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Your Bank > News

CNB Economic Comments November 24

November 27, 2017

To: Everyone
From: Gregory S. MacKay, Economist
gsmackay52@gmail.com
585-705-6888
Date: November 24, 2017

Someone’s going to have to write some new lyrics to “It’s beginning to look a lot like Christmas” to include “the line went around the building at Dunkin Donuts”, “162 Black Friday sales on my iPhone”, and “50% off everything made me skip my Thanksgiving turkey.” Yes, with apologies to “It’s the most wonderful time of the year” (a retail favorite), the wild holiday dash has begun. Early results seem to be strong as many retailers loaded up sales well before Black Friday. “Traditional” shopping is slowly losing its appeal, as online shopping and online shopping with anytime store pickup become the solution to the parking lot minivan shuffle (proceed 20 feet, look left, look right, repeat). I’m girding up for the month long challenge to share the roadways with UPS and FedEx delivery vehicles.

Surveys of various consumer and sales groups seem to indicate a good holiday sales season is forthcoming. On average, holiday sales are anticipated to rise 4% over last year’s levels (which were 3% above 2015 sales). Positive indicators include very strong consumer confidence as evidenced by both major national surveys. Consumers are generally feeling very positive about jobs, wages, and the business outlook both currently and in the near future. The most recent employment report showed job gains averaging 162,000 for the past three months, and that number might be negatively skewed because of the hurricanes.

Another positive factor is the recent surge in both auto sales and home sales. Both large ticket items struggled through the summer months, but have recently begun to advance nicely. Auto sales rose .8% in October, and were up 6% over October 2016 levels. Existing home sales moved up from a moderate summer selling season. Inventory remains an issue, with only a 3.9 month supply of homes available. Median price ($247,000) homes are selling in about a month, with prices up a firm 5.5% in a year.

Other retail sales data also seem to indicate consumers with consumption on their minds. A post-hurricane lull in building materials and gasoline sales was replaced with surges in spending for furniture, electronics, groceries, health and personal care, clothing, sporting goods, and restaurants. An interesting side bar was the fact that internet sales actually declined in October, an occurrence which is rare in a market that has seen internet sales increase from 3.5% to over 9% of total retail sales since 2008. Maybe buyers were heeding the many sales sirens wailing before Black Friday, and held back on purchasing in October.

Rising interest rates can also stimulate sales. “Buy it now before the financing costs go up” is often quoted as a reason for purchasing bigger ticket items. With discussion centered on a probable interest rate hike after the December 12-13 FOMC meeting, there may be some larger than normal big ticket purchases in the next few weeks. Consumer credit usage, both credit card and auto loans, has spiked upward in the past couple of months. This could certainly help the holiday selling season if it continues.

A look at business spending suggests its belief in the idea of stronger consumer. While durable goods orders fell 1.2% in October, almost all of the decline was in defense and non-defense aircraft, both of which had had sparkling years until October. Most other categories have had a good 2017, with overall manufacturing orders up 6.5% year-over-year. Industrial production levels had a huge increase in October, partly hurricane driven, but there has been a general strengthening in manufacturing since this summer, as companies have sensed increasing demand from consumers for many goods.

Finally, the proposed income tax cut for corporation and individuals continues to meander forward. The House bill has passed, the Senate version should see debate and action soon. There are hurdles to overcome before a consensus bill is passed, but corporations, individuals, and the stock market all seem to believe that some form of fiscal aid is finally coming. My view is that any form of fiscal stimulus that adds money to the system will provide some boost to the monetary policies in place and will help this expansion continue for some time to come.

At the close Friday in a holiday shortened week, stocks fared well:

Index 11/24/17 Weekly Change Year-to-Date Change
Dow Industrials 23558 +0.9% +19.2%
NASDAQ 6889 +1.6% +28.0%
S&P 500 2602 +0.9% +16.2%

Bond yields were mixed, with muni yields moving upward due to some nervousness about possible tax changes.


Return Period
U.S. Treasuries Municipal Bonds
11/24/17 11/10/17  11/10/17 11/10/17
2 year 1.74% 1.65% 1.33% 1.16%
5 year 2.06% 2.05% 1.65% 1.51%
10 year 2.34% 2.40% 2.11% 1.99%

Please remember to shop at your local merchants this holiday season. They live, work and pay taxes in our community, and are an integral part of the success of our area. Thank you.