It's The Economy Stupid: Jobless

 

Well, the Initial Jobless Claims number came in just about as expected by economists at 333,000, versus economists estimate of 335,000.  This was the lowest Jobless Claims number since 2007!  That’s a clear sign that the labor market is making some progress.  There was very little revision to the prior period’s numbers.

 

The less volatile four week average for Initial Jobless Claims declined to 335,500 on average, the least since November 2007.

 

Good news!

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

What Bridgewater is saying...

Okay, I admit I have a healthy ego.  But there are people I know and recognize that are way smarter than I am.   Ray Dalio and the people at Bridgewater Associates are some of those people.  I greatly respect their work product.

 

Bridgewater

Daily Observations

August 6, 2013

 

What the stock market is telling us about the US economy

 

Various statistics almost always provide conflicting messages about what is happening in an

economy, with the recent weak GDP and employment reports as the latest examples of headline

reports which diverged from other information that we are seeing. The most reliable perspective is

obtained by triangulating various sources of information against one another, comparing it to how the

economic machine works, and in that process include an eye on what the markets are discounting.

The U.S. stock market is particularly useful because it is one of the most complete discounting

machines in existence. Every stock, every sector and the market as a whole are continuously

discounting scenarios represented by future streams of cash flows. When we compare what we are

seeing through the window of the stock market to our read on what is going on, the picture is similar.

The economy is growing at a moderate pace that is fast enough to bring the unemployment rate

steadily lower, while inflation pressures are falling. Consumer demand is the strongest element of

growth, foreign demand is weak, the government is a net drag, and business spending is lagging,

reflecting these combined influences. Liquidity is flowing freely and credit conditions are improving.

 

Whether you look at the overall outperformance of equities in relation to bonds, or at the relative

performance of cyclically oriented stocks, the stock market suggests moderate growth toward the

upper end of the recent range. Cyclicals recently underperformed during the tightening of liquidity

and the rise in interest rates in May, but recovered quickly since then, indicating expectations that the

economy will be able to withstand the increase in rates.

 

By and large, what is being discounted in the stock market is consistent with what we see in the stats,

giving us a higher degree of confidence that the U.S. economy is on a path to normalization that is

well ahead of the rest of the developed world.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

It's The Economy Stupid: Trade Balance

The trade balance is still negative, but it is a lot smaller at -$34.2 Billion.  Economists expected a deficit of -$43.5 Billion, and the prior period’s deficit was revised to -$44.1 Billion.  You have to go back to October of 2009 to find a smaller trade deficit.  This is good news for the economy.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

It's The Economy Stupid: Market Close

The stock market was mixed, with small caps doing better than large cap indices. Dow and S&P were down, NASDAQ was up.

 

Treasuries fell as stronger growth in American service industries dimmed prospects for Federal Reserve bond buying, while U.S. benchmark  stock indexes retreated from records.  Ten-year Treasury yields rose four basis points to 2.64 percent as of 4 p.m. in New York. The Standard & Poor’s 500 Index slipped 0.2 percent while the Stoxx Europe 600 Index closed 0.2 percent higher after climbing as much as 0.6 percent. The yen strengthened 0.7 percent to 98.30 per dollar while New Zealand’s dollar weakened against 15 of its 16 main peers. Wheat, sugar and gasoline lost more than 1.3 percent to lead the S&P GSCI Index of commodities lower.

 

Euro-area services output shrank at a slower pace than initially estimated in July, London-based Markit Economics said today. An index of China’s non-manufacturing sectors in July increased for the first time since March. Stocks extended losses as Federal Reserve Bank of

Dallas President Richard Fisher said the central bank is closer to slowing its bond purchases.

        

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

It's The Economy Stupid: Lot's of Ecomomic Data

 

At first glance the unemployment rate decrease looks good.  Then you see that the labor participation rate decreased too.  That’s not a good thing.    The economy appears to be doing better, but the growth rate is anemic.  We seem to be taking two steps forward and one step back.

 

Employers added fewer workers than anticipated in July even as the U.S. jobless rate dropped to 7.4 percent from 7.6 percent, indicating uneven progress in the labor market.  The labor participation rate dropped to 63.4 percent from 63.5 percent.  The 162,000 increase in payrolls last month was the smallest in four months and followed a revised 188,000 rise in June that was less than initially estimated.  The median forecast of 93 economists surveyed by Bloomberg called for a 185,000 gain.  Workers spent fewer hours on the job and hourly earnings fell for the first time since October.  The slower pace of hiring suggests some employers are confident they’re able to meet demand with current staffing levels as the economy begins to emerge from a first-half slowdown. At the same time, improving consumer confidence and auto sales have encouraged other companies to take on more workers.

 

Retailers added almost 47,000 workers in July, the most in eight months. Employment in education and health services showed the smallest gain in a year. Construction employment fell and manufacturing rose for the first time in five months.  Bloomberg survey estimates for total  payrolls ranged from increases of 23,000 to 225,000. Revisions to prior reports subtracted a total of 26,000 jobs from overall payrolls in the

previous two months.

 

Private employment, which exclude government agencies, rose to 161,000 after a revised gain of 196,000. They were projected to rise by 195,000, the survey showed.  The unemployment rate was forecast to drop to 7.5 percent from 7.6 percent, according to the Bloomberg survey median.   Average hourly earnings fell 0.1 percent to $23.98 in July from the prior month, and were up 1.9 percent over the past 12 months.  The average work week for all workers fell to 34.4 hours from 34.5 hours.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

It's The Economy Stupid: Market Close

Another big day in the markets.  The Dow Jones and S&P indices both set new all-time highs.  The stock markets rallied and industrial metals rose as global reports showed growth in manufacturing and central banks pledged to continue stimulus efforts. The dollar gained against all 16 of its major peers and Treasuries slumped.

 

The S&P 500 Index jumped 1.25 percent to 1,706.87, topping 1,700 for the first time in its history. The Dow Jones Index was up 128 points to 15628.02.   The MSCI All-Country World Index increased 1 percent, after advancing 4.7 percent in July.

 

The yield on 30-year Treasuries jumped to the highest in two years.  But you have to remember to old axe:  Bond yields up, bond prices down.  

 

Copper added 1.5 percent and oil rose 2.7 percent to $107.89 a barrel.

 

European Central Bank President Mario Draghi said the central bank expects rates to remain low for an extended period.  The Federal Reserve pledged yesterday to keep buying $85 billion in bonds every month as persistently low inflation could hamper the economy. U.S. jobless claims fell to the lowest in more than five years and manufacturing expanded at the fastest pace in more than two years. A Chinese government   survey of purchasing managers unexpectedly rose in July, while a similar gauge for the euro-area also beat forecasts.

 

 

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us

 

It's The Economy Stupid: Good News on Jobs

 

Challenger Job Cuts were down to 2.3% from the prior period’s 4.8%.  That’s a good trend.

RBC Consumer Outlook Index was down to 49.4 from the prior period’s 50.7.  That’s not so good.

Initial Jobless Claims were 326 thousand, well below economists’ expectations of 345 thousand.  That’s a good thing.

Continuing Jobless Claims were 2.95 million, lower than economists’ expectations of 3 million.  That’s a good thing.

 

All in all, it’s a good thing for the market this morning.

 

John Broussard

Assistant State Treasurer

Chief Investment Officer

State of Louisiana

Department of the Treasury

225-342-0013

jbroussard@treasury.state.la.us