The Markets
Following a labor report that showed job growth slowed in January,
stocks declined after making some positive headway the prior week. A
selloff of tech stocks brought the Nasdaq down 5.44% with the Russell
2000 following close behind, falling almost 5% by week's end. The Dow
lost over 261 points to close down 1.59%, while the S&P 500 fell
over 3.0%.
The price of crude oil (WTI) continued to fluctuate, closing at
$31.00 a barrel, down $2.74 from the prior week's closing price. The
price of gold (COMEX) increased again, selling at $1,174.10 by late
Friday afternoon, up from the prior week's closing price of $1,118.39.
The national average retail regular gasoline price decreased for the
fifth week in a row to $1.822 per gallon on February 1, 2016, $0.034
below the prior week's price and $0.246 under a year ago.
Last Week's Headlines
- The employment sector continued to
show strength, although at a somewhat slower pace. Total nonfarm payroll
employment rose by 151,000 in January and the unemployment rate was
little changed at 4.9%, according to the latest figures from the Bureau
of Labor Statistics. Job gains occurred in several industries, led by
retail trade, food services and drinking places, health care, and
manufacturing. Employment declined in private educational services,
transportation and warehousing, and mining. January's employment gains
trailed the revised payroll numbers for December (262,000) and November
(280,000). The employment participation rate rose 0.1% to 62.7%, the
average workweek rose to 34.6 hours from a long-standing run at 34.5
hours, and average hourly earnings increased 12 cents to $25.39. Over
the year, average hourly earnings have risen by 2.5%. This report, while
favorable in general, does show some slowing in the employment sector,
which may weigh on the Fed's decision whether to raise interest rates
further at its March meeting.
- While the latest figures on personal
income proved not as robust as those reported in November, December
turned out to be another good month for consumers. According to the
latest figures from the Bureau of Economic Analysis, personal income
increased $42.5 billion, or 0.3%, and disposable personal income (DPI),
which is the difference between personal income and personal current
taxes, increased $37.8 billion, or 0.3%, in December. Consumers saved a
little more than they spent in December as personal consumption
expenditures (PCE) decreased $0.7 billion, or less than 0.1%. In
November, personal income increased $44.3 billion, or 0.3%; DPI
increased $33.4 billion, or 0.2%; and PCE increased $59.4 billion, or
0.5%, based on revised estimates. Wages and salaries increased $13.1
billion in December, compared with an increase of $37.9 billion in
November. Personal current taxes increased $4.8 billion in December,
compared with an increase of $10.9 billion in November.
- As expected, the trade deficit widened
in December to $43.4 billion, up $1.1 billion from November's revised
figures. December exports were $181.5 billion, $0.5 billion less than
November exports. December imports were $224.9 billion, up $0.6 billion
from November.
- The manufacturing sector is contracting. The Institute for Supply Management® Report on Business®
for January indicates that economic activity in the manufacturing
sector contracted for the fourth consecutive month, as the January PMI
came in at 48.2%, an increase of 0.2 percentage points from the
seasonally adjusted December reading of 48.0%. A reading of 50% or lower
indicates contraction. Weak foreign demand due to a stronger dollar and
low oil prices continue to hinder manufacturing. On the plus side of
the report, the New Orders Index registered 51.5%, an increase of 2.7
percentage points from the 48.8% reading in December.
- Economic activity in the
non-manufacturing (service) sector grew in January, but at a slower pace
than the prior month, as the ISM Non-Manufacturing Index registered
53.5%--2.3 percentage points lower than the seasonally adjusted December
reading of 55.8%. As with the Manufacturing Index, a reading above 50%
indicates growth. Several other ISM indexes experienced slower growth,
including the Business Activity Index (-5.6 percentage points), the New
Orders Index (-2.4 percentage points), the Employment Index (-4.2
percentage points), the Inventories Index (-1.5 percentage points), and
the Prices Index (-4.6 percentage points). Generally, this report hints
at a noticeable first-quarter slowdown in the non-manufacturing
(services) sector, which represents about 80% of the economy.
- The Census Bureau report on
construction spending for December was at a seasonally adjusted rate of
$1,116.6 billion, or 0.1%, above the revised November estimate. The
December figure is 8.2% above the December 2014 estimate. While spending
on residential construction increased 0.9%, nonresidential construction
fell a steep 2.1% below the revised November estimate. This report
reflects a cutback in business spending, probably due to a lack of
confidence in the economy.
- Continuing a somewhat disturbing
trend, factory orders in December decreased $13.5 billion, or 2.9%,
following a 0.7% decrease in November. Shipments and unfilled orders are
also down, while inventories increased $1.0 billion, or 0.2%. Orders
for durable goods (expected to last at least three years) and nondurable
goods sank 5.0% and 0.8%, respectively, in December. Weak global
demand, particular in the energy sector, has contributed to the ongoing
slowdown in the factory sector.
- Generally, it cost more to produce
less in the fourth quarter, according to the latest information from the
Bureau of Labor Statistics. Nonfarm business sector labor productivity,
or output per hour, decreased at a 3.0% annual rate during the fourth
quarter of 2015, as output increased 0.1% and hours worked increased
3.3%. From the fourth quarter of 2014 to the fourth quarter of 2015,
productivity increased 0.3%. Unit labor costs (measured as the ratio
between hourly compensation and labor productivity) increased 4.5% in
the fourth quarter and 2.8% over the last four quarters. Increases in
hourly compensation tend to increase unit labor costs, and increases in
output per hour tend to reduce them.
- For the week ended January 30, there
were 285,000 initial claims for unemployment insurance, an increase of
8,000 from the prior week's revised total. For the week ended January
23, the advance number for continuing unemployment insurance claims was
2,255,000, a decrease of 18,000 from the previous week's revised level.
The advance seasonally adjusted insured unemployment rate remained at
1.7% for the week ended January 23.
Eye on the Week Ahead
The budget deficit increased in December, and this week's Treasury
report may reveal additional budget deficit expansion four months into
the government's 2016 fiscal year. The week closes with a report on
retail sales for January. This report is an important indicator of
consumer spending trends, as retail sales account for about one-half of
total consumer spending.
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.
|
|
|
|
|
