As markets open for the week, all eyes will begin to focus on the effects of the Federal Reserve's new round of quantitative easing. Although the first line effects are expected to show in decreased mortgage and corporate borrowing rates, manufacturing and production should also be greatly influenced too.
Reports last week on industrial production and the trade deficit set a benchmark for economic improvements following the Federal Reserve's new monetary policy actions.
U.S. industrial production, reported by the Federal Reserve, fell by 1.2% in August to 96.8. The monthly decrease was largely attributed to production shutdowns in the Gulf Coast due to the impact of Hurricane Isaac. The Federal Reserve's report estimated the effects of Hurricane Isaac to have caused a 0.3 percentage point decrease in the overall measure. The three major industry groups reported in the release all decreased, led by a decline in utilities production of 3.6% for the month. Mining fell by 1.8% and manufacturing also decreased by 0.7%.
The three U.S. production industry groups should benefit from the Federal Reserve's quantitative easing effects due to the reduced borrowing rates available for expansionary development. The S&P 500 Industrial sector was up 2.89% last week, given the September 14 week's market reports. The largest companies by market capitalization led the sector with strong gains. General Electric Company (GE) was up 3.75% for the week. United Technologies Corporation (UTX) gained 3.83%. The United Parcel Service, Inc. (UPS) also gained 2.41%. FedEx Corporation (FDX), another leading industrial production company in the S&P 500, is scheduled to report earnings on Tuesday, September 18, which could add further insight into the sector's growth and initial effects of the Federal Reserve's QE3 announcement.
In other production news, the Commerce Department released its July 2012 U.S. International Trade in Goods and Services report on Tuesday, September 11. The report stated a trade deficit of $42.0 billion, an increase of 0.2% from June. Both exports and imports fell for the month with the greater decrease occurring in exports at 1.03%.
Given global economic factors, market economists appear to find U.S. industrial production a more significant economic indicator, with the trade deficit having neutralized effects.
Expected improvements in both industrial production and the trade deficit, as well as the boost for the housing market, are likely to fuel further equity market gains through November but the election results, approaching debt ceiling and fiscal policy decisions could change the course of equity markets near the beginning of the new year.