The Gross Domestic Product for the fourth quarter of 2013 was released this morning at 2.4%, way down from the 3rd quarter’s fiery 4.1%. The decline is due in part to lower export prices, but also to a decline in consumer spending. A survey by Edward Jones just found that on overwhelming percentage of Americans who receive a tax refund this year are planning on using it to pay for household
expenses or pay down debt. Only 8% of the respondents indicated that they would spend the refund on something unnecessarily fun
like entertainment. A GDP of 2.4% is more in line with the
Fed’s target range of 2.0-2.5%, and is good if you like low interest
Federal Reserve Chair Janet Yellen is on Capitol Hill today setting before our congress the FOMC’s current monetary policy. She says that there has been quite a bit of “soft” data reported lately, meriting “accommodative” action by the Federal Reserve. Both stocks and bonds like the news and are both in the green this morning.
Outside of fed-speak, here is the mixed bag of economic reports out today: Good News: Foreclosures declined 19% from January of 2013. Bad News: Unemployment filings rose by about 5% last week. Durable Orders fell 1%. Mixed News: Institutional Investor home buying only accounted for 5.2% of all housing sales in January, which is a 22 month low. Investors are out and more families are in. Mom and Pop are back baby.
New Home Sales up 9.6% to 468,000 units, which is a 17% increase over the speculated sales number and a 5 1/2 year high. Supply is at 4.7 months and the median sales price fell 2.2% to $260,100.
The Case Shiller Home Price
Index shows slowing appreciation across the country. On a year-over-year basis,
prices are up 13.4% through the end of 2013. (SA on the chart stands for seasonally adjusted and
NSA stands for non
seasonally adjusted) where most sales–and consequently
pricing variations–transpire during the summer months. David Blintzer,
chairman of the S&P DOW Index Committee concurs: “Gains are slowing
from month to month and the strongest part of the recovery in home values may
be over”. I take this with a grain of salt. Everyone likes to
speculate to appease their own self interest, much in the way that the chair of
NAR might say that stocks are overpriced (that’s just my take on the Blintzer’s
commentary, Steve Brown has not actually depreciated the future of buying
equities). Given that interest rates have come up about a percent in
the last year, as well as the massive slump in home prices, I think that
it’s only natural that housing values are not continuing at a
break-neck pace, and promotes a healthier, more stable future for us all.
Perhaps that reason that homebuilders are feeling dour about the new construction industry is indicative in the 16% decline in Housing Starts, now down to an annualized 888K units. Building permits also fell by 5%. Weather of course could play a factor since they generally build homes in the out of doors and most states in our union shut down at the threat of snow.
A brand new Producer Price Index was released this morning by the federal government. Hitherto the present, the PPI just tracked the wholesale cost of goods sold. Henceforth it will also include services as well (banking, healthcare, construction, etc.) The new PPI is a measure of inflation at the level of production and is released a day before the Consumer (retail) iteration. PPI was reported at 0.2%, double the 0.1% expected. Doesn’t sound like much, but it equates to an extra 1.2% of inflation for the year, which is bad news if you like low interest rates.
I look at tax returns all day long, so it is interesting when the IRS publishes their data. Albeit antiquated (the last composite disseminated is from 2011), this chart shows that the upper 1% earn more than double what the top 5% report to Uncle Sam, and over 10 times what the lower 50% earn in a year.
The National Home Builders is blaming severe weather conditions across the country for the drop in their Housing Market Index. The reading dropped from 56 last month to 46 this month, where 50 represents the threshold between a positive and a negative market, and is based on a survey of home builders throughout the USA.
Storms in New England might also be the culprit for the decline in the Empire State Manufacturing Index dropping from 12.5 to 4.48 this month, though this survey is completed by 175 executives across a variety of sectors and looks six months into the future.
So yesterday I mentioned that those who run our country will have unlimited spending for the next 13 months and that our national debt has soared to $17.2 trillion. I also alluded to the fact that complaining really does a guy like myself no good and I was choosing to focus on the positive traits of our nation, including celebrating the lives of all of the enlightened previous presidents. And as I did so I came to the realization this blessed land of ours really is the best in the world. Nowhere else do these freedoms exist! Sure we struggle: import prices are up and export prices are down, consumer sentiment is marginal and our citizens spend more money than we collectively earn. But our central bank has done a dang fine job keeping inflation in check, our military keeps our children safe, and the tree huggers keep the air (relatively) clean. But the single-most thing that I am grateful for as I plan to spend the next four days holed up in rented accommodations is that
I will not be forced to stare at portraits of our shirtless president. I hope that you have a delightful President’s Day weekend and enjoy this beautiful land and the unseasonably warm weather (despite Al Gore’s best attempts to keep it cool) forecasted.
Three percent more people filed for unemployment last week than the week before, and Retail Sales show a -0.4% drop in January and December’s reading was also revised down below zero, showing that consumers are spending less money at the store than they were a year ago.
Speaking of spending less–or not–both Congress and the Senate have approved a measure to increase the debt ceiling for the next 12 months, during which time, I am sure the government will come to an agreement on how it can curtail its spending and not play by the same rules as you and me. And speaking of me and government rules, my federal income tax liability went up $15,000 this year because they took away or severely limited many of my deductions (you know, like having children and certain business expenses). I am not complaining because I think that to do so just adds insult to injury. No, I think that instead I’ll visit a few national parks this weekend and honor the great presidents of the past.
In the absence of any economic reports or jarring world news, the folks who manage my 401(k) are looking at charts this morning, and what they see is that it’s a good time to sell off their assets ahead of any breaking news that will take away garnered gains. Rates are hedging upward and it’s a good time to lock.
Janet Yellen testified for the first time as Chair of the Federal Reserve on Capitol Hill this morning. In her statement, she indicated the Federal Open Market Committee is poised to continue to curtail their asset purchases as labor market conditions improve. She reaffirmed the Fed’s 6.5% Unemployment threshold and 2.0% inflation rate target, but that those metrics are not viewed in a vacuum, and that a “notable change” in economic data would be
required to reverse reductions in Bond purchasing.
So what about the job market? The Job Opening and Labor Survey (JOLTS) shows that there are fewer job openings at the moment than at any time in the last 19 months.
That flat lining chart I showed yesterday has definitely found life this morning with Ms. Yellen’s testimony.