November Market Commentary from Vanguard & Co

There weren’t many tea leaves to read for the U.S. economy in this week’s relatively short list of economic reports. Retail sales rose modestly, as did inventories.

But there was news from abroad with potentially significant impacts for the global economy. During President Obama’s trip to China, progress was announced on eliminating tariffs on a variety of information technology products. One of the challenges in reaching agreement has been the evolving nature over the past several years of what constitutes “information technology.” The accord between the United States and China could pave the way for further negotiations to expand the World Trade Organization’s (WTO) Information Technology Agreement.

In addition, India and the United States reached an agreement on key issues regarding India’s food security program that would facilitate India’s ratifying a different tariff agreement negotiated last year by the 160 member countries of the WTO. It has been estimated that this WTO agreement could add $1 trillion to the world economy in the coming years, and create millions of jobs, mostly in developing nations.

For the week ended November 14, 2014, the S&P 500 Index rose 0.4% to about 2,040 (for a year-to-date total return—including price change plus dividends—of about 12%). The yield of the 10-year U.S. Treasury note was unchanged at 2.32% (for a year-to-date decrease of 72 basis points).

Retail sales resumed their advance

After an unexpectedly weak September, retail sales grew 0.3% in October, more than offsetting September’s decline. Nonstore retailers, which include online merchants, posted some of the best gains, up nearly 2%. Excluding gas station sales, which fell as pump prices declined, October sales advanced 0.5%. Analysts view the improvement as a sign that lower gasoline prices are leading consumers to spend more elsewhere. Compared with last year, October retail sales rose 4.1%.

“The increase in retail sales is a welcome sign for the economy as consumers are gearing up for the holiday season,” said Vanguard economic analyst Ravi Tolani. “In addition to consumer confidence nearing pre-recession highs and gasoline prices falling, fourth-quarter economic growth could see a boost from consumer spending.”

Inventories rose again

Inventories continued to increase in September, up 0.3% from August and higher than expected. Sales were virtually unchanged from the August level, which in turn was lower than July. The ratio of total inventory to sales remained at 1.3, unchanged from August despite rising inventories, but the ratio of retail inventories to sales rose.