Consumer Sentiment Research Notes

by Jim Baird on November 26, 2014

CaptureSentiment edges higher in November to highest final reading since July 2007

The University of Michigan Consumer Sentiment Index came in at 88.8 for November, a moderate increase from the October result of 86.9.  The final estimate reflected a reduction from the preliminary reading of 89.4 for the month.

Consumer confidence remains on a gradual uptrend.  Gasoline prices are down, putting extra discretionary spending money in their pockets, while investment markets are higher year-to-date, raising portfolio values.

The jobs market also remains on a healthy path – a clear positive for the collective consumer mood.  Job creation remains solid, and while there is still significant room for improvement in overall conditions, progress is clearly being made.  Jobless claims spiked last week, but the data often becomes more volatile around holidays as the effect of seasonal adjustments can be distortive.

Household balance sheets also look relatively well-positioned.  Debt service as a percentage of income remains low compared to historical standards, suggesting that consumers have some latitude to take on additional debt, particularly with interest rates still quite low.  Increasingly confident consumers may be more inclined to dip into savings or tap credit, which could provide a nice tailwind for retail sales for the holiday shopping season.

Despite their rosier mood overall, consumers remain justifiably skeptical about prospects for future wage gains.  Although we’ve seen modest improvement on this front, more robust wage gains could spur further confidence, ostensibly leading to further spending.  That in turn should produce more jobs, reducing unemployment and providing a catalyst for stronger wage growth – all components of a “virtuous cycle” that could help push the US further toward a self-sustaining expansion, ultimately allowing the Fed to normalize monetary policy.

In the absence of stronger inflation, and with slack remaining in labor markets, the Fed appears poised to maintain their easy policy stance in the near-term.  The Fed still appears to be looking toward mid-2015 as a likely timeframe to start raising rates, although many investors remain somewhat skeptical of that timeframe.  Regardless, rates are low for now, making the cost of borrowing relatively attractive for those with the confidence and capacity to do so.

Q3 GDP Research Notes

by Jim Baird on November 25, 2014

CaptureQ3 GDP exceeds expectations; grows by 3.9%

The economy expanded at a faster pace than previously believed in the third quarter, growing by 3.9%.  That print exceeded the advance estimate of 3.5%, and easily beat consensus expectations for a downward revision to growth closer to 3.0%.

The headline growth rate is a clear positive, and there are a number of positives in the underlying data as well.  Consumer spending slackened modestly compared to the prior quarter, but was stronger than previously believed.  However, the second quarter number was arguably inflated by pent-up demand from consumers who had hunkered down in response to the exceptionally poor weather conditions earlier in the year.

An upward revision to estimated personal consumption from 1.8% to 2.2% was the biggest driver of the upward revision, although stronger business investment also contributed to the increase. Government spending was revised downward, but still reflected the largest quarterly percentage gain in public sector spending since second quarter of 2009, when fiscal stimulus was in full force to pull the economy out of recession. Estimated export growth was slashed for the quarter, but still outpaced import growth as the trade deficit narrowed.

Beyond stronger growth data, the report also provided further evidence that inflation remained below the Fed’s goal in the third quarter, justifying its continued easy policy stance.

Other recent economic data also seems to paint an optimistic picture.  Labor market conditions have progressively improved throughout the year.  Manufacturing data increased sharply last month, reaching its highest level in over three years.  Lastly, expanding consumer credit and post-recession highs in consumer confidence should provide a tailwind to consumption, particularly if that improved mood can be sustained.  Stronger wage growth remains elusive, but there are signs that may be changing as well, as labor market conditions also continue to tighten up.

Overall, domestic growth trends remains positive, and the prevailing recent economic data seems to suggest the economy may have finally reached a point of stronger sustained growth.

October’s CPI Research Notes

November 20, 2014

CPI unchanged at 1.7% for the third consecutive month Headline inflation was unchanged at 1.7% for the third consecutive month in October.  Prices were flat for the month and haven’t moved meaningfully since July, after surging in the late spring and early summer. Core inflation, which eliminates the impact of volatile food and energy prices, […]

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Market Perspectives (November 2014)

November 17, 2014

Executive Summary Volatility returned to the markets in full force in October, with the principal indicators of volatility in equities and fixed income hitting their highest levels in over a year. Domestic stocks made up ground lost in the first two weeks of the month to close with healthy gains, while fixed income markets also […]

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Q3 GDP Research Notes

October 31, 2014

Economic growth of 3.5% tops expectations in third quarter The first estimate for third quarter GDP was released this morning, suggesting the economy expanded at a 3.5% annualized pace, exceeding the consensus expectation for a 3% gain. The first half of the year was a tale of two quarters – the first was shockingly poor […]

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October’s Consumer Confidence Research Notes

October 28, 2014

Confidence soars in October, reaching highest point in seven years Consumer Confidence in October soared to 94.5, well above last month’s upwardly revised reading of 89.0 and smashing the consensus expectation of 87.0.  That result also marked the highest point for the Index since 2007. Since falling to an all-time low in February 2009 in […]

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Economic Perspectives (Third Quarter 2014)

October 20, 2014

Despite some weakness throughout developed economies internationally, most economic indicators in the U.S. appear to have gradually improved in recent months.  Overall, the economy appears on track to sustain a moderate pace of expansion during the closing months of the year. Read the full article>>

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Market Perspectives (October 2014)

October 16, 2014

Executive Summary Capital markets sold off broadly during September. Domestic equities fell throughout the month, led lower by small cap names, which declined enough to pull the index into negative territory thus far for the year. The yield curve steepened during the month, as short-term rates remained anchored near zero and rates between 10 and […]

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September’s Employment Situation Research Notes

October 7, 2014

Jobless rate falls to six-year low; nonfarm payrolls surge The jobs picture continued to improve in September, as the economy added 248,000 payrolls during the month. Today’s report easily exceeded market expectations of 215,000 new jobs. Adding to the good news, August payrolls were revised sharply higher from the preliminary estimate of 142,000 to 180,000. […]

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September Perspectives Podcast

October 1, 2014

A new PMFA Perspectives Podcast is now available via the link below: September Market Perspective Podcast

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