Last week’s rough start, Wall Street seemed to look past falling oil prices and get into the holiday spirit as the markets rallied strongly. The S&P 500 and Dow Jones Industrial Average are both up.
The main reason for the bounce is once again thanks to the Federal Reserve. While the Federal Open Market Committee (FOMC) removed the words “considerable time” before raising key interest rates, it replaced them with “can be patient” in last week’s FOMC statement.
Fed Chairperson Janet Yellen made it crystal clear that any decision to raise rates would be data dependent and implied the FOMC would not raise rates in the next two meetings in 2015. As a result, many are now calling the recent market rally the “Yellen Claus rally.”
Here’s what else is going on in economic news that investors should know about.
Industrial Production
What It Measures: The index of industrial production measures the amount of output from the manufacturing, mining, electric and gas industries –several huge industries that literally power our economy. Manufacturing production, the largest component of the total, is derived from using the manufacturing hours worked from the employment report.
The Breakdown: Overall U.S. industrial production increased 1.3% in November, and October was revised up to a 0.1% increase. Capacity utilization surged 80.1% in November, up from October’s revised reading of 79.3%. Manufacturing output rose 0.4% last month.
The Bottom Line: U.S. manufacturing output is now back above its prerecession peak, as manufacturers ignore the turmoil overseas. Overall industrial production was up 5.2% year-over-year in November, which shows the U.S. economy is growing stronger.
Housing Starts & Building Permits
What It Measures: Homebuilders apply for building permits and begin construction on residential units only when they are confident that these units will be sold. As a result, these figures are a great indicator of the direction of the housing industry. An increase in housing starts and building permits usually occurs a few months after a reduction in mortgage rates.
The Breakdown: Housing starts and building permits declined last month, as new home construction dipped 1.6% and building permits dropped 5.2%. October’s housing starts were revised upward to 1.045 million groundbreakings, up from 1.009 million, while permits were bumped to 1.092 million, up from 1.08 million.
The Bottom Line: While the November figures were disappointing, it was positive to see the October figures revised higher.
Consumer Price Index (CPI)
What It Measures: The price level of a fixed market basket of goods and services purchased by consumers. CPI is the most popular inflation indicator, so this is a very important report that can move the market.
The Breakdown: The Consumer Price Index (CPI) dipped 0.3% in October, falling more than economists’ expectations for a 0.1% decline. Core CPI (excluding food and energy prices) climbed 0.1% In October. Gasoline prices slipped 6.6% in October, while food prices increased 0.2%.
The Bottom Line: In the past 12 months, CPI has risen 1.4%, while core CPI has increased 1.7%. Inflation remains under control, and I still don’t see the Fed raising rates any time soon.
Initial Claims for Unemployment
What It Measures: It is an indicator of the direction of the job market. Increases in jobless claims show slowing job growth; decreases in claims signal accelerating job growth. On a week-to-week basis, jobless claims are volatile, so one of the best ways to track this measure is to look at the four-week moving average. It usually takes a jump or decline of at least 30K claims to signal a meaningful change in job growth.
The Breakdown: For the week ending December 13, jobless claims dropped by 6,000 to 289,000. That beat economists’ projections for jobless claims to total 295,000. The four-week moving average of jobless claims is now at 298,750.
The Bottom Line: In 14 of the last 15 weeks, jobless claims have been below 300,000, which suggests the job market is steadily improving.
Index of Leading Economic Indicators
What It Measures: This is an index that compiles all of the economic indicators, including jobless claims, money supply, new orders, building permits and stock prices. It is a broad measure that is a good predictor of patterns in the economy.
The Breakdown: The Conference Board’s leading economic index increased 0.6% in November, in line with expectations. October’s figure was revised lower to 0.6%, down from 0.9%. Eight of the 10 indicators increased and added positively to the index last month.
The Bottom Line: This was a good report and shows that we should see moderate growth this winter.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
