What I’m watching This Week – 7 March 2016

The Markets (as of market close March 4, 2016)

Equities continued to show life as each of the major indexes listed here posted gains over the prior week. Favorable reports from the employment and manufacturing sectors may be quelling investor fears of an imminent recession. For the week ended March 4, each of the indexes listed here advanced at least 2.20%, with the Russell 2000 and Global Dow leading the way with gains of 4.31% and 4.42%, respectively. With each weekly advance, the indexes are moving closer to their 2015 year-end values.

The price of crude oil (WTI) increased again last week, closing the week at $36.33 a barrel, $3.49 ahead of the prior week’s closing price. The price of gold (COMEX) gained by last week’s end, selling at $1,260.10 by late Friday afternoon, down from the prior week’s closing price of $1,222.80. The national average retail regular gasoline price increased for the second week in a row, selling at $1.783 per gallon on February 29, 2016, $0.053 over the prior week’s price but $0.690 under a year ago.

Market/Index 2015 Close Prior Week As of 3/4 Weekly Change YTD Change
DJIA 17425.03 16639.97 17006.77 2.20% -2.40%
Nasdaq 5007.41 4590.47 4717.02 2.76% -5.80%
S&P 500 2043.94 1948.05 1999.99 2.67% -2.15%
Russell 2000 1135.89 1037.18 1081.93 4.31% -4.75%
Global Dow 2336.45 2164.45 2260.08 4.42% -3.27%
Fed. Funds rate target 0.25%-0.50% 0.25%-0.50% 0.25%-0.50% 0 bps 0 bps
10-year Treasuries 2.26% 1.76% 1.87% 11 bps -39 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Headlines

  • The news from the employment sector continues to be favorable based on the latest report from the Bureau of Labor Statistics. Total nonfarm payroll employment increased by 242,000 in February, while the unemployment rate was unchanged at 4.9%. The number of unemployed persons, at 7.8 million, was unchanged from the prior month. For 2016, the unemployment rate and the number of unemployed persons were down by 0.6 percentage point and 831,000, respectively. A negative item from the report shows average hourly earnings for all employees on private nonfarm payrolls declined by $0.03 to $25.35 in February, following an increase of $0.12 in January. Nevertheless, average hourly earnings have risen by 2.2% over the year.
  • January was far from robust when it came to international trade, as exports were down 2.1% and imports fell 1.3% leading to a goods and services trade deficit of $45.7 billion–up $1.0 billion from December. According to the Census Bureau, the January increase in the goods and services deficit reflected an increase in the goods deficit of $1.1 billion to $63.7 billion and an increase in the services surplus of $0.1 billion to $18.0 billion. Year-over-year, the goods and services deficit increased $2.1 billion, or 4.8%, from January 2015. Once again, a strong dollar and relatively low oil prices have impacted the U.S. trade deficit.
  • The Bureau of Labor Statistics released its report on productivity and costs for the fourth quarter of 2015. Labor productivity, which is the measure of the production of goods and services per hour of labor, decreased at a 2.2% annual rate during the fourth quarter. While output increased 1.0%, hours worked increased 3.2%. Unit labor costs in the nonfarm business sector increased 3.3% in the fourth quarter of 2015, reflecting a 1.1% increase in hourly compensation and a 2.2% decrease in productivity. Nevertheless, from the fourth quarter of 2014 to the fourth quarter of 2015, productivity increased 0.5%.
  • Favorable news came from the manufacturing sector as new orders for manufactured goods increased $7.5 billion, or 1.6%, to $463.9 billion in January, according to the latest report from the Census Bureau. This increase followed two consecutive months of decreases. Shipments of manufactured goods rose for the first time in seven months, jumping $1.4 billion, or 0.3%, in January.
  • The Purchasing Managers’ Manufacturing Index (PMI) is based on a survey of purchasing managers from several companies in an attempt to get a read on the manufacturing sector of the economy. The Markit U.S. Manufacturing Purchasing Managers’ Index™ fell from 52.4 in January to 51.3 in February, marking the second lowest reading since October 2012. A slowdown in manufacturing output and new business growth contributed to the receding index.
  • The Institute for Supply Management (ISM) also produces a PMI, which contracted in February for the fifth consecutive month. The February ISM PMI® registered 49.5%, an increase of 1.3 percentage points from the January reading of 48.2%. A reading of less than 50.0% is indicative of contraction, so while February’s PMI is slightly ahead of January’s reading, the manufacturing sector is contracting nonetheless, but at a slower pace when compared with January. The last time the ISM Manufacturing Index was at least 50% was September 2015.
  • The Non-Manufacturing Index from the Institute for Supply Management indicates growth in February at 53.4%. Similar to the PMI, a reading above 50.0% indicates growth. The index for January was 53.5%. Thus, February’s index reading reflects growth, but at a slower rate. The indexes for business activity and new orders each showed growth in February, while the Employment Index decreased 2.4 percentage points to 49.7% from the January reading of 52.1%. The non-manufacturing sector includes industries such as services, construction, mining, and agriculture.
  • The National Association of Realtors® Pending Home Sales Index fell 2.5% in January to 106.0, compared with December’s index of 108.7. The index is still 1.4% higher than the index from a year earlier. Lawrence Yun, chief economist for the NAR, cited several possible reasons for the January pullback, including a winter blizzard in the Northeast, an increase in home prices, and minimal inventory of homes available for sale.
  • According to the latest figures from the Census Bureau, construction spending during January came in at a seasonally adjusted annual rate of $1,140.8 billion, 1.5% above the revised December estimate of $1,123.5 billion and 10.4% ahead of January 2015. Residential construction remained at about the same level in January as the prior month, while nonresidential construction increased 1.0% above December’s revised estimate. Public construction made a significant jump of 4.5% ahead of December’s revised estimate.
  • For the week ended February 27, there were 278,000 initial claims for unemployment insurance, an increase of 6,000 from the prior week’s unrevised level of 272,000. The advance seasonally adjusted insured unemployment rate remained at 1.7% for the week ended February 20. Also for the same week, the advance number for continuing unemployment insurance claims was 2,257,000, an increase of 3,000 from the week ended February 13.

Eye on the Week Ahead

This week is fairly uneventful with regard to information on important economic indicators. Eyes will remain on the equities markets, both domestic and foreign, and on the price of oil.