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Economic Update

August 19, 2013

Economic themes: PPI/CPI, Housing, Consumer Sentiment, Japanese trade

  • PPI/CPI: The Producer Price Index was unchanged in July due to a decline in energy costs, and is up 2.1% year-over-year.  The Consumer Price Index increased 0.2% in July, and is up 2.0% year-over year.  Inflation is slowly increasing, but still remains below the Fed’s comfort level, implying monetary decisions will be based on employment growth more than inflation.
  • Housing: Housing starts increased 5.9% in July to an 896k pace, led by the multifamily component.  The single family component fell 2.2%, as homeowners weigh the affordability of increasing mortgage rates.  Housing permits increased 2.7% to a 943k pace.  The NAHB housing market index posted a 59 reading for August, up 3 points, representing the highest figure since 2005.
  • Consumer Sentiment: The Reuter’s/University of Michigan consumer sentiment index posted an 80.0 reading, below a forecast of 85.5, as consumers weigh rising interest rates and the risk of tapering, they have benefited from a strong stock market, rising home prices, and declining energy prices.
  • Japanese trade: The island nations’ exports increased 12.2%, and imports increased 19.6% in July, as the weak yen has helped make sales abroad cheaper, along with increased demand associated with improvements to the American and European economies.
  • Economic highlights for the week ahead:
    • Wednesday, 8/21/2013: FOMC Minutes, Existing Homes Sales.
    • Thursday, 8/22/2013: Jobless Claims.
    • Friday, 8/23/2013: New Home Sales.

Municipal market themes: Cal RANS, Detroit, Harrisburg

  • Munis are cheaper this week, as Treasuries have fallen the past 4-consecutive days.  Issuance is expected at $4.1 billion this week.
  • Cal RANS: Last week’s $5.5 billion Revenue Anticipation Note deal was very successful, as the 5/28/2014 maturity was priced to a 0.21% yield, and the 6/23/2014 maturity was priced to a 0.23% yield.
  • Detroit: Objections to the City’s Chapter 9 Bankruptcy must be filed by midnight tonight, as creditors gear up for the October 23rd trial.  There will also be a hearing on Wednesday to discuss a certain creditor settlement involving the termination of interest rate swaps, which could free up $11 million per month of casino revenue. 
  • Harrisburg: The Pennsylvania Attorney General is investigating the possibility of criminal activity in the issuance of the City’s bonds for an incinerator project.  The SEC has already accused the City of fraud for misleading investors, though a settlement was reached.  

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