FOMC Minutes: Exit Strategy Discussion
21 minutes ago
World View & Market Commentary.
Forest first; Trees second.
Focused on Real & Knowable facts that filter through the "experts" fluff and media hyperbole. Where we've been, what the future may hold and developing a better way forward.
New orders for civilian aircraft led to a huge spike in durables orders. Otherwise, durables orders were modestly positive. New factory orders for durables surged 3.8 percent, following a no change the prior month (prior revised estimate, down 0.5 percent). The November boost was much higher than the consensus forecast for a 1.9 percent jump. Excluding transportation, durables grew 0.3 percent after a 1.5 percent gain in October (prior revised estimate, up 1.1 percent). The November rise fell short of expectations for a 0.4 percent increase. However, upward revisions are offsetting.
Outside of transportation, new orders were led by primary metals and machinery with fabricated metals and "other" also gaining. Weakness was seen in computers & electronics and also electrical equipment.
A disappointment was in civilian capital equipment excluding aircraft which dipped 1.2 percent after a 0.9 percent decline in October. Shipments decreased 1.0 percent in November after a 0.8 percent fall the month before.
Overall, durables point to continued gains in manufacturing but not at a robust pace outside of aircraft.
Personal income and spending posted modest gains in November. Meanwhile, PCE price inflation was soft. Personal income in November grew 0.1 percent, following a 0.4 percent increase the month before. November's gain fell short of analysts' forecast for a 0.2 percent rise. However, the wages & salaries component slipped 0.1 percent after a 0.6 percent increase in October. The rise in personal income was led by gains in rental income and dividends combined with a decline in contributions for government social insurance.
Consumer spending in November advanced a soft 0.1 percent, following a 0.1 percent increase the month before. The market consensus was for a 0.3 percent gain. Weakness for the latest month was in nondurables (reflecting lower gasoline prices) which fell 0.3 percent after a 0.2 percent dip in October. Durables jumped 0.8 percent in November as services edged up 0.1 percent.
Headline inflation firmed but both headline and core inflation remained soft. The headline PCE price index was unchanged after dipping 0.1 percent in October. Analysts had called for a 0.1 percent increase. The core rate held steady at 0.1 percent in November and matching market expectations.
Year-on-year, headline prices were up 2.5 percent, compared to 2.7 percent in October. The core was up 1.7 percent, matching the pace of the prior month.
While November income is little disappointing, that is less so after taking into account earlier healthier gains. However, spending is sluggish though less so after discounting inflation. Real PCEs rose 0.2 percent in each October and November after jumping 0.5 percent in September.
Overall, the fourth quarter is showing improvement over the third but not as much as earlier hoped. But the majority of the Fed's FOMC will be happy with the recent inflation numbers, allowing the Fed to stay loose for some time.
Economic growth for the third quarter was more sluggish than previously believed and the change in the component mix will have economists rethinking their forecasts for the fourth quarter. The Commerce Department for its third estimate for third quarter GDP growth nudged its number down to 1.8 percent annualized growth from the prior estimate of 2.0 percent annualized. Market expectations were for overall GDP growth to be unrevised.
The downward revision primarily was due a smaller decline in inventories and also to less robust growth in personal consumption.
Final sales of domestic product were revised down to 3.2 percent from the second estimate of 3.6 percent. Final sales to domestic purchasers were down to 2.7 percent from the prior estimate of 3.0 percent annualized.
On a year-ago basis, GDP is up 1.5 percent, compared to 1.6 percent in the second quarter.
Economy-wide inflation revised up marginally to 2.6 percent from the second estimate of 2.5 percent. Analysts had called for an unrevised 2.5 percent.
This morning's economic news was mixed as GDP growth for Q3 was revised down while the latest initial jobless claims number came in unexpectedly down and lower than expected. Many traders saw the combination as a wash as equity futures were little changed. While technically the change in the component mix (from final sales to inventories) should lead to downward revisions to fourth quarter GDP forecasts, more current data (notably the recent declines in jobless claims) might suggest an upward revision.
“Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our gross national product...if we should judge the United States of America by that - counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.
Yet the gross national product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile. And it tells us everything about America except why we are proud that we are Americans.”
― Robert F. Kennedy
Layoffs are on a steady decline in what is good news for the jobs market and for the December employment report. Initial claims fell for a third week in a row, down 4,000 to a much lower-than-expected level of 364,000 (prior week revised to 368,000 for a 17,000 decline). The four-week average is also down for a third week in a row and down for six of the last seven, declining 8,000 to 380,250 which is the lowest level of the recovery.
Continuing claims in data for the December 10 week fell 79,000 to 3.546 million, also the lowest level of the recovery. The unemployment rate for insured workers, down one tenth to 2.8 percent, is also at a recovery low.
The holidays, with its shortened weeks and extreme effects, are always a tough to gauge weekly jobless claims data, but the trend is clearly lower in what should be good news for the markets and which should continue to build expectations for a strong gain in December payrolls.
Growth indications are slowing in the national activity index which fell to minus 0.37 in November from a revised minus 0.11 in October (negative indicates below trend growth). Employment is a positive in the report but is being offset by a downturn in production. Housing is still heavily negative with sales, orders & inventories neutral. The index's three-month average is at minus 0.24 (prior revised).
Consumer sentiment continues to extend its improvement, to 69.9 in December from 64.1 in November and from 67.7 at mid month. The reading implies a very strong 72.1 over the last two weeks which points to momentum for January. The bulk of the gain is centered in expectations, at 63.6 in December for a more than eight point monthly gain that points further to momentum in the new year. The assessment of current conditions, likely held down by bad news out of Europe, rose only two points in the month to 79.6.
One likely positive for sentiment is improvement in the jobs market as well as the stock market which has been on the recovery. Another positive may be gasoline prices which, despite $100 oil, are on the decline. One-year inflation expectations eased one tenth in the month to 3.1 percent with five-year expectations unchanged at 2.7 percent. The Dow is moving to morning highs following this report. The December consumer confidence report from the Conference Board, which in November surged, will be posted on Tuesday.
Housing is back under downward price pressure. According to the FHFA, house prices in October declined 0.2 percent after gaining 0.4 percent in September (originally up 0.9 percent) and dipping 0.2 percent in August. The October decrease came in lower than analysts' forecast for a 0.3 percent rise.
On a year-on-year basis, the FHFA HPI is down 2.8 percent versus down 2.7 percent in September.
Six of the nine Census Divisions showed declines in October, led by a 1.0 percent decrease for the New England region. On the upside, the largest gain was a 1.9 percent boost for the East South Central.
The index of leading economic indicators rose a very solid 0.5 percent in November following October's 0.9 percent surge. The leading positive is the rate spread which reflects the Federal Reserve's zero interest rate policy. The second positive is building permits which appear to be building steam in what is very good news for the construction sector. Consumer expectations are a big positive in the month and judging from this morning's consumer sentiment report look to be a big positive for December. Another positive that's likely to extend through this month is the November improvement in jobless claims which gave the fifth strongest contribution to the month's 0.5 percent gain.
A decline in the factory workweek is the largest in the short list of negatives, and perhaps one that will reverse this month given early indications of strength in last week's Empire State and Philly Fed reports. A speeding up in vendor deliveries is the second largest negative.
This report is very solid and points, as the Conference Board says, to easing risk of an economic downturn. Other readings include 0.1 percent gains for both the coincident and lagging indexes.
NEW YORK (CNNMoney) -- Nearly five years into the crisis, just how badly are foreclosures still hurting the housing market?
A whopping 46% of homes sold in November were either short sales or REOs -- as homes foreclosed on and repossessed by lenders are called, according to a survey by Campbell/Inside Mortgage Finance released Tuesday.
"The huge glut of distressed properties coming to market is why there will be no home price rebound this coming year and maybe into 2013," said Guy Cecala of Inside Mortgage Finance, a publisher of mortgage information and news.
News on the housing market has been turning positive but not for the purchase index for the December 26 week which fell 4.9 percent. The four-week average for the purchase index is down 1.5 percent. The Mortgage Bankers Association warns that low interest rates by themselves aren't enough to stimulate demand given lack of equity in existing homes, poor credit conditions and a still weak jobs market.
The refinancing index fell 1.6 percent in the latest week with the four-week average up 1.3 percent. The average 30-year rate for conforming loans ($417,500 or less) is down four basis points to 4.08 percent for a new 2011 low. Data on existing home sales will be posted at 10:00 a.m. ET this morning.
Also released today are benchmark revisions to historic existing-home sales. The 2010 benchmark shows there were 4,190,000 existing-home sales last year, a 14.6 percent revision from the previously projected 4,908,000 sales. For the total period of 2007 through 2010, sales and inventory were downwardly revised by 14.3 percent. The revisions are expected to have a minor impact on future revisions to Gross Domestic Product.
Bankers Seek to Debunk ‘Imbecile’ Attack on Top 1%
Jamie Dimon, the highest-paid chief executive officer among the heads of the six biggest U.S. banks, turned a question at an investors’ conference in New York this month into an occasion to defend wealth.
“Acting like everyone who’s been successful is bad and because you’re rich you’re bad, I don’t understand it,” the JPMorgan Chase & Co. (JPM) CEO told an audience member who asked about hostility toward bankers. “Sometimes there’s a bad apple, yet we denigrate the whole.”
Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. (HD) co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.
If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.
“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”
New housing construction is showing signs of life in November-although the pulse is still weak. Housing starts in November rebounded 9.3 percent after slipping 2.9 percent in October. The November annualized pace of 0.0.685 million came in higher than market expectations for 0.636 million units and is up 24.3 percent on a year-ago basis. The gain in November was led by a 25.3 percent jump in the multifamily component, following a 15.2 percent decrease in October. The single-family component improved 2.3 percent after a 3.6 percent rise the month before.
By region, the boost in starts was led by a 53.8 percent jump in the Northeast. Other regions showing increases were the West, up 22.6 percent, and the South, up 4.1 percent. The Midwest declined 18.2 percent.
Homebuilders are a growing in optimism although still to a modest degree from low levels as housing permits advanced 5.7 percent after jumping 9.3 percent in October. The November rate of 0.681 million units annualized topped the consensus forecast for 0.645 million. Permits in November are up 20.7 percent on a year-ago basis.
The November gain in permits was led by a 13.9 percent jump in multifamily permits after a 22.7 percent surge in October. Single-family permits rose 1.6 percent, following a 3.6 percent increase the prior month.
Today's housing starts report is consistent with yesterday's report of a rise in the National Association of Home Builders' housing market index. There are signs that the level of activity in single-family home sales is picking up, but the real action clearly has shifted to the multifamily sector as high unemployment and still tight credit are constraining home sales.
Decade sees steep drop in companies with employee benefits
The percentage of Washington companies offering employee benefits has declined markedly in the last decade, a new report from the Economic Opportunity Institute shows.
In 2002, 76 percent of firms in Washington provided health insurance to full-time employees, while in 2010, that figure was just 54 percent, according to the institute’s Washington’s Working Women 2012.
The percentage of firms offering retirement benefits to full-time employees fell from 60 percent in 2002 to just 36 percent in 2010. And the percentage of firms offering paid sick leave to full-time employees shrank from 56 percent in 2002 to 44 percent in 2010.
For part-time employees — the majority of whom are women, according to the report — only 15 percent of businesses offered retirement benefits, 22 percent provided vacation, and 11 percent offered health benefits.
The report also found that women made only 63 percent of what men did in 2010, a decrease from 1991, when the figure was 65 percent. Men outearned women at every level, making $7,000 more a year at the high-school graduate level and $27,500 per year among those with a professional or graduate degree.
“State budget cuts, declining workplace benefits, and a widening wage gap are putting Washington’s women at risk for more economic instability and poverty in 2012,” the institute commented in a press release.