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December 3, 2012

Economic themes: Manufacturing, Fiscal Cliff, Europe, GDP, Housing, Beige Book

  • ISM Manufacturing Index: the Institute for Supply Management, a survey of over 300 firms, reported a reading of 49.5 in November, from 51.7 in October.  A figure below 50 implies a contraction, after two months of expansion. 
  • Fiscal cliff: with both parties in Washington doing their best political wrangling and finger pointing, little progress is being made towards a resolution, increasing the probability of the can being kicked down the road, again, and decreasing the probability of a grand bargain.  An objective observer can see we need to increase revenues and reform entitlement spending, the challenge will be how to do it in a way that does not impair growth. 
  • Europe: having announced a €10 billion buy back deal for Greek debt, yields on the nation’s 10-year bonds fell to 14.6%.  Meanwhile, the PMI reached 46.2 in November for the 17-nation monetary union, representing an eight month high.  While the figure represents a downturn in manufacturing activity, it leaves some optimistic that the worst is behind us. 
  • GDP: gross domestic product increased at a 2.7% pace in the third quarter, in line with estimates of 2.8%, led by inventories, nonresidential structures, and exports. 
  • Housing: the S&P Case-Shiller home price index increased 0.4% in September, with gains across most of the 20 city index.  Pending home sales in October increased by 5.2%, though the November figure could be weaker due to Hurricane Sandy.  New home sales in October were below estimates, coming in at a 368k pace. 
  • Beige Book: the FOMC had a mixed report with a key language change, stating the economy grew, “at a measured pace,” from, “generally expanded modestly,” led by consumer spending and residential housing, though expressed concern over the fiscal cliff and impacts from Hurricane Sandy.
  • Economic highlights for the week ahead:
    • Wednesday, 12/05/2012: Factory Orders, ISM Non-Manufacturing Index.
    • Friday, 12/07/2012: Employment Situation.

Municipal themes: Tax Allocation Note Refunding, November Volume.

  • Dinuba, CA: will be the first town to refund a tax allocation note in the post ABX126 environment.  While other forms of tax allocation (re)financing remain forbidden, the town will be refunding notes that matured on 10/01/2012.  I expect this event to kickoff the refunding process for matured tax allocation notes, though no other deals are imminent.
  • Volume: November new issuance fell 20% compared to 2011, to $30 billion, slowed by elections, Hurricane Sandy, and Thanksgiving, though 2012 volume is up 31% on a year-to-date basis.


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