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Economic Update

September 28, 2015

Economic themes: GDP, Personal Income/Outlays, Housing, China.

  • GDP: Second quarter Gross Domestic Product increased by 3.9%, beating forecasts of 3.7% growth, led by strong personal and business spending. The GDP price index increased by 2.1% and matching the Fed’s preferred level.  Early forecasts for the third quarter are calling for a slowdown to around 2%.  The IMF stated that their global GDP growth forecasts of 3.3% for 2015, and 3.8% for 2016, are no longer attainable due to slowing growth in emerging economies, namely China.  They praised the Fed’s decision not to raise rates in September, citing both Japan and the ECB’s attempt to tighten prematurely, resulting in a reversal of policy.
  • Personal Income/Outlays: Personal income increased by 0.3% in August, below forecasts of 0.4% growth, and personal spending increased by 0.4%, beating forecasts of 0.3% growth. Regardless, the PCE Price Index was unchanged on the month and is up a modest 0.3% over the past year.  The healthy consumer is a win for the Fed hawks, but the persistently weak inflation gives fuel to the Fed doves.
  • Housing: Pending home sales fell 1.4% in August to a 109.4 reading. The west posted a gain of 1.8%, with declines observed in all other regions.  Lack of supply appears to be the largest driver of the softness, though continued new home construction should help cure that problem.  New home sales surged in August to a 552k unit pace, the highest since February 2008, with double digit gains observed across all regions.
  • China: Industrial profits fell in the world’s second largest economy by 8.8% in August, according to the National Bureau of Statistics, led by plummeting coal mining profits and operational pressures. The figures have lowered global commodity prices as well.
  • Economic highlights for the week ahead:
    • Tuesday, 9/29/2015: S&P Case-Shiller HPI.
    • Thursday, 10/01/2015: ISM Mfg Index.
    • Friday, 10/02/2015: Employment Report.

Municipal market highlights: Puerto Rico.

  • Puerto Rico: A group of hedge funds disbanded after they felt the Commonwealth had no desire to negotiate with them, and they had conflicting interests. Meanwhile, the Commonwealth stated they will take into account constitutional priority in any sort of restructuring.  This implicitly favors GOs as they include the constitutional guarantee language.


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