October Monthly Economic Update
Thursday, October 08, 2015
|FSCU Investment Services
CUNA Brokerage Services, Inc.
Jason M. HealyFinancial Advisor
Family Security Credit Union
2204 Family Security Place, SW
Decatur, AL 35603
“Humor is the great thing, the saving thing. The minute it crops up, […] all our irritations and resentments flit away and a sunny spirit takes their place.”
– Mark Twain
Small business owners commonly become preoccupied with day-to-day operations at the risk of inattention to the numbers. Looking at cash flow and financial reports at least once a month is essential.
It is a promise, a token, a circle unbroken, a symbol of love that need not be spoken. What is it?
Last month’s riddle:
A TV news reporter.
THE MONTH IN BRIEF
DOMESTIC ECONOMIC HEALTH
Weak inflation also factored into the central bank’s decision. The August Consumer Price Index retreated 0.1%, with the core CPI advancing only 0.1%. Through August, the headline CPI had risen only 0.2% in 12 months (and there had only been a 1.8% rise in core CPI in that time). Producer prices were flat in August and down 0.8% year-over-year. With energy prices so low, that could mean comparatively little inflation pressure lasting into 2016.3
American consumers seemed yet to be affected by slowing overseas economies. Personal spending improved by 0.4% in August, with personal incomes rising 0.3%. August saw only a muted gain for retail sales, though: 0.2%, 0.1% with auto sales removed.4
The gain in the Conference Board’s September consumer confidence index was a nice surprise. The 103.0 reading was 1.5 points higher than the August mark. Nothing similar happened with the University of Michigan’s household sentiment survey: it fell from a 91.9 final August reading to an 87.2 final September reading (which was still up 2.6 points from a year earlier).4,5
The Labor Department’s latest jobs report showed employers adding 173,000 new workers in August. That fell far short of consensus forecasts from the Wall Street Journal (220,000) and MarketWatch (213,000). Still, the Labor Department did revise the hiring total for both June and July up to 245,000. The U-6 rate recording “total” unemployment fell to 10.3% (down 1.7% in the past 12 months and underneath its 20-year average of 10.7%) while the basic U-3 unemployment rate declined to 5.1%.4,6
On the factory front, orders for durable goods fell 2.0% in August after a 1.9% rise in July; the federal government also measured an 0.4% dip in industrial production in August compared to July’s 0.9% gain. Early in September, the Institute for Supply Management presented some declining PMIs. In August, ISM’s manufacturing PMI came in at 51.1, down from 52.7 in July; its non-manufacturing PMI presented a much stronger 59.0 reading, though this was also underneath the July mark of 60.3. At the start of October, ISM’s September manufacturing PMI came in at a troubling 50.2, indicating minimal sector expansion.4
Lastly, the Bureau of Economic Analysis closed the book on second quarter GDP. Its final estimate of Q2 growth was an impressive 3.9%, up another 0.2% from the second estimate.4
GLOBAL ECONOMIC HEALTH
After a 6-month break, deflation returned to the euro area: consumer prices were down 0.1% year-over-year through September. (Core inflation, though, rose 0.9% in the same period.) The European Central Bank only projects consumer prices advancing 0.1% for 2015, but it also sees inflation of 1.5% next year on the way to a target of 2.0% by 2017. Eurozone unemployment held steady at 11.0% in August. Markit’s overall factory eurozone PMI dipped to 52.0 in September from a 52.3 August reading.8,9
The scorecard around the rest of the world delivered a similar message. Close to home, the TSX Composite retreated 3.98% in September; the Bovespa lost 3.36%, the IPC All-Share 2.49%. The Dow Jones Americas declined 3.21%. Germany’s DAX fell 5.84%, France’s CAC 40 4.25%, Great Britain’s FTSE 100 2.98%, Spain’s IBEX 35 6.81%, the Europe Dow 6.32%, Italy’s FTSE MIB 2.95%, Russia’s RTS 5.26% and the pan-Europe STOXX 600 4.14%. The ninth month of the year also saw the Global Dow fall 4.63%, the MSCI World index 3.86% and the MSCI Emerging Markets index 3.26%.1,10
Crude oil staged no September rebound. At the close on September 30, its NYMEX price was $45.26 a barrel. For the month, oil futures sank 6.00%. Natural gas retreated 5.84% last month while unleaded gasoline futures slipped 16.90% and heating oil stumbled 11.18%.11,12
Sugar was September’s best-performing major commodity, rising 10.01%. Other crop futures were mixed, with corn gaining 6.87%, wheat 4.07% and cocoa 2.18% and coffee losing 0.25%, soybeans 1.37% and cotton 5.79%.11
Gold lost 1.65% for September to a month-end COMEX close of $1,114.60 while silver retreated 0.62% to $14.48. Platinum futures declined 10.06% during September, but copper rose 0.21%. The U.S. Dollar Index moved 0.36% north last month, ending September at 96.28.11,13
Freddie Mac’s Primary Mortgage Market Survey showed very little movement for home loan interest rates during September. The 1-year ARM showed a marked decrease, with average rates moving from 2.62% in the August 27 to 2.53 as of September 24. Otherwise, the numbers were nearly the same: average interest rates for the 30-year FRM and 15-year FRM crept up 0.02% in that interval to 3.86% and 3.08% while average rates on the 5/1-year ARM ticked up only 0.01% to 2.91%.15
Other important real estate indicators arriving in September were decidedly mixed. The S&P/Case- Shiller home price index showed a 5.0% overall year-over-year gain in its July edition. NAR’s pending home sales gauge slipped 1.4% for August after rising 0.5% for July. While building permits jumped 3.5% in August, housing starts declined 3.0%; in annualized terms, permits were up 12.5% and starts 16.6%.4,16
LOOKING BACK…LOOKING FORWARD
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
Many analysts are now viewing 2015 as a year in the loss column for the S&P 500. Suspicions of a slowdown in China have been repeatedly affirmed; some investors now think the Federal Reserve too timid. As Wall Street wonders if the Fed will maintain its dovish stance this month, it is also bracing for further market drops. To what degree will domestic economic indicators be affected this fall by the malaise in emerging markets? Will the bulls regain confidence, or will waning fundamentals lead to selloffs and merely hope that 2016 is better? If the Fed does raise rates later this month, will that encourage or discourage investors here and abroad? There are so many questions as we enter the tenth month of the year, and that means the market will contend with some troubling uncertainties. Perhaps – perhaps – they constitute only a short-term test on the way to a healthier stock market in 2016.
UPCOMING ECONOMIC RELEASES: For the rest of October, the news-making schedule of releases and reports will appear as follows: ISM’s service sector PMI (10/5), the September FOMC minutes (10/8), August wholesale inventories (10/9), the September PPI, September retail sales, August business inventories and a new Federal Reserve Beige Book (10/14), the September CPI (10/15), September industrial production and the preliminary October University of Michigan consumer sentiment index (10/16), September housing starts and building permits (10/20), September existing home sales and the Conference Board’s September index of leading indicators (10/22), September new home sales (10/26), the Conference Board’s October consumer confidence index, September capital goods orders and the August S&P/Case-Shiller home price index (10/27), the Federal Reserve’s October interest rate decision (10/28), the first federal government estimate of Q3 GDP and NAR’s September pending home sales index (10/29), and then August consumer spending numbers plus the final October consumer sentiment index from the University of Michigan (10/30).
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(NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The FTSE Bursa Malaysia KLCI Index - Kuala Lumpur Composite Index (FBMKLCI) is a capitalization-weighted stock market index, composed of the 30 largest companies on the Bursa Malaysia by market capitalization that meet eligibility requirements of the FTSE Bursa Malaysia Index Ground Rules. The TWSE, or TAIEX, Index is capitalization-weighted index of all listed common shares traded on the Taiwan Stock Exchange. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). 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The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The Dow Jones Americas Index measures the Latin American equity markets by tracking 30 leading blue-chip companies in the region. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain's principal stock exchange. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The FTSE MIB (Milano Italia Borsa) is the benchmark stock market index for the Borsa Italiana, the Italian national stock exchange. The RTS Index (abbreviated: RTSI, Russian: Индекс РТС) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
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