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Economic Update

December 8, 2014

Economic themes: Employment, Oil, International Trade, China.

  • Employment: Nonfarm payrolls increased by 321k in November, well above forecasts of a 230k increase, with the unemployment rate holding steady at 5.8%, and the labor participation rate holding steady at 62.8%. Of note in the report, earnings were up 0.4% on the month, which could help boost inflationary expectations, and may give the Fed some room to bump the Federal Funds Rate sooner than later.
  • Oil: Crude has continued its bear market, reaching a 5-year low, down 11% in the fourth quarter, and down 39% on the year, amid excess supply, and slowing global demand growth. The energy component in the S&P 500 is trading near a 17-month low, despite 7 straight weekly gains in the broader index.
  • International Trade: The trade gap in October was -$43.4 billion, compared to narrower forecasts of -$41 billion, with exports increasing by 1.2%, and imports increased by 0.9%.
  • China: The Shanghai Composite Index has surged 24% over the past month, the highest since April 2011, on the expectation of accommodative monetary policy and favorable valuations. Overseas shipments increased by 4.7%, below forecasts of an 8% increase, with imports plummeting due to declining oil prices, resulting in a trade surplus of $54.5 billion.  Economic slowdowns in Europe and Japan could hinder China’s growth.
  • Economic highlights for the week ahead:
    • Thursday, 12/11/2014: Retail Sales, Jobless Claims.
    • Friday, 12/12/2014: PPI, Consumer Sentiment.

Municipal market themes: Puerto Rico, California.

  • Puerto Rico: The Commonwealth’s House and Senate have approved similar bills to increase oil taxes by 68%, which could aid in the issuance of a $2.9 billion Highway & Transportation Authority bond, to be issued under the Infrastructure Financing Authority. A conference committee will be formed among the two bodies to create a singular bill that will be voted on.  The Aqueduct and Sewer Authority reported net revenues 6.7% higher than projections for Q1 2015, bringing senior coverage to 3.72x, and aggregate coverage to 1.16x.
  • California: Demand for California municipal debt remains strong after last week saw the largest supply totals in 2014. This week, the Los Angeles Community College District will be bringing a $1.4 billion refunding and new money deal.  The Bay Area Toll Authority will be pricing an $814 million deal, with $431 million in variable rate notes, designed with potential for rising rates in mind.  The 30-day visible supply is at $18.7 billion.

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