What I’m Watching This Week – 27 December 2016

The Markets (as of market close December 23, 2016)

The Dow reached its seventh consecutive week of gains as it nears 20000. As it stood at the close of last week, the Dow was about 66 points away from that milestone. During a slow week of trading leading up to the holidays, each of the indexes listed here closed on the positive side except for the Global Dow, which lost about 6 points (0.23%). For the first time in several weeks, the yield on 10-year Treasuries narrowed as bond prices kicked up a bit.

The price of crude oil (WTI) increased last week, closing at $53.10 per barrel, up from the prior week’s closing price of $52.03 per barrel. Gold (COMEX) remained volatile as its price fell again last week, closing at $1,133.30 by late Friday afternoon, down from the prior week’s price of $1,136.80. The national average retail regular gasoline price increased to $2.264 per gallon on December 19, 2016, $0.028 more than last week’s price and $0.238 higher than a year ago.

Market/Index 2015 Close Prior Week As of 12/23 Weekly Change YTD Change
DJIA 17425.03 19843.41 19933.81 0.46% 14.40%
Nasdaq 5007.41 5437.16 5462.69 0.47% 9.09%
S&P 500 2043.94 2258.07 2263.79 0.25% 10.76%
Russell 2000 1135.89 1364.40 1371.51 0.52% 20.74%
Global Dow 2336.45 2542.35 2536.42 -0.23% 8.56%
Fed. Funds target rate 0.25%-0.50% 0.50%-0.75% 0.50%-0.75% 0 bps 25 bps
10-year Treasuries 2.26% 2.59% 2.54% -5 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

  • The third and final estimate of the gross domestic product for the third quarter showed the economy grew at an annual rate of 3.5%, significantly ahead of the second-quarter annual growth rate of 1.4% and the first-quarter growth rate of only 0.8%. The third-quarter estimate is the strongest quarterly growth rate in two years. The advance in the third-quarter estimate is related to stronger consumer spending and increased business investment. While significantly higher than the estimates for the first two quarters of the year, the third-quarter GDP estimate essentially brings the annual growth rate in line with the 2.0% annual growth rate that’s prevailed since 2009. The price index, an indicator of inflation, increased 1.5% in the third quarter, compared with an increase of 2.1% in the second quarter. Corporate profits increased $117.8 billion in the third quarter, in contrast to a decrease of $12.5 billion in the second quarter.
  • Personal income increased $1.6 billion (less than 0.1%) in November, according to the latest estimates released by the Bureau of Economic Analysis. Disposable personal income (income less personal taxes) decreased $1.3 billion (less than 0.1%) and personal consumption expenditures (PCE), which measures the value of goods and services purchased by consumers, increased $24.0 billion (0.2%). Excluding food and energy, the PCE price index increased less than 0.1%. November’s report shows that increasing consumer income and spending, which spurred economic growth through the third quarter, may be subsiding in the fourth quarter of 2016. Nevertheless, the PCE price index is up 1.4% from a year earlier, which, while still below the Fed’s target inflation rate of 2.0%, is the best year-over-year increase in two years.
  • A big surge in the Northeast helped push sales of existing homes up in November, according to the National Association of Realtors®. Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 0.7% to a seasonally adjusted annual rate of 5.61 million in November from a downwardly revised 5.57 million in October. November’s sales pace is now the highest since February 2007 (5.79 million) and is 15.4% higher than a year ago (4.86 million). The median existing home price for all housing types in November was $234,900, up 6.8% from November 2015 ($220,000). Total housing inventory fell for the eighteenth straight month by the end of November, dropping 8.0% to 1.85 million existing homes available for sale, and is now 9.3% lower than a year ago (2.04 million). Unsold inventory is at a 4.0-month supply at the current sales pace, which is down from 4.3 months in October.
  • New home sales surged in November, according to the latest report from the Census Bureau. Sales of new single-family homes were at an annual rate of 592,000 — 5.2% above the October rate of 563,000 and 16.5% above the November 2015 estimate of 508,000. The median sales price of new houses sold in November 2016 was $305,400; the average sales price was $359,900. The seasonally adjusted estimate of new houses for sale at the end of November was 250,000. This represents a supply of 5.1 months at the current sales rate.
  • The advance report from the Census Bureau on the manufacturing sector in November was a mixed bag of information. New orders for durable goods (products expected to last at least three years) decreased $11.0 billion, or 4.6%, following four consecutive monthly increases. Excluding transportation, new orders increased 0.5%. Year-to-date, new orders are down 0.3%. Unfilled orders — down five of the last six months — fell 0.2%. On the plus side of the report, manufacturers’ shipments and inventories increased 0.1%, respectively.
  • Consumers’ confidence in the economy expanded in December. The University of Michigan’s Surveys of Consumers Index of Consumer Sentiment rose from 93.8 in November to 98.2 in December. This marked the highest index level since January 2004. Consumers also were more positive in their opinions on current and future economic conditions.
  • In the week ended December 17, the advance figure for seasonally adjusted initial unemployment insurance claims was 275,000, an increase of 21,000 from the previous week’s unrevised level of 254,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended December 10 was 2,036,000, an increase of 15,000 from the previous week’s revised level.

Eye on the Week Ahead

The week between Christmas and New Year’s Day is customarily slow for economic news and market activity. Trading volumes are likely to be light, as many investors will be off toasting the 2016 string of record highs while hoping 2017 brings more of the same.

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What I’m Watching This Week – 19 December 2016

The Markets (as of market close December 16, 2016)

The fallout from the increase in the federal funds rate saw bond yields rise, with the yield on 10-year Treasuries hitting a 2-year high. Bond prices tend to fall (and yields rise) when interest rates increase. Lender rates from financial institutions are also expected to climb, pushing consumer loans (e.g., credit card rates) higher. Interest rates on bank deposits may not rise as quickly, however. Equities closed last week with little change in value from the week before. Of the indexes listed here, only the Dow posted a gain, marking the sixth consecutive week of gains for that index. The remaining indexes fell marginally, except for the Russell 2000, which dropped 1.71%.

The price of crude oil (WTI) increased last week, closing at $52.03 per barrel, up from the prior week’s closing price of $51.48 per barrel. Gold (COMEX) remained volatile as its price fell again last week, closing at $1,136.80 by late Friday afternoon, down from the prior week’s price of $1,161.40. The national average retail regular gasoline price increased to $2.236 per gallon on December 12, 2016, $0.028 more than the prior week’s price and $0.199 higher than a year ago.

Market/Index 2015 Close Prior Week As of 12/16 Weekly Change YTD Change
DJIA 17425.03 19756.85 19843.41 0.44% 13.88%
Nasdaq 5007.41 5444.50 5437.16 -0.13% 8.58%
S&P 500 2043.94 2259.53 2258.07 -0.06% 10.48%
Russell 2000 1135.89 1388.07 1364.40 -1.71% 20.12%
Global Dow 2336.45 2551.65 2542.35 -0.36% 8.81%
Fed. Funds target rate 0.25%-0.50% 0.25%-0.50% 0.50%-0.75% 25 bps 25 bps
10-year Treasuries 2.26% 2.46% 2.59% 13 bps 33 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

  • As expected, the Federal Open Market Committee raised the target range for the federal funds rate to 0.50%-0.75%. This is an increase of 0.25% — the first such increase since last December. In its press release, the Committee cited continued strengthening of the labor market and expanding economic activity as reasons for increasing the federal funds rate. The Committee noted that job gains are solid and the unemployment rate has declined. Household spending has been rising moderately, but business fixed investment has remained soft. While inflation has increased since earlier in the year, it remains below the Committee’s 2.0% longer-run objective, partly reflecting earlier declines in energy prices and in the prices of non-energy imports. FOMC forecasts project three rate increases in 2017, with the median federal funds rate anticipated to be 1.4% by the end of 2017, 2.1% by the end of 2018, and 2.9% by the end of 2019. Ultimately, as Chair Janet Yellen noted, “In making our policy decisions, we will continue — as always — to assess economic conditions relative to our objectives of maximum employment and 2 percent inflation. As I have noted on previous occasions, policy is not on a pre-set course.”
  • Pushed by increases in housing and gasoline, the Consumer Price Index rose 0.2% in November over the prior month. Over the last 12 months, the CPI has risen 1.7%. The gasoline index increased 2.7% in November following a 7.0% jump in October. The index for all items less food and energy increased 0.2% in November and has increased 2.1% over the past 12 months. Indexes that rose faster over the last year included motor vehicle insurance (6.7%), medical care (4.0%), and shelter (3.6%).
  • Consumer retail purchases slowed in November, despite Black Friday and the stock market surge. Some have suggested that slow sales in the early part of the month were due to cautious consumers who were awaiting the results of the presidential election. Advance estimates of U.S. retail and food services sales for November were $465.5 billion, an increase of 0.1% from the previous month, and 3.8% above November 2015. Retail trade sales were virtually unchanged from October 2016, but are up 3.6% from last year. Nonstore (online) retail sales were up 11.9% from November 2015, while health and personal care store retailers were up 6.2% from last year. Department store sales fell 6.4% from last November, and appliance and electronic store sales dropped 3.8% over the same period. The latest figures also suggest that online retailers are snagging more of the holiday purchases.
  • Producer prices increased 0.4% in November, according to the Bureau of Labor Statistics’ Producer Price Index. The index is up 1.3% for the last 12 months — the largest gain since the 1.3% increase over the 12 months ended November 2014. Prices less foods, energy, and trade services moved up 0.2% in November after edging down 0.1% in October. For the 12 months ended in November, the index less foods, energy, and trade services climbed 1.8% — the largest rise since advancing 1.8% for the 12 months ended August 2014. Over 80% of the November increase is attributable to a 0.5% increase in services. A quarter of the November increase in prices for services can be traced to apparel, jewelry, footwear, and accessories retailing, which advanced 4.2%.
  • New home construction retreated in November. According to the latest Census Bureau report, housing starts fell 18.7% from October’s revised estimates. The number of building permits decreased 4.7%. Compared to November 2015, both housing starts and building permits are down 6.9% and 6.6%, respectively. Privately owned housing completions in November were 15.4% above the revised October estimate, with single-family housing completions up 3.3%.
  • The latest report from the Federal Reserve shows that industrial production declined 0.4% in November after edging up 0.1% in October. In November, manufacturing output moved down 0.1% and mining posted a gain of 1.1%. The index for utilities dropped 4.4%, as warmer-than-normal temperatures reduced the demand for heating. Total industrial production in November was 0.6% lower than its year-earlier level. The output of consumer goods decreased 0.5% in November. The production of consumer durable goods dropped 1.6%, with all of its major components recording decreases. Both consumer durable goods and its largest major category, automotive products, posted their first declines since May. Falling industrial output may signal slower consumer and business spending down the road.
  • The government deficit expanded by over 200% in November from October — although much of the difference relates to the timing of payments and receipts. At $136.651 billion, the November deficit exceeded October’s deficit figure by $92.459 billion. Through the first two months of fiscal year 2017, the deficit sits at $180.843 billion. Compared to the first two months of fiscal year 2016, the deficit actually is down about $20 billion. November receipts were $199.875 billion and outlays were $336.526 billion.
  • S. import prices fell 0.3% in November, the U.S. Bureau of Labor Statistics reported last week, following increases of 0.4% and 0.1% the two previous months. This is the largest monthly decrease in import prices since the index fell 0.5% in February. The drop in November was primarily led by decreasing fuel prices (-4.7%). U.S. export prices also declined in November, edging down 0.1%, after a 0.2% increase the previous month.
  • In the week ended December 10, the advance figure for seasonally adjusted initial unemployment insurance claims was 254,000, a decrease of 4,000 from the previous week’s unrevised level of 258,000. The advance seasonally adjusted insured unemployment rate increased to 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended December 3 was 2,018,000, an increase of 11,000 from the previous week’s revised level.

Eye on the Week Ahead

Following the Fed’s decision to raise interest rates for the first time in a year, several key economic reports are out this week that may shed some light on the direction of the economy moving forward. This week includes reports on the gross domestic product, durable goods orders, and consumer personal income and spending.

What I’m Watching This Week – 12 December 2016

The Markets (as of market close December 9, 2016)

Following a week of tepid movement in the major stock market indexes, equities picked up the pace last week, reaching new record highs. Growth in financial company and bank stocks led the way as both the large-cap Dow and S&P 500 rose over 3.0%. Some analysts suggest that financial stocks could climb further next week if the Fed raises interest rates as anticipated. The small-cap Russell 2000 surged once again last week, jumping almost 6.0% over its prior week’s value. As money pours into equities, long-term bond prices continue to fall. The yield on 10-year Treasuries climbed 8.0 basis points, marking the third consecutive week of rising yields.

The price of crude oil (WTI) maintained its value, closing last week at $51.48 per barrel, down just $0.48 from the prior week’s closing price of $51.96 per barrel. Gold (COMEX) remained volatile as its price fell again last week, closing at $1,161.40 by late Friday afternoon, down from the prior week’s price of $1,179.20. The national average retail regular gasoline price increased to $2.208 per gallon on December 5, 2016, $0.054 more than the prior week’s price and $0.155 higher than a year ago.

Market/Index 2015 Close Prior Week As of 12/9 Weekly Change YTD Change
DJIA 17425.03 19170.42 19756.85 3.06% 13.38%
Nasdaq 5007.41 5255.65 5444.50 3.59% 8.73%
S&P 500 2043.94 2191.95 2259.53 3.08% 10.55%
Russell 2000 1135.89 1314.25 1388.07 5.62% 22.20%
Global Dow 2336.45 2461.61 2551.65 3.66% 9.21%
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% 2.38% 2.46% 8 bps 20 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 November 2016 Non-Manufacturing ISM® Report On Business® revealed that economic activity in the services sector expanded in November. The Non-Manufacturing Index came in at 57.2% compared to October’s 54.8%. This is the highest reading since the 58.3% NMI® in October 2015. The Non-Manufacturing Business Activity Index increased to 61.7%, 4.0 percentage points higher than the October reading. The Employment Index increased 5.1 percentage points in November to 58.2%. However, the New Orders Index and the Prices Index fell in November by 0.7 percentage point and 0.3 percentage point, respectively. Some of the non-manufacturing industries included in this survey are Agriculture, Mining, Utilities, Construction, Retail Trade, Transportation & Warehousing, Finance & Insurance, Entertainment & Recreation, Accommodation & Food Services, and Real Estate.
  • While it’s a bit dated, the Bureau of Economic Analysis October report on international trade in goods and services was released last week. According to the report, the goods and services deficit widened by over 17% in October over the prior month. The trade deficit was $42.6 billion in October, up $6.4 billion from $36.2 billion in September, revised. October exports were $186.4 billion, $3.4 billion less than September exports. October imports were $229.0 billion, $3.0 billion more than September imports. Year-over-year, the goods and services deficit has decreased $8.8 billion, or 2.1%, from the same period in 2015. Exports decreased $58.7 billion, or 3.1%. Imports decreased $67.5 billion, or 2.9%.
  • According to the Job Openings and Labor Turnover (JOLTS) report from the Bureau of Labor Statistics, the number of job openings fell about 1.7% in October from September. There were 5.534 million job openings in October compared to an upwardly revised 5.631 million job openings in September. Job openings increased in health care and social assistance, but decreased in professional and business services, federal government, and mining and logging. The number of hires and separations also dropped in October. There were 5.099 million hires in October, down about 22,000 from September’s hires. Total separations in October were 4.875 million — a decrease of about 61,000 compared to September. Year-over-year job openings are up 2.1%, while hires are down 2.2%.
  • The preliminary results from the University of Michigan’s Surveys of Consumers show the Index of Consumer Sentiment up 6.2 percentage points from November. According to the report, the surge is due to consumers’ initial reactions to the results of the presidential election. Consumers were more upbeat about the economy as the Current Economic Conditions Index rose almost 5.0 percentage points, while the Index of Consumer Expectations climbed from 85.2% in November to 88.9%.
  • In the week ended December 3, the advance figure for seasonally adjusted initial unemployment insurance claims was 258,000, a decrease of 10,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate fell to 1.4%. The advance number for seasonally adjusted insured unemployment during the week ended November 26 was 2,005,000, a decrease of 79,000 from the previous week’s revised level.

Eye on the Week Ahead

The Federal Open Market Committee meets next week and it is expected to raise the federal funds rate for the first time since last December. Reports available next week are from three indicators of inflationary trends — the Producer Price Index, retail sales, and the Consumer Price Index.

What I’m Watching This Week – 5 December 2016

The Markets (as of market close December 2, 2016)

Robust gains that marked the last few weeks turned to modest declines last week. Gains in energy shares following OPEC’s announcement to cap production weren’t enough to totally offset a regression in small-cap and technology stocks. Both the Russell 2000 and the Nasdaq dropped over 2.0%, while the Dow maintained its value, but little more.

The price of crude oil (WTI) increased by last week’s end, closing at $51.96 per barrel, up from the prior week’s price of $45.96 per barrel. The increase follows OPEC’s agreement to cap petroleum output. Crude oil prices are expected to reach $60 per barrel in the near term. Gold remained volatile as the price of gold (COMEX) fell again last week, closing at $1,179.20 by late Friday afternoon, down from the prior week’s price of $1,186.10. The national average retail regular gasoline price decreased to $2.154 per gallon on November 28, 2016, $0.001 less than the prior week’s price but $0.095 more than a year ago.

Market/Index 2015 Close Prior Week As of 12/2 Weekly Change YTD Change
DJIA 17425.03 19152.14 19170.42 0.10% 10.02%
Nasdaq 5007.41 5398.92 5255.65 -2.65% 4.96%
S&P 500 2043.94 2213.35 2191.95 -0.97% 7.24%
Russell 2000 1135.89 1347.20 1314.25 -2.45% 15.70%
Global Dow 2336.45 2466.14 2461.61 -0.18% 5.36%
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% 2.35% 2.38% 3 bps 12 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

  • There were 178,000 new jobs added in November, with employment gains occurring in professional and business services. The unemployment rate fell to 4.6%, down from October’s rate of 4.9%, and marks the lowest reading since August 2007. The drop in the unemployment rate can be tied, in part, to a fall in the labor force participation rate, which decreased 0.1 percentage point to 62.7%. The number of unemployed persons declined by 387,000 to 7.4 million. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.9 million and accounted for 24.8% of the unemployed. Over the past 12 months, the number of long-term unemployed was down by 198,000. The employment-population ratio held at 59.7%. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in November. For the month, average hourly earnings for all employees on private nonfarm payrolls declined by $0.03 cent to $25.89, following an $0.11 increase in October. Over the year, average hourly earnings have risen by 2.5%.
  • The gross domestic product, which measures the net value of goods and services produced by the nation’s economy, increased at an annual rate of 3.2% in the third quarter of 2016, according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, the GDP increased 1.4%. The first estimate of the third-quarter GDP showed an increase of 2.9%. The difference between the first and second estimates is due to an increase in personal consumption expenditures (consumer spending), exports, private inventory investment, and federal government spending. The GDP growth was offset by several factors, including an increase in imports, which are a subtraction in the calculation of GDP. Gross domestic income (the sum of incomes earned and costs incurred in the production of GDP) increased 5.2% in the third quarter. Another important aspect of the latest estimate of the GDP is the growth in after-tax corporate profits, which increased 3.5% from the second quarter.
  • The personal income and outlays report from the Bureau of Economic Analysis provides valuable information on consumers’ household income from all sources, what consumers are buying and how much they’re spending, and inflationary price trends. In October, personal income increased $98.6 billion, or 0.6%, over September. Disposable personal income (income less taxes) jumped $86.5 billion, or 0.6%, while personal consumption expenditures (value of the goods and services purchased by consumers) gained 0.3%. The personal consumption expenditures price index (a preferred inflation measure of the Fed) increased 0.2%. Excluding food and energy, the PCE price index increased 0.1%. An almost 20.0% increase in wages and salaries contributed to the jump in personal income for the month. About two-thirds of the total economic output in the United States is attributable to consumer spending. As consumer income and spending escalates, so does economic growth, evidenced by the 3.2% gain in the third-quarter GDP.
  • Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 54.1 in November, up from 53.4 in October, marking the strongest improvement in business conditions since March 2015. Improvements in new orders and production led to sustained acceleration in the manufacturing sector, according to the report.
  • The Institute for Supply Management’s PMI also increased in November, coming in at 53.2%, which is 1.3 percentage points higher than October’s reading. The New Orders Index increased 0.9 percentage point, the Production Index jumped 1.4 percentage points, while the Employment Index decreased 0.6 percentage point. This report, coupled with the Markit survey, evidence strengthening in the manufacturing sector, which had been lagging for much of the year.
  • Consumer confidence improved in November, according to The Conference Board Consumer Confidence Index®. The index jumped from 100.8 in October to 107.1 in November — its highest reading since July 2007. The Present Situation Index increased from 123.1 to 130.3, while the Expectations Index improved from 86.0 last month to 91.7. According to Lynn Franco, Director of Economic Indicators at The Conference Board, “A more favorable assessment of current conditions coupled with a more optimistic short-term outlook helped boost confidence. . . . With the holiday season upon us, a more confident consumer should be welcome news for retailers.”
  • In the week ended November 26, the advance figure for seasonally adjusted initial unemployment insurance claims was 268,000, an increase of 17,000 from the previous 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 November 19 was 2,081,000, an increase of 38,000 from the previous week’s unrevised level.

Eye on the Week Ahead

Although the stock market has been booming since the presidential election, trading has been relatively light. With the passing of Thanksgiving, the Christmas holiday season is in full swing, which may keep trading volumes down as investors focus on holiday plans and shopping.

Monthly Market Review – November 2016

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

The economy picked up the pace in November, as did the stock market. After getting off to a sluggish start during the early part of the month, equities soared following the results of the presidential election. Each of the indexes listed here reached record highs during the month. The Russell 2000 posted the largest monthly gain, reaching double digits. Energy stocks jumped at the end of the month following OPEC’s agreement to cut production. Investors seemed willing to sell bonds and buy stocks as evidenced by the yield on 10-year Treasuries, which jumped 56 basis points by the end of the month and now exceeds their 2015 closing yield. Gold lost value, closing November at $1,174.80, down $103 from its October closing value of $1,277.80.

Market/Index 2015 Close Prior Month As of November 30 Month Change YTD Change
DJIA 17425.03 18142.42 19123.58 5.41% 9.75%
NASDAQ 5007.41 5189.13 5323.68 2.59% 6.32%
S&P 500 2043.94 2126.15 2198.81 3.42% 7.58%
Russell 2000 1135.89 1191.39 1322.34 10.99% 16.41%
Global Dow 2336.45 2445.57 2454.12 0.35% 5.04%
Fed. Funds 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.82% 2.38% 56 bps 12 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.

October’s Economy in Review

  • Employment: Once again, the employment sector remained steady during October. According to the Bureau of Labor Statistics, there were 161,000 new jobs added in October, down from a revised September total of 191,000. In October, employment continued to trend up in health care, professional and business services, and financial activities. Thus far this year, job growth has averaged 181,000 per month, compared with an average of 229,000 per month in 2015. The unemployment rate was unchanged at 4.9%. There were 7.8 million unemployed persons in October. Both the unemployment rate and the number of unemployed persons have changed little since August of last year. The labor force participation rate was 62.8% and the employment/population ratio came in at 59.7%. The average workweek was unchanged at 34.4 hours (the workweek in manufacturing was 40.8 hours compared to 33.6 workweek hours for private service-providing employees). Average hourly earnings rose by $0.10 to $25.92 following an $0.08 increase in September. Over the year, average hourly earnings have risen by 2.8%.
  • FOMC/interest rates:The FOMC did not raise interest rates in November, keeping the federal funds target rate at the 0.25%-0.50% range. However, minutes from its November meeting indicate several Committee members are of the opinion that the time is right for another rate hike, which is likely to occur when the Committee next convenes in December.
  • Oil: Oil prices soared on the last day of the month following OPEC’s agreement to cut production significantly. In an apparent effort to boost the sagging economies of small, petroleum-dependent nations, oil prices could reach $60 per barrel soon. Prices for the year have remained below $50 per barrel for the most part. But by the close of trading on November 30, the price of crude oil (WTI) had reached $48.98 per barrel. The national average retail regular gasoline price was $2.154 per gallon on November 28, down from the October 31 selling price of $2.230. It is expected that retail gas prices will surge in the coming weeks as the prices of oil and petroleum products increase.
  • GDP/budget: According to the “second” estimate of the GDP from the Bureau of Economic Analysis, the third-quarter 2016 gross domestic product grew at an annualized rate of 3.2% (the first estimate of the third-quarter growth rate was 2.9%). The growth rate for the second-quarter GDP was 1.4%. Factors driving the upward movement of the GDP include increases in consumer spending (personal consumption expenditures), government spending, exports, and nonresidential (e.g., business) fixed investment. Corporate profits increased $133.8 billion in the third quarter, in contrast to a decrease of $12.5 billion in the second quarter. As to the government’s budget, October marks the start of the government’s 2017 fiscal year. The federal deficit for the first month of FY 2017 was $44.19 billion following September’s budget surplus of $33.45 billion. Total receipts for October were $221.7 billion (down from September’s $356.6 billion), while total outlays were $265.9 billion (down from $323.2 billion in September). Comparatively, the budget deficit for October 2015 was $136.6 billion.
  • Inflation/consumer spending: Consumer spending increased in October as inflation continues to slowly, but discernibly, trend upward. Personal income (pre-tax earnings) and disposable personal income (income less taxes) each rose 0.6%, while personal spending, as measured by personal consumption expenditures, increased 0.3% for the month. The personal consumption expenditures price index increased 0.2% for the month, and is up 1.4% for the year. Core personal consumption expenditures (personal spending excluding volatile food and energy costs) rose 0.1% in October, the same increase as in September. The core PCE index is up 1.7% year-over-year. The Producer Price Index, which measures the prices companies receive for goods and services, was unchanged in October from September, but is up 0.8% year-over-year — the largest 12-month increase since December 2014. Excluding food, trade services, and energy, prices fell 0.1% for the month, following a 0.3% gain in September. For the 12 months ended in October, the index for final demand less foods, energy, and trade services decreased 0.1%. The Consumer Price Index, which measures what consumers pay for both goods and services, increased 0.4% in October after climbing 0.3% in September. Over the last 12 months, the CPI has risen 1.6%. As in September, increases in the shelter and gasoline indexes were the main causes for the rise in the CPI. The gasoline index rose 7.0% in October, while the shelter index increased 0.4% for the second straight month. Retail and food services sales jumped 0.8% in October from the previous month. Retail trade sales were up 1.0% from September and 4.3% from last October. Sales for nonstore (online) retailers were up 12.9% from October 2015.
  • Housing: Sales of existing homes increased in October, while new home sales fell. Existing home sales increased for the second consecutive month, growing 2.0% to an annual rate of 5.60 million, up from 5.49 million homes for sale in September. October’s sales pace is 5.9% above October 2015 and is at its highest annual rate since February 2007. The median sales price for existing homes in October was $232,200, down slightly from the $235,200 median sales price in September but up 6.0% from last October. Total housing inventory at the end of October decreased 0.5% to 2.02 million existing homes available for sale, which is 4.3% lower than a year ago (2.11 million). The Census Bureau’s latest report reveals sales of new single-family homes dropped 1.9% in October to an annual rate of 563,000 — down from September’s rate of 574,000. The median sales price of new houses sold in October was $304,500, while the average sales price was $354,900. The seasonally adjusted estimate of new houses for sale at the end of October was 246,000. This represents a supply of 5.2 months at the current sales rate.
  • Manufacturing:The Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities) was unchanged in October after decreasing 0.2% in September. On the plus side, manufacturing output increased 0.2% and mining posted a gain of 2.1%. However, production was pulled down by a drop in utilities (2.6%). At 104.3% of its 2012 average, total industrial production in October was 0.9% lower than its year-earlier level. Capacity utilization for the industrial sector edged down 0.1 percentage point in September to 75.3%, a rate that is 4.7 percentage points below its long-run (1972-2015) average. The advance report from the Census Bureau shows new orders for all durable goods (expected to last at least three years) climbed $11.8 billion, or 4.8%, in October from the prior month. Excluding the volatile transportation segment, new orders increased 1.0%. Orders for capital goods increased $10.2 billion, or 14.5%, and shipments rose 0.1%.
  • Imports and exports:Reversing course from the prior month, the advance report on international trade in goods for October revealed that the trade gap widened by 9.6% to $62.0 billion in October, up from $56.5 billion in September. Exports of goods fell $3.4 billion, while imports rose $2.1 billion. Dragging down exports was a nearly 12.0% drop in foods, feeds, and beverages. Both wholesale and retail inventories fell by 0.4%. According to the Bureau of Labor Statistics, import prices advanced 0.5% in October, following a 0.2% increase the previous month. Export prices increased 0.2% for the month. The price increase in imports was driven by higher fuel prices (7.2%), which more than offset declining nonfuel prices (0.1%). Despite the price increase for exports, overall export prices are down 1.1% over the past year.
  • International markets:European stock markets had a good month in November, possibly feeding off of the strong U.S. market performance and OPEC’s agreement to cut back oil production. China’s currency has declined to its lowest level in eight years. Japan and China, along with other Asian countries, are waiting for President-elect Trump’s trade proposals, particularly as to whether he holds to his proposal to withdraw from the Trans-Pacific Partnership.
  • Consumer sentiment:Consumers’ confidence in the economy weakened in October. The Conference Board Consumer Confidence Index® for October dropped 4.9 points to 98.6 from September’s revised reading of 103.5. The Surveys of Consumers of the University of Michigan Index of Consumer Sentiment fell from 87.9 in September to 87.2 in October. Both reports show consumers are pessimistic about current and future business conditions and future job prospects.

Eye on the Month Ahead

The stock market climbed following the presidential election. Interest rates remained unchanged in November. However, much could change in December as President-elect Trump rounds out his cabinet and offers more details on his economic and foreign policies moving forward. All indications are that the Fed will relax stimulus measures by increasing the federal funds interest rate when the Committee meets in mid December.