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Inflation Bouncing Around

One month lower than expected, the next month higher than expected. The end result may be nothing to worry about. Producer prices jumped in October by 0.6 percent after a small 0.2 percent rise the previous month. The increase was the largest monthly gain in six years. Economists and the Federal Reserve warn us to look at the overall data, not one-month aberrations. The October data reflects price pressures building in the production pipelines, but it also reflects higher margins for wholesalers and retailers. Prices for both goods and services increased, with the services sector jumping the most in two years. The real test will come next week with the CPI report. This report will tell us how much of the recent price increases are being pushed to the consumer.

Key Indicators this Week:

JOLTS – The number of job openings fell in September for the first time since May, but still remains near historical levels. There are currently 7,009,000 job openings, or one job per 0.9 unemployed. The decline in job postings has not kept people from switching jobs. The quits rate, which is a gauge of the confidence people have for finding a better job, remained at 2.4 percent for the third month in a row and is the highest rate in over 17 years.

ISM Services – The Institute for Supply Management (ISM) survey on non-manufacturing activity showed a slight pull back in service activity in October, but not enough to cause alarm. The survey dipped to 60.3 from 61.6, which was the highest level since 2005. The three components of the survey – business activity, employment and new orders – all experienced small declines, but the gauge continues to be indicative of strong economic growth. Some businesses expressed concern that tariff-related price pressures in the manufacturing sector could spill over to the non-manufacturing sectors in the coming months. Last week’s ISM manufacturing survey fell to its second lowest level this year.

FOMC – All systems are go with the Federal Reserve. The results from this week’s FOMC meeting indicate the Fed remains on track to increase the benchmark fed funds rate by 25 basis points in December. The FOMC once again gave the economy high marks for an improving labor market, rising economic activity and strong consumer spending. The press release acknowledged some slowdown in business investment, while also stating that long-term inflation expectations remain unchanged. Committee members did not make any reference to last month's stock market volatility.

Strategically for Credit Unions:

The midterm elections are over at last. The Democrats won the House, and the Republicans maintained the Senate. And the financial markets breathed a huge sigh of relief. The sigh was, in large part, due to the fact that the "unknowns" that plagued investors leading up to the elections are now gone. No more wondering what could happen. The stock market surged over 500 points, and bond yields remained steady on the outlook that Trump will continue to promote economic growth policies and his tax cuts will probably stay in place. History has shown that the stock market usually remains strong when Congress is divided. The Treasury curve remains in the mid-20s.

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.