March 31, 2014
Economic themes: Fed, GDP, Personal Income and Outlays, Durable Goods, Housing.
- Fed: Federal Reserve Chair, Janet Yellen, continues to see “considerable slack” in the employment market, and pledges to continue accommodative monetary policies for “some time.” While the unemployment rate has steadily been decreasing, she sees concern in the underemployed, stagnant wages, long periods of joblessness, and the current participation rate. Friday’s employment report could be rather telling.
- GDP: Q4 2013 gross domestic product increased by 2.6%, slightly below expectations of 2.7%, and down from the 4.1% in Q3. Strength was seen in personal consumption, business equipment, and exports, with weakness seen in government purchases, residential investment, and nonresidential investment. The price index was inline with forecasts, up 1.6%.
- Personal Income and Outlays: Personal income increased by 0.3% in February, and is up 3.1% year-over-year; consumer spending increased by 0.3%, and is up 3.1% year-over-year; core prices increased by 0.1%, and is up 0.9% over the past year. The figures show consumer spending is improving moderately, though inflation continues to be nonexistent.
- Durable Goods: New orders increased by 2.2% in February, and are up 0.2% over the past year. Strength was seen in the transportation component, with weakness seen in investment planning, implying previous manufacturing surveys may have been overly optimistic.
- Housing: The S&P Case-Shiller home price index increased by 0.8% in January, and is up 13.2% year-over-year, with notable gains in the West, South, and Northeast. New home sales in February sold at a 440k annual pace, inline with forecasts. Weak inventory has been slowing sales and keeping prices up, though new home inventory is the highest since December 2010.
- Economic highlights for the week ahead:
- Tuesday, 4/01/2014: ISM Manufacturing Index.
- Thursday, 4/03/2014: International Trade, Jobless Claims.
- Friday, 4/04/2014: Employment Situation.
Municipal market themes: California Drought, Puerto Rico.
- California Drought: Fitch released a report stating that California Utilities have been “unaffected” by the record drought, however a prolonged drought could have adverse consequences. As Alamo Capital has discussed before, most agencies are designed to withstand prolonged droughts, and encourage investors to focus on the current liquidity position, pledged revenue coverage, and customer base. The drought is creating more support for an $11 billion bond deal, scheduled for the November ballot, designed to upgrade infrastructure and enhance water storage facilities.
- Puerto Rico: A majority of the trades below the minimum denomination on the new issue Puerto Rico general obligation deal were cancelled, after coming under scrutiny from FINRA, as the deal was intended for institutional buyers.
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