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September 4, 2012

Economic themes: Jackson Hole, GDP, ISM, Consumer Confidence, Housing, ECB.

  • Jackson Hole Economic Symposium: Bernanke discussed unemployment, how to spur growth, and the possibility of further bond purchases if necessary, claiming previous efforts have been “economically meaningful.”  He also weighed in on the adverse impact federal budget cuts could have on the economy.  Expect details of upcoming Fed policy on 9/13/2012, with the FOMC meeting announcement.
  • Institute for Supply Management’s Factory Index:  a gauge of orders, production, and employment, fell to 49.6 in August, representing a 30 year low, below estimates of 50.  A figure above 50 implies expansion, and a figure below 50 implies contraction.
  • Second quarter gross domestic product (GDP) increased at a 1.7% rate, above estimates of 1.5%, and below the first quarter’s 2% rate, led by consumer spending and exports; mitigated by the European debt crisis, and gasoline prices.
  • Thomson Reuters/University of Michigan Consumer Sentiment Index: rose to a 3-month high of 74.3, above the 73.6 projection, from 72.3 in July.  The index has a five year average of 89, reflecting a slowdown in manufacturing.
  • The S&P/Case-Shiller index of property values in 20 cities showed a 0.5% increase from June 2011, the first gain in two years, and the largest gain in six years.
  • The index of pending home resales increased by 2.4%, a sign the housing market could be improving.
  • Details of the European Central Bank (ECB) bond-purchasing plan are scheduled to be released soon, and ECB President Mario Draghi has hinted it will focus on shorter term maturities, 3 years and in, which could be conditional to austerity agreements.  European leaders are meeting in Rome and Berlin today, prior to the ECB policy meeting beginning Thursday, where more details are expected.

Municipal credit themes:  California Pensions, San Bernardino, Reno, Illinois

  • California Governor Jerry Brown has proposed wide sweeping pension reform in an effort to make the system more sustainable for the long term, including capping benefits, increasing retirement ages, increasing employee contributions, and reducing abuses.  Expect unions to argue how unfair sustainable pension system might be.
  • San Bernardino, CA: a new emergency budget proposal includes payments toward pension obligation bonds, cuts to 100 positions, and is dependent on concessions from unions.  They are also looking into outsourcing and privatizing certain City services.
  • Reno, NV: is seeking to resolve a dispute over the methodology for calculating redevelopment revenues, which has conflicting opinions issued by Attorney General and the Washoe County District Attorney.  The resolution will determine if there are sufficient funds to cover debt service, as the Agency has been adversely impacted by severe declines in assessed values, and has already utilized the surety bond.
  • General obligation bonds from the State of Illinois were downgraded to ‘A’ from ‘A+’ by Standard & Poor’s, reflecting weak pension funding and continued financial weakness despite measures to improve the structurally imbalanced budget.

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