U.S. Economy Regains All Jobs Lost in the Recession Weekly Update – June 9, 2014

Image courtesy of FreeDigitalPhotos.net/ddpavumba

Image courtesy of FreeDigitalPhotos.net/ddpavumba

Markets rallied for the third week in a row, sending stocks to new all-time highs on the back of a strong May jobs report. For the week, the S&P 500 rose 1.34%, the Dow gained 1.24%, and the Nasdaq grew 1.86%.1

Markets shot up on Friday after a better-than-expected jobs report showed slow and steady improvement in the labor market. Here are some high level takeaways: The economy gained 217,000 new jobs in May, many in business services and healthcare, indicating that the quality of available jobs may also be improving. Though headline unemployment is unchanged at 6.3%, digging deeper, we can see that the number of people who can’t find full-time jobs has fallen, as has the number who are forced to work part-time for lack of better options.2 This is great news for the labor market.

We also want to point out an important milestone reached last month: The economy has regained all of the jobs lost in the recession. The chart below shows that total nonfarm employment in the U.S. reached 138.5 million in May, up 8.8 million since the bottom of the recession in 2010.3

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While this is a noteworthy event, when we consider population growth and labor force growth, employment is still below healthy levels and the labor market still has a ways to go.

The European Central Bank voted to adopt aggressive measures to prop up Europe’s lagging economy. Though the ECB hasn’t quite reached Federal Reserve-style quantitative easing measures, it cut interest rates below zero, charging banks for holding money overnight. Economists hope the move will force banks to lend money out rather than pay to keep it on deposit, increasing the availability of credit to businesses and staving off deflation.4 Reactions to the move were mixed, with some analysts applauding the move, while others worried about the possible effects on savers. Regardless of the outcome, it will likely take several quarters to see any effects of the new lower interest rates.

The week ahead is thin on economic data, but investors will be looking at Friday’s consumer sentiment report to see if Americans have regained their optimism after a weak showing in mid-May. Since consumer spending accounts for about two-thirds of economic growth, consumer attitudes play an important part in economic forecasts and short-term market movements. Retail sales will also be in focus on Thursday.

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: PPI-FD, Consumer Sentiment

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HEADLINES:
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Student loan debt behind housing stall? A former Federal Housing Administration head blames crushing student debt loads for delayed household formation and lackluster home sales. Higher housing prices in desirable urban areas may also make it challenging for first-time homebuyers to purchases homes.5

Consumer credit use rises. Americans ramped up their use of credit cards in April, pushing consumer credit growth to its fastest pace in nearly three years. Credit card use is up to its highest annual rate since November 2001. Higher use of credit is a potentially positive sign for consumer spending.6

Factory orders rise. Orders to American factories rose in April for the third straight month, adding to the growing pile of evidence that suggests U.S. manufacturing is picking up speed after the slow winter. Manufacturing is a significant component of the economy and strong gains should add to GDP growth this quarter.7

Motor vehicle sales rise. Auto sales surged last month, rising 11%, confirming that cold winter weather was the main factor in weak demand early this year. Despite issues with recalls on some brands, several automakers logged double-digit monthly sales growth.8

June 2014 Monthly Market Update

Markets End May at New Highs Weekly Update – June 2, 2014

Image courtesy of FreeDigitalPhotos.net/jscreationzs

Image courtesy of
FreeDigitalPhotos.net/jscreationzs

Markets rallied for most of last week, pushing the S&P 500 and the Dow to new record closes. For the week, the S&P 500 rose 1.21%, the Dow gained 0.67%, and the Nasdaq grew 1.36%.1 Despite some volatile weeks, markets ended May on an upbeat note. For the month, the S&P 500 picked up 2.10%, the Dow gained 0.82%, and the Nasdaq rose 3.10%.2

On the economic front, investors got their second look at first quarter Gross Domestic Product (GDP) growth last week and the revised estimate shows that the economy contracted by 1.0% in the first three months.3Markets shrugged off the disappointing news, partly because much of the GDP drop can be attributed to weather. Despite the dip in Q1 GDP growth, Philly Fed President Charles Plosser is still optimistic about a stronger second quarter and projects that annual GDP may still reach 3.0%.4

A gauge of consumer sentiment fell in May as Americans worried about stagnant wage growth. While most respondents were confident that the economy is on an upward trend, many were concerned about how poor income growth will affect their standard of living this year.5 Jobless claims fell sharply last week. The four-week moving average of claims also fell to a new post-recession low, indicating that the labor market continues to recover.6

You might have heard of the seasonal investing trope “sell in May and go away.” The theory is that stock investors should sell out of their positions in May and buy again in November because they should avoid holding equities over the summer. The strong performance markets experienced last month is a perfect example of why you should ignore these types of formulas. Complex market behavior is impossible to predict with any accuracy, and long-term investors need to focus more on long-term financial goals than on short-term market performance.

The week ahead is heavy with economic data, including the much-anticipated May jobs report, which investors will look to in order to confirm the upward trend in the labor market.

 

ECONOMIC CALENDAR:

Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales, Factory Orders

Wednesday: ADP Employment Report, International Trade, Productivity and Costs, ISM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims

Friday: Employment Situation

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HEADLINES:

Durable goods orders rise unexpectedly. Analysts were surprised by a sudden increase in April orders for long-lasting goods. This is the second straight month of solid gains, indicating that the manufacturing sector – contributing about 12.5% of GDP – is rebounding with the overall economy.7

Fewer Americans rely on food stamps. In a positive sign for the financial health of low-income households, the number of Americans claiming Supplemental Nutrition Assistance Program (SNAP) benefits has fallen. As the economic recovery continues, it’s hoped that government spending on SNAP benefits will continue to drop.8

U.S. personal spending falls in April. Personal consumption, a government measure that captures overall spending on goods in services, fell slightly in April after rising a seasonally adjusted 1.0% in March. Some of the decline can be attributed to lower spending on heating as the weather warmed, indicating that underlying consumer demand still remains strong.9

Home prices rise in March. Prices of U.S. single-family homes continued to rise in March, but at a slower pace than a year ago. This is a sign of persistent deceleration in the housing market. However, it may represent a return to normalized home buying activities driven by underlying economic fundamentals rather than pent up demand.10

Markets Rally on Housing Data Weekly Update – May 26, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of
FreeDigitalPhotos.net/Stuart Miles

Despite some volatility, markets rallied on better-than-expected housing numbers, putting the S&P 500 above 1900 for the first time.1  For the week, the S&P 500 gained 1.21%, the Dow gained 0.70%, and the Nasdaq grew 2.33%.2

The housing market took center stage last week on upbeat reports on new and existing home sales. Sales of new homes in the U.S. rose 6.4% in April after slumping for the previous two months.3 Existing home sales grew for the first time in 2014, creeping up a modest 1.3% in April.4 Though analysts don’t expect this “spring thaw” to rescue the housing sector, they hope that it will lead to stronger growth in the second quarter.5 High prices and rising mortgage rates have sidelined many buyers, but stronger labor market trends could strengthen home buying trends.

Initial jobless claims spiked more than expected last week, however, continuing claims dropped to their lowest level since December 2007. The four-week moving average of initial claims also dropped, indicating that unemployment trends are generally moving in the right direction.6

However, a recent poll revealed that nearly half of unemployed Americans are thinking about or have given up the job hunt. Feelings of discouragement and hopelessness are preventing many survey respondents from continuing to seek work; even when jobless benefits have run out. The survey also indicated that many long-term unemployed are not willing to relocate or pursue education that could help them land a job. Mismatches between available jobs and worker skills could be contributing to unemployment and under-employment trends.7

The Fed released meeting minutes from the April Federal Open Market Committee (FOMC) meeting, and while the report contained no surprises, investors were reassured by the meeting’s focus on an exit strategy for quantitative easing. The minutes also emphasized the desire by some Fed insiders to give the public more information on future Fed plans in order to give markets more time to digest key policy shifts.8

Looking ahead at the holiday-shortened week, investors will be taking a close look at Thursday’s Gross Domestic Product (GDP) report as well as key consumer sentiment numbers. Strong spending and consumer confidence data would support hopes that economic activity is picking up in the second quarter.

ECONOMIC CALENDAR:

Monday: U.S. Financial Markets closed for Memorial Day holiday

Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence, Dallas Fed Mfg. Survey

Thursday: GDP, Jobless Claims, Pending Home Sales Index, EIA Petroleum Status Report

Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

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HEADLINES:

Gas prices close to three-year norm. For the third year in a row, average gas prices are within a few cents of $3.64 over the Memorial Day holiday. Steady gas prices are a result of stable crude oil prices, which have been supported by rising output from the U.S., Canada, and Brazil.9

Beef prices heading north. Long-lasting drought conditions in California and other major agricultural states are boosting the price of summer staples like beef, pork, and fruits. The USDA expects overall food inflation to increase to 3.5% in 2014.10

U.S. manufacturing growth picks up. A measure of factory activity in the U.S. hit a three-month high in May and grew at the fastest pace since early 2011. Expansion in the manufacturing sector could lead to higher GDP growth this quarter.11

Vacation rental scams on the rise. Scammers are using Craigslist and other online classifieds to lure in vacationers with low prices on rentals in hot areas. To protect yourself, rent through a reputable agency or verify owner details and always pay with a credit card for extra protection.12

 

Why Are Bond Yields So Low? Weekly Update – May 19, 2014

Image courtesy of FreeDigitalPhotos.net/suphakit73

Image courtesy of
FreeDigitalPhotos.net/suphakit73

After several days of negative performance, stocks rallied in the last two days to close generally flat. For the week, the S&P 500 lost 0.03%, the Dow fell 0.55%, and the Nasdaq gained 0.46%.1

Economic data last week was generally ho-hum except for two reports. Weekly jobless claims plunged to their lowest level in seven years, giving investors hope that the labor market is moving into high gear. Keep in mind that this measure is highly volatile, and it’s wise to wait and see if the trend continues.2

Another report showed an unexpected jump in April housing starts, which could indicate the beginning of resurgence in the housing market. Groundbreaking on new houses surged 13.2% in April as warmer weather and rentals buoyed demand for multi-unit buildings.3

Investors who watch bond markets have probably noticed a puzzling downward trend in bond yields. Despite several new records for major stock indexes and an economy that might be reaching escape velocity, the yield on benchmark 10-Year Treasury bonds have been on a downward trend since the beginning of the year.

 

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To give you a quick refresher, bond yields and bond prices are inversely related, meaning that as demand for bonds goes up, yields come down. Conversely, bond yields go up when demand falls. Typically, stronger economic performance leads to higher Treasury yields. Given recent stock market highs and better economic performance, we should see demand for Treasury bonds to go down as investors embrace risk and seek greater returns elsewhere. In fact, we’re seeing the opposite.

There are a few factors that may be contributing to the demand for Treasuries:4

  • Inflation is still muted. Higher inflation generally leads to higher interest rates and higher bond yields.
  • The Fed doesn’t appear to be in a hurry to raise interest rates, putting downward pressure on yields.
  • The European Central Bank has pledged to lower interest rates to spur economic activity, driving up demand for U.S. bonds.
  • U.S. debt is attractive to investors seeking high liquidity and lower default risk.
  • Global jitters from the crisis in Ukraine are pushing investors into Treasury bonds.

What does this all mean for investors?

It’s hard to know exactly where bond yields will go, but many analysts think that demand will remain high for the foreseeable future. Lower borrowing costs may spur business activity as companies are able to lower financing costs and prospective homebuyers can find mortgages at attractive rates.While the relationship between bond markets and stock markets is complex, lower bond yields might support higher stock prices as investors seek higher returns. On the other hand, frazzled investors may see plummeting Treasury yields as a sign that the economy is not picking up and turn bearish on equities.5

Looking ahead, this week is fairly light on economic data, but the housing market will be in the spotlight as analysts determine whether home sales data supports the upward trend in housing starts. Elsewhere, several important Fed economists, including Janet Yellen, will be speaking about the economy throughout the week, and the minutes from the most recent FOMC meeting will be released.6

ECONOMIC CALENDAR:

 

Wednesday: EIA Petroleum Status Report, Janet Yellen Speaks 11:30 AM ET, FOMC Minutes

Thursday: Jobless Claims, PMI Manufacturing Index Flash, Existing Home Sales

Friday: New Home Sales

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HEADLINES:Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Consumer sentiment slips in May. An important gauge of consumer sentiment dropped below expectations as gloom over stagnant wage growth clouded consumer confidence.7

Economists raise Q2 GDP estimate. Fed economists believe that the economy is growing at a faster pace in the second quarter than originally thought. Analysts see the economy growing at an annualized rate of 3.3%, up from 3.0%.8

Retail sales edge up slightly in April. After two straight months of strong gains, retail sales hit the brakes last months, rising just 0.1%. Consumers reined in spending across multiple categories, but analysts still believe consumers are on track to spend more this quarter.9

Industrial production declines in April. Manufacturing fell 0.6% in April after two straight months of gains. Analysts are taking a wait-and-see approach to see if the general upward trend in activity continues next month.10

 

Recent Changes to IRA Rollover Rules

Image courtesy of FreeDigitalPhotos.net/kibsri

Image courtesy of FreeDigitalPhotos.net/kibsri

The IRS recently issued new guidance about the rules governing rollovers* from Individual Retirement Accounts (IRAs).1 The new regulations state that IRA owners will only be allowed one 60-day rollover per 12-month period, regardless of how many IRAs they own. Prior to this update, the IRS had permitted taxpayers to take one rollover every year for each of their IRAs.

The new rule will go into effect on January 1, 2015, giving clients and advisors time to adapt to the change. Any rollovers that take place before the beginning of next year will be grandfathered in under the old interpretation and be unaffected by the change.

What Are the Tax Consequences of the New Rule?

Under the new rules, you’ll be allowed to treat a single cash distribution from any of your IRAs as a 60-day rollover every 12 months. For example, if you take a distribution from your Traditional IRA on January 10th next year, you will have 60 days to roll it over to another IRA. The day you take your distribution, the clock starts ticking and you won’t be eligible for another rollover for 12 months.

If you take another distribution from your IRA before the 12 months is up, it will be treated as a taxable event. You’ll have to report the distribution as income and pay taxes at your ordinary rate. If you’re under 59 ½, you may be subject to a 10 percent early withdrawal penalty. If you try to return the money to an IRA, the IRS will treat it as an excess contribution and levy a 6 percent tax on the assets as long as they remain in the IRA.

Are There Any Exceptions to the New Rollover Rule?

According to the IRS2, the once-per-year limit does not apply to:

• Roth conversions from traditional IRAs
• Trustee-to-trustee transfers between IRAs
• IRA-to-retirement plan rollovers
• Retirement plan-to-IRA rollovers
• Plan-to-plan rollovers.

In plain English, rollovers that go directly from one retirement account to another, without passing through your hands, do not count against your annual allotment. However, any checks or wires that are made out to you personally (and not the trustee of your retirement account) will be subject to the 12-month rollover limit.
While most investors will not be unduly affected by this rule change, we can learn an important lesson from the situation: the tax code is constantly being updated and investors can expect new changes in the future. As advisors, one of our most important duties is staying abreast of the shifting regulatory environment and making changes to our clients’ strategies where necessary.
If you are concerned about how your retirement strategies may be affected by the new rules regarding rollovers or have any questions about the information included in this letter, please contact us. We would be happy to be of service to you.
*Rollovers are generic layman’s terms for moving from one retirement account to another. There are different kinds of rollovers and some are actually transfers. That is why there are some exceptions to the rule.

Choppy Week Ends Mixed Weekly Update – May 12, 2014

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Image courtesy of FreeDigitalPhotos.net/stuart miles

The major indices closed out a volatile week on a mixed note, though the Dow was able to notch another all-time closing record on Friday.1 Though stocks showed some momentum mid-week as investors bought the dip, they lost conviction on Friday as traders trimmed exposure ahead of the weekend.  For the week, the S&P 500 lost 0.14%, the Dow gained 0.43%, and the Nasdaq fell 1.26%.2

Last week was fairly quiet in terms of economic reports. The jobs market continues to show improvement. Jobless claims fell more than expected last week, snapping three weeks of increases. Though the four-week moving average rose slightly, the level is consistent with stable growth.3

Fed Chair Janet Yellen spoke before the House and Senate about the state of the economy. Her testimony was mostly upbeat and she reassured lawmakers that economic activity should pick up speed after the slow first quarter. However, she expressed concern about weakness in the housing sector and indicated that Fed economists will be watching the sector closely in the coming months. Despite housing sector worries, the Fed will continue to pare back bond purchases and still plans to wrap up current quantitative easing programs by this Fall.4

Ukraine is slipping closer to civil war as pro-Russian separatists in Eastern Ukraine move ahead with a disputed referendum on self-rule. Though Russia denies any role in the escalating conflict, Western leaders fear that Russia is funding rebels in order to absorb the Russian-speaking eastern portions of Ukraine.5 On the positive side, Russian President Vladimir Putin seems reluctant to engage in a showdown with the West by sending in troops. A destabilized Ukraine could lead to disruptions to natural gas supplies and other economic damage in Europe.

The week ahead is packed with important economic data, and analysts will be closely watching retail sales and business inventory numbers as well as the next consumer sentiment report to get a feel for how strong demand is in the second quarter. Though housing data is still expected to be weak, analysts are hopeful that warmer weather will boost activity.

ECONOMIC CALENDAR:

 

Monday: Treasury Budget

Tuesday: Retail Sales, Import and Export Prices, Business Inventories

Wednesday: PPI-FD, Housing Market Index, EIA Petroleum Status Report

Thursday: Janet Yellen Speaks, Consumer Price Index, Jobless Claims, Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Philadelphia Fed Survey

Friday: Housing Starts, Consumer Sentiment

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Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Strong wholesale inventories may reduce Gross Domestic Product (GDP) downgrade. Though economists may lower first quarter GDP estimates, a better-than-expected increase in wholesale inventories in March – a key component of GDP estimates – may temper the downgrade.6

China will avoid large-scale economic stimulus. Despite the signs of a slowing Chinese economy, its central bank will not employ any significant stimulus programs – similar to the U.S. Federal Reserve’s quantitative easing – to boost the economy.7

Mortgage applications rise. After weeks of lethargy, mortgage markets picked up as loan applications rose. Total mortgage volume rose on a surge of home buying activity spurred by lower interest rates and continued job market growth.8

Cash deals rule in housing market. High demand and low supply are forcing homebuyers to get competitive with all-cash offers, which accounted for 43% of total home sales in the first quarter. Strict lending standards have reduced the opportunities for many traditional homebuyers and given investors a competitive edge.9

 

 

Special Update: The Labor Market in 4 Charts Weekly Update – May 5, 2014

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Image courtesy of FreeDigitalPhotos.net/renjith krishnan

Markets ended another volatile week on an upbeat note after a wave of economic data showed that the economy is still on the right track. For the week, the S&P 500 gained 0.95%, the Dow grew 0.93%, and the Nasdaq gained 1.19%.1

One of the biggest headlines last week was the April jobs report, which showed that 288,000 new jobs were added in April, many more than economists had predicted. Even better, employment gains were widespread and represented growth in multiple sectors across the economy.2

The monthly jobs report garners a lot of attention. We wanted to use this week’s update to dig deeper into some of the data behind employment reports to show you why jobs numbers are watched so closely.

Why do labor market reports matter?

Employment reports matter to the overall economic picture because jobs growth is an important stimulus for economic growth. Job growth is highly correlated with improvements in consumer confidence, which often presage increases in spending.3 Since spending accounts for over two-thirds of economic activity, you can understand why analysts monitor the labor market closely.

Is the labor market actually improving?

If you’ve been keeping tabs on the many labor market-related headlines, you’ve probably heard pundits say that the labor market is showing signs of overall improvement. What does that mean, exactly?

Let’s look at some data. One of the most important short-term indicators of labor market health is the weekly initial claims for unemployment, which captures new applications for unemployment benefits. You can see in the chart below that the 4-week moving average of initial claims (a much less volatile measure than weekly claims) has been steadily declining since the recession peak in 2009. While the data is volatile and ‘noisy,’ the long-term trend shows significant improvement.

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Source: IC4WSA. BLS, Federal Reserve Economic Data. 5/2/09-4/26/14.

Another important indicator is the number of voluntary separations, which tracks workers’ willingness and ability to leave their jobs. Generally, this happens when folks find a better job, so it’s a good signal of improvements in the quality and quantity of jobs available.

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Source: JTSQUL. BLS, Federal Reserve Economic Data. Feb 2009-Feb 2014.

This chart shows that the number of monthly quits has been on a general upward trend since early 2009.

However, the picture isn’t completely rosy. Much of the fall in the employment numbers released last week can be attributed to the more than 800,000 Americans who dropped out of the labor force in April.4

Realistically, declining labor force participation is probably going to stay with us as baby boomers continue to retire and young people wait longer to find employment. However, most of the recent decrease comes from discouraged workers who are dropping job searches out of frustration. This is troubling.

The Bureau of Labor Statistics (BLS) defines discouraged workers as those who want a job but are not currently looking because they don’t believe jobs are available or that they qualify for current opportunities.5 You can see that the measure of discouraged workers is extremely volatile, but the overall trend since 2011 is downward, which is where we want it to be.6 However, we’ve still got a long way to go before workers and their skills will match available jobs.

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Source: LNU05026645. BLS, Federal Reserve Economic Data. Jan 2011-Apr 2014

What Does the Unemployment Rate Actually Show?

You’ve probably heard a lot about the . However, did you know that the government calculates six different measures of unemployment? The so-called headline rate is officially known as the U-3 measure and calculates total unemployed as a percent of the total civilian labor force. For a broader measure, we can look at the U-6 rate, which also captures under-employment. This calculation includes people who, while they don’t meet BLS definitions of unemployed, still suffer the effects of a weak job market.

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Source: UNRATE, U6RATE. BLS, Federal Reserve Economic Data. Apr 2009-Apr 2014.

The top line shows this broader measure of unemployment. Right now, while the headline unemployment rate is 6.3%, we can tack on another 6.0%-worth of discouraged, under-employed, and forced part-time workers. Digging a bit deeper, involuntary part-time work is the largest contributor to the difference between headline unemployment and the U-6 measure, indicating that, while many Americans have jobs, they aren’t able to work as much as they might like.7

Bottom Line: The Labor Market Is Improving

Overall, medium- and long-term trends in employment data show that the labor market is largely getting better. However, in the short-term, seasonal effects, unique business events, and other factors can make the jobs picture much less clear.

This is why policy makers like the Federal Reserve look at a variety of indicators (including the data we’ve examined in this update) to develop a more nuanced view of what is happening in the economy. As financial representatives, it’s our job to monitor many different indicators, including the data we’ve shared with you in this update, to understand the current economic picture and develop strategies for our clients.

I hope you’ve enjoyed our foray into some of the numbers behind the employment headlines. We enjoy providing educational and informative content, and we welcome any comments or questions you may have.

ECONOMIC CALENDAR:

Monday: ISM Non-Mfg. Index

Tuesday: International Trade

Wednesday: Productivity and Costs, Janet Yellen Speaks 10:00 AM ET, EIA Petroleum Status Report

Thursday: Jobless Claims, Janet Yellen Speaks 9:30 AM ET

 

Data as of 5/2/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard & Poor’s 500

0.95%

1.77%

17.75%

22.87%

6.99%

Dow

0.93%

-0.38%

11.34%

20.21%

6.15%

NASDAQ

1.19%

-1.26%

23.45%

27.97%

11.48%

U.S. Corporate Bond Index

0.50%

3.19%

-2.63%

4.73%

1.11%

International

1.48%

1.94%

10.75%

16.51%

8.62%

Data as 5/2/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.01%

0.05%

0.10%

1.67%

2.60%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

First quarter GDP estimate shows weak performance. Investors got their first look at Q1 Gross Domestic Product (GDP) growth and the current estimate shows that the U.S. economy grew a sluggish 0.1%, mostly because of the lingering effects of winter8 Keep in mind that economic estimates change frequently, and revised data may show a more upbeat picture.

Federal Reserve continues taper. The Federal Open Market Committee (FOMC) met last week and voted to continue tapering, decreasing monthly bond purchases to $45 billion. The move wasn’t a surprise to analysts, but it serves to underscore the Fed’s faith in the economic recovery.9

Consumer spending soars in March. Warmer weather encouraged American shoppers to return to malls and car dealerships, boosting consumer spending by the highest amount in nearly five years.10

Ukrainian crisis turns violent. Ukrainian military forces engaged pro-Russian insurgents in eastern Ukraine, attempting to regain control over the economically important east. Russia continued to mass troops on the border and warns they will respond to attacks on Russian interests.11

 


 


[vi] N.B. The time period in this chart is different because the BLS changed its calculation method for discouraged workers in January 2011, rendering comparisons before and after the change problematic.

Markets Retreat Amid Volatility – Weekly Update April 28, 2014

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Image courtesy of FreeDigitalPhotos.net/Stuart Miles

Despite a steady stream of better-than-expected earnings reports, markets retreated during a volatile week. Overall, the S&P 500 lost 0.08%, the Dow retreated 0.29%, and the Nasdaq fell 0.49%.1

Earnings seasons is halfway over, and thus far, among the 240 S&P 500 firms that had reported as of last Friday, total revenues are up 3.7%, and earnings results are up 2.0% from the same period last year. Overall, while growth remains weak and fewer companies are beating revenue estimates, the general sentiment is: “not bad.” Excluding the Finance sector (which is being dragged down by weak Bank of America results), revenue and earnings growth last quarter was in line with historical averages.2

Why the volatile market performance last week? Investors already knew Q1 results would be weak, and those negative expectations were mostly priced into markets. However, markets are forward-looking and traders are more concerned about growth prospects going forward. The escalating tensions in Ukraine also weighed on investors, who are nervous about the potential effects of geopolitical issues on corporate profits. If Russia makes good on its threats to cut off natural gas supplies to Ukraine and Europe, general prices would probably go up, hurting consumer demand and economic growth in Europe. This could have serious implications for firms doing business overseas.3

Economic data was a mixed bag last week. The number of Americans filing new unemployment claims rose more than expected last week, but economists think the increase is seasonal and doesn’t suggest any fundamental shifts in the labor market. We’ll have a clearer picture when the April jobs report comes out this Friday.4 Durable goods orders surged in March as businesses purchased long-lasting goods like household appliances, cars, and consumer electronics. An increase in this area generally means that retailers expect to be able to sell those products in the coming weeks and months.5 Consumer sentiment rose to a nine-month high in April as Americans became more optimistic about current and future economic prospects. Though consumer sentiment is known to be volatile, we can hope that improving job and business conditions will lead to greater consumer spending this quarter. 6

Investors will have a lot to digest in the week ahead with a Federal Open Market Committee (FOMC) policy meeting on Tuesday and Wednesday, the first Q1 Gross Domestic Product (GDP) estimate on Wednesday, and the April jobs report on Friday. Analysts don’t expect the Fed to change interest rates or its QE tapering schedule, though Fed Chairman Janet Yellen might use her official speech as an opportunity to provide further guidance about interest rate plans.

ECONOMIC CALENDAR:

 

Monday: Pending Home Sales Index, Dallas Fed Mfg Survey

Tuesday: S&P Case-Shiller HPI, Consumer Confidence

Wednesday: ADP Employment Report, GDP, Employment Cost Index, EIA Petroleum Status Report, FOMC Meeting Announcement

Thursday: Motor Vehicle Sales, Jobless Claims, Personal Income and Outlays, Janet Yellen Speaks 8:30 AM ET, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Friday: Employment Situation, Factory Orders

 

Data as of 4/25/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard   & Poor’s 500

-0.08%

0.81%

17.55%

23.02%

6.34%

Dow

-0.29%

-1.30%

11.30%

20.52%

5.62%

NASDAQ

-0.49%

-2.42%

23.88%

28.11%

9.88%

U.S.   Corporate Bond Index

0.36%

2.68%

-2.66%

4.74%

1.00%

International

-0.19%

0.45%

10.44%

16.76%

7.75%

Data as of 4/25/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.01%

0.04%

0.11%

1.72%

2.68%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Services sector slows expansion in April. The services sector, containing industries like financial services, hospitality, and healthcare, added jobs at the slowest rate in almost two years. Slow hiring could challenge the assertion that the job market is broadly improving.7

Manufacturing sector expands in April. U.S. factory output growth increased at the fastest pace in three years, driven by domestic demand. On the other hand, inventories fell, indicating that future demand for factory products may fall.8

Home sales suggest persistent weakness in housing market. New home sales dropped sharply in March, while sales of existing homes fell slightly for the third month in a row. Realtors blame rising mortgage rates and cold weather for plummeting sales, but some analysts think that housing prices have risen too high, putting ownership out of reach for many workers.9

Chinese manufacturing activity remains weak. Though manufacturing sector activity rose in April, it remains below target growth, supporting other economic indicators that show China’s economy may be stalling.10

The Rebound – Weekly Update April 21, 2014

Image Courtesy of FreeDigitalPhotos.net/jannoon028

Image Courtesy of FreeDigitalPhotos.net/jannoon028

Markets closed out the holiday-shortened week on an upbeat note, with the S&P 500 posting its best week since July. For the week, the S&P 500 gained 2.71%, the Dow grew 2.38%, and the Nasdaq rose 2.39%.1

Markets shook off the previous week’s losses and rallied on earnings data and a better-than-expected Gross Domestic Product (GDP) report from China. Though earnings season is still young, the overall picture is not as bad as investors had feared. Thomson Reuters estimates that first-quarter earnings increased 1.7% from a year ago, which is much lower than the high-flying estimates at the beginning of the year, but not too bad considering the rough winter.2

Though China’s first-quarter GDP report is not rosy – it showed that economic growth slowed to 7.4% as compared to the previous year – analysts had expected it to drop even further to around 7.0%.3 The data shows that China’s economic growth is indeed slowing, but markets still counted it as a win (for now). China is a trading partner to many countries around the world, and its economic strength is a bellwether for the health of the global economy. A slowdown in China could have knock-on effects elsewhere in the world.

On the domestic front, economic data is looking up. Retail sales surged in March, recording their largest gains in 1½ years as consumer demand came roaring back. Increasing consumer demand could indicate that economic growth is set to accelerate in the spring.4

The number of new unemployment claims filed last week rose less than expected, staying close to the 6½ year low achieved the previous week. The four week moving average, a less volatile measure, fell to the lowest level since October 2007, indicating that labor market growth is accelerating.5

Fed Chair Janet Yellen spoke last week and reiterated her opinion that the economy and labor market are still not fully recovered. She stated that future policy moves would not be based on a single indicator, but on a comprehensive analysis of the economy’s health.6

Looking ahead, earnings season will kick into high gear this week when nearly one third of S&P 500 companies report.7 If investors see strong earnings performance, markets could shake off the doldrums and resume the rally. On the other hand, weak performance could lead to significant volatility.

ECONOMIC CALENDAR:

 

Tuesday: Existing Home Sales

Wednesday: PMI Manufacturing Index Flash, New Home Sales, EIA Petroleum Status Report

Thursday: Durable Goods Orders, Jobless Claims

Friday: Consumer Sentiment

 

Data as of 4/18/2014

1-Week

Since 1/1/14

1-Year

5-Year

10-Year

Standard   & Poor’s 500

2.71%

0.89%

20.97%

22.89%

6.44%

Dow

2.38%

-1.01%

12.87%

20.36%

5.70%

NASDAQ

2.39%

-1.94%

29.34%

28.96%

10.52%

U.S.   Corporate Bond Index

-0.50%

2.32%

-3.09%

4.73%

0.89%

International

1.92%

0.64%

15.18%

17.31%

7.78%

Data as of 4/18/2014

1 mo.

6 mo.

1 yr.

5 yr.

10 yr.

Treasury Yields (CMT)

0.02%

0.05%

0.11%

1.75%

2.73%

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

U.S. housing starts lag in March. Builders broke ground on fewer houses in March than expected, and new building permits fell, suggesting that weakness in the housing market could persist through warming weather..8

Manufacturing output rises in March. Factory production rose for the second straight month, extending its rebound after the cold winter. Overall industrial production was up 0.8%, beating analysts’ expectations, and indicating that manufacturing is set for a positive second quarter.9

Russia threatens shutoff if gas bill not paid. Russian President Vladimir Putin warned that natural gas supplies to Europe might be disrupted if Ukraine does not pay its gas debts, which Russia claims total $2.2 billion. Both Russia and the European Union (EU) are scrambling to find other markets for natural gas in the event the Ukrainian situation continues..10

Mortgage applications rose last week. Falling interest rates caused a surge in mortgage applications as Americans rushed to lock in lower rates. Rates on fixed 30 year mortgages fell to 4.27%, the lowest they’ve been since November 2013.11