The Weekly Market Snapshot from Frazier Allen
November 30, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
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
November 21, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
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
November 14, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
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
November 7, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
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
November 2, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
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]
The Weekly Market Snapshot from Frazier Allen
October 24, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
The economic data was mixed, but generally soft. Industrial production fell 0.2% in September. Manufacturing output fell 0.2%, with and without autos. Building permits fell in September, reflecting the usual volatility in the multi-family sector (single-family permits edged up 0.5%), while housing starts (which are choppy and subject to large revisions) rose more than expected. The Fed’s Beige Book noted that “on balance, national economic activity continued to rise, albeit at a modest pace, during the reporting period from September to early October.” Prices of final goods and services were “mostly stable as higher costs were not passed on to consumers.” Hiring remained “limited,” with “many firms reluctant to add to permanent payrolls given economic softness.”
Earnings reports were mixed, but mostly positive relative to expectations, fueling the stock market action. The bond market seemed to mark time, waiting for the November 3 Fed policy decision. The currency market saw brief short-covering in the dollar following China’s surprise announcement of an interest rate hike. [Read more]
The Weekly Market Snapshot from Frazier Allen
October 16, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
The minutes of the September 21st meeting of the Federal Open Market Committee showed some differences of opinion among Fed policymakers, but a general leaning toward further monetary policy accommodation (specifically, additional Fed purchases of long-term Treasury securities). Details of the mechanism and communications strategies had yet to be worked out. In the minutes, Fed officials pointed to the importance of real (inflation-adjusted) interest rates and the need to boost inflation expectations from current low levels (an increase in inflation expectations would reduce real short-term interest rates, boosting economic activity). Investors were looking for more details in the Fed chairman’s speech on Friday, but were disappointed by a lack of clarity. Bernanke indicated that “there appears to be a case for further action,” but he implied that that was not a done deal and was conditional on incoming economic data and a weighing of the potential costs and benefits. Still, with the Fed expecting both growth and inflation to trend too low for the foreseeable future, further accommodation seems more likely than not. [Read more]
The Weekly Market Snapshot from Frazier Allen
October 2, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
Same old story. The economic data reports remained consistent with a near-term slowdown in the pace of growth, but not a double dip. The estimate of second-quarter 2010 real gross domestic product (GDP) growth was revised to 1.7% (compared to 1.6% in the second estimate and 2.4% in the advance estimate). Personal income rose 0.5% in August – more than expected – but was boosted partly by the extension of unemployment insurance benefits. Consumer spending rose 0.4% (up 0.2%, adjusting for inflation – about a 2% annual rate in the third quarter of 2010). The Institute for Supply Management (ISM) Manufacturing Index slowed about as anticipated in September.
We have two new Federal Reserve governors: Janet Yellen (appointed vice chair of the Fed) and Sarah Bloom Raskin. The Wall Street Journal reported that Fed officials are considering smaller-scale quantitative easing. During the financial crisis, the Fed announced large-scale plans to purchase mortgage-backed securities and Treasuries over a period of months. Instead, the Fed may now announce smaller purchases over a month or so. This would give the Fed greater flexibility in monetary policy accommodation, and it presumably would be easier to get some of the more moderate Fed officials to go along. However, the Fed has not made any decisions on whether to increase its purchases of long-term securities. [Read more]
The Weekly Market Snapshot from Frazier Allen
September 26, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
As expected, the Federal Open Market Committee (FOMC) left the target range for the overnight lending rate unchanged at 0% to 0.25% and retained its conditional commitment to keep rates low for “an extended period.” The wording of the FOMC’s economic assessment was little changed. The committee repeated that “the pace of recovery is likely to be modest in the near term.” The big change in the statement was the admission that “measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability.”
In other words, the Fed views the underlying trend in inflation as too low (for those of you who remember the inflation of the 1970s, this may seem extraordinary). Recall that the Fed’s definition of “price stability” does not mean 0% inflation – rather, as former Chairman Alan Greenspan put it, “price stability exists when inflation is not a consideration in household and business decisions.” [Read more]
The Weekly Market Snapshot from Frazier Allen
September 11, 2010
Market Commentary by Scott J. Brown, Ph.D., Chief Economist

Scott J. Brown Ph.D., Chief Economist Raymond James Investment Services
The economic data calendar was thin. The Fed’s Beige Book, the summary of anecdotal conditions from the 12 Federal Reserve districts, noted “widespread signs of a deceleration” in national economic activity (that means slower growth, not a double dip). After rising in August, claims for unemployment insurance benefits fell back to 451,000. However, it’s unclear whether August figures were distorted (possibly by classification errors related to the extension of unemployment insurance benefits) or whether the latest week was distorted (as the Labor Day holiday led to delays in state reports to the Labor Department). The trade deficit narrowed in July, after widening sharply in June.
Stock market participants were apparently encouraged by the view that the economy will likely avoid a double dip, but were not exactly ecstatic (in that growth is still expected to be subpar in the near term). Bond yields rose. Market activity was light due to the holidays (Labor Day, Rosh Hashanah). [Read more]