What I’m Watching This Week – 31 October 2016

The Markets (as of market close October 28, 2016)

As the presidential election draws near, news about the candidates may be affecting the markets. Word of an FBI investigation into more Clinton emails, coupled with some earnings reports that were weaker than expected, sent equities into the red for the week. Of the indexes listed here, only the Dow posted a gain over the prior week, albeit less than 1.0%. The Nasdaq and Russell 2000 fell back a bit, dropping 1.28% and 2.50%, respectively. Gold climbed 0.8%, while the price of crude oil, which had been over $50 per barrel, dropped almost 5.0%.

The price of crude oil (WTI) fell by last week’s end, closing at $48.64 per barrel, down from the prior week’s price of $51.0 per barrel. The price of gold (COMEX) increased, closing at $1,277.00 by late Friday afternoon, up from the prior week’s price of $1,266.70. The national average retail regular gasoline price decreased to $2.243 per gallon on October 24, 2016, $0.014 less than the prior week’s price but $0.015 more than a year ago.

Market/Index 2015 Close Prior Week As of 10/28 Weekly Change YTD Change
DJIA 17425.03 18145.71 18161.19 0.09% 4.22%
Nasdaq 5007.41 5257.40 5190.10 -1.28% 3.65%
S&P 500 2043.94 2141.16 2126.41 -0.69% 4.03%
Russell 2000 1135.89 1218.10 1187.61 -2.50% 4.55%
Global Dow 2336.45 2449.62 2449.11 -0.02% 4.82%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.73% 1.85% 12 bps -41 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 first estimate of the third-quarter GDP exceeded expectations, increasing at an annual rate of 2.9% — the fastest growth rate in two years. The second-quarter GDP increased by 1.4%. There are three estimates for each quarterly GDP report, with each estimate based on more complete economic data, so the annual growth rate may change with subsequent reports. The biggest driver of the increase in the GDP was personal consumption expenditures, which rose 2.1% — a much slower rate of growth than the 4.3% gain during the second quarter. According to the Bureau of Economic Analysis report, the increase in real GDP growth in the third quarter reflected an upturn in private inventory investment, an acceleration in exports, a smaller decrease in state and local government spending, and an upturn in federal government spending.
  • In the manufacturing sector, the report on durable goods orders is important as it shows the number of new orders placed with U.S. manufacturers. Last week’s advance report for September projects a decrease of $0.3 billion, or 0.1%, in new orders for manufactured durable goods (expected to last at least three years). A decrease in orders for transportation equipment drove the overall decrease. Excluding transportation, new orders increased 0.2%. Excluding defense, new orders increased 0.7%. On the other hand, shipments of durable goods in September increased $0.2 billion, or 0.8%, led by a jump in shipments of transportation equipment. As new orders slow, manufacturers draw down unfilled orders to keep shipments moving. Unfilled orders fell 0.4% in September for the fifth consecutive monthly decrease. Overall, the manufacturing sector continues to be relatively flat, with weakness in global demand for domestic products.
  • Employer costs increased for the third straight quarter, according to the latest figures released by the Bureau of Labor Statistics. Compensation costs increased 0.6% for the third quarter, as wages and salaries rose 0.5%, and benefits increased 0.7%. Compensation costs for civilian workers increased 2.3% for the 12-month period ended in September 2016. In September 2015, compensation costs increased 2.0%. On the year, wages and salaries increased 2.4%, while benefit costs increased 2.3%. Growth in wages and salaries has been steady, but certainly not spectacular, over the past couple of years.
  • The Census Bureau’s advance report on international trade in goods for September saw the trade deficit fall roughly $3.1 billion from $59.149 billion in August to $56.083 billion in September. Exports of goods for September were $125.6 billion, $1.1 billion more than August exports. Imports of goods for September were $181.7 billion, $2.0 billion less than August imports.
  • New home sales picked up in September. The Census Bureau reported that sales of new single-family homes were at an annual rate of 593,000, 3.1% above the August rate of 575,000 and 29.8% above the September 2015 estimate of 457,000 houses for sale. The median sales price of new houses sold in September 2016 was $313,500; the average sales price was $377,700. The seasonally adjusted estimate of new houses for sale at the end of September was 235,000. This represents a supply of 4.8 months at the current sales rate.
  • Consumer confidence in current business and employment conditions waned, as did consumers’ short-term outlook on economic conditions. The Conference Board Consumer Confidence Index® declined in October following an increase September. The index fell from 103.5 in September to October’s 98.6. Following suit, the University of Michigan’s Surveys of Consumers also shows consumer confidence fell in October as the Index of Consumer Sentiment dropped to 87.2, down from September’s 91.2. This is the lowest level since October 2014.
  • In the week ended October 22, the advance figure for seasonally adjusted initial unemployment insurance claims was 258,000, a decrease of 3,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended October 15 was 2,039,000, a decrease of 15,000 from the previous week’s revised level.

Eye on the Week Ahead

Economic news this week focuses on the Federal Open Market Committee meeting and the employment figures for October. While the Committee has hinted that interest rates might be raised by the end of the year, it is not expected to happen at this meeting. Employment figures for October are out this week. The employment sector has been steady, with 156,000 new jobs added in September. Payroll has increased only marginally, while the unemployment rate has remained at about 5.0%.

What I’m Watching This Week – 24 October 2016

The Markets (as of market close October 21, 2016)

Last week began with a whimper as equities closed down (the Dow fell 0.3%), while the 10-year Treasuries yield dropped 4 basis points and bond prices increased. Oil (WTI) fell below $50 per barrel before rallying to around $50.50 per barrel last Tuesday morning. Midweek saw the markets remain steady after the European Central Bank decided to leave its interest rates unchanged. Favorable earnings reports pushed the markets into positive territory by last week’s end, as each of the indexes listed here posted gains week-over-week, led by the Global Dow and the Nasdaq, each of which gained almost 1.0%. The price of crude oil (WTI) advanced $0.68, while gold had a good week, gaining almost $14 over the prior week’s closing price.

The price of crude oil (WTI) closed at $51.0 per barrel last week, up from $50.32 per barrel the previous week. The price of gold (COMEX) increased, closing at $1,266.70 by late Friday afternoon, up from the prior week’s price of $1,252.90. The national average retail regular gasoline price decreased to $2.257 per gallon on October 17, 2016, $0.015 less than last week’s price and $0.020 lower than a year ago.

Market/Index 2015 Close Prior Week As of 10/21 Weekly Change YTD Change
DJIA 17425.03 18138.38 18145.71 0.04% 4.14%
Nasdaq 5007.41 5214.16 5257.40 0.83% 4.99%
S&P 500 2043.94 2132.98 2141.16 0.38% 4.76%
Russell 2000 1135.89 1212.41 1218.10 0.47% 7.24%
Global Dow 2336.45 2426.05 2449.62 0.97% 4.84%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.80% 1.73% -7 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.

Last Week’s Headlines

  • Overall, consumer prices increased in September, but core prices changed very little. The Consumer Price Index, a measure of the change in the prices of goods and services purchased by consumers, increased 0.3% in September over August. The gasoline index rose 5.8% in September and accounted for more than half of the increase in the CPI. The energy index increased 2.9%, its largest advance since April. The index for all items less food and energy (core prices) rose a scant 0.1% in September after a 0.3% increase in August. The CPI has risen 1.5% over the last 12 months — its largest 12-month increase since October 2014. However, core prices actually fell 0.1 percentage point year-over-year. Based on this report, inflation may be trending up, but at a very moderate pace.
  • As expected, the single-family housing market picked up steam in September after a brief retreat in August. Sales of existing homes jumped 3.2% in September to an annual rate of 5.47 million, up from August’s downwardly revised 5.30 million. Through September, existing home sales are at their highest pace since last June and are 0.6% above a year ago. The median existing-home price for all housing types in September was $234,200, up 5.6% from September 2015 ($221,700). The median existing single-family home price was $235,700 in September, up 5.6% from September 2015. Unsold inventory (2.04 million homes available) is at a 4.5-month supply at the current sales pace, which is down from 4.6 months in August. Adding to the increase of existing home sales is the jump in sales to first-time homebuyers, which accounts for 34% of total sales in September. First-time buyers represented 30% of sales in all of 2015.
  • According to the latest information from the Census Bureau, building permits are up 6.3% and single-family housing starts increased 8.1% in September. On the negative side, single-family housing completions fell 8.8% and multifamily housing starts plummeted 38%. However, multifamily building permits advanced 16.8%, indicating that construction in that sector should pick up over the next several months.
  • The National Association of Home Builders Housing Market Index, based on a survey of NAHB members, fell 2 points to 63 for October. Home builders have some reservations about the present market for new home sales due to concerns over shortages of lots and labor. However, the index for single-family home sales over the next six months increased 1 percentage point, as respondents expect the housing market to continue to make slow and steady gains.
  • Industrial production edged up 0.1% in September after falling 0.5% in August. For the third quarter as a whole, industrial production rose at an annual rate of 1.8% for its first quarterly increase since the third quarter of 2015. Manufacturing output increased 0.2% in September and moved up at an annual rate of 0.9% in the third quarter. However, compared to last year, industrial production is down 1.0% with manufacturing output remaining unchanged from a year earlier.
  • In the week ended October 15, the advance figure for seasonally adjusted initial unemployment insurance claims was 260,000, an increase of 13,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended October 8 was 2,057,000, an increase of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

After several weeks of volatility, investors will likely keep their fingers crossed for a break in the action as third-quarter earnings reports continue to stream in. Rising oil prices and increased consumer spending could expand the third-quarter GDP.

What I’m Watching This Week – 17 October 2016

The Markets (as of market close October 14, 2016)

Oil prices reached a one-year high early last week, as Russia expressed its support of OPEC in its efforts to limit production, prompting stocks to post early week gains. With corporate earnings season upon us, early reports from some major companies were not encouraging. Globally, China’s 10% year-over-year drop in exports once again raised concerns about the weakening of the world’s second-largest economy. Major market indexes trended down midweek, while long-term bond yields expanded and the price of crude oil remained just above $50 per barrel. Favorable earnings reports from some of the world’s largest banks at the end of last week helped boost stocks, but not enough to prevent each of the indexes listed here from closing the week in the red.

The price of crude oil (WTI) closed at $50.32 per barrel last week, up from $49.55 per barrel the previous week. The price of gold (COMEX) continued to fall, closing at $1,252.90 by late Friday afternoon, down from the prior week’s price of $1,258.60. The national average retail regular gasoline price increased to $2.272 per gallon on October 10, 2016, $0.027 more than last week’s price but $0.065 less than a year ago.

Market/Index 2015 Close Prior Week As of 10/14 Weekly Change YTD Change
DJIA 17425.03 18240.49 18138.38 -0.56% 4.09%
Nasdaq 5007.41 5292.40 5214.16 -1.48% 4.13%
S&P 500 2043.94 2153.74 2132.98 -0.96% 4.36%
Russell 2000 1135.89 1236.56 1212.41 -1.95% 6.74%
Global Dow 2336.45 2464.52 2426.05 -1.56% 3.83%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.72% 1.80% 8 bps -46 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 prices producers received for goods and services increased by 0.3% in September. The Producer Price Index increased 0.7% for the 12 months ended in September, the largest 12-month rise since December 2014. The price index less foods, energy, and trade services moved up 0.3% in September, the same as in August. For the 12 months ended in September, prices less foods, energy, and trade services rose 1.5%, the largest increase since climbing 1.5% for the 12 months ended November 2014.
  • Retail sales at stores, online retailers, and restaurants increased 0.6% in September, following a 0.2% decline the prior month. Excluding automotive and gasoline, retail sales were up 0.3% for September. Compared to September 2015, retail sales are up 2.7%. Increased household spending, reflective of a healthy labor market, should give a boost to the GDP. Inflation may be starting to firm up based on the latest reports on producer prices and retail sales.
  • The Labor Department’s Job Openings and Labor Turnover Summary for August revealed that the number of job openings decreased by 388,000 (7.3%) from July. The number of new hires fell from 5.258 million in July to 5.210 million in August. The number of job separations also dropped from 4.991 million in July to 4.954 million in August. Roughly 3.0 million workers quit their jobs in August, while 1.6 million were laid off or otherwise dismissed — rates that were essentially unchanged from the prior month. Over the 12 months ended in August, hires totaled 62.7 million and separations totaled 60.1 million, yielding a net employment gain of 2.6 million. Nevertheless, the fall in job openings coupled with the decrease in new hires seems to indicate a slowing in job growth.
  • Not unexpectedly, the Fed was split as to whether to increase interest rates at its September meeting, according to the minutes released last week. In a 7-3 vote, the FOMC decided to keep rates at their current level “for the time being” with the expectation that rates would be raised, “relatively soon.” With the U.S. presidential election taking place in November, it isn’t likely that rates will be altered when the Committee meets next month. However, there is a growing expectation that rates will be increased when the Committee meets in December.
  • The federal government’s fiscal year ended in September with a total deficit of $587.4 billion — roughly $148 billion over the 2015 fiscal year deficit. September saw a $33.4 billion surplus for the month. For the 2016 fiscal year, total receipts increased less than 1.0%, while expenses rose 4.5%, led by an 8.8% increase in Medicare spending.
  • According to the latest information from the Bureau of Labor Statistics, both import and export prices increased in September. Prices for U.S. imports increased 0.1% in September, following a 0.2% decline the previous month. The increase is largely due to an increase in fuel prices. Export prices rose 0.3% in September, after decreasing 0.8% in August. Rising import and export prices, albeit marginal, could be a sign of strengthening inflationary trends.
  • The preliminary results for October show consumers’ confidence in the economy is waning, particularly in households with incomes below $75,000. According to the Surveys of Consumers, the Index of Consumer Sentiment fell from 91.2 in September to 87.9 for October. The drop is likely driven by a fall in consumer expectations, as that index moved from 82.7 in September to 76.6 in October.
  • In the week ended October 8, the advance figure for seasonally adjusted initial unemployment insurance claims was 246,000, unchanged from the prior week’s revised level, which had been revised down by 3,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended October 1 was 2,046,000, a decrease of 16,000 from the previous week’s revised level.

Eye on the Week Ahead

Several major corporations will be reporting their earnings, which have historically impacted the market — at least over the short term. Consumer spending, inflation, and housing are on tap this week. Through August, the Consumer Price Index for consumer goods and services is about 1.1% ahead of last year, and is expected to maintain that pace through September. As an indicator of inflationary trends, the CPI is still running short of the 2.0% target set by the Fed. The housing sector slowed a bit in August, but is expected to pick up the pace in September as this week’s reports on both housing starts and existing home sales should show improvement.

What I’m Watching This Week – 10 October 216

The Markets (as of market close October 7, 2016)

Equities took a tumble early last week as the Dow, the Nasdaq, the S&P 500, and the Russell 2000 lost value. Only the Global Dow saw gains, largely feeding off the fading value of the British pound. Oil (WTI) opened last week on an uptick, gaining over $0.40 per barrel late last Monday. On Tuesday, word that the European Central Bank would reduce stimulus and raise interest rates (a fact that was denied by the ECB) sent U.S. and global stocks reeling. Bond yields jumped, with the yield on 10-year Treasuries gaining almost 10 basis points by Wednesday morning. Gold fell $42 to $1,276.40, and the Dow tumbled almost 140 points compared to its closing value from the prior week. Oil prices continued to climb on news that U.S. reserves fell for the fifth consecutive week.

As last week came to a close, stocks slipped further as each of the indexes listed here lost value except for the Global Dow, which posted a small gain. A weaker-than-expected jobs report didn’t help matters. Bond prices fell as yields jumped to their highest levels in quite some time. The yield on 10-year Treasuries increased 13 basis points last week.

The price of crude oil (WTI) closed at $49.55 per barrel last week, up from $48.05 per barrel the previous week. The price of gold (COMEX) plummeted $60, closing at $1,258.60 by late Friday afternoon, down from the prior week’s price of $1,318.80. The national average retail regular gasoline price increased to $2.245 per gallon on October 3, 2016, $0.021 more than last week’s price but $0.073 less than a year ago.

Market/Index 2015 Close Prior Week As of 10/7 Weekly Change YTD Change
DJIA 17425.03 18308.15 18240.49 -0.37% 4.68%
Nasdaq 5007.41 5312.00 5292.40 -0.37% 5.69%
S&P 500 2043.94 2168.27 2153.74 -0.67% 5.37%
Russell 2000 1135.89 1251.65 1236.56 -1.21% 8.86%
Global Dow 2336.45 2459.66 2464.52 0.20% 5.48%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.59% 1.72% 13 bps -54 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 number of new jobs created in September fell a bit from August. According to the Bureau of Labor Statistics, there were 156,000 new jobs in September, down from 167,000 in August. September’s total number of new jobs is well below the 178,000 monthly average for 2016. The unemployment rate inched up 0.1 percentage point to 5.0%, and the number of unemployed persons was little changed at 7.9 million. The employment to population ratio was 59.8 — up 0.1 percentage point from August, while the labor participation rate was little changed at 62.9. In September, the average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.4 hours. In September, average hourly earnings for all employees on private nonfarm payrolls rose by $0.06 to $25.79. Over the year, average hourly earnings have risen by 2.6%. Overall, this lackluster jobs report should quell any thoughts of the Fed raising interest rates when it meets again in November.
  • The Institute for Supply Management Report On Business® for September showed manufacturing expanding as the purchasing managers’ index (PMI) came in at 51.5% compared to 49.4% in August. Of the 18 manufacturing industries covered, 7 reported growth, including food, beverage & tobacco products, and computer & electronic products. Industries reporting contraction include petroleum & coal products; apparel, leather & allied products; transportation equipment; and machinery. Noteworthy is the 6 percentage point increase in new orders in September over August.
  • The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 51.5, down slightly from 52.0 in August, to signal the weakest improvement in overall business conditions since June. Manufacturers noted slower growth in September due to a reduction in client demand and diminished export sales. A reading above 50,0 indicates growth, but at a slower pace than in August. While the Markit and ISM reports may appear divergent, they are essentially reporting slow growth in the manufacturing sector.
  • The Institute for Supply Management’s Non-Manufacturing ISM® Report On Business® shows economic activity expanded in the non-manufacturing, or services, sector in September. The non-manufacturing index registered 57.1% in September, 5.7 percentage points higher than the August reading of 51.4%. This is the highest reading since October 2015. Survey respondents also reported an increase in business activity, new orders, employment, and prices. Covered non-manufacturing sectors include agriculture, utilities, retail trade, management of companies & support services, health care & social assistance, transportation & warehousing.
  • The U.S. goods and services deficit was $40.7 billion in August, up $1.2 billion from July. August exports were $187.9 billion, $1.5 billion more than July exports. August imports were $228.6 billion, $2.6 billion more than July imports. Year-to-date, the goods and services deficit decreased $4.3 billion, or 1.3%, from the same period in 2015. Exports decreased $62.4 billion, or 4.1%. Imports decreased $66.8 billion, or 3.6%. The positive from the report is the increase in exports against the continued strength of the dollar. Higher imports reflects strengthening of domestic demand for goods and services.
  • In the week ended October 1, the advance figure for seasonally adjusted initial unemployment insurance claims was 249,000, a decrease of 5,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended September 24 was 2,058,000, a decrease of 6,000 from the previous week’s revised level.

Eye on the Week Ahead

The Columbus holiday week begins with the job openings report for August. While a bit dated, the report provides information on the number of job openings, hires, and quits. At the end of the week, a couple of reports relating to inflationary trends are available. The Producer Price Index for September measures price changes from the producers’ perspective relative to goods, services, and construction sold to the consumer. The retail sales report offers a comparison on merchandise and services sold to consumers based on the total receipts of merchants.

Quarterly Market Review: July-September 2016

The Markets (as of market close September 30, 2016)

The second quarter provided a bumpy ride for investors. Following the upheaval caused by the Brexit vote in June, July kicked off the third quarter by ending the month in favorable fashion, as each of the indexes listed here posted month-to-month gains, led by the Russell 2000 (5.90%) and the Nasdaq (6.60%). Stocks held their own for July, despite falling energy shares, as crude oil prices (WTI) sank from around $49 per barrel to under $42 by the close of July. As money moved into equities, bond yields remained on the low side as the yield on 10-year Treasuries remained below 1.60%, closing July at just about where it started at 1.45%.

The dog days of summer saw light trading in August, but that didn’t stop the markets from moving sharply. By the middle of the month, the Dow, S&P 500, and Nasdaq had surged to all-time highs — the first time since 1999 that all three indexes reached a new high at the same time. Yet by the end of August, each of the indexes listed here saw their values fall back to about where they were at the beginning of the month. The large-cap Dow and S&P 500 fell ever so slightly from July’s closing values, while the Russell 2000 and Global Dow posted modest gains for the month. Crude oil fell below $40 per barrel during the month, but rebounded to close the month at about $45 per barrel. Bond prices fell as the yield on 10-year Treasuries reached 1.60%.

For the month, September ended about where it began for equities. Of the indexes listed here, there was relatively little movement during the month, except for the Russell 2000 and the Nasdaq, each of which posted gains for the month close to or over 1.0%. Overall, the third quarter proved to be a good month for stocks as the indexes listed here posted notable gains, led by Nasdaq, the Russell 2000, and the Global Dow. Long-term bond yields measured by 10-year Treasuries hovered around 1.60% for September, closing the month and quarter at 1.59% — just about where they ended the second quarter. Gold lost value, closing the second quarter at $1,318.80, down from its June closing value of 1,324.90. Crude oil (WTI) ended the second quarter at about $48.59 per barrel, just about the same price it ended the third quarter ($48.05).

Market/Index
2015 Close
As of September 30
Month Change
Quarter Change
YTD Change
DJIA
17425.03
18308.15
-0.50%
2.11%
5.07%
NASDAQ
5007.41
5312.00
1.89%
9.69%
6.08%
S&P 500
2043.94
2168.27
-0.12%
3.31%
6.08%
Russell 2000
1135.89
1251.65
0.95%
8.66%
10.19%
Global Dow
2336.45
2459.66
0.59%
6.38%
5.27%
Fed. Funds
0.25%-0.50%
0.25%-0.50%
0 bps
0 bps
0 bps
10-year Treasuries
2.26%
1.59%
1 bps
-20 bps
-67 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.

Monthly Economic News

  • Employment: The employment sector slowed a bit in August, but remained steady with 151,000 new jobs added for the month, compared to 275,000 new jobs added in July. The unemployment rate remained at 4.9% in August — the same as July. There were 7.8 million unemployed persons. Both the unemployment rate and the number of unemployed persons have shown little movement. Interestingly, the unemployment rate for adult men and adult women was the same — 4.5%. The labor force participation rate remained at 62.8% as did the employment/population ratio, which was 59.7%. According to the latest figures from the Bureau of Labor Statistics, the average workweek decreased by 0.1 hour to 34.3 hours, while average hourly earnings rose to $25.73 compared to $25.59 at the end of July.
  • FOMC/interest rates:The Fed did not raise interest rates in September, keeping the federal funds target rate at the 0.25%-0.50% range. Following its September meeting, The FOMC’s Chair Janet Yellen noted that while a case for a rate increase has strengthened based on overall economic strengthening, consumer price inflation continues to run at a rate that is under the Committee’s target of 2.0% and labor market slack is being taken up at a somewhat slower pace than in previous years. Nevertheless, it appears more likely that the Fed will increase rates by the end of the year.
  • Oil: The price of crude oil (WTI) fluctuated some during September, hovering between $43 and $45 per barrel, finally settling at $48.05 per barrel by the end of the month. The national average retail regular gasoline price was $2.224 on September 26, down from the August 29 selling price of $2.237.
  • GDP/budget: The U.S. economy is expanding, but at a slow pace. According to the Bureau of Economic Analysis, the final estimate of the second quarter 2016 gross domestic product grew at an annualized rate of 1.4%, compared to the first quarter, which grew at an annual rate of 0.8%. The primary positives driving the upward movement of the GDP were nonresidential (e.g., business) fixed investment, private inventory investment, and exports. An indicator of inflationary trends, the price index for gross domestic purchases increased 2.1% in the second quarter, compared to an increase of 0.2% in the first quarter. As to the government’s budget, the federal deficit for August was $107 billion, as total receipts came in at about $231 billion and total outlays were $338 billion. The deficit at the end of July was about $113 billion. Through the first 10 months of the fiscal year, the deficit sits at $620.8 billion, compared to $530 billion over the same period last year. The government’s fiscal year ends in October.
  • Inflation/consumer spending: Inflation slowed in August as consumer income and spending increased only marginally. Personal income (pretax earnings) and disposable personal income (income less taxes) each rose 0.2%, while personal spending, as measured by personal consumption expenditures, gained less than 0.1%. Core personal consumption expenditures (personal spending excluding volatile food and energy costs) rose 0.2% in August, following a 0.1% monthly increase in July. The price index increased 0.2% for the month, and is up 1.0% year-over-year. The Producer Price Index, which measures the prices companies receive for goods and services, was unchanged in August from July, when prices fell 0.4%. Excluding food, trade services, and energy, prices crept up 0.3% for the month. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 1.2%, the largest increase since climbing 1.3% for the 12 months ended December 2014. The index for final demand services edged up 0.1% in August following a 0.3% decline in July. The Consumer Price Index, which measures what consumers pay for both goods and services, increased 0.2% in August. Over the last 12 months, the CPI has risen 1.1%. The index less food and energy increased 0.3%.
  • Housing: The housing market definitely slowed in August. Higher home prices and a lack of available homes for sale are the main reasons given for the drop in the housing sector. Existing home sales fell 0.9% to a seasonally adjusted annual rate of 5.33 billion, down from July’s downwardly revised annual rate of 5.38 billion, according to the National Association of Realtors®. However, existing home sales are slightly ahead of last year’s rate of 5.29 billion. The median sales price for existing homes was $240,200 — up 5.1% from August 2015. Total housing inventory at the end of August fell 3.3% to 2.04 million existing homes available for sale, and is now 10.1% lower than a year ago (2.27 million) and has declined year-over-year for 15 straight months. The Census Bureau’s latest report reveals a fall in new home sales as well. Sales of new single-family homes fell 7.6% in August to an annual rate of 609,000 — down from July’s rate of 659,000. The median sales price of new houses sold in August was $284,000, while the average sales price was $353,600. Available inventory of new homes for sale did expand slightly from July. The seasonally adjusted estimate of new houses for sale at the end of August was 235,000. This represents a supply of 4.6 months at the current sales rate, which is up from 231,000 homes available (supply of 4.2 months) in July.
  • Manufacturing: One of the reasons the Fed has held off on raising interest rates is the continued weakness in the manufacturing and industrial production sectors. The Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities) fell 0.4% in August after rising 0.6% in July. Manufacturing output also declined 0.4% for the month. At 104.4% of its 2012 average, total industrial production in August was 1.1% lower than its year-earlier level. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average. The latest report from the Census Bureau shows new orders for all durable goods (expected to last at least three years) fell $0.1 billion in August from the prior month. Excluding the volatile transportation segment, new orders fell a disappointing 0.4%. Orders for capital goods dropped 4.4%, while shipments fell 0.4%.
  • Imports and exports:The advance report on international trade in goods revealed that the trade gap narrowed by 0.6% in August. The overall trade deficit was $58.4 billion in August, down $0.4 billion from July. Exports rose 0.7% to $124.6 billion, $0.9 billion more than July exports. Imports jumped 0.3% to $183.0 billion, $0.5 billion more than July imports. The prices for U.S. imports (goods purchased here but produced abroad) fell for the first time since February, primarily driven by lower fuel prices. August imports sank 0.2% following a 0.1% gain in July. The prices for exports declined 0.8% following four consecutive months of increases. Year-on-year, import prices are down 2.2% and export prices have fallen 2.4%.
  • International markets: According to the World Trade Organization, world trade will grow more slowly than expected in 2016, expanding by just 1.7%, well below the April forecast of 2.8%. With expected global GDP growth of 2.2% in 2016, this year would mark the slowest pace of trade and output growth since the financial crisis of 2009. The WTO warned that long-term economic growth could be weakened if growing antiglobalization continues to slow trade. The Bank of Japan maintained its stimulus policy, hoping to rally equities and spur inflation. Great Britain is still trying to stem its economic slowdown following voters’ decision to leave the European Union. More stimulus measures from the Bank of England are expected, including further interest rate decreases.
  • Consumer sentiment:Despite several weakening economic indicators, consumer confidence gained some momentum in August. The Conference Board Consumer Confidence Index® for August rose 4.5 points to 101.1. On the other hand, the Surveys of Consumers of the University of Michigan Index of Consumer Sentiment dipped from 90.4 in July to 89.8 in August.

Eye on the Month Ahead

Volatility best described the U.S. stock market over this past summer. However, September saw some positive gains overall in equities as the employment sector and consumer spending were positive developments as was news that the Fed would not be raising interest rates during the month. The FOMC doesn’t meet in October, so changing interest rates are not an issue. However, October is particularly important as economic trends for the month will influence the course of action taken by the Fed when it meets again in November.

What I’m Watching This Week – 3 October 2016

The Markets (as of market close September 30, 2016)

Last week equities started off well enough, still feeding off the Fed’s decision to leave interest rates alone for the time being. But fear of financial instability for one of the world’s largest banks may have prompted many investors to sell, causing the market to tumble by mid-week. However, news that the bank in question was near a deal to settle some of its financial issues quelled some investors’ fears, lifting the market back to where it left off the prior week.

Both the Dow and S&P 500 posted slight gains, as did the Nasdaq. The Russell 2000 and Global Dow rebounded by last week’s end, but not enough to avoid posting a slight loss for the week.

The price of crude oil (WTI) closed at $48.05 per barrel last week, up from $44.59 per barrel the previous week. The price of gold (COMEX) fell, closing at $1,318.80 by late Friday afternoon, down from the prior week’s price of $1,341.10. The national average retail regular gasoline price decreased to $2.224 per gallon on September 26, $0.001 lower than the prior week’s price and $0.098 below a year ago.

Market/Index 2015 Close Prior Week As of 9/30 Weekly Change YTD Change
DJIA 17425.03 18261.45 18308.15 0.26% 5.07%
Nasdaq 5007.41 5305.75 5312.00 0.12% 6.08%
S&P 500 2043.94 2164.69 2168.27 0.17% 6.08%
Russell 2000 1135.89 1254.62 1251.65 -0.24% 10.19%
Global Dow 2336.45 2465.66 2459.21 -0.24% 5.27%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.61% 1.59% -2 bps -67 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 gross domestic product grew at a slightly faster pace in the second quarter compared to the first, according to the third and final estimate released by the Bureau of Economic Analysis. The GDP increased at an annual rate of 1.4% in the second quarter of 2016, compared to an 0.8% increase in the first quarter. The second quarter increase in the GDP reflected positive contributions from personal consumption expenditures, exports, and nonresidential fixed investment. These were partly offset by negative contributions from private inventory investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. In any case, the current pace of economic expansion is the slowest since 1949. The price index for gross domestic purchases increased 2.1% in the second quarter, compared with an increase of 0.2% in the first. The price index of the GDP measures changes in the prices of goods and services included in the GDP. The GDP price index is an indicator of inflationary trends.
  • Following several months of positive gains, August proved to be a soft month for consumer income and spending, leading to weak inflationary trends. The latest report from the Bureau of Economic Analysis shows consumer income increased $39.3 billion (0.2%) in August, disposable (after-tax) income increased $31.9 billion (0.2%), and consumer purchases of goods and services (personal consumption expenditures) increased $6.2 billion (less than 0.1%). The price index, which measures the change in prices of consumer goods and services, increased 0.1% for the month, while the price index excluding food and energy (core PCE) gained a scant 0.2%. Year-over-year, the core PCE is up 1.7% — still below the Fed’s target of 2.0% inflation.
  • During testimony before the Committee on Financial Services, FOMC Chair Janet Yellen indicated that the majority of the Committee favors raising interest rates, but there is no fixed timetable. She said the Committee expects the jobless rate to fall further and job growth to continue.
  • The U. S. trade deficit narrowed 0.6% in August from July, according to the latest report from the Census Bureau. The international trade deficit was $58.4 billion in August, down $0.4 billion from $58.8 billion in July. Exports of goods for August were $124.6 billion, $0.9 billion more than July exports. Imports of goods for August were $183.0 billion, $0.5 billion more than July imports.
  • The manufacturing sector followed a favorable July with a weak August. According to the latest Census Bureau report, new orders for manufactured goods ($0.1 billion), shipments of manufactured goods ($0.8 billion), unfilled orders ($1.5 billion), and new orders for capital goods ($3.1 billion) each declined in August from July. Only inventories of manufactured goods increased, gaining $0.5 billion, or 0.1%, in August following a 0.4% increase in July.
  • With both residential construction and existing home sales falling in August, it isn’t a surprise that sales of new homes also dropped off for the month. According to a Census Bureau report, sales of new single-family homes fell 7.6% in August compared to July. But at an annual rate of 609,000, the sales rate in August 2016 is over 20% higher than the sales rate a year ago. The median sales price of new houses sold in August was $284,000; the average sales price was $353,600. The seasonally adjusted estimate of new houses for sale at the end of August was 235,000. This represents a supply of 4.6 months at the current sales rate.
  • Consumer confidence in the economy grew in September. The Conference Board Consumer Confidence Index® grew to 104.1 in September, up from 101.8 in August. The Present Situation Index rose from 125.3 to 128.5, while the Expectations Index improved from 86.1 last month to 87.8.
  • The University of Michigan’s Survey of Consumers indicated consumer confidence in economic conditions edged upward in September due to gains among higher income households, while the Sentiment Index among households with incomes under $75,000 remained at the same level for the third consecutive month. The Index of Consumer Sentiment increased to 91.2 in September (89.8 in August), and the Current Economic Conditions index fell from 107 in August to 104.2, while the Index of Consumer Expectations jumped from 78.7 in August to 82.7 in September.
  • In the week ended September 24, the advance figure for seasonally adjusted initial unemployment insurance claims was 254,000, an increase of 3,000 from the prior week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended September 17 was 2,062,000, a decrease of 46,000 from the previous week’s revised level.

Eye on the Week Ahead

Job growth has been steady throughout much of the year, averaging about 187,000 new jobs per month. The upcoming jobs report this week is expected to show continued growth for September. Also worth noting are reports focusing on the manufacturing sector, which has slowed during the summer but may pick up in the fall.