See this week's numbersFriday, October 14, 2016

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The debates continue

Don’t worry, I am not referring to the presidential debates. But, what went on behind closed doors at the September Federal Open Market Committee meeting may have been equally as exciting as what we have witnessed on TV lately. The minutes from the latest FOMC meeting revealed how divisive the Committee has become in trying to decide the best move for the economy – a subject on which, ideally, 10 voting members would share similar opinions. September’s meeting minutes revealed the decision to keep interest rates steady was a "close call" that was reached only after considerable disagreement. On the one side were members preferring to wait until the labor market improves a bit more. On the other side of the table were officials concerned that continued stimulus would only cause the labor market to tighten, as well as create asset bubbles. Fourteen of 17 Federal Reserve officials (not all voting members) indicated they expect to see a rate increase before the end of the year. While the minutes downplayed external risks to the U.S. economy, concern is growing among economists about the strengthening dollar, a crumbling British pound and recent weak economic data from China. The markets currently place a 66 percent chance for a rate move in December.

Other Key Indicators this Week:

Retail Sales – Maybe, just maybe, the consumer is back in action. Retail sales increased 0.6 percent in September, the largest advance in three months. The gain follows a 0.2 percent decline in August, revised up from -0.3 percent. Ten of the 13 categories posted an increase. Of particular note, sales of motor vehicles rose 1.1 percent, a needed rebound from a dismal -0.3 percent change in August. Higher gasoline prices boosted gasoline store sales by 2.4 percent. Restaurant and drinking establishments posted a 0.8 percent increase in sales, the largest gain since February. This increase seems a little coincidental with the beginning of the school season, but we will take any reason for an increase in spending.

PPI – The producer price index rose 0.3 percent in September, the first increase in three months. The core index, which excludes food and energy prices, rose 0.2 percent. In a departure from the past two months, prices of goods rose more than prices of services. In fact, three-quarters of the increase in the index can be traced to a 0.7 percent climb in goods prices. Most of that increase is related to a 5.3 percent rise in gasoline prices. The price of services remains higher than goods prices on a year-over-year basis. Core PPI from a year ago increased from 1.0 percent to 1.2 percent. We are still a long way away from the Federal Reserve’s target of 2.0 percent.

Strategically for Credit Unions:

Credit union liquidity continues to tighten as the holiday season approaches. Strong loan demand, combined with Christmas Club withdrawals, could create bumpy cash flow if not monitored carefully. Borrowing rates remain historically low in advance of a possible rate increase by the Federal Reserve in December. Credit unions have several options for adding liquidity, including accessing corporate or other lines of credit, issuing Certificates of Deposit to bring in non-member deposits, selling loan participations or selling securities. The best method for your credit union depends on your balance sheet and overall strategy. Now is the time to prepare for liquidity squeezes, while rates are still low.

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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