Market Commentary by Scott J. Brown, Ph.D., Chief Economist
The economic data were mostly on the strong side of expectations. Nonfarm payrolls rose by 192,000 in February, while the two previous months were revised higher by 58,000. February strength partly reflected a rebound from January’s poor weather (payrolls averaged a 127,500 monthly gain in the first two months of the year, nothing to write home about). Private-sector payrolls rose by 222,000 (+1.5 million from a year ago), while state and local government subtracted another 30,000 (-241,000 from a year ago). The unemployment rate fell to 8.9% (it was 9.8% in November), but that is misleading. The employment-population ratio, the preferred measure of slack in the labor market, held steady at 58.4% (vs. 58.5% in February 2010). Average weekly hours were flat (probably reflecting the weather). Average hourly earnings were essentially unchanged (+1.7% year-over-year), with weekly earnings also flat (+2.3% year-over-year). The February ISM manufacturing survey was the strongest since May 2004 and the non-manufacturing survey was the strongest since July 2005. Motor vehicle sales rose to a 13.4 million seasonally adjusted annual rate in February, vs. 12.6 million in January and 10.7 million in February 2010.
There was relatively new information in Fed Chairman Bernanke’s monetary policy testimony. Bernanke said that “the most likely outcome is that the recent rise in commodity prices will lead to, at most, a temporary and relatively modest increase in U.S. consumer price inflation.” However, he cautioned that “sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored.” The Fed’s Beige Book indicated that “overall economic activity continued to expand at a modest to moderate pace in January and early February.” The survey noted that “manufacturers in a number of districts reported having greater ability to pass through higher input costs to customers.” Retailers in some districts “mentioned they had implemented price increases or were anticipating such action in the next few months.” Wage pressures “remained minimal” in all districts. The European Central Bank left short-term interest rates unchanged, but ECB President Trichet indicated that a rate hike was imminent – strengthening the euro.
Next week, the economic calendar thins out. Retail sales (on Friday, March 11) will be the highlight, although investors are likely to remain focused on oil prices. Note that the near-term economic reports are not going to reflect the impact of the recent surge in gasoline prices (which arrived in late-February and early-March).
Indices
 | Last | Last Week | YTD return % |
DJIA | 12258.20 | 12068.5 | 5.88% |
NASDAQ | 2798.74 | 2737.9 | 5.50% |
S&P 500 | 1330.97 | 1306.1 | 5.83% |
MSCI EAFE | 1743.22 | 1714.78 | 5.12% |
Russell 2000 | 828.89 | 804.18 | 5.77% |
Consumer Money Rates
 | Last | 1-year ago |
Prime Rate | 3.25 | 3.25 |
Fed Funds | 0.16 | 0.17 |
30-year mortgage | 4.88 | 5.03 |
Currencies
 | Last | 1-year ago |
Dollars per British Pound | 1.626 | 1.512 |
Dollars per Euro | 1.394 | 1.372 |
Japanese Yen per Dollar | 82.440 | 88.400 |
Canadian Dollars per Dollar | 0.974 | 1.031 |
Mexican Peso per Dollar | 12.031 | 12.694 |
Commodities
 | Last | 1-year ago |
Crude Oil | 101.91 | 80.87 |
Gold | 1416.45 | 1142.10 |
Bond Rates
 | Last | 1-month ago |
2-year treasury | 0.74 | 0.74 |
10-year treasury | 3.56 | 3.63 |
10-year municipal (TEY) | 4.88 | 5.42 |
Treasury Yield Curve – 3/4/2011
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S&P Sector Performance (YTD) – 3/4/2011
Economic Calendar
March 8th |  — | Small Business Optimism (February) |
March 10th |  — | Jobless Claims (week ending March 5th) Trade Balance (January) |
March 11th |  — | Retail Sales (February) Consumer Sentiment (mid-March) |
March 13th |  — | Daylight Savings Time Begins |
March 15th |  — | FOMC Meeting |
March 16th |  — | Producer Price Index (February) Building Permits, Housing Starts (February) |
March 17th |  — | Consumer Price Index (February) Industrial Production (February) |
April 1st |  — | Employment Report (March) |
Important Disclosures
Past performance is not a guarantee of future results. There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial accounting standards. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. There is no assurance that any trends mentioned will continue in the future. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Investing involves risk and investors may incur a profit or a loss.
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 March 3th, 2011.
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