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Economic Update

February 18, 2014

Economic themes: FOMC, Industrial Production, Retail Sales, Housing, Consumer Sentiment, Foreign Central Banks.

  • FOMC: New Fed Chair, Janet Yellen, appeared before the House Financial Services Committee last week where she stated she will maintain Bernanke’s policies, and continue to taper in “measured steps”.  She sees the economy strengthening, the labor market improving, and would only slow tapering if there is a “notable change in the outlook” on the economy.  Minutes from the last Fed meeting will be released Wednesday, where some recent weak economic figures are likely to be blamed on weather and seasonal factors.
  • Industrial Production: December industrial production declined 0.3%, below a forecasted 0.3% increase, with manufacturing leading the decline.  Foul weather is taking much of the blame, though could be a sign that the first quarter growth is slowing.
  • Retail Sales: Slower vehicle sales dragged retail sales down in January, with the overall figure falling by 0.4%, below forecasts of a 0.1% decline.  The figure was supported by strong electronics, building material, and grocery sales.  Foul weather is again a likely culprit and could be a notable factor in first quarter growth.
  • Housing: Weather is playing a factor in housing as well, with the home builders housing market index declining to 46 in February, below a forecast of 56.  Current sales and traffic led the figure lower, with regional strength seen in the west, and weakness seen in the northeast.
  • Consumer Sentiment: The Reuter’s/University of Michigan consumer sentiment index held at 81.2 for mid-February.  The expectations component gave a boost, though the consumer was held back by weather and rising gas prices.
  • Foreign Central Banks: The Bank of Japan expanded lending facilities for commercial banks to offer loans to businesses, in an effort to boost growth.  Meanwhile, the People’s Bank of China took $7.9 billion from the financial system by selling repurchase contracts in an effort to slow lending.

Municipal themes: Puerto Rico, Detroit, California Drought.

  • Puerto Rico: After being downgraded to below investment grade by all three ratings agencies, Puerto Rico is preparing to come to the capital markets with a general obligation deal that could be as high as $3.5 billion.  They are hosting a webcast Tuesday, February 18, 2014 to detail recent credit accomplishments, liquidity, plans of finance, revenue and expense updates, reforms, and economic development.
  • Detroit: The bankrupt city’s plan to treat general obligation bonds as unsecured will be tested in bankruptcy court on Wednesday, which could impact all Michigan debt.  California has chosen to honor general obligation bonds, as was established in the Sierra Kings bankruptcy.
  • California Drought: Fitch released a report stating that last week’s storms in California were not sufficient to end the California drought.  As a review, most California water agencies are designed to withstand multi-year droughts, and it is important to understand current revenues, liquidity, and access to other sources such as ground water supplies and storage facilities.


This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.

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