This post was originally published in the Washington Business Journal’s WBJBizBeat Blog. | Washington Business Journal
Here’s a quick rundown of what happened last week in what we like to divide up in three categories we can all relate to: The Good, The Bad and The Ugly.
Good- New home starts were in line and construction permits climbed in October. Construction permits climbed to the highest level since March 2010, housing starts are on a 628,000 annual pace (stronger than economists’ forecast.) Housing may become less of a drag in quarters to come. Mortgage rates near record lows and a continued reduction in inventory seem to be helping the markets.
Good- Retail sales in October were up a strong +0.5% vs +1.1% in September. This gives the economy a bit of steam heading into holiday season. Apple was a driver of the growth with iPhone sales.
Good- Empire State (NY) manufacturing index in November increased to -0.6 vs -8.5 in October. This has great import because it is the first positive movement since May. Measures of shipments and employee workweek improved.
Good- Weekly unemployment insurance claims fell last week by 5,000 to 388,000, the lowest level since April. The number of people on unemployment fell to a 3 year low.
Good- the Conference Board Index of Leading Indicators rose .9% in October, the largest increase since February. The October rebound in the leading index reflected positive contributions from building permits, the spread between short-term and long-term interest rates, a rising stock market and a slightly better employment reading.
Good- GDP– many economists are raising their projections to over 3% for 4th Q GDP.
Good/Bad- CPI (inflation) was down .1%, up .1% excluding food and energy. In October, gas prices were down 3.1%. However, year over year, inflation is at 3.5%. Without food and energy, inflation is not a big concern. However, that doesn’t help the average consumer who spends significant dollars on food and energy. Groceries are up 6.2% over the past year. The cost of your average Thanksgiving dinner is up 13% from last year. Enjoy your turkey, you’re paying more for it!
Bad-Europe: it’s not good when stories are floated over a possible breakup of the European Union. We don’t see it happening, but it is a clear indication of the fear of contagion that many European countries are experiencing.
Ugly (really ugly)- The US congressional supercommitee appears to have failed to reach a consensus prior to the November 23 deadline. News sources are reporting that members are searching for the best way to release this news to the public and then get out of town. There are serious concerns that the year end expiration of a 2 percent cut in employee payroll taxes and extended unemployment benefits may curtail US growth by as much as 2% next near. It remains to be seen what the long term effects and solution might look like. Forced cuts totaling $1.2 trillion will begin in 2013. The lack of an agreement is most likely to add volatility to an already spooked equity market.
Markets– It was a rough week for global equity markets. Volatility returned and all markets suffered.
Dow down 2.9%, Nasdaq down 4%, S&P down 3.8%, gold down 3.5%, crude oil down 1.6% to $97 after having risen to over $100 earlier in the week and US 10 yr Treasuries still near record lows at 2.00%.
Dividend stocks continue to be in favor. Utility stocks were the best performing sector in the S&P for the first time in over 10 years. While utilities are the only S&P sector with lower earnings forecasts in 2012, consumer demand for their higher dividend has pushed the sector higher.
We are expecting a heavy calendar this week for US Treasury issuance, over $100B. The size, combined with supercommittee concerns and a shorter Thanksgiving week may put pressure on Treasuries (yields up.)
The markets will all be focused on numerous data releases prior to Thanksgiving. Data on existing home sales will be released Monday, initial jobless claims report along with orders for durable goods and the final reading on consumer sentiment on Wednesday.