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January Economic Update

A Happy New Year to you and yours!

December wrapped up 2016 with a strong rally in the U.S. financial markets with positive economic data underlying the strength of the economy. The U.S. economy saw a rise in consumer confidence, improved home sales, and a drop in unemployment rates. The Federal Reserve increased its interest rate target to a range of 0.50-0.75%, which is only the second adjustment to the federal funds rate in two years. Oil prices increased for the first time in three years due to an OPEC agreement to cut oil production. While the Dow Jones Industrial Average did not top 20,000 in December, it did advance nicely, gaining 3.34% and prompting optimism on both Wall Street and Main Street. (1,2,3)


Domestic Economic Health

The Fed adjusted its dot-plot for the next three years as it raised the benchmark interest rate by a quarter-point in December. Its latest forecast projects two to three rate hikes per year through 2019, with three occurring this year. Fed policymakers see the economy expanding 2.1% this coming year. (2)The Department of Labor’s latest jobs report noted payroll growth of 178,000 net new hires in November and a drop in unemployment by 0.3%, the lowest since August 2007. The average hourly wage was $25.89, up 2.5% in the past year. (4)Household confidence aside, November’s personal spending and retail sales numbers were “run-of-the-mill” with the Department of Commerce citing a modest rise in consumer spending of 0.2% and retail purchases up only 0.1%.(2)


The Department of Labor’s latest jobs report noted payroll growth of 178,000 net new hires in November and a drop in unemployment by 0.3%, the lowest since August 2007. The average hourly wage was $25.89, up 2.5% in the past year. (4)


Household confidence aside, November’s personal spending and retail sales numbers were “run-of-the-mill” with the Department of Commerce citing a modest rise in consumer spending of 0.2% and retail purchases up only 0.1%. (5,6)


Real Estate

The National Association of Realtors stated another 0.7% increase in home resales while the Census Bureau cited an impressive 5.2% jump in new home buying. As for home prices, the October edition of the S&P/Case-Shiller home price index showed a 5.6% year-over-year gain. While 2016 has been an impressive year in real estate, the NAR reported a 2.5% drop in pending home sales in November. Bloomberg reported the average interest rate on a 30-year mortgage approaching a five-year high. (5,7,8)