What I’m Watching This Week – 27 March 2017

The Markets (as of market close March 24, 2017)

Uncertainty over whether Congress would pass a new health-care law, coupled with the prospects of additional interest rate hikes later in the year, may have weighed on investors’ minds as stocks tumbled early last week. The S&P 500 lost over 1.0% last week for the first time this year. By the end of last week, each of the indexes listed here posted notable losses, with the small-cap Russell 2000 falling over 2.50% for the week putting it in negative territory year-to-date. Late last Friday, the proposed American Health Care Act was pulled from consideration for lack of support, leaving the current Affordable Care Act in place for the foreseeable future. What impact, if any, this action will have on trading next week remains to be seen. Investors are likely to be watching the last GDP report of the fourth quarter to get a better fix on the economy.

The price of crude oil (WTI) fell last week, closing at $48.14 per barrel, down from the prior week’s closing price of $48.70 per barrel. The price of gold (COMEX) increased, closing at $1,246.40 by late Friday afternoon, up about 1.40% from the prior week’s price of $1,229.30. The national average retail regular gasoline price decreased to $2.321 per gallon on March 20, 2017, $0.002 less than the prior week’s price but $0.314 more than a year ago.

Market/Index 2016 Close Prior Week As of 3/24 Weekly Change YTD Change
DJIA 19762.60 20914.62 20596.72 -1.52% 4.22%
Nasdaq 5383.12 5901.00 5828.74 -1.22% 8.28%
S&P 500 2238.83 2378.25 2343.98 -1.44% 4.70%
Russell 2000 1357.13 1391.52 1354.64 -2.65% -0.18%
Global Dow 2528.21 2704.83 2683.79 -0.78% 6.15%
Fed. Funds target rate 0.50%-0.75% 0.75%-1.00% 0.75%-1.00% 0 bps 25 bps
10-year Treasuries 2.44% 2.50% 2.41% -9 bps -3 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

  • At first blush, it appears that orders for manufactured durable goods have been strong in both January and February. However, a closer look at the latest Census Bureau report reveals that durable goods orders for core products have been slow. Overall, orders for durable goods increased 1.7% in February following a revised January increase of 2.3%. Much of the gain the past two months has been attributable to transportation, particularly aircraft sales. New orders for durable goods orders excluding transportation increased only 0.4% in February. New orders for core capital goods, which exclude defense and aircraft, actually decreased 0.1% for the month, which is indicative of continued weakness in business investment.
  • A dwindling supply of affordable housing has stunted the sales pace of existing homes in February. Total existing homes sales (including single-family homes, townhomes, condominiums, and co-ops) fell 3.7% to an annual rate of 5.48 million in February, down from 5.69 million in January. Despite the drop-off, February’s sales pace is still 5.4% above a year ago. Total housing inventory at the end of February increased 4.2% to 1.75 million existing homes available for sale, which is 6.4% lower than a year ago (1.87 million) and has fallen year-over-year for 21 straight months. Unsold inventory is at a 3.8-month supply at the current sales pace (3.5 months in January). The median existing-home price for all housing types in February was $228,400, up 7.7% from February 2016 ($212,100). February’s price increase was the fastest since last January (8.1%) and marks the 60th consecutive month of year-over-year gains.
  • Unlike existing home sales, new home sales surged in February. Sales of new single-family houses in February were at a seasonally adjusted annual rate of 592,000, which is 6.1% higher than the January sales rate of 558,000. New home sales are 12.8% above the February 2016 estimate. The median sales price of new houses sold in February was $296,200, down about 4.0% from January’s median sales price of $308,200. The average sales price was $390,400, which is almost 10.0% higher than January’s average sales price of $355,300. The seasonally adjusted estimate of new houses for sale at the end of February was 266,000. This represents a supply of 5.4 months at the current sales rate, which is down from January’s supply of 5.6 months.
  • In the week ended March 18, the advance figure for seasonally adjusted initial unemployment insurance claims was 258,000, an increase of 15,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate dipped to 1.4%. The advance number for seasonally adjusted insured unemployment during the week ended March 11 was 2,000,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

The final report on the fourth-quarter GDP is released this week. The prior reading showed the rate of economic growth to be 1.9%. This week’s final returns are expected to show little change.

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What I’m Watching This Week – 20 March 2017

The Markets (as of market close March 17, 2017)

Following the Fed’s announcement that it was raising the target range for the federal funds rate 25 basis points, investors favored government bonds and dividend-paying stocks last week. As a result, the yield on 10-year Treasuries fell 7 basis points as prices climbed with increased demand. Each of the benchmark indexes listed here posted gains over their prior week’s closing values. The small-cap Russell 2000 and Global Dow led the way, followed by the Nasdaq.

The price of crude oil (WTI) climbed marginally higher last week, closing at $48.70 per barrel, up from the prior week’s closing price of $48.39 per barrel. The price of gold (COMEX) also increased, closing at $1,229.30 by late Friday afternoon, up from the prior week’s price of $1,204.50. The national average retail regular gasoline price decreased to $2.323 per gallon on March 13, 2017, $0.018 less than the prior week’s price but $0.362 more than a year ago.

Market/Index 2016 Close Prior Week As of 3/17 Weekly Change YTD Change
DJIA 19762.60 20902.98 20914.62 0.06% 5.83%
Nasdaq 5383.12 5861.73 5901.00 0.67% 9.62%
S&P 500 2238.83 2372.60 2378.25 0.24% 6.23%
Russell 2000 1357.13 1365.26 1391.52 1.92% 2.53%
Global Dow 2528.21 2671.06 2704.83 1.26% 6.99%
Fed. Funds target rate 0.50%-0.75% 0.50%-0.75% 0.75%-1.00% 25 bps 25 bps
10-year Treasuries 2.44% 2.57% 2.50% -7 bps 6 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

  • Not unexpectedly, the FOMC raised the target range for the federal funds rate by 25 basis points to 0.75%-1.00%. The Committee judged that a modest increase in the federal funds rate is appropriate in light of the economy’s solid progress toward the Committee’s goals of maximum employment and price stability. The decision to increase interest rates reflects the Committee’s view that waiting too long to scale back some accommodation could potentially require raising rates rapidly sometime down the road, which, in turn, could risk disrupting financial markets and push the economy into recession. Anticipating continued labor strengthening and inflation inching toward the Fed’s longer-range target of 2.0%, two more rate increases are still in the offing over the remainder of 2017. Interestingly, in Chair Janet Yellen’s prepared comments, she noted the Committee’s economic projections as follows: the growth of the GDP is expected to be 2.1% this year and next and edge down to 1.9% in 2019; the unemployment rate would stand at 4.5% in the fourth quarter of this year and remain at that level over the next two years; and the median inflation projection remains at 1.9% this year, rising to 2.0% in 2018 and 2019.
  • In a sign of continuing inflationary pressure, consumer prices, retail sales, and producer prices each increased in February. Consumer prices edged up 0.1% in February, according to the latest report from the Bureau of Labor Statistics. Over the last 12 months, the CPI has risen 2.7%. The index was held down by declining energy prices (-1.0%), which partially offset increases in several indexes, including food, shelter, and recreation. The index less food and energy rose 0.2% in February, and has increased 2.2% for the 12 months ended February 2017. This was the fifteenth straight month the 12-month change remained in the range of 2.1% to 2.3%, which is in line with the Fed’s longer-range target of 2.0% inflation.
  • Advance estimates of U.S. retail and food services sales for February 2017 were $474.0 billion, an increase of 0.1% from the previous month and 5.7% ahead of February 2016. Retail sales increased 0.1% from January, and are up 5.9% from last February. Gasoline stations sales were up 19.6% from February 2016, while nonstore (internet) retailers’ sales jumped 13.0% over last year. Conversely, restaurant and bar sales fell 0.1% for the month.
  • Producer prices for goods and services increased 0.3% in February, following a 0.6% increase in January. The price index climbed 2.2% for the 12 months ended February 2017 — the largest advance since a 2.4% increase in the 12 months ended March 2012. Prices less foods, energy, and trade services rose 0.3% in February, the largest increase since a 0.3% advance in April 2016. For the 12 months ended in February, the index less foods, energy, and trade services climbed 1.8%.
  • New construction in the housing market picked up in February. Housing starts rose 3.0% for the month compared to January, and are 6.2% above the February 2016 rate. Single-family housing starts in February were 6.5% above the revised January figure. Housing completions also surged in February, climbing 5.4% above the revised January estimate and 8.7% ahead of the February 2016 pace. On the other hand, permits for new residential construction were off, down 6.2% in February from January but still 4.4% ahead of the February 2016 estimate.
  • The Job Openings and Labor Turnover Survey(JOLTS) offers information on monthly changes in the number of job openings, hires, and quits. The latest information for January reveals that there were 5.6 million job openings on the last day of January — about 87,000 more openings than December. There were 5.4 million hires in January, roughly 137,000 more than December. The number of total separations, including quits, layoffs, and discharges, (otherwise known as “turnover”) increased by 174,000 in January compared with December. Over the 12 months ended in January, hires totaled 63.1 million and separations totaled 60.7 million, yielding a net employment gain of 2.4 million.
  • The Federal Reserve’s index of industrial production shows how much factories, mines, and utilities are producing. Industrial production was unchanged in February following a 0.1% decrease in January. However on a positive note, manufacturing output moved up 0.5% for its sixth consecutive monthly increase. Manufacturing gains occurred in business equipment and auto production. Mining output jumped 2.7%, but the index for utilities fell 5.7%, as continued unseasonably warm weather further reduced demand for heating. Capacity utilization for the industrial sector declined 0.1 percentage point in February to 75.4%.
  • In the week ended March 11, the advance figure for seasonally adjusted initial unemployment insurance claims was 241,000, a decrease of 2,000 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 March 4 was 2,030,000, a decrease of 30,000 from the previous week’s revised level.

Eye on the Week Ahead

This week should see equities markets settle following the Fed’s decision last week to increase interest rates for the first time this year. February’s figures on sales of existing and new homes are available this week. Orders for durable goods have been volatile at best. Not much change is expected in the manufacturing sector when February’s numbers are released at the close of this week.

What I’m Watching This Week – 13 March 2017

The Markets (as of market close March 10, 2017)

Stocks rallied last Friday, fueled by a robust jobs report. However, the end-of-week surge wasn’t enough to overcome index losses from earlier in the week. Falling energy prices dragged down both the large-cap Dow and S&P 500, while the Russell 2000 dropped over 2.0% and is barely in positive territory for the year. Long-term bond prices also plummeted with the yield on the 10-year Treasuries climbing 26 basis points for the week.

The price of crude oil (WTI) dropped again, closing at $48.39 per barrel, down from the prior week’s closing price of $53.20 per barrel. The price of gold (COMEX) also fell, closing at $1,204.50 by late Friday afternoon, down from the prior week’s price of $1,235.00. The national average retail regular gasoline price increased to $2.341 per gallon on March 6, 2017, $0.027 above the prior week’s price and $0.500 more than a year ago.

Market/Index 2016 Close Prior Week As of 3/10 Weekly Change YTD Change
DJIA 19762.60 21005.71 20902.98 -0.49% 5.77%
Nasdaq 5383.12 5870.75 5861.73 -0.15% 8.89%
S&P 500 2238.83 2383.12 2372.60 -0.44% 5.97%
Russell 2000 1357.13 1394.13 1365.26 -2.07% 0.60%
Global Dow 2528.21 2688.67 2671.06 -0.65% 5.65%
Fed. Funds target rate 0.50%-0.75% 0.50%-0.75% 0.50%-0.75% 0 bps 0 bps
10-year Treasuries 2.44% 2.31% 2.57% 26 bps 13 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

  • A real market mover, the monthly employment report can influence not only investors, but short-term interest rates as well. February’s report was very positive on a number of fronts. Job growth continued as 235,000 new jobs were added last month with job gains in construction, private educational services, manufacturing, health care, and mining. The unemployment rate dipped to 4.7% as both workforce participation and employment increased. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in February. But in a further sign of continued economic strengthening, payrolls increased by $0.06 to $26.09, following a $0.05 increase in January. Over the year, average hourly earnings have risen by $0.71, or 2.8%. This report should encourage investors as well as the Fed, which is likely to raise short-term interest rates.
  • For February, the federal deficit was $192 billion. January showed a monthly budget surplus of $51 billion. The February deficit is essentially the same as the February 2016 deficit. Through the first five months of the fiscal year, the deficit sits at $349 billion. The deficit over the same period last year was $351 billion.
  • The trade deficit is growing, according to the Census Bureau’s final report for January. The goods and services deficit was $48.5 billion, up $4.2 billion from $44.3 billion in December. January exports were up $1.1 billion to $192.1 billion. January imports were $240.6 billion, $5.3 billion more than December imports. Year-over-year, the goods and services deficit increased $5.1 billion, or 11.8%, from January 2016. Exports increased $13.3 billion, or 7.4%. Imports increased $18.4 billion, or 8.3%.
  • Export prices actually outpaced import prices in February, according to the Bureau of Labor Statistics. Prices for U.S. exports advanced 0.3% in February and have not recorded a monthly decline since the index fell 0.8% in August. Export prices increased 3.1% over the past 12 months, the largest over-the-year rise since the index advanced 3.6% between December 2010 and December 2011. Import prices rose for the third consecutive month in February, increasing 0.2%, after a 0.6% advance in January and a 0.4% rise in December. The price index for imports also rose over the past year, increasing 4.6%. That rise was the largest 12-month advance in import prices since a 5.1% increase in February 2012.
  • In the week ended March 4, the advance figure for seasonally adjusted initial unemployment insurance claims was 243,000, an increase of 20,000 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 February 25 was 2,058,000, a decrease of 6,000 from the previous week’s revised level.

Eye on the Week Ahead

This week provides several important reports, including information on consumer prices, producer prices, and retail sales — each of which offers guidance on inflationary trends. The latest report on industrial production is also available at the end of the week. However, investors will be watching the results of this week’s FOMC meeting, as indications are that the Committee will increase the federal funds target rate for the first time in 2017.

What I’m Watching This Week – 6 March 2017

The Markets (as of market close March 3, 2017)

The Dow reached 21115 last Wednesday, then fell back a bit, but still closed the week over 21000. The S&P 500 marked its sixth consecutive week of gains, while the Global Dow led the way, climbing over 1.0% by last week’s end. Of the benchmarks listed here, only the Russell 2000 fell, but only slightly. Following President Trump’s speech to Congress last Tuesday evening, stocks soared Wednesday before retreating Thursday and Friday while bond yields soared, possibly in response to Fed Chair Janet Yellen’s indication that interest rates are likely to be raised when the Committee next meets later this month.

The price of crude oil (WTI) dropped, closing at $53.20 per barrel, down from the prior week’s closing price of $54.03 per barrel. The price of gold (COMEX) also fell, closing at $1,235.00 by late Friday afternoon, down from the prior week’s price of $1,258.00. The national average retail regular gasoline price increased to $2.313 per gallon on February 27, 2017, $0.012 above the prior week’s price and $0.531 more than a year ago.

Market/Index 2016 Close Prior Week As of 3/3 Weekly Change YTD Change
DJIA 19762.60 20821.76 21005.71 0.88% 6.29%
Nasdaq 5383.12 5845.31 5870.75 0.44% 9.06%
S&P 500 2238.83 2367.34 2383.12 0.67% 6.44%
Russell 2000 1357.13 1394.52 1394.13 -0.03% 2.73%
Global Dow 2528.21 2660.04 2688.67 1.08% 6.35%
Fed. Funds target rate 0.50%-0.75% 0.50%-0.75% 0.50%-0.75% 0 bps 0 bps
10-year Treasuries 2.44% 2.31% 2.48% 17 bps 4 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 second estimate of the fourth-quarter GDP saw little change from the first estimate. The GDP expanded at an annual rate of 1.9% — the same rate as first estimate. The third-quarter GDP increased at an annual rate of 3.5%, which was the strongest reading in two years. Consumer spending continued to increase as the personal consumption expenditures (PCE) price index increased 1.9% in the fourth quarter, compared with an increase of 1.5% in the third quarter. From the fourth quarter 2015 to the fourth quarter 2016, the PCE price index has expanded at a rate of 3.0%.
  • Consumer income and spending continued to rise in January, according to the latest report from the Bureau of Economic Analysis. Personal income increased $63.0 billion, or 0.4%, in January over December. The increase was fueled by a rise in wages and salaries, which increased by $43.8 billion. After-tax income (disposable personal income) rose $40.1 billion, or 0.3%, and personal consumption expenditures, a measure of what consumers are spending, increased $22.2 billion, or 0.2%. Personal income increased 3.6% in 2016 (that is, from the 2015 annual level to the 2016 annual level). Disposable personal income climbed 3.9% over the same period, while personal consumption expenditures increased 3.8%. The personal consumption price index is up 1.9% in January 2017 compared to January 2016, as prices move closer to the Fed’s 2.0% inflation target.
  • New orders for manufactured durable goods in January increased $4.0 billion, or 1.8%, to $230.4 billion, the U.S. Census Bureau announced last week. This increase, up following two consecutive monthly decreases, followed an 0.8% December decrease. Transportation equipment, also up following two consecutive monthly decreases, drove the increase up $4.3 billion, or 6.0%. Orders for core capital goods (excluding defense and aircraft) declined 0.4% in January from December. Shipments of durable goods fell for the first time in three months, dropping 0.1% following a 1.6% increase in December. Unfilled orders, down seven of the last eight months, decreased again in January, falling $4.0 billion, or 0.4%.
  • Purchasing managers remained upbeat about the strength of the manufacturing sector. The Institute for Supply Management’s® Purchasing Managers Index registered 57.7% in February, 1.7 percentage points higher than January’s reading. Markit’s Manufacturing Purchasing Managers’ Index™ (PMI™) fell slightly in February from January’s 22-month high. February’s PMI of 54.2 was 0.8 percentage point below January, but still indicative of strength in the manufacturing sector.
  • The non-manufacturing, or service, index issued by the Institute for Supply Management® increased by 1.1 percentage points in February over January. This is the highest reading since October 2015 and represents continued growth in the non-manufacturing sector at a slightly faster rate.
  • The international trade deficit expanded in January from a month earlier, according to the advance report from the Census Bureau. The trade deficit increased $4.9 billion to $69.2 billion in January. Exports of goods fell $0.4 billion to $126.2 billion, while goods imports increased by $4.4 billion to $195.4 billion. The increase in imports was influenced by an increase in imports of vehicles and consumer goods.
  • The Conference Board Consumer Confidence Index® rose to 114.8 in February, up from January’s 111.6. According to Lynn Franco, Director of Economic Indicators at The Conference Board, “Consumers rated current business and labor market conditions more favorably this month than in January. Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects. Overall, consumers expect the economy to continue expanding in the months ahead.”
  • In the week ended February 25, the advance figure for seasonally adjusted initial unemployment insurance claims was 223,000, a decrease of 19,000 from the previous week’s revised level. This is the lowest level for initial claims since March 31, 1973, when it was 222,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended February 18 was 2,066,000, an increase of 3,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest employment information will be available at the end of the week. Investors will pay close attention to this report, as the labor sector has been positive for quite some time and continued strength will surely influence the FOMC’s decision whether to increase interest rates when it meets later in the month.

Monthly Market Review – February 2017

The Markets (as of market close February 28, 2017)

Equities continued their positive trend in February as each of the benchmark indexes listed here posted monthly gains. The Dow recorded 12 record highs in February and posted a monthly gain of 4.77% — its best month since November. The S&P 500 (3.72%) and Nasdaq (3.75%) each climbed over 3.50% for the month. For the S&P 500, February marked the best monthly gain since last March. Since the presidential election, investors have continued to pour money into stocks, likely in anticipation of tax cuts and policies intended to boost corporate earnings. The yield on 10-year Treasuries fell as bond prices increased with higher demand.

By the close of trading on February 28, the price of crude oil (WTI) was $54.00 per barrel, up from the January 31 price of $52.80 per barrel. The national average retail regular gasoline price was $2.314 per gallon on February 27, up from the January 30 selling price of $2.296 and $0.531 higher than a year ago. The price of gold climbed at the end of February, closing at $1,248.80 on the last day of the month, up from its January 31 price of $1,212.50.

Market/Index 2016 Close Prior Month As of February 28 Month Change YTD Change
DJIA 19762.60 19864.09 20812.24 4.77% 5.31%
NASDAQ 5383.12 5614.79 5825.44 3.75% 8.22%
S&P 500 2238.83 2278.87 2363.64 3.72% 5.57%
Russell 2000 1357.13 1361.82 1386.68 1.83% 2.18%
Global Dow 2528.21 2597.74 2655.35 2.22% 5.03%
Fed. Funds 0.50%-0.75% 0.50%-0.75% 0.50%-0.75% 0 bps 0 bps
10-year Treasuries 2.44% 2.45% 2.39% -6 bps -5 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 Month’s Economic News

  • Employment: Growth in the employment sector remained steady in January. According to the Bureau of Labor Statistics, there were 227,000 new jobs added in January, up from a revised December total of 157,000 and well above the 2016 average of 187,000. In January, employment trended up in retail trade, construction, and financial activities. The unemployment rate inched up 0.1 percentage point to 4.8%. In January, there were 7.6 million unemployed persons; the labor force increased by 584,000; the labor force participation rate rose by 0.2 percentage point to 62.9%; and the employment/population ratio increased 0.2 percentage point to 59.9%. The average workweek was 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 $0.03 to $26.00. Over the year, average hourly earnings have risen by 2.5%.
  • FOMC/interest rates:In January, the FOMC maintained the target range for the federal funds rate at 0.50%-0.75%. However, continued strength in the labor market and consumer spending, which has sent inflation closer to the Fed target rate of 2.0%, will substantiate further rate increases, with the next one possibly coming as early as March.
  • GDP/budget: According to the “second” estimate of the GDP from the Bureau of Economic Analysis, fourth-quarter 2016 gross domestic product grew at an annualized rate of 1.9% (the same rate as the first estimate). The growth rate for the third-quarter GDP was 3.5%. Real GDP increased 1.6% in 2016 (that is, from the 2015 annual level to the 2016 annual level), compared with an increase of 2.6% in 2015. Factors driving the downward movement of the GDP include deceleration in exports, an acceleration in imports (a negative in the GDP calculation), and a downturn in federal government spending. The price index for gross domestic purchases increased 1.9% in the fourth quarter, compared with an increase of 1.5% in the third quarter. The federal budget ran a surplus of $51.27 billion for the month of January compared to a monthly deficit of $27.34 billion in December. So far this fiscal year, which began October 2016, the deficit sits at $156.94 billion compared to $160.48 billion over the same period last fiscal year. For fiscal year 2017, corporate tax receipts are down, as are Medicare costs compared to the same period over the 2016 fiscal year.
  • Inflation/consumer spending: Consumer spending increased in January as inflation continues to trend upward. Personal income (pre-tax earnings) increased 0.4% for the month while disposable personal income (income less taxes) rose 0.3%. Personal spending, as measured by personal consumption expenditures, climbed 0.2% in January. The personal consumption expenditures price index increased 0.4% in January, and is up 1.9% for the year. The Producer Price Index, which measures the change in the prices companies receive for goods and services, increased 0.6% in January following December’s 0.2% advance. The majority of the gain in the PPI is attributable to the prices of goods, which rose 1.0%. Prices for services increased 0.3%. Over the last 12 months, producer prices have increased 1.6%. The Consumer Price Index, which measures what consumers pay for both goods and services, increased 0.6% in January following a 0.3% increase in December. January’s gain marks the largest monthly increase in consumer prices since February 2013. Year-over-year, the CPI has risen 2.5% — the largest 12-month increase in nearly five years. Sales at the retail level also increased, climbing 0.4% in January over December and 5.6% from last year. Excluding auto sales, retail sales rose 0.8% for the month. Sales for nonstore (online) retailers are up 12.0% from January 2015.
  • Housing: Despite low inventory, the housing market picked up in January. Existing home sales rose 3.3% following a 2.8% dip in December. January’s sales pace is 3.8% above the January 2016 sales pace. The median sales price for existing homes in January was $228,900, down from December’s median price of $232,200 but 7.1% higher than the median sales price for January 2016. Total housing inventory at the end of January increased 2.4% to 1.69 million existing homes available for sale, which represents a 3.6-month supply. New home sales also increased in January, according to the Census Bureau’s latest report. Sales of new single-family homes jumped 3.7% to an annual rate of 555,000 — up from December’s rate of 535,000. The median sales price of new houses sold in January was $312,900, while the average sales price was $360,900. The seasonally adjusted estimate of new houses for sale at the end of January was 265,000. This represents a supply of 5.7 months at the current sales rate.
  • Manufacturing:The Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities) fell 0.3% in January, influenced by a drop in utility output. On the plus side, manufacturing output increased 0.2%, while mining production jumped 2.8%. The index for utilities fell 5.7%, largely because unseasonably warm weather reduced the demand for heating. Capacity utilization for the industrial sector fell 0.3 percentage point in December to 75.3%, a rate that is 4.6 percentage points below its long-run (1972-2015) average. Overall, total industrial production in January was essentially unchanged from its year-earlier level. The advance report from the Census Bureau shows new orders for all durable goods (expected to last at least three years) increased 1.8% in January, following two consecutive monthly decreases. Excluding the volatile transportation segment, new orders decreased 0.2%. A 6.0% increase in orders for transportation equipment drove the increase in new orders.
  • Imports and exports:The international trade deficit was $69.2 billion in January, up $4.9 billion from $64.4 billion in December. Exports of goods for January were $126.2 billion, $0.4 billion less than December exports. Imports of goods for January were $195.4 billion, $4.4 billion more than December imports. According to the Bureau of Labor Statistics, import prices advanced 0.4% in January, following a 0.5% increase the previous month. The advance in January was primarily driven by higher fuel prices (5.8%), which more than offset a drop in nonfuel prices (-0.2%). Export prices increased 0.1% in January after advancing 0.4% in December. Prices for overall exports rose 2.3% for the year ended in January, which is the highest 12-month increase since the year ended January 2012.
  • International markets: Earnings reports from European companies have been positive for the most part, adding to the optimistic economic outlook in Europe. The European Central Bank reported that none of the eurozone’s 19 member countries was in deflation during January as consumer prices rose on the year. Consumer prices also surged in China — advancing at their fastest pace in over two years. China’s Consumer Price Index increased 2.5% in January from a year earlier. The Greek debt crisis, into its seventh year, continues to fester as a rift developed between eurozone and International Monetary Fund creditors over whether Greece could meet its budget targets. It appears that a compromise is near with new reforms in the offing.
  • Consumer sentiment:Consumers’ confidence in the economy waned slightly in January. The Conference Board Consumer Confidence Index® dropped 1.5 points to 111.8. The Surveys of Consumers of the University of Michigan Index of Consumer Sentiment climbed 0.3 percentage point to 98.5. Both reports evidenced favorable consumer expectations for the economy.

Eye on the Month Ahead

The announcement following the Federal Open Market Committee’s March meeting will be a focus for investors. Judging from the minutes following the Committee’s February meeting, an interest rate increase in March is definitely on the table.