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Economic Week in Review: Stocks enter record territory

May 10, 2013

Major U.S. stock indexes broke records this week. On Tuesday, the Dow Jones Industrial Average closed above the 15,000 mark for the first time while the Standard & Poor's 500 Index topped 1,625. The slowdown in consumer credit growth, thanks to fewer consumers pulling out their plastic for purchases, did nothing to impede the stock markets' advance amid strong quarterly profit reports and the ongoing effects of the Federal Reserve's easy monetary policy.

Market performance 2010–2013

For the week ended May 10, 2013, the S&P 500 Index was up 1.2% to 1,634 (for a year-to-date total return—including price change plus dividends—of about 15%). The yield on the 10-year U.S. Treasury note rose 12 basis points to 1.90% (for a year-to-date increase of 12 basis points).

Credit card use is down, but long-term debt is still growing fast

Consumer credit rose $8 billion in March, the Federal Reserve reported, which was well below economists' anticipated rise of $15 billion. The rise was the smallest in eight months. Consumers put the borrowing brakes on in March and slowed credit card spending with a drop of $1.7 billion (the biggest decrease since July 2012), reversing a three-month rising trend. Likely reasons include the pinch of tax increases, including the halt of the 2% Social Security payroll tax holiday, and concern for an economic slowdown ahead.

The $1.7 billion drop in revolving debt offset the $9.7 billion boost in fixed-term debt for purchases such as automobiles and, in particular, student loans. Education debt, which almost tripled from 2004 to 2012, is the only type of debt to continue rising through the Great Recession and is fast approaching $1 trillion, according to a recent study by the Federal Reserve Bank of New York.

Combining both credit card and nonrevolving debt, consumers have about $2.8 trillion in total installment credit debt. In comparison, the Federal Reserve Bank of New York reported in February 2013 that mortgage debt in the U.S. was $8.03 trillion.

"When you look at U.S. consumers' debt load as a whole, for many of them, mortgages still make up a far greater percentage than any other type of credit," said Vanguard economist Andrew J. Patterson.

Housing price rebound expected to continue

A recent survey from mortgage lender Fannie Mae found that more than half of Americans expected home prices to rise during the next 12 months, continuing the housing market's recovery.

"Crossing the 50% threshold marks a significant milestone as most Americans believe a housing recovery is truly occurring throughout the country," said Fannie Mae senior vice president and chief economist Doug Duncan. He noted it was the first time in the study's three-year history that the majority of U.S. homeowners expected housing costs to increase.

The economic week ahead

Economic reports due for release next week include retail sales and business inventories on Monday; producer prices and industrial production on Wednesday; consumer prices and new residential construction on Thursday; and leading indicators from the Conference Board on Friday.

Summary of major economic reports
Date Report Actual
value
Consensus
expected value
10-year note yield S&P 500 Index
May 6       +2 bp +0.2%
May 7 Consumer Credit (March)
Source: Federal Reserve Board
+$8.0 billion +$15.0 billion +2 bp +0.5%
May 8       –1 bp +0.4%
May 9 Initial Jobless Claims (week ended May 4)
Source: Labor Department
323,000 335,000 0 bp –0.4%
May 10       +9 bp +0.4%
      Weekly change +12 bp +1.2%

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 Guide to major U.S. economic reports.
  • All investing is subject to risk, including possible loss of the money you invest.
  • Past performance is no guarantee of future returns. The performance of an index is not an exact representation of any particular investment, as you cannot invest directly in an index.
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