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More of the Same, with a Twist

This week's scheduled FOMC meeting was basically a non-event as far as the financial markets were concerned. The target range for the federal funds rate was left unchanged at 1.00 to 1.25 percent. The committee gave a better grade on economic activity this time around, stating activity "has been rising at a solid rate despite the hurricane-related disruptions." In the previous review, the economic activity was described as just "moderate". Barring any unusual incidents, the market and economists fully believe the FOMC will increase interest rates at the December meeting. After that, it is a new game. President Donald Trump nominated Federal Reserve Governor Jerome Powell as the next Federal Reserve Chairman. The good news is Powell is considered an ally of Yellen's, a consensus-driven leader and, thus, most likely to remain on the gradual path of increasing interest rates.

Other Key Indicators this Week:

Jobs – The U.S. added 261,000 jobs in October. This was a nice rebound from a mere 18,000 jobs added in September, but not quite the robust figure for which most analysts hoped. The data continues to be distorted due to the hurricanes, but represents some return to normalcy. Leisure and hospitality sectors had the greatest recovery, going from a plunge of 102,000 jobs to a gain of 106,000 jobs. The unemployment rate fell to 4.1 percent, the lowest level in 17 years, a result of 765,000 workers leaving the labor force. While the monthly pace of job gains this year, 164,000, is enough to support the labor market, wages remain low. Average earnings were flat for the month and up 2.4 percent from a year ago, the lowest year-over-year gain since February 2016.

Spending/Income – Consumer spending surged 1.0 percent in September, the largest increase since August 2009. The bulk of the increase came from a surge in motor vehicle sales, most likely influenced by replacement of vehicles damaged in the hurricanes. Incomes rose 0.4 percent, the biggest monthly jump since February.

Home prices – The average price for a home in the U.S. increased 6.1 percent in August from a year ago, according to S&P CoreLogic Case-Shiller. As we have said time and time again, the lack of homes for sale continues to push prices higher. In a separate study from the National Association of Realtors, the typical home is selling in three weeks, the shortest time frame in 30 years.

Consumer Confidence – Consumers are happy! The most recent Conference Board measure of confidence rose to the highest level in 17 years. Measures for both current and future conditions increased due to a firming job market and gains in the stock market. Age made a difference in how consumers viewed their financial situation. Confidence fell to an eight-month low for people under 35 years old, but increased the most in 17 years for those between 35 and 54 years old.

Strategically for Credit Unions:

The yield curve is at its flattest level in 17 years. The two-year note still believes in a rate increase next month, with the yield holding steady just above 1.60 percent. However, the long end is not as convinced the recent changes will benefit the economy. The 10-year note is below the 2.40 percent trading threshold.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.