Wed 3 Jan 2018


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  • Today at the stock market Opinion
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  • Today at the stock market

    bull/bearThe S&P 500 index rose above 2,700 for the first time on Wednesday and other major indexes hit record closing highs as technology stocks climbed after signs of robust economic growth.

    • The S&P 500 gained 17.25 points, or 0.64%, to 2,713.06
    • The Dow Jones Industrial Average rose 98.67 points, or 0.4%, to 24,922.68
    • The Nasdaq Composite added 58.63 points, or 0.84%, to 7,065.53.
    • Advancing issues outnumbered declining ones on the NYSE by a 1.47-to-1 ratio; on Nasdaq, a 1.45-to-1 ratio favored advancers.
    • About 7.1 billion shares changed hands on U.S. exchanges. That compares with the 6.3 billion daily average for the past 20 trading days, according to Thomson Reuters data.

    Stocks added slightly to gains late, with some support from minutes from the Federal Reserve’s last policy meeting showing the U.S. Federal Reserve would likely stick to gradual interest rate hikes this year. FOMC Minutes

    “The FOMC reiterated gradual rate increases, so that’s steady as she goes, which the stock market seems to like,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

    Earlier in the session, data showed U.S. factory activity increased more than expected in December, a sign of economic momentum at the end of 2017. Meanwhile, manufacturing surveys pointed to a strong start for the European economy.

    Technology

    For technology stocks, Alphabet Inc, IBM and chipmakers were among the biggest drivers. The S&P 500 tech index, the best-performing S&P sector in 2017 with a 37% jump, ended the day up 1.1 percent.

    U.S. chipmaker stocks surged for a second straight session, with the Philadelphia Semiconductor index up 1.7% in its strongest 2-day performance since Jun 2016. “The (recent) selloff in tech stocks may have made that group look attractive today given that there’s still significant growth potential there both short term and long term,” Bucky Hellwig said.

    Intel Corp ended down 3.4%. The company acknowledged a report that a design flaw in its chips could let hackers steal data but said it was working on a solution that would not significantly slow computers. Latest First Report: 21 Nov 2017

    Rival chipmaker Advanced Micro Devices climbed 5.2%. Nvidia Corp gained 6.6% and Micron Technology Inc rose 3%.

    Oracle Crop shares were up 2.3% after Morgan Stanley upgraded its rating on the business software maker.

    Other sectors

    Gains in energy and healthcare also boosted the market. The S&P energy index gained 1.5% while S&P healthcare rose 1%.Reuters

    Market indices

    Market indices
    ^ Market indices today (mouseover for 12 month view) Chart: Google Finance

    Index Ticker Today Change 31 Dec 17 YTD
    S&P 500 SPX (INX) 2,713.06 +0.64% 2,673.61 +1.47%
    DJIA INDU 24,922.68 +0.39% 24,719.22 +0.82%
    NASDAQ IXIC 7,065.53 +0.83% 6,903.39 +2.34%

    Portfolio Indices

    USD and AUD denominated indices over the past 52 weeks (Chart: Bunting)
    ^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting

    Index values

    Index Currency Today Change 31 Dec 17 YTD
    USD-denominated Index USD 3.138 +0.52% 3.068 +2.30%
    Valuation Rate USD/AUD 0.78906 +0.10% 0.78528 +0.48%
    AUD-denominated Index AUD 3.980 +0.42% 3.909 +1.81%

    Portfolio stock prices

    :-) Alphabet closed on a record high of $2,173.42 today, beating its 18 Dec 2017 record of $2,162.23

    • GOOGL rose 1.70%, closing on a record high of $1,091.42, beating its 18 Dec 2017 record of $1,085.09
    • GOOG rose 1.60%, closing on a record high of $1,082.00, beating its 18 Dec 2017 record of $1,077.14

    :-) Amazon rose 1.25% today, closing on a record high of $1,203.84, and beating its 27 Nov 2017 record of $1,195.62
    :-) Ebay rose 3.13% today, closing on a record high of $39.25, and beating its 5 Oct 2017 record of $38.99
    :-) Facebook rose 1.79% today, closing on a record high of $184.67, and beating its 27 Nov 2017 record of $183.05
    :-) Visa rose 1.00% today, closing on a record high of $115.65, and beating its 28 Dec 2017 record of $114.35
    :-) VMware rose 2.15% today, closing on a record high of $130.03, and beating its 18 Dec 2017 record of $28.89

    Stock Ticker Today Change 31 Dec 17 YTD
    Alphabet A GOOGL $1,091.42 +1.69% $1053.00 +3.64%
    Alphabet C GOOG $1,082.00 +1.59% $1,045.65 +3.47%
    Apple AAPL $172.22 -0.03% $169.23 +1.76%
    Amazon AMZN $1,203.84 +1.24% $1,169.54 +2.93%
    Ebay EBAY $39.25 +3.12% $37.76 +3.94%
    Facebook FB $184.67 +1.79% $176.46 +4.65%
    PayPal PYPL $76.77 +3.96% $73.61 +4.29%
    Twitter TWTR $24.45 -0.25% $24.01 +1.83%
    Visa V $115.65 +0.99% $114.02 +1.42%
    VMware VMW $130.03 +2.15% $125.32 +3.75%

    FX: USD/AUD

    USD

    DXY movements
    ^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

    The Bloomberg Dollar Spot Index (DXY) rose 0.2% to 1,155.81, snapping a 5-day slide that was the longest streak of losses since Sep 2017.
    The EUR fell 0.4% to USD1.21011, dropping from the strongest level in about 3 years.
    Britain’s GBP fell 0.1%.
    Japan’s JPY fell 0.2% to 112.45 per USD.
    Bloomberg

    AUD

    AUD movements
    ^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com

    Oil and Gas Futures

    Futures prices

    Prices are as at 15:48 ET

    • NYMEX West Texas Intermediate (WTI): $61.78/barrel +2.34% Chart
    • ICE (London) Brent North Sea Crude: $67.88/barrel +1.97% Chart
    • NYMEX Natural gas futures: $3.00/MMBTU -2.00% Chart

    Intel Chip Risk

    First Report: 21 Nov 2017, US government acts on Intel alert

    The U.S. government on Tuesday urged businesses to act on an Intel Corp alert about security flaws in widely used computer chips as industry researchers scrambled to understand the impact of the newly disclosed vulnerability.

    The Department of Homeland Security gave the guidance a day after Intel said it had identified security vulnerabilities in remote-management software known as “Management Engine” that shipped with eight types of processors used in business computers sold by Dell Technologies Inc, Lenovo Group Ltd, HP Inc, Hewlett Packard Enterprise Co and other manufacturers.

    For a remote attack to succeed, a vulnerable machine would need to be configured to allow remote access, and a hacker would need to know the administrator’s user name and password, Little said. Attackers could break in without those credentials if they have physical access to the computer, he said.

    Intel said that it knew of no cases where hackers had exploited the vulnerability in a cyber attack.

    The Department of Homeland Security advised computer users to review the warning from Intel, which includes a software tool that checks whether a computer has a vulnerable chip. It also urged them to contact computer makers to obtain software updates and advice on strategies for mitigating the threat. (bit.ly/2zqhccw)

    Intel spokeswoman Agnes Kwan said the company had provided software patches to fix the issue to all major computer manufacturers, though it was up to them to distribute patches to computers users.Reuters

    Latest Report (Reuters): 3 Jan 2017, Security Flaws: “Meltdown” and “Spectre”

    Security researchers on Wednesday disclosed a set of security flaws that they said could let hackers steal sensitive information from nearly every modern computing device containing chips from Intel Corp, Advanced Micro Devices Inc and ARM Holdings.

    One of the bugs, Meltdown, is specific to Intel but another, Spectre, affects laptops, desktop computers, smartphones, tablets and internet servers alike. Intel and ARM insisted that the issue was not a design flaw, but it will require users to download a patch and update their operating system to fix.

    “Phones, PCs, everything are going to have some impact, but it’ll vary from product to product,” Intel CEO Brian Krzanich said in an interview with CNBC Wednesday afternoon.

    Researchers with Alphabet Inc’s Google Project Zero, in conjunction with academic and industry researchers from several countries, discovered two flaws.

    The first, called Meltdown, affects Intel chips and lets hackers bypass the hardware barrier between applications run by users and the computer’s memory, potentially letting hackers read a computer’s memory and steal passwords. The second, called Spectre, affects chips from Intel, AMD and ARM and lets hackers potentially trick otherwise error-free applications into giving up secret information.

    The researchers said Apple Inc and Microsoft Corp had patches ready for users for desktop computers affected by Meltdown. Microsoft declined to comment and Apple did not immediately return requests for comment.

    Daniel Gruss, one of the researchers at Graz University of Technology who discovered Meltdown, called it “probably one of the worst CPU bugs ever found” in an interview with Reuters.

    Gruss said Meltdown was the more serious problem in the short term but could be decisively stopped with software patches. Spectre, the broader bug that applies to nearly all computing devices, is harder for hackers to take advantage of but less easily patched and will be a bigger problem in the long term, he said.

    Speaking on CNBC, Intel’s Krzanich said Google researchers told Intel of the flaws “a while ago” and that Intel had been testing fixes that device makers who use its chips will push out next week. Before the problems became public, Google on its blog said Intel and others planned to disclose the issues on 9 Jan 2018.Reuters

    Latest Report (ZDNet): 3 Jan 2017, Security Flaws: “Meltdown” and “Spectre”

    Just hours after proof-of-concept code was tweeted, security researchers have revealed the long-awaited details of two vulnerabilities in Intel processors dating back more than two decades.

    Two critical vulnerabilities found in Intel chips can let an attacker steal data from the memory of running apps, such as data from password managers, browsers, emails, and photos and documents.

    Today’s security threats have expanded in scope and seriousness. There can now be millions — or even billions — of dollars at risk when information security isn’t handled properly.

    The researchers who discovered the vulnerabilities, dubbed “Meltdown” and “Spectre,” said that “almost every system,” since 1995, including computers and phones, is affected by the bug. The researchers verified their findings on Intel chips dating back to 2011, and released their own proof-of-concept code to allow users to test their machines.

    “An attacker might be able to steal any data on the system,” said Daniel Gruss, a security researcher who discovered the Meltdown bug, in an email to ZDNet. “Meltdown is not only limited to reading kernel memory but it is capable of reading the entire physical memory of the target machine,” according to the paper accompanying the research.

    The vulnerability affects operating systems and devices running on Intel processors developed in the past decade, including Windows, Macs, and Linux systems.

    The two bugs break down a fundamental isolation that separates the kernel’s memory — core of the operating system, from low-level user processes. Meltdown lets an attacker access whatever is in the affected device’s memory, including sensitive files and data, by melting down the security boundaries typically held together by the hardware. Spectre, meanwhile, can trick apps into leaking their secrets.

    One example of a worst-case scenario is a low-privileged user on a vulnerable computer could run JavaScript code on an ordinary-looking web page, which could then gain access to the contents of protected memory.

    The researchers said it wasn’t known if either bug had been exploited by attackers to date. The UK’s National Cyber Security Center also said it too has seen “no evidence” of any malicious exploitation.

    Despite an embargo to ensure a safe disclosure, news of the bugs first emerged Tuesday when tech site The Register reported details of the yet-to-be-released bugs.

    Behind the scenes, tech giants were already working on a coordinated response to issue critical patches to their customers, and their own systems. Tech firms had until January 9 to get their houses in order.

    But on Wednesday, security researcher Erik Bosman tweeted a proof-of-concept code, in part prompting an earlier release.

    Microsoft released patches for Windows, outside its usual Patch Tuesday update schedule. (Windows Insiders on the fast-ring already received the patches in November.) Apple reportedly patched the flaw in macOS 10.13.2. A spokesperson did not respond to a request for comment. And, patches for Linux systems are also available.

    Many cloud services running Intel-powered servers are also affected, prompting Amazon, Microsoft, and Google to patch their cloud services and schedule downtime to prevent would-be attackers from reading other processes on the same shared cloud server.

    Microsoft and Amazon have announced scheduled downtime of their cloud services in the coming days.

    Google, whose Project Zero team was credited with finding the vulnerability, said in a blog post that, “as we learned of this new class of attack, our security and product development teams mobilized to defend Google’s systems and our users’ data.”ZDNet

    flag_europe EU: MiFID II/MiFIR commences today

    In Europe the MiFID II rules are one of the most seismic regulatory shifts in history, affecting everything from investment research to trade execution.Bloomberg

    Press Release Extract [eu_mifid]

    MiFID II/MiFIR will apply from 3 January 2018. This new legislative framework will strengthen investor protection and improve the functioning of financial markets making them more efficient, resilient and transparent.

    European Securities and Markets Authority, “MIFID II“, 3 Jan 2018 More

    The Markets in Financial Instruments Directive is the EU legislation that regulates firms who provide services to clients linked to ‘financial instruments’ (shares, bonds, units in collective investment schemes and derivatives), and the venues where those instruments are traded.

    The Markets in Financial Instruments Directive (MiFID) is the framework of European Union (EU) legislation for:

    • investment intermediaries that provide services to clients around shares, bonds, units in collective investment schemes and derivatives (collectively known as ‘financial instruments’)
    • the organised trading of financial instruments

    MiFID applied in the UK from November 2007, and was revised by MiFID II, which took effect in January 2018, to improve the functioning of financial markets in light of the financial crisis and to strengthen investor protection. MiFID II extended the MiFID requirements in a number of areas including:

    • new market structure requirements
    • new and extended requirements in relation to transparency
    • new rules on research and inducements
    • new product governance requirements for manufacturers and distributers of MiFID ‘products’
    • introduction of a harmonised commodity position limits regime

    UK Financial Conduct Authority (FCA), “MiFID II“, Updated 3 Jan 2018 More

    flag_usa US: ISM Report on Business (PMI) Dec 2017

    Press Release Extract [us_pmi]

    Key Points

    • The December PMI® registered 59.7 percent, an increase of 1.5 percentage points from the November reading of 58.2 percent.
    • The New Orders Index registered 69.4 percent, an increase of 5.4 percentage points from the November reading of 64 percent.
    • The Production Index registered 65.8 percent, a 1.9 percentage point increase compared to the November reading of 63.9 percent.
    • The Employment Index registered 57 percent, a decrease of 2.7 percentage points from the November reading of 59.7 percent.
    • The Supplier Deliveries Index registered 57.9 percent, a 1.4 percentage point increase from the November reading of 56.5 percent.
    • The Inventories Index registered 48.5 percent, an increase of 1.5 percentage points from the November reading of 47 percent.
    • The Prices Index registered 69 percent in December, a 3.5 percentage point increase from the November reading of 65.5 percent, indicating higher raw materials prices for the 22nd consecutive month.
    • Comments from the panel reflect expanding business conditions, with new orders and production leading gains; employment expanding at a slower rate; order backlogs expanding at a faster rate; and export orders and imports continuing to grow in December.
    • Supplier deliveries continued to slow (improving) at a faster rate, and inventories continued to contract at a slower rate during the period.
    • Price increases continued at a faster rate.
    • The Customers’ Inventories Index declined and remains at low levels.
    • Of the 18 manufacturing industries, 16 reported growth in December in the following order: Machinery; Computer & Electronic Products; Paper Products; Apparel, Leather & Allied Products; Printing & Related Support Activities; Primary Metals; Nonmetallic Mineral Products; Petroleum & Coal Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Furniture & Related Products; Transportation Equipment; Chemical Products; Fabricated Metal Products; and Electrical Equipment, Appliances & Components.
    • Two industries reported contraction during the period: Wood Products; and Textile Mills.

    PMI®

    Manufacturing expanded in December as the PMI® registered 59.7 percent, an increase of 1.5 percentage points from the November reading of 58.2 percent. “This indicates growth in manufacturing for the 16th consecutive month, led by strong expansion in new orders and production with hiring growing at a slower rate and supplier deliveries continuing to struggle,” says Fiore. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

    A PMI® above 43.3 percent, over a period of time, generally indicates an expansion of the overall economy. Therefore, the December PMI® indicates growth for the 103rd consecutive month in the overall economy and the 16th straight month of growth in the manufacturing sector. Fiore says, “The past relationship between the PMI® and the overall economy indicates that the average PMI® for January through December (57.6 percent) corresponds to a 4.5 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI® for December (59.7 percent) is annualized, it corresponds to a 5.2 percent increase in real GDP annually.”

    New Orders

    ISM®’s New Orders Index registered 69.4 percent in December, which is an increase of 5.4 percentage points when compared to the 64 percent reported for November, indicating growth in new orders for the 16th consecutive month. This is the highest reading since January 2004, when the index registered 70.6 percent. “New Orders expansion continues at a strong pace, with the index at seven straight months of levels above 60 percent. This is its highest expansion level in 14 years,” says Fiore. A New Orders Index above 52.3 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

    Fifteen of 18 industries reported growth in new orders in December, listed in the following order: Machinery; Apparel, Leather & Allied Products; Primary Metals; Computer & Electronic Products; Plastics & Rubber Products; Miscellaneous Manufacturing; Printing & Related Support Activities; Paper Products; Fabricated Metal Products; Food, Beverage & Tobacco Products; Chemical Products; Nonmetallic Mineral Products; Electrical Equipment, Appliances & Components; Transportation Equipment; and Petroleum & Coal Products. The only industry reporting a decrease in new orders in December compared to November is Wood Products.

    Production

    ISM®’s Production Index registered 65.8 percent in December, which is an increase of 1.9 percentage points when compared to the 63.9 percent reported for November, indicating growth in production for the 16th consecutive month. This is the highest reading since May 2010, when the index registered 66.5 percent. “Production expansion continues at the strongest levels in seven years, but could not keep up with new order input and customer inventory needs, resulting in lower customer inventories and higher backlogs,” says Fiore. An index above 51.4 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures.

    The 13 industries reporting growth in production during the month of December — listed in order — are: Apparel, Leather & Allied Products; Machinery; Paper Products; Computer & Electronic Products; Petroleum & Coal Products; Primary Metals; Printing & Related Support Activities; Furniture & Related Products; Transportation Equipment; Chemical Products; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Electrical Equipment, Appliances & Components. The only industry reporting a decrease in production in December compared to November is Nonmetallic Mineral Products.

    Employment

    ISM®’s Employment Index registered 57 percent in December, a decrease of 2.7 percentage points when compared to the November reading of 59.7 percent. This indicates growth in employment in December for the 15th consecutive month. “Employment expansion remains strong, but difficulties across the supply chain continue to constrain production output. ISM®’s recent Semiannual Economic Forecast indicates that 65 percent had difficulty hiring new employees and 44 percent increased starting pay to attract new workers,” says Fiore. An Employment Index above 50.5 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

    Of the 18 manufacturing industries, the 11 reporting employment growth in December — listed in order — are: Primary Metals; Machinery; Computer & Electronic Products; Paper Products; Transportation Equipment; Food, Beverage & Tobacco Products; Petroleum & Coal Products; Chemical Products; Miscellaneous Manufacturing; Nonmetallic Mineral Products; and Electrical Equipment, Appliances & Components. Two industries — Apparel, Leather & Allied Products; and Fabricated Metal Products — reported a decrease in employment in December.

    Supplier Deliveries

    The delivery performance of suppliers to manufacturing organizations was slower in December, as the Supplier Deliveries Index registered 57.9 percent. This is 1.4 percentage points higher than the 56.5 percent reported for November. “This is the 20th straight month of slowing supplier deliveries and continued delivery-performance difficulties affecting production expansion. Modest gains were made to inventories in spite of these ongoing supply chain issues,” says Fiore. A reading below 50 percent indicates faster deliveries, while a reading above 50 percent indicates slower deliveries.

    The 12 industries reporting slower supplier deliveries in December — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Machinery; Fabricated Metal Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Chemical Products; Petroleum & Coal Products; Food, Beverage & Tobacco Products; Primary Metals; and Miscellaneous Manufacturing. Two industries — Electrical Equipment, Appliances & Components; and Transportation Equipment — reported faster deliveries in December compared to November.

    Inventories

    The Inventories Index registered 48.5 percent in December, which is an increase of 1.5 percentage points when compared to the 47 percent reported for November, indicating raw materials inventories contracted in December. “The inventory contraction reflects the continued difficulty of the supply chain to deliver materials and services meeting production schedules,” says Fiore. An Inventories Index greater than 42.9 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

    The 10 industries reporting higher inventories in December — listed in order — are: Printing & Related Support Activities; Nonmetallic Mineral Products; Furniture & Related Products; Paper Products; Plastics & Rubber Products; Computer & Electronic Products; Petroleum & Coal Products; Machinery; Electrical Equipment, Appliances & Components; and Miscellaneous Manufacturing. The seven industries reporting lower inventories in December — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Primary Metals; Fabricated Metal Products; Chemical Products; Food, Beverage & Tobacco Products; and Transportation Equipment.

    Customers’ Inventories

    ISM®’s Customers’ Inventories Index registered 42 percent in December, which is 3.5 percentage points lower than the 45.5 percent reported for November, indicating that customers’ inventory levels were still considered too low in December. “The index continues to remain at low levels and continues to contract, at a faster rate. Production output was not sufficient to maintain acceptable customer inventory levels,” says Fiore.

    One manufacturing industry — Furniture & Related Products — reported customers’ inventories as being too high during the month of December. The 13 industries reporting customers’ inventories as too low during December — listed in order — are: Textile Mills; Primary Metals; Apparel, Leather & Allied Products; Electrical Equipment, Appliances & Components; Plastics & Rubber Products; Miscellaneous Manufacturing; Chemical Products; Paper Products; Food, Beverage & Tobacco Products; Transportation Equipment; Machinery; Fabricated Metal Products; and Computer & Electronic Products.

    Prices

    The ISM® Prices Index registered 69 percent in December, an increase of 3.5 percentage points from the November level of 65.5 percent, indicating an increase in raw materials prices for the 22nd consecutive month. In December, 41 percent of respondents reported paying higher prices, 3 percent reported paying lower prices, and 56 percent of supply executives reported paying the same prices as in November. “The Business Survey Committee noted price increases continue on metals (steel, aluminum, copper and scrap) intermediate chemicals, corrugate and plastic resins. The Committee also reported some price relief on selected electronic components,” says Fiore. A Prices Index above 52.4 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) Producer Price Index for Intermediate Materials.

    Seventeen industries reported paying increased prices for raw materials in December, in the following order: Apparel, Leather & Allied Products; Wood Products; Nonmetallic Mineral Products; Machinery; Plastics & Rubber Products; Miscellaneous Manufacturing; Electrical Equipment, Appliances & Components; Fabricated Metal Products; Chemical Products; Computer & Electronic Products; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Primary Metals; Transportation Equipment; Petroleum & Coal Products; Furniture & Related Products; and Paper Products. The only industry reporting price decreases in December compared to November is Textile Mills.

    Backlog of Orders

    ISM®’s Backlog of Orders Index registered 56 percent in December, an increase of 1 percentage point when compared to the 55 percent reported for November, indicating growth in order backlogs for the 11th consecutive month. “Backlog expansion continued during the period. Backlog provides strong support to continued manufacturing expansion,” says Fiore. Of the 89 percent of respondents who reported their backlog of orders, 28 percent reported greater backlogs, 16 percent reported smaller backlogs, and 56 percent reported no change from November.

    The 11 industries reporting growth in order backlogs in December — listed in order — are: Textile Mills; Apparel, Leather & Allied Products; Plastics & Rubber Products; Machinery; Nonmetallic Mineral Products; Furniture & Related Products; Paper Products; Computer & Electronic Products; Fabricated Metal Products; Transportation Equipment; and Primary Metals. The five industries reporting a decrease in order backlogs during December are: Electrical Equipment, Appliances & Components; Printing & Related Support Activities; Food, Beverage & Tobacco Products; Miscellaneous Manufacturing; and Chemical Products.

    New Export Orders

    ISM®’s New Export Orders Index registered 58.5 percent in December, an increase of 2.5 percentage points when compared to the 56 percent reported for November, indicating growth in new export orders for the 22nd consecutive month. “Five of the six big industry sectors, accounting for 63 percent of manufacturing GDP, continued to expand export activity during the period,” says Fiore.

    The 10 industries reporting growth in new export orders in December — listed in order — are: Apparel, Leather & Allied Products; Nonmetallic Mineral Products; Computer & Electronic Products; Machinery; Miscellaneous Manufacturing; Plastics & Rubber Products; Chemical Products; Transportation Equipment; Fabricated Metal Products; and Food, Beverage & Tobacco Products. The only industry reporting a decrease in new export orders in December compared to November is Primary Metals. Six industries reported no change in new export orders in December compared to November.

    Imports

    ISM®’s Imports Index registered 57.5 percent in December, an increase of 3.0 percentage points when compared to the 54.5 percent reported for November, indicating that imports grew in December for the 11th consecutive month. “Imports expanded at significantly greater rates during the period to keep pace with production output,” says Fiore.

    The 13 industries reporting growth in imports during the month of December — listed in order — are: Printing & Related Support Activities; Electrical Equipment, Appliances & Components; Computer & Electronic Products; Nonmetallic Mineral Products; Plastics & Rubber Products; Fabricated Metal Products; Petroleum & Coal Products; Machinery; Miscellaneous Manufacturing; Transportation Equipment; Food, Beverage & Tobacco Products; Chemical Products; and Paper Products. The only industry that reported a decrease in imports during December compared to November is Primary Metals.

    Institute for Supply Management, “Report on Business (PMI) Dec 2017“, 3 Jan 2018 (10:00) More

    flag_usa US: Construction Spending. Nov 2017

    Press Release Extract [us_construction

    Total Construction

    Construction spending during November 2017 was estimated at a seasonally adjusted annual rate of $1,257.0 billion, 0.8 percent (±1.2 percent) above the revised October estimate of $1,247.1 billion. The November figure is 2.4 percent (±1.5 percent) above the November 2016 estimate of $1,227.0 billion. During the first eleven months of this year, construction spending amounted to $1,138.3 billion, 4.2 percent (±1.0 percent) above the $1,091.9 billion for the same period in 2016.

    us_construction_20180103

    Private Construction

    Spending on private construction was at a seasonally adjusted annual rate of $964.3 billion, 1.0 percent (± 1.0 percent) above the revised October estimate of $955.1 billion. Residential construction was at a seasonally adjusted annual rate of $530.8 billion in November, 1.0 percent (±1.3 percent) above the revised October estimate of $525.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $433.5 billion in November, 0.9 percent (± 1.0 percent) above the revised October estimate of $429.7 billion.

    Public Construction

    In November, the estimated seasonally adjusted annual rate of public construction spending was $292.7 billion, 0.2 percent (±2.0 percent) above the revised October estimate of $292.0 billion. Educational construction was at a seasonally adjusted annual rate of $78.8 billion, 3.8 percent (±2.5 percent) above the revised October estimate of $75.9 billion. Highway construction was at a seasonally adjusted annual rate of $88.0 billion, 0.8 percent (±4.6 percent)* below the revised October estimate of $88.7 billion."

    US Census Bureau, "Monthly Construction Spending. Nov 2017", 3 Jan 2018 More

    flag_usa US: FOMC Minutes

    Extracts [us_fomc]

    Staff Review of the Economic Situation

    The information reviewed for the December 12-13 meeting indicated that labor market conditions continued to strengthen through November and suggested that real gross domestic product (GDP) was rising at a solid pace in the second half of 2017. Total consumer price inflation, as measured by the 12-month percentage change in the price index for personal consumption expenditures (PCE), remained below 2 percent in October and was lower than early in the year. Survey-based measures of longer-run inflation expectations were little changed on balance.

    Total nonfarm payroll employment increased strongly in October and November, likely reflecting in part a rebound from the negative effects of the hurricanes in September. The national unemployment rate declined to 4.1 percent in October and remained at that level in November. The unemployment rates for Hispanics, for Asians, and for whites were lower in November than two months earlier, while the rate for African Americans was a little higher; the unemployment rates for each of these groups were close to the levels seen just before the most recent recession. The national labor force participation rate was lower in November than it had been in September but remained in the range seen over the past several years. The share of workers employed part time for economic reasons declined in October and was about unchanged in November. The rates of private-sector job openings and quits were little changed at relatively high levels in September and October, and the four-week moving average of initial claims for unemployment insurance benefits continued to be at a low level in early December. Recent readings showed that wage gains remained modest. Compensation per hour in the nonfarm business sector increased 1 percent over the four quarters ending in the third quarter, and average hourly earnings for all employees rose 2½ percent over the 12 months ending in November.

    Total industrial production increased briskly in October, boosted in part by a continued return to more-normal operations that reflected the waning of the negative effects of recent hurricanes in the previous two months. Automakers’ schedules indicated that light motor vehicle assemblies would likely move up in the coming months. Broader indicators of manufacturing production, such as the new orders indexes from national and regional manufacturing surveys, pointed to further increases in factory output in the near term.

    Real PCE increased modestly in October after expanding strongly in September. The pace of light motor vehicle sales slowed in November from the elevated rate in the preceding two months but continued to be above levels seen earlier in the year. Recent readings on key factors that influence consumer spending–including gains in employment, real disposable personal income, and households’ net worth–continued to be supportive of moderate real PCE growth in the fourth quarter. Consumer sentiment in early December, as measured by the University of Michigan Surveys of Consumers, remained at a high level.

    Recent information on housing activity suggested that real residential investment spending was edging up in the fourth quarter after declining in the previous two quarters. Both starts and building permit issuance for new single-family homes increased somewhat in October, and starts for multifamily units moved up considerably. Sales of both new and existing homes rose moderately in October.

    Real private expenditures for business equipment and intellectual property appeared to be rising further in the fourth quarter. Nominal shipments of nondefense capital goods excluding aircraft increased in October, and new orders of these goods continued to exceed shipments, which pointed to further gains in shipments in the near term. In addition, readings on business sentiment remained upbeat. Firms’ nominal spending for nonresidential structures excluding drilling and mining rose in October, and the number of oil and gas rigs in operation–an indicator of spending for structures in the drilling and mining sector–started to edge up in late November after declining earlier in the fourth quarter.

    Total real government purchases looked to be rising in the fourth quarter. Nominal defense expenditures in October and November pointed to a flattening in real federal government purchases. However, real purchases by state and local governments appeared to be moving up, as these governments expanded their payrolls modestly over the two months ending in November and their nominal construction spending increased in October.

    The nominal U.S. international trade deficit widened slightly in September and sharply in October. Exports picked up in September, led by exports of industrial supplies, but were flat in October. Imports grew significantly in both months, reflecting strength in most categories, al­though imports of automobiles declined. The available trade data suggested that the change in real net exports would make a neutral contribution to real U.S. GDP growth in the fourth quarter.

    Total U.S. consumer prices, as measured by the PCE price index, increased slightly more than 1½ percent over the 12 months ending in October. Core PCE price inflation, which excludes changes in consumer food and energy prices, was nearly 1½ percent over that same period. The consumer price index (CPI) rose 2¼ percent over the 12 months ending in November, while core CPI inflation was 1¾ percent. Recent readings on survey-based measures of longer-run inflation expectations–including those from the Michigan survey, the Survey of Professional Forecasters, and the Desk’s Survey of Primary Dealers and Survey of Market Participants–were little changed on balance.

    Economic activity expanded at a solid pace in most foreign economies in the third quarter. In several advanced foreign economies (AFEs), economic growth slowed but remained firm. Economic activity in the emerging market economies (EMEs) continued to grow briskly for the most part, especially in Asia. However, the Mexican economy contracted in the third quarter, as hurricanes and earthquakes disrupted economic activity. Despite a boost from recent increases in oil prices, inflation remained relatively subdued in most AFEs and moderate in EMEs.

    Staff Review of the Financial Situation

    Movements in domestic financial asset prices over the intermeeting period reflected slightly stronger-than-expected economic data releases, announcements related to Treasury debt issuance, and an increase in the perceived probability that the Congress would enact tax legislation. On net, the Treasury yield curve flattened, U.S. equity prices moved up, and the foreign exchange value of the dollar was little changed. Financing conditions for businesses and households remained broadly supportive of continued growth in household spending and business investment.

    Federal Reserve communications and economic data releases over the intermeeting period were characterized by market participants as reinforcing perceptions of a likely increase in the target range for the federal funds rate at the December meeting. The probability of an increase as implied by quotes on federal funds futures contracts edged up to around 95 percent, roughly consistent with the average probability indicated by responses to the Desk’s surveys of primary dealers and market participants in December.

    The nominal Treasury yield curve flattened over the intermeeting period, as short-dated Treasury yields rose and the 10-year Treasury yield moved up only slightly. Market participants pointed to the November 1 release of the Treasury’s quarterly financing statement and accompanying analysis by the Treasury Borrowing Advisory Committee that highlighted some advantages of increasing issuance of relatively short-dated Treasury securities as factors contributing to the flattening of the yield curve over the period. Measures of inflation compensation based on Treasury Inflation-Protected Securities were little changed, on net, over the intermeeting period. Option-adjusted spreads of yields on current-coupon mortgage-backed securities (MBS) over Treasury yields also were little changed. Overall, market participants did not attribute any price changes in Treasury and agency MBS markets to the implementation of reductions in reinvestments of the SOMA portfolio.

    Broad equity price indexes rose over the intermeeting period, likely reflecting in part investors’ perceptions of increased odds for the passage of federal tax legislation and an associated potential boost to corporate earnings. One-month-ahead option-implied volatility on the S&P 500 index–the VIX–was little changed, on net, at levels close to historical lows. Spreads on both investment- and speculative-grade corporate bond yields over comparable-maturity Treasury yields were about flat on net.

    Conditions in short-term funding markets remained stable over the intermeeting period. The effective federal funds rate held steady, and rates and volumes in other overnight markets were little changed. Take-up of ON RRPs declined notably as Treasury bill supply continued to increase, and short-dated bill yields rose to levels significantly above the ON RRP offering rate. On December 11, the Treasury declared a debt issuance suspension period to keep outstanding federal debt below the debt ceiling and began to use extraordinary measures to allow continued financing of government operations.

    Financing conditions for large nonfinancial corporations continued to be accommodative on balance. Gross issuance of corporate bonds and gross equity issuance remained robust. Institutional leveraged loan issuance in November was brisk. Growth of bank-intermediated credit to nonfinancial firms, however, was tepid. On balance, the credit quality of nonfinancial corporations was little changed over the intermeeting period and appeared to remain solid. Financing conditions for small businesses also appeared to have remained favorable. In municipal bond markets, gross issuance was strong and credit quality remained stable.

    In commercial real estate (CRE) markets, spreads of commercial mortgage-backed securities (CMBS) yields over comparable-maturity Treasury yields remained near the lower end of the range seen since the financial crisis, and delinquency rates on loans in CMBS pools continued to decrease. The growth of CRE loans held by the largest banks continued to slow, while CRE loan growth at smaller banks remained strong overall and even picked up a bit in October.

    In the residential mortgage market, al­though credit standards had loosened gradually for borrowers with low credit scores, they continued to be tight for borrowers with low credit scores and hard-to-document incomes. Mortgage credit remained readily available for borrowers with strong credit scores. Similarly, consumer credit remained readily available to borrowers with strong credit histories, but conditions for subprime borrowers stayed tight in credit card markets and continued to tighten for auto loans. Issuance of asset-backed securities (ABS) funding consumer loans was robust in recent months, and ABS spreads were about unchanged over the intermeeting period.

    On balance, the broad index of the foreign exchange value of the dollar was little changed, longer-term sovereign bond yields in AFEs declined modestly, and most foreign equity indexes moved lower over the intermeeting period. The euro appreciated modestly against the U.S. dollar, in part because of strong economic data for the euro area early in the intermeeting period. The British pound was somewhat volatile amid Brexit-related developments, and the Mexican peso fluctuated on news about negotiations associated with the North American Free Trade Agreement, but both currencies ended the period little changed. Following missed interest payments on its sovereign bonds, Venezuela was assigned selective default status by two credit rating agencies in early November, which precipitated a “credit event” ruling by the International Swaps and Derivatives Association. However, developments related to Venezuela generated little spillover to global financial markets.

    Staff Economic Outlook

    The U.S. economic projection prepared by the staff for the December FOMC meeting was generally comparable with the staff’s previous forecast. Real GDP was forecast to have increased at a solid pace in the second half of 2017. Beyond 2017, the forecast for real GDP growth was revised up modestly, reflecting the staff’s updated assumption that the reduction in federal income taxes expected to begin next year would be larger than assumed in the previous projection. The staff projected that real GDP would increase at a modestly faster pace than potential output through 2019. The unemployment rate was projected to decline further over the next few years and to continue running below the staff’s slightly downward-revised estimate of the longer-run natural rate over this period.

    The staff’s forecast for total PCE price inflation was revised up a little for 2017, as somewhat higher forecasts for core PCE prices and for consumer energy prices were offset only partially by a lower forecast for consumer food prices. Total PCE price inflation in 2018 was projected to be about the same as in 2017, despite projected declines in consumer energy prices; core PCE prices were forecast to rise faster in 2018, reflecting the expected waning of transitory factors that held down those prices in 2017. Beyond 2018, the inflation forecast was little changed from the previous projection. The staff projected that inflation would be very close to the Committee’s 2 percent objective in 2019 and at that objective in 2020.

    The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as similar to the average of the past 20 years. On the one hand, many indicators of uncertainty about the macroeconomic outlook continued to be subdued; on the other hand, considerable uncertainty remained about a number of federal government policies relevant for the economic outlook. The staff saw the risks to the forecasts for real GDP growth and the unemployment rate as balanced. The risks to the projection for inflation also were seen as balanced. Downside risks to inflation included the possibility that longer-term inflation expectations may move lower or that the run of soft core inflation readings this year could prove to be more persistent than the staff expected. These downside risks were seen as essentially counterbalanced by the upside risk that inflation could increase more than expected in an economy that was projected to move further above its potential.

    Participants’ Views on Current Conditions and the Economic Outlook

    In conjunction with this FOMC meeting, members of the Board of Governors and Federal Reserve Bank presidents submitted their projections of the most likely outcomes for real GDP growth, the unemployment rate, and inflation for each year from 2017 through 2020 and over the longer run, based on their individual assessments of the appropriate path for the federal funds rate.4 The longer-run projections represented each participant’s assessment of the rate to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. These projections and policy assessments are described in the

    Summary of Economic Projections (SEP), which is an addendum to these minutes.

    In their discussion of economic conditions and the outlook, meeting participants agreed that information received since the FOMC met in November indicated that economic activity had been rising at a solid rate and that the labor market had continued to strengthen. Averaging through fluctuations associated with the recent hurricanes, job gains had been solid and the unemployment rate had declined further. Household spending had been expanding at a moderate rate, and growth in business fixed investment had picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy had declined this year and were running below 2 percent. Market-based measures of inflation compensation remained low; survey-based measures of longer-term inflation expectations were little changed, on balance.

    Real economic activity appeared to be growing at a solid pace, buttressed by gains in consumer and business spending, supportive financial conditions, and an improving global economy. Participants judged that hurricane-related disruptions and rebuilding had affected economic activity, employment, and inflation in recent months but had not materially altered the outlook for the national economy. They saw the incoming information on spending and the labor market as consistent with continued above-trend growth and a further strengthening in labor market conditions. Consequently, participants continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. Inflation on a 12-month basis was expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee’s 2 percent objective over the medium term. Near-term risks to the economic outlook appeared to be roughly balanced, but participants agreed that it would be important to continue to monitor inflation developments closely.

    Participants expected moderate growth in consumer spending in the near term, underpinned by ongoing strength in the labor market, further improvements in households’ net worth, and buoyant consumer sentiment. Business contacts in a few Districts reported strong pre-holiday sales. Many participants expected the proposed cuts in personal taxes to provide some boost to consumer spending. A few participants noted that expectations of tax reform may have already raised consumer spending somewhat to the extent that those expectations had spurred increases in asset valuations and household net worth. A number of participants expressed uncertainty about the magnitude of the effects of tax reform on consumer spending.

    District contacts were optimistic, and their reports were generally consistent with continued steady growth in business spending. Reports from District contacts about both the manufacturing and service sectors were generally positive. In contrast, reports on housing and nonresidential construction were mixed. Activity in the energy sector continued to firm, with transportation bottlenecks and residual effects of the hurricanes putting some upward pressure on gasoline prices. In the agricultural sector, farm income was under downward pressure due to low crop prices, and contacts expressed concern about the effects of the possible renegotiation of trade agreements on exports.

    Many participants judged that the proposed changes in business taxes, if enacted, would likely provide a modest boost to capital spending, al­though the magnitude of the effects was uncertain. The resulting increase in the capital stock could contribute to positive supply-side effects, including an expansion of potential output over the next few years. However, some business contacts and respondents to business surveys suggested that firms were cautious about expanding capital spending in response to the proposed tax changes or noted that the increase in cash flow that would result from corporate tax cuts was more likely to be used for mergers and acquisitions or for debt reduction and stock buybacks.

    Labor market conditions continued to strengthen in recent months, with the unemployment rate declining further and payroll gains well above a pace consistent with maintaining a stable unemployment rate over time. Other indicators, such as consumer and business surveys of job availability and job openings, also pointed to a further tightening in labor market conditions. A couple of participants noted that broad improvements in labor market conditions over the past several years were evident across demographic groups. In several Districts, reports from business contacts or evidence from surveys pointed to some difficulty in finding qualified workers; in some cases, labor shortages were making it hard to fill customer demand or expand business. A few participants noted that a reduction in personal tax rates could potentially increase labor supply, but the magnitude of such effects was quite uncertain.

    Against the backdrop of the continued strengthening in labor market conditions, participants discussed recent wage developments. Overall, the pace of wage increases had generally been modest and in line with inflation and productivity growth. In some Districts, reports from business contacts or evidence from surveys pointed to a pickup in wage gains, particularly for unskilled or entry-level workers. In a couple of regions, businesses facing tight labor market conditions were said to be offering more flexible work arrangements or taking advantage of technology to use employees more efficiently, rather than raising wages. A few participants judged that the tightness in labor markets was likely to translate into an acceleration in wages; however, another observed that the absence of broad-based upward wage pressures suggested that there might be scope for further improvement in labor market conditions.

    PCE price inflation over the 12 months ending in October, at 1.6 percent, continued to run below the Committee’s longer-run objective of 2 percent; core PCE price inflation for items other than consumer food and energy prices was only 1.4 percent over the same period. It was noted that recent readings on monthly inflation had edged up, and a couple of participants observed that core inflation on a year-over-year basis appeared to be stabilizing. Many indicated that they expected cyclical pressures associated with a tightening labor market to show through to higher inflation over the medium term. These participants generally judged that much of the softness in core inflation this year reflected transitory factors and that inflation would begin to rise as the influence of these factors waned. However, one of them noted that secular trends, such as technological innovation or globalization, could be affecting competition and business pricing, and muting inflationary pressures. With core inflation readings having moved down this year and remaining well below 2 percent, some participants observed that there was a possibility that inflation might stay below the objective for longer than they currently expected. Several of them expressed concern that persistently weak inflation may have led to a decline in longer-term inflation expectations; they pointed to low market-based measures of inflation compensation, declines in some survey measures of inflation expectations, or evidence from statistical models suggesting that the underlying trend in inflation had fallen in recent years. A few participants, however, noted that measures of inflation expectations had remained broadly stable this year despite the low readings on inflation and judged that this stability should support the return of inflation to the Committee’s 2 percent objective.

    With regard to financial markets, some participants observed that financial conditions remained accommodative, citing a range of indicators including low interest rates, narrow credit spreads, high equity values, a lower dollar, and some evidence of easier terms for lending to risky borrowers. In light of elevated asset valuations and low financial market volatility, a couple of participants expressed concern that the persistence of highly accommodative financial conditions could, over time, pose risks to financial stability. Participants also noted that term premiums on longer-term nominal Treasury securities remained low. A number of factors were seen as possibly contributing to the low levels of term premiums, including large holdings of longer-term assets by major central banks, persistently low global inflation, and substantial global demand for assets with long durations.

    Meeting participants also discussed the recent narrowing of the gap between the yields on long- and short-maturity nominal Treasury securities, which had resulted in a flatter profile of the term structure of interest rates. Among the factors contributing to the flattening, participants pointed to recent increases in the target range for the federal funds rate, reductions in investors’ estimates of the longer-run neutral real interest rate, lower longer-term inflation expectations, and lower term premiums. They generally agreed that the current degree of flatness of the yield curve was not unusual by historical standards. However, several participants thought that it would be important to continue to monitor the slope of the yield curve. Some expressed concern that a possible future inversion of the yield curve, with short-term yields rising above those on longer-term Treasury securities, could portend an economic slowdown, noting that inversions have preceded recessions over the past several decades, or that a protracted yield curve inversion could adversely affect the financial condition of banks and other financial institutions and pose risks to financial stability. A couple of other participants viewed the flattening of the yield curve as an expected consequence of increases in the Committee’s target range for the federal funds rate, and judged that a yield curve inversion under such circumstances would not necessarily foreshadow or cause an economic downturn. It was also noted that contacts in the financial sector generally did not express concern about the recent flattening of the term structure.

    In their discussion of monetary policy, participants saw the outlook for economic activity and the labor market as having remained strong or having strengthened since their previous meeting, in part reflecting a modest boost from the expected passage of the tax legislation under consideration. Regarding inflation, participants generally viewed the medium-term outlook as little changed, and a majority commented that they continued to expect inflation to gradually return to the Committee’s 2 percent longer-run objective. A few participants again noted that transitory factors had likely held down inflation earlier this year. However, several participants observed that survey-based measures of inflation expectations or market-based measures of inflation compensation remained low, or that other persistent factors may be holding down inflation, which would present challenges for the Committee in promoting a return of inflation to 2 percent over the medium term.

    Based on their current assessments, almost all participants expressed the view that it would be appropriate for the Committee to raise the target range for the federal funds rate 25 basis points at this meeting. These participants agreed that, even after an increase in the target range at this meeting, the stance of monetary policy would remain accommodative, supporting strong labor market conditions and a sustained return to 2 percent inflation. A couple of participants did not believe it was appropriate to raise the target range for the federal funds rate at this meeting; these participants suggested that the Committee should maintain the target range at 1 to 1¼ percent until the actual rate of inflation had moved further toward the Committee’s 2 percent longer-run objective or inflation expectations had increased. They judged that leaving the target range at its current level would better support an increase in inflation expectations and thereby increase the likelihood that inflation will rise to 2 percent.

    Regarding the determination of the appropriate timing and size of future adjustments to the target range for the federal funds rate, participants reaffirmed the need to continue to assess realized and expected economic conditions. Most participants reiterated their support for continuing a gradual approach to raising the target range, noting that this approach helped to balance risks to the outlook for economic activity and inflation. Participants discussed several risks that, if realized, could necessitate a steeper path of increases in the target range; these risks included the possibility that inflation pressures could build unduly if output expanded well beyond its maximum sustainable level, perhaps owing to fiscal stimulus or accommodative financial market conditions. Participants also discussed risks that could lead to a flatter trajectory for the federal funds rate in the medium term, including a failure of actual or expected inflation to move up to the Committee’s 2 percent objective. While participants generally saw the risks to the economic outlook as roughly balanced, they agreed that inflation developments should be monitored closely. A few participants indicated that they were not comfortable with the degree of additional policy tightening through the end of 2018 implied by the median projections for the federal funds rate in the December SEP. They expressed concern that such a path of increases in the policy rate, while gradual, might prove inconsistent with a sustained return of inflation to 2 percent, or that the level of the federal funds rate might already be near its current neutral value. A few other participants mentioned that they saw as appropriate a pace of additional policy tightening through the end of 2018 that was somewhat faster than that implied by the December SEP median forecast. They noted that financial conditions had not materially tightened since the removal of monetary policy accommodation began, that continued low interest rates risked financial instability in the future, or that the labor market was increasingly tight. A couple of participants noted the need to continue to monitor and evaluate the effects of balance sheet normalization on long-term interest rates and economic performance.

    Due to the persistent shortfall of inflation from the Committee’s 2 percent objective, or the risk that monetary policy could again become constrained by the zero lower bound, a few participants suggested that further study of potential alternative frameworks for the conduct of monetary policy such as price-level targeting or nominal GDP targeting could be useful.

    Committee Policy Action

    In their discussion of monetary policy for the period ahead, members judged that information received since the Committee met in November indicated that the labor market had continued to strengthen and that economic activity had been rising at a solid rate. Averaging through hurricane-related fluctuations, job gains had been solid, and the unemployment rate had declined further. Household spending had been expanding at a moderate rate, and growth in business fixed investment had picked up in recent quarters. On a 12-month basis, both overall inflation and inflation for items other than food and energy had declined for the year to date and were running below 2 percent. Market-based measures of inflation compensation had remained low; survey-based measures of longer-term inflation expectations had changed little, on balance.

    Members acknowledged that hurricane-related disruptions and rebuilding had affected economic activity, employment, and inflation in recent months but had not materially altered the outlook for the national economy. They continued to expect that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. Members expected inflation on a 12-month basis to remain somewhat below 2 percent in the near term. They also expected inflation to stabilize around the Committee’s 2 percent objective over the medium term, but a couple of members expressed concern about whether inflation would return to 2 percent on a sustained basis in the medium term if the Committee increased the target range for the federal funds rate at the pace that is implied by the medians of the projections from the December SEP. Members saw the near-term risks to the economic outlook as roughly balanced, but they agreed to monitor inflation developments closely.

    After assessing current conditions and the outlook for economic activity, the labor market, and inflation, nearly all members agreed to raise the target range for the federal funds rate to 1¼ to 1½ percent. These members noted that the stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation. Two members preferred to leave the target range at 1 to 1¼ percent, suggesting that the Committee should wait to raise the target range until inflation moves up closer to 2 percent on a sustained basis or inflation expectations increase.

    Members agreed that the timing and size of future adjustments to the target range for the federal funds rate would depend on their assessments of realized and expected economic conditions relative to the Committee’s objectives of maximum employment and 2 percent inflation. They noted that their assessments would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. Members agreed that their assessments would also take into account actual and expected inflation developments relative to the Committee’s symmetric inflation goal. Almost all members reaffirmed their expectation that economic conditions would evolve in a manner that would warrant gradual increases in the federal funds rate, and that the federal funds rate would be likely to remain, for some time, below levels that were expected to prevail in the longer run. Nonetheless, members reiterated that the actual path of the federal funds rate would depend on the economic outlook as informed by incoming data.

    Federal Reserve, “Minutes of the Federal Open Market Committee – December 12-13, 2017” 3 Jan 2018 Full Minutes

    flag_japan Japan update

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    Japan’s stock exchanges remained closed today – opening tomorrow (4 Jan 2018).

    flag_china China update

    Manufacturing PMI. Dec 2017

    In December 2017, China’s manufacturing purchasing managers index (PMI) was 51.6 percent, a decrease of 0.2 percentage points from last month, but still reached the annual average. The manufacturing industry maintained steady growth development momentum.

    cn_pmi_20180103

    In view of the sizes of enterprises, the PMI of large-sized enterprises was 53.0 percent, increased 0.1 percentage point from last month, and kept fast growth; that of medium-sized enterprises was 50.4 percent, decreased 0.1 percentage points from last month, and maintained expanding; that of small-sized enterprises was 48.7 percent, decreased 1.1 percentage points from last month, and was below the threshold.

    Among the five sub-indices composing PMI, the production index and new orders index were higher than the threshold. The main raw materials inventory index, employed person index and supplier delivery time index were lower than the threshold.

    Production index was 54.0 percent, a decrease of 0.3 percentage points month-on-month, and continued to be higher than the threshold, indicating that the manufacturing production increased steadily, while the amount of increase narrowed slightly.

    New orders index was 53.4 percent, a decrease of 0.2 percentage points month-on-month, still higher than the threshold, showing that the manufacturing market demand was unleashed continuously, while the growth rate decreased slightly.

    Main raw materials inventory index was 48.0 percent, decreased 0.4 percentage points from last month, lower than the threshold, indicating that the main raw material inventory of manufacturing industry continued to decrease.

    Employed person index was 48.5 percent, decreased 0.3 percentage points from last month, still lower than the threshold, indicating that the labor employment of manufacturing enterprises declined.

    Supplier delivery time index was 49.3 percent, decreased 0.2 percentage points from last month, and was below the threshold, indicating that the delivery time of manufacturing raw material suppliers slowed down.

    National Bureau of Statistics of China, “China’s PMI Was 51.6 Percent in December“, 3 Jan 2018 More

    Non-Manufacturing PMI. Dec 2017

    In December 2017, China’s non-manufacturing purchasing manager index was 55.0 percent, an increase of 0.2 percentage points from the previous month, and continued to be higher than the threshold. The expansion of non-manufacturing industry has been sped up.

    cn_psi_20180103

    In view of different industries, non-manufacturing purchasing manager index of service industry was 53.4 percent, a slight decrease of 0.2 percentage points from the previous month. Since the fourth quarter, the index has been staying around 53.5 percent in the expansion range, and remained steady on the whole. Of which, the indices of post and express delivery, telecommunications, broadcasting, television and satellite transmission services, Internet, software and information technology services, monetary market services, insurance, were positioned in the high level of the range, with business activities staying active and the total business growing fast. The indices of restaurants, capital market services, real estate, resident services and repair, were lower than the threshold, and the total business decreased. Non-manufacturing purchasing manager index of construction industry achieved 63.9 percent, an increase of 2.5 percentage points from the previous month, and stayed in the high level of the range which above 60.0 percent for two consecutive months. The production and operation of construction industry accelerated.

    New orders index was 52.0 percent, up by 0.2 percentage points from the previous month, and was above the threshold, indicating that the growth rate of non-manufacturing industry’s market demand increased. In view of different industries, the new orders index of service industry was 50.9 percent, decreased 0.3 percentage points from the previous month, and was higher than the threshold. The new orders index of construction industry was 58.1 percent, increased 3.0 percentage points from the previous month, and stayed in the high level of the range for two consecutive months.

    Input price index was 54.8 percent, down by 1.4 percentage points from the previous month, and was above the threshold, indicating that the input price during the process of non-manufacturing enterprises’ operating activities continued to increase, while the amount of increase narrowed. In view of different industries, the intermediate input price indices of service industry was 53.2 percent, decreased 1.7 percentage points from the previous month. The input price index of construction industry was 64.3 percent, an increase of 0.4 percentage points from the previous month.

    The sales price index was 52.6 percent, down by 0.2 percentage points from last month, and was above the threshold, indicating that the amount of increase of non-manufacturing sales price declined slightly. In view of different industries, the sales price index of service industry was 52.0 percent, a decrease of 0.5 percentage points from the previous month.The sales price index of construction industry was 55.6 percent, an increase of 0.8 percentage points from the previous month.

    Employment index was 49.3 percent, a slight increase of 0.1 percentage point from the previous month, and was still lower than the threshold, indicating that the pace of decline of non-manufacturing enterprises’ labor employment reduced. In view of different industries, the employment index of service industry was 48.2 percent, a decrease of 0.3 percentage points from the previous month. The employment index of construction industry was 55.9 percent, an increase of 2.3 percentage points from the previous month,

    Business activities expectation index was 60.9 percent, a decrease of 0.7 percentage points from last month, and continued to be in the high level of the range which above 60.0 percent. In view of different industries, the business activities expectation index of service industry was 60.3 percent, a decrease of 0.6 percentage points from the previous month. That of construction industry was 64.1 percent, a decrease of 1.5 percentage points from the previous month.

    National Bureau of Statistics of China, “China’s Non-manufacturing PMI was 55.0 Percent in December“, 3 Jan 2018 More

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