Financial News for the Week of December 8th, 2023
Financial News Highlights
- The U.S. economy continued to add jobs in November, while the unemployment rate dipped, and wage growth held steady in financial news.
- The JOLTS data also showed a narrowing gap between labor demand and supply, which suggests that activity in the labor market continues to normalize and come into better balance.
- The ISM services index showed that the services sector managed to maintain a modest expansion in November. Nonetheless, the trend continues to show that services sector growth is slowing.
The (Re)balancing Act Continues
The major focus on the U.S. economic data calendar this week was the labor market, with the two main reports showing labor demand and supply are gradually coming back into better balance. The service sector also continued to expand while U.S Treasury yields continued to push further below their mid-October highs.
First up, the more backward-looking JOLTS data showed that the number of job openings in October fell by more than expected and slipped to the lowest level since March 2021. Although still higher than before the pandemic, at 8.7 million, openings are down notably from a record high of 12 million in March 2022. To be sure, there were still plenty of jobs available relative to the more than 6.5 million unemployed job seekers in October. However, the gap has narrowed with the vacancies-to-unemployed ratio falling to 1.34 from 1.47 in September — its lowest reading since August 2021. Other elements of the report also supported a softening labor market narrative – lay-offs held steady at 1.6 million and the quit rate remained unchanged at 2.3% for the fourth consecutive month (in-line with where it was immediately prior to the pandemic). Further evidence of labor demand cooling has been seen in continuing jobless claims, which have ticked higher over the past month, suggesting workers are finding it a bit harder to find a new job.
The signal from the more recent November payrolls report was generally in line with the JOLTS data in financial news. The economy added 199k jobs in November, largely in line with its pre-pandemic average and up from 150k the previous month (Chart 2). The unemployment rate dipped to 3.7% as the labor force participation rate edged higher. Annual wage growth held constant at 4.0%, down from the highs seen last year, but still above what’s consistent with 2% inflation.
The recent cooling in the labor market alongside easing inflationary pressures has pushed term yields notably lower as market participants have pulled forward the timing of when the Fed could begin cutting rates. Since their recent peak in October, yields have retreated closer to levels seen in September. Given the resilience of the economy thus far however, a further easing in financial conditions could provide a stimulus to demand that could reignite price pressures and prompt further Fed action contrary to market expectations.
On the production side, the services sector of the economy managed to eke out a continued expansion with the ISM services index rising modestly to 52.7 in November. The lackluster growth suggests that activity in the sector is slowing down, which could help to keep a lid on service sector inflation and help wage inflation continue to cool.
The resilient labor market that supported an unexpectedly strong U.S. economy this year is showing signs of cooling. The latest signs that it is coming back into greater balance will be welcomed at the Fed, which will be meeting next week for their final policy decision of the year. When Fed Chair Powell noted that the central bank can “let the data reveal the appropriate path”, this week’s data points to a steady course. All eyes will be on next week’s CPI release to see if it corroborates that plan of action.
Shernette McLeod, Economist | 416-415-0413
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Financial News for the Week of December 1st, 2023
Financial News Highlights
- A second reading on U.S. GDP showed that the economy expanded by an even more impressive 5.2% (annualized) last quarter, a 0.3 percentage point upgrade from the initial reading in financial news. Government spending and business investment were revised up, but consumer spending was revised down slightly.
- October’s real consumer spending data showed that growth eased at the start of the fourth quarter. Core PCE inflation, the Fed’s preferred measure, also cooled to 3.5% year-on-year from 3.7% in September.
- The National Association of Realtors pending home sales index fell to a record low in October.
Moving Toward Target
The U.S. economy grew at an even better pace than initially reported in the third quarter. But, a moderation in consumer spending in October coupled with some progress on the inflation front, reinforced market expectations that the Fed has likely reached the end of its tightening cycle. That said, Fed speak out this week was somewhat mixed, with some suggesting that today’s policy rate is sufficiently restrictive while others still feel it’s too early to call it quits. In his speech on Friday, Chair Powell called talk of cutting rates ‘premature’.
The second reading on U.S. GDP showed that the economy grew by 5.2% (annualized) last quarter, an upgrade of 0.3 percentage points from the initial reading. The upward revision reflects improvements in government spending and fixed investment. One major category going against the grain was consumer spending, which was revised slightly lower to 3.6% from 4% previously. Stepping into the fourth quarter, the personal income and outlays report, added another layer of moderation for the consumer. Nominal spending rose 0.2% month-over-month (m/m) in October, a deceleration from 0.7% in September. The spending slowdown was less pronounced on an inflation-adjusted basis, with growth easing to 0.2% from 0.3% in the month prior.
Given a reduction in credit availability and the drawdown of pandemic era ‘excess savings’, the American consumer will have to rely more closely on income growth to fund its spending (see here). As such, any softness on the labor market should filter through to weaker spending. Peeking into the labor market, continuing jobless claims rose to 1.93 million in mid-November. This is the highest level since late 2021 and an added sign that the labor market is gradually cooling. Overall, we expect consumer spending to remain buoyant over the holiday period, but the momentum is likely to fade, with consumption growth likely to slow to around 2% this quarter.
The monthly personal income and outlays report also carried some good news on the inflation front. The highlight was a continued deceleration in core PCE – the Fed’s preferred inflation gauge – which slowed to 3.5% year-on-year in October from 3.7% in the month prior (Chart 1) in financial news. Interest rates have eased alongside this continued progress toward the Fed’s 2% target, and so have mortgage rates. The 30-year mortgage rate is currently hovering near 7.2% – some 80 basis points lower than the 8% peak in mid-October. This pullback appears to be providing some relief on housing, with mortgage purchase applications ticking higher for the fourth week in a row last week. But, the impact of interest rates tends to be felt with a lag, so this will take some time to be manifested in sales activity. To that end, pending home sales fell to an all-time low in October, indicating that things are likely to get worse before they get better (Chart 2).
All in all, higher interest rates are working as intended with inflation gradually easing toward target, but the Fed can’t let its guard down prematurely and is likely to maintain a hawkish tone until it is convinced that the inflation is decisively moving back towards 2%.
Admir Kolaj, Economist | 416-944-6318
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Featured Article: Don't Miss Out on Your 2023 Tax Breaks
Don't Miss Out on Your 2023 Tax Breaks
It’s time to shake a leg on year-end tax planning.
As usual, most moves affecting 2023 taxes must be completed before Jan. 1, just weeks away. Here are areas to tackle now—and a few that can slide.
Check withholding and estimated taxes
On Oct. 1, the penalty on tax underpayments rose to a stiff 8% and may hold there. This is worth avoiding, so review your paycheck withholding or quarterly estimated taxes—especially if your income has been uneven or included a windfall like a bonus.
To avoid underpayment penalties, most filers must pay 90% of their taxes long before the April deadline. The due date is Dec. 31, 2023 for employees and Jan. 16, 2024 for those making quarterly payments. The IRS has posted a calculator to help employees figure the right amounts.
Need to pay more? Try to fill the gap by withholding either from your paycheck or your taxable IRA payout. Under little-known tax rules, these moves can wipe out or reduce underpayment penalties, even if the catch-up payment is made late in the year.
Taxpayers can also bypass penalties by paying an amount equal to either 100% or 110% of their 2022 taxes, if they do it on time. (IRS.gov/directpay is a useful option.) In most cases, the 100% threshold applies to filers with adjusted gross income of $150,000 or less, while the 110% threshold applies to those with more.
Standard deduction or itemized?
Filers can reduce their taxable income either by subtracting one overall amount—the standard deduction—or by listing itemized deductions for mortgage interest, state and local taxes, charitable donations, medical expenses and others on Schedule A. Before the 2017 tax overhaul nearly doubled the standard deduction, about 30% of filers itemized.
Now, less than 10% do.
The standard deduction is $27,700 for married joint filers and $13,850 for singles this year, and next year that rises to $29,200 and $14,600 respectively. Filers age 65 and older each get at least $1,500 more.
Some taxpayers will want to switch back and forth from standard to itemized to maximize overall deductions. If so, it can make sense to “bunch” deductions either by accelerating or delaying them into years when you’ll itemize.
Often the best candidates for bunching are charitable donations (see below), but don’t overlook unreimbursed medical expenses. They’re deductible above 7.5% of adjusted gross income, a hard threshold to surmount. For those who do, a wide variety of expenses can count, including Medicare premiums, contact-lens solution and home modifications like an elevator or even a swimming pool.
Optimize charitable donations
Givers should focus on three key tax breaks for donations, as there’s no $300 or $600 deduction for non-itemizers this year.
One is to bunch gifts and itemize deductions in some years but not others. Example: Margaret is a single filer, age 67, who gives $5,000 a year to charity. But that and her other deductions will come to less than her 2023 standard deduction. By making two years of donations either this year or next, Margaret could take the standard deduction one year and itemize for the other to maximize overall tax breaks.
Another is to donate appreciated investments held longer than a year. Donors can often take a deduction for the full fair-market value of an asset without owing tax on its growth—although conditions and limits apply.
Donors who bunch deductions or give appreciated assets may want to use a donor-advised fund, or DAF. These enable the giver to take an upfront deduction and wait till later to direct donations to specific charities. Such funds are often convenient but have fees.
Finally, taxpayers age 70 ½ and older have a highly useful option: qualified charitable distributions, or QCDs, of traditional IRA assets. Each IRA owner can transfer up to $100,000 this year ($105,000 in 2024) directly to one or more charities. The donation can count toward their required minimum payout, if any.
Donors using QCDs don’t get a deduction, but the gifts don’t count as taxable income, either. That can help reduce income-adjusted Medicare premiums and other taxes—and still allow the donor to take the standard deduction.
Watch for large mutual-fund payouts
Investors holding mutual funds in taxable accounts should check whether their funds will make large capital-gains payouts for 2023.
Mark Wilson, a financial adviser who tracks large payouts at CapGainsValet.com, expects large payouts from fewer than 100 funds this year. That compares with about 360 last year, when markets tumbled and some managers sold holdings to meet redemptions.
Still, he says that so far five funds have announced payouts greater than 30% of net asset value, including the BNY Mellon U.S. Equity Fund. Another dozen will be making payouts greater than 20% of assets, including J.P. Morgan’s Tax Aware Equity fund and the DWS Equity 500 Index fund.
Usually investors have time after the announcement to make strategic moves before the payout. These include harvesting losses elsewhere to offset the gains or donating the holding to charity for a deduction.
Plan electric-vehicle purchases
There are lots of factors to consider. One is that buyers who wait until 2024 can receive a tax credit up to $7,500 at purchase, while those who buy this year can’t claim the credit until they file 2023 tax returns.
On the other hand, the list of eligible vehicles could shrink in 2024 after the IRS issues guidance on certain provisions. One of them excludes vehicles with battery components from certain countries, perhaps including China. Income limits of $150,000 for singles and $300,000 for couples filing jointly could also matter, so check the details if you’re close.
Note that many of these constraints don’t apply to leases, which have become more popular as a result. Due to excess inventory, many automakers and dealers are also discounting prices.
Take required IRA distributions
Owners of traditional IRAs born in 1950 or earlier typically must take required withdrawals for 2023 by Dec. 31, 2023. The payouts are based on the account value as of Dec. 31, 2022.
Many heirs of traditional IRAs whose owners died in 2020 or later would normally have to take a required withdrawal this year. However, the IRS is allowing these heirs to skip it for 2023.
Know what can wait
Contributions to traditional IRAs, Roth IRAs, and health-savings accounts for 2023 can typically be made until the tax deadline of April 15, 2024 (April 17 in Maine and Massachusetts). Some self-employed filers can make 2023 contributions to Solo 401(k)s until Oct. 15, 2024.
Write to Laura Saunders at Laura.Saunders@wsj.com
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Financial News for the Week of November 24th, 2023
Financial News Highlights
- Minutes from the Federal Open Market Committee (FOMC) meeting reinforced the Fed’s messaging that patience is warranted while the disinflation process is working in financial news.
- Existing home sales sag as high prices and financing costs make homes their least affordable since the mid-80s.
- All eyes will be on next week’s personal income and spending report for October, watching for further signs of slowing demand growth.
Looking for Signs of Slowing
U.S. Treasury yields extended their decline this week, with the 10-year now hovering around 4.5% in financial news. As economic data have decelerated, expectations for policy easing next year have helped markets continue to rally – up about 1% this week. This week, minutes from the Federal Open Market Committee (FOMC) meeting reinforced the Fed’s messaging that patience is warranted while the disinflation process is working, while housing starts data showcased that higher interest rates are working to cool the economy. Coming off the Thanksgiving holiday, all eyes are now tuned to next week’s consumer spending report for October for signs of slowing economic momentum and cooling inflation.
The minutes from the FOMC’s last meeting essentially backed up the hawkish signals the Fed has been putting out while they hold the policy rate fixed. Committee members noted how the economy stayed unexpectedly hot through the third quarter of the year, powered by relentless consumer spending. With the supply shocks from the pandemic and the war in Ukraine still gradually resolving themselves, persistently strong aggregate demand helped keep pressure on prices through much of the year. However, committee members judged that this may be starting to shift (Chart 1). This has left the Fed squarely focused on cooling demand to tame inflation pressures. On this front, the Fed maintains that restrictive policy rates are working, and are at an appropriate level. Moreover, with members agreeing that there needs to be clear evidence that inflation is on a solid trajectory back to 2% before easing, and upside risks ever-present, officials will be keenly looking out for any signs that more needs to be done to restore the supply-demand balance.
On the demand side, the housing market is clearly responding to the surge in borrowing costs since the summer, with existing home sales in October falling to their lowest level since 2010 (Chart 2). However, conditions today are drastically different than in 2010, when the housing bubble burst leading to an abundance of supply, and a tepid recovery after the Global Financial Crisis saw a drastic improvement in affordability. Today, affordability is weighing on activity as high prices and financing costs make homes their least affordable since the mid-80s. With the Fed poised to keep rates at multi-decade highs, a quick turnaround is unlikely.
However, with healthy economic momentum through the third quarter all eyes will be on next week’s consumer income and spending report for signs of slowing demand growth. With payrolls growth slowing in October, consensus expectations are for real consumer spending growth to slow from 0.4% month-on-month (m/m) in September to 0.1% in October. The Fed’s preferred inflation measure, the core PCE deflator, is expected to follow suit, slowing to 0.2% m/m from 0.4% in September.
Of course, given the experience of the past year, the risks run to the upside, and that the American consumer will once again prove to be more resilient than expected. In that event, the Fed has told us it stands ready to tighten policy further if they assess that data show, “progress toward the Committee’s inflation objective was insufficient.”
Andrew Hencic, Senior Economist | 416-944-5307
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Financial News for the Week of November 17th, 2023
Financial News Highlights
- Consumer Price Index (CPI) inflation printed lower than expected in October, fueling a rally in equities and a sharp pullback in longer-term Treasury yields in financial news.
- A government shutdown was averted this week, as Congress passed another short-term funding bill that maintains current spending levels through mid-January.
- Retail sales data showed a moderation in spending activity in October, while higher frequency credit card spend data suggests the weakness has extended into November.
Extended Fed Pause Looking Increasingly Likely
Market sentiment was decisively in the risk-on camp this week, as a softer reading on October inflation and signs of slowing consumer spending fueled expectations of a longer Fed pause. Also providing a lift to equities was Congress acting to pass yet another short-term funding bill that avoids an immediate government shutdown by extending current levels of spending through mid-January. The S&P 500 is shaping up to end the week 2% higher – extending its winning streak to three-consecutive weeks. Longer-term yields traded lower, with the 10-year Treasury ending the week down 18 basis-points to 4.43%.
Turning to the Consumer Price Index (CPI) report, both headline and core inflation came in below market expectations. Falling energy and goods prices, a further easing on housing costs and some deceleration in the ‘supercore’ measure all contributed to last month’s softer print. On a twelve-month basis, core inflation is down 2.6 percentage points from last year’s high but, at 4%, remains well above the Fed’s 2% inflation target (Chart 1) in financial news. As noted in our commentary, the challenge for the Fed going forward is that much of the low hanging fruit on the dis-inflation front has now been picked. With supply-chain issues largely resolved, it is unlikely that falling goods prices will continue to exert as much of a drag on inflation going forward. Ultimately, this means a more pronounced slowing in consumer spending will be required to sustain continued downward pressure on inflation.
Retail sales data out this week showed that spending activity moderated in October. Although some of the weakness was attributed to a pullback in vehicle sales (possibly impacted by the UAW strike), the less volatile components still showed a meaningful deceleration in spending relative to prior months (Chart 2). Moreover, higher frequency credit card spend data reported through the first week of November has shown that spending activity has continued to moderate into the holiday shopping season.
At this point, the tailwinds for the consumer seem to be fading. Over two-thirds of the excess savings accumulated during the pandemic have now been exhausted, with most of the remaining savings likely residing with higher income households who tend to have a lower marginal propensity to consume. This is happening at a time when 27 million borrowers have started to make regular student loan repayments amidst a backdrop of deteriorating consumer sentiment and expectations of a cooling labor market.
To that end, recent readings on initial jobless claims have already turned higher over the past month, as have continued claims – recently touching a near two-year high. This suggests that not only are more workers losing their jobs but it’s also becoming a bit harder to find another. Ultimately, the labor market remains very tight by historical standards, but the recent drift higher in claims data suggests underlying conditions are easing on the margin. Although the Fed will need to see further evidence of cooling in the months ahead to rule out another rate hike next year, the recent data flow favors the FOMC holding rates steady in December.
Thomas Feltmate, Director & Senior Economist | 416-944-5730
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Financial News for the Week of November 10th, 2023
Financial News Highlights
- The risk of a government shutdown has returned as Congress has one week left before the continuing resolution passed on September 30th expires in governmental and financial news.
- The Federal Reserve’s Senior Loan Officer Opinion Survey showed that banks continued to tighten credit standards in the third quarter, as credit demand weakened further.
- Consumer credit growth eased in the third quarter as an acceleration in revolving credit growth (i.e. credit cards) was offset by a contraction in nonrevolving credit (i.e. student loans).
Government Shutdown Risk Redux
After last week’s busy slate markets took a breather to digest last week’s Federal Reserve policy decision and prepare for the risk of another potential government shutdown next Friday in financial news. On the data front, the Federal Reserve Senior Loan Officer Opinion Survey (SLOOS) and consumer credit report both showed credit conditions remained tight and demand continues to wane.
Monday’s release of the SLOOS showed that banks continued to tighten credit standards across loan categories in the third quarter and report weaker business and consumer demand for loans (see here). Although this came as little surprise considering Treasury yields rose by roughly 100 basis-points in Q3, the share of banks reporting tighter standards for commercial and industrial loans actually declined relative to the second quarter (Chart 1). This also held true for consumer credit cards and auto loans, although personal and mortgage loans each saw broader tightening relative to the second quarter. Despite the modest narrowing of credit tightening in the third quarter, the Federal Reserve’s continued signaling of rates staying higher for longer means a material loosening of credit standards likely remains a way off.
Easing consumer demand for loans was also evident in the Federal Reserve’s consumer credit data release on Tuesday which showed outstanding credit growth slowed notably relative to the second quarter. Outstanding revolving credit loans, which includes credit cards, saw accelerating growth in the third quarter of 8.6% while non-revolving credit growth, which includes student loans, declined by 2.4% (Chart 2). Under the weight of higher prices many consumers are increasingly relying on revolving credit to support spending, particularly as the moratorium on student loan repayment ends. Next week’s retail sales data will show whether the past six months of real sales growth, aided by consumer credit, continued into October despite the growing headwinds facing consumers.
In addition, updated CPI data out next week is expected to show continued easing in aggregate price pressures, supported by cooling energy prices. While this would undoubtedly be positive news, core inflation, which excludes food and energy prices, is expected to persist well above the Federal Reserve’s 2% target. A majority of FOMC members have noted that their current pause is conditional on sustained disinflation progress, with Chair Powell stating on Thursday that “if it becomes appropriate to tighten policy further, we will not hesitate to do so”.
Rounding out the coming week is the return of the risk of a potential government shutdown (see here) as the continuing resolution passed on September 30th expires on Friday, November 17th. Of the twelve appropriation bills that need to be passed to fund the federal government, the House has passed seven and the Senate has passed three with no consolidated bill managing to pass both chambers of Congress. This means that another continuing resolution may be used as a stopgap once again, but markets are likely to become increasingly apprehensive as Friday’s deadline approaches.
Andrew Foran, Economist | 416-350-8927
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Financial News for the Week of November 3rd, 2023
Financial News Highlights
- The Federal Reserve’s policy statement took center stage this week in financial news. As expected, the Fed kept policy rates unchanged but preserved the option of hiking in the future.
- Hiring in the U.S. slowed in October, with wage gains decelerating and the unemployment rate edging up.
- Activity in the manufacturing sector continued to contract in October, in contrast to the continued expansion in the services sector (though at a slower rate).
The Fed’s Door is Still Open
The U.S. economic calendar was packed this week with a mix of key data, central bank meetings and even Treasury auction announcements. To start things off, the Treasury announced its financing requirements for the upcoming quarter. In the announcement, issuance is dominated by shorter dated securities (2-7 year), with planned 10-to-30-year range issuance less than most had expected. What’s more, Treasury’s projection that it will slow the recent flood of new long-dated debt, contributed to a rally in the bond market and a pullback in long-term yields.
The next key focus was the labor market, with varying reports giving snapshots of the state of this important sector. November’s nonfarm payrolls, the most important, showed that hiring in the U.S. economy has slowed. Additionally, the pace of wage growth has cooled (Chart 1) in financial news. The unemployment rate also edged up slightly, bucking expectations for no change. The job opening and labor turnover survey (JOLTS) was slightly backward looking, covering September, and showed an increase in job openings, which was offset by a rise in the number unemployed, leaving the ratio of the two largely unchanged at 1.5. The pace of hiring also eased and the quit rate levelled off at its pre-pandemic rate. The employment cost index on the other hand showed that wage gains ticked up in the third quarter, but compensation growth still slowed from 4.5% to 4.3% on a year-on-year basis. Overall, the labor market metrics are consistent with what the Fed wants to see – a market that is slowly cooling with likely further deceleration in wage pressures ahead.
As widely expected, the Federal Reserve held interest rates steady at 5.25%-5.50% on Wednesday. This is the first time in the current tightening cycle that the Fed has paused for two consecutive meetings. However, the central bank still left the door wide open to potentially raising rates in the future if needed to keep the disinflation momentum going. October’s cooling in the labor market combined with expectations that economic activity will pullback in Q4, suggests that they may not need to walk through it before the year is done, but only time (and the data) will tell.
One sector of the economy that is not fairing very well is the manufacturing sector. Activity in the sector, as measured by the ISM sentiment survey, continued to contract in October, falling to its lowest level since July, on broad-based weakness. The silver lining, however, is that a pullback in raw materials prices is easing cost pressures, which should help to mitigate price pressures for consumer goods. The services side of the economy fared a bit better, with the ISM services index expanding again in October, though at a slower pace (Chart 2). Twelve out of eighteen industries reported growth; however, the softer-than-expected reading suggests that the Fed’s hiking campaign is influencing the services sector as well.
The takeaway from the week is that if the disinflationary trend remains intact, the Fed’s December decision is a tougher call. There will be several economic releases over the next six weeks that will influence the Fed’s decision. But, so far, consumer spending momentum has remained stronger than expected, risking an uptick in inflation. This still suggests that the Fed’s work is likely not done.
Shernette McLeod, Economist | 416-415-0413
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Financial News for the Week of October 27th, 2023
Financial News Highlights
- The 10-year Treasury yield briefly surpassed 5% earlier this week in financial news. Though yields have since retraced, the 10-year looks to end the week at a still elevated 4.85%.
- The advance estimate of GDP showed the economy registered its strongest gain in nearly two years in the third quarter, with most major areas of spending recording gains.
- The FOMC is expected to hold rates steady next week, but the uptick in September inflation along with any signs of continued labor market strength in next week’s data will tilt the scales in favor of another rate hike later this year.
Economic Resilience on Full Display in Third Quarter
Longer-term Treasury yields continued to creep higher through the early portion of the week, as the looming threat of a mid-November government shutdown, increased Treasury issuance, and heightened geopolitical tensions remain key drivers pressuring the term-premia higher. After briefly surpassing 5% earlier this week, the 10-Year Treasury yield has since pared its gains and currently sits at a still elevated 4.85%. Meanwhile, equities edged lower for the second straight week – down 2% at the time of writing – but remain 8% higher on the year.
Turning to the economic data calendar, the Bureau of Economic Analysis (BEA) released its advance estimate of third quarter real GDP. The report showed economic activity accelerating at more than double the rate of expansion seen in Q2. The ongoing theme of economic resilience was on full display last quarter, with most major areas of spending recording gains in financial news. The strength in consumer spending was particularly eye-catching, jumping up 4.0% (Chart 1). The summer shopping spree was fueled by a resilient labor market and a further drawdown of the excess savings accumulated during the pandemic. Moreover, because many homeowners locked-in mortgages at ultra-low rates in 2020/21, the passthrough of higher interest rates to the consumer has been more muted relative to past tightening cycles.
Perhaps more concerning for policymakers is that spending momentum heated up at the end of the third quarter. September’s gain was the second strongest over the past eight months, and suggests consumers didn’t hold back last month, despite the looming headwind of student loan repayments restarting in October. At this point, we see Q3’s blowout numbers as the ‘last hurrah’ and expect a more tepid pace of consumer spending (1.5-2%) for Q4, before slipping sub-1% through the first half of next year.
Should the consumer prove more resilient, that will spell trouble on the inflation front. In fact, core PCE inflation data for September has already telegraphed some evidence of progress stalling. Price growth picked up to 0.3% m/m (up from the 0.17% m/m gains averaged over the three prior months), with notable strength in Powell’s ‘supercore’ measure, which has barely budged from last year’s highs (Chart 2).
From the Fed’s perspective, nothing out this week will influence next week’s interest rate decision. At this point, markets are fully priced for the FOMC to hold rates steady, and only attach a 20% probability to another rate hike in December. However, that could quickly change over the next week should the FOMC statement and/or Powell’s press conference strike a more hawkish tone. Next week’s Employment Cost Index release for the third quarter is also important given it contains a measure of wage inflation that the Fed watches closely. As well, October’s employment figures out Friday will be closely scrutinized as usual. Unless these reports show a definitive sign that the labor market is cooling, which looks unlikely given the recent strength in higher frequency indictors including jobless claims and Indeed job posting data, another rate hike come December seems inevitable.
Thomas Feltmate, Director | 416- 944-5730
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Financial News for the Week of October 20th, 2023
Financial News Highlights
- Treasury yields continued their steep ascent this week, amidst a heavy week for Fed speakers in financial news. FOMC members broadly agreed that positive progress had been made on inflation, although few were willing to take the prospect of further policy tightening off the table.
- Previous increases in mortgage rates weighed heavily on the housing market in September, although new home construction rebounded from its August decline.
- The consumer appeared undeterred by higher borrowing costs in September, with retail sales growth doubling expectations.
Treasury Yields Flirt with Multidecade Highs
The steep ascent of U.S. Treasury yields continued unabated this week, as markets revised their expectations for yields, particularly over the longer term. The persistent political dysfunction in Congress amid rising deficits and heightened geopolitical tensions is likely playing a role in the increase in the term premium, which has recently contributed to the higher 10-Year yield. The term premium reflects the added compensation investors require for the unknowns associated with holding longer-term government debt. The 10-Year Treasury yield is now just under 5%, its highest level since before the Global Financial Crisis (Chart 1). Equities in turn fell this week, with the S&P 500 down 1.8% as of the time of writing.
Outside of financial markets, the real economy has seen divergent trends between economic sectors depending on their sensitivity to interest rates. The housing market softened further in September to reach a 13 year low, reflecting the strain of higher mortgage rates (see here). While existing home inventory levels improved on the month, supply remains low, which continued to place upward pressure on housing prices. Low resale listings have in turn increased the demand for new units, but elevated rates remain a headwind to homebuilding activity as well. While housing starts rose in September, they remain well below year-ago levels, primarily resulting from weakness in the more rate-sensitive multi-family segment.
Despite higher interest rates, the health of the American consumer has remained robust (see here). Retail sales growth in September more than doubled expectations. Somewhat surprisingly, the most rate-sensitive segment of retail sales (Automobile & other motor vehicle dealers) saw its strongest growth in four months in financial news. However pent-up demand from the extended shortage of vehicles in previous years continues to be a factor. But, even excluding the more volatile categories, the retail sales “control group” was very strong on the month. All in all, the resilience of the consumer has been a key growth contributor in 2023.
In terms of what this means for interest rate moves, we heard remarks from nearly every member of the FOMC this week, including Chair Powell. The balance of opinion was skewed towards maintaining a wait and see approach given the positive progress that has been made on inflation thus far, which pushed market pricing for a hold at the next meeting on November 1st to a virtual certainty (Chart 2). However, Powell also noted that additional evidence of persistently above trend growth or tightening labor market conditions could put inflation progress at risk and warrant further policy tightening. We currently expect that the resilience of the U.S. economy will lead to one last interest rate hike, but the recent tightening in financial conditions makes it a close call.
Next week we will see the advance estimate for third quarter GDP growth, which is expected to show eye-popping growth. Perhaps more importantly, the September consumer spending data will show how momentum is looking heading into the fourth quarter, along with the Fed’s preferred inflation metric. A moderation in both metrics would be welcome news for the Fed.
Andrew Foran, Economist | 416-350-8927
This Financial News report is provided by TD Economics. It is for informational and educational purposes only as of the date of writing and may not be appropriate for other purposes. The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this financial news report has been drawn from sources believed to be reliable but is not guaranteed to be accurate or complete. This report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered. Do you have any questions about your finances? As financial advisors in Cornelius NC, Naples FL, and Moultonborough NH we are happy to help.
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Featured Article: Smishing: A Silly Word for a Serious Fraud Threat
Smishing: A Silly Word for a Serious Fraud Risk
There was clearly something fishy afoot when Beth, a disabled 50-year-old from North Carolina, received two text messages saying she had money available to add to her phone’s digital wallet.
One message said, “Beth put this in your wallet and use it whenever.” The other said, “The balance on this account is yours. no be to share [sic].” Both messages included hyperlinks.
Beth, who asked not to use her last name, had just become the target of “smishing,” an increasingly common tactic criminals are using to commit fraud.
Instead of clicking on the embedded links, Beth deleted the messages and reported them to the Better Business Bureau, a business watchdog. “Money doesn’t just drop in your lap,” she told Consumer Reports, explaining why the messages raised her suspicions. Beth says she has been on high alert for fraud since being targeted by calls from scammers claiming to be officials from the IRS or Social Security.
The word smishing combines SMS, the primary technical format for text messaging, and phishing. As in other phishing attacks, the criminals masquerade as government workers, tech support representatives, long-lost friends, or financial institutions, and try to lure people into divulging personal details that could lead to fraudulent credit card purchases or identity theft.
Robotexts Are the New Robocalls
More than 87 billion spam texts were sent to U.S. phone users in 2021, according to RoboKiller, a spam text mitigation service—that’s 58 percent more than the prior year, RoboKiller says. And so far this year, U.S. phone users have received over 55 billion spam texts with 12.02 billion texts received in the month of June alone, according to RoboKiller.
Top Scams
Delivery scams where fraudsters impersonate Amazon, FedEx, and the U.S. Postal Service are the most prominent text scam, accounting for over 26 percent of all SMS scams in 2021, according to RoboKiller. In these scams, robotexts are sent with links that are purported to be for tracking packages or adjusting user preferences. However, they’re actually links that connect users to fake websites where the recipient will divulge their sensitive information or download malware onto their device.
COVID-19 scams were the second most common text scam in 2021, according to the company. Here, scammers offer COVID-19 tests and request personal and financial information.
In addition to those scams, text messages are also used to perpetrate intricate bank and peer-to-peer (P2P) digital payment fraud.
With some bank frauds, victims are fooled into furnishing log-in credentials, which criminals use to siphon out cash or open credit cards, whereas with P2P frauds, victims can be tricked into paying for goods and services they never receive, or sending money to people pretending to be friends or relatives. There have even been reports of identity theft in which the criminals will use someone else’s name and information to rent property.
Here are a few tips to stay safe when using text messages.
How to Avoid Smishing
- You should never reply or click on any links in an unwanted text. They can contain malicious code that could infect your mobile phone.
- Forward unwanted texts to 7726, which spells SPAM. It’s free to do and forwards the messages to your phone carrier’s spam department so that it can take action against the number. If a message is being delivered over a third-party messaging app, you’ll want to report it to the app that you use by looking for an option to report junk or spam.
- Your phone should have an option to filter or block messages from a specific number. Major providers also often have a tool or service that can block spam calls and texts that you can look for and use. Similarly you can download a call- and text-blocking app from your phone’s app market or download apps from the Apple or Google app stores.
- Beware of messages that are claimed to be from government agencies, such as the IRS or Social Security. The IRS will never send you an unsolicited text message or initiate contact via text message, email, or social media. Social Security does allow marketing firms to send emails to raise awareness of Social Security’s online services, and it uses text messages for two-factor authentication—but only if you’ve set up that security measure through your online account.
- A telltale sign that you may be under attack is that a message is trying to impart a sense of urgency. These types of scams often imply that an immediate response is required to take advantage of an offer or to avoid a penalty.
- Don’t be taken in by friendly, familiar language. Smishing text messages may use your name. While they often come from unfamiliar numbers, sometimes they seem to have originated from a phone number you recognize.
- Do not respond to suspicious text messages, even if the message says you can “text STOP” to prevent future messages. Any response on your part will confirm for the scammers that the number is in use—and you’ll just be inviting more texts.
- You should always be careful when giving out your phone number and when entering your phone number into any customer site. You should read through the commercial web forms and check for a privacy policy. In these cases you should be able to opt out of texts, but it may require you to check or uncheck a box.
- Delete all suspicious texts.
- Make sure your phone’s operating system is up to date. Android and iOS are constantly being updated with enhanced security features. On Android models and iPhones, your phone’s settings page should indicate which system you’re using and whether an update is available.
- If you get a suspicious text from an official-sounding entity and want to check it out, don’t use any information from the message itself. Instead, call or email the company or government agency directly, using an official phone number from a recent bill or another valid source of information.
- You should also alert law enforcement to the attack by submitting a report to the FCC or the Federal Trade Commission.
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