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Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The stock market began the year relatively optimistic about the 2011 economic outlook, but the week’s mixed economic data dampened the euphoria to some extent. The ISM surveys improved in December, but the employment gauges in those reports were relatively soft. While the holiday shopping season was deemed a great success, chain-store sales results were mixed (as many disappointments as upside surprises).
The December Employment Report was a mixed bag. The strong ADP estimate of private-sector payrolls (+297,000) led many economists to revise their forecasts of the official Bureau of Labor Statistics figure. The BLS payroll figure disappointed, rising by only 103,000, although a +70,000 revision to the two previous months took away some of the sting. Job gains were led by leisure and hospitality (+47,000) and healthcare (+35,700). Temp-help added 15,900 (+16.1% y/y). State and local government shed 20,000 (down 250,000, or 1.3%, over the last 12 months).
The unemployment rate fell to 9.4% from 9.8%, but part of that appears to have been an unwinding of a quirk that boosted the rate in November. In addition, the temporary lapse in extended unemployment insurance benefits likely reduced the rate in December. The employment-to-population ratio has been little changed over the last 12 months.
The December 14th FOMC minutes suggest that Fed officials have a high threshold for making changes to the asset purchase program. In testimony to the Senate Budget Committee, Fed Chairman Bernanke indicated that the Fed expects the economy to continue to improve, just not fast enough to bring the unemployment rate down rapidly. He noted problems associated with “very low” inflation and painted the asset purchase program as merely being similar to conventional monetary policy (that is rate cuts). He noted that the Fed returned $120 billion in interest payments to the Treasury in 2009 and 2010.
Next week, the important economic data bunch up on Friday. Retail sales are likely to post a moderately strong gain in December, boosted partly by higher gasoline prices. Higher gasoline prices will also show up in the Consumer Price Index (and will be amplified by the seasonal adjustment, which expects a decline). Industrial production is expected to have risen moderately.
Consumer Money Rates
Treasury Yield Curve – 1/7/2011
S&P Sector Performance (YTD) – 1/7/2011
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Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business January 6th, 2010.
TopicsCapacity Utilization, Consumer Price Index, Economic Data, European Debt, Federal Open Market Committee, Financial Markets, Frazier Allen, Global Equity Markets, Gross Domestic Product, Index of Leading Economic Indicators, Manufacturing Output, Raymond James, Raymond James Investment Services, Scott J. Brown, Seasonal Adjustment, Short-Term Interest Rates, Volatility, Weekly Market Snapshot
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