The Weekly Market Snapshot from Frazier Allen for the week of November 6th, 2012
November 6, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
Superstorm Sandy delivered a hard punch to the upper mid-Atlantic states, contributing to tragic loss of life and severe property damage. Flooding in lower Manhattan led to a two-day shutdown of the NYSE. It will take some time to assess the economic effect and the impact appears likely to be much larger than initially estimated. However, it is likely to be limited relative to a $16 trillion national economy. Severe weather typically shifts some spending around and rebuilding will add to GDP growth.
The economic data remained consistent with moderate economic growth. However, the October Employment Report was much stronger than anticipated. Nonfarm payrolls rose by 171,000 (vs. a median forecast of +125,000), while figures for August and September were revised a net 84,000 higher. The unemployment rate ticked up to 7.9%, but that appeared to reflect statistical noise in a general downtrend. For those aged 25-55 years, labor force participation has stabilized and begun to trend higher and the employment/population ratio is much higher than a year ago (76.0%, vs. 74.8%). [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of October 30th, 2012
October 30, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data reports were mixed. Real GDP rose at a 2.0% annual rate in 3Q12 (+2.3% y/y), boosted partly by an increase in government spending (the first since 2Q10). The report showed a moderate pace of consumer spending and weakness in business fixed investment. Durable goods rose 9.9%, reflecting a rebound in aircraft orders. However, orders and shipments of nondefense capital goods weakened and unfilled orders (ex-transportation) continued to weaken.
The Federal Open Market Committee left short-term interest rates unchanged, did not alter its forward guidance (on the federal funds target rate), and kept its Large-Scale Asset Purchase program (QE3) in place. At the December 12-13 FOMC meeting, officials are likely to decide whether to extend Operation Twist or up its asset purchase plans. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of October 22nd, 2012
October 22, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data reports were mixed, but mostly on the strong side of expectations. Retail sales rose 1.1% in September, while figures for July and August were revised higher. Industrial production rose a little more than anticipated, but manufacturing activity was down in the quarter as a whole. Residential construction activity surged in September (single-family permits up 6.7%), although improvement may have been inflated by the seasonal adjustment (19 working days last month, vs. 23 in August and 21 a year ago). The Consumer Price Index was boosted by higher energy costs, but the underlying trend in core inflation remained low.
While the economic data were mostly favorable, the stock market was more concerned with earnings reports, which were generally disappointing. News reports noting that we’re at the 25th anniversary of Black Monday probably didn’t help either. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of October 17th, 2012
October 17, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
With a thin economic calendar, the stock market was left to fret about other things, including global growth and earnings. In its World Economic Outlook, the IMF lowered its projections of global output for this year and next cautioning that “downside risks are now judged to be more elevated.” U.S. corporate earnings from abroad are expected to soften further.
The Fed’s Beige Book, the anecdotal summary of economic conditions from the 12 Federal Reserve districts, noted “economic activity generally expanded modestly” since the previous report. Consumer spending was “generally reported to be flat to up slightly.” Conditions in manufacturing were mixed “but, on balance, somewhat improved.” Residential real estate conditions improved, with “most districts reporting a strengthening in existing home sales.” Home prices were described as “steady to increasing,” with declining inventories noted in the several districts. Employment conditions were “little changed” and “uncertainty related to the upcoming presidential election, U.S. fiscal policy, and European debt issues were cited by some as restraining hiring.” [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of September 30th, 2012
September 30, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed, but mostly disappointing. Consumer confidence improved in September and the Case-Shiller Home Price Index continued to rise. Real GDP rose at a 1.3% annual rate in the 3rd estimate for 2Q12 (vs. +1.7% in the 2nd estimate). Personal income rose 0.1% in August (+3.5% y/y). Spending rose 0.5%, but gasoline accounted for about 80% of that. The PCE Price Index rose 0.4% (+1.5% y/y), up 0.1% ex-food & energy (+1.6% y/y) – trending below the Fed’s 2% target. Durable goods orders plunged 13.2%, partly reflecting a drop in civilian aircraft orders (which went negative due to order cancelations). [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of September 23rd, 2012
September 23, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed. Homebuilder sentiment continued to improve. Existing home sales rose 7.9% in August (+24.5% y/y). Housing starts and building permits were mixed in August, but continued to reflect an improving trend in single-family construction (permits up 19.3% y/y). The Fed’s two key regional manufacturing surveys were mixed, but remained weak.
Intraday volatility increased in the stock market as investors tried to weigh the Fed’s recent actions (and promise to do more if need) against the near-term headwinds and downside risks. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of September 16th, 2012
September 16, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
Citing concerns about the pace of improvement in the labor market, the Federal Open Market Committee extended its forward guidance and started a third round of large-scale asset purchases (what most people call “QE3”). The FOMC said economic conditions are expected to warrant exceptionally low levels of the federal funds rate target through mid-2015 (vs. “late 2014” in the previous policy statement) and added that “a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens.”
The Fed’s latest bond-buying program will be in mortgage-backed securities and, unlike the first two asset purchase programs, is open-ended ($40 billion per month). In his press briefing after the FOMC meeting, Chairman Bernanke emphasized that the Fed wanted to see “substantial” improvement in the labor market, but declined to assign specific numbers to that. Bernanke also said that the Fed cannot do everything (including offsetting the negative impact of the fiscal cliff, should that occur), but is obliged to do what it can to support growth. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of September 9th, 2012
September 9, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed. The ISM Manufacturing Index disappointed in August, but the Non-Manufacturing Index was a bit stronger than expected. Unit auto sales picked up. The ADP estimate of private-sector payrolls rose by 201,000. However, the BLS nonfarm payroll figure rose 96,000 (median forecast: +135,000), with a net revision of -42,000 to the two previous months. The unemployment rate fell to 8.1% (from 8.3%), but that was due to a drop in labor force participation (I wouldn’t read much into that, it’s well within the normal range of uncertainty).
The European Central Bank unveiled its bond-buying program (dubbed Outright Monetary Transactions). The OMT is designed to address dislocations in the government bond market (that is, higher borrowing costs in Italy and Spain). It’s not monetary stimulus, but it should improve the transmission of existing monetary policy. Bond purchases will be unlimited, concentrated in maturities of three to five years, and conditional on fiscal progress. The OMT averts a near-term crisis, but doesn’t solve the region’s underlying problems. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of August 28th, 2012
August 28, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The FOMC Minutes from the July 31st/August 1st policy meeting showed that Fed officials were worried about the deceleration in economic growth. “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery.” However, “several members noted the benefits of accumulating further information that could help clarify the contours of the outlook for economic activity and inflation as well as the need for further policy action.”
Meeting participants discussed three policy options: extending the forward guidance (the length of time which the Fed expects to keep short-term rate exceptionally low), undertaking another round of asset purchases, and lowering the interest rate the Fed pays on excess bank reserves. Extending the forward guidance appeared to have the least amount of internal resistance, but additional asset purchases had some support. [Read more]
The Weekly Market Snapshot from Frazier Allen for the week of August 19th, 2012
August 19, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mixed, but generally stronger than expected. Retail sales popped 0.8% (overall and ex-autos) in July, following weak reports in April, May, and June. The CPI was flat overall in July and up only mildly ex-food & energy. However, higher prices of food and energy are expected to show through more in the report for August. Industrial production advanced, fueled by strength in autos (seasonal adjustment issues?) and hot weather (higher output of utilities).
Residential construction figures were mixed. Housing starts slipped, but single-family building permits (which are reported more accurately) rose further. [Read more]
