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Economic Update

December 16, 2013

Economic themes: Industrial Production, Producer Price Index, Retail Sales, Federal Budget.

  • Industrial Production: Manufacturing appears to be back, as industrial production increased by 1.1% in November, well above forecasts of a 0.6% increase, led by utilities, automobiles, and mining.  Domestic demand has been helped by sustained job creation, although inventories are increasing. Economists are speculating whether or not the figure will be enough fuel to commence tapering after Wednesday’s FOMC meeting.
  • Producer Price Index: Inflation was weak at the producer level in November, as the producer price index declined 0.1%, in line with forecasts and is up 0.7% year-over-year.  Weakness was seen in food and energy prices.  Eyes will be on tomorrow’s CPI figure, as there should be stronger inflationary figures to justify tapering, though support is coming from employment and manufacturing.
  • Retail sales: Consumers are opening up their wallets, as retail sales increased by 0.7% in November, above forecasts of a 0.6% increase.  Strength was seen in automobiles, home furnishing and building materials, with declines in gasoline, clothing, and food.
  • Federal Budget: In a seemingly unprecedented move, the House passed a bipartisan 2-year budget bill which should hopefully avoid another government shutdown in the near term, assuming the Senate passes it later this week.  The deal includes undoing $63 billion in sequester cuts and raises revenue through new fees for airline travelers, customs users, and conservation planning.  Politicians are being very quick to say that a fee is not a tax; at least they are raising revenue.  Federal employees are also being asked to contribute more to their pensions.  Those from the far left oppose the deal because it does not extend long term unemployment benefits and the far right opposes it because it does not cut enough.  Neither appears to be very good at math.
  • Economic highlights for the week ahead:
    • Tuesday, 12/17/2013: CPI
    • Wednesday, 12/18/2013: FOMC Meeting Announcement
    • Thursday, 12/19/2013: Existing Home Sales, Jobless Claims.
    • Friday, 12/20/2013: GDP

Municipal market themes: Puerto Rico, California, CalPERS.

  • Puerto Rico: Moody’s warned that Puerto Rico could get downgraded if the financial situation does not improve and they are not able to access credit markets.  The commonwealth’s economic activity index increased by 0.6% in October and 1.1% in September, but is down 5.4% over the past year.
  • California: Democrats released a preliminary budget that increases spending on education, child services, and small businesses, while increasing reserves.  Capital markets may prefer if they further paid down their “wall of debt.”
  • CalPERS: In a statement, CalPERS said California’s pensions remain insulated from decisions of the Detroit bankruptcy, based on state statutes.  They are looking out for their own interests, not those of the public.


This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.

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