Clarksville, TN – The economic data reports were mixed, but mostly on the soft side of expectations. The ISM Manufacturing Index surprised (modestly) to the upside, boosted by a lengthening in supplier delivery times (anecdotally, many firms had trimmed inventories in anticipation of softer demand, but sales surprised and they are now scrambling a bit to restock).
The Conference Board’s Consumer Confidence Index slid. Unit auto sales were strong, but were supported by an increase in fleet sales (rental cars, etc.). The ADP estimate of private-sector payrolls was moderate strong, with continued hiring at small and medium-sized firms.
The Beige Book noted “modest” growth across the 12 Federal Reserve districts and gave an eerily preview of the employment report (job growth was generally described as “modest,” while there were widespread reports of tighter labor market conditions).The May Employment Report was weaker than expected. Nonfarm payrolls rose by 38,000, well below expectations (median forecast: +160,000, which included an impact from the strike at Verizon). Figures for March and April were revised a net -59,000. One month does not make a trend, but the revisions give more weight to the view that job growth has slowed. The question is why.
Statistical noise may be a factor (monthly figures are reported accurate to ±115,000). A mild winter may have pulled forward job gains into the early spring. Firms have become more cautious (as evidenced in weak capital spending), which has possibly carried through to hiring.
Firms may have had trouble finding qualified workers (willing to work for what the firms want to pay). It’s unclear, but figures for June and July will be important. The unemployment rate fell to 4.7% in May (from 5.0%), but most of that was due to a drop in labor force participation (down in the last two months, interrupting an increasing trend over the last year).
Next week, “the month of Janet Yellen” kicks off with a speech on the economy and monetary policy. A week later, Yellen will conduct a post-FOMC press conference, and a week after that, she will present her semi-annual monetary policy testimony to Congress. Even with the recent data, the Fed is still in tightening mode, looking to resume the normalization of monetary policy. However, the data also suggest that officials will be in no hurry.
Indices
Last | Last Week | YTD return % | |
DJIA | 17838.56 | 17847.30 | 2.37% |
NASDAQ | 4971.36 | 4910.33 | -0.72% |
S&P 500 | 2105.26 | 2090.10 | 3.00% |
MSCI EAFE | 1652.98 | 1669.84 | -3.69% |
Russell 2000 | 1170.58 | 1139.75 | 3.05% |
Consumer Money Rates
Last | 1 year ago | |
Prime Rate | 3.50 | 3.25 |
Fed Funds | 0.38 | 0.13 |
30-year mortgage | 3.71 | 3.87 |
Currencies
Last | 1 year ago | |
Dollars per British Pound | 1.442 | 1.534 |
Dollars per Euro | 1.115 | 1.128 |
Japanese Yen per Dollar | 108.87 | 124.25 |
Canadian Dollars per Dollar | 1.310 | 1.245 |
Mexican Peso per Dollar | 18.677 | 15.518 |
Commodities
Last | 1 year ago | |
Crude Oil | 49.17 | 59.64 |
Gold | 1212.60 | 1184.90 |
Bond Rates
Last | 1 month ago | |
2-year treasury | 0.88 | 0.73 |
10-year treasury | 1.79 | 1.74 |
10-year municipal (TEY) | 2.51 | 2.46 |
Treasury Yield Curve – 06/03/2016
As of close of business 06/02/2016
Economic Calendar
June 6 | — | Yellen speaks |
June 9 | — | Jobless Claims (week ending June 4) |
June 10 | — | UM Consumer Sentiment (mid-June) |
June 14 | — | Retail Sales (May) |
June 15 | — | FOMC Policy Decision (Yellen press conference) |
Important Disclosures
US government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. US government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the US government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments.
Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
Material prepared by Raymond James for use by its financial advisors.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business June 2nd, 2016.