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Health & Fitness

WEEK IN REVIEW "Government Shutdown?"

WEEK IN REVIEW

Stock indices had a choppy week, as politicians in Washington drew closer to the 1 October deadline for a partial federal government shutdown. With the mid-October deadline for raising the US government’s debt ceiling approaching, a double dose of D.C. drama is in store. A debt default would likely have a far greater global economic impact than a brief US government shutdown.

Stocks closed out the week in negative territory. The Dow was down 70 points to 15258. The S&P 500 Index declined for the sixth time in seven sessions as it lost over 6 points to 1691. The NASDAQ was lower by 5 points to 3781.

Washington’s debt debate put pressure on the major averages. The Senate approved legislation to keep the government open until mid-November. However, the House is not expected to pass the bill which includes funding for the new federal health care law. If the measure is not agreed to by October 1, the government will partially shut down.

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On the economic front, data was mixed. Consumer spending rose for the fourth straight month in August and incomes jumped by the most since February. On the downside, a reading on consumer confidence fell to nearly a five-month low.

Overall, every sector finished lower. Telecommunications and Materials fell the most as Verizon dropped 1.6% to $46.93 and Dow Chemical lost 2.7% to $38.92.

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For the week, the Dow posted a 1.3% loss and the S&P 500 fell 1.1%, snapping a three-week winning streak for both indices. The NASDAQ bucked the downtrend as it gained 0.2%. NYSE Composite volume totaled over 2.9 billion shares. On the NYSE, decliners beat advancers by 2-1 on issues and 3-1 on volume. The NASDAQ was 8-5 negative on issues and 4-3 negative on volume.

In fixed-income, Treasuries rose and extended their string of weekly gains to three. The 10-year note was up 7/32 to yield 2.62% and the 30-year bond gained 6/32 to yield 3.68%.

The US housing market seems to be entering a cooling period. After a year of steady gains in sales and average home prices, rising interest rates and escalating prices appear to be curbing demand. Meanwhile, US initial jobless claims are at six-year lows.

Reports of further economic recovery in the eurozone and China were encouraging to investors, as economic activity in both areas rose slightly in September. Greece is about to begin talks with international creditors on a third multibillion-euro bailout, just as government officials see new signs of economic recovery. Overall, global stock indices were volatile, while nervousness over Washington’s political impasse drove investors to safe-haven US, UK and German sovereign bonds. Yields on the 10-year securities of all three governments fell steadily through the week, indicating higher demand.

Speculation is rising about the economic cost of a US government shutdown. Economist Mark Zandi of Moody’s Analytics estimates a three- to four-week shutdown would take 1.4 percentage points off fourth-quarter growth, effectively cutting it in half. Moody’s forecasts a 3% growth rate in the fourth quarter without a closure. Macroeconomic Advisers estimates that a two-week shutdown could cut growth by 0.3 percentage points.

The cost of insuring against a US default for a year through credit-default swaps rose sixfold in the past week, reaching its highest level since August 2011, when the threat of a default led Standard & Poor’s to downgrade US debt from the highest level.

The US economy grew at the previously estimated 2.5% annual pace in the second quarter, according to the US Department of Commerce. Business investment and state and local government spending were higher than previously estimated. However, exports grew at a slower pace than first thought. Inventories were revised down slightly, and corporate profits after taxes rose less than indicated earlier. Consumer spending was unchanged from the 1.8% previously reported. Economists expect growth to slow in the third quarter.

Conflicting US housing data point to a shifting market. The S&P/Case Shiller index for July showed another robust year-on-year rise of 12.4% in US home prices. However, various housing data from August show the start of a shift downward. The index of pending home sales fell 1.6% in August, according to the National Association of Realtors. Purchases rose just 2.9% from August 2012. The realtor group’s chief economist predicted lower levels of existing-home sales in the months ahead. However, prices could be persistently high because of tight inventory in many markets. 

The weekly US jobless benefits report points to a clear improvement in the employment picture. It is the first such report in three weeks to be untainted by possible computer system hiccups. Initial unemployment benefits claims fell by 5,000 to a seasonally adjusted 305,000 in the week ended 21 September, according to the US Department of Labor. The four-week moving average of claims fell by 7,000 to 308,000. A year ago, weekly initial jobless claims were above 360,000.    

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