Jim Kochan

Economic reports point to no Fed changes

AdvantageVoice® Blog—10-29-13
James Kochan, Chief Fixed-Income Strategist

A host of economic indicators were released today, and each of them suggests that the Federal Open Market Committee (FOMC) will make no changes in policy at the meeting today and tomorrow.

The Producer Price Index (PPI) for September declined 0.1% because of lower food prices. Excluding the volatile food and energy components, the core PPI was up 0.1%. Because energy prices are lower now than a year ago, the year-over-year increase in the PPI is only 0.3%. The core index is up 1.2% from a year ago. The Consumer Price Index is released tomorrow, and I expect it will show an increase of only about 1.5% from a year ago. These inflation indicators are weaker than Fed officials have said are consistent with low unemployment and will probably be cited by FOMC members as a major reason to keep policy highly stimulative.

Retail sales declined slightly in September because sales of cars and trucks had slowed from August’s strong pace. Excluding auto sales, the increase was a respectable 0.4%. The October reading for the Conference Board Consumer Confidence Index, meanwhile, does not bode well for future spending. The index fell from 80 to 71, a bigger drop than had been expected. A reading around 70 is, by past standards, very soft. In part, this decline was due to the government shutdown that was still in place during the survey week. While the index will probably recover some next month, it remains far below levels seen at this stage of earlier cycles.

The best news today was a fairly healthy Case-Shiller report on home prices in August. Prices in the 20 cities surveyed rose 0.9% and are now up a healthy 12.8% from a year ago. Mortgage applications and pending home sales weakened as mortgage rates rose from early-summer lows, but the improvement in prices should help the housing sector regain some footing in the months ahead.

Tomorrow, the FOMC will release its press statement. Don’t hold your breath because it will likely contain no new news.

The views expressed are as of 10-29-13 and are those of Chief Fixed-Income Strategist James Kochan, and Wells Fargo Funds Management, LLC. The information and statistics in this report have been obtained from sources we believe to be reliable but are not guaranteed by us to be accurate or complete. Any and all earnings, projections, and estimates assume certain conditions and industry developments, which are subject to change. The opinions stated are those of the author and are not intended to be used as investment advice. The views and any forward-looking statements are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any mutual fund. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.


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