Economic Perspectives (Third Quarter 2016)

by Jim Baird on October 18, 2016

In this quarter’s Economic Perspectives, we take closer look at why the Fed continues to struggle with its “data dependent” approach to determining when to hike interest rates again.  We also explore the evolution of Fed expectations for the economy and interest rates in recent years.

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September’s CPI Research Notes

by Jim Baird on October 18, 2016

cpiInflation rises 0.3% in September; in line with expectations

Headline CPI in September rose by 0.3%, in line with economists’ expectations. The core index increased by 0.1%, softer than the projected increase of 0.2%.

Over the past year, the headline index increased by 1.5%. Crude oil prices have recovered from their July decline and are currently hovering around $50 a barrel. This recent increase has translated to a rebound in overall energy prices, which has contributed to the recent uptick in inflationary pressures. Nonetheless, energy costs are still down over the past year, keeping a lid on the one-year change. Core inflation, which excludes the impact of food and energy costs, has been running higher, but the rate of increase edged modestly lower in September, rising by 2.2% over the preceding twelve months.

Wage growth slightly undershot expectations in the September employment report, with hourly earnings increasing by 0.2%. In spite of this miss, wages continue to creep upward. Stronger sustained wage growth may provide additional fuel for consumer spending, but is likely to act as an additional catalyst for higher inflation, particularly in the absence of stronger productivity gains.

While the labor market as a whole appears relatively healthy and conditions have tightened considerably, core PCE – the Fed’s favored inflation indicator – continues to fall short of the FOMC’s target of 2%. Although inflationary pressures continue to build slowly, recent statements from Fed Chair Janet Yellen suggest that the Fed may be willing to let the economy “run hot” to encourage stronger growth. That flies in the face of indications that a rate hike may have been closer to a reality in September than many believed, and market expectations for a December hike have recently diminished. So will the Fed hike before year-end or not? If the anticipated second half acceleration in growth fails to materialize, it won’t be a slam dunk.

The question may ultimately be whether or not the hawks or the doves on the FOMC will prevail, and whether Chair Yellen can maintain a coalition within the committee that will support her dovish policy stance.

Market Perspectives (October 2016)

October 17, 2016

Executive Summary ​As widely anticipated, the Fed concluded its September meeting with a decision to stand pat on interest rates, though momentum appears to be building within the FOMC to take action by December. September defied its reputation for being a notoriously bad month for stocks, with most of the major indices achieving gains, capping […]

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Jobless Claims (week of 10.8.16) Research Notes

October 13, 2016

Jobless claims unchanged at 246,000 – the lowest level since 1973 Initial jobless claims held steady at 246,000 for the week ended October 8, in line with the previous week’s revised print. The original estimate for the week ended October 1 of 249,000 was reduced by 3,000 to the lowest level since November 1973. The […]

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September’s Employment Situation Research Notes

October 10, 2016

Payroll gains fall short of expectations; jobless rate ticks up to 5.0% as more Americans seek work Job creation ebbed moderately in September, as the economy produced 156,000 new jobs, below expectations for an increase of 172,000.  Revisions to previous months shaved an additional 7,000 jobs from total payrolls, pushing the total shortfall to about […]

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Consumer Sentiment Research Notes

September 30, 2016

Consumer Sentiment improves in September on stronger outlook for future The University of Michigan Consumer Sentiment Index rose to 91.2 in September, outpacing expectations for a result of 90.0. That result also signified an improvement of the August reading of 89.8. The underlying components of the Index told notably different stories. Consumers continued to view […]

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Fed holds rates steady but hints at December action

September 23, 2016

As widely anticipated, the Fed concluded to stand pat again coming out of today’s meeting.  While this is consistent with expectations, the fact that three voting members dissented suggests a growing divide within the FOMC about the need to act.  In addition, the rate projections released alongside the statement itself points to a clear majority […]

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Sustainable spending in a low return environment

September 22, 2016

Executive Summary ​A 5% spending policy has become the most widely utilized policy among nonprofit organizations and other institutional investors today. While a 5% real return target seemed appropriate and was achievable for most institutions based on historical standards, interest rates and equity market valuations today may make this challenging in the years ahead. Committees […]

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Jobless Claims (week of 9.17.16) Research Notes

September 22, 2016

Jobless claims decline, remain near four-decade low Initial jobless claims declined to 252,000 for the week ended September 17, down from the previous week’s unrevised print of 260,000. The 4-week average for jobless claims dipped 2,250 to 258,500, extending its downward trend from recent weeks. Generally, claims below 300,000 are viewed as indicative of a […]

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August’s CPI Research Notes

September 16, 2016

Inflation comes in modestly higher than expected for August The Consumer Price index rose in August by 0.2%, stronger than the 0.1% increase expected by economists. The core index increased by 0.3%, also topping expectations for a 0.2% increase. Over the past year, the headline index increased by 1.1%, as falling energy costs in the […]

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