It was a busy week for economic related data. U.S. and stocks had modest gains this week that were largely driven each day by earnings releases. Foreign stocks performed slightly better with Europe seeing substantial gains. Treasury yields were mixed and the dollar was largely unchanged.
The House released their corporate and individual tax plans Thursday with mixed reactions. Realtors were opposed to the mortgage deduction cap being lowered. Currently, interest on the first $1,000,000 in mortgages is deductible. That is lowered to $500,000 under the House plan. While property taxes remain deductible, this will be capped at $10,000. State and local income taxes would no longer be deductible. The law does double the standard deduction and lowers tax rates for many individuals earning less than $1,000,000. We were pleased that the pre-tax contribution of retirement accounts has not been eliminated as we believed this would result in less money being saved retirement and huge problems down the road for the federal budget when those with primarily tax free Roth withdrawals would begin. We also believe that the corporate tax changes will make the U.S. more competitive around the world. Of course this only the first step and there may be differences with the Senate version of the bill and changes made to bring a majority of senators onboard. Still to be addressed is the need for spending increases to address the need to replace roads, bridges and other infrastructure. With the tax bill potentially increasing deficits, this may become more difficult.
The Labor department reported strong productivity growth in the third quarter which had been weak in recent quarters. Strong productivity growth allows wages to increase without adding to inflation.
The Federal Reserve met and, as expected, did not change short term interest rates at this meeting. However, they did keep open the possibility of a quarter point rise in December. President Trump nominated Federal Reserve Governor Jerome Powell to replace Janet Yellen when her term ends early next year. Yellen, becomes the rare Fed Chairman not to experience a recession during her tenure. Powell is not expected to change the Fed’s direction and Yellen was being considered up until the decision was made. The appointment of Powell likely has more to do with his political affiliation and not with his approach to monetary policy. This is a departure with past presidents who typically have kept a chairman appointed by a prior president of the other party.
The Bank of England raised rates for the first time in 10 years from 0.25% to 0.5%. Oil prices firmed on reduced inventories of crude and gasoline. Crude oil has not risen 25% from its low in June.
In the numbers, this week:
- Factset reported with 74% of the S&P 500 companies reporting, third quarter earnings are up 5.9% from the same period last year.
- China’s private Caixin PMI was unchanged in October at 51.0 representing expansion.
- The Institute for Supply Management reported:
- Manufacturing PMI fell to 58.7 in October following a 13 year high in September. Anything over 50 represents acceleration, just at a slightly slower pace.
- Non-Manufacturing PMI rose to 60.1 in October, the highest since 2005.
- The S&P Case-Shiller home price index was up 6.1% year over year in August up from 5.9% year over year in July.
- The Labor Department reported:
- The employment-cost index rose a seasonally adjusted 0.7% in the third quarter. Wages and salaries rose 0.7% while benefits rose 0.8%. Over the past year employment costs rose 2.5%.
- Non-farm business-sector productivity rose at a seasonally adjusted 3.0% rate in the third quarter. This is important as productivity increases reduce the effect of employment costs on overall inflation. During the first nine months of the year productivity rose at a 1.5% annual rate.
- Initial claims for unemployment in the prior week fell 5,000 to a seasonally adjusted 229,000.
- Non-farm payrolls increased by 260,000 jobs in October and the unemployment rate fell to 4.1%. September’s data had initially reported a drop due to hurricanes was revised to a gain of 18,000.
Source: Labor Department
- The Commerce Department reported consumer spending rose 1.0% in September from August. For the third quarter consumer spending rose at a 2.4% annual pace.
- The Energy Information Administration’s Weekly Petroleum Data report is here wpsrsummary (8).
- The Energy Information Administration reported:
- Weekly field production of crude rose 26 thousand barrels per day in the prior week.
- Natural gas in storage rose 65Bcf last week from the prior week. Storage is below the five year average at this time of year.
- Baker Hughes reported that oil drilling rigs fell 8 to 729. Gas drilling rigs fell 3 to 169.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF®, MA Erik Smith
President Managing Partner
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
Registered Representative of and securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Generations Financial Planning & Wealth Management are separate companies and are not affiliated.
These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.