See this week's numbersFriday, December 16, 2016

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A vote of confidence

Finally, we got what we expected – a 25 basis point increase in the federal funds rate. The Federal Open Market Committee voted unanimously to increase the target lending rate to a range between 0.50 to 0.75 percent. During the press conference following the FOMC announcement, Federal Reserve Chair Janet Yellen commented that the move was "a vote of confidence for the progress the economy has made." However, while progress to date has been solid, the committee believes further economic advancement warrants "modest" rate moves in the future. The committee expects to raise the target rate three times in 2017, versus the original projection of two rate moves. The quarterly rate forecast was boosted by 30 basis points a year for the next three years; in other words, an additional rate increase over original expectations. You can view the Federal Reserve's revised economic projections here.

Other Key Indicators this Week:

Inflation – The Federal Reserve was right about inflation – it is slowly moving higher. Both wholesale and consumer prices increased in November. PPI rose 0.4 percent at both the headline and core levels, while CPI was up 0.2 percent at both levels. The real take-away from both reports was the year-over-year increase. In both cases, the indices had the largest annual gain in two years. Energy costs at the producer level fell 0.3 percent, but were up 1.2 percent on the consumer side. Wholesale food prices were 0.6 percent higher, but remained unchanged for consumers.

Retail Sales – Sales at retailers rose 0.1 percent in November, the smallest increase since August. Nine of the 13 major categories posted gains, led by restaurants and furniture stores. Auto sales declined 0.5 percent, the largest decline since March. Stay tuned to see December holiday sales results.

Housing –
As usual, the housing data was conflicting. Builder confidence rose to the highest level in over 11 years. The National Association of Homebuilders/Wells Fargo Housing Market Index (HMI) jumped to 70 from 63, the largest one-month increase in 20 years. Confidence rose for prospective buyer traffic and the outlook for current and six-month sales. The reality check, though, was an 18.7 percent drop in housing starts and a 4.7 percent fall in permits in November. Despite the 27.4 percent revised increase for October starts, overall starts are down 6.9 percent from a year ago. The take-away from this week’s housing data is that industry remains volatile, with improvement coming in fits and starts.

Between the Numbers:

The financial markets exploded into action after the FOMC announcement, and not entirely in the direction investors were expecting. The reality of more aggressive monetary tightening next year brought the Dow stock index down by 119 points and bond yields up over 10 basis points. While the markets had been enjoying the prospect of increased economic growth in 2017, the chance of higher interest rates stalling that growth came into focus. The stock market stalled just under 20,000, while the 10-year Treasury note topped 2.60 percent. Since much of the pre-FOMC activity had been based on optimism, and not fact, it is not surprising the stock market is taking a moment to recollect itself.

Note: Due to the Christmas holiday weekend, there will be no Behind the Numbers next week. The next Behind the Numbers report will be on December 20. I want to wish everyone a very Merry Christmas, Happy Hanukkah and Happy Holiday!

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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