dredheadz

What I’m Watching This Week – 25 April 2016

Published on April 25, 2016 by dredheadz

The Markets (as of market close April 22, 2016)

Equities markets had a fair week as each of the major indexes listed here posted gains (except the Nasdaq) over the prior week. Both the large-cap Dow and S&P 500 are well ahead of their respective 2015 closing values. The Russell 2000 recorded the largest weekly gain and is now ahead of last year’s closing value. The Global Dow posted weekly gains despite the European Central Bank’s decision to maintain interest rates at their current level and the effects of the devastating earthquake in Japan. Of the major indexes listed here, only the Nasdaq remains below its end-of-year mark. As money moved into equities, the prices of investments such as gold and long-term bonds slipped. Oil prices gained, despite the collapse of talks between some major oil-producing nations aimed at capping production.

The price of crude oil (WTI) closed the week at $43.75 a barrel, up $3.35 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,233.70 by late Friday afternoon, down from the prior week’s closing price of $1,235.80. The national average retail regular gasoline price increased to $2.137 per gallon on April 18, 2016, $0.068 above the prior week’s price but $0.348 below a year ago.

Market/Index	2015 Close	Prior Week	As of 4/22	Weekly Change	YTD Change
DJIA	17425.03	17897.46	18003.75	0.59%	3.32%
Nasdaq	5007.41	4938.22	4906.23	-0.65%	-2.02%
S&P 500	2043.94	2080.73	2091.58	0.52%	2.33%
Russell 2000	1135.89	1130.92	1146.69	1.39%	0.95%
Global Dow	2336.45	2367.41	2395.80	1.20%	2.54%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.75%	1.88%	13 bps	-38 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

The National Association of Home Builders Housing Market Index (HMI) came in at 58 for April, unchanged for the third consecutive month. The HMI is based on a monthly survey of NAHB members who are asked to rate the market conditions for single-family home sales currently and in the next six months, as well as traffic of prospective buyers of new homes. Compared to last April, the HMI is up 2 points. In particular, the index for present sales fell 2 points, coming in at 63, while builders expressed optimism for sales over the next six months, as that index increased 1 point to 62. Prospective buyer traffic continues to be lagging as that index has remained around 44 for three out of the last four months, possibly reflecting the reluctance of first-time homebuyers to enter the market–instead preferring to rent.
New home construction slowed during the end of the first quarter as housing starts fell 8.8% from a month earlier, according to the latest report from the Census Bureau. Single-family home starts dropped 9.2% and multifamily starts fell 8.5%. An indication of future construction, applications for building permits also lost ground, coming down 7.7% from February. On the plus side, housing completions jumped 3.5% for March and are up 31.6% year-over-year. Compared to last March, housing starts are up 14.2% while permits are up 4.6%.
While new home construction may be lagging, sales of existing homes gained ground in March jumping 5.1% from February, according to the National Association of Realtors®. The median existing home price for all housing types in March was $222,700, up 5.7% from March 2015 ($210,700). March’s price increase marks the 49th consecutive month of year-over-year gains. Total housing inventory available for sale at the end of March increased 5.9% to 1.98 million, but is still 1.5% lower than a year ago (2.01 million). Unsold inventory is at a 4.5-month supply at the current sales pace, up from 4.4 months in February. Properties typically stayed on the market for 47 days in March, a decrease from 59 days in February, while 42% of homes sold were on the market for less than a month–the highest percentage since July 2015 (43%).
Marking the weakest upturn in overall business conditions since September 2009, the Markit Flash U.S. Manufacturing PMI™ for April fell to 50.8 from 51.5 in March. The flash PMI index, which is based on approximately 85% of usual monthly survey replies, was only marginally above the crucial 50.0 no-change threshold. According to the report, softer rates of manufacturing output and new business growth, alongside a weaker rise in staffing numbers, were the main factors weighing on the headline PMI figure during April.
For the week ended April 16, there were 247,000 claims for unemployment insurance, a decrease of 6,000 from the previous week’s revised level. This is the lowest level for initial claims since November 24, 1973 when it was 233,000. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 9 was 2,137,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

The big news this week comes from the Federal Reserve, which is meeting for the third time this year. Since raising interest rates in December, the Fed has been cautious about increasing them again. While some experts believe the Fed will raise rates again in 2016, it may not be in April. The Committee does not meet again until June.

What I’m Watching This week – 18 April 2016

Published on April 18, 2016 by dredheadz

The Markets (as of market close April 15, 2016)

Despite inflationary trends slowing as retail and producer prices fell in March, stocks gained over the past week, buoyed by better than expected first-quarter corporate earnings reports. Each of the indexes listed here posted gains led by the Global Dow and the Russell 2000, followed by the large-cap Dow and S&P 500, which have risen about 14.0% since their February lows.

The price of crude oil (WTI) closed the week at $40.40 a barrel, up $0.74 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,235.80 by late Friday afternoon, down from the prior week’s closing price of $1,240.10. The national average retail regular gasoline price fell for the first time in eight weeks, selling at $2.069 per gallon on April 11, 2016, $0.014 under the prior week’s price and $0.339 below a year ago.

Market/Index	2015 Close	Prior Week	As of 4/15	Weekly Change	YTD Change
DJIA	17425.03	17576.96	17897.46	1.82%	2.71%
Nasdaq	5007.41	4850.69	4938.22	1.80%	-1.38%
S&P 500	2043.94	2047.60	2080.73	1.62%	1.80%
Russell 2000	1135.89	1097.31	1130.92	3.06%	-0.44%
Global Dow	2336.45	2287.60	2367.41	3.49%	1.33%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.71%	1.75%	4 bps	-51 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

Prices consumers paid for goods increased slightly in March, indicating only marginal inflationary pressures in the economy. The Consumer Price Index rose 0.1% in March from February, according to the latest information from the Bureau of Labor Statistics. Over the last 12 months, the index rose 0.9%, a slightly smaller increase than the 1.0% change for the 12 months ended February. The food index declined 0.2% in March, while the indexes for energy (0.9%) and for all items less food and energy (0.1%) increased, leading to the slight seasonally adjusted increase in the all items index. The gain in the index less food and energy, referred to as core prices, was the smallest increase since August. The core prices index has risen 2.2% over the last 12 months–down 0.1% from the 12-month period ended February. Despite rising in March, the energy index has declined 12.6% over the last year.
In another report from the Bureau of Labor Statistics, real average hourly earnings for all employees increased 0.2% from February to March due to the increase in real average hourly earnings combined with no change in the average workweek. In fact, average hourly wages increased 0.3%, which is offset by the 0.1% increase in the Consumer Price Index referenced above.
Overall, receipts for retail goods and services sold to consumers fell in March, according to the U.S. Census Bureau. Advance estimates of U.S. retail and food services sales fell 0.3% from the previous month to $446.89 billion. Sales and services are still 1.7% above March 2015. A drop in auto sales impacted the latest figures. Retail sales excluding auto and gas sales actually rose 0.1% for the month. Total sales for the first quarter of 2016 were up 2.8% from the same period a year ago.
On the heels of curtailed consumer spending, producer prices also dropped as the Producer Price Index fell 0.1% in March following a 0.2% decline in February. Reversing trends, prices for services, which had risen each month since October, fell 0.2% in March, while prices for goods, which had declined each of the previous eight months, actually rose 0.2% in March. Three-quarters of the March decrease in prices for services can be attributed to margins for machinery, equipment, parts, and supplies wholesaling, which moved down 1.9%. Most of the increase in prices for goods can be traced to prices for energy, which rose 1.8%, with the gasoline index climbing 7.1%.
The Bureau of Labor Statistics last week reported that the U.S. import price index increased 0.2% in March following a 0.4% drop the prior month. An upturn in fuel and lubricant prices, which increased 4.9% in March, sparked the overall price increase as it more than offset lower nonfuel prices. Specifically, petroleum and petroleum product prices actually increased 6.5% from February. Prices for U.S. exports recorded no change in March, after falling 0.5% in February. The March advance was the largest one-month increase since the index increased 1.1% in May 2015. Despite the upturn, overall import prices remained down over the past year, falling 6.2% from March 2015.
The government deficit is expanding during the first six months of fiscal 2016, following several years of contraction. Since reaching its high point of $1.4 billion during the recession of 2009, the deficit has fallen, going from 9.8% of the GDP to around 2.5%. However, for fiscal 2016 (beginning October 2015), the deficit sat at about $461.04 billion–up almost 4.9% from the first half of fiscal 2015. In March, the deficit was $108.04 billion, $55.13 billion over the deficit from March 2015. Spending on Social Security and Medicare was up 3% and 6%, respectively. While the government is collecting more taxes from individuals, corporate tax receipts are down, possibly reflecting receding corporate profits.
The dollar amount of inventories held by manufacturers, wholesalers, and retailers in relation to sales provides an indication of the direction of production activity in the near term. The ratio of inventories to sales for February was 1.41, the same as January. A lower ratio means products are moving and inventories are not being held long term. An increase in inventories to sales could lead to a slowdown in production and job loss. Compared to January, inventories fell from $1,813,781 to $1,812,098, while sales fell even more, from $1,289,496 in January to $1,284,417 in February. The inventories to sales ratio for February is up from a year earlier–1.41 to 1.37.
Industrial production decreased 0.6% in March for a second month in a row. For the first quarter as a whole, industrial production fell at an annual rate of 2.2%. At 103.4% of its 2012 average, total industrial production in March was 2.0% below its year-earlier level. Manufacturing output fell 0.3% for the month–significantly impacted by a 1.6% decline in vehicle production. The output of consumer goods decreased 0.4% following a 0.8% drop in February.
The Index of Consumer Sentiment declined in early April, according to the latest report from the University of Michigan. At 89.7, the index fell for the fourth consecutive month. According to the report, “Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.”
For the week ended April 9, there were 253,000 claims for unemployment insurance, a decrease of 13,000 from the previous week’s revised level. This marks 58 consecutive weeks of initial claims below 300,000, the longest streak since 1973. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 2 was 2,171,000, a decrease of 18,000 from the prior week’s revised level.

Eye on the Week Ahead

The housing sector of the economy, which had been strong, recently has shown signs of slowing down. This week’s reports on new construction and existing home sales for March may shed some light on the direction of the housing market entering the spring–a historically favorable season for home sales. Globally, several major oil producers are scheduled to meet this week to consider limiting production.

What I’m Watching This Week – 11 April 2016

Published on April 11, 2016 by dredheadz

The Markets (as of market close April 8, 2016)

The equities market has been volatile thus far this year. Following last week’s gains, the indexes listed here all closed the week in negative territory. Both the Dow and the S&P 500 fell 1.21% for the week–this following a rally last Friday after gains in the price of oil. Uncertainty over whether continued austerity would hasten global growth was felt in the foreign markets, as the Global Dow fell more than half a point and is over 2.0% behind its year-end closing price. Money moved into long-term bonds as increasing prices drove 10-year Treasuries down 6 basis points from the prior week.

The price of crude oil (WTI) closed the week at $39.66 a barrel, up $3.03 over the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,240.10 by late Friday afternoon, up from the prior week’s closing price of $1,223.60. The national average retail regular gasoline price increased for the seventh week in a row, selling at $2.083 per gallon on April 4, 2016, $0.017 over the prior week’s price but $0.330 under a year ago.

Market/Index	2015 Close	Prior Week	As of 4/8	Weekly Change	YTD Change
DJIA	17425.03	17792.75	17576.96	-1.21%	0.87%
Nasdaq	5007.41	4914.54	4850.69	-1.30%	-3.13%
S&P 500	2043.94	2072.78	2047.60	-1.21%	0.18%
Russell 2000	1135.89	1117.68	1097.31	-1.82%	-3.40%
Global Dow	2336.45	2302.06	2287.60	-0.63%	-2.09%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.77%	1.71%	-6 bps	-55 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

Reversing what had been a favorable report in January, factory orders decreased $8.0 billion, or 1.7%, following a 1.2% increase in January, according to the Commerce Department’s full report on manufacturers’ shipments, inventories, and orders for February. Shipments, down 10 of the last 11 months, once again decreased, falling $3.4 billion, or 0.7%. Unfilled orders for manufactured durable goods decreased $4.1 billion, or 0.3%, following a 0.1% increase in January. Inventories, down 8 consecutive months, continued that trend, dropping $2.6 billion, or 0.4%. This report once again highlights the continuing weakness in the manufacturing sector.
The Institute for Supply Management® Non-Manufacturing Index for March, at 54.5%, is 1.1 percentage points higher than February. Based on surveys from firms involved in services, construction, mining, agriculture, forestry, and fishing and hunting, index readings of 50% and above are indicative of growth. According to the ISM® report, respondents felt that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth.
The trade deficit increased from $45.9 billion in January to $47.1 billion in February. The deficit is reflective of a greater increase in imports over exports. February imports were $225.1 billion, $3.0 billion more than January imports, while February exports were $178.1 billion, $1.8 billion more than January exports. Year-to-date, the goods and services deficit increased $10.8 billion, or 13.1%, from the same period in 2015. February’s trade deficit is the highest in the last six months as the ongoing strength of the dollar overseas continues to cut into exports, curtailing overall U.S. economic growth.
The latest job openings and labor turnover (JOLTS) report reveals that the number of job openings decreased from 5.6 million in January to 5.4 million on the last day of February. The job openings rate was 3.7%. The number of hires (5.4 million) and total separations (5.0 million) also increased over January’s figures. Over the 12 months ended in February, hires totaled 62.1 million and separations totaled 59.4 million, yielding a net employment gain of 2.7 million.
The Federal Open Market Committee (FOMC) minutes from its March meeting indicate that, while some positive economic trends were noted, many Committee members expressed a view that “the global economic and financial situation still posed appreciable downside risks to the domestic economic outlook.” As to the prospect of raising interest rates in the near term, “many participants expressed the view that a somewhat lower path for the federal funds rate than they had projected in December now seemed most likely to be appropriate for achieving the Committee’s dual mandate.” It is interesting to note that not all members of the Committee shared this view–some thought it was appropriate to raise rates in March, and will likely suggest raising rates in April unless economic conditions deteriorate.
For the week ended April 2, there were 267,000 claims for unemployment insurance, an increase of 9,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 26 was 2,191,000, an increase of 19,000 from the prior week’s revised level.

Eye on the Week Ahead

Inflation indicators are front and center this week as the latest figures on producer prices, retail sales, and consumer prices are available. The week closes with an important report from the Federal Reserve on industrial production, which has been sagging for quite some time.

What I’m Watching This Week – 4 April 2016

Published on April 4, 2016 by dredheadz

The Markets (as of market close April 1, 2016)

A solid jobs report for March, coupled with continued strength in the housing sector, may have influenced equities as each of the indexes listed here posted gains week-over-week. Following the prior week’s sell-off, gains in the large-cap indexes have moved the S&P 500 and Dow solidly into positive territory for the year. The biggest gainer, however, was the Russell 2000, which jumped 3.53% by week’s end and is closing in on its 2015 year-end value. Long-term bonds continue to attract investor money, driving prices higher as yields on the U.S. 10-year Treasuries fell 21 points over the prior week’s closing price.

The price of crude oil (WTI) continued to be volatile, closing at $36.63 a barrel, $2.96 less than the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,223.60 by late Friday afternoon, up from the prior week’s closing price of $1,218.70. The national average retail regular gasoline price increased for the sixth week in a row, selling at $2.066 per gallon on March 28, 2016, $0.059 over the prior week’s price but $0.382 under a year ago.

Market/Index	2015 Close	Prior Week	As of 4/1	Weekly Change	YTD Change
DJIA	17425.03	17515.73	17792.75	1.58%	2.11%
Nasdaq	5007.41	4773.50	4914.54	2.95%	-1.85%
S&P 500	2043.94	2035.94	2072.78	1.81%	1.41%
Russell 2000	1135.89	1079.54	1117.68	3.53%	-1.60%
Global Dow	2336.45	2279.29	2302.06	1.00%	-1.47%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.98%	1.77%	-21 bps	-49 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

Labor continues its relatively strong run as the latest information from the Bureau of Labor Statistics shows 215,000 new jobs were created in March. The labor force participation rate also increased slightly to 63% from 62.9% in February, and is up 0.6% since September. The unemployment rate increased marginally to 5.0% in March from 4.9% in February, with roughly 8.0 million unemployed persons. Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining. Average hourly earnings rose $0.07 to $25.43 from February–an increase of 2.3% from a year ago.
Essentially reiterating what had been said following the December and subsequent FOMC meetings, Chair Janet Yellen suggested the Fed needs to proceed cautiously with respect to raising interest rates. In a speech before the Economic Club of New York, Yellen noted that ongoing global economic and financial uncertainty, impacted by the economic slowdown in China and falling oil prices, has heightened the risk to the U.S. economy.
While consumer income has grown over the first two months of 2016, personal spending has increased, but at a much slower pace, according to the Bureau of Economic Analysis. For February, both personal income and disposable personal income (personal income less taxes) increased $23.7 billion, or 0.2%, compared to January. Personal consumption expenditures (PCE), or what consumers are spending on durable goods, nondurable goods, and services, increased $11.0 billion, or 0.1% in February. On the other hand, consumers are saving at a higher rate as the personal saving rate increased 0.1% from January to 5.4% in February. The core PCE (excluding food and energy) increased 0.1% from January, while the PCE price index, which measures the increase in prices for consumer goods and services, fell 0.1% from January and is up only 1.0% from February 2015.
The Census Bureau’s advance report on U.S. International Trade in Goods for February has both exports (+2.0%) and imports (+1.6%) ahead of their January levels. However, the gap between imports and exports also expanded to an advance balance deficit of $62,864 in February from January’s final seasonally adjusted deficit figure of $62,398.
Pending home sales, those in which a contract has been signed but the transaction has not yet closed, rose 3.5% in February to 109.1, according to the National Association of Realtors®. Led by a sizable increase in the Midwest, all major regions except for the Northeast saw an increase in contract activity in February.
The S&P/Case-Shiller U.S. National Home Price Index showed home prices slightly increased in January, as the seasonally adjusted index gained 0.5% over December. The index recorded a higher year-over-year gain with a 5.4% annual increase in January.
According to the Census Bureau, construction spending in February was 0.5% below the revised January estimate but 10.3% above the February 2015 estimate. On the plus side, residential construction was up 0.9% over January. However, for February, nonresidential construction spending (-1.3%) and public construction spending (-1.7%) were below their respective January totals.
Purchasing managers’ manufacturing index (PMI) is based on a monthly survey of selected companies relative to the current and expected trends in the manufacturing sector. The Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) for March, at 51.5, is only slightly ahead of February’s 51.3. For the first quarter of 2016, the average reading of 51.7 is the weakest quarterly upturn since the third quarter of 2012. A reading of 50 or above signifies some overall growth in this sector. The Institute for Supply Management PMI for March was 51.8% (49.5% in February), which showed expansion in the manufacturing sector for the first time in the last six months.
The Conference Board Consumer Confidence Index®, which had decreased in February, improved in March. The index now stands at 96.2, up from 94.0 in February. Consumers surveyed expressed favorable outlooks for the labor market and business conditions, but they did not foresee the economy gaining any significant momentum in the near term. Conversely, the University of Michigan’s Index of Consumer Sentiment fell slightly in March to 91.0 from February’s reading of 91.7. The Sentiment Index in the first quarter of 2016 averaged 91.6, barely different from the 91.3 in the fourth quarter or the 90.7 in the third quarter of 2015.
For the week ended March 26, there were 276,000 claims for unemployment insurance, an increase of 11,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 19 was 2,173,000, a decrease of 7,000 from the prior week’s revised level.

Eye on the Week Ahead

This week reveals the latest information on the international trade balance on goods and services for February, which is a major indicator of foreign trade–an economic sector that has been lagging. The FOMC also releases the minutes from its March meeting, which may shed some light on the Committee’s intentions with respect to interest rates going forward.

What I’m Watching This Week – 28 March 2016

Published on March 28, 2016 by dredheadz

The Markets (as of market close March 25, 2016)

After five consecutive weeks of gains, stocks cooled as each of the major indexes listed here slid into negative territory by the close of last week. With the latest downturn, only the Dow is ahead of its 2015 year-end closing value. Several of the markets were closed for Good Friday. Favorable reports on the GDP and new home sales could spur the market this week.

The price of crude oil (WTI) had a volatile week, yet it is clearly trending upward as the price increased again last week, closing the week slightly ahead at $39.59 a barrel, $0.24 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,218.70 by late Friday afternoon, down from the prior week’s closing price of $1,256. The national average retail regular gasoline price increased for the fifth week in a row, selling at $2.007 per gallon on March 21, 2016, $0.046 over the prior week’s price but $0.450 under a year ago.

Market/Index	2015 Close	Prior Week	As of 3/25	Weekly Change	YTD Change
DJIA	17425.03	17602.30	17515.73	-0.49%	0.52%
Nasdaq	5007.41	4795.65	4773.50	-0.46%	-4.67%
S&P 500	2043.94	2049.58	2035.94	-0.67%	-0.39%
Russell 2000	1135.89	1101.67	1079.54	-2.01%	-4.96%
Global Dow	2336.45	2327.69	2279.29	-2.08%	-2.45%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.98%	1.90%	-8 bps	-36 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

Following a strong month for existing home sales in January, which had yielded the highest annual rate in six months, the National Association of Realtors® reported that existing home sales fell 7.1% in February. Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums, and co-ops, dropped to a seasonally adjusted annual rate of 5.08 million in February, down from 5.47 million in January. Despite last month’s large decline, sales are still 2.2% higher than a year ago. The drop in sales is largely attributable to low supply levels and increasing asking prices. The median existing-home price for all housing types in February was $210,800, up 4.4% from February 2015 ($201,900). February’s price increase marks the 48th consecutive month of year-over-year gains. Total housing inventory at the end of February increased 3.3% to 1.88 million existing homes available for sale, which is still 1.1% lower than a year ago (1.90 million).
The new home sales market gained strength in February as the annual sales rate for new single-family houses increased to 512,000–2.0% ahead of January’s revised rate of 502,000 but 6.1% below the rate for February 2015. The median sales price of new houses sold in February increased over 6.0% to $301,400, while the average sales price came in at $348,900. The seasonally adjusted estimate of new houses for sale at the end of February was 240,000. This represents a supply of 5.6 months at the current sales rate.
Orders for durable goods (expected to last at least three years) fell 2.8% in February from January’s revised figures, according to the latest report from the Commerce Department. Low oil prices, a strong dollar, and overall financial volatility are the leading contributors to the decline. January’s spike in durable goods orders may have been an exception, as goods orders have otherwise fallen three of the past four months. Also, new orders for capital goods decreased 1.8%–an indication that business investment also pulled back in February.
An anticipated surge in the manufacturing sector in March apparently did not materialize, according to the latest Markit Flash U.S. Manufacturing Purchasing Managers’ Index™. The index, at 51.4, is indicative of “subdued growth” in the manufacturing sector, up marginally from February’s 51.3 reading. The index reading of 51.7 for the first quarter is the weakest improvement over any quarter since the third quarter of 2012. Slightly stronger rates of output, new business, and employment growth were offset by the sharpest decline in pre-production inventories since January 2014.
The gross domestic product can fluctuate with each release as new data is integrated. As such, the third estimate of the fourth-quarter 2015 GDP increased at an annual rate of 1.4%. Last month’s “second estimate” had the GDP increasing 1.0%. In the third quarter, real GDP increased 2.0%. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures, residential fixed investment, and federal government spending that were partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
For the week ended March 19, there were 265,000 claims for unemployment insurance, an increase of 6,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended March 12 was 2,179,000, a decrease of 39,000 from the prior week’s revised level.

Eye on the Week Ahead

As the month of March and the first quarter come to a close, there are several important economic reports to consider. The week starts with the latest information on consumer income and spending, and the Census Bureau’s report on international trade in goods. Federal Reserve Chair Janet Yellen may reveal more information on the Fed’s perspective of the economy and the status of interest rates when she speaks to the Economic Club of New York. The week closes with the latest report on the employment situation for March, which will likely have some impact on the equities markets to kick off the month of April.

What I’m Watching This Week – 21 March 2016

Published on March 21, 2016 by dredheadz

The Markets (as of market close March 18, 2016)

After a fifth consecutive week of gains, both the S&P 500 and the Dow have finally surpassed their 2015 year-end closing values. The Dow gained 389 points to close up 2.26%, while the S&P 500 increased 1.35% over the prior week. In fact, each of the indexes listed here posted gains by last week’s end and are edging toward positive territory for the year. Late-week gains were likely influenced by the Fed’s decision to refrain from raising interest rates, at least until it meets again in April.

The price of crude oil (WTI) is clearly trending upward as the price increased again last week, closing the week at $39.35 a barrel, $0.86 ahead of the prior week’s closing price. The price of gold (COMEX) increased by last week’s end, selling at $1,256 by late Friday afternoon, up from the prior week’s closing price of $1,251.10. The national average retail regular gasoline price increased for the fourth week in a row, selling at $1.961 per gallon on March 14, 2016, $0.120 over the prior week’s price but $0.492 under a year ago.

Market/Index	2015 Close	Prior Week	As of 3/18	Weekly Change	YTD Change
DJIA	17425.03	17213.31	17602.30	2.26%	1.02%
Nasdaq	5007.41	4748.47	4795.65	0.99%	-4.23%
S&P 500	2043.94	2022.19	2049.58	1.35%	0.28%
Russell 2000	1135.89	1087.56	1101.67	1.30%	-3.01%
Global Dow	2336.45	2287.17	2327.69	1.77%	-0.37%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.98%	1.87%	-11 bps	-39 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

Following its March meeting, the Federal Open Market Committee decided to maintain the current target range for the federal funds rate at 0.25%-0.50%. On the plus side, the Committee noted that economic activity has been expanding at a moderate pace, with favorable growth in household spending, the housing sector, and the labor market. However, in maintaining the current interest rates, both the Committee and Chair Janet Yellen observed that business fixed investment and net exports have been soft, global economic and financial developments continue to pose risks, and inflation continues to run below the Committee’s 2.0% target rate.
An indicator of inflationary trends, producer prices for goods and services fell 0.2% in February, with goods decreasing a noteworthy 0.6%. According to the latest report from the Bureau of Labor Statistics, prices, less food, energy, and trade services, inched up 0.1% in February following a 0.2% gain in both December and January. For the 12 months ended in February 2016, final demand prices for all categories of goods and services remained unchanged. However, over the same period, prices, less food, energy, and trade services, rose 0.9%–the largest 12-month advance since a 0.9% increase in July 2015.
Looking at the prices for goods and services from the perspective of what the consumer is spending, retail and food services sales fell 0.1% in February from January’s revised total. However, compared to a year earlier, sales are up 3.1%. Nevertheless, consumer spending in 2016 has not gotten off to a strong start, especially following January’s revised retail sales figures, which fell 0.4% following a prior advance estimate of +0.2%. While relatively low gas prices have given consumers more money to spend, other economic factors may be influencing consumers to remain a bit cautious with their spending.
The Consumer Price Index (CPI) for February declined 0.2%, according to the Bureau of Labor Statistics. However, over the last 12 months, the index has increased 1.0%. The energy index, particularly the gasoline index (-13.0%), was the major cause of the seasonally adjusted decline in the all items index, more than offsetting increases in the indexes for food and for all items less food and energy (core CPI). In fact, the core CPI increased 0.3% for the month, the same increase as in January. While not overwhelming, gains in the core CPI, an indicator of particular interest to the Fed, continue to show some inflationary pressure as it inches toward the Fed’s target rate of 2.0%.
The industrial sector is still weak, but showing signs of gaining some momentum. The latest report from the Federal Reserve on industrial production reveals an overall decrease of 0.5% in February after increasing 0.8% in January, largely attributable to declines in utilities and mining. However, manufacturing production rose 0.2% after gaining 0.5% in January. Over the last 12 months, manufacturing production is up 1.8%. Capacity utilization for the industrial sector decreased 0.4 percentage point in February to 76.7%, a rate that is 3.3 percentage points below its long-run (1972-2015) average of 80%.
The latest report on the housing sector was a mixed bag, as new home construction starts increased 5.2% in February from a month earlier–the highest level since last September. Single family home construction increased 7.2% for the month, to its highest level since November 2007, while multifamily units (apartments and condominiums) gained only 0.8%. On the other hand, new applications for building permits dropped 3.1% in February–not a good omen for future home construction. Privately owned housing completions in February were 4.2% below the revised January estimate, but are 17.5% above the February 2015 rate.
Home builders’ collective opinion of the housing market hasn’t changed much in March from February, according to the National Association of Home Builders advance Housing Market Index (HMI). The HMI reading for March remained at 58–the same as February’s reading. A reading of 50 or better indicates builders generally view housing conditions as positive. However, this reading remains at its lowest level since May. According to NAHB Chairman Ed Brady, “the single-family market continues to make slow but steady progress. However, builders continue to report problems regarding a shortage of lots and labor.”
The latest Job Openings and Labor Turnover Survey (JOLTS) for January reveals that job openings rose to 5.5 million (260,000 more than December), while hires and separations (quits, layoffs, and discharges) decreased to 5.0 million and 4.9 million, respectively.
The March preliminary results for the University of Michigan’s Index of Consumer Sentiment show consumer confidence is easing due to increased concerns about prospects for the economy as well as the expectation that gas prices would inch upward during the year ahead. The latest index reading of 90.0 is 1.7 percentage points below February’s index reading and 3.0 percentage points behind the index for March 2015.
For the week ended March 12, there were 265,000 claims for unemployment insurance, an increase of 7,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims was 2,235,000, an increase of 8,000, for the week ended March 5.

Eye on the Week Ahead

The week begins with a focus on the housing sector, including the latest reports on existing home sales and new home sales. The week closes with the “third” estimate for the fourth-quarter 2015 GDP.

What I’m Watching This Week – 14 March 2016

Published on March 14, 2016 by dredheadz

The Markets (as of market close March 11, 2016)

Both the large-cap Dow and S&P 500 posted gains for the fourth consecutive week, helped by a late rally at week’s end. The latest run of gains has pulled the Dow and S&P 500 to within 1.22% and 1.06% of their 2015 year-end levels. The Global Dow, possibly boosted by additional stimulus measures announced by the European Central Bank, gained 1.2% and is also closing in on its 2015 closing value. The midcaps also posted marginal gains of under 1%, and remain farthest away from their 2015 year-end levels compared to the other indexes listed here.

The price of crude oil (WTI) is clearly trending upward as the price increased again last week, closing the week at $38.49 a barrel, $2.16 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,251.10 by late Friday afternoon, down from the prior week’s closing price of $1,260.10. The national average retail regular gasoline price increased for the third week in a row, selling at $1.841 per gallon on March 7, 2016, $0.058 over the prior week’s price but $0.646 under a year ago.

Market/Index	2015 Close	Prior Week	As of 3/11	Weekly Change	YTD Change
DJIA	17425.03	17006.77	17213.31	1.21%	-1.22%
Nasdaq	5007.41	4717.02	4748.47	0.67%	-5.17%
S&P 500	2043.94	1999.99	2022.19	1.11%	-1.06%
Russell 2000	1135.89	1081.93	1087.56	0.52%	-4.25%
Global Dow	2336.45	2260.08	2287.17	1.20%	-2.11%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.87%	1.98%	11 bps	-28 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

In a further effort to boost its sagging economy, the European Central Bank initiated additional stimulus moves intended to spur the eurozone’s low inflation. Only three months after instituting similar–though less comprehensive measures–the latest ECB program includes cutting interest rates and increasing its monthly bond purchases. ECB President Mario Draghi said the latest stimulus measures are intended to “further ease financing conditions, stimulate new credit provision and thereby reinforce the momentum of the euro area’s economic recovery and accelerate the return of inflation to levels below, but close to, 2.0%.” With euro area inflation dropping to -0.2% in February from 0.3% in January, Draghi cautioned that the Governing Council will closely monitor price-setting behavior and wage developments to “ensure that the current low inflation environment does not become entrenched in second-round effects on wage and price-setting.” How these moves will affect the eurozone economy and the U.S. equity markets remains to be seen.
The Treasury statement for February shows the federal deficit is at $192.6 billion. There was a surplus of $55 billion in January. The deficit for fiscal 2016 (October through February) sits at $353 billion. Compared to the first five months of fiscal 2015, receipts for fiscal year 2016 are up 5.3%, while outlays are up 1.86%.
S. import prices (for goods bought in the United States but produced abroad) fell 0.3% in February following a 1.0% drop in January, according to the latest information from the U.S. Bureau of Labor Statistics. The February decrease was mostly led by declining fuel prices. The price index for exports of goods made in the United States and sold abroad decreased 0.4% in February, after falling 0.8% the previous month. Import prices actually gained 0.1% excluding food and fuels–the first positive reading since last May. Generally, falling import prices are a strike against rising inflation. Low oil prices and a strong dollar continue to keep prices of goods down for U.S. buyers.
Claims for unemployment insurance and the insured unemployment rate are down. For the week ended March 5, there were 259,000 initial claims for unemployment insurance, a decrease of 18,000 from the prior week’s revised level of 277,000–the lowest level since last October. The advance seasonally adjusted insured unemployment rate dropped to 1.6% for the week ended February 27. Also for the same week, the advance number for continuing unemployment insurance claims was 2,225,000, a decrease of 32,000 from the week ended February 20.

Eye on the Week Ahead

There’s plenty of information available this week, including the outcome of FOMC meeting. Reports on producer prices, retail sales, industrial production, and the Fed’s announcement from its latest meeting are sure to have some influence on equities.

What I’m watching This Week – 7 March 2016

Published on March 7, 2016 by dredheadz

The Markets (as of market close March 4, 2016)

Equities continued to show life as each of the major indexes listed here posted gains over the prior week. Favorable reports from the employment and manufacturing sectors may be quelling investor fears of an imminent recession. For the week ended March 4, each of the indexes listed here advanced at least 2.20%, with the Russell 2000 and Global Dow leading the way with gains of 4.31% and 4.42%, respectively. With each weekly advance, the indexes are moving closer to their 2015 year-end values.

The price of crude oil (WTI) increased again last week, closing the week at $36.33 a barrel, $3.49 ahead of the prior week’s closing price. The price of gold (COMEX) gained by last week’s end, selling at $1,260.10 by late Friday afternoon, down from the prior week’s closing price of $1,222.80. The national average retail regular gasoline price increased for the second week in a row, selling at $1.783 per gallon on February 29, 2016, $0.053 over the prior week’s price but $0.690 under a year ago.

Market/Index	2015 Close	Prior Week	As of 3/4	Weekly Change	YTD Change
DJIA	17425.03	16639.97	17006.77	2.20%	-2.40%
Nasdaq	5007.41	4590.47	4717.02	2.76%	-5.80%
S&P 500	2043.94	1948.05	1999.99	2.67%	-2.15%
Russell 2000	1135.89	1037.18	1081.93	4.31%	-4.75%
Global Dow	2336.45	2164.45	2260.08	4.42%	-3.27%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.76%	1.87%	11 bps	-39 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

The news from the employment sector continues to be favorable based on the latest report from the Bureau of Labor Statistics. Total nonfarm payroll employment increased by 242,000 in February, while the unemployment rate was unchanged at 4.9%. The number of unemployed persons, at 7.8 million, was unchanged from the prior month. For 2016, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 831,000, respectively. A negative item from the report shows average hourly earnings for all employees on private nonfarm payrolls declined by $0.03 to $25.35 in February, following an increase of $0.12 in January. Nevertheless, average hourly earnings have risen by 2.2% over the year.
January was far from robust when it came to international trade, as exports were down 2.1% and imports fell 1.3% leading to a goods and services trade deficit of $45.7 billion–up $1.0 billion from December. According to the Census Bureau, the January increase in the goods and services deficit reflected an increase in the goods deficit of $1.1 billion to $63.7 billion and an increase in the services surplus of $0.1 billion to $18.0 billion. Year-over-year, the goods and services deficit increased $2.1 billion, or 4.8%, from January 2015. Once again, a strong dollar and relatively low oil prices have impacted the U.S. trade deficit.
The Bureau of Labor Statistics released its report on productivity and costs for the fourth quarter of 2015. Labor productivity, which is the measure of the production of goods and services per hour of labor, decreased at a 2.2% annual rate during the fourth quarter. While output increased 1.0%, hours worked increased 3.2%. Unit labor costs in the nonfarm business sector increased 3.3% in the fourth quarter of 2015, reflecting a 1.1% increase in hourly compensation and a 2.2% decrease in productivity. Nevertheless, from the fourth quarter of 2014 to the fourth quarter of 2015, productivity increased 0.5%.
Favorable news came from the manufacturing sector as new orders for manufactured goods increased $7.5 billion, or 1.6%, to $463.9 billion in January, according to the latest report from the Census Bureau. This increase followed two consecutive months of decreases. Shipments of manufactured goods rose for the first time in seven months, jumping $1.4 billion, or 0.3%, in January.
The Purchasing Managers’ Manufacturing Index (PMI) is based on a survey of purchasing managers from several companies in an attempt to get a read on the manufacturing sector of the economy. The Markit U.S. Manufacturing Purchasing Managers’ Index™ fell from 52.4 in January to 51.3 in February, marking the second lowest reading since October 2012. A slowdown in manufacturing output and new business growth contributed to the receding index.
The Institute for Supply Management (ISM) also produces a PMI, which contracted in February for the fifth consecutive month. The February ISM PMI® registered 49.5%, an increase of 1.3 percentage points from the January reading of 48.2%. A reading of less than 50.0% is indicative of contraction, so while February’s PMI is slightly ahead of January’s reading, the manufacturing sector is contracting nonetheless, but at a slower pace when compared with January. The last time the ISM Manufacturing Index was at least 50% was September 2015.
The Non-Manufacturing Index from the Institute for Supply Management indicates growth in February at 53.4%. Similar to the PMI, a reading above 50.0% indicates growth. The index for January was 53.5%. Thus, February’s index reading reflects growth, but at a slower rate. The indexes for business activity and new orders each showed growth in February, while the Employment Index decreased 2.4 percentage points to 49.7% from the January reading of 52.1%. The non-manufacturing sector includes industries such as services, construction, mining, and agriculture.
The National Association of Realtors® Pending Home Sales Index fell 2.5% in January to 106.0, compared with December’s index of 108.7. The index is still 1.4% higher than the index from a year earlier. Lawrence Yun, chief economist for the NAR, cited several possible reasons for the January pullback, including a winter blizzard in the Northeast, an increase in home prices, and minimal inventory of homes available for sale.
According to the latest figures from the Census Bureau, construction spending during January came in at a seasonally adjusted annual rate of $1,140.8 billion, 1.5% above the revised December estimate of $1,123.5 billion and 10.4% ahead of January 2015. Residential construction remained at about the same level in January as the prior month, while nonresidential construction increased 1.0% above December’s revised estimate. Public construction made a significant jump of 4.5% ahead of December’s revised estimate.
For the week ended February 27, there were 278,000 initial claims for unemployment insurance, an increase of 6,000 from the prior week’s unrevised level of 272,000. The advance seasonally adjusted insured unemployment rate remained at 1.7% for the week ended February 20. Also for the same week, the advance number for continuing unemployment insurance claims was 2,257,000, an increase of 3,000 from the week ended February 13.

Eye on the Week Ahead

This week is fairly uneventful with regard to information on important economic indicators. Eyes will remain on the equities markets, both domestic and foreign, and on the price of oil.

Monthly Market Review – February 2016

Published on March 1, 2016 by dredheadz

The Markets (as of market close February 29, 2016)

Following steep declines in January and a rocky start to February, equities rebounded by the end of the month to finish close to their ending values from the prior month. The Dow actually finished up, gaining a little over 50 points by February’s market close. Each of the indexes listed here remained in negative territory for 2016, with the Russell 2000 and Nasdaq each down almost 9.0%. Investors may be feeling a little more confident in the U.S. economy despite global economic instability, as several domestic economic indicators have been favorable, including manufacturing, inflation, consumer spending, and the GDP.

Bond yields fell by the close of trading for February as prices rose with the influx of investor dollars, while the 10-year Treasury yield dropping almost 20 points by the end of the month. The price of gold (COMEX) increased by month’s end, selling at $1239.30–about $121 higher than January’s end-of-month price of $1,118.40.

Market/Index	2015 Close	Prior Month	As of 2/29	Month Change	YTD Change
DJIA	17425.03	16466.30	16516.50	0.30%	-5.21%
Nasdaq	5007.41	4613.95	4557.95	-1.21%	-8.98%
S&P 500	2043.94	1940.24	1932.23	-0.41%	-5.47%
Russell 2000	1135.89	1035.38	1033.90	-0.14%	-8.98%
Global Dow	2336.45	2177.64	2158.78	-0.87%	-7.60%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.92%	1.73%	-19 bps	-53 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

The Month in Review

Employment: The employment sector continued to show strength, but at a somewhat slower pace. Total nonfarm payroll employment increased by 151,000 in January (compared with 262,000, as revised, in December), while the unemployment rate fell slightly from 5.0% in December to 4.9% in January. There were 7.8 million unemployed persons, while the labor force participation rate remained relatively the same at 62.7%. According to the latest figures from the Bureau of Labor Statistics, the average workweek increased to 34.6 hours from the prior two months’ run of 34.5 hours. Average hourly earnings rose $0.12 to $25.39. Year-on-year, average hourly earnings have risen by 2.5%. For the week ended February 13, there were 2,253,000 continuing unemployment insurance claims–a decrease of 15,000 from the same period last month.
FOMC/interest rates:The Federal Open Market Committee did not meet in February–its next scheduled meeting is set for March. However, the minutes from its last meeting in January, and congressional testimony from FOMC Chair Janet Yellen, revealed the Committee’s consensus that overall economic conditions may not be sufficiently improved to justify a further interest rate hike in March. Strong labor market conditions, improvement in the housing sector, and increased household and business spending were offset by slowing economic growth, soft exports, and inflation continuing to run below the Committee’s target rate of 2.0%.
Oil: Oil prices remained about the same in February, despite supply continuing to far exceed demand and several oil-producing nations refraining from curtailing production. At the end of February crude oil (WTI) was selling at $33.85 per barrel, essentially the same price as the end of January ($33.74 per barrel). The national average retail regular gasoline price actually increased for the first time in eight weeks, selling at $1.730 per gallon on February 22, 2016, a mere $0.006 above the prior week’s price of $1.724 but still $0.602 under a year ago.
GDP/budget: The fourth quarter GDP grew at an annualized rate of 1.0%, according to the Bureau of Economic Analysis’ second estimate. This is behind the third quarter’s 2.0% growth rate, and the 3.9% second quarter reading. As to the government’s budget, figures can fluctuate significantly from month to month, depending on the timing of payments and outlays. So it’s not surprising that the Treasury reported a $55 billion budget surplus for January, compared with December’s $216 billion deficit. Military and Social Security payments pushed to December accounted for that month’s large deficit. Through the first four months of the government’s fiscal year, the budget deficit sits at about $160 billion, compared with roughly $194 billion through the same period for fiscal 2015.
Inflation: As February comes to a close, inflation remained below the Fed’s stated target rate of 2.0%, but it is getting closer. In January, both personal income (pretax earnings) and disposable personal income (income less taxes) increased 0.5%, according to the latest report from the Bureau of Economic Analysis. Generally, personal spending increased 0.5%, while core personal consumption expenditures (personal spending excluding volatile food and energy costs), an inflationary indicator relied upon by the Fed, rose 0.3% from December and is 1.7% year-on-year as it heads toward the Fed’s inflation target rate of 2.0%. The Producer Price Index, which measures the prices companies receive for goods and services, advanced 0.1% in January, following a 0.2% drop in December. Buoyed by an increase in the price of services, which offset a drop in the price of goods, producer prices were down 0.2% from January 2015–the 12th straight year-over-year decline. Overall, the Consumer Price Index remained flat in January. However, the index, less food and energy, is up 0.3% over December, while the all items index increased 1.4% over the last 12 months. Retail sales were up 0.2% in January over the prior month, and 3.4% ahead of January 2015. Consumers increased spending on most items, as low gas prices and rising employment gave buyers confidence to spend on goods and services.
Housing: The housing market, which has been a strong sector of the economy, may be showing signs of slowing a bit as we enter 2016. The latest figures from the Census Bureau show that the 494,000 annual rate of sales of new single-family homes in January is 9.2% below December’s revised rate of 544,000. The median sales price of new houses sold in January was $278,800 ($288,900 in December), while the average sales price was $365,700 ($346,400 in December). The seasonally adjusted estimate of new houses for sale at the end of January was 238,000. This represents a supply of 5.8 months at the current sales rate. Sales of existing homes were up 0.4% in January at an annualized rate of 5.47 million, compared with a 12.1% revised gain in December. According to the latest report from the National Association of Realtors®, year-on-year sales growth of existing homes is up 11.0%. On the other hand, the median sales price for existing homes dropped 4.2% to $213,800 ($223,200 in December), while the average sales price fell from $266,100 in December to $257,500 in January. Housing starts and building permits for privately owned housing units were down in January from a month prior. Housing starts were 3.8% below December’s rate, while applications for building permits for new home construction fell 0.2%.
Manufacturing: Manufacturing and industrial production had been relatively weak sectors in the economy for quite some time. However, the latest information from the Federal Reserve’s monthly index of industrial production shows an increase of 0.9% in January following a decline of 0.7% in December. Manufacturing output increased 0.5% in January, which was 1.2% above its level from a year earlier. A significant gain in motor vehicle production and capital goods helped propel the index gain. However, total industrial production in January was 0.7% below its year-earlier level. In addition, the latest report from the Census Bureau shows orders for all durable goods posted its largest increase since last spring. New orders for durable goods expected to last at least three years increased $11.1 billion, or 4.9%, to $237.5 billion in January, following a 4.6% decrease in December.
Imports and exports: Based on information from the Census Bureau, the goods and services deficit was $43.4 billion in December, an increase of $1.1 billion from November. The December increase in the goods and services deficit reflected an increase in the goods deficit of $1.3 billion to $62.5 billion and an increase in the services surplus of $0.1 billion to $19.2 billion. For 2015, the goods and services deficit was $531.5 billion, up $23.2 billion or 4.6% from 2014. Exports were $2,230.3 billion, down $112.9 billion or 4.8%. Imports were $2,761.8 billion, down $89.7 billion or 3.1%. In another report from the Bureau of Labor Statistics, prices in January for U.S. imports decreased 1.1% for the second consecutive month, primarily driven by lower fuel prices. U.S. export prices also fell in January, decreasing 0.8%, which follows a 1.1% drop in December.
International markets: The possibility of the UK’s exit from the European Union (EU) and the eurozone (“Brexit”) may have swayed other member countries to allow Britain to receive “special status” ensuring that country’s enhanced sovereignty over domestic policy as opposed to becoming more politically integrated into the eurozone. Nevertheless, a referendum vote scheduled for June 23 will determine whether the UK will remain a member of the European Union. Meanwhile, China continues to battle against an economic slowdown. China’s equities suffered significant losses toward the end of the month, while the Governor of the People’s Bank of China attempted to reassure investors that the yuan need not suffer further depreciation.
Consumer sentiment:It appears consumer confidence may be waning. The Conference Board Consumer Confidence Index® for February fell to 92.2 from January’s revised 97.8. Consumers were concerned about weakened current business conditions, their personal financial situations, and the labor market. The University of Michigan’s Index of Consumer Sentiment fell to 91.7 in February, compared with 92.0 in January.

Eye on the Month Ahead

As the first quarter of 2016 comes to a close, the shape of the economy should be more evident. At its March meeting, the Federal Open Market Committee will likely provide its perspective on the state of the economy and whether another interest rate hike is in the offing.

What I’m Watching This Week – 29 February 2016

Published on February 29, 2016 by dredheadz

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

Last week saw a mixed bag of information from some major economic sectors, which may have influenced the equities markets to record some marginal gains by week’s end. Each of the indexes listed here posted week-on-week gains, led by the Russell 2000 and Nasdaq. The Dow and S&P 500 posted gains of about 1.5%, respectively, while the Global Dow inched ahead despite Saudi Arabia’s oil minister saying he did not foresee cuts in the supply of oil, likely adding to the glut of global supply.

The price of crude oil (WTI) increased again last week, closing the week at $32.84 a barrel, $3.01 ahead of the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,222.80 by late Friday afternoon, down from the prior week’s closing price of $1,228.00. The national average retail regular gasoline price actually increased for the first time in eight weeks, selling at $1.730 per gallon on February 22, 2016, a mere $0.006 above the prior week’s price of $1.724 but still $0.602 under a year ago.

Market/Index	2015 Close	Prior Week	As of 2/26	Weekly Change	YTD Change
DJIA	17425.03	16391.99	16639.97	1.51%	-4.51%
Nasdaq	5007.41	4504.43	4590.47	1.91%	-8.33%
S&P 500	2043.94	1917.78	1948.05	1.58%	-4.69%
Russell 2000	1135.89	1010.01	1037.18	2.69%	-8.69%
Global Dow	2336.45	2149.19	2164.45	0.71%	-7.36%
Fed. Funds rate target	0.25%-0.50%	0.25%-0.50%	0.25%-0.50%	0 bps	0 bps
10-year Treasuries	2.26%	1.75%	1.76%	1 bps	-50 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

The “second” estimate of the gross domestic product was a little better than the first as the GDP advanced 1.0%, which is 0.3 percentage point above the initial fourth quarter estimate. The GDP, which is the broadest measure of economic activity in the United States, increased 2.0% in the third quarter and 3.9% in the second. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending, gains that were partly offset by negative contributions from exports, nonresidential fixed investment, state and local government spending, and private inventory investment. Essentially, the fourth quarter deceleration in the GDP reflects weaker consumer spending. However, this trend may be changing as evidenced by January’s income and outlays report that follows.
According to the latest report from the Bureau of Economic Analysis, consumers increased spending in January, as personal spending increased 0.5% from December. An indicator of inflationary trends relied upon by the Fed, core personal consumption expenditures (excluding volatile food and energy costs) gained 0.3% in January and is 1.7% ahead of the same period last year as it inches toward the Fed’s inflation target of 2.0%. Both personal income (pretax earnings) and disposable personal income (less taxes) increased 0.5%. Wages and salaries increased $48.1 billion in January, compared with an increase of $18.3 billion in December. Personal saving remained relatively unchanged at $705.1 billion in January, compared with $709.2 billion in December.
Existing home sales increased 0.4% in January to a seasonally adjusted annualized rate of 5.47 million–the highest annual rate in six months. The median sales price of existing homes fell from $223,200 in December to $213,800 in January, but it is still up 8.2% from January 2015, according to the National Association of Realtors®. While total housing inventory is 2.2% lower than a year ago, January saw inventory increase 3.4% over the prior month.
In another sign that the real estate sector is slowing a bit, sales of new single-family homes sunk 9.2% in January compared with the prior month. January’s 494,000 sales figure is 50,000 off December’s revised total, and 5.2% below the January 2015 estimate of 521,000. The median sales price of new houses sold in January was $278,800, while the average sales price was $365,700. The seasonally adjusted estimate of new houses for sale at the end of January was 238,000. This represents a supply of 5.8 months at the current sales rate.
The Census Bureau’s advance report on orders for manufactured durable goods (expected to last at least three years) shows new orders increased $11.1 billion, or 4.9%, to $237.5 billion in January following two consecutive months of declines. Excluding transportation (up $8.2 billion, or 11.5%), new orders increased 1.8%. Excluding defense, new orders increased 4.5%. Shipments of manufactured durable goods in January, up two of the last three months, increased $4.6 billion, or 1.9%, to $241.9 billion. Inventories of manufactured durable goods in January, down six of the last seven months, decreased $0.4 billion, or 0.1%, to $396.3 billion. This report signals an investment by business in goods and equipment–a welcome sign for the manufacturing sector of the economy.
The advance report on the trade deficit in goods for January shows the trade gap widening to $62.2 billion, compared with $61.5 billion in December. Both exports (2.9%) and imports (1.5%) decreased for the month.
The Conference Board Consumer Confidence Index®, which had increased moderately in January, declined in February. The index now stands at 92.2, down from 97.8 in January. The index was reflective of surveyed consumers’ weakened assessment of current business conditions, apprehension about their personal financial situations, and, to a lesser degree, labor market prospects. Following suit, the University of Michigan’s Index of Consumer Sentiment dropped 0.3 percentage point in February to 91.7, compared with 92.0 in January.
For the week ended February 20, there were 272,000 initial claims for unemployment insurance, an increase of 10,000 from the prior week’s unrevised level of 262,000. For the week ended February 13, the advance number for continuing unemployment insurance claims was 2,253,000, a decrease of 19,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.7% for the week ended February 13.

Eye on the Week Ahead

Important economic information available this week centers on two sectors that have not been particularly favorable of late: manufacturing and international trade. On the other hand, the Bureau of Labor Statistics releases its latest figures on the employment situation, which has been one of the few economic bright spots over the last several months.