The Markets
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.
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.
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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