Weekly Economic Update

After a fairly busy week, the MLK holiday led off a quieter one in terms of economic data releases.

(-) The Markit manufacturing PMI fell from 55.0 in December to 53.7 in January (versus expectations for an unchanged reading).  Within the index, new orders, output and employment all fell by up to a few points—with output disappointing the most.  While not a radical shift, it does conflict with other stronger regional Fed surveys this month.  At the same time, it is important to remember than any number over 50 signifies growth; in the case of this reading, a deceleration of growth for the month.

(-) The FHFA home price index, which covers properties financed with conforming mortgages, rose +0.1% for November, which underwhelmed expectations of a +0.4% gain.  In fact, this was the worst month since the summer of 2012 from a performance standpoint.  The main cause appeared to be a bit of tempered growth in the regions (such as the West Coast, Rocky Mountain states and Florida) that have performed so strongly post-bust, but other areas were weaker as well.  To put it into perspective, the rate of increase for the year-over-year period was +7.6%, which remains impressive in real/after-inflation terms.

(0/+) Existing home sales, on the other hand, rose +1.0% in December, which surprised relative to the expected +0.6% gain, and represented the first gain in five months.  However, some downward revisions for prior months caused this to be less impressive than at first glance.  Single-family home sales rose +2%, while the smaller and more volatile condo/co-op group fell -5% on the month.  For the more meaningful full 2013 year period, 4.5 million homes were sold—the best year since 2006.  From the compilation of housing data, it appears the recovery gains could be tempering somewhat, although expectations for continued growth in 2014 remain intact.  The nominal figures may just be a bit smaller than we’re used to.

(+) The Conference Board’s index of leading economic indicators for December rose +0.1%, which was weaker than the November gain of +1%.  Positive contributions from the index’s financial components (interest rate and credit spreads, as well as stock prices), ISM and manufacturer new orders were responsible for the uptick; while unemployment claims, building permits and consumer expectations for business conditions were negative influences.  Additionally, the coincident indicator index rose +0.2% and lagging indicator index rose +0.3%—both within the average range of the past several months.  Over the last six months of 2013, the leading index rose at an equivalent annualized rate of +7%, which was almost double the rate seen for the first half of the year.

(0/+) Initial jobless claims for the Jan. 18 ending week rose just slightly to 326k, from 325k the prior week—and better than the 330k consensus expected.  Continuing claims for the Jan. 11 week rose to 3,056k, compared to the anticipated 2,925k, and has been on a rising trend for the past few weeks.  On the topic of the emergency unemployment benefit program expiring at the end of December without being renewed by Congress, about 1.35 million folks dropped off the rolls who receiving these benefits.  This may lower the labor force participation rate in coming months, thereby effecting the unemployment rate calculation.

The debt limit is in the news again.  Without rehashing this latest chapter of an ongoing series, current estimates from the Treasury Department pin mid- to late-February as the deadline before the coffers run dry.  If legislators don’t act in advance (and there is no reason to expect that they will), expect additional volatility if optimistic sound bites don’t appear.  From a fundamental basis, though, there appears to be much less support for playing around with this deadline as there seemed to be a year or two ago.  One operational/timing problem is that February tends to be an especially bad month for treasury operations—there are quite a few more significant outflows, while inflows are delayed a few months (taxpayers expecting a refund generally file returns as soon as possible, while those forced to pay often delay writing checks as long as they can).  This tendency is actually quite significant in budget planning.

Period ending 1/24/2014

1 Week (%)

YTD (%)

DJIA

-3.50

-4.10

S&P 500

-2.62

-3.06

Russell 2000

-2.07

-1.64

MSCI-EAFE

-1.99

-1.76

MSCI-EM

-2.30

-5.27

BarCap U.S. Aggregate

0.32

1.19

 

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2013

0.07

0.38

1.75

3.04

3.96

1/17/2014

0.05

0.40

1.64

2.84

3.75

1/24/2014

0.04

0.37

1.58

2.75

3.64

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