Friday, January 30, 2015

Consumer Sentiment Highest in a Decade

According to the University of Michigan Consumer Sentiment Index, consumer sentiment rose to 98.1 in January, up 4.5 points from the previous month, the highest reading in a decade. The Index is up 16.9 points from January 2014.

The improvement to future expectations index led the increase, increasing 4.6 points to 91.0, followed closely by the index for present conditions, which increased 4.5 points to 109.3. The survey notes that gains in the past six months were as large among households with income under $75,000 as over that amount.

Inflation expectations were mixed. Respondents expect inflation over the next year to be 2.4%, down 0.4 percentage points from the previous month’s survey, and over the next 5 years to be 2.8%, consistent with the previous month.

U.S Economy Grew 2.6% in Fourth Quarter

Real GDP grew at a 2.6% seasonally adjusted annual rate according to the Bureau of Economic Analysis' preliminary estimate. GDP growth was weaker than the third quarter, but still signals a strong economy. Personal consumption expenditures (PCE) continued to drive growth, followed by an increase in private inventory investment. The deceleration in real GDP growth primarily reflected an upturn in imports, a downturn in federal government spending and decelerations in nonresidential fixed investment and exports.

PCE increased 4.3% in the fourth quarter, contributing 2.9 percentage points to total GDP. In comparison, third quarter personal consumption growth was 3.2%, contributing 2.2 percentage points to total GDP. Inventories rebounded in the fourth quarter, contributing 0.8 percentage points to total GDP, after subtracting 0.03 percentage points from third quarter GDP.

Fixed investment grew 1.9%, a weak increase compared to 8.9% growth in the third quarter. Investment in equipment drove the drag, decreasing by 1.9% compared to an increase of 11.0% in the third quarter.

Exports increased just 2.8% compared with an increase of 4.5% in the third quarter as the economy is starting to feel the effects of the strong U.S. dollar. Increased imports further contributed to the decrease in net exports, growing 8.9% compared with a 0.9% decrease in the third quarter.

Federal government expenditures decreased 7.5% in contrast to an increase of 9.9% in the third quarter. The decline was primarily due to a 12.5% decrease in national defense spending, compared with an increase of 16% in the prior quarter.

Read the BEA report.

Wednesday, January 28, 2015

FOMC: Strong Job Gains but Declining Inflation

The Federal Open Market Committee’s (FOMC) plans for increasing the target range for the federal funds rate is consistent with the December meeting, as expected. In its January 28 statement, the Committee continues to say that it can be patient in beginning to normalize the stance of monetary policy.

However, there are some changes to the language regarding the labor market and inflation, which make up the FOMC’s dual mandate. The FOMC’s outlook for economic expansion appears to be improving, as the statement now refers to the pace of expansion as “solid” rather than “moderate.” Furthermore, the Committee characterized job growth as “strong” compared with the “solid” job gains seen in the December meeting. But as the labor market improves, declines in energy prices, while boosting household purchasing power, led inflation to decline “substantially.” Despite the recent decline, the FOMC still expects inflation to rise gradually toward 2% over the medium term, once again calling the effects of lower energy prices “transitory.”

The three Committee members to vote against the FOMC monetary policy in December, Richard W. Fisher of the Dallas Fed, Narayana Kocherlakota of the Minneapolis Fed and Charles I. Plosser of the Philadelphia Fed, are not on the Committee for 2015.

Read the FOMC statement.

Tuesday, January 27, 2015

New Home Sales Rebound in December

Sales of new single-family houses in December rose to a seasonally adjusted annual rate of 481,000 according to the U.S. Census Bureau and Department of Housing and Urban Development. The December rate is 11.6% above the revised November rate of 431,000 and 8.8% above the year-ago rate of 442,000.

New home sales in three of the four regions increased this month. The Northeast increased 53.6%, the South rose 17.7% and the West rose 3.1%. However, sales in the Midwest declined 11.5%.

The median sales price of new homes sold in December was $295,500, down 0.3% from November. The average price was $377,800, up 9.6% from November.

At the end of December, there were an estimated supply of 5.5 months at the current sales rate.

Read the Census report.

National Home Price Steadily Decelerates

The 20-City Case-Shiller Composite gained 4.3% year-over-year in November, compared with a 4.5% gain in October, as the pace of home prices across the country continued to steadily decelerate. The 10-City Composite gained 4.2% in November from the previous year, down from 4.4% in October. The National Index recorded a 4.7% gain on an annual basis in November, compared to a 4.6% gain in October, the only index of the three to accelerate.

On a monthly basis, the 10-City Composite declined 0.3%, the 20-City Composites declined 0.2% and the National Index declined 0.1%.

Nine cities of the 20-City Composite (four cities of the 10-City) reported monthly declines in November. Chicago and New York were the primary contributors to the monthly decline, decreasing 1.1% and 0.8%, respectively, partially offset by a 0.8% increase in Tampa and a 0.6% increase in Miami.

Year-over-year, San Francisco increased 8.9%, the highest of the 20 cities, followed by 8.6% growth in Miami and 7.7% growth in both Las Vegas and Dallas. Cleveland reported the slowest year-over-year growth, increasing 0.6%, followed by a 1.5% increase in both New York and Minneapolis.

Read the S&P release.

New Orders for Durable Goods Continued Decline in December

New orders for durable manufactured goods decreased 3.4% to $230.5 billion in December, according to the U.S. Census Bureau. The decline, down four of the last five months, followed a 2.1% decrease in November. New orders excluding transportation decreased 0.8%; excluding defense, new orders decreased 3.2%.

Shipments of manufactured durable goods increased 1.1% this month, following two consecutive monthly decreases. December’s increase was driven by a 3.1% increase in transportation.

Inventories of manufactured durable goods, up twenty of the last twenty-one months, increased 0.5% to $410.8 billion – remaining at an all-time high.

Read the U.S. Census Bureau release.

Friday, January 23, 2015

Existing Home Sales Rebound Despite Low Inventory

Existing home sales rose 2.4% in December to a seasonally adjusted annual rate of 5.04 million. Sales of existing homes rose above 5 million for the sixth time this year. Exisitng home sales in November was downwardly revised to a seasonally adjusted annual rate 4.92 million. For the full year 2014, there were 4.93 million sales.

The median existing-home price increased 6.0% year-over-year to $209,500 in December, marking the 34th consecutive month of year-over-year price gains. Median home prices for 2014 rose to their highest level since 2007, although total sales fell 3.1% during the year.

Total housing inventory fell 11.1% in December to 1.85 million homes available for sale, and declined 0.5% from December 2013. There is currently a 4.4-month supply of total existing homes available for sale, down from 5.1 months in November.

Existing home sales weakened in two of the four regions, posting month-over-month declines of 3.5% in the Midwest and 2.9% in the Northeast, but increasing 9.8% in the West and 3.8% in the South.

NAR Chief Economist Lawrence Yun noted: “A drop in housing supply in December raises some affordability concerns in the months ahead as minimal selection and the potential for faster price appreciation could offset the demand from buyers encouraged by a stronger economy and sub-4% interest rates. Housing costs — both rents and home prices — continue to outpace wages and are burdensome for potential buyers trying to save for a downpayment while looking for available homes in their price range.”

All-cash sales were 26% of transactions in December, one percentage point higher than in November yet 6 percentage points lower than December 2013.

First-time home buyers represent 29% of all buyers, down from 31% in November.

Read the NAR report.

Thursday, January 22, 2015

ECB Announces Quantitative Easing

The European Central Bank (ECB) has announced a full scale quantitative easing program designed to spur eurozone growth. Starting March 2015 the ECB will commence the combined monthly purchase of public and private sector securities amounting to 60 billion euros. The monthly purchases are set to continue until the end of September 2016, but the ECB press release notes that the purchases will be “conducted until we see a sustained adjustment in the path of inflation” consistent with their 2% inflation objective over the medium term.

The Eurosystem will purchase euro-denominated investment-grade securities issued by euro area governments and agencies and European institutions in the secondary market. Purchases of securities of European institutions (12% of asset purchases) will be subject to loss sharing. The ECB will hold 8% of the additional asset purchases, so a total of 20% of the asset purchases will be subject to risk sharing.

The decision to begin additional asset purchases was fueled by weaker than expected inflation. Sharp falling oil prices remains the key factor driving current inflation, but the ECB is concerned that the potential for second-round effects on wage and price-setting has increased and could adversely affect medium-term price developments. Furthermore, economic slack in the Eurozone remains a concern.

Read the ECB press release.

Register ABA's for Government Relations Summit

Registration is still open for ABA’s Government Relations Summit, March 23-25 in Washington, D.C. The summit provides an opportunity to hear from leading policymakers and meet with elected representatives on Capitol Hill.

Registration is free for bank employees and directors. Directors are especially encouraged to attend, as their roles in their hometowns position them well to explain to lawmakers the value banks bring to local economies.

ABA also encourages bankers to bring younger bank employees with them to introduce them to advocacy early. This year’s Summit will include the second annual Emerging Leaders Forum and an orientation to making the most of a Capitol Hill visit.

Register now.

Wednesday, January 21, 2015

ABA Survey: 60 Percent of Americans Have Checked Their Credit Report in Past Year

Eighty-five percent of Americans are aware that they have access to a free credit report each year and 60% have checked their credit report within the past 12 months, according to a new survey released by the American Bankers Association. To help educate consumers about the importance of credit their history, ABA has released this and other data in its latest issue of The Credit Line, which includes facts about how credit reports are compiled, and what consumers should know when checking their own credit histories.

“People know their credit history is important, but it’s equally important for them to understand how to access and improve their histories, correct any errors and avoid falling into any traps,” said Molly Wilkinson, executive director of ABA’s Card Policy Council. “The more consumers know about their own credit history, the better they can position themselves for lower rates when applying for loans.”

The survey of more than 1,000 U.S. adults was conducted for ABA by Ipsos Public Affairs, an independent market research firm, Dec. 11-14, 2014. It also found that there is some confusion among U.S. consumers about the differences between credit scores and credit reports, with nearly half (44%) saying they believe credit scores and credit reports are different names for the same thing. Consumers are slightly more likely to have recently checked their credit score, with two-thirds (66%) saying they have checked their credit score within the past year.

Read the full press release.

Housing Starts Accelerate in December

Housing starts in December rose to a seasonally adjusted annual rate of 1.089 million, 4.4% above the revised November estimate of 1.043 million and 5.3% above the December 2013 rate of 1.034. Single-family housing starts grew at a rate of 728,000, 7.2% above the revised November figure of 679,000. The rate of growth for multifamily units was 339,000, 4.2% below the revised November estimate of 354,000.

The rate of housing starts accelerated in three of the four regions. Housing starts in the Northeast increased 12.5% to 126,000 total units, the largest of the four regions, followed by an 8.8% increase to 508,000 units in the South and a 5.8% increase to 292,000 units in the West. The Midwest, the only region to experience a deceleration in housing starts, decreased 13.3% to 163,000 units.

Building permits were at a seasonally adjusted annual rate of 1.032 units, which is 1.9% below the revised November rate of 1.052, yet 1.1% above the year-ago estimate of 1.022. Building permits for single-family units were at a rate of 667,000, 4.5% above the November figure of 638,000. Building permits for multifamily units were 338,000, 12.4% below November’s revised rate of 386,000.

Housing completions in December were at a seasonally adjusted annual rate of 927,000, 6.3% above the revised November estimate of 872,000 and 19.6% above the year-ago rate of 775,000. Single-family housing completions were at a rate of 667,000, 9.5% above the revised November rate of 609,000. The December rate for multifamily units was 254,000, 2.0% higher than November.

Read the Census release.

Friday, January 16, 2015

Bank Economists See Healthy U.S. Economic Growth Through 2015

The U.S. economy will grow nearly 3% on an inflation-adjusted basis this year compared to 2.5% last year, according to the Economic Advisory Committee of the American Bankers Association.

The committee, which includes 15 chief economists from among the largest banks in North America, sees an improved fundamental backdrop for growth. Sectors that were severely damaged during the 2008-2009 crisis have healed significantly. In particular, the banking and real estate sectors are in much better health. Household balance sheets have also improved, with strong gains in asset prices and a dramatic drop in debt service burden.

The fiscal and monetary policy environment is supportive of growth. Fiscal policy is no longer a headwind as budget brinkmanship battles abate and tax and spending policies stabilize. The group forecasts the federal budget deficit will stabilize at $470 billion in fiscal year 2015.

The committee expects the Federal Reserve to maintain near-zero interest rates through mid-2015. Thereafter, the bank economists see a very gradual normalization of interest rates over the next several years. “We expect the Fed to calibrate its policy to minimize any shock to growth,” said Ethan Harris, chairman of the group and co-head of global economics research at Bank of America Merrill Lynch.

The group sees falling energy prices as a net positive for the economy. Low prices will hurt the oil patch, cutting into mining employment and capital spending. However, this will likely be more than offset by the boost to energy consumers.

"Gas at about $2 a gallon is like an across-the-board tax cut," said Harris. "Cash savings at the pump leave more money for consumers to save or spend elsewhere." Despite the weakness in energy sector investment, the group sees business investment as a strong point for the economy. The consensus forecast is that business investment will rise 5% on an inflation-adjusted basis this year.

The Committee sees continued monthly job gains of 200,000 or higher through this year. However, the bank economists expressed concerns that job gains had not yet triggered healthy wage growth. "Top earners have fared well since the last recession, but the same can't be said for middle and lower-income families," said Harris. "Wages have barely kept up with inflation over the last six years, straining household budgets."

Nonetheless, the Committee believes the ongoing drop in unemployment will start pushing wage growth higher.

Read the press release.
Read the detailed forecast.

Industrial Production Falls Slightly in December

Industrial production decreased 0.1% in December, reflecting a sharp drop in the output of utilities as warmer-than-usual temperatures reduced demand for heating. At 106.5 percent of its 2007 average, total industrial production was 4.9% above its level of a year earlier.

For the fourth quarter of 2014 as a whole, industrial production advanced at an annual rate of 5.6%, with widespread gains across major market and industry groups.

The capacity utilization rate for the industrial sector decreased 0.3 percentage point in December to 79.7%, a rate that is 0.4 percentage point below its long-run (1972-2013) average.

Manufacturing output rose 0.3% for its fourth consecutive monthly increase to an annual rate of 5.2% in the fourth quarter. The capacity rate for manufacturing remained steady with the previous month at 78.4%.

Mining output jumped 2.2% after falling for the previous two month, reflecting increases in oil and gas extraction, but a drop in drilling and well-servicing activity at oil and gas fields tempered the gains. The utilization rate for mines climbed 1.2 percentage points to 88.8%.

Utilities production drastically fell 7.3%, due to warmer-than-usual temperatures in certain areas of the country. The utilization rate for utilities fell 6.1 percentage points to 76.6%.

Among the major market groups, both consumer goods and business supplies posted decreases of around 1% in December as a result of a drop in sales by electric and gas utilities; all of the other major market groups recorded gains.

Read the Federal Reserve release.

CPI Declines in December, Largest Decline Since 2008

The Consumer Price Index declined 0.4% in December on a seasonally adjusted basis, driven by the continued sharp fall in the gasoline index, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the CPI has increased 0.8% before seasonal adjustment—notably lower than the 1.3% increase for the 12 months ending November.

While the indexes for natural gas and electricity both increased, the indexes for gasoline, fuel oil and energy all fell. The gasoline index declined 9.4% and the fuel oil index dropped 7.8% from the previous month. These declines lead the energy index to fall 4.7%, its largest one-month decline since December 2008. Over the past 12 months the energy index has declined 10.6%. It is likely that energy components will continue to weigh heavily on headline inflation for several months.

The index for all items less food and energy was unchanged in December—only the second time since 2010 that it did not increase—following a 0.1% increase in November. This index has risen 1.6% over the last 12 months—its smallest 12-month change since the 12 months ending February 2014. The shelter index continued to rise, and the index for medical care posted its largest increase since August 2013.

The food index rose 0.3% in December after a 0.2% increase in November and 3.4% over the last 12 months, its largest 12-month increase since February 2012. The food at home index rose 0.3% in December and has risen 3.7% over the last 12 months. The index for food away from home also rose 0.3% in December, and has risen 3.0% over the last year.

Read the Bureau of Labor Statistics report.

Fed Survey: Community Banks Remain Key to Small Business Growth

Community banks have a critical role in funding fast-growing small businesses, according to a survey released by four regional Federal Reserve Banks. Of the 22% of small businesses that applied for credit in the first half of 2014, 34% applied to a community bank, and of those, 59% saw their applications approved.

Community banks were aggressive in meeting small business credit needs, with 90% of newer firms with profits and growing revenues getting approvals. Of these high-growth firms, about half received credit approvals from money center and regional banks. Larger banks focused their approvals on mature small businesses, according to the survey.

The survey found significant variability in what kinds of small business applied for credit. Just 18% of “microbusinesses” — those with under $250,000 in annual revenues — applied, while 58% of businesses with revenues over $10 million did. Microbusinesses were more likely to fund operations and growth out of personal savings.

Small businesses that sought credit were primarily seeking to expand. Nearly half sought a line of credit, about one-third applied for a business loan, and a quarter applied for a credit card. Twenty-three percent of applicants sought a Small Business Administration loan. Most applicants sought under $100,000 in financing.

Read the survey report.

Thursday, January 15, 2015

Producer Prices Fell 0.3% in December Led by Oil Price Drop

Producer prices continued to drop in December, pulled lower by falling oil prices. The decline was the largest in three years, and prices have now fallen in four of the last five months. Prices have now risen just 1.1% over the past 12 months, down from 1.4% reported in November.

Energy prices were the key factor in the decline, with the energy index falling 6.6% over the month. This is no surprise as oil is trading under $50 per barrel, a decline of more than 50% from mid-summer.

Food prices also fell slightly in December, dropping 0.4%. Despite these declines, core goods performed better than expected, rising 0.2% over the month. Final demand, excluding food, energy, and trade was up 0.1%

Read the BLS report.

Wednesday, January 14, 2015

Beige Book: “Modest” to “Moderate” Economic Expansion

Economic activity continued to expand in all 12 districts, according to the first Federal Reserve Beige Book of 2015 covering the period from mid-November through late December of 2014. Most districts reported “modest” or “moderate” growth, however the Kansas City district indicated that growth slowed slightly. The Dallas District also indicated that growth slowed slightly during the reporting period and that several contacts expressed concern about the effect of lower oil prices on the District economy.

Demand for business and consumer credit grew, and credit quality generally remained good, with overall reductions in loan delinquencies. However, several Districts commented that their contacts indicated that stiff competition for high-quality borrowers was leading to lower underwriting standards among lenders more generally.

Demand for energy-related products and services weakened somewhat, but overall output increased.

Consumer spending advanced in most districts, generally driven by year-over-year gains in retail sales, as well as moderate to strong growth in auto sales. Demand for nonfinancial services varied across districts, but appeared to be moderate on balance.

Payrolls expanded moderately in a variety of sectors across the districts, although a few energy firms in the Dallas district reported hiring freezes and layoffs.

Construction and single-family real estate sales were flat on balance, however commercial real estate activity and commercial construction expanded in most districts.

Wage inflation was limited to workers with particular technical skills. Prices increased slightly, on net, in most districts. However, several districts reported that the cost of a variety of construction materials increased.

Read the Federal Reserve release.

Retail Sales Drop, Driven By Falling Gasoline Prices

Retail and food service sales for December were $442.9 billion, a decrease of 0.9% from the previous month, but 3.2% above December 2013, according to a report released this morning by the U.S. Census Bureau. The decline was largely driven by falling energy prices.

Sales gains for November and October were revised down by 0.3 and 0.2 percentage points respectively. Total sales for 2014 were up 4.0% from 2013—the weakest growth since February.

Gasoline stations sales declined 6.5% from November and 14.2% from December 2013 due to lower gasoline prices. Sales at building supply stores, electronics and appliance stores and general merchandise stores also suffered monthly declines. Auto and other motor vehicle dealers were also down from the previous month, but up 9.8% from December 2013.

Read the Census report.

Tuesday, January 13, 2015

Small Business Optimism Rose Above Long-Run Average

The NFIB Small Business Optimism Index gained 2.3 points in December, rising to 100.4, the highest level since October 2006. The Index increase was broad based, as eight of the ten indices posted gains, compared to November when just two of the ten indices contributed to the gain. The top two categories were Expect Real Sales Higher and Now is a Good Time to Expand. Expectations for the economy to improve declined and the index for current inventory was unchanged.

Plans for job creation posted a 4 point gain, increasing December’s net gain to a seasonally adjusted 15%, one of the stronger readings in NFIB history. The index for expected real sales increased 6 points to 20% of business owners expecting gains, following the 5 point gain in November. The percent of owners who think the next three months are a good time to expand increased 5 points to a seasonally adjusted 16%, a significant increase after the index component was flat for November and decreased 2 points in October.

Taxes remained the single most important problem for small businesses, followed by government regulation and red tape. Financing and interest rates remained the least cited concern.

Read the NFIB report.

Friday, January 9, 2015

Economy Added 252,000 Jobs in December, Unemployment down to 5.6%

Total nonfarm payroll employment rose by 252,000 in December, making 2014 the best year for job growth since 1999. The unemployment rate declined 0.2 percentage points to 5.6%. Both the October and November readings were revised upward by 18,000 and 32,000 respectively, for a net gain of 50,000 more jobs. In 2014, job growth averaged 246,000 per month, compared with an average monthly gain of 194,000 in 2013.

Employment increases were broad based. Professional and business services added 52,000 jobs, construction added 48,000 jobs, food services and drinking places added 44,000 jobs, health care added 34,000 jobs and manufacturing added 17,000 jobs. Manufacturing employment increased by 17,000, with durable goods (13,000 jobs) accounting for most of the gain.

The civilian labor force participation rate edged down by 0.2 percentage point to 62.7% in December. Since April, the participation rate has remained within a narrow range of 62.7% to 62.9%. The number of unemployed individuals declined by 383,000 in December.

Average hourly earnings decreased 5 cents, nearly offsetting November’s 6 cent gain. Over the year, average hourly earnings have risen by 1.7%.

The number of long term-term unemployed, those jobless for 27 weeks or more, remained essentially flat at 2.8 million. This group, which accounts for 28% of the unemployed, declined by 1.1 million in the past 12 months. The number of involuntary part-time workers, individuals employed part time for economic reasons, was little changed this month at 6.8 million.

Read the BLS release.

Thursday, January 8, 2015

Consumer Credit Grew 5.1% (SAAR) in November

Consumer credit increased at a seasonally adjusted annual rate of 5.1% in November to $3.3 trillion. Revolving credit growth declined 1.3% (to $882 billion) and non-revolving credit grew 7.5% (to $2.4 trillion).

Total outstanding consumer credit increased by $14.1 billion. Total outstanding non-revolving credit increased by $15 billion, while total outstanding revolving credit decreased by $0.9 billion.

Federal Government holdings of student loans continues to be the largest portion of non-revolving credit, making up 35% of outstanding credit. Finance companies and depository institutions are the secondary and tertiary holders of non-revolving credit, holding 26% and 25%, respectively. Depository institutions continue to be the primary holder of revolving credit, holding 82%.

Read the Federal Reserve release.

2014 Saw Fewest Planned Job Cuts Since 1997

Employers announced plans to shed 32,640 workers from their payrolls in December, the lowest monthly total of 2014, according to a report issued by Challenger, Gray & Christmas. The past year saw the lowest planned job cuts since 1997.

December's announced job cuts were 9.2% lower than November’s job cut announcements of 35,940 yet 7% higher than December 2013 announcements, which was the lowest monthly tally in 2013.

In 2014, U.S.-based employers announced 483,171 planned layoffs, 5% fewer than 2013, when job cuts totaled 509,051.

The tech sector saw the heaviest downsizing in 2014, with a total of 59,528 planned layoffs, a 69% increase from the previous year. The retail sector followed with 43,783 planned layoffs, and the health care sector recorded 38,359 planned layoffs.

Overall, 16 of the 28 industries tracked by Challenger saw fewer layoffs in 2014.

Read the press release.

Key Measure of Delinquencies Hits Record Low

Delinquencies fell in seven of 11 loan categories in the third quarter, according to the ABA Consumer Credit Delinquency Bulletin that was released today. The composite ratio, which tracks delinquencies in eight closed-end installment loan categories, fell 6 basis points to 1.51% of all accounts—a record low, well below the 15-year average of 2.32%.

“Strong economic growth has boosted job creation and supported income growth, which has made it easier for consumers to meet their financial obligations,” said ABA Chief Economist James Chessen. “Lower gas prices helped free up resources for everything from new purchases to debt repayment.”

Of closed-end loan delinquencies, only those for mobile homes rose, while direct auto loan delinquencies held steady. Meanwhile, bank card delinquencies rose eight basis points to 2.51% of all accounts, also well below their 15-year average of 3.77%. Home equity line of credit delinquencies also rose slightly.

Read more.

Wednesday, January 7, 2015

Federal Reserve Unlikely to Raise Rates Before April According to Minutes

Most FOMC participants agreed that the Committee “can be patient” and that it is “unlikely to begin the normalization process for the next couple of meetings.” This language provides more flexibility than the previous language, which had tied the beginning of normalization to the end of the asset purchase program, and indicates that the Committee may adjust its policy in response to incoming information. For the time being, the Committee agreed to maintain the target range for the federal funds rate at 0% to 0.25%.

Participants stressed that the language regarding the timing for raising rates should emphasize that an increase will be dependent on incoming data, in order to remove unwarranted concentration of market expectations on the narrow range of dates around mid-2015.

The Committee decided to maintain accommodative financial conditions by continuing to reinvest principal payments from its holdings of mortgage-backed securities and to roll over maturing Treasury securities at auction. Also, after the first increase of the federal funds rate, the policy will still be highly accommodative for a time.

The participants agreed that economic activity was expanding at a moderate pace. During the intermeeting period the labor market improved; participants judged that the underutilization of labor resources continued to diminish, and would continue moving toward the FOMC’s objective of maximum employment.

Inflation continued to run below the FOMC’s long-run objective of 2%, reflecting in part continued reductions in oil prices and falling imports. Participants generally anticipated that inflation would gradually rise toward 2% as the labor market improved and the transitory effect of lower energy prices and other factors dissipated. Some participants suggested that the recent strong economic data increased their confidence in the economic outlook going forward. While participants agreed that the lower energy prices have a net positive impact on the domestic economy, many thought that a further deterioration in the foreign economy could be a stronger headwind to domestic growth than they currently expected. Even though lower energy prices and the strong dollar will likely keep inflation below 2%, the Committee noted that it might be necessary to begin normalization while inflation is at current levels, although in that circumstance participants will want to be confident that long-term inflation expectations remain close to 2%.

Read the FOMC minutes.

U.S. Foreign Trade Deficit Narrowed in November as Petro Imports Declined

The U.S. international trade deficit in goods and services decreased $3.2 billion to $39.0 billion in November, as a drop the price of petroleum led to a significant decrease in the cost of imports.

The goods deficit declined by $3.3 billion to $58.3 billion, the service surplus decreased $100 million to $19.3 billion, and the petroleum deficit narrowed $3.8 billion to $11.4 billion.

Exports decreased by $2.0 billion to $196.4 billion, primarily due to a $1.8 billion decline in goods exports driven by lower exports for civilian aircrafts and generators, transformers and accessories. Exports of services held near steady at $59.6 billion.

Imports decreased by $5.2 billion to $235.4 billion, primarily driven by a $5.2 billion decrease in goods imports to $195 billion. The drop was driven by a decline in imports of crude oil by $2.2 billion and fuel oil by $0.7 billion. Imports of services held nearly constant at $40.4 billion.

The deficit with China increased by $0.2 billion to $29.8 billion in November, as exports decreased by more than imports. The deficit with the European Union increased $1.5 billion to $12.7 billion, as exports decreased $0.7 billion and imports increased $0.8 billion.

Read the Census Bureau release.
Read full report.

ADP: Private Sector Added 241,000 Jobs in December

According to the ADP National Employment report, the private sector added 241,000 jobs in December, as both goods-producing and services sectors experienced increased job growth. The December report upwardly revised the November and October headline numbers by 19,000 and 9,000 jobs, respectively.

Small businesses, companies with fewer than 49 employees, added 106,000 jobs, 7,000 more than in November. Medium businesses, companies with 50 to 499 employees, added 70,000 jobs, 3,000 fewer than in November. Large businesses, companies with greater than 500 employees, added 66,000 jobs in December, up from 54,000 jobs added in November.

Goods-producing employment rose by 46,000 jobs, a 6,000 job increase from the previous month, as construction and manufacturing added a combined 49,000 jobs, 13,000 more than November. The service-providing sector employment rose by 194,000 jobs, up from 187,000 in November. Improvement in the service sector was primarily due to increased job growth in the professional/business services and financial activities sectors, which added 69,000 jobs and 16,000 jobs, respectively.

Read the ADP release.

Tuesday, January 6, 2015

Non-Manufacturing ISM Index Slipped, But Remained in Expansionary Territory

The Non-Manufacturing ISM Report on Business Index was 56.2 in December, 3.1 percentage points lower than the previous month. Index readings above 50 indicate expansion in the non-manufacturing economy. December was the 59th consecutive month of economic growth. Twelve industries reported growth in December, while five industries—Arts, Entertainment & Recreation; Mining; Educational Services; Other Services; and Transportation & Warehousing—contracted. Each component of the index showed slowed growth this month, and two components, Prices and Backlog of Orders, contracted.

The Business Activity Index was 57.2, 7.2 percentage points slower than the previous month. Respondents attributed the growth to “year-end spending prior to new year budget” and “strong foot traffic through retail stores and stand-alone shops.”

The Employment Index was 56.0 in December, 0.7 percentage points lower than the previous month. Survey respondents cite “expansion of business locations” and “employment ramp up” as employment drivers in December.

The New Orders Index was 58.9, 2.5 percentage points slower than November, but still continuing the growth trend for the 64th consecutive month. Respondents reported the continued growth was driven by “expansion in business locations” and “business growth.”

The Supplier Deliveries Index slowed 2.0 percentage points to 52.5. The growth was driven by three industries: Information; Professional, Scientific & Technical Services; and Finance & Insurance.

Read the ISM Release.

Friday, January 2, 2015

ISM Manufacturing Index Lower Than Expected, But Still Expanding

The ISM manufacturing index dipped 3.2 percentage points to 55.5 in December, the third decline in the past four months. Index readings above 50 indicate expansion in the manufacturing economy. As of December, the index has been expanding for 19 consecutive months, although the pace has declined more than was expected. Of the 18 manufacturing industries indexed, 11 reported growth in December.

The New Orders Index declined 8.7 points to 57.3, and the Inventory Index decreased 6.0 point to 45.5. The gap between New Orders and Inventories—a proxy for future production—narrowed 2.7 points to 11.8 points.

The Employment Index increased 1.9 points to 56.8. This is the 18th consecutive quarter of growth in employment. Eleven of the 18 manufacturing industries indexed reported growth in employment. However, two industries—computer & electronic products and plastics & rubber products—posted declines.

Exports declined 3.0 points to 52.0, but continued to grow for the 25th consecutive month. Imports also declined, dropping 1.0 point to 55.0.

Prices dropped 6.0 percentage points to 38.5. This is the second month in a row that the index is reporting a decrease in the price of raw materials.

Read the ISM release.