Markets Mixed in Lackluster Session

Charles Schwab: On the Market

Posted: 11/27/2017 4:15 PM EST

Markets Mixed in Lackluster Session

 

U.S. equities finished mixed with energy stocks finding pressure amid a drop in crude oil prices ahead of this week's OPEC production meeting. However, consumer discretionary stocks got a boost on upbeat holiday spending data, while an unexpected jump in new home sales to a decade high also added some optimism. Treasury yields were little changed and the U.S. dollar ticked higher, while gold gained modest ground. 

The Dow Jones Industrial Average (DJIA) rose 23 points (0.1%) to 23,581, the S&P 500 Index declined 1 point to 2,601, and the Nasdaq Composite fell 11 points (0.2%) to 6,879. In moderate volume, 766 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil decreased $0.84 to $58.11 per barrel and wholesale gasoline was $0.01 higher at $1.79 per gallon. Elsewhere, the Bloomberg gold spot price increased $6.05 to $1,294.42 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—ticked 0.2% higher to 92.92.

Meredith Corp. (MDP $67) announced an agreement to acquire Time Inc. (TIME $18) for $18.50 per share in cash, for a total transaction value of about $2.8 billion, including the assumption of debt. Shares of both companies rallied.

The retail sector was mostly higher with the markets paying attention to reports on how the holiday shopping season unofficially kicked off during the Black Friday weekend, and bolstered by today's online shopping deals known as Cyber Monday. According to Adobe Analytics, online sales on Thanksgiving Day and Black Friday rose 17.9% year-over-year (y/y) to about $7.9 billion and are estimated to be up 16.5% today to a record $6.6 billion.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in our article, Holiday Shopping Season: Are Consumers Set to Stuff Some Stockings?, that we do think the picture entering the season is a positive one, with unemployment low, wages trending higher and consumer confidence the highest in almost 17 years. There are 32 days between Thanksgiving and Christmas this year, the second largest number of days possible between the two holidays. And Christmas falls on a Monday, giving shoppers one last weekend to ring the register. However, Brad cautions investors that at this point this rosy picture for consumers doesn't mean you should run out and buy retailers as discussed in his latest Schwab Sector Views: 'Tis the Season…Almost.

New home sales surprisingly jump to kick off busy week

New home sales (chart) unexpectedly jumped to the highest since October 2007, rising 6.2% month-over-month (m/m) in October to an annual rate of 685,000 units, versus the Bloomberg forecast calling for a drop to 625,000 units and the downwardly revised 645,000 unit pace in September. The median home price was up 3.3% y/y to $312,800. New home inventory fell to 4.9 months of supply at the current sales pace from 5.2 in September.

Sales surged m/m in the Northeast and jumped in the Midwest, while also rising solidly in the South and West. New home sales are based on contract signings instead of closings. Sales of properties in which construction has not yet started reached the highest in over a decade, suggesting housing starts could start to accelerate. The heightened confidence and status of the consumer appears to be translating into increased willingness to make major purchases, adding credence to Schwab's Brad Sorensen's, CFA, latest analysis of how important the consumer is not only to the holiday season but for the overall economy in his latest Schwab Sector Views.

The Dallas Fed Manufacturing Activity Index dropped more than expected but remained solidly in expansion territory (a reading above zero). The index fell to 19.4 in November from 27.6 in October—the highest since March 2006—and versus forecasts of a decline to 24.0.

Today's reports kick off the week that will return to normal operating hours and bring plenty of reports and events for the markets to contend with. OPEC will conduct a production meeting, the Senate could vote on its tax reform plan that differs significantly from the House's plan that passed two weeks ago, and Fed Chairwoman Janet Yellen is expected to address the Joint Economic Committee of Congress. Moreover, we will get a number of economic reports, continuing with tomorrow's releases of Consumer Confidence, forecasted to show sentiment remains elevated at a level of 124.0 for November, but slightly lower than the 125.9 posted in October, as well as the advance goods trade balance, wholesale inventories, the Richmond Fed Manufacturing Index and the S&P CoreLogic Case-Shiller Home Price Index. Late in the week, investors will be treated to the second look (of three) at Q3 GDP, the Fed's Beige Book, personal income and spending, Markit's Manufacturing PMI Index, the ISM Manufacturing Index, and November auto sales.

As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, the bull market continues to be undisturbed by myriad actual or potential negative events and momentum favors the bulls for the foreseeable future. However, elevated valuations and growing investor complacency pose risks that could lead to a long-awaited pullback and/or a pickup in volatility from today’s extremely low base.

Treasuries were little changed, as the yield on the 2-year note and the 30-year bond were flat at 1.74% and 2.77%, respectively, while the yield on the 10-year note dipped by 1 bp to 2.34%. The yield curve has flattened and the U.S. dollar has found pressure as of late with the markets grappling with tax reform uncertainty, subdued inflation expectations, and broad-based global economic growth.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but a number of tricky steps must still be overcome. Schwab's Chief Investment Strategist Liz Ann Sonders points out in her newest article, Green Grass and High Tides: Earnings Stellar But Not Without Risk, both earnings and revenues were strong; and importantly, the "beat rates" were well above average. The outlook for 2018 is bright, but we are on watch for an expectations bar that gets set too high.

Europe dips despite eased German political concerns, Asia mostly lower

European equity markets finished mostly lower, even as the euro dipped slightly after a recent run to a two-month high versus the U.S. dollar. Energy issues saw noticeable pressure as crude oil prices fell ahead of this week's OPEC production meeting, while the markets shrugged off cooling political concerns in Germany after reports suggested coalition talks could resume after collapsing last week. This joins deadlocked U.K. Brexit talks and festering U.S. tax reform uncertainty to keep the markets on edge. However, Spanish stocks rose slightly amid eased concerns as polls ahead of next month's vote in Catalonia are showing pro-Spain parties have as much support as pro-independence forces, per Bloomberg. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The British pound was little changed versus the greenback and bond yields in the region finished mostly lower.

Stocks in Asia finished mostly to the downside, with technology issues weighing heavily on South Korean equities, while the Bank of Korea is expected to raise rates after its monetary policy meeting later this week. Mainland Chinese stocks and those traded in Hong Kong declined, with sentiment being hampered by the recent rally in the nation's bond yields, which appears to be fostering some profit-taking after this year's strong gains, while a report showed growth in the country's industrial profits slowed in October. Schwab's Jeffrey Kleintop, CFA, offers a look at the global market rally seen this year that has been fostered by the broadest economic growth in a decade and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks. Japanese securities traded slightly to the downside, with the yen gaining ground late in the session amid the continued pressure on the U.S. dollar amid yield curve concerns and political uncertainty, but markets in Australia and India bucked the trend, finishing modestly higher.

The international economic calendar will be light tomorrow, with reports slated for release to include import prices and consumer confidence from Germany, and consumer confidence from France.

Financial Review

Very Close

Sinclair Noe — December 27, 2016

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DOW + 11 = 19,945
SPX + 5 = 2268
NAS + 24 = 5487
RUT + 6 = 1377
10 Y + .02 = 2.56%
OIL + .63 = 53.65
GOLD + 10.00 = 1139.30

The Dow Jones industrial average marked its seventh straight week of gains on Friday. Today, the Dow Jones Industrial Average once again flirted with the widely-watched 20,000 level… and once again failed to make it through. The index hit an opening peak of 19,980, just a few points shy of last week’s record highs, but went sideways thereafter, with volume about 50 percent below the 30-day average (typical of the final trading week of the year.)

Treasury yields rose the most in almost two weeks. U.S. crude prices were up over 1% and briefly moved above the $54 a barrel level.

Gasoline prices are at $2.28 a gallon, national average. That’s four cents a gallon more than a week ago, today. Oil markets adopting a wait-and-see approach before the first “OPEC and non-OPEC” output cut deal in 15 years goes into effect. The accord, which kicks in on Jan. 1, is designed to bolster oil prices by lowering production of all the parties involved by almost 1.8M barrels per day.

The focus of today’s trading was the retail sector, as investors tried to figure the strength of the holiday shopping season. Amazon.com said this was the best holiday season ever as they shipped more than 1 billion items. More than 72 percent of Amazon’s customers worldwide shopped through mobile devices and Dec. 19 was the busiest shopping day this holiday season.

Prime customers spent twice as much as other consumers using Amazon. Sales of voice-controlled Echo devices were nine times more than they were during last year’s holiday season. Other best sellers on Amazon included 72-pack Keurig K-Cups, the movie “Finding Dory,” Samsung’s Gear VR virtual reality headset and Nintendo’s Pokémon Sun and Pokémon Moon role-playing video games.

The day after Christmas is always a little hectic at shopping malls but yesterday was wild. Fights, disturbances and false reports of gunfire caused chaotic scenes and shut down several malls across the country. Eight to 10 people suffered minor injuries during a melee in the food court at The Mills at Jersey Gardens in Elizabeth, New Jersey. And then similar disturbances unfolded in other cities.

Consumer confidence surged in December to the highest level since 2001. The Conference Board’s consumer confidence index jumped to 113.7 from a revised 109.4 in November. A measure of how confident Americans feel right now, known as the present situation index, dipped to 126.1 from 132. That’s still near the highest level in nine years, however. An index that tracks expectations over the next six months rose to 105.5 from 94.4, marking the highest level since 2003.

Donald Trump took credit for the surge in consumer confidence, tweeting: “The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!”

Actual holiday spending is instead on track to reach a combined $656 billion in November and December, according to National Retail Federation. Meanwhile, research firm Customer Growth Partners raised its holiday sales estimate to a 4.9 percent gain over last year to $637 billion. That would be the biggest increase since 2005. Customer Growth had previously predicted a 4.1 percent advance.

Online sales grew an estimated 15 percent, up more than a percentage point from the firm’s previous forecast. The Trump campaign didn’t provide a source for the $1 trillion figure, but it appears to come from a Deloitte study that was released in September, more than six weeks before Trump won the election. The study forecast that holiday spending would exceed $1 trillion in the three months from November to the end of January, representing a 3.6% to 4% increase over last year’s. There’s no evidence that spending has already hit that level.

The consumer confidence index also showed that the share of households anticipating higher equity prices a year from now surged to 44.7 percent in December from 30.9 percent a month earlier. The last time Americans’ optimism about the stock market registered such a dramatic one-month surge was during the dot-com boom; so, consider the idea that the confidence index might be a contrarian play.

Also, consumer confidence does not necessarily carry over to business. John Williams, president of the Federal Reserve Bank of San Francisco said his meetings with business leaders in recent weeks have been dominated by uncertainty about the economic plans of President-elect Trump. Excitement about tax cuts and regulatory relief has been tempered by worries about the impact of less trade and less immigration.

The S&P CoreLogic Case-Shiller 20-City Composite Home Price Index rose by 5.1 percent in October from the same time last year. Home prices in many markets have reached the highest levels since the financial crisis. Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last nine months. Seattle and Portland home prices were up over 10% in the past 12 months. The Phoenix market was up 0.4% in October and up 5.2% over the last 12 months through October. Home prices have been rising as a healthy jobs market and historically low mortgage rates have increased demand for homeownership since the financial crisis.

Also, constrained supply helped to bid up the prices of existing homes, especially in desirable East Coast and West Coast cities. David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices noted that “mortgage interest rates rose in November and are expected to rise further as home prices continue to out-pace gains in wages and personal income.” Adding, “With the current high consumer confidence numbers and low unemployment rate, affordability trends do not suggest an immediate reversal in home price trends. Nevertheless, home prices cannot rise faster than incomes and inflation indefinitely.”

The world’s oldest operating bank — Monte dei Paschi — continues to work on securing a bailout from the Italian government. But it will need more cash than previously thought. The bank disclosed late Monday that the European Central Bank has said €8.8 billion-euro ($9.2 billion) will be required to fill the hole in its finances; that’s about twice as much as previously anticipated. At the same time, subordinated bonds held by the bank’s institutional investors are expected to be converted to shares to raise an additional €2 billion-euro to €2.3 billion-euro.

The central bank also warned that Monte dei Paschi’s financial position has deteriorated rapidly in recent weeks. Trading in Monte dei Paschi shares has been suspended since Friday. Meanwhile, the Italian government has approved a €20 billion-euro rescue fund to help prop up Monte dei Paschi and the country’s other struggling banks.

Toshiba said it may have to book several billion dollars in charges related to a U.S. nuclear power acquisition, a shock warning that sent its stock tumbling 12 percent and rekindled concerns about its accounting acumen. Toshiba said cost overruns at U.S. power projects handled by a nuclear construction business newly acquired from Chicago Bridge & Iron would be much greater than initially expected, potentially requiring a huge write-down.

Panasonic will invest more than 30 billion-yen (or about $256 million) in the Buffalo, New York production facility of Elon Musk’s Tesla Motors to make photovoltaic (PV) solar cells and modules. The plan is part of the solar partnership that the two companies first announced in October, but which did not disclose investment details. The two companies said they plan to start production of PV modules in the summer of 2017 and increase to one gigawatt of module production by 2019.

The announcement underscores deepening ties between Tesla and Panasonic. The two are building a $5 billion lithium-ion gigafactory east of Reno, Nevada, to produce batteries for both electric cars and energy storage products. In October, Tesla revealed plans to work with Panasonic to make solar cells and modules. Tesla acquired solar installer SolarCity for $2 billion. Musk revealed plans for a new solar-roof made of glass tiles in late October.

The U.S. Food and Drug Administration on Friday approved a new drug developed by Biogen to treat spinal muscular atrophy, the leading genetic cause of death in infants.

Seattle Genetics reports four people died in test trials for its experimental cancer drug, prompting the FDA to impose a clinical hold on the company’s early-stage trials.

Healthcare company Abbott Laboratories has won U.S. antitrust approval for its proposed purchase of medical device maker St. Jude Medical. Abbott has agreed to divest two medical device businesses to settle FTC charges that the $25 billion acquisition of St. Jude would likely be anti-competitive.

Abbott has said the deal would help it compete against larger rivals Medtronic and Boston Scientific as hospitals look to cut the number of their suppliers.

Financial Review

Table Scraps

Sinclair Noe — October 5, 2016

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DOW + 112 = 18,281
SPX + 9 = 2159
NAS + 26 = 5316
10 Y + .03 = 1.72%
OIL + 1.02 = 49.71
GOLD – 1.90 = 1267.50

The Institute for Supply Management said its services index shot up to a reading of 57.1% in September from 51.4% in August, on a scale where any reading over 50% indicates improving conditions. Sub-indexes on business activity, new orders, and employment – all posted big gains.

Private-sector employment slowed a bit in September. According to data from Automatic Data Processing employers added 154,000 private-sector jobs last month, down from 175,000 in August. This is the smallest increase since April.

Analysts use ADP’s data to get a feeling for the Labor Department’s employment report, which will be released Friday and covers government jobs in addition to the private sector. ADP’s report showed that small private-sector businesses added 34,000 jobs in September, medium businesses added 56,000 and large businesses added 64,000.

The US trade deficit rose 3% in August to just over $40 billion as imports climbed to the highest level in almost a year. Exports edged up to about $188 billion to mark the highest level since July 2015. The drop-off likely stems from weak global demand and a strong dollar that makes American goods more expensive for foreign customers to buy.

US imports, meanwhile, increased 1.2% in August to $228 billion and hit the highest level in 11 months. The deficit is on track to be smaller in the third quarter than in the spring. That’s likely to boost third quarter Gross Domestic Product.

The National Retail Federation is looking forward to a very happy holiday season; they expect sales for November and December excluding autos, gas and restaurant sales, to increase 3.6% to $655.8 billion. This is higher than the 10-year average growth of 2.5%. Non-store sales, which includes e-commerce, are expected to increase 7% to 10%. The organization believes consumers are in a stronger position from previous years, with steady gains in jobs and incomes.

The International Monetary Fund has issued a warning about the global banking system; a third of biggest banks in the world’s richest countries are so weak their problems could not be solved even by a recovery and rising interest rates. About a third of European banks, with $8.5 trillion in assets, and a quarter of U.S. banks, with $3.2 trillion in assets, are in this too-weak-to-recover category.

The IMF says, “This suggests the need for fundamental changes in both bank business models and system structure to ensure a vibrant and healthy banking system.” Earlier this year, the IMF said in a report on the German financial sector that Deutsche Bank appeared to be the riskiest bank in terms of threats posed to global financial system, an insight that prompted a sharp fall in the bank’s stock. Today, fund officials did not backtrack from this view.

Gross debt in the non-financial sector has more than doubled in nominal terms since the turn of the century, reaching $152 trillion last year, and it’s still rising. The figure includes debt held by governments, non-financial firms and households. The IMF says current debt levels now sit at a record 225 percent of world gross domestic product; about two-thirds of the liabilities reside in the private sector.

The rest of it is public debt, which has increased to 85 percent of GDP last year from below 70 percent. Finance chiefs and central bankers from the IMF’s 189 member nations meet this week in Washington for the annual meeting of the fund, which was conceived during the Second World War to oversee the world monetary system.

Fitch has cut the outlook on Wells Fargo’s credit ratings to Negative, but affirmed the bank’s existing rating of AA-, which is investment-grade. In an announcement, Fitch cited “potential reputational damage from the recent regulatory actions and fines,” as well as a belief that the lender could face “earnings pressure.”

Hurricane Matthew battered Haiti and is now hitting the Bahamas. At least 11 deaths were blamed on the powerful storm during its weeklong march across the Caribbean, five of them in Haiti (and possibly many more). The Category 4 hurricane could hit Florida – or come dangerously close – late tomorrow or early Friday and then scrape the East Coast all the way up to the Carolinas over the weekend. Hundreds of thousands of people along the lower East Coast have been urged to evacuate their homes.

A global agreement to combat climate change by shifting the world economy away from fossil fuels will take force next month after passing a threshold for ratification with support from European nations. In total, 72 countries out of 195 have ratified the agreement. The deal will formally start in 30 days. It took eight years for the previous U.N. climate deal, the 1997 Kyoto Protocol that obliged only rich nations to cut emissions, to gain enough backing to take effect.

Chicago Fed President Charles Evans would be “fine” with raising U.S. interest rates by year end if U.S. economic data continued to come in firm, though any further moves would need to see inflation moving higher. Speaking to reporters after a speech in New Zealand, Evans said any hike would likely come at the Fed’s December policy meeting, though he would not rule out a move in November.

The European Central Bank will probably gradually wind down bond purchases before the conclusion of quantitative easing, and may do so in steps of 10 billion euros ($11.2 billion) a month. The talk of tightening and tapering has spurred a reversal in government bond prices across the world, with U.S. Treasuries dropping while German 10-year bond yields are at -0.03 percent this morning, up from -0.15 percent last Friday.

After returning to the bench earlier this week, the Supreme Court will hear a case today that will clarify an issue at the heart of the federal crackdown on insider trading over the past eight years. Justices will decide whether to make it harder to prove illegal activity when company insiders receive no cash or other tangible benefits for their tips.

Fidelity Investments is a huge mutual fund company, founded seven decades ago and run ever since by the Johnson family. A private venture capital arm run on behalf of the Johnsons, F-Prime Capital Partners, competes directly with the stable of Fidelity mutual funds in which the public invests.

That conflict can be seen in the case of Ultragenyx Pharmaceutical, a biotech start-up. In 2011 and 2012, the Johnsons’ F-Prime Capital invested a total of $11 million on Ultragenyx before the start-up made an initial public offering of its stock. The pre-IPO investment effectively prevented Fidelity mutual funds from making the same play.

If both the private fund and Fidelity’s ordinary funds had invested, they would have violated US securities laws, which prohibit affiliated entities from buying substantial stakes in the same companies at the same time.

The managers of Fidelity’s public funds eventually did purchase Ultragenyx shares, but not until after the stock price skyrocketed in the firm’s January 2014 initial public offering. The Fidelity funds bought about 1.1 million Ultragenyx shares in the second quarter of 2014. The average price for the stock was $41.17 during that three-month period – 12 times higher than the $3.55 a share paid by F-Prime Capital.

The Johnson family’s VC fund pulled down about $128 million on the deal, representing a gain of more than 1,000%. Investors in Fidelity’s public funds – not so much. Over the past three years, U.S. regulatory filings show, the Johnson-led venture arm has beaten Fidelity mutual funds to some of the hottest prospects in tech and bioscience – including the best performing IPO of 2015.

And after the big initial price surge, they sell it to Fidelity’s public funds. Over this same time frame, there are no examples of Fidelity’s public funds getting into a hot IPO, and then later selling it at a higher price to the Johnson family’s private VC fund.

In a written statement to Reuters, Fidelity said it follows the law relating to potential conflicts of interest between its mutual funds and the venture capital arm. If this sounds like a conflict of interest, well it is, but that doesn’t mean it is illegal. As long as certain rules are followed, the Johnson family gets to eat steak and public investors get the table scraps. I’m guessing they won’t say that in their marketing brochures.

One of the big movers today was Sears Holding, up about 19% on news it was looking to sell its Craftsman tool brand. Final bids may value the brand at about $2 billion, and are reportedly due at the end of the month. Sears put its three best-known brands – Craftsman, Diehard and Kenmore – up for sale in late May in an effort to raise cash. Sears has been burning through cash for at least 8 years and even adding $2 billion to the coffers will likely keep the once iconic retailer afloat for just another year.

Google has officially staked its claim as a bona fide hardware brand, unveiling a raft of new products it hopes will win market share in the smart-phone, smart-home and virtual reality space. Among them: Pixel and Pixel XL smartphones, the Daydream View VR headset, Google Wifi, Chromecast Ultra and Google Home. The common theme in all the new hardware is new Artificial intelligence-powered Google Assistant, which is designed to pull together all of Google’s services into a single, easy-to-use voice-based interface.

FINANCIAL REVIEW

Time For Pie

Sinclair Noe — November 26, 2014

 

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

DOW + 12 = 17,827
SPX + 5 = 2072
NAS + 29 = 4787
10 YR YLD – .03 = 2.23%
OIL – .35 = 73.75
GOLD – 3.20 = 1199.00
SILV – .13 = 16.64

Another record high close for the Dow Industrial Average and the S&P 500 index. That’s the 47th record high for the S&P this year. Volume was light, heading into the holiday. The markets will be open for a half day on Friday, but volume will be incredibly light.

Yesterday we told you about the New York Fed report that consumers were taking on more debt; household debt increased $78 billion in the third quarter, and the NY Fed thought that meant the end of deleveraging. It was the end of an era. Good news for the economy as well. American households have been cleaning up their finances during the painful post-crisis era, with less debt and lower financing costs for the debts they still owe. They are now in a better position to spend in the years ahead, good for the economy and their own sense of well-being.

I said “not so fast”, let’s wait and see if a trend develops. Today, the Commerce Department reports consumer spending increased 0.2 percent last month after being flat in September. Maybe Americans have cleaned up their debt problems, or not, but we aren’t yet in a spending mood. The amount of money individuals save was flat at 5%, but the saving rate was revised down sharply to 5% in September from a first read of 5.6%.

Meanwhile, inflation as gauged by the PCE price index rose 0.1% last month, while the core rate excluding food and energy climbed 0.2%. And over the past 12 months this gauge of inflation is up just 1.4%, well below the Fed’s target of 2%. Annual price gains have undershot that target since April 2012. The Fed, in its Oct. 29 policy statement, said that “inflation in the near term will likely be held down by lower energy prices and other factors,” though it’s expected to move back toward 2% over time as the economy heals.

Low gasoline prices are lifting confidence; the Thomson Reuters/University of Michigan’s consumer sentiment index was revise down from 89.4 to 88.9 in November, that is still the highest level since July 2007, but that increase in confidence is not resulting in more spending, at least not now.

And just as consumers are holding onto their dollars, businesses are holding back on purchases. Aside from a huge bump in military aircraft contracts, orders for durable goods were surprisingly weak in October for the second straight month. Orders for durable goods rose a seasonally adjusted 0.4% last month, but that includes a huge 45% spike in orders for military aircraft. We’re still fighting a few wars. Excluding defense, orders fell 0.6%. They fell an even sharper 0.9% if the large and volatile auto and commercial aircraft sectors are stripped out.

Outside the defense sector, orders were weak. Bookings for primary metals used in the production of many industrial goods fell 2.4%, the biggest drop since December. Orders also declined 1.2% for heavy machinery and 3.1% for electrical equipment. A broad measure of business investment known as core capital orders sank by 1.3% for the second month in a row. That’s the biggest two-month decline since the beginning of the year and perhaps a sign that companies might be paring back. Shipments of core capital goods, a category used to calculate quarterly economic growth, also fell 0.4% in October.

The number of people who applied for new unemployment benefits in the week before Thanksgiving jumped to an 11-week high and topped the 300,000 mark for the first time since early September. This is just one week, and does not indicate a trend, but it is a move in the wrong direction.

Also today, the Commerce Department reported that sales of new single-family homes ticked up 0.7% in October to a seasonally adjusted annual rate of 458,000, the fastest pace in five months. For October the sales pace rose 15.8% in the Midwest and 7.1% in the Northeast, but fell 2.7% in the West and 1.9% in the South. The median price of new homes sold rose to a record high of $305,000 in October.

The National Association of Realtors says pending home sales fell 1.1% in October. The index of pending home sales hit a seasonally adjusted 104.1 in October, compared with 105.3 in September.

So, we’ve had a lot of economic data crammed into just a holiday shortened week, and most of the data was not strong; the exception was the third quarter GDP, revised from 3.5% growth to 3.9% growth, but as we are in the fourth quarter, it looks more like the global slowdown is starting to affect the US economy and the indications are that fourth quarter GDP will be about half the third quarter number.

If you are driving for the holiday, you might be thankful for lower gas prices; the flip side is that more people will be driving this holiday, so the traffic might be problematic. Earlier, the Energy Information Administration said U.S. crude inventories rose by 1.9 million barrels last week, defying forecasts for a 100,000 barrel drop. Nymex crude has dropped nearly 3.7% since the beginning of the week. Oil futures are down more than 30% from their midyear high. The Organization of the Petroleum Exporting Countries will meet on Thursday to decide whether to lower oil production levels to alleviate the current glut in global markets, and, more importantly, whether to boost oil production prices. Saudi Arabia’s oil minister indicated that he wouldn’t push for a cut in production targets, but we’ll have to wait and see.

If you’re flying somewhere for the holiday, good luck. The east coast is getting pounded with another storm, and even though the weather in the southwest is fantastic, the flight cancellations tend to ripple across the country. So far today there have been a little over 600 flight cancellations. If you are calling on family or friends back east, just a reminder that it is not polite to gloat.

When the weather gets bad enough, not only does it ruin travel plans, it starts ruining economic data and forecasts. So far, there’s no reason to believe this winter’s storms will wreak exceptional havoc on the data. Because most winters feature some disruption, seasonally adjusting economic reports helps prevent every winter from reducing our visibility into the economy’s strength. But it’s worth remembering that unusually bad weather is not always an “excuse” for bad data, sometimes it really is just the weather.

And neither rain nor snow nor sleet nor dark of night shall keep shoppers from their holiday rounds. Over the next few weeks, and especially this weekend, we will hear stories about the importance of holiday shopping on the economy. And it is important, but most of the stories are hyped up. The National Retail Federation forecasts that holiday sales this year will total $616.9 billion, which is a lot of money but it is not the amount of holiday sales. You see, we spend money in other months, not just November and December. You buy gas in October, just like you do in December and just because you fill up the tank in December, it doesn’t make that gas a “holiday purchase”. There’s no question that December is the strongest month for retail sales. From 1992 to 2013, December retail sales averaged 23 percent higher than the rate from January through October. November was also a good month, averaging 4 percent higher than January through October. So, to get a realistic idea on holiday sales we should compare the difference between sales in November and December with the rest of the year. Using this measure, if retail sales in November and December of this year exceed normal months this year by the long-term averages, a reasonable forecast for holiday shopping in 2014 would be $16 billion in November and $90 billion in December.

In other words, holiday sales should be about $106 billion this year. Maybe more, maybe less; could be as much as $150 billion; could be as little as $80 billion. It is a lot of money, but the difference between a good holiday spending season and a bad holiday spending season is about 0.4% of the economy. And it isn’t enough to make the economy take off like a rocket or fall like a rock.

Anyway, I hope you have things you are thankful for. I hope you have family or friends that you will be around this weekend. And I am thankful that we get together on a regular basis right here.
Happy Thanksgiving.