Market Commentary by Scott J. Brown, Ph.D., Chief Economist
In his speech at the Kansas City Fed’s annual monetary policy symposium in Jackson Hole, Fed Chairman Bernanke said that “the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus,” adding that “we discussed the relative merits and costs of such tools at our August meeting.” Bernanke said that Fed policymakers “will continue to consider those and other pertinent issues, including of course economic and financial developments, at our meeting in September, which has been scheduled for two days (the 20th and the 21st) instead of one to allow a fuller discussion.” He also noted that Fed officials expect inflation to “settle” over coming quarters at levels at below 2% (the upper end of the Fed’s comfort range. This inflation outlook, along with expectations of continued excess capacity, allowed the Federal Open Market Committee (on August 9) to make explicit the time frame (through the middle of 2013) that short-term interest rates are expected to remain exceptionally low.
The economic data were mixed. New home sales weakened in July. Durable goods orders jumped, reflecting a rebound in aircraft. Reduced seasonal plant shutdowns this year led to a large seasonally-adjusted gain in orders for motor vehicles. Ex-transportation and primary metals orders fell (orders for nondefense capital goods ex-aircraft fell 1.5%). The estimate of real GDP growth for the second quarter was revised to a 1.0% annual rate (vs. +1.3% in the advance estimate. However, the meat and potatoes (consumer spending and business fixed investment) were revised higher (exports and inventories were revised lower).
Next week, fresh figures for August begin to arrive. The focus will be on Friday’s employment data, but the ISM Manufacturing Index also has potential to move the markets. Regional manufacturing surveys have been weak, but declines in some of the major ones have led to expectations that the ISM Manufacturing Index will dip below the breakeven level (50). The Chicago Purchasing Managers Index, one day earlier, will be seen as a preview. The economy needs to generate about 135,000 payroll jobs each month to absorb the growth in the working-age population. The August payroll figure is expected to be a fair degree less than that, trimmed by strike activity and further contractions in state and local government.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.629||1.546|
|Dollars per Euro||1.437||1.267|
|Japanese Yen per Dollar||77.430||84.510|
|Canadian Dollars per Dollar||0.986||1.063|
|Mexican Peso per Dollar||12.433||13.019|
|10-year municipal (TEY)||3.37||3.99|
Treasury Yield Curve – 8/26/2011
S&P Sector Performance (YTD) – 8/26/2011
|Personal Income and Spending (July)
Pending Home Sales Index (July)
|S&P/C-S Home Price Index (June)
Consumer Confidence (August)
FOMC Minutes (August 9th)
|ADP Payroll Estimate (August)
Chicago Purchasing Managers Index (August)
|Jobless Claims (week ending August 27th)
ISM Manufacturing Index
Motor Vehicle Sales (August)
|Employment Report (August)|
|Labor Day (markets closed)|
|ISM Non-Manufacturing Index (August)|
|Fed Beige Book|
|Retail Sales (August)|
|Consumer Price Index (August)|
|FOMC Policy Meeting (press briefing?)|
|FOMC Policy Meeting
Bernanke Press Briefing
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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 August 25th, 2011.