The Markets
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.
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.
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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