The key US economic story of the week was the FOMC announcement of thresholds for raising the Fed Funds rate based on the unemployment rate and inflation. Also the FOMC expanded QE3 by an additional $45 billion per month starting in January (some people are calling it QE4, but that isn't consistent - the FOMC expanded an earlier QE). This was a significant change in Fed communication, and the change allows the FOMC to drop the date language from the FOMC statement. If the economy improves quicker than the forecast, then investors will adjust their estimate of timing (or the opposite). The Fed also made it very clear they will tolerate a little more inflation in the near term.
The economic data showed some bounce back following Hurricane Sandy. The retail report increased 0.3% (less than forecast though), and industrial production increase 1.1% (more than forecast). And initial weekly unemployment claims continued to decline following the Sandy spike.
This bounce back shows the declines in October were storm related.
The austerity debate (aka "Fiscal cliff) still showing no signs of progress. But I don't expect agreement until early January (although it could happen sooner). Next week will be very busy with several key housing reports.
Here is a summary of last week in graphs:
' Retail Sales increased 0.3% in November
Click on graph for larger image.
On a monthly basis, retail sales increased 0.3% from October to November (seasonally adjusted), and sales were up 3.7% from November 2011. The change in sales for October was unrevised at a 0.3% decline.
This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).
Retail sales are up 24.5% from the bottom, and now 8.8% above the pre-recession peak (not inflation adjusted)
The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.
Retail sales ex-gasoline increased by 4.0% on a YoY basis (3.7% for all retail sales).
This was at the consensus forecast of no change ex-autos, but below the consensus forecast for total retail sales of a 0.6% increase in November. Retail sales are still sluggish, but generally trending up.
' Trade Deficit increased in October to $42.2 Billion
The Dept of Commerce reported: "[T]otal October exports of $180.5 billion and imports of $222.8 billion resulted in a goods and services deficit of $42.2 billion, up from $40.3 billion in September, revised. October exports were $6.8 billion less than September exports of $187.3 billion. October imports were $4.9 billion less than September imports of $227.6 billion."
Both exports and imports decreased in October. US trade has slowed recently.
Exports are 9% above the pre-recession peak and up 1.0% compared to October 2011; imports are 4% below the pre-recession peak, and down 0.8% compared to October 2011.
The second graph shows the U.S. trade deficit, with and without petroleum, through October.
The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.
Oil averaged $99.75 in October, up from $98.88 per barrel in September. The trade deficit with China increased to $29.5 billion in October, up from $28.1 billion in October 2011. Most of the trade deficit is still due to oil and China.
The trade deficit with the euro area was $8.9 billion in October, up from $7.1 billion in October 2011. It appears the eurozone recession is impacting trade.
' Industrial Production increased 1.1% in November, Bounces back following Hurricane Sandy
From the Fed: "Industrial production increased 1.1 percent in November after having fallen 0.7 percent in October. The gain in November is estimated to have largely resulted from a recovery in production for industries that had been negatively affected by Hurricane Sandy, which hit the Northeast region in late October."
This graph shows Capacity Utilization. This series is up 11.6 percentage points from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 78.4% is still 1.9 percentage points below its average from 1972 to 2010 and below the pre-recession level of 80.6% in December 2007.
The second graph shows industrial production since 1967.
Industrial production increased in November to 97.5. This is 17% above the recession low, but still 3.2% below the pre-recession peak.
IP was above expectations due to the bounce back following Hurricane Sandy. Overall IP has only up 2.5% year-over-year.
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