Friday, March 29, 2019

Final Fourth Quarter GDP Is In

GDP posted a gain of just 2.2 percent in the fourth quarter, the Commerce Department reported yesterday in its final estimate of economic growth. That was down from the previous estimate of 2.6 percent and leaves full-year growth at 2.9 percent.

In all, 2018 was the best year for the economy since 2015 and well above the 2.2 percent increase in 2017. The economy grew 3 percent when compared with the fourth quarter of 2017. If it extends into July, the current economic expansion will then become the longest on record.

The reduction in the fourth quarter GDP number was because of revisions down in consumer spending, government expenditures at the state and national levels, and nonresidential fixed investment. Imports also were revised lower amid continuing tensions between the U.S. and its global trading partners.

Thursday, March 28, 2019

Mutual Funds Growing Fast

Mutual funds have been growing strong this year. Net flows added $36.7 billion to mutual fund coffers in January and $29.2 billion in February. Assets rose by 8.6 percent to $14.8 trillion as of the end of February, although that's still below the $15.4 trillion asset level reached in September.

Active mutual funds experienced positive net flows in February for the second month in a row. Total active assets climbed back over the $11 trillion mark in January, and ended February at $11.2 trillion.

ETF assets have also recovered from the fourth-quarter downturn, having risen to $3.72 trillion during February. This was a new all-time high, surpassing the $3.71 trillion amassed in September.

Wednesday, March 27, 2019

Buybacks at a Record High

The amount of shares repurchased by S&P 500 companies in the last quarter of 2018 reached a record high. The total value surged to $806.4 billion in 2018, up 55 percent from a year earlier, according to new data from S&P Dow Jones Indices. The record was more than 36 percent higher than the previous high-water mark hit in 2007.

This marked the fourth consecutive quarterly all-time high. Many of the biggest companies in America went on shopping sprees for their own shares, including Apple and Oracle Corp., both of which bought back roughly $10 billion worth of stock.

One reason for the record was the slide in global markets late in the year. The fourth quarter’s overall stock price decline permitted companies to buy up even more shares for their dollars.

Tuesday, March 26, 2019

Another Sign of the Economy Slowing

The National Association of Business Economists is the latest group, joining the Federal Reserve and the Business Roundtable, in downgrading its outlook for U.S. growth this year and next. The 55 business economists who contribute to the NABE outlook survey are now forecasting GDP growth of 2.4 percent this year, down from 2.7 percent previously, and 2 percent growth next year.

Three-quarters of respondents see more downside risks, compared with just 6 percent who see more upside, and a majority blame trade policy and slower global growth for the downside tilt. Nevertheless, NABE economists give low odds for a recession this year — around 20 percent — and just 35 percent odds for a recession in 2020.

The NABE also sees lower inflation on the horizon. They now forecast the Consumer Price Index to be at 2.1 percent throughout 2019, down from the 2.4 percent they had forecast previously.

Monday, March 25, 2019

The Inverted Yield Curve

The big news in the markets is that the yield spread between three-month and 10-year Treasuries fell below zero on Friday for the first time in more than a decade, creating what's known as an inverted yield curve. The 10-year Treasury note yield fell as low as 2.42 percent before closing at 2.45 percent, falling below the three-month T-bill yield at 2.455 percent.

The 3-month/10-year inverted curve is the most reliable signal of future recession, according to researchers at the San Francisco Fed. Inversions of that spread have preceded each of the past seven recessions, including the 2007-2009 contraction. They say it’s offered only two false positives — an inversion in late 1966 and a “very flat” curve in late 1998.

An inverted curve can be a source of concern for a variety of reasons. One reason is that short-term rates could be running high because overly tight monetary policy is slowing the economy. Or it could be that investor worries about future economic growth are stoking demand for safe, long-term Treasurys, pushing down long-term rates.

Friday, March 22, 2019

Mortgage Rates Dropping Again

Some positive news for the housing market: Mortgages rates for home loans are continuing to fall. The 30-year fixed-rate mortgage averaged 4.28 percent in the week of March 21, Freddie Mac said yesterday.

That was down another 0.03 percent from the prior week, putting the 30-year mortgage at a 13-month low. This figure has managed a weekly gain on only two occasions during 2019.

The 15-year adjustable-rate mortgage averaged 3.71 percent, down from 3.76 percent. With the Fed now intent on not raising rates for the remainder of the year, those mortgage rates may stay low for quite some time.

Thursday, March 21, 2019

The Fed Puts on the Brakes

The big news from the Federal Reserve: no more interest rate hikes will be coming this year. In a unanimous move, the Fed Open Market Committee yesterday turned significantly from its policy projections just three months earlier: Committee members had estimated in December that two rate hikes would be appropriate in 2019, after four increases in 2018.

The move came alongside reduced expectations in GDP growth and inflation and a bump higher in the unemployment rate outlook. Fed officials now see economic gains of just 2.1 percent this year, down from a 2.3 percent estimate in December, and inflation reaching 1.8 percent, down 0.1 percentage point. The unemployment rate for this year is now seen at 3.7 percent, up 0.2 percentage points from December.

In the statement explaining its decision, the committee said economic activity “has slowed” even though the labor market remains “strong.” More specifically, the statement said “recent indicators point to slower growth of household spending and business fixed investment in the first quarter,” when economic growth is expected to be modest.

Wednesday, March 20, 2019

Recession Worries Are Growing

Reading the tea leaves, it looks like corporate America is getting more worried about a recession. Analysis of S&P 500 2018 earnings transcripts from the fourth quarter shows fading exuberance among corporate executives, according to Gartner, Inc. “Mentions of the words ‘downturn’ and ‘slowdown’ were four times more likely to appear in earnings call in 4Q18,” they reported.

The most commonly cited economic concern was the slowing Chinese economy. This theme emerged strongly in the last quarter of 2018 and has picked up momentum in 2019 earnings calls. The companies most exposed to China were more likely to report demand weakness in 2018, or predict that it would be occurring in 2019.

But it should be noted that this is still a minority among American companies. Most executives remained optimistic about the U.S. economy in 2019. Sentiment was particularly positive in the technology and communications sectors.

Tuesday, March 19, 2019

The Most Expensive Cities in the World

It may feel like it costs a lot of money to live around here, especially up near New York City, but according to the latest figures from the Economist Intelligence Unit, the most expensive places in the world are mostly overseas. New York City is No. 8, and the Los Angeles was the only other American city to crack the list at No. 10.

Here are the Economist's Top Ten most expensive cities to live in:

1. Singapore
2. Zurich
3. Hong Kong
4. Paris
5. Geneva
6. Osaka
7. Seoul
8. New York
9. Copenhagen
10. Los Angeles

Monday, March 18, 2019

A Million Job Openings

Here's a milestone for the U.S. economy: There are now about 1 million more open jobs than unemployed workers. U.S. employers posted nearly 7.6 million open jobs in January, near a record high set in November, the Labor Department said Friday

The report, known as the Job Openings and Labor Turnover survey, showed that layoffs declined, a reassuring sign that employers weren't spooked by the government shutdown, which ended January 25. Nearly 3.5 million people quit their jobs in January, up 2.9 percent from the previous month.

Quits are a sign of a healthy economy, because people typically leave a job for another, usually higher-paying, one. Openings began to outpace the unemployed last spring, for the first time in the 18 years the data has been tracked.

Thursday, March 14, 2019

A Blip for Housing

Sales of new U.S. homes slumped 6.9 percent in January, But rather than seeing this as a sign of a slowing market, many experts attributed the drop to the fact that buyers were more tentative during the government shutdown.

The Commerce Department says that new homes sold at a seasonally adjusted annual rate of 607,000 in January, down from 652,000 in December. Purchases of homes yet to be constructed to fell a whopping 26.8 percent in January, accounting for all of the month's decline.

New-home sales in January ran slightly below the totals for the entirety of both 2018 and 2017. The median sales price of a new home in January fell 3.8 percent, to a nationwide average of $317,200.

Oil Prices at a High for the Year

Oil futures settled at their highest level since November yesterday, as weekly data revealed a surprise decline in U.S. crude stockpiles and a bigger-than-expected drop in gasoline inventories. West Texas Intermediate crude rose 2.4 percent to end at $58.26 a barrel.

The Energy Information Administration reported yesterday that U.S. crude supplies fell by 3.9 million barrels for the week ended March 8, well below expectations for a climb of 3.3 million barrels expected by analysts polled by S&P Global Platts. The EIA also reported that total domestic crude production inched down 100,000 barrels to 12 million barrels a day.

The EIA also lifted its 2019 forecasts for U.S. and global benchmark oil prices. That report, combined with U.S. sanctions on the oil industries in Iran and Venezuela, means we should probably expect oil prices to rise even further.

Tuesday, March 12, 2019

Inflation Returns, Barely

U.S. consumer prices rose for the first time in four months in February, but very slightly so: It was the smallest annual gain in nearly two and a half years. The Labor Department said on Tuesday its Consumer Price Index increased by just 0.2 percent, driven by gains in the costs of food, gasoline and rents.

In the 12 months through February, the CPI rose just 1.5 percent, the smallest gain since September 2016. The CPI had increased 1.6 percent on a year-over-year basis in January.

Excluding the volatile food and energy components, core CPI - the measure the Fed keeps an eye on - edged up 0.1 percent, the smallest increase since August 2018. Core CPI had increased by 0.2 percent for five straight months. In the 12 months through February, core CPI rose 2.1 percent.

Retail Sales Bounce Back Strong

U.S. retail sales came back strong in January, which is good news for the economy, indicating consumers may still be able to help support economic growth after a dismal end to 2018. But the decline in December was even worse than initially thought, according to a report out yesterday from the Commerce Department.

Excluding automobiles, gasoline, building materials and food services, retail sales rebounded 1.1 percent in January.  These so-called core retail sales are considered to correspond most closely with the consumer spending component of gross domestic product.

But the retail data for December was revised down to show sales dropping 1.6 percent instead of falling 1.2 percent, as previously reported. The drop in December was the biggest since September 2009, when the economy was just emerging from recession.

Sunday, March 10, 2019

Ten Years After

It was ten years ago this weekend that the market bottomed out in the midst of the Great Recession. Since March 9, 2009, when the S&P 500 bottomed out with its lowest close of 676, the index has delivered a ten-year annualized return of 17.8 percent.

 That number may not look familiar, but it is very similar to the returns reached after similar market drops. In the ten years after the October 1987 market crash, the S&P returned 17.2 percent. Just before the bull market of the 1980s, following the bottom reached in August 1982, the S&P returned 17.6 percent.

 In the course of that decade, the single top-performing AS&P stock is Ulta Beauty, which is up more than 7000 percent. Netflix is the second-biggest grower, with gains of more than 600 percent.

Friday, March 8, 2019

February's Jobs Report

Job growth slowed significantly in February, with the economy adding just 20,000 jobs, the Labor Department reported this morning. It was the worst month for job creation since September 2017. That compares with an increase of 311,000 jobs in January; in all of 2018, job growth averaged 223,000 per month.

Nevertheless, the headline unemployment rate fell to 3.8 percent. That's because there was an increase of 198,000 in those considered not in the labor force, while those classified as unemployed fell by 300,000 and the ranks of the employed decreased by 45,000.

Professional and business services saw the highest level of job creation in February, with 42,000 new positions. Health care added 21,000 and wholesale trade rose 11,000. On the downside, construction lost 31,000 and leisure and hospitality, a key component of the recovery, was flat.

Thursday, March 7, 2019

What's Going on With Trade

The trade gap grows ever larger: The U.S. trade deficit widened to $59.8 billion for the month of December, reaching its the highest level since October 2008, according to a Census Bureau report that came out yesterday. For the full year, the U.S. trade gap grew to $621 billion.

In 2018, the goods and services deficit increased $68.8 billion, or 12.5 percent, from 2017. When the service sector is excluded, focusing just on goods, the gap was even greater, rising to a record $891.3 billion.

The widening gap is more attributable to imports than exports. Imports rose 2.1 percent in December to $264.89 billion, while exports fell 1.9 percent to $205.12 billion.

Wednesday, March 6, 2019

The Transports Are Sliding

Here’s a scary factoid for people who like to follow the market’s technical indicators: The Dow Jones Transportation Average yesterday booked its longest stretch of consecutive losses since 2011, according to FactSet data. Dow transports fell for an eighth straight session, matching a decline that ended August 2, 2011.

The closely watched gauge is often used as a proxy for the health of the overall economy. But it's unusual for the transports to fall while the overall Dow is moving sideways.

Transports have declined 3 percent over the past eight sessions, as of yesterday’s close. The Dow industrials, meanwhile, have lost about 0.2 percent since February 21. By comparison, the last time the Dow transports fell for eight straight sessions, the Dow industrials shed nearly 7 percent.

Tuesday, March 5, 2019

Construction Is Slowing

U.S. construction spending unexpectedly fell in December as investment in both private and public projects dropped, the Commerce Department said yesterday. Construction spending declined 0.6 percent after an 0.8 percent increase in November.

All told, construction spending increased 4.1 percent in 2018, which is the weakest number for that figure since 2011. In December, spending on private construction projects fell 0.6 percent after rising 1.3 percent in November; investment in private residential projects dropped 1.4 percent after rising 3.4 percent in November.

The government reported the economy grew at a 2.6 percent annualized rate in the October-December period, which was strong but down somewhat from the third quarter's 3.4 percent pace. The slowing construction figures may have had something to do with that.

Monday, March 4, 2019

February's Stock Market Scorecard

After a fabulous January, Wall Street’s rally continued in February. The three major stock indexes — the Dow, S&P 500 and Nasdaq Composite — gained 3.7 percent, 3 percent and 3.4 percent, respectively. Year to date, the indexes have gained 11.1 percent. 11.1 percent and 13.5 percent.

That is the fifth biggest gain to start a year in all of the history of the S&P 500. It's also the best start since 1987, when the index gained 17.4 percent in its first two months.

Historically, when January and February have each gained, the year has ended up significantly positive. Since 1938, when both January and February were positive, the S&P ended up on average by more than 20 percent, and was positive 29 of 30 times.

Friday, March 1, 2019

A Strong Fourth Quarter GDP Report

U.S. economic growth was solid at the end of 2018, with GDP rising 2.6 percent, according to a first estimate the Commerce Department released yesterday. For the year, annual 2018 real GDP increased by 2.9 percent.

The biggest driver was non-residential investment, which is primarily business spending, which picked up with a 6.2 percent increase from 2.5 percent in the third quarter. This figure remained strong even as investing in structures declined 4.2 percent. Fixed investment growth of 3.9 percent – up from 1.1 percent in the third quarter – was driven by spending in research and development. R&D spending totaled $425 billion in the fourth-quarter, representing a 9.9 percent year-over-year increase.

Exports rose 1.6 percent in the quarter, reversing a 4.9 percent decline in the previous quarter. Imports increased by 2.7 percent, making trade overall a slight net negative on GDP.