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The Ben Bernanke era as Fed chief came to a close this past week. And Janet Yellen, current Fed vice chair takes over this coming week. Monetary policy as stated from the latest FOMC meeting was largely as expected and the handover of Fed leadership appears to be smooth. But you would not know it based on market reactions to other events.
 Equities were volatile this past week with major indexes ending in the red for the week. International and U.S. events weighed on stocks at week’s open. Traders worried about economic slowdown in China and whether a three day selloff in emerging markets had run its course. Investors also were concerned about the mid-week FOMC policy decision and Monday’s drop in new home sales.
 Stocks rebounded Tuesday as gains in consumer confidence and home prices more than offset a plunge in durables orders. But the rebound in stocks was largely related to an easing of worries about emerging markets. At mid-week, equities dropped notably on corporate news and on the Fed’s decision to taper further. Notable declines were seen in Yahoo! and Boeing.
Stocks bounced back Thursday on what was viewed as a favorable initial report on GDP growth in the fourth quarter. Earnings reports also were mostly positive with Visa, Facebook, and Twitter being standouts on the upside. But the week ended on a down note with earnings disappointments the key factor. Amazon, Mattel, and MasterCard saw significant declines in stock prices.
Equities were down this past week. The Dow was down 1.1 percent; the S&P 500, down 0.4 percent; the Nasdaq, down 0.6 percent; the Russell 2000, down 1.2 percent; and the Wilshire 5000, down 0.3 percent.
For the year-to-date (and January), major indexes are down as follows: the Dow, down 5.3 percent; the S&P 500, down 3.6 percent; the Nasdaq, down 1.7 percent; the Russell 2000, down 2.8 percent; and the Wilshire 5000, down 3.0 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasury yields fell moderately this past week. With some difference in reaction timing compared to equities, rates firmed Monday after prior week worries about emerging markets weighed on rates. After essentially no change Tuesday, yields declined Wednesday on flight to safety on emerging market concerns and on the Fed choosing to maintain a slow pace of taper. After a quiet Thursday, rates dipped Friday on continued worries about emerging markets and on news of slowing in the Chinese manufacturing sector.
For this past week Treasury rates were down as follows: 3-month T-bill, down 2 basis points; the 2-year note, down 3 basis points; the 5-year note, down 7 basis points; the 7-year note, down 5 basis points; the 10-year note, down 8 basis points; and the 30-year bond, down 4 basis points.
 This past week, the only notable daily swings were Monday and Tuesday. The spot price of West Texas Intermediate declined a dollar a barrel on Monday on worries that economic growth in emerging markets might be slowing and that further Fed taper would damp growth in the U.S. On Tuesday, WTI rebounded a buck and a half on better-than-expected reports on consumer confidence and home prices.
Net for the week, the spot price for West Texas Intermediate edged up 64 cents per barrel to settle at $97.47.
The recovery showed signs of softening in both the housing and manufacturing sectors. Meanwhile, the Fed continued gradual taper.
 The Fed continues with taper of quantitative easing. The FOMC said that asset purchases will be reduced by another $10 billion monthly in February, leaving asset purchases at $65 billion per month. Purchases of mortgage-backed securities are now scheduled at $30 billion a month and long-term Treasuries at $35 billion. Incidentally and to no surprise, policy rates were left unchanged with the fed funds target rate at a range of zero to 0.25 percent.
The statement did have slightly different language on the status of the economy. The latest statement said "that growth in economic activity picked up in recent quarters." The previous statement said "economic activity is expanding at a moderate pace." The labor market is noted as improving but although the unemployment rate improved, it is still "elevated." Regarding the Fed's dual mandate, the statement pointed out that "that inflation persistently below its 2 percent objective could pose risks to economic performance." This suggests that the tone of the statement is still relatively dovish.
The Fed continues to see improvement in the economy ahead and the expected improvement in the economy was the basis for further taper.
 "In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases."
But for future taper, the Fed has to be characterized as using mixed wording—retaining data dependency but now also stating "measured steps" will be taken if the economy progresses as expected.
It might be interpreted that the Fed is now on a scheduled taper unless economic conditions significantly suggest otherwise. Some have suggested that scheduled taper likely means a reduction in asset purchases by $10 billion a month after each FOMC meeting. This would end QE before the end of 2014 “if” this path is taken. FedSpeak may take on greater importance in explaining the relationship of data dependency and measured steps.
The statement emphasized that the fed funds target rate will likely be maintained well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal. Also, the ending of additional bond purchases only means that the balance sheet no longer rises (slower QE still expands the balance sheet—just not as fast). There remains the process of unwinding the balance sheet.
The vote on the statement was unanimous-10 to zero.
This was Ben Bernanke's final FOMC meeting as Fed chairman. Janet Yellen takes over responsibilities as chair on February 1. Traders generally think that Yellen will continue Bernanke’s policies—which now include taper, but at a slow pace.
 The economy ended the year on a moderately positive note, rising an annualized 3.2 percent in the advance estimate for the fourth quarter. This followed a 4.1 percent boost in the third quarter.
But demand was not as strong. Final sales of domestic demand gained 2.8 percent after a 2.5 percent boost in the third quarter. Final sales to domestic purchasers slowed to 1.4 percent in the fourth quarter after a 2.3 percent increase the prior quarter. The softening was largely due to a drop in government purchases. So, in the private sector, demand is moderately healthy. Weakness in government spending partly reflected the partial shutdown in the federal government.
The increase in real GDP in the fourth quarter primarily reflected positive contributions from personal consumption expenditures (up 3.3 percent), exports (up 11.4 percent), nonresidential fixed investment (up 3.8 percent), private inventory investment, and state and local government spending that were partly offset by negative contributions from federal government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.
The deceleration in real GDP in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, a downturn in residential fixed investment, and decelerations in state and local government spending and in nonresidential fixed investment that were partly offset by accelerations in exports and in PCEs and a deceleration in imports.
Inflation is soft with the GDP price index rising only 1.3 percent after a 2.0 percent increase in the third quarter. The core price index eased to 1.7 percent, following a 1.9 rise in the third quarter.
Overall, the private economy is moderately strong although there are signs that the fourth quarter softened late in the quarter.
 Personal income was flat in December while spending was up. Income sluggishness may have been weather related. Personal income was unchanged after rising 0.2 percent in November. The wages & salaries component posted flat in December, following a 0.5 percent boost the month before.
Personal spending, however, was moderately strong, rising 0.4 percent after a 0.6 percent boost in November. Spending was led by a 1.5 percent jump in nondurables with services gaining 0.4 percent. Durables declined 1.8 percent after a 1.8 percent increase the month before.
The rise in personal consumption was not just price related. Real spending increased 0.2 percent in December after a boost of 0.6 percent in November.
 Headline inflation warmed a bit with a reading of 0.2 percent after no change in November. Excluding food and energy, PCE price inflation posted at 0.1 percent in December, matching the November pace. On a year ago basis, headline inflation was 1.1 percent in December versus 0.9 percent the month before. Core inflation nudged up to 1.2 percent from 1.1 percent. The year ago numbers are still well below the Fed’s goal of 2 percent inflation.
Overall, the consumer is still contributing to the recovery in terms of spending. However, on the income side it likely is a good idea to wait for January data to see how much of income sluggishness was weather related even though soft employment growth was a contributing factor.
 Key national measures of the consumer mood either improved in January or came close to maintaining gains in December.
The Conference Board’s consumer confidence index gained 3.2 points to a higher-than-expected 80.7, picking up on top of a very solid gain in December when the index rose 5.5 points to a revised 77.5. Special strength was in the present situation component which was up 3.8 points to 79.1 for the highest reading of the recovery and which hints at month-to-month gains for consumer spending.
The expectations component, which has been lagging in momentum, was up 1.8 points to an 81.8 level that is still well below the high 80s and low 90 readings in the summer. The employment subcomponent is soft with fewer seeing more jobs opening up six months from now. But a big positive was strength in the income subcomponent where more, for the first time since October, now see an increase ahead than a decrease.
The Reuters/University of Michigan consumer sentiment index improved the last two weeks, to a final January reading of 81.2 versus 80.4 at mid-month, but ended up a little bit short of December's final reading of 82.5. The current conditions component, which offers an indication on month-to-month activity, ended January at 96.8 which, again, came up a bit short versus December's 98.6. The same was true of the expectations component, ending January at 71.2, compared to December's 72.1.
 Manufacturing unexpectedly stumbled in December. New factory orders for durables in December dropped a monthly 4.3 percent, following a revised gain of 2.6 percent in November.
The transportation component sank a monthly 9.5 percent after surging 7.9 percent in October. Excluding transportation, durables declined 1.6 percent in December after edging up 0.1 percent the month before.
Within transportation, nondefense aircraft decreased 17.5 percent, following a jump of 21.1 percent in November. Defense aircraft dropped 12.9 percent after rebounding 15.7 percent the prior month. Motor vehicles declined 5.8 percent, following a 2.3 percent rise in November.
Outside of transportation, declines were seen in primary metals, fabricated metals, computers & electronics, and "other." Gains were seen in machinery and electrical equipment.
There was slippage in future business investment in equipment. Nondefense capital goods orders excluding aircraft fell 1.3 percent, following an increase of 2.6 percent in November.
 New home sales had been a bright spot in the housing sector -- but not any more. Sales of new homes nose dived in December, to a 414,000 annual rate. The latest month dropped 7.0 percent, following a decrease of 3.9 percent in November.
The drop in sales gave a lift to supply, at least supply relative to sales which is at 5.0 months versus 4.7 months in November. But the total number of new homes on the market actually fell, down 5,000 to an adjusted 171,000.
 Going forward, existing home sales look like they are going to be notably soft in coming months. Pending home sales fell a sharp 8.7 percent in December. This plunge points to a sharp decline ahead for what was already a very soft existing home sales market. All regions showed similar declines in today's report.
Lack of available homes for sale together with high prices, not to mention the soft jobs market, are all negatives that are pulling down home sales. Pent up demand does not appear to be having as much impact as earlier in the recovery.
 Momentum in home prices began to ease in November but only slightly based on S&P Case-Shiller whose month-to-month composite-20 index came in at an adjusted plus 0.9 percent vs a revised plus 1.1 percent in October. The adjusted year-on-year reading rose 2 tenths to a very strong plus 13.8 percent but here also, in what hints at slowing momentum, the gain is a bit smaller than the 3 tenths gain in October and the 5 tenths gain in September.
But price gains are still very convincing with gains sweeping all 20 cities for a 4th month in a row. In a special plus, strong gains are being posted outside the West. Price momentum is especially prominent in Atlanta, Detroit, and Cleveland.
The Case-Shiller report for December was stronger than for the FHFA report which showed only a 0.1 percent rise for the month. However, Case-Shiller is a broader measure than FHFA.
While the fourth quarter was moderately healthy on average as measured by GDP, monthly data showed softening late in the quarter—notably for manufacturing and housing. However, the consumer appears to be a little more optimistic and the consumer sector may be carrying the economic load over the next few months.
After the December employment report’s disappointing 74,000 gain in payroll jobs, markets will focus on whether there is improvement when the January report posts Friday. The past week’s drop in durables orders was surprisingly sharp. Traders will closely watch the Markit final and ISM’s manufacturing numbers for January for possible strengthening in manufacturing.
Sales of total light motor vehicles in December couldn't match November's torrid 16.4 million annual pace, coming in at 15.4 million. Monthly weakness was broad and centered in domestics and in trucks.
Motor vehicle domestic sales Consensus Forecast for January 14: 12.2
Range: 11.7 to 12.4
Motor vehicle total sales Consensus Forecast for January 14: 15.8 million-unit rate
Range: 15.0 to 16.0 million-unit rate
The Markit PMI manufacturing flash index for January dipped to 53.7, down 1.3 points from final December and down 7 tenths against the December flash which both signal slowing growth in composite activity. New orders were down 2.0 points against the final December reading to 54.1 which is the slowest pace since October. Export orders, down 2.5 points to 48.9, were below 50 for the first time since September. A reading below 50 indicates outright contraction. Backlog orders also showed contraction, at 49.5 for the first sub-50 reading for this index since August.
Markit PMI manufacturing index (final) Consensus Forecast for January 14: 53.9
Range: 53.2 to 54.3
The composite index from the ISM manufacturing survey in December was essentially steady at 57.0 in December versus 57.3 in November. New orders rose 6 tenths for a 5th straight plus 60 reading at 64.2. This was the best rate of monthly growth since April 2010. Production was also very strong, at 62.2 for a 6th straight plus 60 reading. The strength in production is giving employment a noticeable lift, up 4 tenths to 56.9 which was the best reading since June 2011.
ISM manufacturing composite index Consensus Forecast for January 14: 56.0
Range: 55.0 to 56.8
Construction spending jumped 1.0 percent in November, following a 0.9 percent gain the month before. The November increase was led by the nonresidential and residential components. Private nonresident outlays surged 2.7 percent, following a rise of 0.5 percent in October. Public outlays declined 1.8 percent but followed a sizeable 3.1 percent boost in October.
Construction spending Consensus Forecast for December 13: 0.0 percent
Range: -0.2 to +1.0 percent
Factory orders gained a very strong 1.8 percent in November. Another plus was a 4 tenths upward revision to October, to minus 0.5 percent. September orders were unrevised and very strong at plus 1.8 percent. Excluding transportation, orders rose 0.6 percent in November versus an upwardly revised 0.1 percent gain in October. Orders for capital goods showed a big surge, possibly boosted by year-end tax issues but also perhaps by rising business confidence.
Factory orders Consensus Forecast for December 14: -1.8 percent
Range: -2.4 to +0.1 percent
ADP private payroll employment in December rose 238,000. However, the ADP number sharply overshot the BLS figure of a rise of 87,000.
ADP private payrolls Consensus Forecast for January 14: 170,000
Range: 125,000 to 210,000
The composite index from the ISM non-manufacturing survey for December fell 9 tenths to 53.0. This largely was due to new orders pulling down the index. New orders, the leading indicator in this report, fell to 49.4 from 56.4 in November. This was the first sub-50 reading for new orders, which had been especially strong through much of the second half of last year, since July 2009.
ISM non-manufacturing composite index Consensus Forecast for January 14: 53.9
Range: 52.0 to 55.0
The U.S. international trade deficit shrank in November to a sharply narrower-than-expected $34.3 billion. This was the lowest monthly deficit since October 2009. The goods gap narrowed by $4.9 billion in November, to $53.9 billion versus $58.8 billion, at the same time that the services surplus widened slightly, to $19.7 billion vs $19.5 billion. Much of the improvement in the goods gap, about $4.3 billion, was due to a smaller petroleum gap, at $15.2 billion vs October's $19.5 billion.
International trade balance Consensus Forecast for December 13: -$36.0 billion
Range: -$42.5 billion to -$34.0 billion
Initial jobless claims in the January 25 week unexpectedly jumped 19,000 to a much higher-than-expected 348,000. But a plus in the data was the 4-week average for initial claims, up only slightly to 333,000 which was more than 20,000 below the month-ago trend.
Jobless Claims Consensus Forecast for 2/1/14: 337,000
Range: 335,000 to 350,000
Nonfarm business productivity for the third quarter was revised to up an annualized 3.0 percent versus the initial estimate of 1.9 percent and the second quarter gain of 1.8 percent. Unit labor costs declined a revised 1.4 percent, compared to the first estimate of minus 0.6 percent and a 0.5 percent increase the prior quarter. Year-on-year, productivity was up 0.3 percent in the third quarter versus up 0.2 percent in the second quarter. Year-ago unit labor costs were up 2.1 percent, compared to 1.6 percent in the second quarter.
Nonfarm Business Productivity Consensus Forecast for initial Q4 13: +2.6 percent annual rate
Range: +1.5 to +3.8 percent annual rate
Unit Labor Costs Consensus Forecast for initial Q4 13: -0.7 percent annual rate
Range: -2.3 to +0.3 percent annual rate
Nonfarm payroll employment in December grew a meager 74,000, following a revised increase of 241,000 for November and after a revised gain of 200,000 for October. Private payrolls gained 87,000 after rising 226,000 in November. The unemployment rate declined to 6.7 percent from 7.0 percent in November. The rate declined due to a sharp drop in the labor force. Household employment rose 143,000 in December but the labor force dropped 347,000. Wage growth came in at a modest 0.1 percent, following a 0.2 percent rise in November. The average workweek nudged down to 34.4 hours from 34.5 hours. The median forecast was for 34.5 hours.
Nonfarm payrolls Consensus Forecast for January 14: 181,000
Range: 125,000 to 270,000
Private payrolls Consensus Forecast for January 14: 182,000
Range: 115,000 to 280,000
Unemployment rate Consensus Forecast for January 14: 6.7 percent
Range: 6.5 to 6.8 percent
Average workweek Consensus Forecast for January 14: 34.4 hours
Range: 34.3 to 34.5 hours
Average hourly earnings Consensus Forecast for January 14: +0.2 percent
Range: +0.1 to +0.3 percent
Consumer credit outstanding rose $12.3 billion in November. Details showed a rare back-to-back gain for revolving credit, up a modest $0.5 billion but following a $4.0 billion gain in October which was the third largest gain of the whole recovery. The last time revolving credit rose 2 months in a row was back in January and February of last year. Non-revolving credit once again showed a sizable gain, at $11.9 billion reflecting both strength for vehicle loans but also further gains for the student loan component which is being inflated by government acquisitions from private lenders.
Consumer credit Consensus Forecast for December 13: +$12.0 billion
Range: +$7.5 billion to +$16.0 billion
R. Mark Rogers is the author of The Complete Idiot’s Guide to Economic Indicators, Penguin Books.
He can also be found on a weekly broadcast talking about the U.S. economy, the easiest way to find him is by going to iTunes and searching for "Simply Economics."
Econoday Senior Writer Mark Pender contributed to this article.
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