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—After smooth ride for stocks and a bumpy ride for bonds in January, turbulence descended on the stock market. The stock market’s problems were triggered by the rise in rates, but there were other concerns of a technical nature in stocks. But, what did not change over the past month was the economy is rolling along.

  • Nonfarm Payrolls were better than expected in January with a gain of 200,000. Also, very positive was the year-over-year wage gain of 2.9%. This was positive from an economic perspective but not from the bond market’s perspective
  • Consumer Confidence rose again to near record levels
  • Auto sales started the year with solid sales 17.2 million annualized
  • The key industrial measures were positive
  • The Fed kept rates unchanged at Janet Yellen’s last meeting but laid the groundwork for an increase at the March meeting plus two or three the rest of the year
  • The rise in long-term rates has steepened the yield curve. Some very large bond trading accounts became worried about inflation
  • Longer-term rates have risen about 40 basis points since year-end but would have risen even further had it not been for the stock market turmoil

Ahead for you—All bets are off until the stock market sorts itself out. A continued decline could materially change the landscape for business and consumer confidence. It could also alter expectations for Fed policy actions. 

  • Feb. 14—Consumer Price Index. Inflation data has replaced jobs data as the most important data to the bond market. This could be very important to the bond market is it varies significantly from expectations.
  • Feb. 14—Retail Sales for January. This data release is usually important, but it will be less so given it will be based on activity prior to the stock market correction
  • March 9—The jobs report. The key component for this report will be the hourly wage rate. If the year-over-year rate falls from the January pace, the bond market will be under less pressure.
  • Any day—If huge moves in equities continue, all conditions and even economic expectations can be impacted

Bottom line—The economy performed well in 2017 and appears to be continuing the solid trend. But, while shorter-term stock market moves do not reflect the economy, an extended decline would likely slow the pace of growth. 

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

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