Author: dredheadz

The Markets (as of market close February 19, 2016)

The major indexes listed here posted gains by the end of last week, marking the best overall week of performance in the new year. Both the Dow and the S&P 500 posted end-of-week gains of 2.62% and 2.84%, respectively. The Nasdaq and Russell 2000 recouped some of their early-year losses with gains close to 4.0%. Even the Global Dow gained 3.80% over the prior week’s close.

The price of crude oil (WTI) increased, closing the week at $29.83 a barrel, $0.81 ahead of the prior week’s closing price. The price of gold (COMEX), possibly feeling the effects of money moving back into equities, fell by last week’s end selling at $1,228 by late Friday afternoon, down from the prior week’s closing price of $1,238.20. The national average retail regular gasoline price decreased for the seventh week in a row to $1.724 per gallon on February 15, 2016, $0.035 below the prior week’s price and $0.550 under 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 minutes from January’s Federal Open Market Committee meeting highlight a mixed bag of economic indicators. While the Committee noted improving labor market conditions, increased household and business spending, and an improving housing sector, these positive trends were somewhat offset by slowing economic growth, inflation running below the Committee’s target rate of 2.0%, soft exports, and declining inventory investment. As to whether and when target rates will be increased, the Committee emphasized that it will continue to assess realized and expected economic conditions relative to the Committee’s objectives of maximum employment and 2% inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. At present, due to the apparent uncertainty of inflationary trends and economic growth, the Committee maintains its intent to gradually increase the federal funds rate, which will likely remain, for some time, below levels that are expected to prevail in the longer run.
• The Housing Market Index (HMI), based on a monthly survey of members of the National Association of Home Builders, is designed to reflect the pulse of the single-family housing market. According to the latest survey, builder confidence is dropping as evidenced by February’s HMI reading of 58, which is 3 points lower than January’s reading and the lowest reading since May 2015. Builders noted high land costs, the lack of available land, and the scarcity of labor as primary reasons for the slowdown in the single-family housing market. On the plus side, respondents did feel the prospective sales market would pick up over the next six months. Also, it’s important to note that these are preliminary readings that will likely be revised later.
• Housing starts and building permits for privately owned housing units were both down in January from the prior month. Applications for building permits for new home construction were at an annual rate of 1,202,000–0.2% below the revised December rate, but 13.5% above the January 2015 estimate. Privately owned housing starts for January were at an annual rate of 1,099,000, which is 3.8% below December’s rate, but 1.8% above the rate from a year earlier. On the other hand, completions were up in January, 2.0% ahead of December’s revised rate and 8.4% above the rate for January 2015. Nevertheless, the start of the new year finds the housing market slowing down, particularly considering that the number of building permits, indicative of future construction, has fallen the past two months.
• The prices producers receive for goods and services, as measured by the Producer Price Index (PPI), advanced 0.1% in January, following a 0.2% decrease in December. As reported by the Bureau of Labor Statistics, the increase in producer prices is attributable to a 0.5% advance in prices for services, which offset a 0.7% drop in the prices for goods. Looking at trends in this segment of the economy, producer prices are down 0.2% compared to January 2015, marking the 12th straight year-over-year decline. As an indicator of inflationary trends, downward movement in producer prices may lead the Federal Open Market Committee to hold off on further interest rate increases for the time being.
• Impacted by falling energy prices, consumer prices for goods and services remained relatively flat in January, according to the latest Consumer Price Index. On a more positive note, the CPI increased 1.4% over the last 12 months, and the index, less food and energy, is up 0.3% for the month. The increase (less food and energy) was broad-based, with most of the major components rising, but increases in the indexes for shelter and medical care were the largest contributors. This report may imply that inflation is trending upward, but the strong dollar and declining energy prices have kept inflation in check. The CPI, coupled with the PPI, is keeping inflation below the Fed’s target rate of 2.0%, lending credence to the view that interest rates will remain the same for the near term.
• The Federal Reserve puts out a monthly index of industrial production, which attempts to demonstrate the overall production of factories, mines, and utilities. For January, industrial production increased 0.9%, following a 0.7% drop in December. The index for utilities jumped 5.4%, while demand for heating moved up markedly after having been suppressed by unseasonably warm weather in December. Manufacturing output increased 0.5% in January and was 1.2% above its year-earlier level. Mining production was unchanged following four months of declines that averaged about 1.5% per month. In addition, capacity utilization for the industrial sector increased 0.7 percentage points in January to 77.1%, a rate that, while improving, is still 2.9 percentage points below its long-run (1972 to 2015) average.
• The Conference Board Leading Economic Index® for the U.S. declined 0.2% in January following a 0.3% decrease in December. According to the report, January’s decline was driven primarily by large declines in stock prices and further weakness in initial claims for unemployment insurance. However, the report further states that despite back-to-back monthly declines, the index doesn’t signal a significant increase in the risk of recession, and its six-month growth rate remains consistent with a modest economic expansion through early 2016.
• For the week ended February 13, there were 262,000 initial claims for unemployment insurance, a decrease of 7,000 from the prior week’s unrevised level of 269,000. For the week ended February 6, the advance number for continuing unemployment insurance claims was 2,273,000, an increase of 30,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate was 1.7% for the week ended February 6, an increase of 0.1 percentage point from the previous week’s unrevised rate.

Eye on the Week Ahead

Several important reports that provide a fairly significant gauge of the economy are highlighted this week, including information on new and existing home sales, orders for durable goods, consumer spending, and the latest GDP figures.

The Markets (as of market close February 12, 2016)

Spurred by a bounce in crude oil prices and banking shares, the stock market rallied last Friday, but not enough to overcome five consecutive trading-day losses. Money continued to move from equities to the safety of bonds and gold, driving the yield on 10-year Treasuries down to 1.74% while driving up the price of gold. Despite Friday’s rally, the Dow lost over 230 points over the prior week, while the S&P 500 and Nasdaq came close to recouping early-week losses, each falling less than 1% compared to their respective prior week’s closing values.

The price of crude oil (WTI) rallied from a low price of $26.05 on February 11, closing the week at $29.02 a barrel, still down $1.98 from the prior week’s closing price. The price of gold (COMEX) increased again, selling at $1,238.20 by late Friday afternoon, up from the prior week’s closing price of $1,174.10. The national average retail regular gasoline price decreased for the sixth week in a row to $1.759 per gallon on February 8, 2016, $0.063 below the prior week’s price and $0.432 under 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

• In testimony before both the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs, Federal Reserve Chair Janet Yellen stated that overall economic conditions may not be sufficiently improved to justify a further interest rate hike in March, when the Federal Open Market Committee (FOMC) next convenes. Addressing the FOMC’s objectives of maximum employment and 2.0% inflation, Yellen noted that while there has been progress in the labor market, “there is still room for further sustainable improvement.” Yellen said the committee expects inflation to continue at its slow pace in the near term primarily due to declines in oil prices and weak exports. However, she said inflation is expected to rise to its 2.0% objective over the medium term. The text of the prepared testimony may be found
• December saw the number of job openings (5.6 million), hires (5.4 million), and total separations (5.1 million) increase over November, according to the latest Job Openings and Labor Turnover Summary (JOLTS) from the Bureau of Labor Statistics. Over the 12 months ended in December 2015, hires totaled 61.4 million and separations totaled 58.8 million, yielding a net employment gain of 2.6 million. Another positive aspect of this report is the increase in the number of quits, which was 3.1 million in December, compared to 2.9 million in November. Generally, an increasing quits rate is indicative of workers moving up to better jobs. Also, layoffs and discharges fell from 1.69 million in November to 1.61 million in December.
• According to advance estimates, the Census Bureau reported that retail and food services sales for January were $449.9 billion, an increase of 0.2% over the prior month and 3.4% above January 2015. Total sales for the first quarter of fiscal 2016 are up 2.5% from the same period a year ago. Boosted by low gasoline prices and dwindling unemployment, consumers increased retail spending on most items, but particularly on motor vehicles, groceries, and building materials. In fact, excluding gasoline, retail sales in January were up 0.4% from December.
• The monthly budget statement from the Department of the Treasury revealed a budget surplus of $55 billion for January. Total receipts for the month were $314 billion–$181 billion of which came from individual income taxes. The government spent $258 billion in January, with defense, Social Security, and Medicare comprising about 53% of the total outlays. Four months into the government’s fiscal year, the total budget deficit is $160.4 billion, about 17% lower than the comparable period last year.
• Not unexpectedly, prices for U.S. imports decreased 1.1% in January for the second consecutive month, the U.S. Bureau of Labor Statistics reported last week. U.S. export prices also fell in January, decreasing 0.8%. The decline followed a 1.1% drop in December. Principally driven by low oil-based goods and a sinking global economy, import prices are down 6.2% year-on-year. Export prices are down 5.7% compared to a year earlier, impacted by receding agricultural products, which are down 12.7% year-on-year.
• Trade sales and manufacturers’ shipments for December were down 0.6% from November and 2.7% from December 2014, while manufacturers’ inventories were up 0.1% and 1.7%, respectively, for the same periods. The total business inventories to sales ratio for December was 1.39, compared to 1.38 in November and 1.33 in December 2014. With slowing sales, businesses are trying to keep inventories down. Inventories that far exceed sales could negatively impact employment.
• The University of Michigan’s Index of Consumer Sentiment for February came in at 90.7, down from 92.0 in January and significantly lower than the 95.4 index reading in February 2015. The latest information indicates consumer confidence continues to decline, due to a less favorable economic outlook for the year ahead.
• For the week ended February 6, there were 269,000 initial claims for unemployment insurance, a decrease of 16,000 from the prior week’s unrevised level of 285,000. For the week ended January 30, the advance number for continuing unemployment insurance claims was 2,239,000, a decrease of 21,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate was 1.6% for the week ended January 30, a decrease of 0.1 percentage point from the previous week’s unrevised rate.

Eye on the Week Ahead

This week’s focus is on inflationary trends with the latest reports on producer prices and the Consumer Price Index. The week also offers the latest information on housing starts, a closely monitored report on the housing sector in particular, and the economy in general. The minutes from the FOMC’s last meeting are released this week, which, when coupled with Chair Janet Yellen’s congressional testimony, could provide insight as to the inclination of the committee relative to raising interest rates at its next meeting in March.

The Markets (as of market close February 5, 2016)

Following a labor report that showed job growth slowed in January, stocks declined after making some positive headway the prior week. A selloff of tech stocks brought the Nasdaq down 5.44% with the Russell 2000 following close behind, falling almost 5% by week’s end. The Dow lost over 261 points to close down 1.59%, while the S&P 500 fell over 3.0%.

The price of crude oil (WTI) continued to fluctuate, closing at $31.00 a barrel, down $2.74 from the prior week’s closing price. The price of gold (COMEX) increased again, selling at $1,174.10 by late Friday afternoon, up from the prior week’s closing price of $1,118.39. The national average retail regular gasoline price decreased for the fifth week in a row to $1.822 per gallon on February 1, 2016, $0.034 below the prior week’s price and $0.246 under 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 employment sector continued to show strength, although at a somewhat slower pace. Total nonfarm payroll employment rose by 151,000 in January and the unemployment rate was little changed at 4.9%, according to the latest figures from the Bureau of Labor Statistics. Job gains occurred in several industries, led by retail trade, food services and drinking places, health care, and manufacturing. Employment declined in private educational services, transportation and warehousing, and mining. January’s employment gains trailed the revised payroll numbers for December (262,000) and November (280,000). The employment participation rate rose 0.1% to 62.7%, the average workweek rose to 34.6 hours from a long-standing run at 34.5 hours, and average hourly earnings increased 12 cents to $25.39. Over the year, average hourly earnings have risen by 2.5%. This report, while favorable in general, does show some slowing in the employment sector, which may weigh on the Fed’s decision whether to raise interest rates further at its March meeting.
• While the latest figures on personal income proved not as robust as those reported in November, December turned out to be another good month for consumers. According to the latest figures from the Bureau of Economic Analysis, personal income increased $42.5 billion, or 0.3%, and disposable personal income (DPI), which is the difference between personal income and personal current taxes, increased $37.8 billion, or 0.3%, in December. Consumers saved a little more than they spent in December as personal consumption expenditures (PCE) decreased $0.7 billion, or less than 0.1%. In November, personal income increased $44.3 billion, or 0.3%; DPI increased $33.4 billion, or 0.2%; and PCE increased $59.4 billion, or 0.5%, based on revised estimates. Wages and salaries increased $13.1 billion in December, compared with an increase of $37.9 billion in November. Personal current taxes increased $4.8 billion in December, compared with an increase of $10.9 billion in November.
• As expected, the trade deficit widened in December to $43.4 billion, up $1.1 billion from November’s revised figures. December exports were $181.5 billion, $0.5 billion less than November exports. December imports were $224.9 billion, up $0.6 billion from November.
• The manufacturing sector is contracting. The Institute for Supply Management® Report on Business® for January indicates that economic activity in the manufacturing sector contracted for the fourth consecutive month, as the January PMI came in at 48.2%, an increase of 0.2 percentage points from the seasonally adjusted December reading of 48.0%. A reading of 50% or lower indicates contraction. Weak foreign demand due to a stronger dollar and low oil prices continue to hinder manufacturing. On the plus side of the report, the New Orders Index registered 51.5%, an increase of 2.7 percentage points from the 48.8% reading in December.
• Economic activity in the non-manufacturing (service) sector grew in January, but at a slower pace than the prior month, as the ISM Non-Manufacturing Index registered 53.5%–2.3 percentage points lower than the seasonally adjusted December reading of 55.8%. As with the Manufacturing Index, a reading above 50% indicates growth. Several other ISM indexes experienced slower growth, including the Business Activity Index (-5.6 percentage points), the New Orders Index (-2.4 percentage points), the Employment Index (-4.2 percentage points), the Inventories Index (-1.5 percentage points), and the Prices Index (-4.6 percentage points). Generally, this report hints at a noticeable first-quarter slowdown in the non-manufacturing (services) sector, which represents about 80% of the economy.
• The Census Bureau report on construction spending for December was at a seasonally adjusted rate of $1,116.6 billion, or 0.1%, above the revised November estimate. The December figure is 8.2% above the December 2014 estimate. While spending on residential construction increased 0.9%, nonresidential construction fell a steep 2.1% below the revised November estimate. This report reflects a cutback in business spending, probably due to a lack of confidence in the economy.
• Continuing a somewhat disturbing trend, factory orders in December decreased $13.5 billion, or 2.9%, following a 0.7% decrease in November. Shipments and unfilled orders are also down, while inventories increased $1.0 billion, or 0.2%. Orders for durable goods (expected to last at least three years) and nondurable goods sank 5.0% and 0.8%, respectively, in December. Weak global demand, particular in the energy sector, has contributed to the ongoing slowdown in the factory sector.
• Generally, it cost more to produce less in the fourth quarter, according to the latest information from the Bureau of Labor Statistics. Nonfarm business sector labor productivity, or output per hour, decreased at a 3.0% annual rate during the fourth quarter of 2015, as output increased 0.1% and hours worked increased 3.3%. From the fourth quarter of 2014 to the fourth quarter of 2015, productivity increased 0.3%. Unit labor costs (measured as the ratio between hourly compensation and labor productivity) increased 4.5% in the fourth quarter and 2.8% over the last four quarters. Increases in hourly compensation tend to increase unit labor costs, and increases in output per hour tend to reduce them.
• For the week ended January 30, there were 285,000 initial claims for unemployment insurance, an increase of 8,000 from the prior week’s revised total. For the week ended January 23, the advance number for continuing unemployment insurance claims was 2,255,000, a decrease of 18,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.7% for the week ended January 23.

Eye on the Week Ahead

The budget deficit increased in December, and this week’s Treasury report may reveal additional budget deficit expansion four months into the government’s 2016 fiscal year. The week closes with a report on retail sales for January. This report is an important indicator of consumer spending trends, as retail sales account for about one-half of total consumer spending.

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

Volatility continues to best describe the markets throughout the first month of 2016, as stocks continued to rebound after a very shaky start to the new year. Boosted by a jump in oil prices, favorable earnings reports, and an end-of-the-week move by the Japanese central bank to set negative interest rates, each of the indexes listed here posted gains for the week. The Global Dow increased just under 2.0%, while the Dow, likely influenced by favorable earnings reports, gained over 370 points to close up 2.32% for the week.

Despite a surplus, rumors of overseas production cuts pushed the price of crude oil (WTI) up, closing at $33.74 a barrel. The price of gold (COMEX) increased, selling at $1,118.39 by late Friday afternoon, up from the prior week’s closing price of $1,098.50. The national average retail regular gasoline price decreased for the fourth week in a row to $1.856 per gallon on January 25, 2016, $0.058 below the prior week’s price and $0.188 under 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 Federal Reserve decided not to raise interest rates at its meeting last week. Even as economic growth slowed since its last meeting, the Federal Open Market Committee noted that labor market conditions improved and household spending and business fixed investment have been increasing at moderate rates, while housing has improved further. However, exports have been soft and inventory investment slowed. Inflation has continued to run below the committee’s 2% objective, partly reflecting declines in prices for energy and non-energy imports. Nevertheless, the committee expects economic activity will expand at a moderate pace and labor market indicators will continue to strengthen. Inflation is expected to remain low in the near term, in part because of the further declines in energy prices, but to rise to 2% over the medium term. The committee will continue to assess realized and expected economic conditions, but expects the federal funds rate to remain, for some time, below levels that are expected to prevail in the longer run.
• A key indicator of economic growth is the gross domestic product, which is the most comprehensive measure of productivity. The latest figures from the Bureau of Economic Analysis show the economy generally sputtered for the fourth quarter of 2015, expanding at a seasonally adjusted annualized rate of only 0.7%. Comparatively, the GDP had expanded 2.0% in the third quarter and 3.9% in the second quarter. While the housing and job markets have been steadily improving, falling oil prices and a strong dollar have impacted business production, sales, and consumer spending. For the year, the GDP expanded 2.4%, essentially the same as the prior year and in keeping with the 2.1% average annual growth rate since 2010.
• Further evidence that growth in the manufacturing sector is moving at a slow pace, orders for durable goods decreased for the fourth time in the last five months in December, according to the latest information from the Census Bureau. New orders for manufactured durable goods (expected to last at least three years) decreased $12.0 billion, or 5.1%, to $225.4 billion following a 0.5% November decrease. Excluding transportation, new orders decreased 1.2%. Excluding defense, new orders decreased 2.9%.
• The advance report on the U.S. international trade in goods and services from the Census Bureau reveals that the trade gap in December was $61.513 billion, compared to a revised $60.298 billion in November, reflecting further contraction in exports.
• There was some positive news for U.S. workers as wages and benefits grew 0.6% in the fourth quarter, according to the Bureau of Labor Statistics’ Employment Cost Index. Wages and salaries, which make up about 70% of the overall index, grew 0.6%, while benefits rose 0.7%. Overall, compensation costs for civilian workers increased 2.0% for the 12-month period ended in December 2015.
• Toward the end of 2015, home prices continued to rise across the United States according to the latest S&P Case-Shiller Home Price Index, which recorded a 5.3% annual increase in November versus a 5.1% increase in October. The 20-City Composite’s year-over-year gain was 5.8% versus 5.5% reported in October.
• Sales of new homes increased by 10.8% in December from the prior month, based on the latest information from the Census Bureau. The median sales price for new houses sold in December was $288,900, while the average sales price was $346,400–both figures representing a sharp decrease compared to November’s prices of $297,000 and $364,200, respectively. An estimated 501,000 new homes were sold in 2015. This is 14.5% above the 2014 figure of 437,000.
• The National Association of Realtors® indicated that pending home sales inched up in December. Bolstered by increased activity in the Northeast, the Pending Home Sales Index came in at 106.8, 0.1% ahead of November’s reading. Warm weather in the Northeast and favorable inventory conditions compared to the rest of the country fueled the Northeast’s increased contract signings for home purchases.
• The Conference Board Consumer Confidence Index®, which had increased in December, improved moderately in January. The index now stands at 98.1, up from 96.3 in December. “Consumer confidence improved slightly in January, following an increase in December,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions held steady, while their expectations for the next six months improved moderately.” On the other hand, the University of Michigan’s Index of Consumer Sentiment fell 0.6% in January, primarily based on stock market declines and somewhat weakened prospects for the national economy.
• For the week ended January 23, there were 278,000 initial claims for unemployment insurance, a decrease of 16,000 from the prior week’s revised total. For the week ended January 16, the advance number for continuing unemployment insurance claims was 2,268,000, an increase of 49,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate increased to 1.7% for the week ended January 16.

Eye on the Week Ahead

On tap for the week are the latest reports on consumer spending and manufacturing, as well as the all-important employment situation summary from the Bureau of Labor Statistics.

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

The start of 2016 for the equities markets may be described as rocky at best. Stunted by receding oil prices and a plummeting Chinese stock market, January began with stocks hitting the skids in a big way. A late-month rally fueled by an about-face in oil prices, some favorable earnings reports, the prospect of further stimulus from the European Central Bank, and Japan dropping interest rates to negative numbers spurred stocks higher toward the end of the month, but not enough to lift each of the indexes listed here out of negative territory year-to-date. The Russell 2000 and Nasdaq still have the most ground to make up to get to even, while the large-cap Dow and S&P 500 are about 5.0% off their values at the end of 2015.

The close of January saw bond prices rise as yields fell, evidenced by the 10-year Treasury yield which dropped below 2.0%. The price of gold (COMEX) increased by month’s end, selling at $1,118.40–about $58 higher than December’s end-of-month price of $1,060.50.

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

The Month in Review

• Employment: The labor sector has remained relatively strong as nonfarm payrolls increased by 292,000 in December, while the unemployment rate held steady at 5.0%. According to the Bureau of Labor Statistics, the number of unemployed persons is 7.9 million, while the labor force participation rate for December is 62.6% (+0.1% compared to November) and the percentage of the total U.S. working-age population (age 16+) that is employed is 59.5%. The average hourly earnings for all private-sector employees fell by a cent to $25.24 in December. By the close of January, there were 2,268,000 continuing claims for unemployment insurance, as the insured unemployment rate hovered around 1.7%.
• FOMC/interest rates:Citing slowing economic growth since its last meeting, the Federal Open Market Committee voted to maintain interest rates at their current level. While noting positive economic trends in labor, household spending, and business fixed investment, inflation remains below the FOMC’s target rate of 2.0%, while net exports continue to be soft.
• Oil: Oil prices fell significantly during the early part of the month, dropping below $30 per barrel (WTI), likely influencing equities markets, which seemed to follow the downward trend. Nevertheless, despite a surplus of reserves, oil prices surged toward the end of January, closing the month at $33.74 per barrel. The national average retail regular gasoline price decreased for the fourth week in a row to $1.856 per gallon on January 25, 2016, $0.058 below the prior week’s price and $0.188 under a year ago.
• GDP/budget: A strong dollar and lower oil prices slowed growth in the fourth quarter of 2015 to 0.7% following 3.9% and 2.0% growth in the second and third quarters, respectively. Three months into the U.S. government’s fiscal year, the government’s deficit is on the rise, up 22% at $215.6 billion for the month, according to the U.S. Treasury report for December. Part of the increase is due to the timing of outlays, without which the deficit would be up about 5%. However, disbursements for Medicare and Social Security are up a combined 7.1% compared to this time last year.
• Inflation: With oil prices remaining low and the dollar strong, inflation remained below the Fed’s stated target rate of 2.0%. The Producer Price Index, which measures the prices companies receive for goods and services, fell 0.2% in December, dragged down by energy and food prices. Producer prices were down 1.0% from December 2014–the 11th straight year of decline from the prior year. The Consumer Price Index declined 0.1% in December. Over the last 12 months, the all items index increased only 0.7%. Retail sales also fell in December, down 0.1% from the prior month. For retailers, total sales increased only 2.1% for 2015, the smallest gain since 2009. The core personal consumption expenditures, relied upon by the Fed as an important indicator of inflationary trends, was down less than 0.1% in December.
• Housing: The housing market has been relatively strong for much of 2015. The latest figures from the National Association of Realtors® show that sales of existing homes rebounded in December by 5.46 million–an increase of 700,000 over November, making 2015 the best year of existing home sales since 2006. The median price for existing homes in December was $224,100–7.6% over December 2014, marking the 46th consecutive month of year-over-year gains. The number of new home sales in December increased 10.8% compared to the number of sales in November. The median sales price of new houses sold in December 2015 was $288,900, while the average sales price was $346,400, compared to $297,000 and $364,200, respectively, in November. Housing starts, on the other hand, fell back a bit in December, coming in at an annualized rate of 1.149 million–2.5% below November’s figure.
• Manufacturing: Manufacturing and industrial production continue to be relatively weak sectors in the economy. The Federal Reserve’s monthly index of industrial production declined 0.4% in December, due in part to drop-offs in utilities and mining. Business inventories fell 0.2% in November from October and sales dropped 0.2% during the same period. In addition, the latest report from the Census Bureau shows orders for all durable goods decreased $12.0 billion, or 5.1%, in December compared to November. Not surprisingly, inventories are up 0.5%, commensurate with decreased demand.
• Imports and exports: Global trade continued its slow pace as foreign markets are still affected by the strength of the dollar, which has driven up prices for foreign buyers. Based on the latest information from the Census Bureau, the U.S. trade balance narrowed by $2.2 billion in November, as exports fell 0.9% in the month to $182.2 billion, while imports also dropped 1.7% to $224.6 billion. Year-to-date, the goods and services deficit increased $25.2 billion, or 5.5%, from the same period in 2014. Exports decreased $99.0 billion, or 4.6%, while imports decreased $73.7 billion, or 2.8%. Import prices fell 1.2% in December, the largest monthly drop since August 2015, while exports fell 1.1% in December, and 6.5% for 2015–the largest decline since 1983.
• International markets: Amid an apparent economic slowdown, China’s equities markets were slammed earlier in the month as money left the country, prompting the government to take steps to discourage the monetary exodus. The rest of Europe withstood China’s lagging economy, helped by the prospect of more stimulus offered by the European Central Bank.
• Consumer sentiment:While the equities markets experienced a tough January, consumer confidence did not wane. The Conference Board Consumer Confidence Index® stood at 98.1 in January, while the University of Michigan’s Index of Consumer Sentiment fell to 92.0 in January compared to 92.6 in December, primarily due to stock market downturns during the first month of 2016.

Eye on the Month Ahead

January was a tough month in the equities markets, both domestically and globally. Much of the early market decline has been in reaction to China’s apparent economic slowdown and falling oil prices. Nevertheless, the market did rebound at the end of the month following escalating oil prices. In any case, the presidential primary season kicks off in February, which may influence investors’ tendencies going forward.

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

Last week was a perfect storm of bad news for investors, as China’s continuing economic and stock market woes and the ongoing plunge in oil prices–combined with a stream of disappointing news about the U.S. economy–sparked yet another sharp selloff. Markets took a beating, with the Russell 2000 index leading the way (-3.68%). Both the Russell 2000 and the Nasdaq are down more than 10% for the first two weeks of 2016.

Crude oil closed below $30 a barrel, settling at $29.42. Concerns about sanctions being lifted in Iran, which observers worry will exacerbate the current oversupply situation, helped fuel the price plunge. The national average regular retail gas price dropped to $1.996 on January 11, $0.032 less than the previous week and $0.143 lower than a year ago.

Gold prices rose and Treasury yields dropped toward week’s end, as investors sought relative safety. Gold closed at $1,088.60 an ounce, while the benchmark 10-year Treasury lost 8 basis points from a week prior.

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

• According to the Bureau of Labor Statistics (BLS), job openings changed minimally in November, rising to 5.43 million from October’s reading of 5.35 million. Hires and separations were also little changed. Within separations, the quits rate was 2.0% and the layoffs and discharges rate was 1.2%. Over the 12 months ended in November, job openings rose 11%, with the largest increases in health care and social assistance and accommodation and food services.
• The Federal Reserve “beige book” reported modest growth in 9 of its 12 districts for the latter part of 2015 into 2016. New York and Kansas City reported growth as “essentially flat,” and contacts from Boston were “upbeat.” Expectations for future growth were positive in Boston, Philadelphia, Chicago, Atlanta, Dallas, and Kansas City.
• The U.S. Treasury reported that the budget deficit was $14.4 billion in December, down from $64.6 billion in November. Fiscal year to date, the deficit totals $216 billion, compared to $177 billion for the same period last year.
• Import prices fell 1.2% in December, the largest monthly drop since August 2015, reported the BLS. The decline was driven mainly by fuel import prices, which fell a precipitous 9.5% in December following a 3.5% drop in November. (Fuel import prices fell 40.5% in 2015, following a 29.1% drop in 2014.) Imports excluding fuel fell 3.4% in 2015, the largest drop since the index was first published in 2001. Exports fell 1.1% in December, also the largest monthly decline since last August. Both agricultural and nonagricultural exports fell 1.0% during the month. Export prices dropped 6.5% in 2015, the largest annual decline since the index was first published in 1983.
• The BLS also reported a decline of 0.2% in the Producer Price Index for final demand in December, compared to an increase of 0.3% in November. The December dip was attributed to a 0.7% decline in the prices of goods, largely resulting from falling gas prices. Services rose 0.1%. For the year, the index fell 1.0%, compared to an increase of 0.9% in 2014.
• S. retail and food services sales posted a monthly drop of 0.1% during the all-important shopping month of December, recording a total of $448.1 billion, reported the Department of Commerce. Total sales for 2015 were up just 2.1%, which was the smallest annual increase since 2009. The biggest annual gainers were sporting goods, hobby, book and music stores (7.6%); nonstore retailers (7.1%); food and drink establishments (6.7%); and motor vehicles (6.3%).
• The Federal Reserve reported that industrial production declined 0.4% in December, primarily due to cutbacks in utilities and mining. This was the third consecutive monthly decline. November figures were also revised downward, to a drop of 0.9% from a previously estimated 0.6%. Year-over-year, production was down 1.8%. Capacity utilization for manufacturing was 76.0% in December 2015, 2.5% lower than its long-term average.
• A bright note last week came from the University of Michigan’s Surveys of Consumers, which said that the preliminary reading for the Index of Consumer Sentiment was 93.3 for January, compared to 92.6 for December. This is the fourth month in a row that consumer sentiment rose. Chief Economist Richard Curtin attributed the growth to continuing levels of low inflation.
• According to the Department of Commerce, business inventories fell 0.2% in November from October, but were up 1.6% over the previous 12 months. Sales also fell 0.2% from October and were down 2.8% year-over-year. The inventories/sales ratio in November was 1.38, compared to 1.32 a year prior.
• Unemployment benefit applications totaled 284,000 for the week ended January 9, a rise of 7,000 from the previous week. This is the second-highest level since July. The advance number for seasonally adjusted insured unemployment during the week ended January 2 was 2,263,000, which was 29,000 higher than the previous week.

Eye on the Week Ahead

Investors will continue to monitor the China-and-oil drumbeat, as well the continuing flow of corporate earnings reports. This week’s economic releases include key reports on housing, inflation, and manufacturing.

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

Last week began with both domestic and global markets hitting the skids amid concerns over China’s stock market plunge, North Korea’s apparent nuclear testing, and falling oil prices. A favorable employment report at the end of the week may have helped stem the downward tide, but not nearly enough to prevent the market from registering one of its worst weeks in memory. The Dow lost over 1,000 points from last week’s December 31 close, while the S&P 500 dropped almost 6%. The Nasdaq and Russell 2000 also fell by more than 7%.

New information on China’s receding economy sent its stock market spiraling as the government closed trading twice last week. The price of oil has fallen to its lowest level since 2004, further softening energy stocks, which negatively impacted the large-cap indexes.

The price of gold (COMEX) increased, selling at $1,104.10 by late Friday afternoon, up from $1,060.50 a week earlier. Crude oil (WTI) prices also dropped, selling at $32.88 per barrel by week’s end. The national average retail regular gasoline price decreased to $2.028 per gallon on January 4, 2016, $0.006 below the previous week’s price and $0.186 under a year ago.

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

Last Week’s Headlines

• The final U.S. labor figures for 2015 revealed that the employment sector enjoyed one of its best years in the last decade as nonfarm payrolls increased by 292,000 in December, while the unemployment rate remained at 5% for the third month in a row. According to the Bureau of Labor Statistics, gains in the job market occurred in several industries, led by professional and business services, construction, health care, and food services and drinking places. Mining employment continued to decline. The number of unemployed persons, at 7.9 million, was essentially unchanged in December, and for the past 12 months, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 800,000, respectively. Adding to the favorable employment situation, revisions to October and November added more jobs for each month than previously estimated. While the average hourly earnings for all private-sector employees fell by a cent to $25.24 in December, over the past year, average hourly earnings actually rose 2.5%.
• The manufacturing sector closed 2015 on a sour note. The Census Bureau’s latest report showed that new orders for manufactured goods in November decreased $1.1 billion, or 0.2%, from October. The news wasn’t much better for December, as the Institute for Supply Management® composite Purchasing Managers’ Index® contracted for the second consecutive month registering 48.2%, a decrease of 0.4 percentage point from November’s reading of 48.6%. And, according to the final seasonally adjusted Markit U.S. Manufacturing Purchasing Managers’ Index™, U.S. manufacturers ended the year by recording the weakest improvement in overall business conditions since October 2012, as the index fell to 51.2 in December, down from 52.8 in November. Chris Williamson, chief economist at Markit said, “The manufacturing sector saw a disappointing end to 2015, and its plight looks set to continue into the New Year as headwinds show no sign of abating any time soon.”
• While the manufacturing sector may be showing signs of weakness, the non-manufacturing area (services, construction, mining, agriculture, forestry, fishing and hunting) grew in December, according to the latest Non-Manufacturing ISM® Report On Business®, which saw its non-manufacturing index register 55.3%. Any index reading of 50% or higher indicates growth. Nevertheless, while there was continued growth in December, it moved at a slightly slower rate than the prior month, which had a higher reading of 55.9%.
• Spending on construction, estimated at a seasonally adjusted annual rate of $1,122.5 billion, decreased during November 2015, according to the latest figures from the Census Bureau. Spending in November was 0.4% below the revised October estimate of $1,127.0 billion. Spending in November on private construction (-0.2%) and public construction (-1.0%) were below their respective estimates for October 2015. Nevertheless, construction spending in November 2015 was 10.5% above the November 2014 estimate of $1,016.1 billion.
• The international trade deficit narrowed by $2.2 billion in November compared to October, according to the Census Bureau’s latest report. The goods and services deficit for November was $42.4 billion, as exports were $182.2 billion ($1.6 billion less than October) and imports were $224.6 billion ($3.8 billion less than October). Year-to-date, the goods and services deficit increased $25.2 billion, or 5.5%, from the same period in 2014. Exports decreased $99.0 billion, or 4.6%, while imports decreased $73.7 billion, or 2.8%. The continued strength of the dollar has driven up prices for foreign buyers, further curtailing exports, while slumping oil prices have contributed to declining imports. Overall, these figures point to slowing global trade.
• For the week ended January 2, there were 277,000 initial claims for unemployment insurance, a decrease of 10,000 from the prior week’s unrevised total. For the week ended December 26, the advance number for continuing unemployment insurance claims was 2,230,000, an increase of 25,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate was 1.6% for the week ended December 26.

Eye on the Week Ahead

Several important economic indicators are highlighted this week. Of particular interest are the latest reports on job openings, producer prices, retail sales, and industrial production.

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

As the year came to a close, the final week of 2015 saw each of the indexes listed here finish in negative territory compared to the prior week. Since the week closed on a holiday, the closing values for 2015 are in fact the closing values for the week ending January 1, 2016, so there is no year-to-date change.

The price of gold (COMEX) fell, selling at $1,060.50 by late Thursday afternoon, down from $1,075.80 a week earlier. Crude oil (WTI) prices also dropped, selling at $37.07 per barrel by week’s end. The national average retail regular gasoline price increased for the first time in several weeks to $2.034 per gallon on December 28, 2015, $0.008 above the previous week’s price but $0.265 under 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 Census Bureau’s advance report on U.S. international trade in goods for November revealed that the seasonally adjusted deficit decreased from $61.3 billion in October to $60.5 billion in November. Compared to October, the advance numbers showed exports of goods were down about 2.0%, while imports of goods fell roughly 1.8%.
• Consumer confidence bounced back in December following November’s moderate decline. The Conference Board Consumer Confidence Index® stands at 96.5, up from 92.6 in November. The Present Situation Index increased from 110.9 last month to 115.3 in December, while the Expectations Index improved to 83.9 from 80.4 in November. Survey respondents expressed optimism about the labor market, although consumers’ expectations about their financial outlook were mixed.
• Rising prices and limited inventory continued to slow pending home sales (those under contract for sale) in November, according to the latest Pending Home Sales Index from the National Association of Realtors®. The index for November fell 0.9% from October–the third time in four months the index has declined. However, the index is 2.7% ahead of November 2014.
• For the week ended December 26, there were 287,000 initial claims for unemployment insurance, an increase of 20,000 from the prior week’s revised total. For the week ended December 19, the advance number for continuing unemployment insurance claims was 2,198,000, an increase of 3,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate was 1.6% for the week ended December 19.

Eye on the Week Ahead

The first full week of the new year will reveal how last year ended in the manufacturing sector. Also of note will be the latest Bureau of Economic Analysis report on international trade for November.

The Markets (as of market close December 25, 2015)

U.S. stocks posted their biggest weekly gains in several weeks. The close of Christmas week saw each of the indexes listed here record positive gains, with the Russell 2000 moving up 3% to lead the way.

The price of gold (COMEX) reversed course, selling at $1,075.80 by late Thursday afternoon, up from $1,065.60 a week earlier. Crude oil (WTI) prices increased, selling at $38.12 per barrel by week’s end. The national average retail regular gasoline price decreased for the sixth week in a row to $2.026 per gallon on December 21, 2015, $0.011 below the previous week’s price and $0.377 under 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 was revised down to an annual rate of 2.0% in the third quarter of 2015, according to the third estimate released by the Bureau of Economic Analysis. The second estimate issued last month approximated GDP growth at 2.1% in the third quarter. Comparatively, the GDP increased by 3.9% in the second quarter. The deceleration in the GDP in the third quarter reflected a downturn in private inventory growth and business spending, as well as decelerations in exports, consumer spending, nonresidential fixed investment, and state and local government spending.
• At an annualized rate of 4.76 million, sales of existing residential real estate fell 10.5% in November–the largest percentage decline since July 2010 (22.5%). November’s figures follow October’s numbers, which were downwardly revised to 5.32 million. The sales rate is 3.8% below a year ago–the first such decrease since September 2014. National Association of Realtors® chief economist Lawrence Yun says the dropoff isn’t necessarily due to a lack of demand, but is more likely attributable to the “Know Before You Owe” initiative, which is lengthening closing times and may have pushed some transactions scheduled for November into December. On a positive note, the median existing-home price for all residential housing types in November was $220,300, which is 6.3% above November 2014 ($207,200). November’s price increase marks the 45th consecutive month of year-over-year gains.
• Unlike sales of existing homes, new home sales in November increased, both in total number of sales and in price. According to the latest report from the Census Bureau, sales of new single-family homes in November were at an annual rate of 490,000–4.3% above the revised October rate of 470,000 and 9.1% higher than November 2014. The median sales price of new homes sold in November 2015 was $305,000 ($286,900 in October), while the average sales price was $374,900 ($358,100 in October).
• According to the advance report from the Census Bureau, new orders for manufactured durable goods (expected to last at least three years) in November increased $0.1 billion to $238.8 billion, which effectively is unchanged from October. However, excluding the volatile transportation segment, new orders actually decreased 0.1%; excluding defense, new orders decreased 1.5%. Overall gains in durable goods for November, in large part, were attributable to increases in transportation equipment and military spending.
• Compared to October, both disposable personal income and personal consumption expenditures (consumer spending) increased 0.3% in November, according to the latest figures from the Bureau of Economic Analysis. November’s figures should be encouraging news for retailers during the holiday season.
• The Index of Consumer Sentiment grew in December, coming in at 92.6 compared to 91.3 the prior month. According to the University of Michigan’s Surveys of Consumers, consumer confidence rose to its highest level since July, with the December reading nearly equal to the 2015 average of 92.9.
• For the week ended December 19, there were 267,000 initial claims for unemployment insurance, a decrease of 5,000 from the prior week’s revised total. For the week ended December 12, the advance number for continuing unemployment insurance claims was 2,195,000, a decrease of 47,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate was 1.6% for the week ended December 12.

Eye on the Week Ahead

The week is a relatively slow one for economic news and reports. Of significance is the Census Bureau’s latest report on imports and exports for November, which revealed a negative trade balance of almost $60 billion in October.