Markets rise on improved consumer spending data

Dow went up 47, advancers over decliners 2-1 & NAZ added 21. The MLP index rose 5+ to the 249s & the REIT index was off fractionally in the 312s.  Junk bond funds climbed higher & Treasuries were sold.  Oil surged to the 33s while gold retreated.

AMJ (Alerian MLP Index tracking fund)

CLJ16.NYM

.....Crude Oil Apr 16

...34.30

....1.23

(3.7%)

GCH16.CMX

...Gold Mar 16

.....1,225.50

...12.70

(1.0%)

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Consumer purchases climbed in Jan by the most in 8 months, fueled by faster earnings growth & indicating the biggest part of the economy gained momentum at the start of 2016.  The 0.5% advance followed a 0.1% gain the prior month, as reported by the  Commerce Dept.  The Jan figure exceeded the 0.3% forecast.  Incomes also climbed 0.5%, more than projected.  The Federal Reserve preferred measure of inflation rose by the most since Oct 2014.  Steady hiring, cheap gasoline, & rising home values are powering Americans' ability to boost spending.  Households are broadening out purchases beyond big-ticket items such as cars and houses, which bodes well at a time manufacturing is weak.  Adjusted for the effect of price changes, spending increased 0.4%, the most since May.  Disposable income (money left over after taxes) rose
0.4% for a 2nd month, after adjusting for inflation.  The saving rate held at 5.2%.  Wages & salaries advanced 0.6% following a 0.2% increase.  Spending on durable goods, which includes automobiles, increased 1.1% after adjusting for inflation, while outlays for non-durable goods, which include gasoline, rose 0.4%.  The Federal Reserve preferred measure of inflation picked up.  The price gauge based on the personal consumption expenditures index increased 0.1% from the prior month & was up 1.3% from a year earlier.  Inflation hasn’t reached the Fed's 2% goal since Apr 2012.  Fed policy makers are trying to balance concern over market turmoil & slowing overseas economies with signs that inflation is picking up.

U.S. Consumer Spending Rose in January by Most in Eight Months

The US economy unexpectedly expanded at a faster pace in Q4 than initially estimated, reflecting a higher value of business inventories.  GDP grew at a 1% annualized rate, compared with an initial estimate of 0.7%, according to the Commerce Dept.  The forecast called for a 0.4% gain.  Consumer spending was revised lower.  Although the economy slowed in Q4 from 2% in the previous qtr, growth is projected to re-accelerate this year as consumers tap into the benefits of a strengthening job market & savings on gasoline to boost spending.  With companies making less headway in adjusting stockpiles, one risk for the economy is further weakness in manufacturing & business investment.

The revision shows GDP expanded 2.4% in 2015.  The changes to Q4 growth largely reflected how unsold goods are valued.  In inflation-adjusted terms, there was more inventory accumulation that previously estimated as underlying price data were revised up.  Inventories grew at an $81.7B annualized rate & reduced growth by 0.14 percentage point, compared with a previously reported 0.45 percentage-point drag.  The trade gap also weighed less on growth than earlier estimated.  The difference between exports & imports shaved 0.25 percentage point from growth, primarily due to fewer goods shipments from overseas. It was previously estimated to have subtracted 0.47 percentage point.  Household consumption, which accounts for almost 70% of the economy, grew at a 2% annualized rate, weaker than the 2.2% pace initially estimated.

U.S. Growth Revised Higher on Upward Adjustment to Inventories

China’s central bank tweaked the description of its monetary policy stance to reflect a recent ramp-up in liquidity injections & moves to guide money market rates lower, with Governor Zhou Xiaochuan highlighting the scope for further actions if needed.  "China still has some monetary policy space and multiple policy instruments to address possible downside risks," Zhou said, speaking hours before meeting his counterparts from the G-20 markets.  Finance Minister Lou Jiwei, said China will expand its fiscal deficit to support structural reforms to the economy.  With few other G-20 members offering much in the way of stimulus pledges, & Germany outright rejecting any, the remarks from Chinese officials helped boost Asian stocks.  Premier Li Keqiang said China can “handle the complex situation at home and abroad.”  The People's Bank of China also published a statement defining current policy as "prudent with a slight easing bias."  The PBOC had previously used language pledging to maintain a prudent policy while maintaining " reasonable, ample" liquidity.  Premier Li underscored in his remarks to the G-20 that there's no basis for long-term depreciation in the yuan.  He also warned the group that quantitative easing may lead to negative consequences & be ineffective in boosting growth.  Earlier in the day, IMF Managing Director Christine Lagarde said the impact of monetary policies was diminishing.

China Flags Scope for Policy Stimulus, Tweaks Monetary Stance

The economic data was mildly encouraging.  Not all numbers were favorable, but most were.  The revision for Q4 GDP was not significant.  Growth remained anemic & there may be more adjustments when the final figures are released next month.  G-20 is having a big meeting.  If it is similar to ones in the past, a lot will be said but little done.  Dow is up less than 300 in Feb & solidly in the red YTD.

Dow Jones Industrials