Monday Update: Growth Remains Healthy, but Slowing

Posted by Brad McMillan, CFA, CAIA, MAI

Find me on:

This entry was posted on Jan 25, 2016 3:56:56 PM

and tagged In the News

Leave a comment

Monday UpdateThis past week had a light data calendar, with prices and housing coming into focus. Let’s take a closer look.

Last week’s numbers

Consumer prices. The Consumer Price Index (CPI) information was released on Wednesday. The headline price index (including food and energy costs) fell 0.1 percent for the month, which is down from the flat result of the previous month and below the expected flat result. Year-on-year, headline CPI increased 0.7 percent, up from the prior month’s result of 0.5 percent due to a low reading in the prior year. But, again, this was below expectations of 0.8 percent.

Core CPI (excluding food and energy costs) was up 0.1 percent, but even here, the result was below the previous month’s figure of 0.2 percent and below expectations of 0.2 percent. Year-on-year, core CPI also came in slightly higher than the previous month, at 2.1 percent, which was in line with expectations.

These below-expectations results were a surprise and suggest that price pressures are not growing as fast as expected. That being said, the core figure remains in the Federal Reserve’s target range and will most likely not affect its thinking just yet. But the inflation weakness will bear watching.

Housing. The housing data was mixed, suggesting continued strong performance but some weakening. The National Association of Home Builders released the NAHB index on Wednesday, which came in below expectations at 60, though it was in line with the figure from the previous month, which was revised down to 60 from 61. Although this remains a strong number, it suggests that the housing industry is no longer improving.

In line with that, housing starts, released on Friday, fell by 30,000, or 2.5 percent; this worse-than-expected decline came after an increase of 10.1 percent in the previous month. Building permits also declined, showing an increase of just 3.9 percent for the month. (They increased 10.4 percent in the prior month.) These results were better than expected, however. 

Overall, last week’s data suggests that parts of the economy continue to slow but that growth continues. This week’s data should provide more information as to the extent of the potential slowdown.

The week ahead

On Tuesday, the Conference Board will release its consumer confidence survey. Expectations are for confidence to remain flat at 96.5, which is a healthy level. Potential downside risk comes from turbulence in the stock market, but this should be offset by decreasing gas prices and healthy labor market conditions. Overall, there is the potential for a positive surprise.

New home sales figures will be released on Wednesday and are expected to increase slightly, from 490,000 to 500,000. There has been a substantial rebound in this figure over the past several months, and the survey data has actually been trending down, so this figure may well be a negative surprise and remain flat. Even that result, however, would still be reasonably strong on an absolute basis.

On Thursday, durable goods orders will be released. Both headline orders and core orders, excluding transportation, were flat last month, and expectations are for a decline of 0.5 percent in headline orders and flat core orders. There appears to be a real risk for disappointment on the headline figure, due to a decline in aircraft orders. The more meaningful core number, however, should remain stable. Given the weakness in manufacturing and mining, this is actually a positive result.

Finally, on Friday the initial estimate of the gross domestic product for the fourth quarter of last year will be released. It is expected to be very weak, at 0.8 percent, down from 2.0 percent in the prior quarter. The decline is probably due to factors such as a slower buildup of inventories and weak investment, as mining and oil drilling continue to decline. This is expected, and while certainly disappointing, it continues to reflect past weakness even as many forward-looking indicators remain healthy.

Have a great week!

  Subscribe to the Independent Market Observer

Subscribe via E-mail

New call-to-action
Crash-Test Investing
Commonwealth Independent Advisor

Hot Topics

Have a Question?

New Call-to-action

Conversations

Archives

see all

Subscribe

Disclosure

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 into an index.

The MSCI EAFE Index (Europe, Australasia, Far East) 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.  

Third party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided at 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.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®