US markets closed lower with modest loss

01 Nov 2016 Evaluate

The US markets closed lower on Monday, finishing October with a loss, as stronger-than-expected consumer spending data underlined the view that the economy is growing at a steady pace, while a drop in oil prices and election uncertainty weighed on the minds of investors. Monday’s economic data are consistent with previous releases suggesting the Federal Reserve is likely to raise interest rates in December. However, a renewed selloff by oil futures amid increased doubts that major oil-producing nations will cut production capped gains. Investors also remained cautious following new developments in the Federal Bureau of Investigation probe into Hillary Clinton’s emails and how the investigation could impact the poll numbers. The latest Washington Post-ABC News tracking poll showed Republican presidential nominee Donald Trump is just 1 percentage point behind his rival Clinton, though a majority of voters polled said that news of the fresh email probe will make no difference to their vote. The Atlanta Federal Reserve’s GDP Now forecast model showed that the US economy is on track to grow at a 2.7 percent annualized pace in the fourth quarter. The final estimate on third-quarter GDP was 2.1 percent, which was well below the 2.9 percent.

On the economy front, a measure of Chicago-area economic activity faltered in October, suggesting the economy lost some momentum seen in the third quarter. The Chicago PMI fell to 50.6, a drop of 3.6 points, bringing the index to its lowest level since May. A reading of 50 indicates improving conditions. The decline in October was led by a slowdown in production, which fell 5.4 points to 54.4. New orders also fell to the lowest level since May. There were also some signs of a pickup in inflation. The prices paid index rose to its highest level since November 2014.

Meanwhile, Americans increased spending in September by the largest amount in three months, but they were also more frugal in midsummer through the season’s close, perhaps a sign that creeping inflation has caused consumers to turn more cautious. Consumer spending rose 0.5% last month. The increase in spending last month was the biggest since June. Americans bought more new cars and other long-lasting goods. Yet an upward tilt in consumer prices also pushed up the rate of inflation over the past 12 months to a nearly two-year high of 1.2%, based on the PCE index. Although that’s still below the Federal Reserve’s 2% target, the trend is probably enough to spur the central bank to raise target US interest rates before the end of the year. Incomes rose 0.3% in September if inflation is excluded. The savings rate for the typical consumer fell slightly to 5.7% last month. Consumer spending grew a more modest 2.1% in the third quarter, half as much as the 4.3% advance in the prior three-month period. Spending has averaged a so-so 2.3% increase each quarter during the current recovery now going on its eighth year.

The Dow Jones Industrial Average lost 18.77 points or 0.10 percent to 18,142.42, Nasdaq dropped 0.96 points or 0.02 percent to 5,189.14, while S&P 500 was down 0.26 points or 0.01 percent to 2,126.15.

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