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Economic Update

September 3, 2013

Economic themes: Washington, Manufacturing, Personal Income & Outlays, GDP, Housing,

  • Washington: President Obama is beating his war drum as he tries to avoid becoming the first President ever to be denied Congressional approval when asking for permission to use military force.  Washington seems divided as some support the President in his quest to punish Syrian perpetrators of crimes against humanity, while others do not feel it is a beneficial use of resources, and some feel the U.S. does not have the appetite for another military action.  It appears any proposed action would involve air strikes, with no boots on the ground.  Military action tends to create short term volatility, while contributing to long term economic growth.
  • Manufacturing: The ISM manufacturing index posted a 55.7 reading in August, beating forecasts of 53.8, led by strengths in new orders and production.  Employment growth remains weak, and inventories and backlogs showed declines.
  • Personal Income & Outlays: Personal income increased by 0.1% in July, below a consensus of 0.2%, held back by the wages & salaries component.  Personal spending also increased 0.1% in July, below expectations of a 0.3% increase, held back by durables and services.  Headline prices were up 1.4% year-over-year, with the core up 1.2%, leaving some fuel for the Fed to maintain quantitative easing, though all eyes will be on the Friday employment report.
  • GDP: Gross domestic product increased by 2.5 in the second quarter, led by a revision in net exports, with strength also seen in inventories and nonresidential structures.
  • Housing: Pending home sales fell 1.3% in July, as consumers weigh higher mortgage rates.  The S&P Case-Shiller HPI increased 0.9% in June, and is up 12.1% year-over-year, as inventories remain weak.
  • Economic highlights for the week ahead:
    • Wednesday, 9/04/2013: International Trade.
    • Thursday, 9/05/2013: Jobless Claims.
    • Friday, 9/06/2013: Employment Situation.

Municipal market themes: BATA, BART, San Francisco water.

  • BATA: After 24 years of planning, designing, negotiating, and building, the Bay Area Toll Authority opened the new eastern span of the Bay Bridge.  Approved in 1998, and scheduled to take 4 years to complete at a cost of $1.5 billion; the final product took 15 years at a cost of $6.4 billion.
  • BART: Moody’s warned that a potential strike for the Bay Area Rapid Transit could adversely impact revenues and increase operating costs for the system, as well as have a negative impact on the broader San Francisco Bay Area economy.  The system has $626 million of outstanding sales tax bonds, and $413 million of general obligation bonds, both of which will continue to be pledged to bondholders independent of whether the trains run or not.
  • San Francisco water: Moody’s released a report saying the Rim fire, and it’s threatening of the Hetch Hetchy water supply, may increase water treatment costs, but should not change the outlook on the credit.


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