November’s CPI Research Notes

by Jim Baird on December 17, 2014

CaptureCollapse in oil prices weighs heavily on November CPI

Disinflation ruled the day in November, as the sharp decline in energy costs pulled the headline Consumer Price Index down by 0.3% to just 1.3% on a year-over-year basis.  The decline was the largest single-month drop since December 2008, and easily exceeded the expected result of a decline of just 0.1%.

While the headline result was disinflationary, core CPI increased by 0.1%.  The differential illustrates the significant impact of the decline in oil prices.  The core index dipped to 1.7% on a year-on-year basis.

A sustained, substantial drop in oil prices is generally considered positive for consumers, providing a boost to cash available for discretionary spending.  If sustained, it may also reduce the prices of other goods in which oil is a substantial input.  Conversely, if those cost reductions aren’t passed along to consumers, it could provide a boost to the profitability of companies that benefit from the lower cost of petroleum-related inputs.

Beyond falling oil prices, the recent strength of the Dollar has also helped to keep a lid on inflation domestically by reducing the price of imported goods.

To this point, wage growth has been lackluster in the current expansion.  However, as labor market conditions have improved, there are signs that wage pressures may also be starting to build – a factor that tends to be a harbinger of stronger, and more entrenched, inflationary pressures.

Outside of the U.S., Global economies remain in a tenuous position.  Yesterday’s aggressive interest rate hike in Russia points to an increasingly desperate attempt to defend the ruble and halt the flight of capital out of the country.  Meanwhile, Japan and the Eurozone continue to push expansionary policies to battle disinflationary pressures.

All eyes are now on the Fed’s scheduled statement and press conference this afternoon, as investors look for guidance on the central bank’s timetable for raising short-term interest rates.  Increasingly healthy labor market conditions coupled with measures of inflation that remain below the Fed’s target are opposing forces that seemingly raise the stakes for policymakers and remains a potential source of volatility for capital markets.

Consumer Sentiment Research Notes

by Jim Baird on December 15, 2014

CaptureConsumer Sentiment Soars in December

The University of Michigan Consumer Sentiment Index soared in November, printing at 93.8 this morning, a sizeable increase from the previous month’s upwardly revised reading of 88.8 and easily surpassing expectations.  The index is now at its highest level since 2007.  While some of this gain is attributable to typical seasonal effects, it still illustrates a very positive trend in the mood of consumers.

By most measures, sentiment is not only optimistic, but gathering momentum. A number of factors are contributing to the rosy mood.  The sharp decline in oil prices in recent months has driven gasoline prices lower as well, providing additional room for discretionary spending in household budgets.  Accelerating job creation in recent months and continued tightening of labor market conditions also appear to be benefiting workers.  Another year of strong stock market returns is also boosting household balance sheets.

Recent data suggest that workers may be starting to feel some stronger wage gains, which – if sustained – would be supportive of confidence and spending. Average hourly earnings grew at the fastest monthly rate in over a year in November.  If sustained, stronger wage growth would bode well for consumer spending, and ultimately economic growth, in the coming quarters.

The positive impact of improving sentiment is already evident.  Retail sales for November surpassed expectations, a positive sign for businesses as the holiday shopping season is solidly underway.  In addition, consumers are borrowing at a solid pace, fueled by low interest rates and improving household financial positions.

The Fed still appears to be looking toward mid-2015 as a likely timeframe to start raising rates, although many investors remain somewhat skeptical.  Whether the Fed will move in response to the approach of full employment and in anticipation of higher inflation or wait until inflation closes in on or surpasses its target rate of 2.0% remains to be seen.  The ultimate impact of higher rates on the moods of consumers is uncertain, but for now, consumers are confident – and that confidence is growing.

November Retail Sales Research Notes

December 11, 2014

Retail sales up strongly in November Retail sales advanced at a 0.7% clip in November, easily outpacing expectations for a 0.4% rise.  Core retail sales, which exclude motor vehicle sales, gasoline, and building materials, increased 0.6%.  Sales in October were also revised upwards to 0.5%.  The month-on-month gain was the best result since March.  After […]

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November’s Employment Situation Research Notes

December 8, 2014

Jobless rate holds steady at 5.8%; job creation soars Labor market conditions demonstrated a surprising degree of strength in November, although the unemployment rate held steady at 5.8% for the second consecutive month.  Over the past year, the jobless rate has declined by 1.2% to settle at least temporarily at its lowest point since July […]

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Consumer Sentiment Research Notes

November 26, 2014

Sentiment 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 […]

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Q3 GDP Research Notes

November 25, 2014

Q3 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 […]

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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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