Author: dredheadz

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.

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.

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.

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.

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.

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.

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.

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.

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

Most of the benchmark indexes listed here rallied by the close of the market last Friday to finish ahead for the week. The Dow led the way by marking its 11th consecutive day of positive gains, followed by the S&P 500, which has not experienced a daily swing of more than 1.0% since mid-December. Favorable corporate earnings reports and higher oil prices, which boosted energy stocks, helped drive the large-cap indexes upward. The Nasdaq barely finished in the black, while the Russell 2000 closed down by more than a quarter of a percent.

The price of crude oil (WTI) rose, closing at $54.03 per barrel, up from the prior week’s closing price of $53.37 per barrel. The price of gold (COMEX) increased, closing at $1,258.00 by late Friday afternoon, up from the prior week’s price of $1,236.00. The national average retail regular gasoline price decreased to $2.302 per gallon on February 20, 2017, $0.005 less than the prior week’s price but $0.572 more than a year ago.

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

• Existing home sales surged in January, according to the National Association of Realtors®. Total existing home sales expanded 3.3% to a seasonally adjusted annual rate of 5.69 million from an upwardly revised 5.51 million in December. January’s sales pace is 3.8% higher than it was a year ago and is the strongest annual rate since February 2007. The median existing-home price for all housing types in January was $228,900, up 7.1% from January 2016 ($213,700). The annual price increase 232,200 in January was the fastest 12-month increase since last January (8.1%) and marks the 59th consecutive month of year-over-year gains. Inventory increased 2.4% in January, which helped fuel the increase in sales. There is a 3.6-month supply of inventory at the current sales pace. Despite rising mortgage rates and relatively scant inventory, the increase in home sales may be indicative of consumers’ confidence in the labor market and in the economy.
• New home sales also picked up the pace in January. At an annual rate of 555,000 in January, new home sales were 3.7% above the revised December rate of 535,000 and 5.5% above the January 2016 estimate of 526,000. The median sales price of new houses sold in January 2017 was $312,900 ($316,200 in December). The average sales price was $360,900 ($378,900 in December). The 265,000 new homes for sale at the end of January represents a supply of 5.7 months at the current sales rate.
• Minutes from the FOMC meeting at the end of January point to a greater likelihood of an interest rate hike when the Committee next meets in March. Concerned that the pace of inflation may increase based on policy proposals from the Trump administration, some members of the Committee posed the possibility for more aggressive action, particularly if the unemployment rate falls.
• Consumer sentiment was still strong in February, although the Index of Consumer Sentiment edged down to 96.3 compared to the decade peak of 98.5 recorded in January. During the past three months, the Index of Consumer Sentiment has been higher than any time since March 2004. According to Surveys of Consumers chief economist Richard Curtin, “Normally, the implication would be that consumers expected Trump’s election to have a positive economic impact. That is not the case since the gain represents the result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth.” Curtin further explained, “While the expectations of Democrats and Republicans largely offset each other, the overall gain in the Expectations Index was due to self-identified Independents, who were much closer to the optimism of the Republicans than the pessimism of the Democrats.”
• In the week ended February 18, the advance figure for seasonally adjusted initial unemployment insurance claims was 244,000, an increase of 6,000 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 11 was 2,060,000, a decrease of 17,000 from the previous week’s revised level. Compared to the same period last year, the number of unemployed is 9.4% lower than the 2,253,000 unemployed claimants for the week ended February 13, 2016.

Eye on the Week Ahead

Investors will be focused on the revised numbers for the Q4 GDP, as well as the latest consumer income and spending figures from January.

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

Equities closed last week in positive territory, as several of the indexes listed here posted record gains. Some positive economic news, particularly from FOMC Chair Janet Yellen, and favorable corporate earnings reports may have enticed investors to stay in the market. The Dow, S&P 500, and Nasdaq, each gained over 1.50% on the week, while the Global Dow increased over 1.0% lifting its year-to-date increase in value to over 5.0%.

The price of crude oil (WTI) fell, closing at $53.37 per barrel, down slightly from the prior week’s closing price of $53.85 per barrel. The price of gold (COMEX) increased, closing at $1,236.0 by late Friday afternoon, up from the prior week’s price of $1,234.70. The national average retail regular gasoline price increased to $2.307 per gallon on February 13, 2017, $0.014 higher than the prior week’s price and $0.583 more than a year ago.

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 Consumer Price Index, a measure of change in the prices of goods and services sold to consumers, is the most widely followed indicator of inflation. January saw the largest increase in consumer prices since February 2013, as the CPI advanced 0.6% for the month. A sharp rise in the gasoline index (7.8%) accounted for nearly half the increase. Since January 2016, the CPI increased 2.5%. The index for all items less food and energy (core prices) rose 0.3% in January. Most of the major component indexes increased in January, with the indexes for apparel, new vehicles, motor vehicle insurance, and airline fares all rising 0.8% or more. Core prices rose 2.3% over the last 12 months, and the energy index increased 10.8%, its largest 12-month increase since November 2011. This report, coupled with reports on producer prices and retail prices, clearly indicate inflation is gathering momentum, making an interest-rate hike in March by the Fed more likely.
• The Bureau of Labor Statistics provides a monthly Producer Price Index that measures change in the prices received by U.S. producers of goods and services (wholesale prices). Rising or falling prices at the producer level are generally passed on to consumers, so this information can be useful as a gauge of inflationary trends. In January, producer prices increased 0.6%, following a 0.2% increase in December. Over 60% of the producer price increase is attributable to a 1.0% increase in the prices of goods, led by the gasoline index, which advanced 12.9%. Prices for goods less food and energy climbed 0.4%. The index for services rose 0.3% in January after edging up 0.1% in December. Year-to-date, the Producer Price Index has climbed 1.6%.
• The advance monthly sales report for retail and food services sales showed an increase of 0.4% in January, and an advance of 5.6% from a year earlier. Retail trade sales were up 0.2% from December 2016, while advancing 5.6% from last January. Gasoline station sales were up 14.2% from January 2016, while sales of nonstore (Internet) retailers were up 12.0% from last year. It is likely that this report will be revised over the next several months as more information becomes available.
• Industrial production decreased 0.3% in January following a 0.6% increase in December. For the month, most of the major non-energy market groups recorded increases, but the drop in the output of utilities contributed substantially to losses in the overall indexes for consumer goods, business supplies, and materials through their energy components. In January, manufacturing output moved up 0.2% — an increase that was limited by a 2.9% monthly drop in vehicles. Excluding vehicles, production in manufacturing advanced 0.5%. The index for utilities fell 5.7%, largely because unseasonably warm weather reduced the demand for heating. Total industrial production in January was at about the same level as it was a year earlier. Capacity utilization for the industrial sector fell 0.3 percentage point in January to 75.3%, a rate that is 4.6 percentage points below its long-run (1972-2016) average.
• During testimony before the Senate Banking Committee, FOMC Chair Janet Yellen expressed optimism about the economy and hinted that the Fed would consider raising short-term interest rates at its next meeting in March. Yellen noted that employment continues to be strong, while the economy has expanded at a moderate rate as evidenced by last year’s 1.9% growth rate of the GDP. Consumer spending has increased and inflation has trended upwards, mainly because of the diminishing effects of the earlier declines in energy prices and import prices. “My colleagues on the FOMC and I expect the economy to continue to expand at a moderate pace, with the job market strengthening somewhat further and inflation gradually rising to 2%,” she said.
• The Census Bureau report on new residential construction is the first of three monthly reports addressing the housing sector. New home construction slowed in January as housing starts fell 2.6% compared to December, while new home completions dropped 5.6%. The number of building permits obtained was 4.6% higher than the December rate. However, compared to January 2016, housing starts are up 10.5% and building permits increased 8.2%. Only the rate of housing completions (0.9%) is below the number of completions in January 2016.
• In the week ended February 11, the advance figure for seasonally adjusted initial unemployment insurance claims was 239,000, an increase of 5,000 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 February 4 was 2,076,000, a decrease of 3,000 from the prior week’s revised level. The highest insured unemployment rates in the week ended January 28 were in Alaska (4.5%), Montana (3.2%), New Jersey (3.1%), Connecticut (3.0%), Pennsylvania (2.9%), Illinois (2.8%), Rhode Island (2.8%), Massachusetts (2.7%), Puerto Rico (2.7%), and West Virginia (2.6%).

Eye on the Week Ahead

In a holiday-shortened week, housing data, as well as minutes of the most recent Federal Open Market Committee meeting, are on tap.

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

The stock indexes listed here posted a strong week of gains as the Dow, S&P 500, and Nasdaq each achieved record highs. Long-term bond prices also rose last week, with the yield on 10-year Treasuries falling 6 basis points. Favorable fourth-quarter corporate earnings reports, coupled with President Trump’s proposal to lower taxes for businesses, helped drive equities.

The price of crude oil (WTI) remained about the same compared to the prior week, closing at $53.85 per barrel, down slightly from the prior week’s closing price of $53.86 per barrel. The price of gold (COMEX) increased, closing at $1,234.70 by late Friday afternoon, up from the prior week’s price of $1,221.90. The national average retail regular gasoline price decreased for the fourth week in a row to $2.293 per gallon on February 6, 2017, $0.003 less than the prior week’s price but $0.534 more than a year ago.

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 final report on the goods and services trade deficit for December 2016 has the deficit at $44.2 billion, down $1.5 billion from $45.7 billion in November. Exports climbed $5.0 billion in December over the prior month, while imports increased $3.6 billion. For 2016, the goods and services deficit was $502.3 billion, up $1.9 billion, or 0.4%, from the $500.4 billion deficit in 2015. In 2016, exports decreased $51.7 billion, or 2.3%, while imports decreased $49.9 billion, or 1.8%. It’s important to note that a narrowing trade gap doesn’t necessarily equate with economic strength. A decrease in consumer purchases of goods and services may not only weaken imports, but it may cause the GDP to contract as well. According to The Wall Street Journal, during periods of economic growth, such as in the 1990s and early 2000s, the trade deficit expanded. However, the deficit narrowed during periods of economic recession, such as in 2007-2009.
• The federal budget ran a surplus of $51.27 billion in January compared to a deficit of $27.34 billion the previous month. Government receipts in January were $344.07 billion, while expenditures were $292.81 billion. Four months into the government’s fiscal year, the deficit sits at $156.94 billion compared to $160.48 billion over the same period last fiscal year.
• The Job Openings and Labor Turnover Survey (JOLTS) for December revealed that the number of job openings was little changed at 5.5 million on the last business day of December, according to the U.S. Bureau of Labor Statistics. Over the month, hires and separations were also little changed at 5.3 million and 5.0 million, respectively. The gap of roughly 250,000 between job openings and hires is the narrowest of 2016. Over the 12 months ended in December, hires totaled 62.5 million and separations totaled 60.1 million, yielding a net employment gain of 2.4 million. The quits rate was 2.0% in December, down slightly from the 2.1% rate the prior month. A higher quits rate may be indicative of employees’ confidence that they can leave a job and get another one.
• Import prices advanced 0.4% in January following a 0.5% increase in December. A rise in fuel prices (5.8%) more than offset declining nonfuel prices (-0.2%). Import prices have risen 3.7% over the past year. The advance between January 2016 and January 2017 is the largest 12-month rise since the index increased 5.1% in February 2012. The prices for exports gained 0.1% in January, after advancing 0.4% the previous month. Rising prices for nonagricultural exports (0.1%) more than offset falling agricultural prices (-0.2%) in each of the two months. With the exception of an 0.8% drop in August 2016, export prices have trended upward since April 2016 and rose 2.3% for the year ended in January 2017.
• Consumer expectations for the economy fell in February, according to the Surveys of Consumers from the University of Michigan. Falling expectations helped pull the Index of Consumer Sentiment down from 98.5% in January to 95.7% this month.
• In the week ended February 4, the advance figure for seasonally adjusted initial unemployment insurance claims was 234,000, a decrease of 12,000 from the previous week’s unrevised level. The four-week moving average was 244,250, a decrease of 3,750 from the previous week’s unrevised average of 248,000. This is the lowest level for this average since November 3, 1973, when it was 244,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended January 28 was 2,078,000, an increase of 15,000 from the prior week’s revised level. The largest increases in initial claims for the week ended January 28 were in Ohio (+3,659), Indiana (+755), Florida (+741), Oregon (+700), and Wisconsin (+616), while the largest decreases were in California (-8,089), Washington (-564), Pennsylvania (-350), Puerto Rico (-325), and Virginia (-304).

Eye on the Week Ahead

A couple of economic indicators of inflation are available this week when the latest reports on the Consumer Price Index and retail sales come out. Also, it will be interesting to see if the optimism expressed by purchasing managers relative to the manufacturing sector is warranted when the Fed’s latest report on industrial production for January becomes available this week.