Excellent discussion on U.S. corporate debt by David Giodano, Director Fixed Income, S&P Dow Jones Indices, “U.S. corporations continue to take advantage of the accommodative conditions created by a protracted period of low interest rates and strong market participant demand. As of Oct. 1, 2017, U.S. investment-grade corporate debt issuance surpassed USD 1 trillion—three weeks ahead of 2016’s pace. Additionally, the amount of speculative-grade corporate debt issued through the first three quarters of 2017 is 17% higher than it was after the first three quarters of 2016. Combined, U.S. corporate issuance is on pace for another record year, which would mark the sixth consecutive year of increased corporate debt issuance.”
Consumer credit took a short pause and is now showing renewed expansion without undue stress in servicing debt. Three of the credit default measures are at the same level as two years ago and the third is continuing to improve while credit expands. Credit quality is reasonable at these levels.
The Federal Reserve is anxious to see some level of inflationary pressure, but unfortunately for Chairman Yellen, this does not appear to be on the horizon. Producer prices as measured by the PPI remains contained at 2.6% year-over-year (YOY), short of placing any upward pressure on the Consumer Price Index (CPI). Generally, increases in the Consumer Price Index (CPI) occur shortly after inflationary signs appear in the PPI.
American unemployment rate for September came in in line within our forecast at 4.2%, but at the lower end of the most likely range. We are certainly not complaining as employment continues to improve. Total unemployed dropped by 331,000 to 6.8 million. Long-term unemployed remained unchanged at 1.7 million and the labor participation rate remained unchanged at 63.1%. The only negative news in employment was a drop in total non-farm employment by 33,000 but this was most likely the result of hurricanes impacting the food service industries.
There is no doubt, the rate of increase in housing starts has slowed. You can see this in the first chart. Growth that started since 2010 appears to have taken a rest over the last several months and is struggling from lower supply numbers and higher prices. Prices increased by more than 5% from this time last year. Home sales remain above the previous year but have slowed by over 3% this month alone. Supply has increased most recently which potentially could ease pricing pressure.