Author: dredheadz

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

Stocks fell early last week, with the Dow dropping below 20000, while yields on long-term Treasuries receded as prices climbed with increased demand. However, news that the Fed was not raising interest rates this month, coupled with a favorable jobs report and the potential for regulatory reductions from the White House, seemed to rally equities by week’s end. Only the Dow and Global Dow could not quite reach their prior week’s closing values, as each of the other indexes listed here posted gains. The Nasdaq is up over 5.0% year-to-date compared to -12.8% over the same period in 2016.

The price of crude oil (WTI) increased last week, closing at $53.86 per barrel, up from the prior week’s closing price of $53.12 per barrel. The price of gold (COMEX) increased, closing at $1,221.90 by late Friday afternoon, up from the prior week’s price of $1,193.50. The national average retail regular gasoline price decreased to $2.296 per gallon on January 30, 2017, $0.030 less than the prior week’s price but $0.474 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

• Payroll growth surged in January. There were 227,000 new jobs added in the month, far exceeding the 157,000 jobs created in December. January’s total is the best since last September and is greater than the 2016 monthly average of 187,000. New jobs in retail trade (46,000), construction (36,000), and financial activities (32,000) led the way. The unemployment rate ticked up 0.1 percentage point to 4.8%, while the labor participation rate also increased 0.2 percentage point to 62.9%. The number of unemployed persons also inched up from 7.5 million to 7.6 million. In January, the number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.9 million and accounted for 24.4% of the unemployed. Since January, the number of long-term unemployed has declined by 244,000. The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in January. The average hourly earnings for all employees on private nonfarm payrolls rose by $0.03 to $26.00, following a $0.06 increase in December. Over the year, average hourly earnings have risen by a modest 2.5%.
• Consumer inflation climbed in December, according to the latest report from the Bureau of Economic Analysis. Personal (pre-tax) income and disposable personal (after-tax) income each rose 0.3% in December. Personal income increased 3.5% in 2016, compared with an increase of 4.4% in 2015. Disposable personal income increased 3.8% in 2016, the same increase as in 2015. Consumer spending also increased as personal consumption expenditures (PCE), the preferred inflationary gauge of the Fed, climbed 0.5%. In 2016, PCE increased 3.8%, compared with a gain of 3.5% in 2015. The PCE price index, which measures changes in the prices of consumer goods and services, increased 0.2% for the month and 1.6% for the year — the highest annual increase since 2014. Advancing fuel prices helped push the gain in consumer prices. Excluding food and energy, prices increased 0.1% for the month and 1.7% for the year.
• The Federal Open Market Committee decided to maintain the target range for the federal funds rate at 0.50%-0.75%. Since its last meeting in December, the Committee noted that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Household spending has continued to rise moderately while business fixed investment has remained soft. Inflation increased in recent quarters but is still below the Committee’s 2.0% longer-run objective. The Committee next meets March 14-15 when, once again, a rate increase will be on the table for consideration.
• Purchasing managers were optimistic about the start of 2017 in the manufacturing sector. According to IHS Markit, the final U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) recorded 55 in January, up from 54.3 in December. Incoming new work orders and output growth each expanded at their highest rate in over two years. The Institute for Supply Management’s January PMI® registered 56% — an increase of 1.5 percentage points from the December reading. New orders, production, and employment each registered monthly gains.
• Economic activity remained steady in the non-manufacturing (services, food, mining, etc.) sector in January. The Institute for Supply Management® Non-Manufacturing Index registered 56.5% — 0.1 percentage point lower than December’s reading. Non-manufacturing business activity decreased 0.6 percentage point to 60.3% and new orders dropped 2.1 percentage points to 58.6%. On the plus side, the Employment Index increased 2.0 percentage points, while the Prices Index rose 2.9 percentage points.
• The Conference Board Consumer Confidence Index®, which reached a 15-year high in December, retreated in January. The index now stands at 111.8, down from 113.3 in December. The Present Situation Index increased from 123.5 to 129.7, but the Expectations Index decreased from December’s 106.4 to 99.8 for January. According to Lynn Franco, Director of Economic Indicators at The Conference Board, “The decline in confidence was driven solely by a less optimistic outlook for business conditions, jobs, and especially consumers’ income prospects.”
• In the week ended January 28, the advance figure for seasonally adjusted initial unemployment insurance claims was 246,000, a decrease of 14,000 from the previous week’s revised level. The previous week’s level was revised upward by 1,000 from 259,000 to 260,000. The four-week moving average was 248,000, an increase of 2,250 from the previous week’s revised average. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended January 21 was 2,064,000, a decrease of 39,000 from the prior week’s revised level. The highest insured unemployment rates in the week ended January 14 were in Alaska (4.6), Montana (3.3), Connecticut (3.0), New Jersey (3.0), Pennsylvania (2.9), Illinois (2.8), Rhode Island (2.7), West Virginia (2.7), Massachusetts (2.6), Puerto Rico (2.6), and Wyoming (2.6). The largest increases in initial claims for the week ended January 21 were in California (+955) and Virginia (+529), while the largest decreases were in Pennsylvania (-9,362), New York (-6,802), Georgia (-5,690), Illinois (-4,920), and New Jersey (-3,799).

Eye on the Week Ahead

Economic reports this week focus on international trade. The Census Bureau’s report on the December trade deficit is important in that it is the first such report following President Trump’s election. The last report showed that the deficit increased about $3 billion to $45.2 billion in November. Also, the preliminary report on import and export prices is released later in the week. For 2016, import prices grew at a rate of 1.8%, while export prices increased at 1.1% — indicative of the strength of the dollar.

The Markets (as of market close January 31, 2017)

Investors were cautious for much of the month, likely waiting to see what President Trump would do during his first few weeks in office. After a slow close to December, equities picked up the pace during the early part of January as each of the indexes listed here closed the first full week of the month posting gains of nearly 1.0% or more. The market moved very little for much of the month until January 25, when stocks surged. The Dow reached the magic 20000 for the first time while both the S&P 500 and Nasdaq reached all-time highs. The stock market rally proved to be short-lived, however, as investors pulled back from stocks and moved to gold and long-term bonds. Nevertheless, each of the indexes listed here posted month-over-month gains, led by the Nasdaq, which closed the first month of 2017 over 4.0% ahead of its 2016 year-end value.

Despite OPEC’s agreement to cut production, oil prices have remained in the low $50s per barrel for the month, reaching a high of $54.87 early in January and a low of $51.70 a few days later. But by the close of trading on January 31, the price of crude oil (WTI) was $52.80 per barrel. The national average retail regular gasoline price was $2.296 per gallon on January 30, up from the December 26 selling price of $2.254. The price of gold climbed at the end of January, closing at $1,212.50 on the last day of the month, up from its December 30 price of $1,154.30.

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: Once again, the employment sector remained steady during December. According to the Bureau of Labor Statistics, there were 156,000 new jobs added in December, down from a revised November total of 204,000. For the year, job growth totaled 2.2 million in 2016, less than the 2.7 million increase in 2015. In December, employment trended up in health care and social assistance, trade and transportation, manufacturing, government, and professional and business services. The unemployment rate inched up 0.1 percentage point to 4.7%. There were 7.5 million unemployed persons in December. Both the unemployment rate and the number of unemployed persons have changed little since August of last year. The labor force participation rate was 62.7% and the employment/population ratio came in at 59.7%. The average workweek was 34.3 hours (the workweek in manufacturing was 40.7 hours compared to 33.6 workweek hours for private service-providing employees). Average hourly earnings rose by $0.10 to $26.00. Over the year, average hourly earnings have risen by 2.9%.
• FOMC/interest rates:In December, the FOMC raised the target range for the federal funds rate by 0.25% to 0.50%-0.75%. The Committee projects three additional rate increases through 2017, presuming the economy and job market continue to improve. The Fed anticipates that the median federal funds rate will be 1.4% by the end of 2017.
• GDP/budget: According to the “first” 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 growth rate for the third-quarter GDP was 3.5%. Factors driving the downward movement of the GDP include deceleration in exports and an acceleration in imports (a negative in the GDP calculation). Personal income increased $152.0 billion in the fourth quarter, compared to an increase of $172.3 billion in the third. The deceleration in personal income primarily reflected a slowdown in wages and salaries. As to the government’s budget, the federal deficit shrunk in December to $27.5 billion compared to $136.6 billion the prior month. However, three months into the government’s 2017 fiscal year, the deficit sits at $208.4 billion compared to $215.5 billion over the same period in FY 2016.
• Inflation/consumer spending: Consumer spending increased in December as inflation continues to slowly, but discernibly, trend upward. Personal income (pre-tax earnings) and disposable personal income (income less taxes) each rose 0.3%, while personal spending, as measured by personal consumption expenditures, increased 0.5% for the month. The personal consumption expenditures price index increased 0.2% for the month, and is up 1.6% for the year. Core personal consumption expenditures (personal spending excluding volatile food and energy costs) rose 0.1% in December. 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, increased 0.3% in December following November’s 0.4% advance. However, the majority of the December upturn was attributable to increasing energy costs. Prices less foods, energy, and trade services inched up only 0.1% in December. For 2016, the Producer Price Index, less foods, energy, and trade services, climbed 1.7% following a 0.3% increase in 2015. The Consumer Price Index, which measures what consumers pay for both goods and services, increased 0.3% in December, and 2.1% since December 2015 — the largest 12-month increase since the 12-month period ended June 2014. Core prices (CPI less food and energy) rose 0.2% for December and are up 2.2% year-over-year. Energy prices have increased 5.4% for the year — well above the Fed’s target inflation rate of 2.0%. Retail sales inched up only 0.2% in December excluding auto sales. Sales for nonstore (online) retailers jumped 1.3% for December and were up 13.2% from December 2015.
• Housing: Lack of inventory has slowed sales of new and existing homes in December. Existing home sales dropped 2.8% following a 0.7% increase in November. December’s sales pace is 0.7% above the rate for December 2015. The median sales price for existing homes in December was $232,200, down from November’s median price of $234,900 but 4.0% higher than the median sales price for December 2015. Total housing inventory at the end of December decreased 10.8% to 1.65 million existing homes available for sale, which is 6.3% lower than a year ago (1.76 million). The Census Bureau’s latest report reveals sales of new single-family homes dropped 10.4% in December to an annual rate of 536,000 — down from November’s rate of 598,000. The median sales price of new houses sold in December was $322,500, while the average sales price was $384,000. The seasonally adjusted estimate of new houses for sale at the end of December was 259,000. This represents a supply of 5.8 months at that sales rate.
• Manufacturing:The Federal Reserve’s monthly index of industrial production (which includes factories, mines, and utilities) increased 0.8% in December, bolstered by a surge in utility output (6.6%). The index fell 0.7% in November. On the plus side, manufacturing output increased 0.2%, while mining production remained unchanged. Capacity utilization for the industrial sector climbed 0.6 percentage point in December to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average. Overall, total industrial production in December was 0.5% above 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) fell 0.4% in December, following a 4.8% decrease in November. Excluding the volatile transportation segment, new orders increased 0.5%. Orders for nondefense capital goods increased $10.2 billion, or 0.8%, and shipments rose 1.4% after a 0.3% November increase.
• Imports and exports:The advance report on international trade in goods for December revealed that the trade gap narrowed to $65.0 billion from $65.3 billion in November. Exports of goods rose $3.7 billion, while imports rose $3.4 billion. According to the Bureau of Labor Statistics, import prices advanced 0.4% in December, following a 0.2% decline the previous month. The advance in December was primarily driven by higher fuel prices. Export prices increased 0.3% for December — the largest increase since export prices climbed 0.8% in June. Prices for overall exports rose 1.1% for the year ended in December, the first 12-month increase since the index advanced 0.4% in August 2014 and the largest over-the-year rise since a 1.5% increase in February 2013.
• International markets:Despite June’s Brexit vote, the UK’s economy grew during the latter part of 2016 as its GDP expanded by 0.6% for the fourth quarter, tantamount to an annualized rate of 2.4%. China’s fourth-quarter GDP expanded at a rate of 6.8% following three straight quarters of 6.7% growth. Most of its growth is based on a strong export sector, which may be impacted by U.S. trade policy under President Trump.
• Consumer sentiment:Consumers’ confidence in the economy strengthened in December. The Conference Board Consumer Confidence Index® jumped 6.6 points to 113.7 — the highest reading since August 2001. The strong reading was bolstered by high consumer expectations, which saw more jobs ahead and higher wages on the horizon. The Surveys of Consumers of the University of Michigan Index of Consumer Sentiment climbed 0.2 percentage point to 98.2. Both reports evidenced growing consumer expectations for the economy following the election in November.

Eye on the Month Ahead

The stock market climbed following the presidential election. January saw the Dow reach 20000 for the first time in its history. The FOMC meets during the first week of February, and while indications are that interest rates will be increased throughout the year, it is unlikely that the Fed will raise the federal funds rate at this meeting.

The Markets (as of market close January 27, 2017)

The Dow reached 20000 for the first time ever midweek, and each of the indexes listed here posted gains of at least 1.0% over the prior week. Both the S&P 500 and Nasdaq reached record highs as favorable earnings reports coupled with anticipated pro-business policies apparently spurred trading, although a relatively weak GDP report at week’s end may have led to some pullback. Long-term bond prices remained stable as the yield on 10-year Treasuries climbed 2 basis points to 2.48%.

The price of crude oil (WTI) increased last week, closing at $53.12 per barrel, up from the prior week’s closing price of $52.33 per barrel. The price of gold (COMEX) fell, closing at $1,193.50 by late Friday afternoon, down from the prior week’s price of $1,207.40. The national average retail regular gasoline price decreased to $2.326 per gallon on January 23, 2017, $0.032 less than the prior week’s price but $0.470 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 economy, as measured by the gross domestic product, slowed in the fourth quarter, expanding at a tepid 1.9% annual rate. This rate falls short of the third-quarter annual growth rate of 3.5%, which had been the strongest in two years. A positive in the report is the growth in personal consumption expenditures and private inventory investment. However, they were offset by a downturn in exports and an acceleration in imports, leading to a widening trade deficit. Overall, while economic growth has been consistent at around 2.0% since the recession of 2008, the average rate of expansion is the weakest since 1949.
• Orders for manufactured durable goods fell during the latter part of 2016. New orders for manufactured durable goods in December decreased $1.0 billion, or 0.4%, to $227.0 billion following a 4.8% drop in November. However, excluding transportation equipment and defense, both of which drove the decrease, new orders actually jumped 1.7%. Shipments of manufactured durable goods in December, up three of the last four months, increased $3.3 billion, or 1.4%, to $238.0 billion. New orders for nondefense capital goods in December increased $2.4 billion, or 3.8%, to $66.6 billion. New orders for defense capital goods decreased $4.8 billion, or 33.4%, to $9.5 billion. For the year, orders for durable goods fell 0.3% in 2016 compared to the prior year.
• Lack of inventory and rising mortgage interest rates cooled existing home sales in December. Sales of existing homes fell 2.8% for the month to a seasonally adjusted annual rate of 5.49 million, down from a revised 5.65 million in November. With last month’s slide, sales are only 0.7% higher than a year ago. Nevertheless, existing home sales finished 2016 at 5.45 million sales — the highest total since 2006. Total housing inventory for existing homes dropped 10.8% to 1.65 million in December, which is the lowest level since 1999. The median existing home price for December was $232,200, a drop from November’s median price of $234,900. Nevertheless, last month’s median price for existing homes sold is a 4.0% increase over December 2015, marking the 58th consecutive month of year-over-year gains.
• Not only did existing home sales fall in December, but sales of new single-family homes also slid last month. At an annual rate of 536,000, sales were 10.4% below the revised November rate of 598,000 and 0.4% below the December 2015 estimate of 538,000. The median sales price of new houses sold in December was $322,500; the average sales price was $384,000. The seasonally adjusted estimate of new houses for sale at the end of December was 259,000. This represents a supply of 5.8 months at the current sales rate.
• The trade deficit for goods (not including services) narrowed slightly in December, according to the Census Bureau’s advance report. The international trade in goods deficit was $65.0 billion in December, down $0.3 billion from $65.3 billion in November. Exports of goods for December were $125.5 billion, $3.7 billion more than November exports. Imports of goods for December were $190.5 billion, $3.4 billion more than November imports.
• Consumers are more confident in the economic future, according to the University of Michigan’s Surveys of Consumers. The Index of Consumer Sentiment increased from 98.2 to 98.5 in January, while the Index of Consumer Expectations jumped from 89.5 in December to 90.3 in January. The only negative is in Current Economic Conditions, which fell 0.6 percentage point to 111.3.
• In the week ended January 21, the advance figure for seasonally adjusted initial unemployment insurance claims was 259,000, an increase of 22,000 from the previous week’s revised level. The previous week’s level was revised upward by 3,000 from 234,000 to 237,000. The four-week moving average was 245,500, a decrease of 2,000 from the previous week’s revised average. 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 14 was 2,100,000, an increase of 41,000 from the prior week’s revised level.

Eye on the Week Ahead

This week is highlighted by the latest report on the employment situation for January. While the unemployment rate has remained low, wage and salary increases have moved at a slow rate.

The Markets (as of market close January 20, 2017)

For most of last week, the market was fairly lackluster. By the close of the market last Thursday, the Dow had fallen to 19,732. However, equities rallied on Inauguration Day, recouping most of the value lost earlier in the week. Nevertheless, the Nasdaq and the large-cap Dow and S&P 500 each ended the week in the red compared to the prior week, while the Russell 2000, which had made substantial gains through the end of 2016, dropped almost 1.50% by week’s end and is below its 2016 year-end value. The dollar fell following President Trump’s remarks that the dollar was too strong. Long-term government bond yields climbed as prices on 10-year Treasuries dropped.

The price of crude oil (WTI) fell again last week, closing at $52.33 per barrel, down from the prior week’s closing price of $52.52 per barrel. The price of gold (COMEX) increased, closing at $1,207.40 by late Friday afternoon, up from the prior week’s price of $1,197.30. The national average retail regular gasoline price decreased to $2.358 per gallon on January 16, 2017, $0.030 less than the prior week’s price but $0.444 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

• Consumer prices are reaching the 2.0% annual inflation rate targeted by the Federal Reserve. In December, the Consumer Price Index increased 0.3% for the month and 2.1% since December 2015 — the largest 12-month gain since the period ended June 2014. The index less food and energy climbed 0.2% in December, the same increase as in November. The index less food and energy rose 2.2% for the 12 months ended December. Over the past 12 months, energy prices have risen 5.4%, led by increases in gasoline (9.1%) and fuel oil (12.7%).
• New residential construction was a mixed bag for December. On the positive side, the rate of privately owned housing starts increased 11.3% over November and is 5.7% above the December 2015 rate. On the other hand, both building permits for new residential construction (0.2%) and housing completions (7.9%) decreased from the prior month. However, compared to December 2015, both building permits (0.7%) and housing completions (8.7%) are ahead of last year’s rate.
• The Federal Reserve’s monthly index of industrial production covers manufacturing, mining, and electric and gas utilities. Industrial production rose 0.8% in December after falling 0.7% in November. For the fourth quarter as a whole, the index slipped 0.6% at an annual rate. In December, manufacturing output moved up 0.2% and mining output was unchanged. The index for utilities jumped 6.6% — the largest gain since December 1989 — largely because of a return to more normal temperatures following unseasonably warm weather in November. Total industrial production in December was 0.5% above its year-earlier level. Capacity utilization for the industrial sector increased 0.6 percentage point in December to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average.
• In the week ended January 14, the advance figure for seasonally adjusted initial unemployment insurance claims was 234,000, a decrease of 15,000 from the previous week’s revised level. The four-week moving average was 246,750, a decrease of 10,250 from the previous week’s revised average. 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 7 was 2,046,000, a decrease of 47,000 from the previous week’s revised level.

Eye on the Week Ahead

Several important economic reports are out this week, including the latest figures on existing and new home sales for December. The housing market has been a positive sector for much of 2016. Also on tap is the Census Bureau’s advance report on international trade for December. The strength of the dollar has impacted the demand for foreign goods (imports) while reducing sales to foreign markets (exports). The week ends with the second estimate of the fourth-quarter GDP. The first estimate in December showed the fourth-quarter GDP increase by 3.5% over the third quarter.

The Markets (as of market close January 13, 2017)

The past few weeks have seen the markets experience some volatility following several weeks of post-election gains. The Dow fell for the second time in the past three weeks, while the S&P 500 stayed about the same. Both the Global Dow and Russell 2000 posted marginal gains last week, while the Nasdaq gained almost a point. It appears that investors are in a wait-and-see mode until the president-elect’s new policies gain some traction.

The price of crude oil (WTI) fell again last week, closing at $52.52 per barrel, down from the prior week’s closing price of $53.70 per barrel. The price of gold (COMEX) increased, closing at $1,197.30 by late Friday afternoon, up from the prior week’s price of $1,172.60. The national average retail regular gasoline price increased for the sixth week in a row to $2.388 per gallon on January 9, 2017, $0.011 more than the prior week’s price and $0.392 higher 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

• Retail and food services sales climbed 0.6% in December over November. However, much of the increase was tied to soaring automobile sales. Less auto sales, retail sales advanced only 0.2% during the busy holiday shopping season. Consumers really didn’t increase their spending in December, as sales, excluding autos and gas, were flat. Nevertheless, total sales were up 4.1% from December 2015. Nonstore (online) retail sales were up 13.2% from December 2015, while miscellaneous stores were up 7.1% from last year.
• Producer prices continued edging higher in December, increasing 0.3% following November’s 0.4% advance. In December, nearly 80% of the increase was attributable to a 0.7% increase in goods, led by increasing energy prices. Services inched up only 0.1%. Prices less foods, energy, and trade services moved up 0.1% in December after rising 0.2% in November. In 2016, the index less foods, energy, and trade services climbed 1.7% following a 0.3% advance in 2015.
• While a bit dated, the Job Openings and Labor Turnover report from the Bureau of Labor Statistics provides useful information on the number of job openings, hires, and quits. The latest edition for November 2016 shows the number of job openings was little changed at 5.5 million. Over the month, hires and separations were also little changed at 5.2 million and 5.0 million, respectively. The total separations rate was 3.5% for the month (3.4% in October). Within separations, the quits rate was unchanged at 2.1% and the layoffs and discharges rate was unchanged at 1.1%. The job openings rate was 3.7% in November (3.6% in October), while the hires rate was 3.6% (unchanged from the prior month).
• According to the latest information from the Bureau of Labor Statistics, import prices resumed an upward trend in December, rising 0.4%, after a 0.2% decline the previous month. The advance in December was primarily driven by higher fuel prices, which advanced 7.3% — the largest monthly increase since the index rose 10.5% in June. Excluding fuel, the import price index fell 0.2% for December. Prices for overall imports advanced 1.8% between December 2015 and December 2016, the largest 12-month increase since the index rose 3.5% in March 2012. U.S. export prices increased in December, rising 0.3% following a 0.1% decrease in November. Prices for overall exports rose 1.1% for the year ended in December, the first 12-month increase since the index advanced 0.4% in August 2014 and the largest over-the-year rise since a 1.5% increase in February 2013.
• The federal deficit shrunk in December compared to November. The December deficit was $27.5 billion compared to $136.6 billion the prior month. Government receipts were $319.2 billion, up from $199.8 billion in November, while expenditures were $346.7 billion — about $10 billion ahead of November’s receipts. These figures are comparable to December 2015, when the deficit was $14.4 billion. For fiscal 2017, which begins in October, the deficit is $208.4 billion compared to $215.5 billion for the first three months of fiscal 2016. Thus far for FY 2017, total receipts are $740.8 billion ($765.6 billion over the same three-month period in 2015), while total outlays are $949.1 billion ($981.2 billion last year).
• Consumer confidence remained at roughly the same level in January as it was in December, according to the Surveys of Consumers from the University of Michigan. Consumers maintained the same level of confidence in the current economic conditions, although consumer expectations waned a bit in January from December.
• In the week ended January 7, the advance figure for seasonally adjusted initial unemployment insurance claims was 247,000, an increase of 10,000 from the previous week’s revised level of 237,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended December 31 was 2,087,000, a decrease of 29,000 from the previous week’s revised level.

Eye on the Week Ahead

Corporate earnings reports could influence equities as investors look to whether companies finished the year strong. Consumer prices have climbed at an annual rate of 1.7% through November. The last report for 2016 on the CPI is out this week as prices push toward the Fed’s target inflation rate of 2.0%.

Overview

The year 2016 likely will be remembered for the election of Donald Trump as the 45th president of the United States and the Brexit vote. This year also saw the Fed raise interest rates for the first time since last December, noting that the labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since midyear. While inflation remains below the Fed’s target of 2.0%, the Committee expects inflation to rise to its target level over the medium term on the heels of anticipated improvements in energy and import prices and continued labor strengthening. Equities began the year hitting the skids as receding oil prices and a plummeting Chinese stock market pushed stock prices down and bond prices up. By midyear equities had recovered, despite Great Britain’s decision to exit the European Union. Following the results of the presidential election, stocks surged to new highs. Whether this trend continues in 2017 remains to be seen following President-elect Trump’s first few months in office.

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

The Dow suffered its first weekly loss since the presidential election, and each of the indexes listed here closed the last week of 2016 on the down side. Despite the lackluster returns for the final week of the year, each of the indexes closed the year in positive territory, led by the Russell 2000, which posted almost a 20% year-over-year gain. Long-term bond prices and gold increased by the end of last week, with the yield on 10-year Treasuries dropping 10 basis points, while the price of gold climbed about 1.7%.

The price of crude oil (WTI) increased last week, closing at $53.83 per barrel, up from the prior week’s closing price of $53.10 per barrel. The price of gold (COMEX) increased for the first time in several weeks, closing at $1,152.40 by late Friday afternoon, up from the prior week’s price of $1,133.30. The national average retail regular gasoline price increased for the fourth week in a row to $2.309 per gallon on December 26, 2016, $0.045 more than last week’s price and $0.275 higher 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

• Once again, a strong dollar has led to a widening trade gap as imports are outpacing exports. The Census Bureau’s advance report on international trade in goods has the trade deficit at $65.3 billion in November, up $3.4 billion from October. Exports of goods for November were $121.7 billion, $1.2 billion less than October exports. Imports of goods for November were $187.0 billion, $2.2 billion more than October imports. Inventories of wholesale and retail goods in November were up 0.9% and 1.0%, respectively, over October.
• Consumer confidence in the economy increased in December, according to The Conference Board Consumer Confidence Index®. The index for December was 113.7 — up from November’s 109.4. The Expectations Index reached a 13-year high, jumping from 94.4 in November to 105.5 in December. Following the presidential election, consumers have expressed optimism for the economy, jobs, and stock prices.
• In the week ended December 24, the advance figure for seasonally adjusted initial unemployment insurance claims was 265,000, a decrease of 10,000 from the previous week’s unrevised level of 275,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended December 17 was 2,102,000, an increase of 63,000 from the previous week’s revised level.

Eye on the Week Ahead

Trading volume is expected to pick up entering the first full week of 2017. The last reports of 2016 on the employment situation and international trade close the week.

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.

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.

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.

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.