Friday, January 27, 2017

Markets fluctuate on meager GDP growth in Q4

Dow slid back 5, decliners over advancers 3-2 & NAZ was down chump change.  The MLP index fell 3+ to 336 following recent gains & the REIT index lost 2+ to 340.  Junk bond funds continued higher & Treasuries finally found a few buyers.  Oil was fractionally lower in the 53s & gold drifted lower.

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US economic growth slowed more than forecast last qtr on the biggest drag from trade in 6 years & more moderate consumer spending.  Business investment picked up, which may be a harbinger for faster expansion in 2017.  GDP rose at a 1.9% annualized rate following the Q3 3.5% annualized gain that was the largest increase in 2 years, Commerce Dept data showed.  The forecast was for a 2.2% advance.  Consumer spending, the biggest part of the economy, climbed 2.5%, in line with projections.  The results cap growth of 1.9% for the full year, near the average pace of the current expansion, & reinforce the leading role of household purchases while showing that businesses are starting to spend again.  Strong job market & optimism among consumers & companies for Trump's policies are likely to keep growth humming along in 2017, though tensions over trade could temper any gains.  Growth is seen at 2.3% in 2017 & 2018.  Net exports subtracted 1.7 percentage points from expansion in the period, the most since Q2-2010, as the trade deficit widened following a jump in soybean shipments that helped add to growth in Q3.  In addition to household spending, the economy got help from business outlays on equipment, which rose 3.1% for the first gain in 5 qtrs.  Inventory accumulation added the most to growth since early 2015, housing made the strongest contribution in a year & gov spending picked up.  To get a better sense of underlying domestic demand, economists look at final sales to domestic purchasers, which strip out inventories & exports.  After adjusting for inflation, such sales grew 2.5% last qtr, the fastest since Q3-2015, following a 2.1% increase.  The increase in household purchases, which account for about 70% of the economy, followed the Q3 3% jump.  Spending added 1.7 percentage points to growth.  After-tax incomes adjusted for inflation climbed at a 1.5% annual rate, a 3-year low.  Inventory expansion added 1 percentage point to GDP growth, as stockpiles were rebuilt at a $48.7B annualized pace following a $7.1B rate.

U.S. GDP Growth Cools on Trade Drag; Business Outlays Rise

Consumer confidence rose in Jan to a 13-year high, reflecting ongoing optimism about post-election fiscal policies & their impact on economic growth.  The Univ of Mich said that its final index of sentiment increased to 98.5 from 98.2 in Dec.  The projection called for the measure to hold at its preliminary reading of 98.1.  While Trump's promises to grow the economy, cut taxes & create more job opportunities have propelled sentiment, attitudes will be ultimately defined by proof of economic improvement.  The report showed 44% of respondents, the most since 2004, said they anticipate the economy improving this year, while 33% expected the unemployment rate to keep falling.  “Importantly, consumers reported much more positive assessments of their current financial situation due to gains in both incomes and household wealth, and anticipated the most positive outlook for their personal finances in more than a decade,” Richard Curtin, director of the consumer survey, said.  The gauge of expectations 6 months from now climbed to 90.3 from 89.5 in Dec & up from a preliminary Jan figure of 88.9.  Rising incomes & higher stock & home values helped shore up Americans' views of their finances.  41%, the most since mid-2005, said they had a favorable outlook for their finances.  The current conditions index, which measures perceptions of their finances, eased to 111.3 from 111.9 in the prior month.  The preliminary reading was 112.5.  Respondents expected the inflation rate in the next year will be 2.6%, the highest since Jul.  That compares with 2.2% in the Dec survey

Consumer Sentiment in U.S. Increased in January to 13-Year High

Orders for US capital goods advanced more than forecast in Dec, showing businesses were adjusting investment plans amid prospects for stronger economic growth.  Bookings for non-military equipment excluding planes climbed 0.8% after increasing an upwardly revised 1.5% in Nov, data from the Commerce Dept showed.  Orders for all durable goods unexpectedly fell 0.4% due to a slump in the volatile military aircraft category.  More demand for capital goods, including machinery, electrical gear & communications equipment, is a sign that businesses might be following up buoyant post-election sentiment by spending more after years of tepid global growth & an energy-price slump.  Further gains in investment that could contribute more to economic growth might depend on how quickly the Trump administration & Congress ease regulations & revamp corporate tax policy.  The forecast projected a 0.2% increase in orders for non-defense capital goods orders excluding aircraft.  Shipments of such capital equipment, which are used in calculating GDP, climbed 1% in Dec, the most since Jul 2015.  They were up 0.6% the prior month, revised from a 0.2% gain.  A 42.4% Dec surge in commercial aircraft bookings helped ease the sting of a 63.9% plunge in orders for military aircraft.  Orders for non-defense goods increased 1.7%.

U.S. Capital Goods Orders Rose More Than Forecast in December 

Sluggish economic growth remained the story in Q4 & for all of 2016.  Consumer confidence continues to be high.  Now that Trump & Congress are in charge, they need to show they can deliver on improved economy statistics, starting with higher growth rates & more jobs for the economy.  Popular stock averages are essentially at record highs, indicating hopes are high for the future.

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