Economic Perspective – February 2015

• S. economic growth in Q4 2014 was less robust than initially thought. The Bureau of Economic Analysis revised its estimate of gross domestic product downward from 2.6% to 2.2%, primarily because imports were higher and private inventory investment was less than the previous estimate.
• The U.S. economy added 257,000 jobs in January, and the Bureau of Labor Statistics figures for jobs created in November and December were revised upward substantially. Even more encouraging, average hourly earnings rose 12 cents to $24.75. However, because more jobs drew more workers back into the workforce, the unemployment rate was little changed at 5.7%; it has been within 0.1% of that level since October.
• The eurozone’s finance ministers agreed to a four-month extension of Greece’s current bailout in exchange for the promises of Greece’s newly elected government to reform tax laws, pensions, privatization of key assets, and trade policies. However, the International Monetary Fund and the European Central Bank expressed skepticism about whether Greece would follow through.
• In her semiannual testimony before Congress, Federal Chair Janet Yellen continued to lay the groundwork for a rate increase later this year. Without specifying a time frame, she said that a rate increase likely would not occur until at least June.
• Lower gas prices helped cut consumer inflation by 0.7% in January, according to the Bureau of Labor Statistics. That’s the biggest monthly decline since 2008, and left the annual inflation rate for the past 12 months at -0.1%. Meanwhile, falling energy prices also cut wholesale prices 0.8% during the month. That was the single biggest monthly drop since November 2009, and left the Producer Price Index roughly where it was 12 months ago.
• Sales of existing homes in January fell 4.9% to their lowest level in nine months, but the National Association of Realtors^® said they were still 3.2% higher than last January. The Commerce Department said new-home sales also slumped 0.2% during the month. Meanwhile, a 0.1% increase in home prices in December contributed to a 4.5% year-over-year gain in the S&P/Case-Shiller 20-City Composite Index. The western half of the country saw the strongest gains, while the Midwest and Northeast lagged.
• Durable goods orders were up 2.8% in January; according to the Commerce Department, that was the biggest monthly increase since last July. New orders for nondefense capital equipment saw a slight 0.6% gain. And according to the Federal Reserve, industrial production rose 0.2% in January and increased at an annual rate of 4.3% in Q4. However, both the Empire State and Philly Fed manufacturing surveys showed growth slowing slightly in February.
• After a measure of non-manufacturing activity in China showed that growth had virtually flat-lined in January, China’s central bank eased its reserve requirements for the country’s commercial banks, which should make more money available for lending. The People’s Bank of China also cut its benchmark one-year lending and deposit rates by 25 basis points.
• The Federal Communications Commission voted to regulate Internet service as a public utility, much as telephone service is regulated. The decision will enable the commission to enforce so-called “net neutrality” and prevent service providers from charging for priority access or interfering with traffic. However, telecom and cable companies are expected to challenge the decision in court.

Eye on the Month Ahead

The announcement and press conference following the Federal Reserve’s March meeting will be a focus for investors, who will watch to see if language about “patience” disappears from the discussion of future interest rate increases.

source: broadridge