Lower energy prices give consumers more to spend

With a slump in demand and a glut in supply, energy prices are hitting the lowest levels in more than a decade. Consumers are paying less to fill up their car as well as to heat their homes this winter.

This trend is likely to continue, according to weather and energy experts.

EIA: Expect a warmer winter

Particularly in the Northeast, residents are already experiencing higher-than-normal temperatures for December. The highlights from the latest “winter fuels outlook” from the U.S. Energy Information Administration (EIA) calls for a warmer winter and potential savings of up to 33% over last year on heating oil.

Just recently, the price of crude oil hit a record low below $35 a barrel and natural gas prices fell to a 14-year low on the cheaper crude and mild weather.

Oil prices have fallen by 50% since June 2014. U.S. oil production rose significantly over the past six years, and the growth in global demand has fallen. At the same time, OPEC has refused to cut production.

Consumers recently began paying close to $2.00 per gallon on average for gasoline. That price may go below $2.00 in the coming weeks. The EIA expects consumers to spend $750 less on gas this year because of the price drop.

Weather — not bills — heating up

Based on the latest forecasts from the National Oceanic and Atmospheric Administration (NOAA) temperatures east of the Rocky Mountains are likely to be warmer than last winter— with the Northeast 13% warmer, the Midwest 11% warmer, and the South 8% warmer.

About half of American homeowners use natural gas for heat and could see a 10% decrease in their gas bill this winter over last year,the EIA reported. That estimate could rise to 17% if the weather is 10% warmer than forecast. For propane, declining demand will probably result in an 18% savings for consumers, and 30% less expenditure if the weather warms up further.

Households using electricity for home heating are expected to save about 3% over last year on their bills, and 7% if it gets warmer.

The El Niño effect

Climate experts point to El Niño as the cause for the lower-than-normal warm weather. El Niño is created when the waters in the equatorial region of the Pacific Ocean get significantly warm. This year’s El Niño is among the strongest on record, and is expected to be the strongest in nearly two decades. The El Niño effect is altering the position of the Pacific jet stream, according to NOAA. The weather pattern is expected to produce cooler and wetter weather in the
Southern Plains and southeast, and above-average temperatures in the west and northern half of the United States, NOAA reported.

The winter will not be completely void of cold air snaps and snowstorms. But the frequency and number of storms cannot be predicted. On a positive note, California is likely to see some drought improvement, the report added.

Will first-quarter growth be affected?

Harsh winter weather did a lot of damage to properties and workers’ commutes in the past two winters. In the first quarter of 2015, a series of blizzards and colder-than-normal temperatures even affected U.S. growth. The Bureau of Economic Analysis (BEA) reported that GDP grew only 0.6% in the first quarter due, in part, to the weather conditions.

In 2014, harsh winter weather also had an impact on much of the country. U.S. GDP contracted 2.9% in the first quarter that year. The BEA reported that 19 out of 22 industry groups experienced a drop in economic activity and some of the leading industries were affected by the harsh winter weather. Agriculture, mining, construction, wholesale trade, and business services were among the declining industries.


Fed weighs key risks in decision

Comprehending the strength of the U.S. economic recovery from the Great Recession is a priority for the Federal Reserve as it continues to weigh whether an interest rate hike is appropriate and how it may affect future growth.

Rate increases have typically come in response to economic strength. This was the case in 1999-2000, when the Fed raised rates several times to temper inflationary pressure.

The U.S. economy posted robust growth numbers in the late 1990s, reaching GDP growth rates of 4.5% in 1997, 4.4% in 1998, and 4.7% in 1999 (Source: worldbank.org). In the same years, inflation remained fairly tame at 2.3%, 1.6%, and 2.2%, respectively. But the pick up in inflation between 1998 and 1999 caught the Fed’s attention, as did a string of record highs for the stock market, signaling possible “irrational exuberance” in stock prices, a concern that Fed Chair Alan Greenspan had raised in prior years.

The Fed considered raising rates in 1998, but chose not to make a move amid concerns about the impact of global events such as the Asian financial crisis and Russian default.

In 1999, however, the Fed decided to act. From June 1999 through July 2000, the Fed raised interest rates six times. During the period, the federal funds rate went from 4.75% to 6.5%.

On June 30, 1999, the Fed raised the federal funds rate by 25 percentage points to 5.0%.

Amid the rate increases, the stock market corrected. Prices began to tumble in July 1999, and the downturn lasted through October 1999, when stocks rebounded and finished the year with a strong rally.

In 2000, Fed rate hikes continued in February and March, bringing the federal funds rate to its highest level in nearly five years. Initially, stocks held up. The S&P 500 Index rose to 1,493.87, setting a record in March.

However, the issue of inflated stock valuations, particularly in the technology sector, remained a concern. Many stocks in the so-called ‘new economy’ or dot.com segment included start-up companies with weak revenues but generous market valuations. Fears about inflation also emerged when the CPI jumped 0.7% and core CPI rose 0.4% in March.

The dot.com bubble burst in March, beginning with a huge selloff in the Nasdaq. The Dow Jones Industrial Average and Nasdaq both experienced record-setting declines.

The final rate hike for the cycle came on May 16, 2000, with an increase of 50 percentage points to 6.5%. GDP growth slowed significantly in the third quarter.

By the beginning of 2001, the slowdown forced the Fed to reverse course and begin cutting rates. In a hasty retreat, the Fed cut rates by a full percentage point in two moves during January 2001. The Fed would follow with nine more cuts during the course of the year, bringing the federal funds rate down to 1.75%.

As the Fed was frantically slashing rates, the economy and stock market continued on their downward paths. In 2001, the United States entered a recession, bringing to an end its longest post-war economic expansion. The recession was relatively brief, lasting from March to November of 2001. For stocks, however, the consequences were more severe. Large-cap stocks continued to slump even after the economy began to recover. In sum, the S&P 500 Index posted negative results for three straight years: in 2000, amid the rate hikes; in 2001, amid the recession; and in 2002, in the early months of the recovery.

Fixed-income markets, on the other hand, fared better, as bullish conditions for high-quality assets continued.


Putnam Investments honored for service excellence by DALBAR for 26th consecutive year

BOSTON, December 8, 2015Putnam Investments announced today that for the 26th consecutive year, it has been honored by DALBAR for mutual fund service quality, reflecting industry- leading consistency and reliability. This continuous acknowledgement of Putnam’s work in this area includes being named DALBAR Mutual Fund Service Award winner for 24 years and the sole winner of DALBAR’s Total Client Experience Award for the past four years.

“Each time that our firm receives a DALBAR award, it is more special than the previous one,” said Putnam President and Chief Executive Officer, Robert L. Reynolds. “Putnam takes enormous pride in providing clients with the highest quality of service and is truly pleased to have this dedicated effort recognized.”

Added Reynolds, “Putnam’s culture of proactive, thoughtful and innovative communication and management has been one of the primary drivers in delivering a superior client service experience — surpassing industry standards — and serves as a true differentiator in the marketplace.”

For nearly three decades, DALBAR has conducted rigorous, systematic and yearlong testing of customer service based on industry benchmarks, and point to service that eclipses industry standards in the most important areas. The DALBAR Service Awards are given annually by DALBAR, Inc., a leading financial services market research and consulting firm to elite service providers.

DALBAR, Inc., the nation’s leading financial services market research and consulting firm, is committed to raising the standards of excellence in the financial services industry. With offices in both the US and Canada, DALBAR develops standards for, and provides research, ratings, and rankings of intangible factors to the mutual fund, broker/dealer, life insurance, property and casualty, and managed account industries. Measurements include investor behavior, customer satisfaction, service quality, communications, Internet services, and financial professional ratings.