The Markets
The first week of December proved quite volatile, with some of the
major indexes listed here rallying on Friday to close ahead of the week
before. Some of the upward movement from investors may have come in
response to another good jobs report and the fact that the economy is
stable enough to warrant a likely interest rate increase when the Fed
meets later this month. The S&P 500, Dow, and Nasdaq registered
marginal gains week-on-week, while the Russell 2000 and the Global Dow
lost value. With additional stimulus measures announced by the European
Central Bank, it will be interesting to see the effect they have on
European stocks in the coming weeks.
The price of gold (COMEX) rebounded after several weeks of trending
downward, selling at $1,085.80 by late Friday afternoon compared to
$1,056.10 a week earlier. Crude oil (WTI) prices fell, selling at $40.14
per barrel by week's end. The national average retail regular gasoline
price decreased to $2.059 per gallon on November 30, 2015, $0.035 below
the previous week's price of $2.094 per gallon, and $0.719 below a year
ago.
Last Week's Headlines
- The employment situation improved again in November, clearing the
way for the Fed to possibly increase interest rates at its next meeting
in a few weeks. According to the latest figures from Bureau of Labor
Statistics, total nonfarm payroll employment increased by 211,000 in
November, the unemployment rate was unchanged at 5.0%, and the number of
unemployed persons, at 7.9 million, was essentially unchanged. Over the
past 12 months, the unemployment rate and the number of unemployed
persons are down by 0.8% and 1.1 million, respectively. In November,
average hourly earnings for all employees on private nonfarm payrolls
rose by $0.04 to $25.25, following a $0.09 gain in October. Over the
year, average hourly earnings have risen by 2.3%.
- The Bureau of Labor Statistics releases a quarterly report on
productivity and labor costs, which is essentially a measure of the
output of goods and services per hour worked. According to the latest
report, nonfarm business sector labor productivity increased at a 2.2%
annual rate during the third quarter of 2015, as output increased 1.8%
and hours worked decreased 0.3%. The decline in hours worked was the
first since 2009. From the third quarter 2014 to the third quarter 2015,
productivity increased 0.6%, reflecting increases in output and hours
worked of 2.5% and 1.9%, respectively. However, the third quarter rate
is down from the second quarter productivity rate of 3.5%. Also of
significance, inflation-adjusted hourly wages in the nonfarm business
sector grew 4.0% in the third quarter. An important indicator used by
the Fed in determining economic activity, upward trends in productivity
for the second and third quarters may lend support for an interest rate
hike.
- Once again, sagging oil prices and a strong dollar have led to a
widening of the trade deficit in October. The latest Census Bureau
report indicates that the goods and services deficit was $43.9 billion
in October, up $1.4 billion from $42.5 billion in September, revised.
October exports were $184.1 billion (a three-year low), $2.7 billion
less than September exports. October imports were $228.0 billion, $1.3
billion less than September imports. The demand for U.S.-made goods
continues to decline, primarily due to the strength of the dollar
abroad. Compared to the first 10 months of 2014, the U.S. trade deficit
has increased by 5.3% over the same 10-month period in 2015.
- According to the latest report from the National Association of
Realtors®, pending home sales were relatively unchanged in October. The
Pending Home Sales Index, which projects home sales based on contract
signings, registered 107.7 in October--0.2% ahead of September but 3.9%
above October 2014. There is evidence of a slowdown in home sales, which
may be attributable to a lack of available homes on the market and
rising asking prices.
- Construction has been a consistently performing economic sector,
and the latest report from the Census Bureau further supports that
trend. For October, construction spending was estimated at an annual
rate of $1,107.4 billion--1.0% above the revised September estimate of
$1,096.6 billion. The October figure is 13% above October 2014. Compared
to the prior month, October saw increases in residential construction
(1.0%), nonresidential construction (0.6%), and public construction
(1.4%).
- Two organizations have reported a slowdown in manufacturing. The
Institute for Supply Management® (ISM®) Manufacturing Index fell below
50%, coming in at 48.9% for November--the first time manufacturing
contracted since November 2012. A reading at or above 50% indicates
growth. The index decreased 1.5 percentage points from the October
reading of 50.1%. New orders dropped 4 percentage points to 48.6% and
production also saw a dip, registering 49.2%--3.7 percentage points
below October's reading. Only 5 of the 18 industries covered by the
index reported growth in November.
- Similar to the ISM report, the Markit U.S. Manufacturing Purchasing
Managers' Index™ (PMI™) noted that U.S. manufacturers reported slower
rates of growth in November, with business conditions improving at the
slowest pace since October 2013. This was highlighted by a fall in the
final seasonally adjusted index from 54.1 in October to 52.8 during
November. Softness in new orders and contraction of export orders have
contributed to the manufacturing slowdown. This report, coupled with the
ISM information, reveals definite sluggishness in the manufacturing
sector, a fact that may influence the Fed at its meeting later this
month.
- ISM also produces a monthly Non-Manufacturing Index based on a
survey of firms covering services, construction, mining, agriculture,
forestry, and fishing and hunting. November's Non-Manufacturing Index
came in at 55.9%--3.2 percentage points lower than October's index
reading. Since any reading above 50% indicates growth, the
non-manufacturing sector continued to grow in November, but at a slower
pace than prior months. Of the 18 non-manufacturing industries covered,
12 reported growth, including real estate rental and leasing, retail
trade, health care and social assistance, and accommodation and food
services. Industries reporting contraction include mining, entertainment
and recreation, wholesale trade, and utilities.
- Factory orders in October were solid, according to the Census
Bureau report on Manufacturers' Shipments, Inventories, and Orders. New
orders for manufactured goods in October, up following two consecutive
monthly decreases, increased $6.8 billion, or 1.5%, to $473.9 billion
following a 0.8% decease in September. New orders for manufactured
durable goods (expected to last at least three years) increased $6.8
billion, or 2.9%, to $238.8 billion after a 0.8% September decrease.
Considering that the non-manufacturing sector generally has been in
decline, this encouraging report may offset the negative reports from
the manufacturing sector.
- In the week ended November 28, there were 269,000 initial claims
for unemployment insurance, an increase of 9,000 from the prior week's
level. The advance seasonally adjusted insured unemployment rate was
unchanged at 1.6% for the week ended November 21, while the advance
number for continuing unemployment insurance claims was 2,161,000, an
increase of 6,000 from the previous week's revised level.
Eye on the Week Ahead
With traders back at their desks and the end of 2015 on the horizon,
reports from this week's retail battlefields will be of special interest
for what they suggest about how the U.S. economy might fare through the
end of the year.
Data sources: News items are based
on reports from multiple commonly available international news sources
(i.e. wire services) and are independently verified when necessary with
secondary sources such as government agencies, corporate press releases,
or trade organizations. Market data: Based on data reported in WSJ
Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S.
Energy Information Administration/Bloomberg.com Market Data (oil spot
price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX
Street (currency exchange rates). All information is based on sources
deemed reliable, but no warranty or guarantee is made as to its accuracy
or completeness. Neither the information nor any opinion
expressed herein constitutes a solicitation for the purchase or sale of
any securities, and should not be relied on as financial advice. Past
performance is no guarantee of future results. All investing involves
risk, including the potential loss of principal, and there can be no
guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index
composed of 30 widely traded blue-chip U.S. common stocks. The S&P
500 is a market-cap weighted index composed of the common stocks of 500
leading companies in leading industries of the U.S. economy. The NASDAQ
Composite Index is a market-value weighted index of all common stocks
listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap
weighted index composed of 2,000 U.S. small-cap common stocks. The
Global Dow is an equally weighted index of 150 widely traded blue-chip
common stocks worldwide. Market indices listed are unmanaged and are not
available for direct investment.
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