The Independent Market Observer

Monday Update: Business and Consumer Confidence Still Rising

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Dec 12, 2016 3:26:33 PM

and tagged In the News

Leave a comment

monday updateOnce again, last week’s economic reports were surprisingly strong, with most consumer and business data beating expectations, often significantly.

A look at last week’s news

Last week gave us a fairly broad look at the economy. For business, the ISM Non-Manufacturing Index came in with a surprisingly strong increase to 57.2 for November, its highest level in more than a year, up from 54.8 the prior month and well above expectations of an increase to 55.5. Strong details included a move in the employment index to 58.2, suggesting that job growth should remain strong. Combined with the ISM Manufacturing Index report last week, economic growth looks likely to remain around 2.5 percent or better.   

The international trade report showed that the U.S. trade deficit widened again, from $36.4 billion to $42.6 billion, on a reversal of a surprising surge in soybean sales abroad. Net trade should turn from a tailwind to a headwind for growth in the fourth quarter, but this was expected and should be minor.

Finally, the University of Michigan consumer confidence survey ratified the Conference Board’s results, with a major increase from 93.8 to 98.0, well above the expected 94.1 and the highest level in almost two years. On both an absolute and change basis, the result suggests that consumers will continue to grow their spending strongly, further accelerating economic growth.

The week ahead

Wednesday’s retail sales report should tell us whether consumers are spending in line with their confidence levels. Expectations are for slower growth in headline sales, down from an unusually strong 0.8-percent increase in October to a still positive 0.3 percent. There is some downside risk here, as auto sales growth has declined. Core retail sales growth, excluding autos, is expected to be better, dropping only to 0.5 percent, which is still indicative of strong economic growth.

Also on Wednesday, we’ll get a look at the industrial sector. Industrial production is expected to have dropped by 0.2 percent in November, from an increase of 0.1 percent the prior month, on continued weakness in utility production, driven by warm weather. Manufacturing, excluding utilities, is expected to drop even further, from a gain of 0.2 percent to a decline of 0.4 percent, suggesting a pause in the industrial recovery.

On Thursday, consumer price data is expected to show an increase of 0.2 percent on the month and 1.7 percent on the year (down from 0.4 percent monthly and up from 1.6 percent annually), on base effects as the price of oil continues to rise. Core prices, which exclude energy and food, are expected to rise faster, by 0.2 percent monthly and 2.2 percent over the prior year (up from 0.1 percent and 2.1 percent, respectively). This is a well-established trend and should not affect either growth or markets.

Also on Thursday, the National Association of Home Builders will release its industry survey, which is expected to remain at a strong 63. On Friday, housing starts are expected to drop from 1.323 million, the highest level since mid-2007, to a still strong 1.23 million.

The other economic event this week is the Federal Reserve’s interest rate announcement on Wednesday , with markets expecting an increase of 25 basis points. Expectations are so strong, in fact, that a failure to raise rates would be a surprise. The real thing to watch will be how the committee’s expectations for future growth and rate moves have changed since the election.

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®