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Not this time, again

Just as we expected, the Federal Open Market Committee (FOMC) voted this week to keep the benchmark lending rate unchanged. The Committee voted 8-2 in favor of waiting for some further evidence that brings the economy more in line with their objectives. The word "some," a new addition to the press release language, suggests the Fed may be narrowing the scope of information necessary for them to increase interest rates. The other key change in the statement was a firm acknowledgement that inflation has increased somewhat this year, but still remains below the Committee’s 2.0 percent target. After deciphering the statement word for word, most analysts and economists agree the Fed is still keeping the door open for a rate move in December but is allowing ample room to shut it tightly if the upcoming presidential election causes significant market turbulence. The next meeting is scheduled for December 14.

Other Key Indicators this Week:

Jobs – U.S. employers added 161,000 jobs during October, and the unemployment rate fell to 4.9 percent from 5.0 percent. The underemployment rate, which some analysts consider a more accurate measure of employment, declined to 9.5 percent from 9.7 percent. Manufacturing and mining continue to be the two sectors consistently losing jobs. The big story within the report was wages. Hourly earnings increased 0.4 percent and were up 2.8 percent year-over-year. This is the largest yearly gain since June 2009. A concern among economists is that wages typically begin to rise at the peak of a recovery. This could be the case now when you consider the total number of jobs added so far this year, compared to the same period in 2015: 1,806 versus 2,193.

Manufacturing – The manufacturing sector continues to struggle. Despite stronger productivity and more hours worked in September, the continued lack of orders does not bode well for factory activity in the coming months. On the positive side, the ISM manufacturing index increased to 51.9 from 51.5 in October, the third month of improvement. Ten of the 18 categories posted growth, and the employment gauge rebounded to 52.9, the first expansion in four months. However, both new orders and orders-to-be-filled declined. In a related report, the pace of new orders for core factory-produced goods declined 1.3 percent in September. There was a slight improvement in core shipments, the proxy for business investment, but not enough to compensate for the decline in orders.

Spending and Income –
Both incomes and spending increased in September over the prior month. Incomes rose 0.3 percent in September, and spending jumped 0.5 percent, one-tenth more than expected. That extra tenth was taken away in August, with the revised level now -0.1 percent versus "unchanged." PCE core year-over-year remained the same at 1.7 percent. This is one of three key metrics the Fed reviews when gauging inflation.

Between the Numbers:

More wait-and-see. The futures market is predicting a 78 percent chance for a rate move in December, up from 73 percent a week ago. Even if the Fed does increase rates, do not expect a sudden rise in investment yields. The markets will take a wait-and-see attitude for a while, especially after this month’s presidential elections.

Note: Due to the Veterans Day holiday weekend, there will be no Behind the Numbers next week. Look for the Market Overview and Data Report and the CU Rate Survey on November 9. The next Behind the Numbers will be on November 18.

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.


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