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Economic Update

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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