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Economic Week in Review: Fed minutes show the taper tap dance

November 22, 2013

Minutes from the Federal Open Market Committee's October 29–30 meeting illustrate the policymakers' desire to unwind their stimulative bond-buying purchases as seamlessly as possible and include details of their decision-making process. The Federal Reserve's decisions hinge on an economy that's neither surging or slumping. Reports indicate a recent slip in consumer and producer prices, and inflation remains in control. Retail sales, business inventories, and compensation costs increased, while existing-home sales dipped.

For the week ended November 22, 2013, the S&P 500 Index was up 0.4% to 1,805 (for a year-to-date total return—including price change plus dividends—of about 29%). The yield on the 10-year U.S. Treasury note rose 4 basis points to 2.75% (for a year-to-date increase of 97 basis points).

Fed minutes reveal stimulus debate

Information from the Federal Reserve Open Market Committee suggests that economic activity has continued to expand at a modest pace. Although information on the labor market has shown improvement, the unemployment rate remains elevated. As the economy improves, policymakers said they might unwind their $85 billion monthly bond purchases "in coming months." Minutes from the Fed's meeting detailed the policymakers' discussion on when and how to scale back the purchases. The minutes, which are released with a three-week lag, also outlined concerns about how to contain interest rates after the bond-buying program ends.

Autos drive retail sales

Retail sales rose 0.4% in October, the largest gain since July and above analysts' expectations. Sales of automobiles and their parts climbed 1.3%, which helped lead the increase. Excluding autos and parts, sales were up 0.2%. Results indicate that retail spending, however modest, proceeded on course despite the government's partial shutdown in October. Overall sales were ahead 3.9% from a year ago and 2.4%, excluding automobiles and parts. Analysts view the figures as soft and indicative of slowly rising incomes and low consumer confidence.

Existing-home sales

Consumer prices dip

The Consumer Price Index (CPI), which measures the cost of living and is the key gauge for inflation, retreated 0.1% in October, its first decline in six months and a bit below analysts' expectations. A 1.7% drop in the energy index hindered the CPI, as prices for gasoline, fuel oil, and natural gas all fell. The food index inched ahead 0.1%. Compared with a year ago, the CPI is up 1.0%. Core CPI, which excludes volatile food and energy costs, rose 0.1% for the third straight month after three monthly gains of 0.2%. Core prices are 1.7% ahead of last year's pace but below the Fed's 2.0% target.

Producer prices backtrack

U.S. wholesale prices, as measured by the Producer Price Index (PPI), declined 0.2% in October, the second straight monthly drop and consistent with analysts' expectations. A 3.8% fall in gasoline prices accounted for much of the decrease. "Core" PPI, which excludes food and energy, rose 0.2%. Compared with a year ago, PPI is up 0.3% and core PPI is 1.4% higher.

"Relatively low inflation numbers in the consumer and business sectors suggest any change in Federal Reserve policy would be a result of strengthening economic prospects rather than a means to combat rising prices," said Andrew J. Patterson, an economic analyst at Vanguard.  

Existing-home sales slip

Sales of previously owned homes slid 3.2% in October to 5.12 million, about what analysts expected considering the rise in mortgage interest rates. The market hasn't deteriorated, as months of inventory remain at five from September and the median home price inched up to $199,500. Single-family sales retreated 4.1%, while condominium sales increased 3.3%. Despite the monthly drop, sales of existing homes are up 6.0% compared with a year ago and the median home price is 12.7% higher.

Business inventories rise

Business inventories grew 0.6% in September, better than analysts expected. The business inventory/sales ratio remained at 1.29, which reflects the number of months it would take to deplete existing inventories at the current sales rate. This ratio is an important indicator of the near-term direction of production activity and remains below its longer-term average of 1.37. The inventory growth suggests businesses are comfortable adding stock in anticipation of upcoming sales. Retail inventories surged 0.9%, and wholesale and manufacturer inventories each climbed 0.4%. Compared with a year ago, inventories are up 3.1%.

Compensation costs inch up

The Employment Cost Index, the broadest measure of compensation costs, rose 0.4% in the third quarter, in line with analysts' expectations and slightly off the second quarter's pace of 0.5%. Salaries and wages, which make up 70% of employment costs, increased 0.3%, down slightly from 0.4% in the second quarter. Benefits advanced 0.7%, surpassing the second quarter's 0.4% bump. Compared with a year ago, employment costs are 1.9% higher, with salaries and wages up 1.6% and benefits up 2.2%. 

The economic week ahead

Next week's reports are concentrated over two days: new residential construction and consumer confidence on Tuesday and durable goods and The Conference Board's leading indicators on Wednesday.

Summary of major economic reports
Date Report Actual
expected value
10-year note yield S&P 500 Index
November 18       –4 bp –0.4%
November 19 Employment Cost Index (3Q)
Source: Labor Department
+0.4% +0.4% +4 bp –0.2%
November 20 Consumer Price Index (October)
Source: Labor Department
–0.1% 0.0% +9 bp –0.4%
  CPI, except food and energy (October)
Source: Labor Department
+0.1% +0.2%    
  Retail Sales (October)
Source: Commerce Department
+0.4% +0.1%    
  Existing-Home Sales (October)
Source: National Association of Realtors
5.12 million 5.15 million    
  Business Inventories (September)
Source: Commerce Department
+0.6% +0.3%    
  FOMC Minutes 
Source: Federal Reserve Board
November 21 Initial Jobless Claims (week ended November 16)
Source: Labor Department
323,000 335,000 –1 bp +0.8%
  Producer Price Index (October)
Source: Federal Reserve Board
–0.2% –0.2%    
  PPI, except food and energy (October)
Source: Federal Reserve Board
+0.2% +0.1%  
November 22       –4 bp +0.5
      Weekly change +4 bp +0.4%

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.


  • 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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