Last Tuesday and Wednesday, the Federal Open Market Committee held their December meeting. The board elected to raise rates for the fourth time this year, although the median governor is anticipating one less rate hike in 2019. The Commerce Department made downward revisions to its third quarter GDP estimates, knocking a tenth of a percent off its previous estimates. Lastly, the Kansas City Federal Reserve released its December Manufacturing Survey and Index, showing a slowdown in manufacturing activity during the month due to declines in production, shipments and new orders for exports.
Last week brought third quarter GDP results that narrowly beat economists’ expectations, thanks, in part, to strong annualized consumer spending and low inflation. The Personal Consumption Expenditure price index, which is used by the Fed, underperformed the Fed target in October. However, the Producer-Price Index grew 2.9% annually, driven by producer and supplier margin increases. The JOLT Survey revealed that job openings decreased slightly in September, while the economy yielded a significant net employment gain.
Last week, gross domestic product figures showed slightly stronger economic output, particularly driven by consumer spending. The personal consumption expenditures index missed the Federal Reserve’s inflation target for the fourth straight month. Also, unemployment applications increased for the week ending October 20, but continuing claims declined for the week.
Last week, the Bureau of Economic Analysis updated its original estimate of second-quarter GDP growth, the U.S. Census Bureau announced the July trade deficit reversed its spring and summer trend to widen to a five-month high, and the Consumer Confidence Index for August spiked dramatically to an 18-year high.
The spread between ten- and two-year treasuries flattened to its narrowest margin in more than a decade last week, falling as low as 0.19. The yield curve is a major market-driven economic leading indicator. The NY Fed’s reduction in their GDP estimate on Friday may have contributed to the decline. In other news, jobless claims fell slightly, once again showing continued strength of the labor market, and Creighton University released their monthly Mid-America Economic Index for the month of July and their Rural Mainstreet Index for the month of August. Both Creighton indices showed general economic strength but pointed to some concerns, including effects from trade wars.
The Commerce Department reported a strong GDP reading of 4.1% in the second quarter of 2018. Contrarily, Great Plains farmers are seeing tougher access to credit as farm incomes continue to slump.
Of all economic news last week, perhaps the most intriguing are the jobless claims and GDP reports. Jobless claims fell to the lowest level since 1961, and GDP for the first quarter of 2018 slipped on consumer spending weakness.
Historically Low Jobless Claims & Strong GDP Results Amid Lower-Than-Expected 4Q17 Corporate Profits
Generally positive economic news, including record low jobless claims, overshadowed weakness in corporate profits in last week’s economic news, and markets became nerved over potential backlash from China regarding a potential trade war.