The Weekly Market Snapshot from Frazier Allen for the week of July 31st

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

For some time, financial market participants have been complacent about the federal debt ceiling being raised. After all, we’ve been here before and when push comes to shove, lawmakers will raise the debt ceiling because they have to raise the debt ceiling. The consequences of not doing so would be catastrophic for the economy and the financial markets. However, as we near the August 2 deadline, both parties remain far apart, raising the possibility that the ceiling might not be raised in time. Already, investors have pulled out of money market funds (opting instead for FDIC-backed bank deposits). Banks have begun to raise capital and tighten credit on consumer and business borrowers – none of this is good for economic growth.

The economic data remained generally disappointing. The advance estimate of Q211 GDP growth came in at a 1.3% annual rate (vs. a median forecast of +1.8%), with consumer spending at a 0.1% pace (held back by higher gasoline prices and a drop in motor vehicle sales). More troublesome, benchmark revisions delivered downward adjustments to GDP figures for Q410 and Q111. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of July 24th

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

The economic data were mixed. Housing starts rose sharply in June, but single-family permits were little changed. Home builder sentiment improved in July, but was still very low. Existing home sales for June disappointed.

The stock market reacted to varying perceptions about a deal to raise the debt ceiling. The Gang of Six plan appeared to have the most momentum. President Obama has agreed in principle to sign the resulting bill. It’s likely to clear the Senate, but could have some difficulty getting through the House. The plan would reduce the deficit by $3.7 trillion over 10 years, with $1 trillion in added revenue coming from tax reform. However, it’s unlikely that details of the plan will be worked out before the August 2nd deadline on the debt ceiling. So, an extension of the debt ceiling is expected to be needed. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of July 17th

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

Tensions increase around the federal debt ceiling. Moody’s and Standard & Poor’s indicated that the U.S.’ credit rating could be reduced if the debt ceiling isn’t raised. A downgrade would send ripples throughout the financial markets. The markets did not seem too concerned, apparently on the strong belief that the debt ceiling would be raised in time to avoid a self-inflicted financial market calamity.

The key paragraph from the June 22nd-23rd FOMC Minutes: “On the one hand, a few members noted that, depending on how economic conditions evolve, the Committee might have to consider providing additional monetary policy stimulus, especially if economic growth remained too slow to meaningfully reduce the unemployment rate in the medium run. On the other hand, a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps to begin removing policy accommodation sooner than currently anticipated.” In his monetary policy testimony, Chairman Bernanke presented a balanced outlook on monetary policy, but the markets only focused on the possibility of further asset purchases. [Read more]

The Weekly Market Snapshot from Frazier Allen for the week of July 10th

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

The June Employment Report was weaker than expected, with no bright spots. Nonfarm payrolls rose just 18,000, while the two previous months were revised a net 44,000 lower. Private-sector payrolls rose by 57,000 – a 65,000 average for May and June, following a +240,000 average for February, March, and April. Manufacturing rose by 6,000. Construction fell by 9,000. Retail added 5,200. State and local government payrolls dropped another 25,000 (following -46,000 in May) and the federal government shed 14,000 (ex-census, down 18,000, or 0.6%, from a year ago). The unemployment rate edged up to 9.2% (from 9.1% in May) and the employment/population ratio slipped to 58.2% (vs. 58.4% in May and 58.5% a year ago). Average weekly hours edged down to 34.3 (from 34.4). Average hourly earnings were essentially unchanged (up 1.9% y/y). Average weekly earnings fell 0.3% (+2.1% y/y). [Read more]

Weekly Market Snapshot from Frazier Allen for the week of July 3rd

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

The economic data were mixed. Personal income and spending figures shower a sharp small decline in inflation-adjusted consumer spending in both April and May. The trend suggests an annual rate of growth of less than 1% in Q2 2011 in consumer spending, which accounts for 70% of Gross Domestic Product. Consumer confidence fell in June. Weekly jobless claims remained moderately high. The ISM Manufacturing Index rebounded partly in June, but the details were mixed.

The stock market picked among the economic news, ignoring the poor economic data and embracing the favorable reports. Progress on an austerity package in Greece reduced near-term worries about the European sovereign debt situation, helping to fuel stock market gains. Bond prices fell, pushing the 10-year Treasury note yield back above 3.20% (after dipping below 2.90% on Monday). [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The Federal Open Market Committee left short-term interest rates unchanged and retained its conditional commitment to keep rates low for “an extended period.” The FOMC also repeated that its $600 billion asset purchase program will be completed by the end of this month. The FOMC noted that the economic recovery is continuing, but “somewhat more slowly” than had been expected. The slower pace of the recovery “reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan.”

In his post-FOMC press briefing, Fed Chairman Bernanke said that while Fed policymakers expects growth to pick up into 2012, “we don’t have a precise read on why this slower pace of growth is persisting.” The FOMC lower its expectations of GDP growth for this year (2.7%-2.9%) and next (3.3%-3.7%). The FOMC expects that the unemployment rate will to continue to decline, “but the pace of progress remains frustratingly slow.” [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, but stock market participants continued to express concerns about the outlook. Bonds rallied, with the 10-year Treasury yield pushing below 3%. The European Central Bank left short-term interest rates unchanged, but ECB President Trichet said that “strong vigilance is warranted,” a signal that rates will almost certainly be raised in July.

The trade deficit narrowed in April, suggesting that net exports may add to GDP growth in 2Q11. The Fed’s Beige Book indicated that “economic activity generally continued to expand, though a few districts indicated some deceleration.” Loan demand was “steady to stronger,” especially in the commercial and industrial sector, while “widespread improvement” was reported in credit quality – a good sign. [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 mostly on the soft side of expectations. Durable goods orders fell 3.8% in April, reflecting supply-chain disruptions from Japan and a pullback in civilian aircraft orders (which tend to be erratic). Ex-transportation, orders fell 1.5%, but that followed a 2.5% gain in March. New home sales rose 7.3% in April, but it’s not hard to get a large percentage increase when the level is so low (note: the April change was not statistically significant from zero). The Pending Home Sales Index, which measures signed contracts, sank 11.6% in April – not good, and consistent with other signs of a disappointing spring season in housing. Consumer sentiment improved. Jobless claims were higher than anticipated.

Real GDP growth rose at a 1.8% annual rate in the 2nd estimate for 1Q11, the same as in the advance estimate (vs. a median forecast of +2.1%). Consumer spending was unexpectedly revised down to a 2.2% annual rate (vs. +2.7% in the advance estimate and +4.0% in 4Q10). [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The week began with concerns on the international front. International Monetary Fund (IMF) managing Director, and potential French presidential candidate, Dominique Strauss-Kahn, was arrested over the weekend on charges of sexual battery and resigned a few days later. The change in leaderships at the IMF (and potential struggle to select a new #1) adds to the uncertainty about Europe’s debt crisis and the news added to the recent volatility in the financial markets. The minutes of the April 26-27 FOMC meeting had a slightly hawkish tilt. The minutes showed that “a majority of participants now judged the inflation risks as weighted to the upside” and “a few members viewed the increase in inflation risks as suggesting that economic conditions might well evolve in a way that would warrant the Committee taking steps toward less-accommodative policy sooner than currently anticipated.” Note that the presidents of all 12 Fed district banks participate at the FOMC meetings, but only five are members of the FOMC and have a vote on monetary policy. [Read more]

The Weekly Market Snapshot from Frazier Allen

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

The economic data held few surprises. Retail sales rose 0.5% in April, boosted by higher gasoline prices (ex-gasoline, retail sales rose just 0.2%). Weekly claims for unemployment insurance benefits fell back following a spike in the previous week, but the underlying trend is higher. The monthly inflation reports reflected higher gasoline prices (no surprise), but the impact was tempered by the seasonal adjustment (which expects increases in gasoline prices in the spring). An increase in motor vehicle prices, which could reflect difficulties in the seasonal adjustment, but seem unlikely to re-occur, added to both the CPI and PPI. The CPI rose 0.4% in April (+3.2% y/y), with gasoline accounting for about half of the monthly increase (and more than half of the year-over-year increase). Ex-food & energy, the CPI rose 0.2% (+0.1854% before rounding), a 2.1% annual rate in the first four months of 2011 (vs. a +0.8% pace in the last six months of 2010) – that’s not “runaway” inflation. [Read more]

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