Economic Update 12/23/13

FED MAKES ITS MOVE, STOCKS MOVE NORTH

In a 9-1 vote last Wednesday, Federal Reserve officials elected to taper the central bank’s monthly economic stimulus beginning in January. The taper was relatively minor – a cut of $10 billion to $75 billion – and the surprise announcement set off a major rally on Wall Street, with the Dow closing 292 points higher on the day. Both the Fed and investors seemed to think the move was warranted; it certainly removed a degree of uncertainty from the market. The Fed’s December 18 policy statement also noted its intention to keep the benchmark interest rate at the present historic lows “well past the time” the jobless rate reaches the central bank’s 6.5% target.

FEWER HOMES SOLD, MORE GROUND BROKEN

Existing home sales fell 4.3% last month, and there was no annualized gain in home buying last month for the first time in more than two years. Was the November report from the National Association of Realtors an anomaly, or a sign that a red-hot housing market is cooling off a bit? NAR’s December and January reports may offer further clues. New construction certainly heated up in November: housing starts soared 22.7%, the best monthly advance since January 1990.

CPI FLAT IN NOVEMBER; Q3 GDP REVISED UPWARD

Economists polled by Briefing.com thought the Consumer Price Index would tick up 0.1% in November; instead, it didn’t budge. (The core CPI did rise 0.2%.) Another important economic indicator communicated a welcome gain: the economy grew 4.1% in the third quarter, according to the final estimate of the Bureau of Economic Analysis. The BEA’s previous estimate put Q3 GDP at 3.6%.

S&P 500 HAS BEST WEEK SINCE MID-OCTOBER

The broad benchmark closed at 1,818.55 Friday, gaining 2.44% in five days. Weekly gains for the DJIA (2.96%) and NASDAQ (2.59%) were even greater. The NASDAQ wrapped up the week at 4,104.74, the DJIA at 16,221.72.

THIS WEEK: The University of Michigan’s final consumer sentiment index for December appears Monday, and so does the Commerce Department’s report on November personal spending. Reports on November new home sales, November hard goods orders and the October FHFA Housing Price Index arrive Tuesday, which is also Christmas Eve (the NYSE and NASDAQ will close at 1:00pm EST). All U.S. financial markets will be closed Wednesday in observance of the Christmas holiday. Markets resume trading Thursday, with the latest initial jobless claims data being released. Nothing major is slated for Friday.