Special Commentary

by Jim Baird on February 9, 2016

Executive Summary

  • Equity markets have come under renewed pressure in recent days. High quality bonds have rallied though, allowing balanced investors to limit their downside. In short, diversification has worked.
  • The story continues to revolve around a slowdown in global economic growth, a stalled bull market in U.S. equities, investor reaction to the daily flow of news and data, and increased volatility.
  • Among the various leading indicators for the economy is stock prices, although a downturn in equities is not always a precursor to recession.
  • In real time, it’s impossible to determine when either the market or the economy will turn. Whether the current downturn is a precursor to a recession or simply a mid – cycle correction will only be clear with the benefit of hindsight. So what is an investor to do?
  • We encourage investors to refrain from making critical investment decisions based on short – term volatility. Instead, investors should reaffirm they have appropriate cash reserves to meet near – term spending needs, ensure current positioning aligns with t heir long – term investment goals and tolerance for risk, and avoid trying to time the market, particularly during sharp downturns.

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January’s Employment Situation Research Notes

by Jim Baird on February 5, 2016

CaptureUnemployment dips below 5% for the first time since February 2008

The unemployment rate dipped below the 5.0% threshold in January for the first time in nearly eight years, although job creation faltered during the month. After holding steady the past three months, the jobless rate dipped to 4.9%.

Nonfarm payroll growth slowed considerably in January, increasing by 151,000 for the month vs. projections for a gain of about 190,000. Revisions to the preceding two months were largely a wash, reducing the combined tally for November and December by 2,000 jobs.

Economists had expected the pace of job creation to slow in the first month of the year following a fourth quarter surge, but the result fell short of even those moderated expectations.

Some have postulated that the late arrival of winter weather across much of the country temporarily boosted payrolls late last year, and that a moderate slowdown to start the year should be expected. That pulling forward of new jobs into the fourth quarter was noteworthy in the construction sector, where outsized gains late last year were likely supported by favorable weather conditions allowing projects to move forward earlier than anticipated. However, solid gains in construction payrolls also likely reflects the continued recovery in the industry in the aftermath of the housing collapse.

Although the manufacturing sector has been under pressure in recent months, as illustrated by recent soft data on industrial production, manufacturers added to payrolls in January, suggesting a degree of confidence that the downturn could be short-lived.

Results were particularly weak in temporary services, transportation, and warehousing, which shed workers during the month and together accounted for most of the decline in payroll growth.

If there’s a silver lining for workers, it was in a key compensation gauge. Average hourly earnings increased by 0.5%. As the economy nears full employment, stronger wage gains are to be expected. Coupled with poor productivity in recent quarters though, the downside is that unit labor costs are rising – a potential precursor to rising inflation, reduced corporate profitability, or both if that trend persists.

A key takeaway from this report is the delicate position that the Fed finds itself in as it attempts to gradually normalize interest-rate policy. Slower job creation and other indications that that the economy has softened in recent months should otherwise prompt the Fed to slow down.  An economy nearing full employment, rising labor costs, reduced disinflationary benefit from falling energy prices, and weak productivity point to greater inflation risk moving forward.  How the Fed interprets a wide swathe of data, and more importantly how it will execute policy in response to those developments, will present a challenge to policymakers trying to keep the economy on track.

Q4 GDP Research Notes

January 29, 2016

Economy slows in Q4 on weaker business investment and exports Today’s report from the Commerce Department verified what economists already knew: the economy slowed in the final months of the year. The first look at Gross Domestic Product for the fourth quarter indicated that the economy expanded at a lackluster 0.7% pace, held back by […]

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January’s Consumer Confidence Research Notes

January 26, 2016

Consumer confidence rises in January to a three-month high Consumer confidence improved in January, bucking expectations for no change for the month. At 98.1, the Conference Board Consumer Confidence Index edged higher from a revised 96.3 in December, sufficient to post its highest reading in three months. Those surveyed saw little change in current economic […]

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Jobless Claims (week of 1.16.16) Research Notes

January 22, 2016

Jobless claims increase moderately Initial jobless claims rose by 10,000 to 293,000 for the week ended January 16, a moderate increase from a downwardly revised 283,000 a week ago. The recent trend in weekly claims has been soft as the 4-week moving average increased by 6,500 to 285,000 – the highest reading since April 2015. […]

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Special Commentary

January 19, 2016

Executive Summary Concerns over further slowing in the Chinese economy and the precipitous slide in oil prices continued to dominate headlines last week. As a result, investor sentiment has remained negative and the selloff in global equity markets has been extended to a third consecutive week. Despite trepidation surrounding China’s slowdown, its economy is expected […]

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December Retail Sales Research Notes

January 15, 2016

Retail sales fall by 0.1% in December; ex-autos also down 0.1% The holiday shopping season was not kind to retailers in December, who received a proverbial lump of coal from consumers, despite weather conditions across much of the country that was unseasonably warm and that should have encouraged greater shopping traffic in the closing weeks […]

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Economic Perspectives (Fourth Quarter 2015)

January 14, 2016

In December, a key step toward a meaningful change in the direction of monetary policy was taken when the Fed raised short-term interest rates by 0.25% for the first time since 2006. Although the U.S. economy may not be growing at the same rate as in past expansions, economic momentum remains largely positive. Read the […]

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Market Perspectives (January 2015)

January 13, 2016

Executive Summary In one of the most telegraphed and anticipated developments of last year, the Federal Reserve raised the target federal funds rate by 0.25% in December, clarifying a significant source of uncertainty in recent years. Domestic stocks were broadly negative f or the month of December as volatility increased, led by declines in the […]

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Special Commentary

January 12, 2016

Executive Summary It’s been a challenging start to 2016 for equity investors, as the U.S. stock market stumbled out of the gate. Contributing factors to the pullback have been from a number of unrelated matters, including softening economic news out of China, a resumption in the slide of oil prices, a nuclear test from North […]

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