Industrial production decreased 0.10 percent in October from the prior month.  This comes after a notable jump in September of 0.80 percent.  The producer price index, or average change in price of goods and services sold by manufacturers and producers in the wholesale market, rose 0.20% in October and stands at 1.5% year over year.  The US Markit Manufacturing purchasing managers’ index decreased to 54.7 in November from 55.9 in October.  Export sale volumes decreased which aligns with weakening European and Chinese economies.  One important takeaway from these numbers was a robust rise in payroll numbers.

China’s central bank slashed one-year loans by commercial banks 0.4 percent to 5.6 percent and the one-year savings was lowered by 0.25 percent to 2.75.  This is the first rate cut since July 2012 and will probably be the first step of many by China’s central bank to increase lending and combat slowing growth in China.  China now joins the party of other global central banks providing accommodative monetary policy to promote economic growth.

Last week the good news on the economy outweighed bad news. The good news:

• Industrial production fell 0.1% however industrial production remains on a positive trend.
• Manufacturing also rose 0.2%, led by strong gains in machinery (+1.3%), computer and electronic products
• Excluding vehicles, manufacturing rose 0.2%.
• Core industrial production, which excludes energy, high tech, and vehicles, rose 0.2%, as all of its components
• On a year over year basis, industrial production is up 4.0%, consistent with continued moderate output expansion.
• The Empire State General Business Conditions Index rebounded 4.0 points to 10.2 in November, indicating manufacturing activity in the region strengthened somewhat. New orders and shipments both advanced, but hiring decelerated and the average workweek shortened.
• The outlook for the next six months improved to its best level since January 2012. The capital expenditure outlook was the most positive in over two years.
• Prices were near-flat for the month and are expected to remain steady in the near-term

And the disappointing news on the economy:

• Mining, which accounts for about 16% of total industrial production, dropped 0.9%, the most in a year, likely driven by the sharp decline in oil prices. Energy output, which includes oil and gas well drilling, fell 0.8%.
• Utilities output fell 0.7%, its third decline in the past five months.
• The capacity utilization rate fell 0.3 percentage points to 78.9%, below the consensus of 79.3%, and 1.2 points below its 1972-2013 average. This indicates there is still some production slack in the economy, which puts downward pressure on inflation. Capacity utilization slipped across all three main categories.

The strength in employment is becoming more apparent.  For the week ending November 1^st, United States Initial Jobless Claims was 278,000 which was down 10,000 for the prior week’s level of 288,000.  This is now 8 straight weeks where jobless claims have come in below 300k.  The US unemployment rate dipped to 5.80 percent in October from 5.90 percent in September, which marks a six-year low.  Average hourly earnings increased 0.10 percent in October over the prior month while average weekly hours increased to 34.60 hours from 34.50 hours.  The labor force participation rate increased to 62.80 percent in October from 62.70 percent in September.  As we’ve reported in past commentaries there remains “slack” in the labor market, however as jobless claims remain below 300k and non-farm payrolls stay above 200k the underemployed number will continue to reduce.

According to FactSet, 446 companies from the S&P 500 have reported with the third quarter blended earnings growth rate coming in at 7.6%.  Blended revenue growth stands at 4.0 percent, slightly above the estimate of 3.80 percent.  US ISM Purchasing Managers Index (PMI) increased to 59 percent in October from 56.60 percent.  PMI is a measure of new orders, backlog of orders, new export orders, imports, production, supplier deliveries, inventories, customers inventories, employment and prices compiled from purchasing and supply executives.  In September, US factory orders decreased 0.60 percent and construction spending dropped 0.40 percent.

All in all, US data is quite positive.  The consumer is gaining strength as employment improves and lower energy costs translate to greater discretionary spending and raises their ability to borrow, corporate earnings growth remains a positive factor, and the Federal Reserve continues to keep rates low to drive the economy forward.

United States Gross Domestic Product “GDP” advanced an annualized 3.50 percent in the third quarter of 2014. Real personal consumption expenditures improved 1.8 percent, durable goods increased 7.2 percent and nondurables increased 1.1 percent. Real federal government consumption expenditures and gross investment rose 10 percent during the third quarter. Private inventories accounted for a subtraction of .57 percent from the third-quarter GDP.

The Federal Reserve made a decision to end its asset purchase program on October 29th. The Fed believes economic activity will continue to expand at a moderate pace, with labor market indicators and inflation moving toward acceptable mandate levels. Inflation in the near term will likely be held down by lower energy prices, however the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year. The Fed will maintain their existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities. This policy should maintain accommodative financial conditions. The Federal Reserve will remain data dependent as it assesses its interest rate policy moving forward. The Committee anticipates to maintain the 0 to ¼ percent target federal funds rate range for a considerable time following the end of its asset purchase program in October, especially if projected inflation continues to run below the Fed’s 2 percent long-term goal, and provided inflation expectations remain well anchored.

Inflationary pressures continue to remain a non-issue. The United States consumer price index increased .10% in September over the prior month. Year over year inflation stands at 1.70 percent. We’ve been reporting over the last several weeks’ energy costs have been declining, which should keep inflation muted.

The US 30-year fixed mortgage rate as reported by the Mortgage Bankers Association averaged 4.10 percent in the week ending October 18th, which is down from the prior week average of 4.20 percent.   Lower interest rates are beginning to create a tailwind for housing as mortgage applications increased 11.6 percent for the week ending October 18th. Existing home sales rose 2.40 percent and new home sales rose .20 percent in September.

US initial jobless claims came in at a seasonally adjusted 283,000 in the week ending October 18th. The recent trend for initial jobless claims below 300k confirms strength in the employment market. The Chicago Fed National Activity Index, which is designed to gauge overall economic activity and related inflationary pressure increased to .47 in September from -.25 in August. A positive index reading corresponds to growth above trend.

The data from the prior week points to continued expansion within the US economy. Lower energy prices should improve consumer’s wallets as we head into the all-important holiday shopping season. Additionally, benign inflation places less pressure on the Federal Reserve to increase rates thus providing support to the stock market.

Last week was a light week for economic data.  United States Jobless Claims decreased to 287,000 in the week ending October 4^th, a decrease of 1,000 from the previous week.  US Wholesale Inventories increased .70 percent as wholesalers ramped up for what is presumed to be increased demand.  Lower interest rates continue to drive down the Mortgage Bankers Association fixed 30-year mortgage rate as it average 4.30 percent in the week ended October 4^th, down from 4.33 percent.  Lower rates helped support mortgage applications as refinancing and home purchase demand increased 3.80 percent for the week ending October 4^th.  Slowing growth in property values and lower borrowing costs mixed with more people at work should provide support to the struggling real estate market.

Good news was once again good news for market participants on Friday as the S&P 500 rose 1.12% following the United States Non-Farm Payrolls report in which jobs increased by 248 thousand is September.  The strong jobs numbers reduced the unemployment rate to 5.9 percent.  This is the first time since 2008 that the unemployment rate dipped below 6 percent.  These numbers came a day after Thursday’s Initial Jobless Claims release of 287 thousand, a decrease of 8,000 from the prior week’s level.  The strong jobs reports throughout 2014 seem to be creating confidence and supports continued economic growth.

Average weekly working hours in the US increased to 34.60 hour in September from 34.50 in August.  Average hourly earnings were flat in September from the prior month as employers continue to have bargaining power.  If weekly hours continue to increase, businesses will be forced to hire which over time would change the dynamic in hourly earnings growth for American workers.

In other economic news, US Non-Manufacturing Purchasing Managers Index decreased to 58.60 percent in September from 59.60 percent.  The Manufacturing Purchasing Managers index decreased to 56.60 percent from 59 in August.  Although these were reductions from prior readings, these are still strong numbers and signal economic expansion.

United States Gross Domestic Product according to the final estimate from the Commerce Department grew at a seasonally adjusted annual rate of 4.6 percent in the second quarter over the previous quarter.  This reflects a strong recovery from the harsh winter months.  The Federal Reserve projects real Gross Domestic Product to come in between 2.8 to 3.0 percent for 2014.

New Home Sales in the US rose 18% in August to 504 thousand homes, from the prior 427 thousand in July.  New home sales remain a bright spot in housing as builders are finding strong demand in higher end homes while other housing measures underperform.  Existing Home Sales decreased 1.80 percent in August and the Mortgage Bankers Association Mortgage Applications dropped 4.10 percent in the week ended September 20^th.  The US House Price Index increased .10 percent in July as diminished demand remains a boon for real estate values.

US Manufacturing remained unchanged in September at 57.90 as manufacturing remains a strong driver for growth of US companies and households.  The Services Purchasing Managers Index decreased to 58.50 in September from 59.5 in August, but remains relatively strong.  According to the Thomson Reuters/University of Michigan’s US Consumer Sentiment rose to 84.6 in September from 82.5 in August.  A stronger consumer should bolster earnings growth and economic activity.

United States Consumer Credit increased to $26.01 Billion in July from $18.81 Billion in June.  Consumer credit has been rising over recent months as banks become more willing to lend and consumers become more willing to borrow.  US Retail Sales rose 0.58% in August over the prior month.  This marks a year over year increase of 5 percent.  Retail sales, excluding automobiles advanced 0.30% in August within the retail sales index.  These numbers bode well for the overall US economy as borrowing and purchases increase as consumers feel more confident with their employment situation.  US Initial Jobless Claims was 315,000 for the week ending September 6^th, an 11,000 increase from the prior week.

Low rates have not been reason enough to continue an expansion in real estate.  US Mortgage Bankers Association Mortgage Applications dropped 7.2% in the week ended September 6^th.  Renting continues to be the living arrangement of choice for those in their 20’s and 30’s.  There are various reasons why this is the case, but we may need to look no further than the “slack” in the jobs markets the FED refers to in their monthly statements.

China’s month over month inflation rate increased 0.20% in August and increased 2.0% year over year.  Inflation continues to be a non-factor globally for the most part.  This should allow for continued loose monetary policy from central bankers.  Accommodative central banks mixed with improving earnings and a strengthening consumer have been positive themes for the stock market.

Manufacturing remains strong for the US economy.  US Factory orders popped 10.50 percent in July from a revised 1.50 percent in June while construction spending increased 1.80 percent in July.  The Institute for Supply Management Manufacturing Purchasing Managers index increased to 59 percent in August from 57.10 percent in July.  A reading above 50 indicates the manufacturing economy is generally expanding.

The labor market reported mixed results as US Initial Jobless Claims were 302,000 coming in near its moving average, while US Non Farm Payrolls decreased to 142,000 in August from 212,000 in July.  Payrolls was a big surprise for economists, many believing this report being a one month blip.  The Labor Force Participation Rate increased to 62.90 percent in July from 62.80 percent in June.  The participation rate averaged near 66 percent for the prior decade which confirms the “slack” in the economy the Fed has been referring to.  US Average Hourly Earnings grew .20% in August from the prior month.

A great deal of focus was on the European Central Banks interest rate decision.  As expected Mario Draghi, President of the ECB, increased monetary stimulus by lowering the interest rate on the main refinancing operations of the Euro system by 10 basis points to 0.05% and the rate on the margin lending facility by 10 basis points to 0.30%.  The rate on overnight deposits was reduced to -0.20%.  In addition to the changes in interest rates, the European Central Bank will purchase a broad portfolio of asset-backed securities.

This week’s labor report and Europe’s monetary stimulus decision leads to continued healing and slow growth of the US economy.  Lower rates in Europe should keep US rates low while the Fed continues to provide accommodative policies in order for the labor market to strengthen.