Retail Sales numbers were positive at +0.2% month-over-month, but slightly below results for the past two months and a bit below consensus. The strongest portions of the report were electronics sales and ‘non-store’ retailers, which includes online purchases. Additionally, sales numbers for prior months were revised upward.
Overall, retail numbers have been a potentially positive contributor to the fourth quarter’s GDP number—which could be surprisingly strong according to current estimates. The Holiday shopping season specifically has looked to be a strong one. Perhaps not one of the best ever by any means, but decent, according to preliminary data as well as our own anecdotal (albeit limited) mall experiences of the season.
Industrial production declined -0.2% for November (month-over-month), when consensus called for a slight gain. Last month’s figures were mostly a result of a -0.4% drop in manufacturing production (specifically motor vehicle output, which cooled off after several months of gains). As an input to 4th Quarter GDP, this serves as a slight negative.
According to the Job Openings and Labor Turnover Survey (‘JOLTS’) for October, openings and hiring activity declined slightly, although the trend from the overall past few months has been positive. Initial Jobless Claims came in at 366k versus the expected 390k; importantly, claims have fallen strongly over the last several weeks to their lowest level since May 2008. We remain cautiously optimistic—as employment has improved as of late, it is important for this trend to continue over the coming months in order for meaningful impact to unemployment to occur.
Import prices rose +0.7% for November, mostly due to oil. This was slightly lower than forecast. Non-oil prices, such as metal imports, declined. The Producer Price Index (PPI) increased by +0.3% month-over-month (resulting in +6.1% year-over-year), which was slightly more than expected, while the core number was only up +0.1%—the headline number was affected by higher food prices. Overall, core PPI has slowed down during the last several months. The headline Consumer Price Index (CPI) was relatively flat for November (keeping a +3.4% gain year-over-year), as gasoline prices dropped over the month. Core CPI was up +0.2% (and +2.2% year-over-year), but was mostly affected by more cyclical components like clothing. In general, as commodity prices and expectations for global growth have moderated, concerns about forward-looking inflation have calmed, and it appears inflation figures may look a bit more contained over the next several months at this current pace.
The FOMC ‘non’-decision, keeping existing rates and current quantitative easing measures intact, while also acknowledging strengthening economic and employment metrics. Both the FOMC and critics of the FOMC have toyed with the idea of using different economic measures to determine when enough stimulus is enough. One more unique idea proposed by some economists, but less likely to be implemented by the Fed, is ‘nominal GDP level targeting,’ where a stated dollar level of GDP is targeted (in line with its long-term trend). Unfortunately, with the Fed’s dual mandate of stable prices and maximum employment, one problem with this approach is that one of the two Fed mandates (‘stable prices’) could be violated as monetary stimulus is ramped up to achieve this trend goal. However, the ‘maximum employment’ mandate could well benefit from this higher growth. Another example of politics and economics in conflict—and perhaps working against each other in the search for common sense solutions.
Market Notes
| Period ending 12/16/2011 |
1 Week (%) |
YTD (%) |
| DJIA |
-2.54 |
5.24 |
| S&P 500 |
-2.79 |
-1.05 |
| Russell 2000 |
-3.08 |
-6.71 |
| MSCI-EAFE |
-4.01 |
-14.79 |
| MSCI-EM |
-3.22 |
-21.48 |
| BarCap U.S. Aggregate |
0.63 |
7.72 |
| U.S. Treasury Yields |
3 Mo. |
2 Yr. |
5 Yr. |
10 Yr. |
30 Yr. |
| 12/31/2010 |
0.12 |
0.61 |
2.01 |
3.30 |
4.34 |
| 12/9/2011 |
0.01 |
0.22 |
0.89 |
2.07 |
3.10 |
| 12/16/2011 |
0.00 |
0.24 |
0.81 |
1.86 |
2.86 |
Markets were generally weaker during the week as a continued matter of European concerns despite the decent U.S. economic data noted above. Somewhat strangely, markets fell on Tuesday in response to the Fed’s reaction of ‘no action.’ Seems people want improvement in the economy, but, at the same time, are disappointed that the economy is perhaps strong enough to not need additional easing… curious.
Defensive sectors in the market, such as telecom, utilities and health care outperformed the market, while energy, materials and technology underperformed by the largest amounts. Large-cap generally outperformed mid- and small-cap stocks.
The U.S. Dollar being up roughly two percent on the week provided an additional headwind to foreign investments as well as commodities. Commodity markets were led by several agricultural and industrial metals contracts, while precious metals like gold and silver were down. With a much stronger U.S. Dollar in recent weeks, due to more confidence about U.S. prospects relative to the situation in Europe, gold bug concerns about inflation (which often go hand-in-hand with a weakening dollar) and U.S. economic prospects have dissipated a bit.
Naturally, with the movement away from risk assets, investment-grade bonds benefitted, while certain corporates and non-governments were flat to slightly lower.
As a side note, December has proven to be the best performing month over time from a seasonal standpoint… as of Friday’s close, we’re down -2% on the month so far, so a Santa Claus rally is still within reach.
Enjoy the week—and we want to wish Happy Holidays to you and your families.
Karl Schroeder, RFC, CSA, CEP
Investment Advisor Representative
Schroeder Financial Services, Inc.
480-895-0611
Sources: FocusPoint Solutions, Goldman Sachs, Morgan Stanley, Morningstar, Payden & Rygel, Deutsche Bank, Wells Capital Management, Bloomberg, Reuters, Standard & Poors, MSCI, Barclays Capital, JPMorgan Asset Management, Northern Trust, Oppenheimer Funds, PIMCO. Index performance is shown as total return, which includes dividends. Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.