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Economic Update

December 1, 2014

Economic themes: OPEC, GDP, Black Friday, ISM, Housing.

  • OPEC: In a meeting in Vienna on Thursday, 11/27/2014, the Organization of Petroleum Exporting Countries decided to maintain its current output at 30 million barrels per day. When matched with the U.S. pumping the most oil in three decades, and declining global demand growth, crude is in a bear market, with prices down 38% this year. This is the lowest since July 2009, with some believing prices could plummet as far as $30/barrel.  Developing economies that are dependent on oil, such as Venezuela, Iran, and Russia, have been adversely impacted by the declining prices, and 10 OPEC member nations are unable to balance their budget at current price levels.  The U.S. oil boom will be affected, with profitability dependent on $40-80/barrel oil, which could weed out some of the weaker producers.
  • GDP: The third quarter was stronger than expected, with gross domestic product increasing by 3.9%, above forecasts of a 3.3% increase, and the price index was up 1.4%. Strength was seen in personal consumption expenditures and nonresidential fixed investment, with weakness in private inventory investment.
  • Black Friday: The National Retail Federation reported that Thanksgiving weekend sales were down 11% from the past year, and down each of the last two years. Cyber Monday sales growth slowed, increasing by 8.5%, compared to 2013, which experienced 20.6% sales growth.  Consumers are spreading out their online shopping, as cyber deals are being released prior to Cyber Monday, with the cyber weekend sales up 17%.  The consumer is opting to stay home instead of going to the mall.
  • ISM: The ISM Manufacturing Index posted a 58.7 reading in November, above forecasts of a 57.8 reading, led by strength in the new orders and production components.
  • Housing: The S&P Case-Shiller home price index posted a 0.3% gain in September, and is up 4.9% over the past year. Strength was seen across the south.  New home sales fell to a 458k unit pace, compared to forecasts of a 470k unit pace, with prices up 15.4%.
  • Economic highlights for the week ahead:
    • Thursday, 12/04/2014: Jobless Claims.
    • Friday, 12/05/2014: Employment Report, International Trade.

Municipal market themes: Puerto Rico, Bell.

  • Puerto Rico: The Commonwealth narrowly averted a public transportation shutdown by agreeing to increase oil taxes by 68%, in order to pay PRHTA salaries, maintain roadways, and access the capital markets. Lawmakers are discussing amendments to the bill as part of a broader tax reform plan, prior to a final vote, that will enable the authority to sell $2.9 billion in debt backed by the tax increases.
  • Bell, CA: The City of Bell agreed to pay a $257k fine to the IRS, related to the tax exempt status of a general obligation bond deal, after it was determined the bond was issued as a hedge. Former city officials, who did not properly allocate the bond proceeds, are currently in prison for the abuse of public funds, among other reasons.

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