Week In Review
Federal Reserve Chairman Jerome Powell addressed the Joint Economic Committee on Capitol Hill this week. There were no surprises in his testimony. During his remarks, Chairman Powell reiterated the Fed’s positive assessment of the economy, noting the improved jobs market and solid consumer spending against a backdrop of weakness in business investment and exports. The chairman believes the current stance of monetary policy remains appropriate. Looking forward, the Fed expects continued expansion of economic activity, but remains ready to respond should the economic data deteriorate.
Powell appeared to take a slightly more dovish tone than his comments following the October rate cut, after which many expected the Fed to pause any further cuts in rates. Although the path forward is not clear, the Fed may be more willing to act than recently suspected if economic conditions worsen.
Both optimistic and pessimistic messages about the state of the “Phase 1“ trade talks came out throughout the week, and the capital markets responded to them all. Separately, the pro-democracy protests in Hong Kong have become increasingly violent, and signs are mounting that the Chinese government may intervene to suppress them.
It is very difficult to handicap the likelihood of Phase 1 being agreed to, but even if it is agreed to, it is unlikely that the Chinese government will act to address the most important underlying conflicts driving the trade war. If the Chinese military or mainland police engage in a violent crackdown in Hong Kong then the current negotiations could become moot, as China would likely face sanctions from most of the developed economy nations.
October retail sales rose 0.3%. The retail sales control group, used to calculate GDP, also rose 0.3%.
The consumer continues to be the main economic growth engine in the U.S. Retail sales growth has slowed recently, but consumer spending remains resilient.
Consumer prices rose 0.3% in October and have risen 1.8% year-over-year. October producer prices jumped 0.4%, yet are up 1.1% over the last twelve months.
Despite the fact that it was a touch higher than expected this month, inflation remains well contained despite a seemingly tight labor market. Unless there is a sustained uptick in future reports, the Fed is unlikely to be concerned about inflation when deciding future rate moves.
U.S. industrial production further contracted in October, and capacity utilization slid as well. The German economy avoided a recession by growing at 0.1% in the third quarter, but the second quarter number was revised down to -0.2%. U.S. freight indexes also continued to contract, indicating fewer goods being shipped.
The global manufacturing recession continues in the face of the trade conflict and a global slowdown. The U.S. consumer is carrying more and more of the load of supporting global growth.
Washington, D.C., increased the size of its record-setting municipal bond new issue from $1 billion to $1.3 billion this week. Proceeds from the bond sale will be used to fund capital improvement projects and to refinance existing debt.
Washington, D.C., is taking advantage of its high credit ratings along with the current low interest rate environment as the city issues new bonds. Investor demand allowed for the new issue to increase in size. By refinancing existing debt, the city will save money in the long run.