Month: May 2016

The Markets (as of market close May 27, 2016)

Stocks enjoyed one of their best weeks in months as each of the indexes listed here posted gains last week. Some positive economic data, particularly in the housing sector, along with higher oil prices may have influenced the favorable returns. The Dow and S&P 500 each gained over 2.0%, while the Nasdaq and Russell 2000 ended the week up close to 3.50%. Only the Nasdaq remains behind its end-of-year closing value, although it closed the gap with last week’s performance.

Crude oil (WTI) closed at $49.56 a barrel last week, up $1.89 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,215.30 by late Friday afternoon, down from the prior week’s closing price of $1,252.90. The national average retail regular gasoline price increased to $2.300 per gallon on May 23, 2016, $0.058 above the prior week’s price but $0.474 below a year ago.

Market/Index	2015 Close	Prior Week	As of 5/27	Weekly Change	YTD Change
DJIA	17425.03	17500.94	17873.22	2.13%	2.57%
Nasdaq	5007.41	4769.56	4933.50	3.44%	-1.48%
S&P 500	2043.94	2052.32	2099.06	2.28%	2.70%
Russell 2000	1135.89	1112.28	1150.45	3.43%	1.28%
Global Dow	2336.45	2287.28	2344.41	2.50%	0.34%
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%	1.84%	1.85%	1 bps	-41 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

• According to the Bureau of Economic Analysis, the second estimate of the gross domestic product for the first quarter increased at an annual rate of 0.8%. The first estimate for the fourth quarter had the GDP increasing at an annual rate of 0.5%. According to the report, the increase in the second estimate is primarily attributable to an adjustment in private inventory investment, which decreased less than originally estimated. In the fourth quarter, GDP increased 1.4%. The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and state and local government spending that were partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
• Speaking on a panel at Harvard University, FOMC Chair Janet Yellen intimated that interest rates may be increased in the coming months. “It’s appropriate, and I’ve said this in the past I think, for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate.”
• Sales of new single family homes rose by 16.6% in April over March–the fastest pace in eight years–according to the Census Bureau. At an annual rate of 619,000, new home sales are 23.8% above the April 2015 estimate of 500,000. The median sales price of new houses sold in April was $321,100; the average sales price was $379,800. The seasonally adjusted estimate of new houses for sale at the end of April was 243,000, which represents a supply of 4.7 months at the current sales rate.
• Further evidence of an improving real estate sector, the National Association of Realtors® reported that pending home sales rose 5.1% in April–their highest level since February 2006. The Pending Home Sales Index reached 116.3 in April following an upwardly revised 110.7 in March, and is 4.6% above April 2015. The index is based on the number of reported contract signings, with closing expected to occur within four to six weeks. According to Lawrence Yun, NAR chief economist, “The building momentum from the over 14 million jobs created since 2010 and the prospect of facing higher rents and mortgage rates down the road appear to be bringing more interested buyers into the market.”
• New orders for manufactured goods in April were better than expected, as the Census Bureau reported that orders for durable goods increased $7.7 billion, or 3.4%, from the prior month. Shipments of durable goods also increased 0.6% in April following two consecutive months of decreases. Unfilled orders were up 0.6% and new orders for nondefense capital goods (ranging from construction equipment to computers) increased 7.8%. However, excluding aircraft, nondefense capital goods orders actually decreased 0.8% and are down 4.1% over the past four months compared to the same four-month period last year.
• The trade deficit grew by roughly 3.4% in April from March as U.S. imports exceeded exports by $57.5 billion compared to the March balance of $55.6 billion. The Census Bureau’s advance report on international trade in goods showed April’s exports totaled $119.3 billion, with imports coming in at $176.8 billion. However, foreign trade picked up overall as imports increased by 2.3% over March, while exports grew by 1.8%.
• Consumers were more positive in their assessment of the economy in May, according to the latest report from the University of Michigan. The Index of Consumer Sentiment increased from 89.0 in April to 94.7 in May. Both the Current Economic Conditions Index (109.9) and the Index of Consumer Expectations (84.9) increased in May. According to the report, “there have only been four prior months since the January 2007 peak in which the Sentiment Index was higher than in May 2016, all recorded at the start of 2015.”
• For the week ended May 21, there were 268,000 claims for unemployment insurance, a decrease of 10,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% from the prior week’s unrevised level. The advance number for continuing unemployment insurance claims for the week ended May 14 was 2,163,000, an increase of 10,000 from the previous week’s revised level.

Eye on the Week Ahead

Following the Memorial Day holiday, the week begins with a report on consumer income and spending, which includes the core personal consumption expenditures index–a closely watched indicator of inflationary trends. The week also brings the latest information on the manufacturing sector as revealed through surveys of purchasing managers. The week closes with the important employment situation report for May, which includes information on the unemployment rate, payrolls, and average hourly earnings.

The Markets (as of market close May 20, 2016)

The Dow slipped for the fourth week in a row as investors may have been influenced by the uncertainty surrounding whether the Fed will raise interest rates at its next meeting in June. The S&P 500 rebounded slightly, posting a marginal gain for the first time in four weeks. The Nasdaq returned the week’s best results, while gaining ground on its year-end closing value.

Crude oil (WTI) closed at $47.67 a barrel last week, up $1.30 over the prior week’s closing price. The price of gold (COMEX) fell by last week’s end, selling at $1,252.90 by late Friday afternoon, down from the prior week’s closing price of $1,274.30. The national average retail regular gasoline price increased to $2.242 per gallon on May 16, 2016, $0.022 above the prior week’s price but $0.502 below a year ago.

Market/Index	2015 Close	Prior Week	As of 5/20	Weekly Change	YTD Change
DJIA	17425.03	17535.32	17500.94	-0.20%	0.44%
Nasdaq	5007.41	4717.68	4769.56	1.10%	-4.75%
S&P 500	2043.94	2046.61	2052.32	0.28%	0.41%
Russell 2000	1135.89	1102.44	1112.28	0.89%	-2.08%
Global Dow	2336.45	2293.75	2287.28	-0.28%	-2.10%
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%	1.70%	1.84%	14 bps	-42 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

• Surging oil prices and a slightly weakening dollar may be firming inflationary trends as the all items Consumer Price Index increased 0.4% in April, according to the Bureau of Labor Statistics. Over the last 12 months, the all items index rose 1.1%. The gain in the all items index reflects several sub-index increases, including the food index (0.2%), the shelter index (0.3%), the energy index (3.4%), and the gasoline index (8.1%). An index used as a gauge for overall inflation, the index for all items less food and energy (the core index) increased 0.2% in April. Over the last 12 months, the core index is up 2.1% compared to a 2.2% rise for the 12 months ended March.
• The National Association of Home Builders Housing Market Index for May remained at 58 for the fourth consecutive month. The index for current single family sales remained at 63–the same as April–while the index for single family sales over the next six months increased in May to 65 from April’s reading of 62. According to NAHB Chief Economist Robert Dietz, “The fact that future sales expectations rose slightly this month shows that builders are confident that the market will continue to strengthen. Job creation, low mortgage interest rates, and pent-up demand will also spur growth in the single-family housing sector moving forward.”
• The sale of existing homes increased for the second consecutive month, despite an inventory shortage and increasing price momentum. Total existing home sales rose 1.7% in April at an annual rate of 5.45 million from 5.36 million in March. Sales are up 6.0% from April 2015. Total housing inventory at the end of April increased 9.2% to 2.14 million existing homes available for sale, but is still 3.6% lower than a year ago (2.22 million).The median existing-home price for all housing types in April was $232,500, up 6.3% from April 2015 ($218,700). April’s price increase marks the 50th consecutive month of year-over-year gains.
• The number of building permits issued (3.6%) and housing starts (6.6%) increased in April compared to March, while the number of housing completions fell 11.0%. While these figures could be revised as further information is obtained, this report reflects positive expansion in the private housing sector following a slowdown in the first quarter of the year.
• The Federal Reserve reported that industrial production increased 0.7% in April after falling the previous two months. Manufacturing output rose 0.3% after declining the same amount in March. The index for utilities jumped 5.8% in April, as the demand for electricity and natural gas returned to a more normal level after being suppressed by warmer-than-usual weather in March. At 104.1% of its 2012 average, total industrial production in April was 1.1% below its year-earlier level. Also, capacity utilization for the industrial sector increased 0.5 percentage point in April to 75.4%, a rate that is 4.6 percentage points below its long-run (1972-2015) average.
• The minutes from the April FOMC meeting, released last week, revealed that an interest rate increase in June is a distinct possibility if economic conditions continued to improve into the second quarter. Raising the federal funds rate can have conflicting implications. On the one hand, raising rates is indicative of the Fed’s opinion that the economy is improving. Conversely, higher rates can have the effect of increasing the cost of investing in stocks, which could negatively impact the markets.
• For the week ended May 14, there were 278,000 claims for unemployment insurance, a decrease of 16,000 from the previous week’s unrevised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% from the prior week’s unrevised level. The advance number for continuing unemployment insurance claims for the week ended May 7 was 2,152,000, a decrease of 13,000 from the previous week’s revised level.

Eye on the Week Ahead

Following last week’s reports on housing starts and existing home sales, this week provides the latest information on new home sales. The second estimate on the first-quarter GDP closes the week.

The Markets (as of market close May 13, 2016)

Despite gains earlier in the week, each of the indexes listed here closed last week down from their prior week’s closing values. The Dow and S&P 500 extended their losing streaks to three weeks, with the Dow suffering the largest weekly regression, falling over 205 points. Year-to-date, only the Dow and S&P 500 remain ahead of their 2015 closing values as the tech-heavy Nasdaq, the Russell 2000, and the Global Dow remain behind their respective year-end values.

Crude oil (WTI) jumped last week, closing at $46.37 a barrel, up $1.81 over the prior week’s closing price. The price of gold (COMEX) dropped by last week’s end, selling at $1,274.30 by late Friday afternoon, down from the prior week’s closing price of $1,289.70. The national average retail regular gasoline price decreased to $2.220 per gallon on May 9, 2016, $0.020 below the prior week’s price and $0.471 under a year ago.

Market/Index	2015 Close	Prior Week	As of 5/13	Weekly Change	YTD Change
DJIA	17425.03	17740.63	17535.32	-1.16%	0.63%
Nasdaq	5007.41	4736.16	4717.68	-0.39%	-5.79%
S&P 500	2043.94	2057.14	2046.61	-0.51%	0.13%
Russell 2000	1135.89	1114.72	1102.44	-1.10%	-2.94%
Global Dow	2336.45	2313.29	2293.75	-0.84%	-1.83%
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%	1.77%	1.70%	-7 bps	-56 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

• Following a slow start in 2016, consumers picked up the retail spending pace in April. The Census Bureau’s advance estimate for retail and food services sales for April were at $453.4 billion, an increase of 1.3% over March, and 3.0% above April 2015. Retail trade sales were up 1.4% from March 2016, and up 2.7% from last year. Nonstore retailers (such as online shopping sites) were up 10.2% from April 2015, while gasoline stations were up 2.2% for the month, although gas stations are down 9.4% from last year. Since about two-thirds of economic output consists of consumer spending, this report is good news on the economic front.
• The prices producers received for goods and services increased 0.2% in April following a 0.1% fall in March. For April, services edged up 0.1% and goods advanced 0.2%. Excluding volatile food and energy, prices for goods and services rose a scant 0.1% for April, and are up 0.9% on the year. Prices are unchanged for 12 months ended in April. As an indicator of inflationary trends, this report does not indicate significant movement toward the Fed’s target rate of 2.0%.
• The latest Treasury budget report for April shows a surplus of $106.5 billion–significantly lower than the April 2015 surplus of $156.7 billion. For the month, total receipts were $438.4 billion–up $210.6 billion over the March total, while outlays were $332.0 billion–$3.9 billion lower than March’s outlays. Not surprisingly, April’s surge in receipts is attributable to the collection of individual income taxes, which are up 1.2% over the first seven months of the fiscal year. Outlays, which are up 4.4%, include increased Medicare payments (+11.3%) and defense spending (+0.4%). The year-to-date deficit is $355.0 billion, which is more than 25% higher than the deficit over the same period last year.
• Higher fuel prices and a weaker dollar kicked up the price indexes for both imports and exports in April, according to the latest report from the Bureau of Labor Statistics. Import prices paid for goods manufactured abroad and purchased here rose 0.3% for the month following a 0.3% increase in March. April’s import price gain marked the largest increase since a 1.1% rise in May 2015. Overall, import prices declined 5.7% over the past year. Export prices paid for goods manufactured here but sold abroad increased 0.5% in April, after recording no change in March. Export prices registered the first monthly advance since a 0.5% increase last May, which also represents the largest 1-month index increase since the 0.9% rise in March 2014. The price index for exports fell 5.0% for the year ended in April, the smallest 12-month decline since the index decreased 5.0% from January 2014 to January 2015.
• Although a bit dated, the most recent Job Openings and Labor Turnover (JOLTS) report from the Bureau of Labor Statistics provides useful information on the number of job openings available on the last business day of the reported month. For March, there were 5.757 million job openings on the last business day of March, up from 5.608 million in February. Hires edged down to 5.3 million, while separations were little changed at 5.0 million. This report provides continued good news on the labor front as job openings increased to 3.9%. Also, workers are staying on the job as the quits rate remained the same at 2.1%, while layoffs fell 0.1 percentage point to 1.2%.
• The University of Michigan’s Surveys of Consumers report for May showed a bit more optimism compared to April. The Index of Consumer Sentiment rose to 95.8 from 89.0 in April. The Current Economic Conditions index increased from 106.7 in April to 108.6 in May, and the Index of Consumer Expectations jumped almost 10 points, from April’s 77.6 to 87.5 in May. According to the report, “consumer sentiment rebounded in early May due to more frequent income gains, an improved jobs outlook, and the expectation of lower inflation and interest rates.”
• For the week ended May 7, there were 294,000 claims for unemployment insurance, an increase of 20,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6% from the prior week’s revised level. The advance number for continuing unemployment insurance claims for the week ended April 30 was 2,161,000, an increase of 37,000 from the previous week’s revised level.

Eye on the Week Ahead

Information this week focuses on inflation data and retail sales. The week also brings the latest figures on import and export prices, which could get a boost from surging oil prices.

The Markets (as of market close May 6, 2016)

A mixed bag of economic indicators headlined by an underwhelming jobs report, coupled with news of continuing financial trouble in Puerto Rico, pushed stocks lower for the second week in a row. Each of the indexes listed here lost value by last week’s end with the Russell 2000 and the Global Dow falling the most. Following last Friday’s jobs report, the yield on 10-year Treasuries fell to 1.70% before climbing a bit by the end of the day to 1.77%–still 6 points lower than the prior week’s closing yield.

Crude oil (WTI) fell slightly, closing the week at $44.56 a barrel, down $1.36 under the prior week’s closing price. The price of gold (COMEX) also dropped by last week’s end, selling at $1,289.70 by late Friday afternoon, down from the prior week’s closing price of $1,295.90. The national average retail regular gasoline price increased to $2.240 per gallon on May 2, 2016, $0.078 above the prior week’s price but $0.424 below a year ago.

Market/Index	2015 Close	Prior Week	As of 5/6	Weekly Change	YTD Change
DJIA	17425.03	17773.64	17740.63	-0.19%	1.81%
Nasdaq	5007.41	4775.36	4736.16	-0.82%	-5.42%
S&P 500	2043.94	2065.30	2057.14	-0.40%	0.65%
Russell 2000	1135.89	1130.84	1114.72	-1.43%	-1.86%
Global Dow	2336.45	2377.38	2313.29	-2.70%	-0.99%
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%	1.83%	1.77%	-6 bps	-49 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

• Job growth slowed in April, according to the latest report from the Bureau of Labor Statistics. Total nonfarm payroll employment increased by 160,000 in April, and the unemployment rate was unchanged at 5.0%. However, over the prior 12 months, employment growth had averaged 232,000 per month. Job gains occurred in professional and business services, health care, and financial activities. Job losses continued in mining. The number of unemployed persons was little changed at 7.9 million, and the number of long-term unemployed (those jobless for 27 weeks or more) declined by 150,000 to 2.1 million in April. Both average wages and the length of the average workweek increased in April, with the workweek lengthening by 0.1 hour to 34.5 hours, and payrolls gaining $0.8 per hour to $25.53.
• New orders for manufactured goods increased $5.0 billion, or 1.1%, to $458.4 billion in March, according to the latest report from the Census Bureau. Shipments increased 0.5% and inventories gained 0.2%. However, unfilled orders dropped $1.2 billion, or 0.1%. The overall gain in new factory orders for March is tempered, somewhat, by the fact that it follows February’s 3.1% decrease, and is down 2.2% year-on-year.
• Despite the positive factory report for March, April didn’t start off very well for U.S. manufacturers, as the purchasing managers’ indexes for both Markit and the Institute for Supply Management (ISM®) fell in April. The Markit U.S. Manufacturing Purchasing Managers’ Index™ (PMI™) registered 50.8 in April, down from 51.5 in March and only slightly above the 50.0 no-change threshold. The latest reading was weaker than the average seen in the first quarter of 2016 (51.7) and signaled the slowest improvement in overall business conditions for just over six-and-a-half years.
• The ISM® Purchasing Managers’ Index fell 1.0 percentage point to 50.8% in April. The New Orders Index registered 55.8%, a decrease of 2.5 percentage points from the March reading. The Production Index registered 54.2%, 1.1 percentage points lower than the March reading.
• Non-manufacturing (service) business activity expanded in April, as the composite ISM® Non-Manufacturing Index increased 1.2 percentage points over the March NMI® of 54.5%. For April, the New Orders Index (3.2 percentage points), the Employment Index (2.7 percentage points), and the Prices Index (4.3 percentage points) all increased over their respective March readings, with only the Non-Manufacturing Business Activity Index falling by 1.0 percentage point.
• According to the Census Bureau, construction spending during March was estimated at a seasonally adjusted annual rate of $1,137.5 billion, 0.3% above the revised February estimate of $1,133.6 billion. The March figure is 8.0% above the March 2015 estimate of $1,052.9 billion. For the month, both private residential construction (1.6%) and nonresidential construction (0.7%) were above their respective February totals.
• The goods and services deficit was $40.4 billion in March, down $6.5 billion from February. March exports were $176.6 billion, $1.5 billion less than February exports. March imports were $217.1 billion, $8.1 billion less than February imports. Year-to-date, the goods and services deficit decreased $1.0 billion, or 0.8%, from the same period in 2015. Exports decreased $30.5 billion, or 5.4%. Imports decreased $31.6 billion, or 4.5%. While the narrowing of the trade gap may appear to be a positive, the fact that imports decreased is indicative of slowing domestic demand for goods and services and curtailed consumer spending. Falling exports shows an ongoing weakened demand for American-made goods and services abroad, spearheaded by the continued strength of the dollar. In general, this report is not a good sign for projecting economic growth.
• Nonfarm business sector labor productivity decreased at a 1.0% annual rate during the first quarter of 2016, the U.S. Bureau of Labor Statistics reported, as output increased 0.4% while hours worked increased 1.5%. From the first quarter of 2015 to the first quarter of 2016, productivity increased 0.6%. Productivity is essentially the measure of the output of goods and services for each hour worked. For the first quarter of 2016, it took workers more time to produce fewer goods and services.
• The debt crisis in Puerto Rico worsened last week as the island’s Government Development Bank (GDB) could not make a debt payment of about $367 million. The latest missed payment has prompted some in Washington to consider legislation that would allow the U.S. territory to restructure more than $70 billion in debt. Puerto Rico was able to reach a tentative agreement with the hedge funds that own the bonds of the GDB to exchange some unsecured bonds for new, secured bonds for what amounts to about $0.56 on the dollar. Further adding insult to injury, the ongoing risk of the Zika virus has emerged as a serious health issue.
• For the week ended April 30, there were 274,000 claims for unemployment insurance, an increase of 17,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate fell to 1.5%. The advance number for continuing unemployment insurance claims for the week ended April 23 was 2,121,000, a decrease of 8,000 from the prior week’s revised level.

Eye on the Week Ahead

Two important economic reports are to be published at the end of the week. The Census Bureau releases the latest information on consumer spending in April through the retail sales report. Overall retail sales dropped off in March, as consumers spent less and saved more. The report on what producers are charging for consumer goods and services is highlighted in the Producer Price Index from the Bureau of Labor Statistics. Another sign of sluggish inflationary trends along with the retail sales, producer prices also fell in March.

The Markets (as of market close April 29, 2016)

Despite a poor close to the month, the indexes listed here improved in April (with the exception of the Nasdaq) compared to their March closing values–but not by much. The Dow gained a scant 88.55 points over the month, while the S&P 500 increased less than 0.3%. On the year, only the Russell 2000 and the Nasdaq remain below their year-end values.

Bond yields increased by the close of trading for April as prices fell, presumably due to investor money moving back to equities. The price of gold (COMEX) increased by month’s end, selling at $1,294.90–about $62 higher than March’s end-of-month price of $1,233.00.

Market/Index	2015 Close	Prior Month	As of 4/29	Month Change	YTD Change
DJIA	17425.03	17685.09	17773.64	0.50%	2.00%
Nasdaq	5007.41	4869.85	4775.36	-1.94%	-4.63%
S&P 500	2043.94	2059.74	2065.30	0.27%	1.05%
Russell 2000	1135.89	1114.03	1130.84	1.51%	-0.44%
Global Dow	2336.45	2307.34	2377.38	3.04%	1.75%
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%	1.79%	1.83%	4 bps	-43 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.

The Month in Review

• Employment: The labor market continued its strong run in March based on the latest information from the Bureau of Labor Statistics. Total nonfarm payroll employment rose by 215,000 in March, and the unemployment rate was little changed at 5.0%. Employment increased in retail trade, construction, and health care. Job losses occurred in manufacturing and mining. There were 8 million unemployed persons, while the labor force participation rate increased slightly to 63% from 62.9% in February, and is up 0.6% since September. The average workweek remained at 34.4 hours. Average hourly earnings for all employees on private nonfarm payrolls increased by $0.07 to $25.43, following a $0.02 decline in February. Over the year, average hourly earnings have risen by 2.3%.
• FOMC/interest rates:Following its latest meeting in April, the Federal Open Market Committee decided to maintain the target range for the federal funds rate at 0.25% to 0.50%. With inflation running below the Committee’s 2.0% target rate, the federal funds rate is expected to remain, for some time, below levels that are expected to prevail in the longer run, which leaves the timing of the next rate increase open to speculation.
• Oil: Crude oil prices gained over the month, closing over $45 for the first time since February–this despite the inability of several major oil-producing countries to reach an agreement to cap production. At the end of April, crude oil (WTI) was selling at $45.92 per barrel, compared to the $37.49 per barrel closing price at the end of March.
• GDP/budget: The first estimate of the GDP for quarter one revealed only marginal growth at 0.5%, compared to the fourth-quarter annualized growth rate of 1.4%. Positives in the first-quarter GDP include residential spending and state and local government spending, which were offset by decreases in nonresidential (business) investment, consumer spending, federal government spending, increasing imports, and decreasing exports. While this report is based on economic information that will surely be updated in the coming months, initial estimates show an overall economy that isn’t expanding at any great pace. Since October, the federal deficit is up almost 4.9% compared to the first half of 2015, and sits at about $461 billion. In March, the deficit was $108 billion, $55.13 billion over the deficit a year ago, as spending in March on Social Security and Medicare increased 3% and 6%, respectively.
• Inflation: The latest inflation rate for the United States based on consumer prices is 0.9% through the 12 months ended March 2016 as published by the Bureau of Labor Statistics on April 14, 2016–well below the Fed’s stated target rate of 2.0%. Overall, the Consumer Price Index rose 0.1% in March from February. Over the last twelve months, the index had increased 0.9%. However, the gain (0.1%) in the core prices index less food and energy was the smallest increase since last August. Personal consumption expenditures, the Fed’s favored measure of inflation, rose only 0.1% in March over February and has increased 0.8% since last March, certainly below the Fed’s 2.0% inflation target rate for the 47th consecutive month. The Producer Price Index, which measures the prices companies receive for goods and services, fell 0.1% in March following a 0.2% decline in February. Prices for services declined 0.2% for the month, while prices for goods, which had dropped each of the previous eight months, rose 0.2% in March. Retail sales for goods and services dipped 0.3% in March, although they’re still 1.7% ahead of last March. Retail sales, excluding auto and gas, actually rose 0.1% for the month, while total sales for the first quarter of 2016 are up 2.8% compared to the same period a year ago.
• Housing: The housing sector was a mixed bag of good and bad in March. New home construction fell a sharp 8.8% from February. Single family home starts fell 9.2%, and multifamily starts dropped 8.5%. Applications for building permits were down 7.7%–not a positive sign for new home construction. The latest figures from the Census Bureau show that the 511,000 annual rate of sales of new single-family homes in March is 1.5% below February’s revised rate of 519,000, but 5.4% above the March 2015 estimate of 485,000. The median sales price of new houses sold in March was $288,000 ($297,400 in February), while the average sales price was $356,200 ($342,100 in February). The seasonally adjusted estimate of new houses for sale at the end of March was 246,000–a supply of 5.8 months at the current sales rate. On the other hand, sales of existing homes were up 5.1% in March at an annualized rate of 5.330 million. According to the latest report from the National Association of Realtors®, year-on-year sales growth of existing homes is up 11.0%. The median sales price for existing homes increased 5.0% over February to $222,700, which marks the 49th consecutive month of year-over-year gains. Total housing inventory at the end of March increased 5.9% to 1.98 million existing homes available for sale, which is still 1.5% lower than a year ago (2.01 million).
• Manufacturing: Manufacturing and industrial production had been relatively weak sectors in the economy for quite some time, and some indicators in March are proving that trend is continuing. According to the Federal Reserve’s report for March, industrial production decreased 0.6% for the second month in a row. For the first quarter, industrial production fell at an annual rate of 2.2%. Durable goods orders increased 0.8% for March, following a downwardly revised 3.1% drop in February. Shipments of durable goods dropped 0.5% and unfilled orders fell 0.1%. Manufacturers are guardedly optimistic as reflected in a couple of noted purchasing managers’ indexes. The Markit U.S. Manufacturing Purchasing Managers’ Index™ was 51.5 for March–only slightly ahead of February’s 51.3. The Institute for Supply Management PMI for March was 51.8%, showing expansion for the first time in six months.
• Imports and exports: Based on the advance report from the Census Bureau, the international trade in goods deficit was $56.899 billion in March, down from $62,864 billion in February. The trade in goods deficit for March is reflective of $116,733 billion of exports and $173,632 billion of imports. Based on advance figures, the trade in goods deficit for the first three months of 2016 sits at $181,991 billion. In a report from the Bureau of Labor Statistics, prices in March for U.S. imports increased 0.2% following February’s 0.4% drop, primarily driven by an increase in fuel and lubricant prices, which jumped 4.9%. Excluding petroleum, import prices actually fell 0.2%. Despite the monthly increase, overall import prices remained down over the past year, falling 6.2% from March 2015. U.S. export prices recorded no change in March after falling 0.5% in February.
• International markets: Japan experienced a major earthquake on April 14, killing many and forcing the evacuation of thousands of Japanese. It is not certain what impact the devastating earthquake will have on Japan’s major industries, but it’s sure to affect manufacturing as well as imports and exports. Greece and its creditors continued negotiations over further austerity measures to be implemented by the country in exchange for additional loans and debt relief. The European Central Bank maintained its interest rates as the benchmark rate remained at 0%. The GDP in Great Britain fell to 0.4% in the first quarter, while China’s GDP growth weakened to 6.7%. Sixteen major oil producers were unable to come to an agreement on reducing oil production, likely leading to continued weakness in crude oil prices.
• Consumer sentiment: The Conference Board Consumer Confidence Index® for April fell to 94.2 from March’s revised 96.1, driven by low expectations for future job availability. The University of Michigan’s Index of Consumer Sentiment fell to 89 in April, compared with 91.0 in March as consumer expectations for an improving economy continue to wane.

Eye on the Month Ahead

The start of the second quarter saw the markets recover from their end-of-year regression. However, the economy as a whole hasn’t picked up steam as noted by the FOMC following its April meeting. As we wind through May, all eyes will be on important economic indicators such as the GDP, residential housing, labor, and consumer spending in an attempt to determine the direction of the economy heading into the summer months.

The Markets (as of market close April 29, 2016)

The markets suffered their worst week of losses since February as each of the indexes listed here ended the week in negative territory. The Nasdaq fell the most by the end of the week, down over 2.5%, as the technology sector declined following investor sell-offs. Long-term bond yields dipped for the week as prices rose, possibly influenced by the Fed’s decision to maintain interest rates at their current level.

Crude oil (WTI) closed the week over $45 for the first time since November at $45.92 a barrel, up $2.28 over the prior week’s closing price. The price of gold (COMEX) rose by last week’s end, selling at $1,295.90 by late Friday afternoon, up from the prior week’s closing price of $1,233.70. The national average retail regular gasoline price increased to $2.162 per gallon on April 25, 2016, $0.025 above the prior week’s price but $0.408 below a year ago.

Market/Index	2015 Close	Prior Week	As of 4/29	Weekly Change	YTD Change
DJIA	17425.03	18003.75	17773.64	-1.28%	2.00%
Nasdaq	5007.41	4906.23	4775.36	-2.67%	-4.63%
S&P 500	2043.94	2091.58	2065.30	-1.26%	1.05%
Russell 2000	1135.89	1146.69	1130.84	-1.38%	-0.44%
Global Dow	2336.45	2395.80	2377.38	-0.77%	1.75%
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%	1.88%	1.83%	-5 bps	-43 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

• Following its April meeting, the Federal Open Market Committee decided to maintain the federal funds rate at its present 0.25% to 0.50% range. The Committee noted that labor market conditions continue to improve even as economic growth has slowed. While household income has increased, household spending has moderated. Earlier declines in energy prices and falling non-energy imports has contributed to weakened inflationary pressures as inflation, which is expected to remain low in the near term, remains below the Committee’s target inflation rate of 2.0%. Housing continues to improve but business investment and exports remain soft. The Committee will continue to monitor both domestic and world economic conditions, paying particular attention to inflationary trends. Nevertheless, “the Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.”
• The initial estimate for the first quarter gross domestic product showed a very modest increase of 0.5%. The fourth quarter GDP increased 1.4%. While this advance estimate is likely to change as more data is made available, the initial report marks the slowest GDP growth in two years. After reaching a 3.9% growth rate in the second quarter of 2015, the GDP has regressed since. While the labor market and residential investment remain strong, business investment has slowed as has consumer spending, leading to the deceleration of the GDP.
• As noted by the FOMC following its April meeting, inflation is accelerating at a very modest rate. Personal income and disposable personal income (net after taxes) grew by a scant 0.4% in March, according to the latest report from the Bureau of Economic Analysis. Personal consumption expenditures effectively remained at its current level, inching up only 0.1% from February. As it relates to inflationary trends, the price index increased only 0.8% from March 2015, well below the Fed’s target rate of 2.0%. Excluding volatile food and energy categories, growth in the core prices also has fallen short of the target, gaining 1.6% year-on-year.
• Compensation costs for civilian workers increased 0.6% for the three-month period ended in March 2016, according to the U.S. Bureau of Labor Statistics. Wages and salaries (which make up about 70% of compensation costs) increased 0.7%, and benefits (which make up the remaining 30% of compensation) increased 0.5%. Total employee compensation gained 1.9% for the quarter, lagging behind the annual gain of 2.0% from the prior three quarters. Compared to the first quarter of 2015, wages and salaries have increased 2.0%, while benefits increased 1.7%.
• The number of new homes sold in March fell for the fourth consecutive month. The 511,000 annual rate of new home sales was 1.5% lower than February’s revised annual rate of 519,000. The March rate is still 5.4% above the March 2015 rate of 485,000. The median sales price of new houses sold in March was $288,000 ($9,400 below February’s median sales price), while the average sales price was $356,200. The seasonally adjusted estimate of new houses for sale at the end of March was 246,000, which represents a supply of 5.8 months at the current sales rate.
• An indication of future home sales based on contract signings, the Pending Home Sales Index from the National Association of Realtors® climbed 1.4% in March to 110.5 following February’s downwardly revised 109.0. The index has increased year-over-year for 19 consecutive months and is at its highest reading since May 2015 (111.0). Home sale activity is relatively strong despite supply deficiencies and rising home prices.
• The rate of homeownership is falling, according to the latest information from the Commerce Department. The homeownership rate of 63.5% was 0.2 percentage point lower than the first-quarter 2015 rate (63.7%) and 0.3 percentage point lower than the fourth-quarter 2015 rate (63.8%). The current homeownership rate is close to its 48-year low of 63.4% reached in last year’s second quarter.
• The Conference Board Consumer Confidence Index® fell in April to 94.2, down from 96.1 in March. The Present Situation Index increased from 114.9 to 116.4, while the Expectations Index decreased from 83.6 to 79.3 in April. While consumer respondents thought current economic conditions have improved, their short-term expectations were less optimistic, particularly with respect to business conditions and the labor market.
• The Index of Consumer Sentiment fell from 91 to 89 in April, down 2.2% for the month and 7.2% year-on-year. The survey from the University of Michigan notes that consumer expectations for the economy suffered the largest drop, falling 4.8% from March and 12.6% from a year ago.
• Good news for the manufacturing sector as the preliminary report on new orders for manufactured durable goods in March increased $1.8 billion, or 0.8%, to $230.7 billion, following a 3.1% drop in February. Excluding transportation, new orders actually fell 0.2% and excluding defense, new orders dropped 1.0%. Shipments of manufactured durable goods in March, down three of the last four months, decreased $1.1 billion, or 0.5%, to $237.0 billion. Unfilled orders for manufactured durable goods in March, down three of the last four months, decreased $1.3 billion, or 0.1%, to $1,182.5 billion. Inventories of manufactured durable goods increased less than $0.1 billion, virtually unchanged at $394.1 billion in March following a 0.3% February decrease.
• The Census Bureau’s advance report on international trade in goods for March reveals the trade deficit narrowed to $56,899 billion, down from $62,864 billion in February. Total exports were $116,733 billion in March ($118,698 billion in February), while imports totaled $173,632 billion ($181,562 billion in February), each sector falling from the prior month. This advance report shows not only a narrowing trade deficit, but also an overall slowing of trade activity.
• For the week ended April 23, there were 257,000 claims for unemployment insurance, an increase of 9,000 from the previous week’s revised level. The advance seasonally adjusted insured unemployment rate remained at 1.6%. The advance number for continuing unemployment insurance claims for the week ended April 16 was 2,130,000, a decrease of 5,000 from the prior week’s revised level.

Eye on the Week Ahead

The week begins with information from the manufacturing sector, which has been growing at a snail’s pace. The week ends with the latest report on the employment situation, which may influence the markets as it can affect several major sectors of the economy.