Looking Behind and Looking Ahead

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Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

In this article we’ll recap the events and news over the past month that mattered most to the economy and markets, your credit union, and your members. Then we’ll look ahead at the key upcoming events you need to know.

Behind us—Economic data was strong over the last month, partially due to the rebound from hurricane-related declines the prior month.

  • Nonfarm payrolls rose by 263,000 and the two prior months were revised higher by 90,000. The unemployment rate fell to 4.1%, the lowest level since 2001.
  • Consumer Confidence remains rose again and remains exceptionally high.
  • Auto sales were higher than expected. While hurricane replacement vehicle sales rate, but there were strong gains nationwide.
  • The National ISM manufacturing and non-manufacturing index both remain at 13-year highs.
  • The Nov. 2 Federal Open Market Committee (FOMC) statement was little changed. The FOMC indicated it remains on course for a December fed funds rate increase and perhaps three or four increases in 2018.
  • But Janet Yellen will not be at the helm of the Fed next year. Jerome “Jay” Powell will be the next Fed Chairman as President Donald Trump simply did not want to nominate the person former president Barack Obama had selected. Powell has no economic training. He is a lawyer and has been an investment banker on Wall Street. But the bond market blessed the choice since Powell has been in sync with Yellen since he was appointed to the Federal Reserve Board of Governors in 2014.
  • Rates rose until the latter part of October but fell after. Bullish bond traders continue to bet against a tax reform bill.

Ahead for you—There is only one thing that matters to traders on the horizon, and that is the tax bill. We expect strong economic data reports to continue, but that will matter little to traders.

  • Nov. 15—This will be the most important economic release date of the month with Retail Sales and the Consumer Price Index slated for release.
  • Nov. 8—Jobs report. Nonfarm payrolls should have little in the way of hurricane distortions.
  • Dec. 13—FOMC meeting. The Fed is expected to raise the funds rate. Janet Yellen will hold a press conference after the statement release. This will be her last press conference as Fed Chair.
  • On any date—News on the tax reform bill can influence the markets in either direction.

Bottom line—The economy is performing better than expected. Rates should continue to rise, but a meaningful increase in longer-term rates might not be possible until we see whether tax reform will be realized. If the tax bill is realized and has certain critical elements, longer-term rates should rise.

Article by Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

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