By Carlos Guillen
Quite amazingly, equity markets are continuing the momentum sparked by Janet Yellen's dovish stance on the economy during her confirmation hearing yesterday. And just like what occurred yesterday, investors are once again brushing off unfavorable economic data points, which in turn is lifting major indexes and setting them on track to close at yet another record level. Worse than expected data from Empire Manufacturing, Industrial Production, and Import Prices were unable to attenuate the markets momentum.
Perhaps most significant today was that manufacturing in the New York region contracted this month at a faster pace than anticipated. According to the Federal Reserve Bank of New York, its Empire Manufacturing index decreased to -2.2 from the 1.5 reached in October, landing lower than the Street's consensus of 4.3. Given that readings greater than zero signal expansion, this month's result shows a clear reversal into contraction territory, increasing concern that the manufacturing momentum will not continue in the region that covers New York, northern New Jersey, and southern Connecticut. Moreover, the new orders index fell this month to -5.53 from 7.75 in October, and the shipments index plunged to -0.53 from 13.12. Also discouraging was that labor conditions worsened. The employment index dropped to 0.0 from 3.61 in October, and the workweek index fell to -5.26 from 3.61. This was simply not very pretty.
On another bit of rather negative economic data today, the Federal Reserve showed that industrial production during October decreased month-over-month by 0.1 percent, landing lower than the Street's consensus estimate calling for a 0.1 percent month-over-month rise. Capacity utilization, which measures the extent to which plants are achieving their full potential output, decreased from 78.3 percent to 78.1 percent, landing lower than the Street's consensus estimate of 78.4 percent.
Also a bit negative was that import prices showed slowing demand. According to the Labor Department, overall import prices dropped 0.7 percent in October, below the Street's consensus calling for a 0.5 percent drop, and marking it the largest drop since June 2012. This decline is indicative that weak growth overseas is attenuating inflation pressure from abroad. On a positive note, lower inflation does give the Fed the impetus it needs to continue is current monetary policy path.
So despite unfavorable economic data points, markets have moved higher, with the Dow Jones Industrial Average up over 50 points and on track for another consecutive record closing level. Clearly, Yellen's strong stance on defending the central bank's aggressive bond-buying program and on easing concerns that bubbles are forming in the equity markets are continuing to attract equity buyers, while putting sellers on the sidelines and putting markets on track to finish the trading week with a bang!
China Loosens the One-Child Rule
By David Urani
China certainly has a history of having an overbearing government, and one of the more extreme laws is that of the one-child policy. Created in 1979, it was made to keep China's exploding population in check and applies to an estimated 36% of the population. Estimates for how many births it prevented range from 100 million to 400 million since it began. Well, finally today it was finally revealed that China will back-track on that policy. Actually, it's not a full reversal but it's a step forward. The revised rule will now mean that parents will be allowed to have two children, provided that the parents themselves are only-children. Not only is it a potential boost to China's economy but I believe the rule was yielding some serious demographic problems, particularly that of the ratio of men to women.
Upon implementation of the rule Chinese parents began favoring boys over girls, largely for their potential productivity. It's a sad story and had real consequences on China's population. If you look at Children aged 0-14, there are approximately 120 boys for every 100 girls. That means that about 54% of Chinese children born are male. The imbalance of the sexes is true among the whole population aged less than 55. By my calculations (based on CIA World Factbook data), there's an excess of 45 million men over women. That's 45 million guys who effectively are destined to be single. Just think about how bars and crowds get restless when there's an overload of males, and scale that up to 45 million. It creates real issues with violence and depression.
Not to mention, the younger generations (both male and female) practice higher savings rates since there are so many only-children that will have to support two parents when they get old; that means less purchasing power.