The ABC’s of GDP April 30, 2013

The ABC’s of GDP

GDP = C + I + G + (X-M)

College freshmen know it — or should know it — by the end of their Economics 101 classes, but for most of us, freshman year in college remains a bit “fuzzy” for a variety of reasons. On Friday, April 26, 2013, the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce released the first estimate of gross domestic product (GDP) for the first quarter of 2013. Inflation-adjusted, or real, GDP expanded at a 2.5% seasonally adjusted annualized rate in the first quarter of 2013, after rising at just 0.4% in the fourth quarter of 2012. The 2.5% increase fell short of expectations for 3.0% growth. Over the last three quarters (third quarter of 2012, fourth quarter of 2012, and first quarter of 2013), real GDP growth has averaged 2.0%. We continue to expect GDP growth to average around 2.0% over the course of 2013.

Although consumer spending, housing, and inventory accumulation accelerated in Q113 versus Q412 and added to growth, business spending slowed dramatically, and the trade deficit widened, dampening growth.  Housing construction added 0.3 percentage points to GDP in the first quarter, marking the eighth quarter in a row that housing has added to GDP, after a five-year period (2006 – 2010) where housing was a drag on GDP.

The big story in the GDP report was again federal government spending.  Defense spending fell 11.5% annualized between Q412 and Q113, after the 22% drop in Q412 versus Q312, the largest back-to-back drop in defense spending in 60 years. The sequester, which cut federal government spending across the board beginning on March 1, 2013, contributed to a 2.0% drop in non-defense federal spending between Q412 and Q113. State and local government spending fell again, too, by 1.2% between Q413 and Q113, the second consecutive quarterly decline, and the 13th quarterly decline in state and local spending in the past 14 quarters, dating back to the end of 2009. On balance, there were few, if any signs, in the GDP report for the first quarter of 2013 that the economy will re-accelerate anytime soon.

The ABC’s of GDP
 A – (Seasonally) adjusted. GDP is reported by the BEA in several different ways, but the most commonly cited way is on a real (inflation-adjusted) seasonally adjusted annualized basis. GDP is seasonally adjusted to smooth out the fluctuation in the economy related to weather patterns, shopping patterns, holidays, school vacations, etc., to allow apples-to-apples comparisons between quarters. For example, vehicle assembly plants typically shut down in July, which would depress GDP in the third quarter (July, August, and September) relative to the second quarter (April, May, and June). Similarly, sales of jewelry spikes around Christmas and again at Valentine’s Day. Seasonally adjusting the data helps market participants to see through the swings in the seasonal data and helps to reveal the true underlying health of the economy at any time of the year.

B – Business capital spending. Part of “I,” business capital spending (capex), is what businesses spend on machinery, software, furniture, vehicles, computers, iPads, etc.  Businesses spent an annualized $1.2 trillion on equipment and software in the first quarter of 2013, accounting for 8% of GDP.  Business capital spending is very sensitive to economic conditions.  Business capital spending did not surpass its pre-Great Recession peak of $1.1 trillion until mid-2012. Market participants digest plenty of “input” data on business capital spending — Institute for Supply Management (ISM), durable goods orders and shipments, the regional Federal Reserve Bank manufacturing indices, reports from companies, truck sales, steel production, and rail car loadings — well ahead of the GDP report, but there is more information available to gauge consumer spending than there is to gauge business spending.

C – Consumption or consumer spending, on durable goods, non-durable goods, and services.  Consumption accounts for two-thirds of GDP. In the first quarter of 2013, consumers spent an annualized $9.7 trillion, adjusted for inflation. Consumption surpassed its pre-Great Recession peak of $9.3 trillion in early 2011. Of all the categories of GDP, consumption is the most visible to most consumers. We all spend money on various items every day. The data sets that provide input to the consumption portion of GDP — weekly retail sales, chain store sales, vehicle sales, etc. — is both robust and abundant. By the time GDP is released, most market participants have a pretty good sense of what this component of GDP is doing.

D – Durable goods. Consumer spending on durable goods (items designed to last more than three years), including microwave ovens, refrigerators, and color TVs. Consumers spent an annualized $1.4 trillion on durable goods in the first quarter of 2013. Spending on durable goods surpassed the pre-Great Recession peak of $1.2 trillion in early 2011. Consumer spending on durable goods represents 15% of total consumer spending, and is the category of consumer spending that is the most sensitive to overall economic conditions.

E F

G – Government spending, including spending by the federal government and state and local governments. Governments spent an annualized $2.4 trillion in the first quarter of 2013, with the federal government spending just under $1 trillion and state and local governments spending $1.4 trillion.  Government spending peaked in 2009 and 2010 at around $2.6 trillion, and since then most of the drop in government spending has been on the state and local side. Overall government spending accounts for just under 18% of GDP. Plenty of data on federal government spending are available to market participants (Daily Treasury Statement, federal employment, etc.), but little timely information is available on state and local government spending prior to the release of the quarterly GDP data.

H – Housing, which in GDP parlance, is counted as residential investment, which is captured in the “I” of our equation. Housing is counted in GDP when a new home, or condo, or multifamily apartment or dorm room is built. Housing accounts for less than 3% of GDP, and at a spend rate of just under $400 billion in the first quarter of 2013, remains at half of its pre-Great Recession spending rate of close to $800 billion hit in 2005. Both the severity of the Great Recession — and it slackluster aftermath — can be traced back to the housing market. Plenty of timely data are available on the housing market each month: new and existing home sales, various home price metrics, data on construction and housing starts; all provide market participants with a good gauge of the housing market prior to the release of the GDP data.

I – Investment, and includes business spending on equipment and software (capital spending), on structures (factories, office parks, and malls), on inventories, and consumer spending on housing.

J K L

M – Shorthand for imports. Imports subtract from GDP because U.S. businesses and consumers send money overseas in exchange for goods and services.  On an annualized basis, the United States imported $2.3 trillion (annualized) of goods ($1.9 trillion) and services ($0.4 trillion) in the first quarter of 2013.

N – Nondurables. Consumer spending on nondurable goods (goods designed to last less than three years) include items like milk, motor fuel, magazines, and men’s clothing. Consumers spent an annualized $2.1 trillion on nondurable goods in the first quarter of 2013. Consumer spending on nondurable goods accounts for 21% of consumer spending, and this categoryof spending surpassed its pre-Great Recession peak in late 2010. Consumer spending on non-durables is less sensitive to economic conditions than spending on durable goods, but more sensitive than spending on services.

O P Q R

S – Services. Consumer spending on services (housing, haircuts, healthcare, hotels, etc.) is the largest category of consumer spending.  Consumers spent an annualized $6.2 trillion on services in the first quarter of 2013. Consumer spending on services surpassed its pre-Great Recession peak of $6.0 trillion in early 2011. Consumer spending on services represents 64% of consumer spending, and is the category of consumer spending that is least sensitive to overall economic conditions.

T U V W

X – Shorthand for exports. Exports add to GDP because the income received by U.S. businesses from overseas in exchange for the goods produced exceeds the cost to the economy of producing the goods. Inflation-adjusted exports ran at a $1.9 trillion annualized rate in the first quarter of 2013, and surpassed their pre-Great Recession high in late 2010. Exports consist of goods exports ($1.3 trillion) and service exports ($0.6 trillion). The United States is a net importer of goods (we import more than we export), e.g., cars, jet engines, and medical equipment.  However, we are a net exporter of services, such as legal services, consulting services, engineering services, and financial services.

Y Z

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IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee
of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Gross domestic product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur
within a defined territory.

Stock investing involves risk including loss of principal.

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INDEX DESCRIPTIONS

Challenger, Gray & Christmas is the oldest executive outplacement firm in the United States. The firm conducts regular surveys and issues reports on the state of the economy, employment, job-seeking, layoffs, and executive compensation.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The Institute for Supply Management (ISM) index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Purchasing Managers’ Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

The Chicago Area Purchasing Manager Index that is read on a monthly basis to gauge how manufacturing activity is performing. This index is a true snapshot of how manufacturing and corresponding businesses are performing for a given month. A reading of 50 or above is considered a positive reading. Anything below 50 is considered to indicate a decline in activity. Readings of the index have the ability to shift the day’s trading session one way or another based on the results.

The S&P/Case-Shiller U.S. National Home Price Index measures the change in value of the U.S. residential housing market. The S&P/Case-Shiller U.S. National Home Price Index tracks the growth in value of real estate by following the purchase price and resale value of homes that have undergone a minimum of two arm’s-length transactions. The index is named for its creators, Karl Case and Robert Shiller.

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This research material has been prepared by LPL Financial.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA/SIPC

Investor’s Guide to the State of the Union Address February 12, 2013

Investor’s Guide to the State of the Union Address

President Obama’s State of the Union (SOTU), scheduled for Tuesday, February 12, is unlikely to be a big market mover. In fact, most SOTU speeches see less than a 1% move in the stock market on the following day, and the average move is only 0.15% [Figure 1].

In his SOTU address on Tuesday, President Obama will present key themes that may impact certain industries and asset classes. While gun control and immigration will likely comprise important themes, they have minor market impact. The two major themes that we will be listening for with potential to impact the markets are: the fiscal cliff and energy independence.

Fiscal Cliff Part II

Early in his speech, the President will be forced to talk about the fiscal cliff part II. There are three remaining components to the fiscal cliff that are yet to be resolved: the sequester taking effect March 1, the government shutdown set for March 27, and the debt ceiling to be hit on May 19.

• The President will likely restate his recent comments about replacing the spending cuts that kick in on March 1, known as the sequester, with some combination of tax increases and spending cuts. However, this has little chance of passing the House after Republicans supported tax increases in the first fiscal cliff deal. The Congressional Budget Office estimates that the fiscal drag from the sequester in 2013 would be about $85 billion, or about 0.5% of gross domestic product (GDP.) This adds to the roughly 1.5% drag on the economy from the fiscal cliff tax increases that went into place January 1. That is a materially negative impact for an economy that registered a contraction in the fourth quarter and is on track for only sluggish growth in the current quarter.

Comments that suggest the President is open to mitigating the defense cuts in exchange for cuts elsewhere, rather than tax increases, may be a positive for the markets — especially for stocks in the defense industry, which have been pulling back lately as the cuts have loomed. Unless changed, defense spending (other than for military personnel) will be cut by around 8% across the board, while nondefense funding that is subject to the automatic reductions will be cut by between 5% and 6%.

• The continuing resolution funding the government expires on March 27 and could prompt a government shutdown (though certain essential components like the armed forces will continue to operate). While tax collections will be reaching their seasonal peak as the April 15 deadline approaches, tax refunds processed by the IRS may take much longer than usual and could cause consumer spending to drop and negatively impact stocks in the consumer discretionary sector. In 2012, the average tax refund check was nearly $3,000, all together totaling $175 billion. The drag on incomes could be felt since consumers have lacked the confidence to fund spending with credit cards in recent years [Figure 2]. During the previous two government shutdowns, it was short-lived. It lasted five days in November 1995 and was followed by 21 days in January 1996. As long as talks are proceeding, we expect another continuing resolution to be passed to fund the government for a few more months or until September 30 to avoid a lengthy shutdown.

• While the debt ceiling has been pushed back to May 19, it will soon be upon us again. If no further action is taken before May 19, the Treasury will once again resort to extraordinary measures to allow the government to continue operating. As precursor to restating these negotiations, President Obama will likely talk about a “balanced package” of spending cuts and tax increases to reduce the deficit and need for additional borrowing. With the potential for additional tax rate increases on the horizon, high dividend-paying stocks and municipal bonds (given the potential elimination of some deductions) could react negatively, which may present a buying opportunity.

These fiscal cliff issues leave little likelihood that other recurring themes in the President’s SOTU address see any legislative action that otherwise could impact certain asset classes. For example, the President is likely to again tout the need for greater infrastructure investment — a potential positive for some stocks in the industrial and materials sectors were it to actually take place. Another example is a new program to modify underwater mortgages that could act as a negative for mortgage-backed securities, if implemented.

Energy Independence

The President is likely to highlight the need for U.S. energy independence, noting the increasing domestic oil and gas production and voicing his continued support for sources of clean energy. Given their dependence on federal support programs, the stocks of producers of wind, solar, and other clean energy sources often tend to be volatile around the SOTU addresses in recent years — sometimes seeing a big bounce that soon fades.

Regarding traditional sources of energy, investors are unlikely to hear anything on natural gas or coal that may turn around slumping coal stocks, but probably nothing that would accelerate their decline either. However, the President will likely highlight energy tax incentives for elimination known as the “percentage depletion allowance” and “expensing of intangible drilling costs.” These incentives exist to encourage small companies to produce oil from marginal wells that become profitable with the tax breaks. These marginal wells are old or small wells that do not produce much oil individually, but in total constitute most of the U.S.’s domestic oil and gas production. The percentage depletion allowance was eliminated in 1975 for the major oil companies, and their ability to expense intangible drilling costs expensing is very limited. Therefore, the potential elimination of these tax breaks would be unlikely to have a major negative effect on the major companies in the energy sector. However, the exploration and production industry of the energy sector could be negatively impacted, were these incentives to be eliminated, which we doubt will happen in 2013.

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IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Stock investing involves risk including loss of principal.

The commentary expresses the political view of the author and in no way represents the views of LPL Financial. The assumptions made are based upon approvals by Congress and are subject to change. While individual advisors and investors may of course have their own personal views or preferences when it comes to matters of public and political policy, the author is trying to provide insights from the available data, allowing readers to make fully informed decisions.

Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.

Mortgage-Backed Security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments. Furthermore, the mortgage must have originated from a regulated and authorized financial institution.

Mortgage-Backed Securities are subject to credit, default risk, prepayment risk that acts much like call risk when you get your principal back sooner than the stated maturity, extension risk, the opposite of prepayment risk, and interest rate risk.

Investments in specialized industry sectors have additional risk such as credit, regulatory, operational, business, economic and political risk which should carefully be considered before investing.

Consumer Discretionary Sector: Companies that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automotive, household durable goods, textiles and apparel, and leisure equipment. The service segment includes hotels, restaurants and other leisure facilities, media production and services, consumer retailing and services and education services.

Energy Sector: Companies whose businesses are dominated by either of the following activities: The construction or provision of oil rigs, drilling equipment and other energy-related service and equipment, including seismic data collection. The exploration, production, marketing, refining and/or transportation of oil and gas products, coal and consumable fuels.

Industrials Sector: Companies whose businesses manufacture and distribute capital goods, including aerospace and defense, construction, engineering and building products, electrical equipment and industrial machinery. Also, companies that provide commercial services and supplies, including printing, employment, environmental and office services, or provide transportation services, including airlines, couriers, marine, road and rail, and transportation infrastructure.

Materials Sector: Companies that are engaged in a wide range of commodity-related manufacturing. Included in this sector are companies that manufacture chemicals, construction materials, glass, paper, forest products and related packaging products, metals, minerals and mining companies, including producers of steel.

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INDEX DEFINITIONS

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

This research material has been prepared by LPL Financial.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

Member FINRA/SIPC

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Less Defense? Weekly Economic Commentary February 7, 2013

Less Defense?

 On Sunday, February 3, 2013, the Baltimore Ravens defeated the San Francisco Forty Niners 34 – 31 to win Super Bowl XLVII. The talk of the game was certainly not about defense, but defense spending, and its impact on the economy, was a key topic of conversation in financial markets in the week leading up to the Super Bowl.

Economic Data Halftime Show Highlights

The financial markets in the week preceding the Super Bowl (January 28 – February 1) featured four key economic events;

• The Institute for Supply Management’s (ISM) Report on Business for January 2013;
•  The January 2013 employment report;
• The fourth quarter 2012 gross domestic product (GDP) report; and
• The Federal Reserve’s Federal Open Market (FOMC) meeting.

Any one of these events happening in one week would draw a great deal of attention from the media and financial market participants, but all of these top-ranked data points playing out in one week is rare — almost as rare as a power outage at the Super Bowl!

On balance, last week’s economic reports, along with the statement accompanying the FOMC meeting, revealed an economic playbook that included economic growth fast enough to create jobs and move the widely watched ISM index, at 53.1, to a nine-month high, but not fast enough to cause the Federal Reserve (Fed) to think about ending its program of bond purchases (quantitative easing, or QE3) anytime soon.

Last week’s economic data halftime show that drew the most attention was Thursday (January 31, 2013) morning’s release of the surprising -0.1% drop in GDP between the third and fourth quarters of 2012. Economists had been expecting a number around 1%. Within that surprisingly weak report was a stunning 22% drop in defense spending, the largest quarter-over-quarter drop in defense spending since 1972, as the Vietnam War was winding down. This drop alone shaved 1.3 percentage points from GDP. Although there is no precise measurement, the effect of Superstorm Sandy likely shaved another 0.5 percentage points off of GDP. Add in the 1.3 percentage point drag from fewer inventories being built up in the fourth quarter than in the third, and it is likely that real GDP growth would have been closer to 3.0% than to zero.

The drawdown in inventories may have been related to uncertainties among businesses ahead of the fiscal cliff and the impact of Superstorm Sandy. These are likely to be at least partially reversed in the first quarter of 2013 and add to GDP growth. However, the outlook for defense spending is a bit less certain due, in part, to yet another piece of the fiscal cliff: spending cuts known as sequestration.

Defense Spending Running at About 4 – 5% of GDP

At least a portion of the 22% drop in defense spending — from an annualized pace of $698.1 billion in the third quarter of 2012 to an annualized pace of $655.7 billion in the fourth quarter of 2012 — was likely due to the fiscal cliff, as some defense contractors may have curtailed some non-mission critical spending ahead of the pending cuts tied to sequestration. Indeed, the research and development-related portion of defense spending fell at a whopping 58% annualized rate in the fourth quarter, while outlays for troop pay dropped by just 3.0%. Thus, the ongoing drawdown in troop levels in Iraq and Afghanistan also most likely played only a part in the big drop in defense outlays in the fourth quarter. Government spending on big ticket military items like aircraft, missiles, ships, vehicles, and electronics fell by only 2.2% between the third and fourth quarters of 2012.

Between $25 billion and $30 billion of automatic spending cuts will hit defense spending on February 28, 2013, representing roughly a 10% cut to defense outlays, unless Congress acts to modify, suspend, or delay the cuts. Moving past the sequestration, the defense sector remains one of the largest single segments of the federal budget. In fiscal year 2012, defense spending was close to $640 billion and is one of the largest categories of discretionary spending. In recent years, defense spending has accounted for between 50% and 55% of discretionary spending, 4.5% of gross domestic product (GDP), and about 20% of overall federal government outlays. During the Reagan administration at the end of the Cold War, defense spending accounted for 65% of total discretionary spending, 6% of GDP, and nearly 30% of all federal government outlays. After the fall of

the Berlin Wall in 1989, defense spending as a percent of discretionary spending fell swiftly — bottoming out in 2001 at under 48%, 3% of GDP, and 15% of total federal outlays — just as the war on terror and the wars in Afghanistan and Iraq began.

Defense spending is often discussed as an area to cut in order to reduce the long-term deficit because it is such a large part of federal outlays. While there is likely some kernel of truth in oft-cited media reports of $600 hammers and $300 toilet seats being purchased by the Pentagon, eliminating all “waste, fraud, and abuse” from the defense budget, while a worthwhile endeavor, would only make a small dent in overall spending.

 

Potential Slowing in Pace of Defense Spending Ahead

Looking ahead from a budget perspective, perhaps the best that can be hoped for is a slowing in the pace of defense spending, not outright declines similar to those seen in the late 1970s and 1990s Some of the proposals put forth by the deficit commissions and the Congressional Budget Office (CBO) regarding defense spending include: 

• Freezing defense spending at current levels of GDP;
• Cutting the rate of increase in defense spending; and
• Finding savings within the Department of Defense’s procurement system.

 Please see our Weekly Economic Commentary: Budget Defense from November 26, 2012 for more details.

From a GDP perspective, the best case for defense spending in 2013 is that it has a modest positive impact on GDP. More likely, defense spending, after a rebound in the first quarter of 2013 on the heels of the big drop in the fourth quarter of 2012, is likely to be flat. The worst case — again from a GDP perspective — and least likely, would be if Congress can agree to substantial cuts to defense spending as part of an overall budget deal. In this scenario, defense would likely be a modest 0.1 to 0.2% drag on overall GDP growth in 2013 and beyond.

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IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance reference is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Stock investing involves risk including loss of principal.

International investing involves special risks, such as currency fluctuation and political instability, and may not be suitable for all investors.

The Federal Open Market Committee action known as Operation Twist began in 1961. The intent was to flatten the yield curve in order to promote capital inflows and strengthen the dollar. The Fed utilized open market operations to shorten the maturity of public debt in the open market. The action has subsequently been reexamined in isolation and found to have been more effective than originally thought. As a result of this reappraisal, similar action has been suggested as an alternative to quantitative easing by central banks.

The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System, is charged under the United States law with overseeing the nation’s open market operations (i.e., the Fed’s buying and selling of United States Treasure securities).

International Monetary Fund (IMF) is an international organization created for the purpose of promoting global monetary and exchange stability, facilitating the expansion and balanced growth of international trade, and assisting in the establishment of a multilateral system of payments for current transactions.

Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity.

INDEX DESCRIPTIONS

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The Institute for Supply Management (ISM) index is based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders, and supplier deliveries. A composite diffusion index is created that monitors conditions in national manufacturing based on the data from these surveys.

Purchasing Managers Index (PMI) is an indicator of the economic health of the manufacturing sector. The PMI index is based on five major indicators: new orders, inventory levels, production, supplier deliveries and the employment environment.

_______________________________________________________________________________

This research material has been prepared by LPL Financial.

To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and makes no representation with respect to such entity.

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit

_______________________________________________________________________________

Stay Connected with Us!

    

www.garrettandrobinson.com