December 9, 2013
Economic themes: Fed, Employment, GDP, Personal Income & Outlays, Consumer Sentiment, Chinese Exports, Germany.
- Fed: Everyone is watching the Fed. In a recent Bloomberg survey, 34% of economists predicted the Federal Reserve will commence tapering its quantitative easing program during the upcoming meeting scheduled for December 17-18. Meanwhile, Congressional negotiators are working on a deal to curb automatic spending cuts by the December 13th deadline.
- Employment: Nonfarm payrolls increased by 203k in November, above forecasts of 180k, and the unemployment rate fell to a 5-year low of 7.0%. The increases were led by private services up 152k and goods producing jobs up 44k. Wages increased 0.2%, in line with forecasts and the average work week was in line with forecasts at 34.5 hours.
- GDP: Gross domestic product increased by 3.6% in the third quarter, above forecasts of 3.1%, led by inventory growth, personal consumption expenditures, and residential and nonresidential fixed investments. The GDP price index increased by 2.0%, above forecasts of 1.9%, more in line with the Fed’s objectives.
- Personal Income & Outlays: Consumer spending increased by 0.3% in October, led by auto sales. Income fell by 0.1%, likely a result of the government shutdown. The price index is up 0.1% on the month and 0.7% on the year, a bit weaker than the Fed’s objective.
- Consumer Sentiment: The University of Michigan’s consumer sentiment index posted an 82.5 early December reading, above a forecast of 75.5, and the highest since July which was led by gains in the current conditions and expectations components. The report bodes well for December retail sales.
- Chinese exports: China reported that exports increased by 12.7% in November with the trade surplus up 8.7% to $33.8 billion, while inflation fell slightly to 3% as food prices fell. The numbers are viewed as a positive for the global economy.
- Germany: Industrial production unexpectedly fell 1.2% in October, missing forecasts of a 0.8% increase, as Europe’s recovery continues to be choppy.
- Economic highlights for the week ahead:
- Thursday, 12/12/2013: Jobless Claims, Retail Sales.
- Friday, 12/13/2013: Producer Price Index.
Municipal market themes: Fresno, CA, Puerto Rico, Detroit, MI.
- Fresno, CA: S&P downgraded the central valley city’s lease revenue debt to ‘BB+’ from ‘BBB-’ citing a weak economy and weak budgetary performance. The outlook is stable.
- Puerto Rico: The commonwealth’s economic activity index increased by 0.6% in October but is down 5.4% over the past year.
- Detroit, MI: A federal judge approved the distressed city’s $18 billion Chapter 9 filing, and stated that pensions may be cut in bankruptcy. Bond market participants are actively watching how they will treat the city’s $369 million in unlimited general obligation bonds.
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