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Earnings Season Begins

With inauguration activities one week away, the economy showed continued signs of strength.  The labor market, long a bright spot, saw initial jobless claims rise by 10,000 to 247,000 in the week ended January 7 according to the Labor Department, but that was the 97th consecutive week with claims below 300,000.  That is the longest stretch in over four decades and is typically consistent with an improving job market as we saw in last week’s month payroll data.  The four-week moving average fell to 256,500 which shows that the trend remains toward lower figures even though we might get slightly higher figures this month due to auto plants winter shutdowns and post-holiday retail employment trimming.  The number of people continuing to receive jobless benefits fell by 29,000 to 2.09 million in the week ended December 31. 

More people getting paychecks translates into higher sales.  The Commerce Department reported this week that retail sales rose 0.6% last month following a 0.2% advance in November.  For all of 2016, sales rose 3.3%, exceeding the 2.3% advance in 2015.  Eight of 13 major retail categories showed gains including car dealerships, furniture stores and internet retailers.  Conversely, sales at department stores, restaurants and electronics and appliance stores fell.  Auto dealerships were particularly strong last month as sales rose 2.4% in December, the most since April.  According to Ward’s Automotive Group, sales of cars and light trucks jumped to a 18.3 million annualized rate in December.   

These strong sales figures are beginning to be seen in producer prices.  According to the Labor Department, wholesale prices rose 0.3% in December, the third rise in four months.  The overall level was up 1.6% from a year earlier, the most since September 2014.  Steady consumer demand and somewhat higher commodity prices (energy prices were up 2.6%), are pushing prices closer to the 2% target set by the Federal Reserve.  Excluding the more volatile food and energy components, year-over-year prices in December still rose 1.6%.  Further excluding trade services, this core measure rose 1.7%.  Though the Fed’s preferred personal consumption expenditures price index from the Commerce Department only rose 1.4% in November from a year earlier, the trend is clearly towards higher prices which supports the Fed’s December rate hike and puts further attention on upcoming meetings.  According to the futures markets, there is a 33% chance of a rate hike at the March 15 meeting and a 46% chance for the year’s first hike to occur at the May meeting.  There is even evidence that there is a pickup in economic momentum in the euro area with unemployment in the 19-nation region stable at the lowest level in more than seven years in November.  Germany, with only 4.1% unemployment, saw industrial production rise in October and France’s manufacturing confidence rose in December to its highest level since May 2011.  This is important domestically because the Fed is the lone major developed market which is actively in rate hike mode, and Fed governors have historically pointed to overseas developments as factoring into their decisions.  If there is less pressure on quantitative easing in these regions, the Fed will feel less like the odd central banker out.  Additionally, if domestic price pressures continue to march forward at this rate, including a 2.9% average hourly earnings annual rate detailed in last week’s employment report, stress for the Fed to move again will rise.

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  • SGK Weekly Blog Dec. 23, 2016 - Happy Holidays!!
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  • SGK Blog--Update November 23, 2016: Happy Thanksgiving from All of Us at SGK Wealth Advisors!!