Strong Economy and Cheaper Gas Prices

It has been a long time since gas prices were under $3.00 per gallon. About two-thirds of the stations nationwide are now charging $3.00 or less for a gallon of regular, according to the Oil Price Information Service. A jump in U.S. oil production and a strong dollar, coupled with lower consumption related to China’s slowing economy helped to send crude oil prices lower.

As expected, the Fed announced that its bond purchases program or QE3 will end this month while leaving the Fed funds rate near zero for the time being. According to the FOMC, the economy is expanding at a moderate pace and improvement in the labor sector is visible from solid job gains and a lower unemployment rate. Also, the Fed remains dovish with inflation remaining below the Fed’s 2 percent target at 1.7 percent. In another sign of firming economy, GDP expanded at a 3.5 percent annualized rate in the third quarter.

Riding on better than expected earnings, the stock market touched the historic highs last week. At the end of week, the S&P closed at 2,018 while the Dow ended the trading week at 17,390. In other major economic indicators released last week, Consumer Confidence for October touched a new recovery high of 94.5, surpassing the previous recovery high of 93.4 in August. October’s gain is concentrated almost entirely from the expectations component, which reflects optimism in the outlook for both jobs and income. Personal Income continues a modest uptrend but spending slipped on volatile auto sales and lower gasoline prices. For the month of September, Personal Income was up 0.2 percent while Personal Spending also declined by 0.2 percent. However, Durable Orders disappointed for the month of September.

Turning to the bond market, yields on two-year Treasuries rose 11 basis points to 0.49 percent, the most since July 2011 while the 10 year rose by 2 basis points to 3.07. Towing the same line, conforming mortgages rates also jumped a bit. At the end of the week, the Conforming Fixed 30-year rate leveled out at around 3.85 percent, while the Conforming Fixed 15-year rate finished at around 2.99 percent.

The main economic indicators to watch for this week will be PMI Manufacturing Index and the ISM Manufacturing Index on Monday, Factory Orders on Tuesday, ADP Employment Report on Wednesday and the Employment Situation on Friday.

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