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March
15
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Week In Review

Inflation

February consumer prices rose 0.2% while producer prices rose 0.1%. Year-over-year, consumer prices are up 1.5% and producer prices have risen 1.9%. Core prices rose a bit more, with core consumer prices increasing 2.1% over the last 12 months. Core producer prices were up 2.5% over the same period.

Our Take

Realized inflation continues to slow, providing proof that a delay in Fed tightening until economic data improved was probably a good idea. Given the general slowdown in world economies, a rapid increase in U.S. inflation appears unlikely.


Brexit

May’s revised deal was defeated again in Parliament by a smaller margin than the defeat in January. In subsequent votes, Parliament chose not to have a no-deal Brexit and to ask the EU for an extension to the March 29th exit date. The EU’s chief negotiator indicated that a short extension would only make sense if Britain is in the process of implementing May’s deal and that a longer extension would only make sense if the UK is planning on either a general election to put in place a government that will negotiate a softer Brexit or a second referendum on Brexit. May’s government is planning another vote on her deal next week.

Our Take

Markets may be relieved that the UK is trying to take a no deal exit off of the table and is asking for more time, but the EU is indicating that a delay only makes sense if Britain is taking actions that will result in progress toward an agreement that can pass Parliament and is acceptable to the EU. If May’s deal does not pass Parliament next week, it is difficult to see how the deadlock is broken without a different government.


Retail Sales

Retail sales rose 0.2% in January while December sales were revised lower, from -1.2% to -1.6%.

Our Take

Retail sales failed to rebound from a horrible December. It appears as though the effects of last year’s tax cuts are wearing off and that consumers are tightening their wallets. There have been numerous reports of lower tax refunds as a result of decreased 2018 withholdings. If this is as widespread as reported, retail sales could remain weak into Q2.


Municipals

The Texas Supreme Court ruled that changes to the Dallas Police and Fire Pension System’s DROP (Deferred Retirement Option Plan) and the plan’s distribution policy were constitutional. The Dallas Police and Fire Pension System approved changes in 2014 that reduced the interest rate paid on DROP accounts and changed the participation time frame from unlimited to 10 years. A group of retirees sued and argued that benefits could not be reduced. The Supreme Court’s ruling stated that the changes “did not impact benefits accrued or granted within the meaning of the constitutional provision.” The recent ruling affirms the Fifth Court of Appeals’ ruling in 2016.

Our Take

The Dallas Police and Fire Pension System implemented the changes to shore up the pension’s finances. Pension reform was needed in order to remain solvent. It is likely that other cities and pension systems Reinhart Partners, Inc. have been following this case and the ruling closely as municipalities look for ways to solve underfunded pension issues.