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Economic Update

 

October 7, 2013

Economic themes: Washington, Employment Report, Greece, Manufacturing.

  • Washington: The Federal Government is still shut down.  House Republicans will not fund the government until they have concessions on the Affordable Care Act, and are now threatening not to raise the debt ceiling without “a serious conversation” about deficit reduction.  Funding the government tends to have a far more significant impact on the less fortunate, however, not raising the debt ceiling will have a larger impact on campaign financiers, increasing the probability of something getting done.  At this point, very little out of Washington can be taken seriously, though not raising the debt ceiling runs the risk of having “catastrophic” consequences.  Early estimates project that the current shut down has reduced growth by 0.1%, and climbing.
  • Employment: The monthly employment report, which many investors eagerly await in hopes of getting an inclination of what the Fed’s next move may be, was not released on Friday, because – you guessed it – the Labor Department was closed.
  • Greece: The government is forecasting growth of 0.6% in 2014, from -4% in 2013, citing growth in investments, exports, and tourism.  Such growth would pull the economically depressed nation out of a six year recession, though many economists are skeptical of the forecasts.
  • Manufacturing: The ISM Manufacturing Index posted a 56.2 reading, above estimates of 55, with strength seen in production growth and employment, though weakness was seen in new export orders and backlogs.
  • Economic highlights for the week ahead:
    • Tuesday, 10/08/2013: International Trade.
    • Wednesday, 10/09/2013: FOMC Minutes.
    • Thursday, 10/10/2013: Jobless Claims.
    • Friday, 10/11/2013: PPI, Retail Sales, Consumer Sentiment.

Municipal market themes: Stockton, Puerto Rico, Bell.

  • Stockton: The City Council of the bankrupt city approved a bankruptcy plan, as the City has deals in place with each of the municipal bond insurance companies.  The plan does not impair pensions, though does impair retiree healthcare benefits.  The deal includes a restructuring of pension obligation bonds, extending the final maturity from 2037 to 2052.  The plan is dependent on a $0.0075 sales tax increase that will be on the 11/05/2013 ballot.
  • Puerto Rico: The federal government is monitoring the fiscal health of Puerto Rico, due to bond prices plummeting over the past few months, and the systemic risk the Commonwealth could have on the broader financial system.  Intervention has been downplayed, though they are ensuring that, “Federal resources are fully utilized for maximum impact for the people of Puerto Rico.”
  • Bell: Robert Rizzo, the former Bell city manager with the once infamous $800k salary, pleaded no contest to 69 counts related to fraud, waste, and abuse of public funds.

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