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More Positive Economic Data Amid Fed Rate Hike

 

A series of data releases last week continue to paint a picture of a broadly improving economy that likely contributed to the Fed raising short term interest rates and indicating that rate increases may accelerate in 2017. Jobless claims, inflation and builder sentiment reports all indicated positive trends on top of previous upward movements.

First time unemployment claims fell 4,000 for the week to 254,000 according to the Department of Labor. While only a small downward adjustment, the results demonstrated that employers are holding on to their employees and not laying people off. Claims have remained below 300,000 per week for almost two years, the longest such stretch in about four decades.

On another note, inflation rose 0.2% in November bringing the past 12 month inflation rate to 1.7% according to a data source maintained by the St. Louis Fed. The price level increase was keyed by higher gas prices, rents and medical bills. Inflation has been slowly creeping up and the past 12 month reading was the highest year over year rate in over two years. Food prices on the other hand declined about 2% over the past year. Wage increases also sank by 0.4% in real terms in November. Hourly wages were up only 0.8% in the past year which will likely contribute to inflation remaining benign.

Also, as stated above, the Federal Reserve raised short term interest rates by 0.25% for the first time in 2016 and suggested that there may be as many as three rate hikes in 2017 based upon economic conditions. The hike in rates will give savers a bit more interest income while costing consumers and business more money to borrow.

Taken together these three releases are further signs confirming the basic underlying strength of the US economy and modest inflationary pressure.