Author: dredheadz

The Markets (as of market close October 14, 2016)

Oil prices reached a one-year high early last week, as Russia expressed its support of OPEC in its efforts to limit production, prompting stocks to post early week gains. With corporate earnings season upon us, early reports from some major companies were not encouraging. Globally, China’s 10% year-over-year drop in exports once again raised concerns about the weakening of the world’s second-largest economy. Major market indexes trended down midweek, while long-term bond yields expanded and the price of crude oil remained just above $50 per barrel. Favorable earnings reports from some of the world’s largest banks at the end of last week helped boost stocks, but not enough to prevent each of the indexes listed here from closing the week in the red.

The price of crude oil (WTI) closed at $50.32 per barrel last week, up from $49.55 per barrel the previous week. The price of gold (COMEX) continued to fall, closing at $1,252.90 by late Friday afternoon, down from the prior week’s price of $1,258.60. The national average retail regular gasoline price increased to $2.272 per gallon on October 10, 2016, $0.027 more than last week’s price but $0.065 less 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 prices producers received for goods and services increased by 0.3% in September. The Producer Price Index increased 0.7% for the 12 months ended in September, the largest 12-month rise since December 2014. The price index less foods, energy, and trade services moved up 0.3% in September, the same as in August. For the 12 months ended in September, prices less foods, energy, and trade services rose 1.5%, the largest increase since climbing 1.5% for the 12 months ended November 2014.

• Retail sales at stores, online retailers, and restaurants increased 0.6% in September, following a 0.2% decline the prior month. Excluding automotive and gasoline, retail sales were up 0.3% for September. Compared to September 2015, retail sales are up 2.7%. Increased household spending, reflective of a healthy labor market, should give a boost to the GDP. Inflation may be starting to firm up based on the latest reports on producer prices and retail sales.

• The Labor Department’s Job Openings and Labor Turnover Summary for August revealed that the number of job openings decreased by 388,000 (7.3%) from July. The number of new hires fell from 5.258 million in July to 5.210 million in August. The number of job separations also dropped from 4.991 million in July to 4.954 million in August. Roughly 3.0 million workers quit their jobs in August, while 1.6 million were laid off or otherwise dismissed — rates that were essentially unchanged from the prior month. Over the 12 months ended in August, hires totaled 62.7 million and separations totaled 60.1 million, yielding a net employment gain of 2.6 million. Nevertheless, the fall in job openings coupled with the decrease in new hires seems to indicate a slowing in job growth.

• Not unexpectedly, the Fed was split as to whether to increase interest rates at its September meeting, according to the minutes released last week. In a 7-3 vote, the FOMC decided to keep rates at their current level “for the time being” with the expectation that rates would be raised, “relatively soon.” With the U.S. presidential election taking place in November, it isn’t likely that rates will be altered when the Committee meets next month. However, there is a growing expectation that rates will be increased when the Committee meets in December.

• The federal government’s fiscal year ended in September with a total deficit of $587.4 billion — roughly $148 billion over the 2015 fiscal year deficit. September saw a $33.4 billion surplus for the month. For the 2016 fiscal year, total receipts increased less than 1.0%, while expenses rose 4.5%, led by an 8.8% increase in Medicare spending.

• According to the latest information from the Bureau of Labor Statistics, both import and export prices increased in September. Prices for U.S. imports increased 0.1% in September, following a 0.2% decline the previous month. The increase is largely due to an increase in fuel prices. Export prices rose 0.3% in September, after decreasing 0.8% in August. Rising import and export prices, albeit marginal, could be a sign of strengthening inflationary trends.

• The preliminary results for October show consumers’ confidence in the economy is waning, particularly in households with incomes below $75,000. According to the Surveys of Consumers, the Index of Consumer Sentiment fell from 91.2 in September to 87.9 for October. The drop is likely driven by a fall in consumer expectations, as that index moved from 82.7 in September to 76.6 in October.

• In the week ended October 8, the advance figure for seasonally adjusted initial unemployment insurance claims was 246,000, unchanged from the prior week’s revised level, which had been revised down by 3,000. The advance seasonally adjusted insured unemployment rate remained at 1.5%. The advance number for seasonally adjusted insured unemployment during the week ended October 1 was 2,046,000, a decrease of 16,000 from the previous week’s revised level.

Eye on the Week Ahead

Several major corporations will be reporting their earnings, which have historically impacted the market — at least over the short term. Consumer spending, inflation, and housing are on tap this week. Through August, the Consumer Price Index for consumer goods and services is about 1.1% ahead of last year, and is expected to maintain that pace through September. As an indicator of inflationary trends, the CPI is still running short of the 2.0% target set by the Fed. The housing sector slowed a bit in August, but is expected to pick up the pace in September as this week’s reports on both housing starts and existing home sales should show improvement.

The Markets (as of market close October 7, 2016)

Equities took a tumble early last week as the Dow, the Nasdaq, the S&P 500, and the Russell 2000 lost value. Only the Global Dow saw gains, largely feeding off the fading value of the British pound. Oil (WTI) opened last week on an uptick, gaining over $0.40 per barrel late last Monday. On Tuesday, word that the European Central Bank would reduce stimulus and raise interest rates (a fact that was denied by the ECB) sent U.S. and global stocks reeling. Bond yields jumped, with the yield on 10-year Treasuries gaining almost 10 basis points by Wednesday morning. Gold fell $42 to $1,276.40, and the Dow tumbled almost 140 points compared to its closing value from the prior week. Oil prices continued to climb on news that U.S. reserves fell for the fifth consecutive week.

As last week came to a close, stocks slipped further as each of the indexes listed here lost value except for the Global Dow, which posted a small gain. A weaker-than-expected jobs report didn’t help matters. Bond prices fell as yields jumped to their highest levels in quite some time. The yield on 10-year Treasuries increased 13 basis points last week.

The price of crude oil (WTI) closed at $49.55 per barrel last week, up from $48.05 per barrel the previous week. The price of gold (COMEX) plummeted $60, closing at $1,258.60 by late Friday afternoon, down from the prior week’s price of $1,318.80. The national average retail regular gasoline price increased to $2.245 per gallon on October 3, 2016, $0.021 more than last week’s price but $0.073 less 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 number of new jobs created in September fell a bit from August. According to the Bureau of Labor Statistics, there were 156,000 new jobs in September, down from 167,000 in August. September’s total number of new jobs is well below the 178,000 monthly average for 2016. The unemployment rate inched up 0.1 percentage point to 5.0%, and the number of unemployed persons was little changed at 7.9 million. The employment to population ratio was 59.8 — up 0.1 percentage point from August, while the labor participation rate was little changed at 62.9. In September, the average workweek for all employees on private nonfarm payrolls increased by 0.1 hour to 34.4 hours. In September, average hourly earnings for all employees on private nonfarm payrolls rose by $0.06 to $25.79. Over the year, average hourly earnings have risen by 2.6%. Overall, this lackluster jobs report should quell any thoughts of the Fed raising interest rates when it meets again in November.

• The Institute for Supply Management Report On Business® for September showed manufacturing expanding as the purchasing managers’ index (PMI) came in at 51.5% compared to 49.4% in August. Of the 18 manufacturing industries covered, 7 reported growth, including food, beverage & tobacco products, and computer & electronic products. Industries reporting contraction include petroleum & coal products; apparel, leather & allied products; transportation equipment; and machinery. Noteworthy is the 6 percentage point increase in new orders in September over August.

• The seasonally adjusted final Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 51.5, down slightly from 52.0 in August, to signal the weakest improvement in overall business conditions since June. Manufacturers noted slower growth in September due to a reduction in client demand and diminished export sales. A reading above 50,0 indicates growth, but at a slower pace than in August. While the Markit and ISM reports may appear divergent, they are essentially reporting slow growth in the manufacturing sector.

• The Institute for Supply Management’s Non-Manufacturing ISM® Report On Business® shows economic activity expanded in the non-manufacturing, or services, sector in September. The non-manufacturing index registered 57.1% in September, 5.7 percentage points higher than the August reading of 51.4%. This is the highest reading since October 2015. Survey respondents also reported an increase in business activity, new orders, employment, and prices. Covered non-manufacturing sectors include agriculture, utilities, retail trade, management of companies & support services, health care & social assistance, transportation & warehousing.

• The U.S. goods and services deficit was $40.7 billion in August, up $1.2 billion from July. August exports were $187.9 billion, $1.5 billion more than July exports. August imports were $228.6 billion, $2.6 billion more than July imports. Year-to-date, the goods and services deficit decreased $4.3 billion, or 1.3%, from the same period in 2015. Exports decreased $62.4 billion, or 4.1%. Imports decreased $66.8 billion, or 3.6%. The positive from the report is the increase in exports against the continued strength of the dollar. Higher imports reflects strengthening of domestic demand for goods and services.

• In the week ended October 1, the advance figure for seasonally adjusted initial unemployment insurance claims was 249,000, a decrease of 5,000 from the prior 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 September 24 was 2,058,000, a decrease of 6,000 from the previous week’s revised level.

Eye on the Week Ahead

The Columbus holiday week begins with the job openings report for August. While a bit dated, the report provides information on the number of job openings, hires, and quits. At the end of the week, a couple of reports relating to inflationary trends are available. The Producer Price Index for September measures price changes from the producers’ perspective relative to goods, services, and construction sold to the consumer. The retail sales report offers a comparison on merchandise and services sold to consumers based on the total receipts of merchants.

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

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

Last week equities started off well enough, still feeding off the Fed’s decision to leave interest rates alone for the time being. But fear of financial instability for one of the world’s largest banks may have prompted many investors to sell, causing the market to tumble by mid-week. However, news that the bank in question was near a deal to settle some of its financial issues quelled some investors’ fears, lifting the market back to where it left off the prior week.

Both the Dow and S&P 500 posted slight gains, as did the Nasdaq. The Russell 2000 and Global Dow rebounded by last week’s end, but not enough to avoid posting a slight loss for the week.

The price of crude oil (WTI) closed at $48.05 per barrel last week, up from $44.59 per barrel the previous week. The price of gold (COMEX) fell, closing at $1,318.80 by late Friday afternoon, down from the prior week’s price of $1,341.10. The national average retail regular gasoline price decreased to $2.224 per gallon on September 26, $0.001 lower than the prior week’s price and $0.098 below 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 gross domestic product grew at a slightly faster pace in the second quarter compared to the first, according to the third and final estimate released by the Bureau of Economic Analysis. The GDP increased at an annual rate of 1.4% in the second quarter of 2016, compared to an 0.8% increase in the first quarter. The second quarter increase in the GDP reflected positive contributions from personal consumption expenditures, exports, and nonresidential fixed investment. These were partly offset by negative contributions from private inventory investment, residential fixed investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased. In any case, the current pace of economic expansion is the slowest since 1949. The price index for gross domestic purchases increased 2.1% in the second quarter, compared with an increase of 0.2% in the first. The price index of the GDP measures changes in the prices of goods and services included in the GDP. The GDP price index is an indicator of inflationary trends.
• Following several months of positive gains, August proved to be a soft month for consumer income and spending, leading to weak inflationary trends. The latest report from the Bureau of Economic Analysis shows consumer income increased $39.3 billion (0.2%) in August, disposable (after-tax) income increased $31.9 billion (0.2%), and consumer purchases of goods and services (personal consumption expenditures) increased $6.2 billion (less than 0.1%). The price index, which measures the change in prices of consumer goods and services, increased 0.1% for the month, while the price index excluding food and energy (core PCE) gained a scant 0.2%. Year-over-year, the core PCE is up 1.7% — still below the Fed’s target of 2.0% inflation.
• During testimony before the Committee on Financial Services, FOMC Chair Janet Yellen indicated that the majority of the Committee favors raising interest rates, but there is no fixed timetable. She said the Committee expects the jobless rate to fall further and job growth to continue.
• The U. S. trade deficit narrowed 0.6% in August from July, according to the latest report from the Census Bureau. The international trade deficit was $58.4 billion in August, down $0.4 billion from $58.8 billion in July. Exports of goods for August were $124.6 billion, $0.9 billion more than July exports. Imports of goods for August were $183.0 billion, $0.5 billion more than July imports.
• The manufacturing sector followed a favorable July with a weak August. According to the latest Census Bureau report, new orders for manufactured goods ($0.1 billion), shipments of manufactured goods ($0.8 billion), unfilled orders ($1.5 billion), and new orders for capital goods ($3.1 billion) each declined in August from July. Only inventories of manufactured goods increased, gaining $0.5 billion, or 0.1%, in August following a 0.4% increase in July.
• With both residential construction and existing home sales falling in August, it isn’t a surprise that sales of new homes also dropped off for the month. According to a Census Bureau report, sales of new single-family homes fell 7.6% in August compared to July. But at an annual rate of 609,000, the sales rate in August 2016 is over 20% higher than the sales rate a year ago. The median sales price of new houses sold in August was $284,000; the average sales price was $353,600. The seasonally adjusted estimate of new houses for sale at the end of August was 235,000. This represents a supply of 4.6 months at the current sales rate.
• Consumer confidence in the economy grew in September. The Conference Board Consumer Confidence Index® grew to 104.1 in September, up from 101.8 in August. The Present Situation Index rose from 125.3 to 128.5, while the Expectations Index improved from 86.1 last month to 87.8.
• The University of Michigan’s Survey of Consumers indicated consumer confidence in economic conditions edged upward in September due to gains among higher income households, while the Sentiment Index among households with incomes under $75,000 remained at the same level for the third consecutive month. The Index of Consumer Sentiment increased to 91.2 in September (89.8 in August), and the Current Economic Conditions index fell from 107 in August to 104.2, while the Index of Consumer Expectations jumped from 78.7 in August to 82.7 in September.
• In the week ended September 24, the advance figure for seasonally adjusted initial unemployment insurance claims was 254,000, an increase of 3,000 from the prior 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 September 17 was 2,062,000, a decrease of 46,000 from the previous week’s revised level.

Eye on the Week Ahead

Job growth has been steady throughout much of the year, averaging about 187,000 new jobs per month. The upcoming jobs report this week is expected to show continued growth for September. Also worth noting are reports focusing on the manufacturing sector, which has slowed during the summer but may pick up in the fall.

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

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

Volatility in the markets reigned last week as each of the indexes listed here enjoyed gains early in the week, only to give most of them back by last week’s end. The Dow and S&P 500 closed last week only slightly ahead of their respective closing values from the previous week. While the small-cap Nasdaq finished the week up over 2.0% compared to the previous week, it too gave back plenty of gains from earlier in the week. The equities markets could be in for a ride, both domestically and abroad, as the Fed and the Central Bank of Japan are scheduled to meet later this week.

The price of crude oil (WTI) closed at $43.19 a barrel last week, down from $45.71 per barrel the previous week. The price of gold (COMEX) also fell, closing at $1,313.20 by late Friday afternoon, down from the prior week’s price of $1,331.80. The national average retail regular gasoline price decreased for the second consecutive week, falling to $2.202 per gallon on September 12, $0.021 lower than the prior week’s price and $0.173 below 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 rose 0.2% in August, facilitated by a 0.3% increase in the index less food and energy (the core index), which was the largest gain in that category since February. Over the last 12 months, the all items index has risen 1.1%, a larger increase than the 0.8% rise for the 12 months ended in July. Prices for medical care, shelter, and clothing increased in August. Major energy component indexes were mixed, with increases in the indexes for natural gas and electricity offsetting declines in the gasoline and fuel oil indexes. While it isn’t much, the increase in the Consumer Price Index for August shows some firming of inflationary pressure. However, price gains are still lagging compared to last August, when the all items index rose 1.1% and core prices increased 2.3%.
• An indicator of inflationary trends, the Producer Price Index (a measure of the change in prices received by U.S. producers of goods and services) was unchanged in August, the U.S. Bureau of Labor Statistics reported. Final demand prices declined 0.4% in July and rose 0.5% in June. Prices for final demand less foods, energy, and trade services increased 0.3% in August after no change in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 1.2%, the largest rise since climbing 1.3% for the 12 months ended in December 2014. A closer look at the report reveals that the price index for services increased a scant 0.1%, while the price index for goods dropped 0.4%, which can be traced to a 1.6% fall in food prices.
• Following increases in June and July, retail sales in August fell. According to the Census Bureau, advance estimates of U.S. retail and food services sales for August were at a seasonally adjusted rate of $456.3 billion, a decrease of 0.3% from the previous month, but 1.9% above August 2015. Excluding autos, retail sales dropped 0.1% in August. Sales for online retailers fell 0.3% in August, compared to July. A slowdown in consumer spending could impact the GDP for the quarter and the prospects of a Fed interest rate hike in September.
• The federal deficit grew to $107 billion in August, as total outlays ($338 billion) outpaced total receipts ($231 billion). For the fiscal year, which ends this month, the year-to-date deficit is $620.8 billion, compared to $530 billion over the same period last year. Year-to-date, total receipts are up 0.9% compared to last year, while total government expenditures have surged ahead by 13.6%.
• Industrial production decreased 0.4% in August after rising 0.6% in July. Manufacturing output also declined 0.4% in August, reversing its increase in July. Capacity utilization for the industrial sector decreased 0.4 percentage point in August to 75.5%, a rate that is 4.5 percentage points below its long-run (1972-2015) average.
• According to the latest report from the Bureau of Labor Statistics, both import prices and export prices fell in August compared to July. U.S. import prices declined 0.2% in August, after ticking up 0.1% in July. The August downturn was driven by lower fuel prices. Prices for U.S. exports decreased 0.8% in August following a 0.2% increase in July. The drop in import prices is another indication of weak inflationary pressure.
• Consumers’ opinions of the economy this month haven’t changed from August, according to the University of Michigan’s Surveys of Consumers. The Index of Consumer Sentiment was 89.8 for September, the same as August. Consumers’ opinions of the current economic conditions regressed a bit in September. However, consumers remain reasonably optimistic about their future economic prospects.
• In the week ended September 10, the advance figure for seasonally adjusted initial unemployment insurance claims was 260,000, an increase of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended September 3 was 2,143,000, an increase of 1,000 from the previous week’s revised level.

Eye on the Week Ahead

The latest reports on the sales of new and existing homes hit the news this week. But the biggest event of the week is the FOMC meeting. Clearly a market-mover, speculation as to whether the Fed will increase interest rates in September has run the gamut from “no chance” to “definitely.” Even if the Committee holds off on hiking interest rates, investors will likely focus on comments from Committee members, particularly Chair Janet Yellen, as to the future of the current quantitative easing measures.

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

Equities indexes rebounded early last week as lackluster economic reports in the labor and manufacturing sectors, coupled with a falling dollar, appear to be fueling speculation that the Fed won’t be raising interest rates following its meeting later this month. Energy shares made some positive headway early in the week, contributing to positive market returns.

However, by the close of the week, stocks and bonds posted their largest losses since the Brexit vote in June, as traders pulled an about-face, fearing that central banks would not continue further economic stimulus. First, the European Central Bank refused to commit to further stimulus. Then a few members of the Federal Reserve intimated that the time may be ripe for an interest rate increase.

By week’s end, the Dow had dropped over 400 points. Each of the indexes listed here (with the exception of the Global Dow) fell over 2.0%, led by the Russell 2000, which reversed the prior week’s gains with a fall in value of over 2.6%.

The price of crude oil (WTI) closed at $45.71 a barrel last week, up from $44.36 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,331.80 by late Friday afternoon, up from the prior week’s price of $1,328.50. The national average retail regular gasoline price decreased for the first time in three weeks, falling to $2.223 per gallon on September 5, $0.014 lower than the prior week’s price and $0.214 below 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 number of job openings increased to 5.9 million on the last business day of July, an increase of 228,000 from June, the U.S. Bureau of Labor Statistics reported. Most of the job gains occurred in the private sector, including professional and business services and durable goods manufacturing. The number of hires was 5.2 million in July, little changed from June.
• The Non-Manufacturing ISM® Report, which is based on a survey of the nation’s purchasing and supply executives, covers non-manufacturing industries including utilities, real estate, hotel and food services, education, and health care. The majority of survey respondents indicated that there has been a slowing in the level of business for their respective companies, as non-manufacturing business activity, new orders, employment, and prices each decreased in August from July. According to the report, the ISM® Non-Manufacturing Index (NMI®) fell to 51.4% in August from July’s reading of 55.5%. A reading over 50% indicates growth, so the non-manufacturing sector grew in August, but at a slower pace compared to the previous month.
• In the week ended September 3, the advance figure for seasonally adjusted initial unemployment insurance claims was 259,000, a decrease of 4,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 27 was 2,144,000, a decrease of 7,000 from the previous week’s revised level.

Eye on the Week Ahead

Several key economic reports are released this week ahead of next week’s Federal Open Market Committee meeting. Inflationary trends may be gleaned from the perspective of both the seller (producer prices and retail sales) and the consumer (consumer prices).

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

Trading continues to be light heading into the Labor Day weekend. Stocks finished modestly higher for the week, buoyed by last Friday’s favorable employment report. Of the indexes listed here, the small-cap Russell 2000 led the charge, gaining 1.11% by last week’s end and over 10% year-to-date.

The price of crude oil (WTI) closed at $44.36 a barrel last week, down from $47.33 per barrel the previous week. The price of gold (COMEX) gained, closing at $1,328.50 by late Friday afternoon, up from the prior week’s price of $1,325.00. The national average retail regular gasoline price increased for the second consecutive week to $2.237 per gallon on August 29, $0.044 higher than the prior week’s price but $0.273 below 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 labor sector cooled a bit but remained solid in August, according to the Bureau of Labor Statistics. Total nonfarm payroll employment added 151,000 jobs in August, down from 275,000 in July. The unemployment rate remained at 4.9%, as the number of unemployed persons was essentially unchanged at 7.8 million. Job gains were robust in the services sector, particularly in food services and drinking places, which has added 312,000 new jobs over the year. The average workweek for all employees on private nonfarm payrolls decreased by 0.1 hour to 34.3 hours in August. Also for the month, average hourly earnings for all employees on private nonfarm payrolls rose by $0.03 to $25.73. Over the year, average hourly earnings have risen by 2.4%.

• Consumer income and expenditures rose in July, according to the latest report from the Bureau of Economic Analysis. Personal income and disposable personal income (after tax income) each increased 0.4% to $71.6 billion and $60.1 billion, respectively. Personal consumption expenditures climbed for the fourth straight month in July, jumping 0.3% to $42.0 billion. Excluding volatile food and energy components, the core personal consumption expenditures index (a preferred inflation gauge of the Fed) moved very little, gaining only 0.1% for the month. Year-on-year, the core PCE sits at 1.6%–still below the Fed’s target inflation rate of 2.0%.

• Favorable news from the international trade sector as the goods and services deficit was $39.5 billion in July, down $5.2 billion from $44.7 billion in June, revised. July exports were $186.3 billion, $3.4 billion more than June exports. July imports were $225.8 billion, $1.8 billion less than June imports. The July decrease in the goods and services deficit reflected a decrease in the goods deficit of $5.3 billion to $60.3 billion and a decrease in the services surplus of $0.1 billion to $20.9 billion. Year-to-date, the goods and services deficit decreased $0.5 billion, or 0.2%, from the same period in 2015.

• July was a good month in the manufacturing sector. New orders for manufactured goods increased $8.4 billion, or 1.9%, following two consecutive monthly declines. Shipments decreased $0.9 billion, or 0.2%, following four consecutive monthly increases. Inventories gained for the first time in a year–increasing $0.9 billion, or 0.1%.

• The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.1% annual gain in June. The 20-City Composite Index reported a year-over-year gain of 5.1%, down from 5.3% in May.

• According to the survey of manufacturing executives by the Institute for Supply Management, economic activity in the manufacturing sector contracted in August following five consecutive months of expansion, while the overall economy grew for the 87th consecutive month. The August Purchasing Managers’ Index registered 49.4%, a decrease of 3.2 percentage points from July’s PMI®. A reading of 50% or less indicates contraction. On the other hand, Markit’s U.S. manufacturing index for August showed growth, but at a slower pace, registering 52.0, compared to 52.9 in July–signaling weaker improvement in overall business conditions.

• Consumer confidence improved in August over July as The Conference Board Consumer Confidence Index®, which had decreased slightly in July, increased in August. The index now stands at 101.1, compared to 96.7 in July. Consumers expressed more confidence in current business and labor market conditions in August, but weren’t too optimistic about future developments in those sectors.

• In the week ended August 27, the advance figure for seasonally adjusted initial unemployment insurance claims was 263,000, an increase of 2,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 20 was 2,159,000, an increase of 14,000 from the previous week’s revised level.

Eye on the Week Ahead

The first full week of September doesn’t offer much in terms of economic reports. Trading is expected to be slow during the Labor Day week, as investors gear up for the fall and election season.

The Markets (as of market close August 31, 2016)

With no Federal Open Market Committee meeting and little news to jar the markets, the lazy, hazy days of August seemed to lull investors into a state of lethargy. Trading was light and volatility, limited. Despite the fact that several of the indexes tracked here posted new highs during the month, weekly changes shifted up and down within a narrow range. The month’s end saw mixed results, with large caps losing whatever momentum they had gained, while technology, small caps, and international stocks posted respectable monthly gains.

Long-term bond yields also showed limited movement over the month, ending 13 basis points higher than where they started. The price of gold (COMEX) slumped, selling at $1,312.20–about $46 lower than July’s closing price of $1,357.90.

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.

The Month in Review

• Employment: The Bureau of Labor Statistics reported that 255,000 new jobs were added in July, while the unemployment rate remained at a relatively low 4.9% (7.8 million unemployed). For the month, job gains occurred in professional and business services, health care, and financial activities. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.08 to $25.69 in July. Over the year, average hourly earnings have risen by 2.6%.
• FOMC/interest rates: Since there was no FOMC meeting in August, investors carefully scrutinized Fed Chair Janet Yellen’s remarks at a late-month event in Jackson Hole, Wyoming. The highlight of her presentation was the statement that, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.”

• Oil: After rising sharply throughout the month on speculation that oil-producing countries would agree to cut production, oil prices fell back at month’s end due to both a strong dollar and reports that U.S. reserves had increased more than expected, to a record high.

• GDP/budget: According to the second estimate released by the Bureau of Economic Analysis, the gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016. July’s advance estimate had the second-quarter GDP increasing by 1.2%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending, and nonresidential fixed investment. Imports (a subtraction in the calculation of GDP) increased. The budget deficit through the first 10 months of the fiscal year totaled $513.7 billion–about 10% higher than the deficit over the same period last year ($465.5 billion).

• Inflation: Following a mundane report showing that producer prices fell 0.4% in July, the Consumer Price Index remained unchanged in July after rising each of the previous 4 months. Over the prior 12 months, the CPI rose 0.8%. Energy prices dropped 1.6% from June after advancing each of the previous 4 months. The index for all items less food and energy increased a scant 0.1%–the smallest increase since March 2016.

• Housing: The housing market continued to show momentum during the heat of the summer. The Census Bureau reported sales of new single-family homes increased 12.4% compared to June, and were 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000, representing a supply of 4.3 months at the current sales rate. On the other hand, lack of inventory in many parts of the country has been curtailing the sale of existing homes, reported the National Association of Realtors®. Total existing home sales fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates. The Census Bureau also reported that housing starts were up 2.1% in July, while building permits and privately owned completions were down 0.1% and 8.3%, respectively.

• Manufacturing: The manufacturing sector seems to be showing signs of life. According to the Federal Reserve’s latest report, industrial production rose 0.7% in July after moving up 0.4% in June. The advance in July was the largest for the index since November 2014. Manufacturing output increased 0.5% in July for its largest gain since July 2015. Capacity utilization for the industrial sector, a measure of how much factory capacity is in use, increased 0.5 percentage point in July to 75.9%, a rate that is 4.1 percentage points below its long-run (1972-2015) average. Another sign of good news on the manufacturing front: new orders for durable goods (expected to last at least three years) jumped 4.4% in July after falling 4.2% in June, reported the Census Bureau. Shipments increased by 0.2% for the month, while factory inventories, down for the past six months, gained 0.3% over June. And finally, both the Markit U.S. Manufacturing Purchasing Managers’ Index™ and the PMI® from the Institute for Supply Management posted upticks for July; however, the ISM PMI’s growth was slower than the previous month. The Markit PMI™ registered 52.9 for July, up from 51.3 in June. And the ISM PMI registered 52.6%, down 0.6 percentage point from the previous month. A reading over 50% indicates growth.

• Imports and exports: The prices of imported goods continued to rise in July, moving up 0.1% following a 0.6% increase in June. Prior to July, import price increases were driven by rising fuel prices. In contrast, in July, nonfuel prices led the advance while fuel prices recorded a decrease. Nevertheless, import prices have fallen 3.7% over the last 12 months. Prices for exports rose 0.2% after increasing 2.4% over the 3 previous months. However, for the last 12 months, export prices have declined 3.0%.

• International markets: Early in the month, Japan approved a $274 billion stimulus package, which included a payment of approximately $147 to each of about 22 million low-income workers. Also, in the wake of the Brexit vote, the Bank of England cut interest rates to 0.25% and introduced a series of new measures designed to stimulate growth, citing as rationale a potentially faster rise in inflation due to the drop in the pound. Later in the month, the UK reported an uptick in retail sales due to its weak currency, which seemed to be attracting foreign consumers. In China, further evidence of an economic slowdown was reported in weakening industrial production and retail sales.

• Consumer sentiment: The Conference Board Consumer Confidence Index® improved to 101.1 in August from 96.7 in July, the highest level in nearly a year. “Consumers’ assessment of both current business and labor market conditions was considerably more favorable than last month,” said Lynn Franco, Director of Economic Indicators at The Conference Board, in the August 30 news release.

Eye on the Month Ahead

As U.S. investors arise from their summer snooze, eyes will focus on the upcoming jobs report due this week, followed by the Federal Open Market Committee meeting later this month, and the final second-quarter GDP figures coming at month’s end. Have economic conditions improved enough to warrant a tightening? Time will tell. International investors will also keep watchful eyes on monetary policy, as the Bank of Japan, the Bank of England, and the European Central Bank all hold meetings this month. Finally, OPEC and non-OPEC oil producers are scheduled to meet in Algeria toward month’s end, the outcome of which may influence both oil prices and energy stocks.

The Markets (as of market close August 26, 2016)

As the “dog days” of summer drag on, trading continues to be relatively light. Oil prices fell at the beginning of last week amid rumors that Iraq may up its oil exports, prompting stocks to retreat. While stocks rallied midweek, they sunk by the close of trading last Friday following Federal Reserve Chair Janet Yellen’s intimation that short-term interest rates could be in line for an increase sooner rather than later. Of the indexes listed here, only the Russell 2000 didn’t lose ground. The Dow, S&P 500, and Nasdaq suffered their largest losses since the week of the Brexit vote in June.

Overseas, retail sales picked up in the UK in July as the weak pound (a result of the fallout from Brexit) may be attracting foreign consumers. China’s economic growth has clearly slowed as industrial production and retail sales weakened.

The price of crude oil (WTI) closed at $47.33 a barrel last week, down from $48.57 per barrel the previous week. The price of gold (COMEX) fell, closing at $1,325.00 by late Friday afternoon, down from the prior week’s price of $1,345.80. The national average retail regular gasoline price increased for the first time in the last 10 weeks to $2.193 per gallon on August 22, $0.044 higher than the prior week’s price but $0.444 below 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

• With no Federal Open Market Committee meeting scheduled for August, the focus was on FOMC Chair Janet Yellen’s presentation at Jackson Hole, Wyoming, last week. The highlight of Yellen’s speech was her statement that, “in light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months.” Clearly, these remarks open the door to a rate increase as soon as next month, although Yellen cautioned that the ultimate decision would rest on incoming data, not the least of which is the latest jobs report out this week.
• The gross domestic product increased at an annual rate of 1.1% in the second quarter of 2016, according to the second estimate released by the Bureau of Economic Analysis. Last month’s advance estimate had the second-quarter GDP increasing by 1.2%. In the first quarter, the GDP increased 0.8%. The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures (PCE or consumer spending) and exports that were partly offset by negative contributions from private inventory investment, residential fixed investment, state and local government spending and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
• Judging by the advance report on factory orders for July, manufacturers should be pretty busy in the coming months. According to the latest report from the Census Bureau, new orders for durable goods (expected to last at least three years) jumped 4.4% in July after falling 4.2% in June. Shipments increased by 0.2% for the month, while factory inventories, down for the past six months, gained 0.3% over June. Excluding aircraft and autos, core capital goods climbed a noteworthy 1.5%. While this is an advance report and final figures could differ, these figures point to the possibility that the manufacturing sector is picking up steam, contributing to overall economic growth.
• Sales of new single-family homes continued to expand in July, as the Census Bureau reported sales increased 12.4% compared to June. New home sales are 31.3% above July 2015. The median sales price of new houses sold in July 2016 was $294,600; the average sales price was $355,800. The seasonally adjusted estimate of new houses for sale at the end of July was 233,000. This represents a supply of 4.3 months at the current sales rate.
• Lack of inventory in many parts of the country is curtailing the sale of existing homes, according to the latest report from the National Association of Realtors®. Total existing home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, fell 3.2% to a seasonally adjusted annual rate of 5.39 million in July, down from 5.57 million in June. For only the second time in the last 21 months, sales are now below (1.6%) a year ago (5.48 million). With inventory at a premium, the lack of affordable homes for sale is discouraging prospective buyers despite low mortgage rates.
• The Markit Flash U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered at 52.1 in August, down from July’s nine-month high of 52.9. A reading over 50 indicates improving business conditions. August saw a further upturn in overall business conditions, albeit at a slower rate than in July. Total new work rose at a slower pace and employment expanded at the weakest rate in four months. The euro area economy continued to expand at a steady pace in August, as the flash estimate of the Markit Eurozone PMI® inched up to a seven-month high of 53.3, up from 53.2 in July.
• The international trade deficit for July was $59.3 billion in July, a decrease of $5.2 billion compared to June. Exports of goods were up $2.9 billion, while imports dropped $2.4 billion.
• According to the University of Michigan’s Index of Consumer Sentiment, confidence eased back in late August to register a trivial decline to 89.8 from the July reading of 90.0. Less favorable personal financial prospects were largely offset by a slight improvement in the outlook for the overall economy.
• In the week ended August 20, the advance figure for seasonally adjusted initial unemployment insurance claims was 261,000, a decrease of 1,000 from the prior week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for seasonally adjusted insured unemployment during the week ended August 13 was 2,145,000, a decrease of 30,000 from the previous week’s revised level.

Eye on the Week Ahead

Two important economic reports are out next week. Personal income and outlays focuses on consumer income and spending, and includes the personal consumption expenditures price index–a favored measure of inflation for the Fed. The week closes with the latest employment situation report, which can be a market mover.