The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

It was a relatively quiet week in terms of the economic data. Consumer confidence figures for December disappointed. However, what people say and what they do are two separate things (the soft confidence figure is countered by evidence of increased consumer spending). Evaluations of current job availability remained depressed. Holiday sales were reported as “strong,” but heavy snow buried post-Christmas sales in some areas.

Claims for unemployment insurance benefits fell below 400,000 in the Christmas week, but the figures are suspect due to the seasonal adjustment. Still, the trend in claims has been lower over the last few months – still relatively high by historical standards (we need to see the figure moving below 350,000 to be consistent with a “strong” job market), but moving in the right direction. The December Chicago Purchasing Managers survey and the November Pending Home Sales Index rose more than expected, but failed to have much of an impact on the markets. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data were mixed, but generally consistent with a continued expansion. Retail sales rose more than expected in November, while figures for September and October were revised higher. Industrial production rose moderately, as a drop in auto production was offset by gains in other manufacturing sectors. Residential construction figures were mixed, but single-family activity improved. Consumer inflation figures remained low.

As expected, the Federal Open Market Committee left the target range for the overnight lending rate unchanged (at 0% to 0.25%), kept it’s conditional commitment to keep short-term rates low for “an extended period,” and did not alter its asset purchase plans ($600 billion by the end of Q211). In its economic assessment, the FOMC noted that the recovery “is continuing,” but “at a rate that has been insufficient to bring down unemployment.” Congress approved the tax cut package. European debt worries continued to simmer. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data calendar was thin. The Fed’s Flow of Funds data showed that household net worth rose $1.2 trillion in Q310 (to $54 trillion), down $10 trillion from 2007. The trade deficit narrowed unexpectedly in October. On 60 Minutes, Fed Chairman Bernanke said that the Fed could extend its asset purchases if conditions warrant.

With no major economic reports, market participants debated the outlook for 2011. President Obama and Republican congressional leaders agreed to a package that would extend the Bush tax cuts for two years, extend unemployment insurance benefits by 13 months, and cut the employee-paid portion of payroll taxes for a year. While many see this as “stimulus,” it’s more of a non-negative (preventing growth from weakening rather than driving it sharply forward). European debt worries continued to simmer, as Europe debated the possible creation of a euro-bond (not backed by specific countries). The fixed-income rout continued (in the U.S. and around the world), sending the 10-year Treasury back to levels last seen in June. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data were mixed, but the week’s highlight, the November Employment Report, was disappointing. Nonfarm payrolls rose by 39,000 (vs. a median forecast of +140,000), while the two previous months were revised a net 38,000 higher. Private-sector payrolls rose by 50,000. State and local government fell by 13,000 (down 250,000, or -0.3% over the last 12 months). Manufacturing fell by 13,000. Construction slipped 5,000. Retail dropped 28,100 (up 300,800 before seasonal adjustment). Temp-help payrolls rose by 39,500 (up 9.2% year-over-year). The unemployment rate rose to 9.8% vs. 9.6% in October and 10.0% a year ago.

Ignoring most of the economic data, the stock market action seemed to be dictated largely by shifting views of the European debt crisis. An 85 financing package by the European Union and the IMF for Ireland (announced on Sunday) initially did little to calm the fears. However, stocks rallied broadly on Thursday. Equities fell on the November employment figures, but the damage was relatively limited considering the degree of disappointment relative to expectations. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data were mixed. Real GDP growth for the third quarter was revised to a 2.5% annual rate (vs. +2.0% in the advance estimate), reflecting upward revisions to consumer spending (now at a 2.8% pace), exports, and state and local government spending. Inventory growth was revised lower, still at an unsustainable pace (implying an expected drag on GDP growth in Q410). Personal income and spending were moderately strong in October. The PCE Price Index ex-food & energy was flat, up just 0.9% year-over-year.

October home sales figures disappointed. Factory orders, normally choppy from month-to-month, fell sharply (one month does not a trend make, but this bears watching closely over the near term). Consumer sentiment improved in the full-month reading for November (still very low). No surprise, the minutes of the November 2-3 FOMC policy meeting showed some difference of opinion among senior Fed officials regarding the Fed’s asset purchase program. Fed officials revised lower their forecasts of growth in 2011, with lackluster improvement in the unemployment rate (a central tendency forecast of 8.9% to 9.1% in Q411). Weekly claims for state unemployment insurance benefits fell sharply – these figures are often very choppy during this time of year, but the underlying trend may be coming down. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data were mixed, still consistent with a moderate recovery and low inflation. Retail sales rose more than expected in October, led by improvement in vehicle sales. Ex-autos, sales were moderate. Industrial production was flat, but held down by a drop in the output of utilities (a function of moderate temperatures). The Fed’s two major regional manufacturing surveys were mixed (NY down sharply, Philadelphia up sharply). Inflation figures were lower than expected. Ex-food and energy the CPI rose 0.6% in the 12 months ending in October – a record low (the series began in 1957). Alternative measures of core inflation appear to be trending gradually lower.

While the economic data were important, the markets remained focused on the possible consequences of the Fed asset purchase program and, perhaps more importantly, on developments overseas, including troubles with the Irish banks and China’s attempts to cool inflation. Criticism regarding the Fed did not die down, and became more political. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The economic data calendar was thin. Weekly claims for unemployment insurance benefits fell, but the numbers are normally choppy during this time of year (still, the underlying trend may be edging down due to better seasonal hiring this year). The September trade deficit was a bit narrower than assumed in the advance GDP report. Imports and exports fell sharply during the recession (narrowing the trade deficit considerably) and partly rebounded in the recovery (leading to a resumed widening of the deficit). However, recent figures suggest a flattening in these trends (and perhaps some stabilization in the size of the trade deficit, at least in the near term).

There was much interest ahead of the G-20 meeting (as with any such meeting), but these things always disappoint. The G-20 communiqué suggested no progress on reducing global imbalances or relieving monetary and fiscal policy tensions. The euro weakened on renewed sovereign debt worries (this time focusing mostly on Ireland, where austerity moves have done nothing to instill confidence). [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

The Federal Open Market Committee announced plans to further expand its holdings of securities. The FOMC expects to purchase a further $600 billion in long-term Treasuries by the end of Q211 ($75 billion per month) and will maintain its existing policy of reinvesting principal payments from its mortgage holdings into long-term Treasuries (about $35 billion per month). The FOMC indicated that it “will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability.” In its economic assessment, the FOMC said that “currently, the unemployment rate is elevated, and measures of underlying inflation are somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate.” The FOMC “anticipates a gradual return to higher levels of resource utilization in a context of price stability,” but added that “progress toward its objectives has been disappointingly slow.” The stock market seemed unsure of how to react to the Fed’s announcement, but rallied strongly the next day. [Read more]

The Weekly Market Snapshot from Frazier Allen

Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Real GDP rose at a 2.0% annual rate in the advance estimate for Q310 (vs. +1.7% for Q210 and +3.7% for Q110) – matching the median forecast. Real consumer spending rose at a 2.6% annual rate (vs. +2.2% in Q210). Business fixed investment rose 9.7% (vs. 17.2%). A faster pace of inventory accumulation (perhaps unintended) added 1.4 percentage points to overall growth. Another increase in imports (a sign of strength in domestic demand) subtracted 2.6 percentage points from GDP, while an increase in exports added 0.6 percentage points. Domestic Final Sales (GDP less net exports and the change in inventories), the best measure of underlying domestic demand, rose at a 2.5% annual rate, down from a strong 4.3% pace reported for Q210.

The markets were buffeted by earnings reports and by shifting expectations of the Fed’s asset purchases. The consensus is that the Fed will purchase smaller amounts ($250 billion to $500 billion) of long-term Treasuries over shorter time horizons, rather than the “shock and awe” of large-scale purchases (a level of $1 trillion had been floated earlier). Market participants began to look to next week with some level of uncertainty. [Read more]

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