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Weekly Update

January 5, 2018

The Economy

The Institute for Supply Management’s manufacturing purchasing managers’ index (PMI) strengthened in December, remaining in expansion territory for the sixteenth straight month, driven by solid new orders and production. A similar report from Markit also showed acceleration in new orders as well as the fastest rate of job creation in over three years.

The Federal Open Market Committee’s December meeting minutes revealed disagreement among members regarding the rate hike last month; some wanted additional time to assess the economic activity and inflation outlook before making such a change. Members generally agreed that the recent tax-reform passage will likely boost consumer spending and business investment.

The U.S. economy added 148,000 jobs in December—lower than economists’ expectations of over 191,000, and less than strong gain in November. Unemployment held steady at 4.1%, its lowest level since December 2000. Wage growth nudged slightly higher, but remained historically low, rising by only 2.5% year over year.

Initial jobless claims grew for the third straight week, by 3,000 to 250,000 in the week ending December 30. The less-volatile four-week moving average rose by 3,500 to 241,750. Continuing claims fell by 37,000 to 1.92 million in the week ending December 23. Economists believe the historically tight labor market will eventually drive wage growth higher as companies seek talented workers.

The trade deficit widened by 3.2% in November to a six-year high. Exports expanded by 2.3% but were outpaced by imports, which jumped by 2.5% to a record high. A wider trade deficit detracts from economic growth.

Mortgage-purchase applications edged 1% higher in the two-week period ending December 29 despite a slight rise in mortgage rates. Refinancing activity (which is sensitive to small rate changes) decreased by 7% in the same period.

Eurozone producer prices moved 0.6% higher in November, driven by higher costs for energy and intermediate goods. Year-over-year prices grew by 2.8%. Producer-price changes typically correlate with movements in consumer inflation.

Activity in China’s manufacturing sector advanced at a faster pace during December, according to a PMI reading; strong output offset weakness in employment.

Japan’s PMI composite showed accelerated expansion in December, as gains in output growth and new orders mitigated deceleration in business confidence and employment.

 

U.S. Economic Calendar

[Text Box: © 2017 SEI 1] January 8: Consumer Credit

January 9: Job Openings and Labor Turnover Survey

January 10: Mortgage Applications, Import and Export Prices

January 11: Jobless Claims, Producer Prices

January 12: Consumer Price Index, Retail Sales

Stocks

Global equities were higher this week. Emerging markets outpaced developed markets.

Most U.S. equity sectors were positive. Information technology and materials led, while utilities and telecommunications underperformed. Growth stocks had the edge over value stocks and large-company stocks beat small-company stocks.

Bonds

Global bond markets rose this week. High-yield bonds outperformed, followed by global government bonds. Corporate bonds lagged.

Treasury yields rose and the yield curve flattened to a 10-year low, as analysts continued to report short-term expectations of economic growth coupled with a subdued outlook for inflation.

 

Disclaimer:

This information is not meant as a guide to investing, or as a source of specific investment recommendations, and Gibraltar Private Bank & Trust makes no implied or express recommendations concerning the manner in which any client’s accounts should or would be handled, as appropriate investment decisions depend upon the client’s investment objectives. The information is general in nature and is not intended to be, and should not be construed as, legal or tax advice. In addition, the information is subject to change and, although based upon information that Gibraltar Private Bank & Trust considers reliable, is not guaranteed as to accuracy or completeness. Gibraltar Private Bank & Trust makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, the information.

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Disclosures:

Index returns are for illustrative purposes only and do not represent actual fund performance.

Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

This material is provided by SEI Investments Management Corporation (SIMC) for educational purposes only and is not meant to be investment advice. The reader should consult with his/her financial advisor for more information. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. There are risks involved with investing, including possible loss of principal. SIMC is a wholly owned subsidiary of SEI Investments Company.

 

 

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