The Markets
Friday's dismal news on
the labor front put a damper on expectations that the Fed will raise
rates later this month, drove a pullback in domestic stocks, and sent
Treasury yields into decline. Yet despite the day's market dips, most
indexes ended the week either flat or in the green.
In international news,
the Organization of the Petroleum Exporting Countries concluded its
highly anticipated meeting last Thursday without agreement on production
caps. The European Central Bank (ECB) held rates steady, while raising
the outlook for inflation by 0.1% and growth by 0.2%. ECB President
Mario Draghi noted current stimulus measures appear to be working.
Crude oil (WTI) closed
at $48.90 a barrel last week, down $0.66 over the previous week. The
price of gold (COMEX) rose to $1,246.50 by late Friday afternoon, up
from the prior week's price of $1,215.30. The national average retail
regular gasoline price increased to $2.339 per gallon on May 30, 2016,
$0.039 above the prior week's price but $0.441 below a year ago.
Last Week's Headlines
- The United States saw just 38,000 new
nonfarm payroll positions added in May, according to the Bureau of Labor
Statistics. And while the unemployment rate fell 0.3 percentage point
to 4.7%, it was not good news, as nearly half a million job seekers
stopped looking for work. Employment increased in health care, mining
continued to lose jobs, and employment in information decreased due to
the Verizon strike. In addition, the number of persons employed
part-time for economic reasons (also referred to as involuntary
part-time workers) increased by 468,000 to 6.4 million in May. Average
hourly earnings increased by $0.05 in May to $25.59. Earnings have risen
an average of 2.5% over the past year.
- Personal consumption expenditures
(PCE)--or "consumer spending"--rose by 1% in April, the largest monthly
gain in nearly seven years, according to the Bureau of Economic
Analysis. PCE, which represents more than two-thirds of overall economic
growth in the United States, increased $119.2 billion for the month. By
comparison, PCE rose by just 0.2% in February and remained flat in
March. Personal income increased $69.8 billion, or 0.4%, and disposable
personal income (DPI) increased $63.5 billion, or 0.5%, in April.
- The Conference Board Consumer
Confidence Index®, which had decreased in April, declined further in
May. The index now stands at 92.6, down from 94.7 in April. The Present
Situation Index decreased from 117.1 to 112.9, while the Expectations
Index declined from 79.7 to 79.0 in May. The percentage of consumers
stating business conditions are "good" improved from 24.2% to 25.9%.
However, those saying business conditions are "bad" also increased, from
18.2% to 21.6%.
- The S&P/Case-Shiller U.S. National
Home Price Index rose 5.2% on an annual basis in March, down from 5.3%
in February. The 10-City Composite and 20-City Composite Indexes
remained unchanged from the prior month, at 4.7% and 5.4%, respectively.
"Home prices are continuing to rise at a 5% annual rate," said David M.
Blitzer, Managing Director & Chairman of the Index Committee at
S&P Dow Jones Indices. "The economy is supporting the price
increases with improving labor markets, falling unemployment rates, and
extremely low mortgage rates."
- The Institute for Supply Management
Manufacturing Index grew for the third consecutive month, registering
51.3% for May, an increase of half a percentage point over April. The
New Orders Index came in at 55.7%, down slightly from the April reading
of 55.8%. The Production Index fell 1.6 percentage points to 52.6%,
while the Employment Index held steady at 49.2%. Readings over 50
indicate growth, while readings less than 50 point to slowdowns.
- On the other hand, the Markit U.S.
Manufacturing Purchasing Managers' Index™ pointed to the weakest
manufacturing performance since September 2009. At 50.7 in May, the
index fell 0.1 percentage point from April's reading. Markit Chief
Economist Chris Williamson attributed the slowdown to falling export
demand and growing uncertainty surrounding the presidential election.
- The Institute for Supply Management
Non-Manufacturing Index was 52.9% in May, 2.8 percentage points lower
than the April reading of 55.7%. The Non-Manufacturing Business Activity
Index decreased to 55.1%, 3.7 percentage points lower than April; the
New Orders Index dropped 5.7 percentage points from the April reading of
59.9%; and the Employment Index decreased 3.3 percentage points to
49.7% from April.
- The goods and services trade deficit
was $37.4 billion in April, up $1.9 billion from $35.5 billion in March,
revised, reported the U.S. Census Bureau and the Bureau of Economic
Analysis. April exports were $182.8 billion, $2.6 billion more than
March, and imports were $220.2 billion, an increase of $4.5 billion over
the prior month. Year-to-date, the goods and services deficit decreased
$8.1 billion, or 4.8%, from the same period in 2015. Exports and
imports both decreased 5.1%, to $39.0 billion and $47.1 billion,
respectively.
- According to the U.S. Census Bureau,
new orders for manufactured goods in April, up three of the last four
months, increased $8.7 billion, or 1.9%, to $460.5 billion. This was the
biggest jump in six months, driven largely by new orders for
non-defense aircraft, which jumped by 65%. Shipments increased $2.2
billion, or 0.5%, to $456.8 billion. Unfilled orders increased $6.6
billion, or 0.6%, to $1,137.3 billion. Inventories decreased $0.5
billion, or 0.1%, to $620.8 billion. This followed a 0.1% March
decrease.
- In the week ended May 28, the advance
figure for seasonally adjusted initial unemployment insurance claims was
267,000, a decrease of 1,000 from the previous week's unrevised level
of 268,000. The advance seasonally adjusted insured unemployment rate
was 1.6% for the week ended May 21, unchanged from the previous week's
unrevised rate. The advance number for seasonally adjusted insured
unemployment during the week ended May 21 was 2,172,000, an increase of
12,000 from the previous week's revised level.
Eye on the Week Ahead
Given last week's unexpectedly disappointing employment numbers, all
ears will be listening carefully to Janet Yellen's remarks on Monday to
gauge the future of interest rates. Key data releases include the second
estimate on Q1 productivity and labor costs, as well as the April
results from the Job Openings and Labor Turnover Survey (JOLTS).
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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