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January 2020
National Non-Operating Observations
In mid-December, the U.S. cancelled massive upcoming tariffs on the coattails of an agreement to a phase one trade deal with China, expected to be signed in January. Phase two is expected to cover major items, such as protections of domestic intellectual property and restrictions on subsidies for state-owned enterprises. In other trade news, the U.K. announced Dec. 31, 2020 as a hard date for complete withdrawal from EU markets, raising concerns yet again for a “no-deal Brexit.” The manufacturing sector lost 12,000 jobs in December, finishing 2019 with a net gain of 46,000 compared to 264,000 in 2018. The Institute for Supply Management’s (ISM) Purchasing Managers’ Index (PMI) declined from 48.1 percent in November to 47.2 percent. December marks the fifth consecutive month below 50 percent, with anything under 50 indicating a contraction. Manufacturing suffered in 2019, impacted heavily by demand and cost fluctuations caused in part by the U.S.-China trade conflict. As a result, the PMI declined 7.1 from 54.3 at the beginning of 2019. The Federal Reserve held consistent with its assurance that there would be no additional rate cuts in 2019, noting in December that their plan is to keep rates where they are unless inflation—currently around 1.6 percent—threatens to persistently climb above their 2 percent target. Low inflation coupled with strong labor markets and rising earnings have helped to bolster consumer sentiment. Total retail sales increased 3.6 percent from 2018 to 2019, with substantial growth during the holiday season. The Consumer Confidence Index rose 1 percent in December, reversing five consecutive months of decline, pointing to consumers’ steadfast role in supporting growth in both financial markets and the broader economy. From an overall economic perspective, Gross Domestic Product (GDP) grew at an annualized rate of 2.1 percent and was expected to remain steady through the end of 2019, compared to 2.5 percent at the end of December 2018. While the consumer sector remains a strong buffer, overall growth has seen gradual but consistent declines.
†Q3 2019 U.S. Bureau of Economic Analysis “Third Estimate”
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.
Notes: (1) reflective of most up-to-date data available; excludes food and energy sectors

December 2019
Month Over Month Change
Year Over Year Change

GDP Growth
Unemployment Rate
(40 bps)
Personal Consumption Expenditures, Y-o-Y(1)
(2 bps)
(36 bps)
+7 bps
(74 bps)
30yr MMD
+3 bps
(93 bps)
30yr Treasury
+18 bps
(62 bps)
60/40 Asset Allocation*
Non-Operating Assets
Investment assets performed very well in December, driven by promising steps toward a U.S.-China trade deal resolution. The Blended 60/40 Asset Allocation increased 2.12 percent from November, its fourth consecutive monthly increase. Equities performed well, with the S&P 500, MSCI World, and MSCI Emerging Markets indices up 2.86 percent, 2.89 percent, and 7.17 percent, respectively. The Barclays Aggregate Index saw a minimal decline of 0.07 percent. Since the start of 2019, all asset classes finished the year substantially higher, with the Blended 60/40 portfolio seeing a fantastic 18.73 percent increase.
Long Term
Last Twelve Months
Non-Operating Liabilities
30-year MMD and 30-year Treasury rates continued to increase in December after hitting lows in August. 30-year MMD ended the month at 2.09 percent, up 3 bps from November, but down 93 bps in 2019. 30-year Treasury yields ended the month at 2.39 percent, up 18 bps from November, but down 62 bps in 2019. In the short-term markets, 1M LIBOR finished December at 1.76 percent, up 7 bps on the month, but down 74 bps on the year. The tax-exempt short-term rate SIFMA ended the month at 1.61 percent, up 51 bps on the month, but down 10 bps on the year. With the Fed cutting rates three times in 2019, all the benchmark rates ended the year lower than where they started. Municipal fund inflows remained strong in December, with investors positioning an additional $9.7 billion in muni funds. 2019 saw a gargantuan $93.9 billion enter the market, beating the previous record of $81.1 billion in 2009. Since the second week of 2019, there has been a streak of consecutive weeks of muni fund inflows while investors have simultaneously been withdrawing money from domestic equity funds to the tune of $301.1 billion.
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets—as approximated here by the “30-yr U.S. Treasury” and “30-yr MMD Index”—are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. A key measure to track is bond fund flows, particularly in the more supply- and demand-sensitive tax-exempt market. Fund flows are monies moving into bond funds from new investment and principal and interest payments on existing and maturing holdings. Strong fund flows signal generally that investors have more cash to put to work, a boon to the demand. Fund inflows generally are moderate and consistent over time, while fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in quick position liquidation which can drive yields up considerably in a short amount of time.
©2020 Kaufman, Hall & Associates, LLC
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