October 29, 2012
Economic themes: Personal Income, GDP, Consumer Sentiment, Housing, FOMC, Spain
- Personal Income and Outlays: personal income increased 0.4% in September, up from a 0.1% pace in August, and consumer spending increased 0.8% in September, from a 0.5% pace in August. The personal consumption expenditures index (PCE) increased 0.4%, with year-over-year headline prices up 1.7%. Incomes remained flat for the month of September, while spending increased. With oil prices retracting, the consumer sector is showing signs of progress.
- Gross domestic product: grew 2.0% in the third quarter, above expectations of 1.9%, and up from 1.3% in the second quarter. Consumers showed strong buying of durable goods, Federal defense spending was robust, and business spending remained flat. The GDP price index was up 2.8%, notably above expectations of 2.0%, though excluding food and energy, the growth rate was more modest at 1.3%.
- Reuters/University of Michigan consumer sentiment index: the final October reading came in at 82.6, below the mid-month reading of 83.1, though well above the September reading of 78.3. The figure reflects that the consumer is benefitting from stabilizing food prices, and declining gas prices, though continues to be hindered by a weak job market.
- Housing: New home sales had a nice 5.7% spike in September to a 389k pace, while pending home sales increased 0.3%. The figures were driven by low mortgage rates, though held back by limited supply of 4.5 months.
- FOMC: announced no change at the most recent meeting. They continue to pledge to keep interest rates low through 2015, utilizing the Federal Funds Rate, and QE3, with a focus on boosting employment. It will be interesting to see if the Fed changes course in the event inflation continues to pick up.
- Spain: continues to seek emotional support, not economic support, from the ECB even though year-over-year retail sales fell 11% in September, CPI rose 3.6%, and the nation has experienced five consecutive quarters of GDP contraction.
- Economic highlights for the week ahead:
- Tuesday, 10/30/2012: S&P Case-Shiller Index.
- Thursday, 11/01/2012: ISM Manufacturing Index.
- Friday, 11/02/2012: Employment situation.
Municipal market themes: California Schools, CalPERS, Los Angeles
- California schools: Moody’s warned they may cut the ratings of certain school districts if Prop 30 or Prop 38 do not pass, due to automatic state funding cuts. Of note, the California Constitution is committed to education funding, and the State has a number of mechanisms to support financially stressed school districts.
- CalPERS: the bankrupt City of San Bernardino did not make a scheduled $5.3 million payment to CalPERS, in an attempt to treat their pension obligations like any other creditor. CalPERS continues to state that the debt is non-negotiable, regardless of how unsustainable it may be.
- Los Angeles: the City is considering laying off 259 workers in an effort to close a $16.6 million deficit for fiscal 2013, a move viewed as fiscally responsible in efforts to grow reserves, and limit expenditure growth.
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