The Independent Market Observer

Monday Update: Better Data Continues

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on May 23, 2016 2:44:24 PM

and tagged In the News

Leave a comment

monday updateOnce again, last week’s news was mostly positive, with housing starts and sales beating expectations, industrial production and manufacturing up, and the Fed releasing a surprisingly upbeat set of minutes that painted the U.S. economy as well along the road to recovery.

Combined with the positive results from previous weeks, this good data continues to support a recovery in growth for the second quarter.

A look at last week’s numbers

Housing. News from the housing market and industry continued to be strong.

  • The National Association of Home Builders survey stayed constant at 58, slightly underperforming expectations for an increase to 59 but remaining at a healthy level.
  • Housing starts, on the other hand, surprised to the upside, increasing to 1.172 million from 1.089 million and beating expectations of 1.12 million, despite weak building permit data in March.
  • Further strength is quite possible given that building permits also improved, up by 3.6 percent after the previous month’s decline.
  • Existing home sales surprised to the upside, at 5.45 million, up from 5.33 million and beating expectations of 5.40 million. This is the fourth increase in the past five months and the highest level since the spring of 2007.
  • Market details also improved, with the number of first-time homebuyers rising and distressed sales dropping from a year ago.

Inflation. Consumer prices, as expected, ticked up substantially.

  • The headline number rose 0.4 percent for the month and 1.1 percent for the year, in line with expectations and up from last month’s increases of 0.1 percent and 0.9 percent, respectively, illustrating the rising inflation trend.
  • For core prices, which exclude food and energy, the rise was more modest, with an increase of 0.2 percent for the month, up from 0.1 percent the previous month, and 2.1 percent for the year, down from 2.2 percent, all in line with expectations.

The differences continue to be driven by gasoline prices, which have risen in recent months. Inflation is now moving toward a sweet spot, from the Fed’s perspective.

Industry and manufacturing. Industrial production data surprised to the upside with a gain of 0.7 percent, rebounding significantly from a revised decline of 0.9 percent and beating expectations for a gain of 0.3 percent. Manufacturing also rebounded, from a loss of 0.3 percent to a gain of 0.3 percent, in line with expectations despite a continued decline in oil drilling and supply problems stemming from the recent earthquake in Japan. Although the gain in industrial production was in large part due to an increase in utility production, the rise in manufacturing is more meaningful for the economy as a whole, suggesting that recovery continues.

The Fed. Finally, the minutes of the last meeting of the Federal Open Market Committee surprised the markets with a substantially positive take on the economy and a clear statement that rate hikes may come earlier than expected—even as soon as June. The economy was considered to be at full employment, fulfilling one of the two components of the Fed’s mandate. Inflation, the second component, was considered to be moving in the right direction, as noted above. The implications of the statement are positive for the economy but mixed for markets, as higher rates might act as a headwind going forward.

The week ahead

This week, we’ll see three key reports: new home sales on Tuesday, durable goods orders on Thursday, and the revised first-quarter GDP report on Friday.

New home sales are expected to increase, from 511,000 to 520,000, based on stronger employment growth and continued low interest rates. There is downside risk here, however, as the current sales survey of the industry has been weak and weather was poor. If the data does disappoint, the weakness should only be short term.

Durable goods orders are expected to slow down from last month, from an increase of 0.8 percent to a gain of 0.3 percent. This headline number is substantially affected by aircraft orders; based on Boeing’s recent orders, it might match the previous month’s strong number, so there is real upside potential. The core orders figure, which excludes transportation and is more meaningful for the economy as a whole, is expected to improve substantially, from a decline of 0.2 percent last month to a gain of 0.3 percent, as manufacturing continues its slow recovery.

First-quarter economic growth is expected to be revised up from the disappointing initial estimate of 0.5 percent, consistent with the better-than-expected numbers we have been seeing,. Although this data point is backward looking, it does provide further support for the continued recovery and expected faster growth in the second quarter.

Have a great week!

  Subscribe to the Independent Market Observer -

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®