Weekly Market Update: February 12, 2018
Lessons From Last Week
Congress reached a budget accord governing discretionary spending that added punch to the recently passed Tax Cuts and Jobs Act, boosting spending by an additional $58 billion in 2018 and $181 billion in 2019 (the annual estimates refer to fiscal years that end in September).
- Applications for unemployment insurance benefits fell further; the number of claimants is holding steady at the lowest levels in recorded history. The trends imply that the economy probably gained momentum coming into 2018.
- The volatility in the stock market—thought to be associated with a rise in long-term interest rates toward more normal levels—is actually a favorable development for equities over the longer run. Bond yields have been unusually low for a decade, in part a response to unconventional monetary policy actions (asset purchases) aimed at promoting economic recovery. Rising bond yields are a sign of economic strength, and a return to more normal interest rate levels will promote the longevity of the current economic expansion.
- The US international trade deficit widened as robust consumer demand lifted imports by more than exports, which also are expanding. Strong import demand eventually benefits the US by lifting the economies of its trade partners. The latest trade figures are slightly exaggerated by the introduction of the latest vintage of cellular phones.
What to Expect This Week
Forecasts call for slightly firm but trend-like CPI inflation readings and solid gains in nominal retail sales (vehicle sales were down in December but energy prices rose and other categories of retail sales likely saw respectable gains).
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