Friday, September 15, 2017

Higher markets despite sluggish economic data

Dow gained 30, decliners just ahead of advancers & NAZ went up 15.  The MLP fell 1 to the 283s & the REIT index pulled back 1+ to the 355s.  Junk bond funds hardly budged & Treasuries were sold again.  Oil slid back pennies & gold lost 4.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil49.90

GC=FGold   1,326.80

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US consumer sentiment dipped in Sep as Americans expressed concern about the economic & inflationary impact of Hurricanes Harvey & Irma, Univ of Mich survey data showed.  Preliminary sentiment index fell to 95.3 (est. 95) from 96.8 in Aug.  Current conditions gauge, which measures Americans' perceptions of their personal finances, increased to 113.9 from 110.9 & the expectations measure decreased to 83.4 from 87.7.  The figures are the first to broadly capture the effects of Harvey & Irma, which caused more than $100B in damage, sparking a jump in claims for unemployment benefits.  According to the survey, 9% of respondents spontaneously said the storms would hurt the economy.  The sentiment index was unchanged among consumers who didn't mention the storms.  Consumers expected slight increases in gasoline prices & inflation, as Harvey temporarily shuttered refineries in Texas.  Policy makers don't expect the disasters to have a long-term effect on the economy, as reconstruction later in the year should offset their negative impact on third-quarter growth.  A little over ½ of consumers reported improved finances for the 4th straight month, the highest percentage since 2000.  Meanwhile, Pres Trump is stepping up efforts to promote tax cuts that he says will benefit the middle class & boost an already-tight labor market.  Most consumers said the economy had improved of late, with just one in 5 expecting conditions to deteriorate in the coming year.  Only 25% of respondents expected an increase in unemployment, which is hovering near a 16-year low.“  Given the current resilience of consumers, recent events are unlikely to derail confidence,” Richard Curtin, director of the consumer survey, said.  “Nonetheless, the disruptions will cause a brief period of weakness in economic growth and employment, accompanied by increased precautionary motives that will temper spending trends.”

Concern About Hurricane Fallout Dents U.S. Consumer Sentiment

An unexpected decline in Aug retail sales & downward revisions to the prior 2 months mainly reflected weaker results at auto dealerships, Commerce Dept figures showed.  Overall sales fell 0.2% (est. 0.1% gain) after a 0.3% increase (prev. 0.6% gain) & Jun sales dropped 0.1% (prev. 0.3% rise).  Purchases at auto dealers dropped 1.6% after no change. Retail-control group sales, which are used to calculate GDP & exclude the categories of food services, auto dealers, building materials stores & gasoline stations, decreased 0.2% following a 0.6% advance.  5 of 13 major retail categories showed a decline in Aug sales.  The latest results make it more likely that consumption, the biggest part of the economy, will be hard-pressed to match the 3.3% growth pace of the prior qtr.  Retail control group sales rose an annualized 1.1% in the 3 months ended in Aug, slowing from the 3.9% pace from May thru Jul.  At the same time, an increase in purchases at furniture outlets & restaurants indicates demand is being supported by a healthy job market.  Automobile dealer sales dropped 1.6%, after no change the previous month, & retail sales excluding autos rose 0.2% after a 0.4% increase.

U.S. Retail Sales Fall After Weaker Results in Prior Months

US factory output declined in Aug as Hurricane Harvey curtailed oil refining & chemical production, according to the Federal Reserve.  Factory output fell 0.3% M/M (est. 0.3% gain) after an upwardly revised 0.4% increase.  Total industrial production, which also includes mines & utilities, decreased 0.9% M/M (est. 0.1% rise) after no change, revised from a 0.1% drop.  Harvey reduced rate of change in factory output & industrial production each by about 0.75 percentage point, the Fed said.  Capacity utilization, measuring the amount of a plant that is in use, fell to 76.1% (est. 76.7%) from 76.9%.  The report showed manufacturing may have increased without the effects of Harvey, which struck the Gulf Coast in late Aug.  The Fed issued a technical note saying it made some assumptions about output in affected areas when actual data weren't available, using procedures similar to previous major weather events.  Output got a boost from automobile production, which rose 2.2%, the first increase in 4 months.  Vehicle demand has been cooling since the start of the year & the Fed report compares with industry figures showing Aug sales of cars & light trucks posted the weakest annualized pace since early 2014, in part reflecting the hit from Hurricane Harvey.  Manufacturers are likely to see delays in supplier deliveries, a shortage of some inputs, & higher costs for materials in the aftermath of Harvey & Irma.  At the same time, history shows that economic activity that's initially subdued due to major storms tends to get a lift later amid rebuilding.  Outside of hurricane-related volatility, manufacturing is expected to keep expanding, though an acceleration is unlikely without bigger gains in household demand & business investment.  An improvement in overseas markets may boost production linked to exports, while a pickup in energy prices would also help producers.  The Institute for Supply Management's manufacturing index released earlier this month showed factories ramped up in Aug to the fastest pace of expansion in 6 years, with gains in backlogs signaling assembly lines will keep humming in coming months.

The bulls want to take stocks higher & pushed the Dow to another new record.  The Dow is up almost 3K since the election, a rise that can only be described as staggering.  Oil, a principal commodity, has bounced off its lows in the 30s & is above 50.  DC has calmed down, to some degree, following the 2 big storms.  The likelihood of passing tax reform is rising.  The bulls are firmly in command of the stock market as they have been for months, even years!!

Dow Jones Industrials


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