 27, there were 278,000 initial claims for unemployment insurance, an increase of 6,000 from the prior week’s unrevised level of 272,000. The advance seasonally adjusted insured unemployment rate remained at 1.7% for the week ended February 20. Also for the same week, the advance number for continuing unemployment insurance claims was 2,257,000, an increase of 3,000 from the week ended February 13.

Eye on the Week Ahead

This week is fairly uneventful with regard to information on important economic indicators. Eyes will remain on the equities markets, both domestic and foreign, and on the price of oil.

Monthly Market Review – February 2016

The Markets (as of market close February 29, 2016)

Following steep declines in January and a rocky start to February, equities rebounded by the end of the month to finish close to their ending values from the prior month. The Dow actually finished up, gaining a little over 50 points by February’s market close. Each of the indexes listed here remained in negative territory for 2016, with the Russell 2000 and Nasdaq each down almost 9.0%. Investors may be feeling a little more confident in the U.S. economy despite global economic instability, as several domestic economic indicators have been favorable, including manufacturing, inflation, consumer spending, and the GDP.

Bond yields fell by the close of trading for February as prices rose with the influx of investor dollars, while the 10-year Treasury yield dropping almost 20 points by the end of the month. The price of gold (COMEX) increased by month’s end, selling at $1239.30–about $121 higher than January’s end-of-month price of $1,118.40.

Market/Index 2015 Close Prior Month As of 2/29 Month Change YTD Change
DJIA 17425.03 16466.30 16516.50 0.30% -5.21%
Nasdaq 5007.41 4613.95 4557.95 -1.21% -8.98%
S&P 500 2043.94 1940.24 1932.23 -0.41% -5.47%
Russell 2000 1135.89 1035.38 1033.90 -0.14% -8.98%
Global Dow 2336.45 2177.64 2158.78 -0.87% -7.60%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.92% 1.73% -19 bps -53 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month in Review

  • Employment: The employment sector continued to show strength, but at a somewhat slower pace. Total nonfarm payroll employment increased by 151,000 in January (compared with 262,000, as revised, in December), while the unemployment rate fell slightly from 5.0% in December to 4.9% in January. There were 7.8 million unemployed persons, while the labor force participation rate remained relatively the same at 62.7%. According to the latest figures from the Bureau of Labor Statistics, the average workweek increased to 34.6 hours from the prior two months’ run of 34.5 hours. Average hourly earnings rose $0.12 to $25.39. Year-on-year, average hourly earnings have risen by 2.5%. For the week ended February 13, there were 2,253,000 continuing unemployment insurance claims–a decrease of 15,000 from the same period last month.
  • FOMC/interest rates:The Federal Open Market Committee did not meet in February–its next scheduled meeting is set for March. However, the minutes from its last meeting in January, and congressional testimony from FOMC Chair Janet Yellen, revealed the Committee’s consensus that overall economic conditions may not be sufficiently improved to justify a further interest rate hike in March. Strong labor market conditions, improvement in the housing sector, and increased household and business spending were offset by slowing economic growth, soft exports, and inflation continuing to run below the Committee’s target rate of 2.0%.
  • Oil: Oil prices remained about the same in February, despite supply continuing to far exceed demand and several oil-producing nations refraining from curtailing production. At the end of February crude oil (WTI) was selling at $33.85 per barrel, essentially the same price as the end of January ($33.74 per barrel). The national average retail regular gasoline price actually increased for the first time in eight weeks, selling at $1.730 per gallon on February 22, 2016, a mere $0.006 above the prior week’s price of $1.724 but still $0.602 under a year ago.
  • GDP/budget: The fourth quarter GDP grew at an annualized rate of 1.0%, according to the Bureau of Economic Analysis’ second estimate. This is behind the third quarter’s 2.0% growth rate, and the 3.9% second quarter reading. As to the government’s budget, figures can fluctuate significantly from month to month, depending on the timing of payments and outlays. So it’s not surprising that the Treasury reported a $55 billion budget surplus for January, compared with December’s $216 billion deficit. Military and Social Security payments pushed to December accounted for that month’s large deficit. Through the first four months of the government’s fiscal year, the budget deficit sits at about $160 billion, compared with roughly $194 billion through the same period for fiscal 2015.
  • Inflation: As February comes to a close, inflation remained below the Fed’s stated target rate of 2.0%, but it is getting closer. In January, both personal income (pretax earnings) and disposable personal income (income less taxes) increased 0.5%, according to the latest report from the Bureau of Economic Analysis. Generally, personal spending increased 0.5%, while core personal consumption expenditures (personal spending excluding volatile food and energy costs), an inflationary indicator relied upon by the Fed, rose 0.3% from December and is 1.7% year-on-year as it heads toward the Fed’s inflation target rate of 2.0%. The Producer Price Index, which measures the prices companies receive for goods and services, advanced 0.1% in January, following a 0.2% drop in December. Buoyed by an increase in the price of services, which offset a drop in the price of goods, producer prices were down 0.2% from January 2015–the 12th straight year-over-year decline. Overall, the Consumer Price Index remained flat in January. However, the index, less food and energy, is up 0.3% over December, while the all items index increased 1.4% over the last 12 months. Retail sales were up 0.2% in January over the prior month, and 3.4% ahead of January 2015. Consumers increased spending on most items, as low gas prices and rising employment gave buyers confidence to spend on goods and services.
  • Housing: The housing market, which has been a strong sector of the economy, may be showing signs of slowing a bit as we enter 2016. The latest figures from the Census Bureau show that the 494,000 annual rate of sales of new single-family homes in January is 9.2% below December’s revised rate of 544,000. The median sales price of new houses sold in January was $278,800 ($288,900 in December), while the average sales price was $365,700 ($346,400 in December). The seasonally adjusted estimate of new houses for sale at the end of January was 238,000. This represents a supply of 5.8 months at the current sales rate. Sales of existing homes were up 0.4% in January at an annualized rate of 5.47 million, compared with a 12.1% revised gain in December. According to the latest report from the National Association of Realtors®, year-on-year sales growth of existing homes is up 11.0%. On the other hand, the median sales price for existing homes dropped 4.2% to $213,800 ($223,200 in December), while the average sales price fell from $266,100 in December to $257,500 in January. Housing starts and building permits for privately owned housing units were down in January from a month prior. Housing starts were 3.8% below December’s rate, while applications for building permits for new home construction fell 0.2%.
  • Manufacturing: Manufacturing and industrial production had been relatively weak sectors in the economy for quite some time. However, the latest information from the Federal Reserve’s monthly index of industrial production shows an increase of 0.9% in January following a decline of 0.7% in December. Manufacturing output increased 0.5% in January, which was 1.2% above its level from a year earlier. A significant gain in motor vehicle production and capital goods helped propel the index gain. However, total industrial production in January was 0.7% below its year-earlier level. In addition, the latest report from the Census Bureau shows orders for all durable goods posted its largest increase since last spring. New orders for durable goods expected to last at least three years increased $11.1 billion, or 4.9%, to $237.5 billion in January, following a 4.6% decrease in December.
  • Imports and exports: Based on information from the Census Bureau, the goods and services deficit was $43.4 billion in December, an increase of $1.1 billion from November. The December increase in the goods and services deficit reflected an increase in the goods deficit of $1.3 billion to $62.5 billion and an increase in the services surplus of $0.1 billion to $19.2 billion. For 2015, the goods and services deficit was $531.5 billion, up $23.2 billion or 4.6% from 2014. Exports were $2,230.3 billion, down $112.9 billion or 4.8%. Imports were $2,761.8 billion, down $89.7 billion or 3.1%. In another report from the Bureau of Labor Statistics, prices in January for U.S. imports decreased 1.1% for the second consecutive month, primarily driven by lower fuel prices. U.S. export prices also fell in January, decreasing 0.8%, which follows a 1.1% drop in December.
  • International markets: The possibility of the UK’s exit from the European Union (EU) and the eurozone (“Brexit”) may have swayed other member countries to allow Britain to receive “special status” ensuring that country’s enhanced sovereignty over domestic policy as opposed to becoming more politically integrated into the eurozone. Nevertheless, a referendum vote scheduled for June 23 will determine whether the UK will remain a member of the European Union. Meanwhile, China continues to battle against an economic slowdown. China’s equities suffered significant losses toward the end of the month, while the Governor of the People’s Bank of China attempted to reassure investors that the yuan need not suffer further depreciation.
  • Consumer sentiment:It appears consumer confidence may be waning. The Conference Board Consumer Confidence Index® for February fell to 92.2 from January’s revised 97.8. Consumers were concerned about weakened current business conditions, their personal financial situations, and the labor market. The University of Michigan’s Index of Consumer Sentiment fell to 91.7 in February, compared with 92.0 in January.

Eye on the Month Ahead

As the first quarter of 2016 comes to a close, the shape of the economy should be more evident. At its March meeting, the Federal Open Market Committee will likely provide its perspective on the state of the economy and whether another interest rate hike is in the offing.