Improving Economic Data Points Here in the US? Major shifts in markets? - Updates and Commentary b
- isaacsonhoward
- Feb 8, 2015
- 4 min read
The week ended with two important data points, (1) oil rig utilization and (2) employment figures. These were (1) as expected and (2) much better than expected, respectively. I will cover each in detail further below. In the meantime, here are the week’s key market changes:
Though the S&P 500 was down on Friday, it was up approx. 3% for the week, moving from 1995 last Friday to 2055 at yesterday’s close.
Source: www.Marketwatch.com
The yield on the US 10 year Treasury, turned higher moving from a 52 week low 1.64% last Friday, to 1.96% on Friday:
Source: www.Marketwatch.com
The German 10 Year Government Bond yield also moved off of 52 week lows this past week:
Source: www.Marketwatch.com
The Euro moved a bit higher during the week, but ended close to where it began, which is reasonably close to the 52 week low:
Source: www.Marketwatch.com
Crude oil continued to move higher this week after having hit new lows last week:
Source: www.Marketwatch.com
Even in the face of very, very cold temperatures in the North East, natural gas prices continued to move lower to $2.579 MBtu from $2.691 last Friday (as domestic inventories continued higher.)
The above is the price of natural gas futures at the national level. Below is a list of current spot prices as of yesterday. Note, the change is from the DAY before.
Summary of the past week:
Okay, so the stock market was a bit better, the bond market a bit better, the $ did not appreciate further, oil seemed to stop falling (and took a few steps higher), but Natural Gas continued to move lower….
Some of the facts from the past week:
Consumer credit use increased by $14.8 billion in December (an annual rate of 5.5%), including an increase in revolving credit by $5.8 billion (annual rate of 3%). Revolving includes primarily credit cards and short term borrowings. http://www.federalreserve.gov/releases/G19/default.htm This reflects confidence of consumers and also that some of their December spending was driven not by earnings but by borrowings.
Source: Bloomberg.com
Employment looks very good. http://www.bls.gov/news.release/empsit.nr0.htm
Unemployment came it at 5.7% versus the prior month’s of 5.6%, with the change coming from more people coming back into the workforce.
Jobless rates showed little changes other than an INCREASE in the unemployment rate for teenagers.
The numbers of discouraged workers declined and the number of marginally attached workers came down as well; both are signs of a recovering employment environment.
Revisions were made to prior months’ numbers and they were revised strongly upwards in terms of numbers of people employed.
Average workweek was mostly unchanged.
Average hourly earnings increased by 12 cents to $24.75 for all employees on private nonfarm payrolls from the prior month. (December’s hourly earnings declined by 5 cents, as reported in the prior month’s report.) Year over year, wages within the total private sector increased 2.2%. The only sector showing any y/y decline per hour was “mining and logging” which had been up from Jan 2014 to Nov 2014, and took a small step back in December 2014 and January 2015. http://www.bls.gov/news.release/empsit.t19.htm
Bloomberg reported that the increases in the minimum wage rates in 20 states had a very limited (Immaterial) impact on the increase in January earnings figures. http://www.bloomberg.com/news/articles/2015-02-06/all-those-minimum-wage-jumps-barely-mattered-in-january-s-income-spike
As the Fed has targeted a 2% inflation rate, there is increased chatter that the 2.2% increase in wages needs to be responded to with an increase in the Fed Funds Rate. (IMHO, one month’s data does not make a trend, and these figures are subject to revision.)
Productivity in the nonfarm business sectors declined by 1.8% during the 4th Q of 2014 as output increased by 3.2% and hours worked increased by 5.1%. The jump in hours worked was the largest since 1998.
Interestingly, productivity was unchanged from 4th Q 2013 to 4th Q 2014 as both output and hours worked increased by 3.1%.
Unit labor costs increased by 2.7%! Though it reflected a 0.9% increase in hourly compensation and a 1.8% decline in productivity.
Real hourly compensation, after adjusting for inflation, increased by 0.7% in 2014.
The report also included significant revision to earlier reported data. http://www.bls.gov/news.release/prod2.nr0.htm
Announced layoffs increased to 53k from the prior month of 32.6k:
Source: Bloomberg.com
Jobless Claims increased by 11k from the prior week’s revised level of 267k. The seasonally adjusted new claims number continues to come down. A very good sign!
According to the Markit Purchasing Mangers Index, released on 02/02/2015, production levels hit their highest level in 3 months. Input prices fell for the first time in 2.5 years, and January’s new order pace slowed. 50 is a neutral number and the January figure came in at a 53.9 reading, indicating a “robust improvement in overall business conditions”.
No week would be complete without a Rig Count Report. Total rigs in North America were down by 100 this past week, including a decline of 87 in the US. Of the 87 total, 83 were oil rigs and 5 were gas rigs. Oil rig count is down 19.7% from prior year and Gas rig counts are down 10.5% from this time last year. http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother
Earnings season continued this week. Per FactSet, of the 323 of the S&P 500 companies, 78% have reported earnings above the mean estimate and 59% have reported better sales. Earnings growth for the 4th Q was 3.0%. Regarding earnings guidance for 1st Q 2015, 52 companies have issued negative guidance and 10 positive.
Thoughts:
The two big questions are (1) how strong really is the US economy and (2) what is the Fed thinking?
We will get insight this week into the Fed, as 2 Fed Governors will be speaking publically.
IMHO, the Fed does not have enough data and the markets have not demonstrated enough fortitude and confidence to withstand the Fed looking to move the Fed Funds Rate higher. There are a few major firms that do believe June 6th will be the date…..
The stock markets are looking okay. Ideally oil has stabilized and this will help the markets regarding confidence and valuations. This will also help put a floor under the high yield bond markets. Overall, valuations may be high, but there are opportunities and values out there.
As always, the key to comfort and success is knowing what one owns and that the selection process be based on forward looking assessments, rather than the overall economy……
I look forward to sharing more thoughts and insights next week!
In the meantime, have a healthy, happy and successful week.
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