Market Commentary by Scott J. Brown, Ph.D., Chief Economist
With so many economic reports, some surprises were likely. Real GDP fell at a 0.1% annual rate in the advance estimate for 4Q12, smacked down by slower inventory growth and a 22.2% drop in defense spending (otherwise, GDP would have risen 2.5%). Consumer spending rose at a 2.2% pace in 4Q12, while business fixed investment advanced 8.4%. Residential construction added 0.4 percentage points to GDP. Exports fell.
Consumer Confidence tanked in January, while the Consumer Sentiment Index improved. The ISM Manufacturing Index was stronger than anticipated. Personal income jumped 2.6%, reflecting a 34.3% spike in dividend income and earlier bonus payments. Spending rose 0.2%. The PCE Price Index was flat overall (+1.3%) and ex-food and energy (+1.4% y/y) – trending well below the Fed’s 2% goal.The Federal Open Market Committee did not alter its forward guidance on the overnight lending rate, nor did it curtail its asset purchase program (QE3). The FOMC noted that “growth in economic activity paused in recent months,” but said that was due to the weather and other transitory factors. Note that the December FOMC minutes showed that “several” Fed policymakers were concerned about QE3’s possible impact on financial stability – there was no evidence of that in the latest policy statement, but we should see this discussion continue in the minutes for the January meeting (released in a few weeks).
Next week, the economic calendar thins out considerably. The ISM Non-Manufacturing Index has some market-moving potential. On Thursday, Fed Governor Jeremy Stein will speak on “financial stability” – so the Fed’s internal debate on QE may be going public.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.587||1.575|
|Dollars per Euro||1.358||1.307|
|Japanese Yen per Dollar||91.330||76.290|
|Canadian Dollars per Dollar||0.997/td>||1.004|
|Mexican Peso per Dollar||12.709||13.025|
|10-year municipal (TEY)||3.05||3.06|
Treasury Yield Curve – 02/01/2013
S&P Sector Performance (YTD) – 02/01/2013
|Super Bowl XLVII|
|ISM Non- Manufacturing Index (January)|
|Jobless Claims (week ending February 2nd)
Productivity (4Q12, preliminary)
Fed Governor Stein Speaks (“financial stability”)
|Retail Sales (January)|
|Industrial Production (January)|
|Presidents Day Holiday (markets closed)|
|FOMC minutes (January 29th-30th)|
|Employment Report (February)|
|FOMC Policy Decision, 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 January 31st, 2013.