In comparison to October, November has been very mundane. The joy with boring is that volatility is down and consistent growth (all be it slow) has returned. There was very little last week that was negative in the way of economic news; we will look at those details as well as take a look ahead at the impact lower oil prices should have on the 4th quarter.
US DATA
Jobless claims rose last week, however remained below 300K. JOLTS job openings reduced for September also, however the number of employees willingly leaving their current employer rose; indicating a strengthening opinion of the job market. A further indicator of this sentiment came at the end of the week as Michigan Consumer Sentiment rose to 89.4, up from 86.9 in the prior month[1]. Retail sales were up in October. One major retailer attributed their increase in sales to lower fuel costs that has put discretionary dollars back in the consumer’s pocket.
If the US economy can sustain an unemployment rate under 6% we should start to feel upward pressure on both consumer prices (as tracked by CPI) and wages. Look for CPI to start moving north in coming reports. Increases in inflation will lead to the Federal Reserve Board (FRB) increasing short term rates. This is expected during the 2nd quarter of next year and should be accompanied by some volatility.
OIL
Oil has become a factor for retail sales, Producer Price Index (PPI), and imports. Oil prices have decreased over the past several months as supply has greatly outpaced demand. Retail sales have experienced a boost as decreased spending on fuel has freed up capital for consumers just in time for the holiday season. It has also decreased costs for companies as indicated by PPI. The reduced production costs along with increased consumer spending should lend themselves to good corporate earnings in the consumer discretionary markets for the 4th quarter. Import prices also fell this past month heavily on the decreased costs of fuel. Imported petroleum decreased 6.9%[2].
INTERNATIONAL DATA
Decreased oil prices also help Eurozone exports. This could lead to increased production and profits during the 4th quarter. Let us not get to ahead of ourselves however, last week EU GDP for the 3rd quarter was released. While it was not strong, it was positive at 0.8% year over year[3]. Most impressive would be Greece reporting GDP growth of 2.8% year over year[4]. CPI for the Eurozone increased to 0.4% from 0.3% in September[5]. While boring it was an increase, however, the number is too weak to indicate that Europe is out of the woods with regards to deflation. Hopefully a 4th quarter surge in exports will drive additional growth, employment, and subsequently inflationary pressures. China missed expectations on industrial production, furthering concerns regarding its 2014 GDP projections. China will need a strong push in 4th quarter production in order to meet its 7.5% annual GDP projection for 2014.
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[1] www.putnam.com – economic update
[2] www.mfs.com – week in review
[3] www.investing.com – economic calendar
[4] www.mfs.com – week in review
[5] www.putnam.com – economic update