Tuesday, December 23, 2014

Dow climbs over 18,000 on GDP data

Dow jumped 80, avancers over decliners 2-1 but NAZ was off 11.  The MLP index rose 2+ to 457 & the REIT index was down fractionally to the 332s.  Junk bond finds went higher & Treasuries pulled back.  Oil advanced while oil prices were little changed.

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Consumer spending rose more than forecast in Nov as incomes increased & gasoline prices dropped, indicating the biggest part of the US economy is strengthening as the year ends.  Household purchases climbed 0.6%, the most in 3 months, after a 0.3% Oct gain that was larger than previously estimated, according to the Commerce Dept.  The forecast called for a 0.5% rise.  Incomes advanced 0.4%, the most since Jun, & the savings rate dropped.  Americans are shopping for clothing, electronics & automobiles as increased employment & the lowest gasoline costs since 2009 bolster confidence & expand buying power.  The improving outlook for household spending will spur growth this qtr & into 2015 even as the rest of the world cools.  Projections for spending ranged from gains of 0.2-0.7%.  The previous month’s reading was initially reported as an increase of 0.2%.  After adjusting for inflation, which generates the figures used to calculate GDP, purchases rose 0.7% after a 0.2% increase in the previous month.  Spending on durable goods, including automobiles, climbed 2.3% after adjusting for inflation, following a 0.4% advance.  Purchases of non-durable goods, which include gasoline, rose 1%.  Household outlays on services increased 0.4% after adjusting for inflation.  Cheaper fuel is freeing up money for people to spend elsewhere.  The drop in energy expenses is subduing inflation. The price index tied to consumer spending dropped 0.2% & up 1.2% from a year earlier, the smallest 12-month gain since Mar.  The inflation gauge preferred by Federal Reserve policy makers hasn’t been above their 2% goal since Mar 2012.

Consumer Spending Beats Forecast as U.S. Gasoline Costs Drop

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The American consumer said farewell to 2014 feeling the most confident since Jan 2007, indicating a strong start to the New Year for the US economy.  The Thomson Reuters/University of Michigan final consumer sentiment index for Dec rose to 93.6 from 88.8 in Nov.  The preliminary reading issued earlier this month was 93.8.  The forecast projected a reading of 93.5.  Consumers are being buoyed by a surge in hiring that’s put employment on course for the biggest gain since 1999, & long-awaited wage growth.  Low gasoline prices & little inflation provided Americans with more discretionary income to put toward the holidays.  Estimates ranged from 89.7-94.6.  The index averaged 89 in the 5 years before Dec 2007, when the last recession began, & 64.2 in the 18-month contraction that followed.

Consumer Sentiment Ends 2014 at Seven-Year High in Michigan Poll

The US economy roared into overdrive in Q3 as consumer & business spending fueled the biggest expansion in more than a decade.  GDP grew at a 5% annual rate, the biggest advance in 11 years & up from a previously estimated 3.9%, according to the Commerce Dept.  The forecast projected a 4.3% increase in GDP.  Consumer spending is poised to grow in 2015 as stronger employment & lower gasoline prices boost household buying power, one reason why the Federal Reserve will probably raise interest rates next year.  Other aspects of GDP, inventories, trade & gov spending, are likely to moderate, indicating growth will ease at the end of 2014.  Durable goods orders declined last month, another sign the Q3 surge may not be maintained.  The economy grew at an average pace of 1.3% in H1 after expanding at a 2.2% rate in all of 2013.  Household purchases, which account for almost 70% of the economy, rose at a 3.2% annual pace, compared with a previously reported 2.2%.  The revisions reflected stronger spending on health care, recreation & financial services than previously estimated.  Outlays on durable & non-durable goods were also revised up.  Personal consumption added 2.2 percentage points to growth.  It rose at a 2.5% pace in the prior qtr.  Business investment was also revised up across the board, with bigger gains reported for spending on construction projects, equipment & intellectual property  A smaller trade deficit added 0.8 percentage point to GDP growth. That will also probably be difficult to replicate at the turn of the year as a global growth slowdown hobbles exports & gains in consumer spending draws in more imports.  Federal gov outlays added 0.7 percentage point growth as federal defense spending jumped by the most since 2009.  Gov spending rose at a 4.4% pace.

Economy Grows Most Since ’03 on U.S. Consumer-Spending Gains

This is clearly an up day for the markets, although techs are weak in the NAZ.  Otherwise, most sectors are having a good day while Treasuries are being sold.  If markets were operating a full strength the advance could have been bigger, but this is holiday time for many participants.  The VIX, volatility index, has fallen from th mid 20s to 15, but remains above the 12 level which has been common for much of the year.  Risk remains a factor in some investors' minds.

Dow Jones Industrials

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