Dec 13, 2016

Signs of interest rates increasing?

Interest Rates Graph Signs of a Rise in Interest Rates by the Federal Reserve

In November, the activity in the U.S. services sector attained a one-year high. We may expect the Federal Reserve to raise interest rates this week, with the increase in production which led to more hiring which indicates a strong economy.

According to the positive report from the ISM (Institute for Supply Management) and last week’s data featured strong job gains during last month. These factors added to lower the unemployment rate to 4.6 percent, a nine-year low. The ISM further reported a jump in its non-manufacturing activity index from 2.4 points up to 56.2. This is the index’s highest reading since October, last year. The non-manufacturing sector makes up more than two-thirds of the country’s economic activity. A reading above 50 in the non-manufacturing activity index, is an indication of expansion in the sector.

In November, services industries reported a rise of 4 points in production. A portion of employment in the services sector also rose 5.1 percentage points, the highest in 13 months. Markit, the data firm also captured the strong services sector performance in a separate survey. The survey reported new orders reaching their highest levels since August, last year. New businesses also showed the highest level in one year.

On Monday, December 5, the U.S. Treasuries prices fell. The 30 year Treasury bond fell one point for a short time before rising after an ultra bond futures purchase. The U.S. stock rose while the dollar traded lower against various currencies. It is expected that the Federal Reserve will increase the costs of borrowing at the meeting which will be held on December 13- 14. The U.S. Central Bank increased its benchmark overnight interest rate in December 2015 for the first time in almost ten years.

The data on consumer spending on the services sector survey reported that the economy has kept up the momentum it displayed during the early fourth quarter at a swift 3.2 percent annual rate during the last quarter. The ISM manufacturing and non-manufacturing indexes increased to 56.7 from 54.5 in October, with the strong gains of last November. This is its highest reading since October, last year.

At the moment, the Atlanta Federal Reserve is forecasting a rise in GDP of 2.9 percent in the fourth quarter. In November, the ISM stated that most of the surveyed industries had a positive outlook on the way the overall economy is apparently headed. Fourteen services industries reported growth last month. These include construction, retail, finance and insurance, wholesale and information. Rental and leasing, real estate and public administration reported contraction.