Author: dredheadz

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.

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%.