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Economic Week in Review: New Fed chief takes the spotlight

February 14, 2014

The week featured only a few economic reports but plenty of anticipation on Capitol Hill, as new Federal Reserve Chairwoman Janet Yellen delivered her first testimony before the House Financial Services Committee. As expected, she said she would follow the policy outlined by her predecessor, Ben Bernanke, to keep winding down the Fed's bond-buying program unless the economy takes a serious downturn.

Testifying on Tuesday, Chairwoman Yellen said she was surprised at the weak December and January jobs reports. "The pace of job creation was running under what I had anticipated. But we have to be very careful not to jump to conclusions in interpreting what those reports mean."

Joe Davis on the Fed transition

We asked Joe Davis, Vanguard's chief economist, for his thoughts on new Federal Reserve Chairwoman Janet Yellen and the challenges she faces.

Read the article »

For the week ended February 14, 2014, the S&P 500 Index was up 2.4% to 1,840. The yield on the 10-year U.S. Treasury note rose 4 basis points for the week to 2.75%.

Retail sales fall unexpectedly

Retail sales dropped by an unexpected 0.4% in January on the heels of downward revisions for November and December. Motor vehicles and parts dealers took the biggest hit, down 2.1% for the month. Some economists had predicted no change from December and  cited frigid weather was most likely responsible for slow auto sales, but nonstore retailers—including online sales—also felt the bite.

The poor showing, along with recent disappointing labor-market and manufacturing data, appears to raise fresh concerns about the slow pace of growth—especially because consumer spending accounts for roughly two-thirds of U.S. economic output. Retail sales

Industrial production dips

A decline in manufacturing output led the way to a 0.3% drop in January, well below the increase of 0.3% expected by analysts and the first decrease since July. The Federal Reserve report said the harsh winter weather was a factor that curtailed production in many regions. Production of durable goods—including motor vehicles and parts (down 5%) and appliances—also fell, contributing to the 0.8% decline in manufacturing output. The report also said manufacturing growth for the fourth quarter of 2013 was 4.6%, down from the Fed's previous estimate of 6.2%.

Business inventories up

Business inventories, which include retail, wholesale, and manufactured goods, rose 0.5% in December, in line with expectations. The inventory-to-sales ratio ticked up to 1.30, though analysts said wholesalers would try to trim inventories in the coming months if retail sales pick up the pace.

"While poor retail sales numbers may be attributed to bad weather, three consecutive downward revisions of industrial production are more alarming, as these can potentially have negative impact on the next GDP revision at the end of the month," said Vanguard economic analyst Ravi Tolani

The economic week ahead

Next week opens with the Presidents' Day holiday, when major U.S. financial markets will be closed. Wednesday brings reports on producer prices and new-home construction, along with minutes from the Federal Open Market Committee meeting. The consumer price report and the Conference Board's leading indicators are due out Thursday, followed Friday by numbers on existing-home sales.

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
February 10       –1 bp +0.2%
February 11       +5 bp +1.1%
February 12       +5 bp 0.0%
February 13 Initial Jobless Claims (week ended February 8)
Source: Labor Department
339,000 330,000 –7 bp +0.6%
  Retail Sales (January)
Source: Commerce Department
–0.4% 0.0%    
  Business Inventories (December)
Source: Commerce Department
+0.5% +0.5%    
February 14 Industrial Production (January)
Source: Federal Reserve Board
–0.3% +0.3% +2 bp +0.5%
      Weekly change +4 bp +2.4%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.

Notes

  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
  • All investing is subject to risk, including the possible loss of the money you invest.
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