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Schmohl Talk: Weekly Bullets

October 15, 2012

Economic themes: Retail Sales, Consumer Confidence, PPI, Jobless Claims, International Trade, Europe.

  • Retail Sales: grew 1.1% in September, above estimates of 0.7%, indicating the consumer is continuing to spend despite rising fuel costs.  Electronics & appliances were the leading component, which was aided by the new Apple iPhone 5. 
  • Reuters/University of Michigan’s consumer sentiment index: arrived at a mid-month level of 83.1, above expectations of 78.3, implying the economy is experiencing improvement.
  • Producer Price Index: increased 1.1% in September, above expectations of 0.8%, led by energy and food costs, stoking inflation concerns.
  • Jobless Claims: decreased to 339k for the week ended 10/06/2012, the lowest reading since the start of the economic downturn though it could be indicative of seasonal adjustments; continuing claims dropped 15k to 3.273 million for the week ended 9/29/2012.
  • Trade Deficit: expanded to -$44.2 billion in August, slightly worse than expectations of -$44 billion, from -$42.5 billion, attributed to slowing growth in Europe and Asia, and increases in oil products.
  • Europe: a senior Euro-zone official believes Spain may finally ask for a bailout next month.  Such a move may be done at the same time as a Cyprus bailout, and revisions to the present Greek bailout.  Citizens of the healthier economies, such as Germany and Finland, are showing greater resistance to bailouts.
  • Economic highlights for the week ahead:
    • Tuesday, 10/16/2012: Consumer Price Index, Industrial Production.
    • Wednesday, 10/17/2012: Housing Starts.
    • Thursday, 10/18/2012: Jobless Claims.
    • Friday, 10/19/2012: Existing Home Sales.

Municipal market themes: Moody’s ratings actions, S&P California update, Elections,

  • Moody’s: placed appropriation backed debt for 27 California cities on review for a possible downgrade.  The action reflects a questioning of some cities willingness, not necessarily ability, to pay their bills when due, as has been inferred in San Bernardino and Stockton.  Markets were not too surprised, as much of the action had already been priced in.  To the surprise of some, Moody’s is considering upgrading both the Cities of San Francisco and Los Angeles, citing relative resiliency through the economic downturn.
  • S&P: waves of California bankruptcies are not expected among the California cities they rate, due to the relative fiscal discipline demonstrated by most finance departments.  While more could be possible, California cities in general have done an outstanding job paring back expenses in response to declining revenues.
  • California school funding: with two competing measures on the ballot this November, schools are watching the election very closely.  Prop 30, led by Governor Jerry Brown, would increase state income taxes for individuals making $250k+/yr, and couples making $500k+/yr, and increases sales taxes by 0.25%.  Prop 38, led by Molly Munger, would increase state income taxes for individuals making $7.3k+/yr, and couples making $14.6k+/yr.  If both initiatives fail, California’s already financially distressed school system would be subject to a series of automatic trigger cuts.

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