Economic Notes for the Week of January 17th

During the week, wholesale trade inventories increased by a scant +0.1% in November, a bit less than forecast.  This is a small amount, but may have a slightly negative impact on overall Q4 GDP.

According to the latest JOLTS report, job openings declined slightly in November, as the total openings as a percent of overall employment fell by -0.1% to 2.3%.  However, the hiring rate improved from the prior month and reversed an earlier decline.

Initial claims stood at 399k for the January 17 week, which was higher than a forecast 375k.  But, this should be taken with a grain of salt, as year-end employment and claims numbers can be a bit unpredictable due to so many adjustments being made.

Retail sales were up +0.1% for December, which was a bit weaker than the previous month as well as the expected +0.3% consensus forecast.  When autos were removed, the number turned slightly negative.  Mostly, the weaker results look to be a result of sales declines from electronics stores and online retailers (these surged in October and November before Christmas and last month’s numbers may be an adjustment back to ‘normal’).  Business inventories were up +0.3%, just a shade lower than expected.  To some extent, this offsets the weaker retail sales number.

The trade balance widened a bit more than expected, standing at -$47.8 billion (the negative number referring to the fact that we’re importing more than we’re exporting)—as volumes of industrial supply/material imports (including oil) rose while exports fell.  Import prices fell slightly, -0.1%, so very little change.

Market Notes

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Markets experienced a generally positive week with continued improving economic prospects and decent earnings numbers from some earlier-reporting firms.  Smaller-cap and emerging market equities led the way with the strongest returns, beating the S&P 500 and MSCI-EAFE, which also experienced gains.  From a country standpoint, the ‘BRICs’ (namely Brazil and India) led the way, while Japan and the U.K. lagged.  In the U.S., the best performing sectors were materials and financials, while the worst performing sectors were energy and utilities.  Earnings expectations for the fourth quarter have generally been adjusted downward, so the upcoming season’s results will likely be very stock-specific.

Markets pared back Friday after it was announced France, Spain, Italy, Belgium and Portugal were all downgraded as well as four other countries in Europe.  Not a surprise, but another excuse for more fear and continued uncertainty regarding the Eurozone debt situation.  To put it in context, if the United States is not rated AAA, then the majority of developed nations would naturally fall in the same category, or lower.

Bonds also had a decent week with moderately falling rates.  Treasuries did well relative to other bonds in a ‘flight to quality’ response away from European debt, while corporates performed well in an increasing demand environment and search for yield (which continues).  Foreign bonds were down in both developed and emerging markets.

Commodities were largely down, led by crude oil prices down approximately 3%.  Much lower natural gas prices also served to lower the index.  Over the past several months, WTI oil  has gained about 10% (on expectations for better economic prospects), while we continue to have a glut of natural gas stocks and a warmer-than-normal winter so far, which has dropped demand and kept supply overly high.

Enjoy the week.

Karl Schroeder, RFC, CSA, CEP

Investment Advisor Representative

Schroeder Financial Services, Inc.


Sources:  FocusPoint Solutions, Goldman Sachs, Morgan Stanley, Morningstar, Payden & Rygel, Deutsche Bank, Wells Capital Management, Bloomberg, Reuters, Standard & Poors, MSCI, Barclays Capital, JPMorgan Asset Management, Northern Trust, Oppenheimer Funds, PIMCO.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.
The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.  Schroeder Financial Services, Inc. is a registered investment advisor.