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Fed Rate Decision December 2019

Fed Signals No Plans to Cut in 2020

The Federal Reserve left the target range for its federal funds rate unchanged at 1.5-1.75 percent on December 11th 2019 and signaled no plans to cut in 2020. The decision came in line with market expectations. Policymakers consider the current stance of monetary policy appropriate to support sustained growth, strong labor market conditions, and inflation near the 2% target.

 

The central bank kept its growth forecasts unchanged for this year at 2.2 percent; 2 percent for 2020; 1.9 percent for 2021; and 1.8 percent for 2022. Inflation is seen at 1.5 percent in 2019; 1.9 percent in 2020; 2 percent in 2021; and 2 percent in 2022; all unchanged from the September projection.

Regarding the fed funds rate, most participants expect no changes in 2020 although a hike is still seen in 2021. In the September projection, more participants expected a hike in 2020.

FOMC Statement:

Information received since the Federal Open Market Committee met in October indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee decided to maintain the target range for the federal funds rate at 1-1/2 to 1-3/4 percent. The Committee judges that the current stance of monetary policy is appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective. The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

https://tradingeconomics.com/united-states/interest-rate

 

US Job Growth Hits 10-Month High Novemeber 2019

US Job Growth Hits 10-Month High

Nonfarm payrolls in the US increased by 266 thousand in November 2019, following an upwardly revised 156 thousand rise in the previous month and easily beating market expectations of 180 thousand. It was the largest advance in payrolls since January, with notable job gains occurring in health care and in professional and technical services. Employment also increased in manufacturing, reflecting the return of workers from a strike.

Health care added 45,000 jobs, following little employment change in October (+12,000). The November job gains occurred in ambulatory health care services (+34,000) and in hospitals (+10,000). Health care has added 414,000 jobs over the last 12 months.

Employment in professional and technical services increased by 31,000 in November and by 278,000 over the last 12 months.

Manufacturing employment rose by 54,000 in November, following a decline of 43,000 in the prior month. Within manufacturing, employment in motor vehicles and parts was up by 41,000 in November, reflecting the return of workers who were on strike in October.

In November, employment in leisure and hospitality continued to trend up (+45,000). The industry has added 219,000 jobs over the last 4 months.

Employment in transportation and warehousing continued on an upward trend in November (+16,000). Within the industry, job gains occurred in warehousing and storage (+8,000) and in couriers and messengers (+5,000).

Financial activities employment also continued to trend up in November (+13,000), with a gain of 7,000 in credit intermediation and related activities. Financial activities has added 116,000 jobs over the last 12 months.

Mining lost jobs in November (-7,000), largely in support activities for mining (-6,000). Mining employment is down by 19,000 since a recent peak in May.

In November, employment in retail trade was about unchanged (+2,000). Within the industry, employment rose in general merchandise stores (+22,000) and in motor vehicle and parts dealers (+8,000), while clothing and clothing accessories stores lost jobs (-18,000).

Employment in other major industries–including construction, wholesale trade, information, and government–showed little change over the month.

In November, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $28.29. Over the last 12 months, average hourly earnings have increased by 3.1 percent. In November, average hourly earnings of private-sector production and nonsupervisory employees rose by 7 cents to $23.83.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in November. In manufacturing, the average workweek increased by 0.1 hour to 40.5 hours, while overtime decreased by 0.1 hour to 3.1 hours. The average workweek of private-sector production and nonsupervisory employees held at 33.5 hours.

 

https://tradingeconomics.com/united-states/non-farm-payrolls

 

US Retail Sales Rebound in October 2019

US Retail Sales Rebound in October

US retail trade rose 0.3 percent from a month earlier in October 2019, reversing a 0.3 percent drop in September and beating market expectations of 0.2 percent.

 

5 of 13 major retail categories showed month-over-month increases.

Receipts at motor vehicle & parts dealers rose 0.5 percent in October (vs -1.3 percent in September) and those at gasoline stations climbed 1.1 percent (vs -0.1 percent in September) on the back of higher fuel prices. There was also a rebound in sales at food & beverage stores (0.5 percent vs -0.6 percent) and general merchandise stores (0.4 percent vs -0.4 percent), while online and mail-order retail sales increased at a faster pace (0.9 percent vs 0.2 percent).

In contrast, spending at furniture stores fell at the fastest pace since December 2018 (-0.9 percent vs 0.7 percent), and receipts at restaurants and bars dropped by the most in nearly a year (-0.3 percent vs 0.8 percent). Declines were also seen at electronics and appliance stores (-0.4 percent vs 0.1 percent), building material stores (-0.5 percent vs -1.8 percent), clothing stores (-1.0 percent vs 0.3 percent), hobby, musical instrument and book stores (-0.8 percent vs -0.1 percent), and miscellaneous store retailers (-0.6 percent vs -0.2 percent). Sales at health and personal care stores were unchanged, after a 0.6 percent growth in September.

Excluding automobiles, gasoline, building materials and food services, retail sales were 0.3 percent higher last month, recovering from the 0.1 percent decline seen a month earlier.

Year-on-year, retail sales grew 3.1 percent, compared to 4.1 percent in the previous month.

 

https://tradingeconomics.com/united-states/retail-sales

ISM Non Manufacturing October 2019

US Services Activity Growth Above Forecast: ISM

The ISM Non-Manufacturing PMI for the US rose to 54.7 in October 2019 from a near three-year low of 52.6 in the previous month and above market consensus of 53.5. Business activity, employment and new orders all grew at faster rates.

 

“The NMI® registered 54.7 percent, which is 2.1 percentage points above the September reading of 52.6 percent. This represents continued growth in the non-manufacturing sector, at a faster rate. The Non-Manufacturing Business Activity Index increased to 57 percent, 1.8 percentage points higher than the September reading of 55.2 percent, reflecting growth for the 123rd consecutive month. The New Orders Index registered 55.6 percent; 1.9 percentage points higher than the reading of 53.7 percent in September. The Employment Index increased 3.3 percentage points in October to 53.7 percent from the September reading of 50.4 percent. The Prices Index decreased 3.4 percentage points from the September reading of 60 percent to 56.6 percent, indicating that prices increased in October for the 29th consecutive month. According to the NMI®, 13 non-manufacturing industries reported growth. The non-manufacturing sector had an uptick in growth after reflecting a pullback in September. The respondents continue to be concerned about tariffs, labor resources and the geopolitical climate.”

The 13 non-manufacturing industries reporting growth in October — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Utilities; Professional, Scientific & Technical Services; Transportation & Warehousing; Real Estate, Rental & Leasing; Management of Companies & Support Services; Health Care & Social Assistance; Accommodation & Food Services; Arts, Entertainment & Recreation; Construction; Finance & Insurance; Public Administration; and Information. The five industries reporting a decrease are: Educational Services; Other Services; Retail Trade; Wholesale Trade; and Mining.

 

https://tradingeconomics.com/united-states/non-manufacturing-pmi

 

US GDP Growth Quarter over Quarter 3rd Quarter 2019

US GDP Growth Slows Less than Expected

The US economy grew by an annualized 1.9 percent in the third quarter of 2019, beating market expectations of 1.6 percent and following a 2.0 percent expansion in the previous three-month period, the advance estimate showed.

 

Personal consumption expenditures (PCE) rose 2.9 percent in the third quarter (vs 4.6 percent in Q2) mainly boosted by consumption of goods (5.5 percent vs 8.6 percent), in particular durable goods (7.6 percent vs 13.0 percent), and services (1.7 percent vs 2.8 percent). Federal government spending advanced 3.4 percent (vs 8.3 percent in Q2) and state and local government spending rose 1.1 percent (vs 2.7 percent in Q2). In addition, there was a rebound in both residential fixed investment (5.1 percent vs -3.0 percent) and exports (0.7 percent vs -5.7 percent).

Business investment shrank 3.0 percent, the sharpest contraction in more than 3-1/2 years, dragged by declines in spending on equipment and nonresidential structures such as mining exploration, shafts and wells. Business accumulated inventory at USD 69.0 billion pace after building stocks at a USD 69.4 billion rate in the second quarter.

Also, imports rose 1.2 percent (vs 0.0 percent in Q2) led by purchases of services (4.4 percent vs -0.7 percent).

The price index for gross domestic purchases increased 1.4 percent in the third quarter, compared with an increase of 2.2 percent in the second quarter. The PCE price index increased 1.5 percent, compared with an increase of 2.4 percent. Excluding food and energy prices, the PCE price index increased 2.2 percent, compared with an increase of 1.9 percent.

https://tradingeconomics.com/united-states/gdp-growth

 

FSI legislative discussion

Kevin S. Whiteford was the only agent/advisor asked to accompany Cambridge Investment Research, Inc’s team to discuss important pending legislature in Washington D.C. Kevin is a member of the Financial Services Institute (FSI), and discussed the following topics with United States Congress Members.

 

 

Promoting Retirement Security

The Financial Services Institute (FSI)1 supports reasonable efforts to improve the ability of Main Street Americans to save for a financially secure retirement. While the state and federal governments can be good partners in this effort, we believe that retirement solutions should be provided by the private sector to ensure that Americans have access to personalized investment advice.

1 The Financial Services Institute (FSI) is the only organization advocating solely on behalf of independent financial advisors and independent financial services firms. Since 2004, through advocacy, education and public awareness, FSI has successfully promoted a more responsible regulatory environment for nearly 40,000 independent financial advisors, and more than 100 independent financial services firms who represent upwards of 160,000 affiliated financial advisors. For more information, visit www.financialservices.org.

2 The Insured Retirement Institute, The State of Retirement Security in America Today – 2019 Boomer Expectations for Retirement Study available at: https://www.myirionline.org/docs/default-source/default-document-library/iri_babyboomers_whitepaper_2019_final.pdf?sfvrsn=0; Claude Montmarquette, Nathalie Viennot-Briot, Centre for Interuniversity Research and Analysis on Organizations (CIRANO), The Gamma Factor and the Value of Advice of a Financial Advisor, available at https://www.cirano.qc.ca/files/publications/2016s-35.pdf

All investors should have access to competent and affordable financial advice, products and services delivered by a growing network of independent financial advisors and independent financial services firms.

Having a relationship with a trusted financial advisor is crucial to saving for retirement. Research shows that investors who work with a financial advisor are better prepared for their retirement, better understand the costs that may arise in retirement and how to save for them, and feel more confident in their ability to be successful in retirement.2 In order to ensure that Main Street investors have access to critical financial advice, products and services, FSI supports retirement security legislation that includes the following:

Expand workplace retirement savings opportunities

Small Businesses across the country struggle to absorb the cost of offering retirement savings options to employees. Legislation can fix this critical gap in coverage by:

  • Providing tax incentives to enable more small employers to help their employees save for retirement; and
  • Enabling more small employers to use multiple employer plans.

 

Remove the age cap on IRA contributions

As Americans are living and working longer than ever before, allowing IRA contributions for as long as someone is working will ensure they can continue to save for retirement.

Expand access to lifetime income products in retirement plans

Increasing access to lifetime income products in retirement plans will ensure that Americans have the tools they need to turn their savings into protected income streams.

Allow the tax deductibility of advisory fees

Seeking help navigating the complexities of retirement savings should not result in tax challenges for Americans. Permitting savers to deduct investment advisory fees will immediately impact their bottom line and allow their retirement savings to grow.

FSI is committed to constructive engagement in the legislative process. We are ready to serve as a resource in your efforts to help Main Street Americans save for their retirement. Should you have any questions, please contact our Director of Legislative Affairs, Hanna Laver, at (202) 499-7224.


End Regulation by Enforcement

Introduction

The Financial Services Institute (FSI)1 and its members are concerned that a recent SEC enforcement initiative constitutes regulation by enforcement. This practice harms firms by failing to provide the necessary certainty for them to operate their business -independent financial advisors and firms have a reasonable expectation the SEC will disclose the rules of the road before engaging in enforcement. Further, regulation by enforcement raises costs for firms, which are then passed on to Main Street investors.

1 The Financial Services Institute (FSI) is the only organization advocating solely on behalf of independent financial advisors and independent financial services firms. Since 2004, through advocacy, education and public awareness, FSI has successfully promoted a more responsible regulatory environment for nearly 40,000 independent financial advisors, and more than 100 independent financial services firms who represent upwards of 160,000 affiliated financial advisors. For more information, visit www.financialservices.org.

Share Class Selection Disclosure Initiative

The Share Class Selection Disclosure Initiative was announced in February 2018, firms were given four months to voluntarily self-report instances where they may have failed to adequately disclose certain fees that investors pay and recommendations of higher cost share classes when lower cost shares of the same investments were available. In exchange, the SEC’s Enforcement Division agreed to recommend “lighter” settlements and lower fines, while warning that firms who did not self-report would face steeper penalties

However, Division staff could not cite a clear rule or regulation that had been violated instead citing previous settlements and published guidance as the basis for the violations. Further, firms report that the issue of inadequate share class disclosures was never raised during their regular exam cycles. If this was an issue of concern to the SEC, why was it not raised earlier so that firms had an opportunity to fix it sooner?

To date, the Initiative has collected $125 million from almost 80 investment advisers. In addition, firms that did not report during the Initiative are receiving document requests from the SEC alleging that they have engaged in misconduct but failed to take advantage of the Initiative. The Division is reportedly now moving to a second phase in the initiative, expanding its scope to other areas not identified in the original Initiative.

This practice of imposing regulatory requirements through the enforcement process runs counter to the statements of Chairman Clayton and Commissioner Peirce:

  • “The Commission’s longstanding position is that all staff statements are nonbinding and create no enforceable legal rights or obligations of the Commission or other parties.” Chairman Jay Clayton’s “Statement Regarding SEC Staff Views,” made on September 13, 2018.
  • “I have grown increasingly concerned that this necessary guidance—due to a lack of transparency and accountability—may have turned into a body of secret law. This secret law, as a practical matter, binds market participants like law does but is immune from judicial—and even Commission—review.” Commissioner Hester Peirce’s Remarks at SEC Speaks made on April 8, 2019.

 

Regulation by enforcement deprives industry of the opportunity for notice and comment required by law under the Administrative Procedure Act. Without proper notice of the “rules of the road” financial advisors and their firms cannot serve their clients, depriving Main Street investors of access to critical investment advice, products and services. For more information, visit https://financialservices.org/regs-without-rules/

 

US Job Openings August 2019

US Job Openings August 2019

The number of job openings fell to 7.051 million in August 2019 from a downwardly revised 7.174 million in the previous month and below market expectations of 7.191 million. It was the lowest level since March 2018, mainly driven by a decline in the Midwest region (-183,000). Job openings decreased in nondurable goods manufacturing (-49,000) and in information (-47,000). Meanwhile, hiring dropped by 199,000 to 5.779 million in August, due to decreases in the private sector. Job Offers in the United States averaged 4452.07 Thousand from 2000 until 2019, reaching an all time high of 7626 Thousand in November of 2018 and a record low of 2264 Thousand in July of 2009.

https://tradingeconomics.com/united-states/job-offers

US Jobless Rate Falls to Lowest Since 1969

US Jobless Rate Falls to Lowest Since 1969

The US unemployment rate decreased to 3.5 percent in September 2019 from 3.7 percent in the previous month and above below market expectations of 3.7 percent. The last time the rate was this low was in December 1969, when it also was 3.5 percent. Over the month, the number of unemployed persons decreased by 275,000 to 5.8 million.

 

 

Among the major worker groups, the unemployment rate for Whites declined to 3.2 percent in September. The jobless rates for adult men (3.2 percent), adult women (3.1 percent), teenagers (12.5 percent), Blacks (5.5 percent), Asians (2.5 percent), and Hispanics (3.9 percent) showed little or no change over the month.

Among the unemployed, the number of job losers and persons who completed temporary jobs declined by 304,000 to 2.6 million in September, while the number of new entrants increased by 103,000 to 677,000. New entrants are unemployed persons who never previously worked.

In September, the number of persons unemployed for less than 5 weeks fell by 339,000 to 1.9 million. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.3 million and accounted for 22.7 percent of the unemployed.

The labor force participation rate held at 63.2 percent in September. The employment-population ratio, at 61.0 percent, was little changed over the month but was up by 0.6 percentage point over the year. 

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was essentially unchanged at 4.4 million in September. These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs.

In September, 1.3 million persons were marginally attached to the labor force, down by 278,000 from a year earlier. (Data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 321,000 discouraged workers in September, little changed from a year earlier. (Data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 978,000 persons marginally attached to the labor force in September had not searched for work for reasons such as school attendance or family responsibilities.

 

https://tradingeconomics.com/united-states/unemployment-rate

 

US New Home Sales Month over Month August 2019

US New Home Sales Rise More than Expected

Sales of new single-family houses in the United States jumped 7.1 percent from the previous month to a seasonally adjusted annual rate of 713 thousand in August 2019, following a revised 8.6 percent slump in July and easily beating market expectations of a 3.5 percent increase.

July’s sales pace was revised higher to 666 thousand units from the previously reported 635 thousand units.

New home sales, which account for about 11.5 percent of housing market sales, were up in the South (6.0 percent to 426 thousand) and West (16.5 percent to 191 thousand), but dropped in the Midwest (-3.0 percent to 64 thousand) and Northeast (-5.9 percent to 32 thousand).

The median new house price rose 2.2 percent from a year earlier to USD 328.4 thousand in August. The average sales price jumped 6.1 percent to USD 404.2 thousand.

The stock of new houses for sale declined 1.2 percent from the previous month to 326 thousand, the lowest since September 2018. At August’s sales pace it would take 5.5 months to clear the supply of houses on the market, down from 5.9 months in July.

Year-on-year, new home sales surged 18.0 percent.

https://tradingeconomics.com/united-states/new-home-sales

Fed Rate Decision 9-18-19

Fed Cuts Rates Despite Disagreement Among Policymakers

The Federal Reserve lowered the target range for the federal funds rate to 1.75-2 percent on a 7-3 vote during its September meeting. It was the second rate cut this year, amid global growth concerns and muted inflation pressures.

 

Median Fed policymaker projection is for no further rate cuts in 2019 but seven of 17 policymakers saw one more cut as appropriate.

GDP forecasts were raised to 2.2 percent in 2019 (vs 2.1 percent previously estimated) and 1.9 percent in 2021 (vs 1.8 percent), while that for 2020 was unchanged at 2.0 percent. Inflation expectations were seen at 1.5 percent in 2019, 1.9 percent in 2020 and 2.0 percent in 2021, matching June’s projections.

Amid a breakdown this week in the overnight repurchase lending market, the Fed set interest on excess reserves rate at 1.80%, widening the spread from top of target range to 20 bp from 15 bp.

 

FOMC Statement:

Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

https://tradingeconomics.com/united-states/interest-rate

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