October 15, 2013
Economic themes: Washington, FOMC Minutes, PPI, Retail Sales, Consumer Sentiment.
- Washington: The federal government is still closed, and the debt ceiling has not yet been raised, as the government’s borrowing authority is scheduled to lapse on 10/17/2013. Our fearless leaders in Washington claim to be close to a deal, though not one of the extremists from either side appear ready to endorse. On a positive note, entitlements are slowly being mentioned, albeit not very seriously. It would be nice to see politicians care to raise revenues to finance their choices, but that would be wishful thinking. I suppose ObamaCare is still being discussed and delaying the medical device tax seems like a possibility. A recent Pew Research poll found that 39% of Americans believe not raising the debt ceiling would not have devastating consequences on our economy, which is scary and this includes some of our elected officials in Washington, which is even scarier. If politicians understood and/or faced consequences for their actions, things may be different, but they don’t, so they’re not.
- FOMC Minutes: Notes from the Fed’s latest meeting indicated they were very close to commencing tapering, though refrained from doing so due to continued weak job growth and a fear of hurting the slow recovery. Janet Yellen has been nominated to succeed Bernanke, and she is a notable supporter of his unprecedented accommodative policies. In the event a federal budget deal includes further indiscriminate sequestration, it is likely to impede economic growth, which could necessitate more accommodative policies, as Open Market Operations are among the very few tools available to stimulate economic growth in the face of an unproductive Federal Government.
- PPI: The Producer Price Index was not released last week because – you guessed it – the government is closed.
- Retail Sales: Retail Sales was not released last week because – you guessed it – the government is closed.
- Consumer Sentiment: The Reuters/University of Michigan consumer sentiment index fell slightly to a 75.2 reading, above expectations of 75.0, with strength seen in the current conditions component, and weakness in the expectations component as the consumer fears job and earnings prospects. Many blame Washington.
- Economic highlights for the week ahead:
- Wednesday, 10/16/2013: CPI.
- Thursday, 10/17/2013: Housing Starts, Jobless Claims, Industrial Production.
Municipal market highlights: Pension reform, Puerto Rico.
- Pension reform: As pension costs continue to increase at faster rates than tax revenues, San Bernardino and San Jose mayors, among others, are proposing the ability to reduce pension and health care benefits for existing employees future years of service. Actions would be for new employees only, and would not violate constitutional protections for existing pensions. San Jose approved such a measure last year, though the legislation has been tied up in a court battle as unions vehemently defend their benefits against the will of taxpayers.
- Puerto Rico: Q1 2014 revenue for the commonwealth beat estimates by 5.4%, or $10.4 million, which helps demonstrate the commonwealth is making progress toward fiscal stabilization, as revenues have often lagged estimates, though the road ahead to fiscal stabilization has quite a further way to go.
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