(+) The ISM Non-Manufacturing Index<\/b> for February came in better than the expected 55.0 level with a small increase to 56.0.\u00a0 New orders and business activity were higher, while employment deteriorated a bit (although still in expansionary territory).\u00a0 Inventory expansion was also slightly higher.\u00a0 Interestingly, anecdotal comments in the survey responses were optimistic with a general theme that business was \u2018picking up\u2019 in several industries in a more diversified way.<\/p>\n
(+) Factory orders<\/b> for January fell -2.0%, which was a touch better than the forecasted decline of -2.2%.\u00a0 A large decline in aircraft orders (defense and non-defense\u2014both of which are a \u2018choppy\u2019 series) accounted for a good portion of the result.\u00a0 While \u2018core\u2019 (non-defense, non-aircraft) capital goods shipments fell -1.1% during the month, on the positive side, forward-looking core orders came in at a strong +7.2%.\u00a0<\/p>\n
(+) Manufacturing inventories<\/b> rose +0.5% for January, which was a contrast to a flat reading during the entire fourth quarter of 2012.\u00a0 Nondurable inventories gained +1.0%, which provided the primary magnitude for the change, while durable inventories rose a bit as well.\u00a0 Overall, this was in line with expectations and was considered to be a positive input to the first quarter\u2019s upcoming GDP.<\/p>\n
(+) The Fed Beige Book<\/b> for January, which notates conditions and commentary for the regional Fed districts around the country, described activity as continuing to expand at a \u2018modest to moderate pace.\u2019\u00a0 This has been the theme of these books for several editions now\u2014slow, but still positive growth, along the lines of industrial surveys and economic data results.\u00a0 In particular, the consumer sector held up better than some analysts expected, considering the slower economic conditions overall; activity in housing and manufacturing has also strengthened noticeably over time.\u00a0 Anecdotally, the report cited some general business concerns about the possible effects of the Affordable Care Act in upcoming quarters\/years.<\/p>\n
(+) Wholesale inventories<\/b> for January increased more than expected, at a rate of +1.2% versus a consensus +0.3%, and were consistent across the board for both durable and non-durable goods.\u00a0 This is a sign of improved end demand, so is treated by economists as a positive, since they\u2019re incorporated as an important input to GDP.\u00a0 (A positive that is, as long as inventories don\u2019t build up excessively without ending up in the hands of consumers).<\/p>\n
(-) The U.S. trade deficit<\/b> widened to -$44.4 billion in January, which underperformed the expected -$42.6 bil. figure.\u00a0 The normally volatile petroleum trade balance was responsible for most of this change (imports rose by +8%, while exports fell by -17%), and other items didn\u2019t really contribute.<\/p>\n
(+) Initial jobless claims<\/b> for the Mar. 2 week fell to 340k, more than expected relative to the consensus estimate of 355k.\u00a0 This recent week brought the more reliable four-week moving average to 349k\u2014a trend in the positive direction.\u00a0 Continuing claims<\/b> for the Feb. 23 week came in at 3,094k, which was a bit lower than the 3,120k expected.<\/p>\n
(+) The ADP employment report<\/b> for February, released a few days before and considered a decent predictor by some of the monthly government report at the end of the same week, came in better than expected, showing a gain of +198k jobs.\u00a0 This was a significant improvement on the consensus expectation of +170k, in addition to upward revisions for January (+192k to +215k).\u00a0 New jobs were consistently spread across all company sizes, which is a positive, since smaller firms were lagging fairly significantly for quite some time during this recovery.\u00a0 By industry, gains were in line with recent trends, with the biggest additions taking place in trade\/transportation, professional\/business services and construction (combined, 100k of the total number).<\/p>\n
<\/p>\n
(+) The February employment situation report was much better than expected, with strong gains in payrolls<\/b> of +236k, versus a forecast of +165K.\u00a0 The areas seeing strongest improvement were construction (with nearly 50k jobs added), as well as professional services (73k new jobs, and included temp work).\u00a0 The unemployment rate<\/b> for February fell to 7.7%, which was an improvement on the expected 7.9%.\u00a0 Part of that decline, however, was due to a small decrease in the labor participation rate as well as, interestingly, from a rise in multiple job holders.\u00a0 (That said, both of these numbers surprised quite a few economists.)\u00a0 The broader U-6 measure fell from 14.4% to 14.3%.<\/p>\n
(+) The average workweek<\/b> lengthened an hour from 34.4 to 34.5 (while forecasters expected no change), and average hourly earnings<\/b> rose +0.2%, which was generally in line with forecast and resulted in a +2.1% gain over the past year.\u00a0 These are positive data points from an employment perspective (you\u2019d prefer to see more work, and longer workweeks than less, since it means there is more work to be done), but we watch the latter due to the implicit inflation pressures that can make their way into wage increases over time.<\/p>\n
(0) Nonfarm productivity<\/b> fell -1.9% for the fourth quarter of 2012, which was a bit worse than the expected -1.6%.\u00a0 Nonfarm unit labor costs<\/b> for the same period rose +4.6% versus a forecast +4.3%.<\/p>\n
How do we interpret all this?\u00a0 This month\u2019s strong gains are certainly headline worthy and probably make the public take notice more than any other economic statistic.\u00a0 The lack of job growth during the recovery has been a significant political and economic issue (especially, considering the Fed\u2019s dual mandate and current focus on unemployment).\u00a0 We have to look at the current unemployment situation in context of where we \u2018should\u2019 be.\u00a0 This requires us to review the levels of the \u2018natural\u2019 unemployment rate, which is the longer-term trend rate that minimizes labor market imbalances\/pressures on inflation\u2014either upward or downward\u2014and is also referred to as the \u2018structural\u2019 employment rate.<\/p>\n
A recent speech by John Williams, President of the Federal Reserve Bank of San Francisco, pegged an estimate of this \u2018natural\u2019 unemployment rate at roughly 6% (up from a pre-recession estimate of around 5%, and above the long-term figure of 5 \u00bd%).\u00a0 This tells us that in early 2008, the headline seasonally-adjusted total unemployment rate (at about 5%) was running close to the long-term trend level.\u00a0 In late 2009, unemployment peaked at 10%, implying the cyclical short-term unemployment during the Great Recession roughly equaled that of the long-term natural rate (quite extreme, as we all remember).\u00a0 Now, if the natural\/structural rate is currently 6%, it leaves us the remaining 1.7% or so as the continued cyclical component yet to be unwound and corrected for.\u00a0 Long story short, conditions have improved, but room exists for continued repair.<\/p>\n
Market Notes <\/i><\/b><\/p>\n 1 Week (%)<\/b><\/p>\n<\/td>\n YTD (%)<\/b><\/p>\n<\/td>\n<\/tr>\n 2.23<\/p>\n<\/td>\n 10.46<\/p>\n<\/td>\n<\/tr>\n 2.22<\/p>\n<\/td>\n 9.23<\/p>\n<\/td>\n<\/tr>\n 3.06<\/p>\n<\/td>\n 11.16<\/p>\n<\/td>\n<\/tr>\n 1.84<\/p>\n<\/td>\n 5.35<\/p>\n<\/td>\n<\/tr>\n 1.22<\/p>\n<\/td>\n 1.02<\/p>\n<\/td>\n<\/tr>\n -0.65<\/p>\n<\/td>\n -0.76<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n <\/p>\n 3 Mo.<\/b><\/p>\n<\/td>\n 2 Yr.<\/b><\/p>\n<\/td>\n 5 Yr.<\/b><\/p>\n<\/td>\n 10 Yr.<\/b><\/p>\n<\/td>\n 30 Yr.<\/b><\/p>\n<\/td>\n<\/tr>\n 0.05<\/p>\n<\/td>\n 0.25<\/p>\n<\/td>\n 0.72<\/p>\n<\/td>\n 1.78<\/p>\n<\/td>\n 2.95<\/p>\n<\/td>\n<\/tr>\n 0.11<\/p>\n<\/td>\n 0.25<\/p>\n<\/td>\n 0.75<\/p>\n<\/td>\n 1.86<\/p>\n<\/td>\n 3.06<\/p>\n<\/td>\n<\/tr>\n 0.10<\/p>\n<\/td>\n 0.27<\/p>\n<\/td>\n 0.90<\/p>\n<\/td>\n 2.06<\/p>\n<\/td>\n 3.25<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n In stock market news this last week, the Dow surpassed its previous 2007 level to land at a new all-time high.\u00a0 Upon this happening, applause broke out on the NYSE trading floor.\u00a0 (Presumably, they were congratulating themselves, or us, but that is only speculation.)\u00a0 While equity mutual funds experienced net outflows of $100 billion in 2012, we\u2019ve seen better results early this year.\u00a0 However, investor interest in equities continues to remain tempered and skittish as the \u2018wall of worry\u2019 is being climbed.<\/p>\n <\/p>\n Market highs are a natural inflection point\u2014exciting some investors and spooking others.\u00a0 It represents a behavioral response since many clients (and advisors) have questioned the sustainability of the advance up and through this point, being that the memories of 2008 are all so fresh.<\/p>\n The new high is only a number, albeit a newsworthy one since it puts us in unchartered territory.\u00a0 From the standpoint of a technical chartist, a new high can represent one of two things:\u00a0 a \u2018resistance level\u2019 (a negative, since this can be seen as a rigid boundary that prices are pushing up against), or a \u2018breakout\u2019 point (a positive, if prices are able to surpass the previous high for any period of time\u2014seen as a sign of a new trend).\u00a0 Not surprisingly, technicians are currently split in their opinion, but seem to appear a bit more bullish than bearish.\u00a0 For those who are somewhat skeptical of the chart, a basic truth that the famous 1926-to-present day market graph reminds us of, is that we always have to reach a new high at some point.\u00a0 Equaling a previous high only means that sentiment has only reached the level of the past high, from a numerical standpoint, no better, no worse.<\/p>\n Of course, with a few strong months like this, we\u2019re probably bound to have a pullback at some point (the market experiences five 5%+ pullbacks each year on average anyway), but of course, the timing is to be determined, and a lot of opportunity cost can be mis-estimated in between by making a timing attempt.\u00a0 Fundamentally, conditions have improved, as seen in manufacturing survey numbers, production and even employment (albeit slowly in the latter).\u00a0 This is not only good for the economy, which asset values reflect, but may lay the groundwork for further gains if this trend continues (absent any other global shocks or slowdowns, of course, which we are especially sensitive to being that our growth rate is so low).\u00a0 Valuations, which is how we look at everything, continue to look attractive\u2014just not the \u2018screaming\u2019 buys of a few years ago when things looked much more uncertain.<\/p>\n Valuations favor equities, as well as corporate fixed income, as opposed to \u2018safety\u2019 in the form of cash or Treasuries.\u00a0 But, as valuations have moved higher, and conditions have \u2018normalized,\u2019 we find ourselves looking at incremental \u2018alpha\u2019 as much as we are basic \u2018beta.\u2019\u00a0 This sounds a bit boring, but it\u2019s actually a positive reflection of conditions getting better, less dislocated and more balanced.<\/p>\n Back to the week specifically, the U.S. market was led by financials and consumer discretionary, while lower beta and more defensive sectors like consumer staples and utilities lagged.\u00a0 Small-cap\u00a0out gained\u00a0large-cap.<\/p>\n Internationally, emerging market stocks led, including India and Brazil, while European stocks as a whole also registered gains of over three percent.\u00a0 While most nations ended up in the positive, Asian names generally lagged from a regional standpoint.<\/p>\n Bonds slipped on the week with the strength in risk assets, with the yield on the 10-year treasury jumping 20 basis points back above 2%.\u00a0 On the better-performing side, high yield and bank loans were able to eek out a bit of positive absolute return, while longer treasuries suffered the most due to effect of longer duration with higher rates.\u00a0 Foreign debt was mixed, with emerging market bonds flat and developed nations following our government markets to some extent.<\/p>\n In real estate, more cyclical U.S. industrial REITs gained strongly, on par with equities, followed by mortgages and retail, although European and Asian REITs also performed positively.<\/p>\n Commodities were up roughly one percent on the week (as measured by the DJ-UBS index) with strength from natural gas, sugar and continued increases in unleaded gasoline.\u00a0 Grains, especially several wheat contracts, lost several percent due to USDA estimates of higher supplies than expected (prices were already under some upward pressure from improving growing conditions and smaller export estimates).<\/p>\n Have a good week.<\/p>\n <\/p>\n Karl Schroeder, RFC<\/p>\n Investment Advisor Representative<\/p>\n Schroeder Financial Services, Inc.<\/p>\n 480-895-0611<\/p>\n <\/p>\n Sources:\u00a0 FocusPoint Solutions, Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Goldman Sachs, JPMorgan Asset Management, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Schroder\u2019s, Standard & Poor\u2019s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.\u00a0 Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return\/excluding dividends.\u00a0 Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.<\/p>\n <\/p>\n The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.\u00a0 All information and opinions expressed are subject to change without notice.\u00a0 Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.\u00a0 Schroeder Financial Services, Inc. is a registered investment advisor.<\/p>\n <\/p>\n Notes key:\u00a0 (+) positive\/encouraging development, (0) neutral\/inconclusive\/no net effect, (-) negative\/discouraging development.<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" (+) The ISM Non-Manufacturing Index for February came in better than the expected 55.0 level with a small increase to 56.0.\u00a0 New orders and business activity were higher, while employment deteriorated a bit (although still in expansionary territory).\u00a0 Inventory expansion was also slightly higher.\u00a0 Interestingly, anecdotal comments in the survey responses were optimistic with aRead more<\/a><\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[],"class_list":["post-962","post","type-post","status-publish","format-standard","hentry","category-finance"],"_links":{"self":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/962","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/comments?post=962"}],"version-history":[{"count":1,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/962\/revisions"}],"predecessor-version":[{"id":963,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/posts\/962\/revisions\/963"}],"wp:attachment":[{"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/media?parent=962"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/categories?post=962"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dev.sunlakesofarizona.com\/blog\/wp-json\/wp\/v2\/tags?post=962"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n\n
\n Period ending 3\/8\/2013<\/b><\/td>\n \n \n \n DJIA<\/td>\n \n \n \n S&P 500<\/td>\n \n \n \n Russell 2000<\/td>\n \n \n \n MSCI-EAFE<\/td>\n \n \n \n MSCI-EM<\/td>\n \n \n \n BarCap U.S. Aggregate<\/td>\n \n \n \n\n
\n U.S. Treasury Yields<\/b><\/td>\n \n \n \n \n \n \n 12\/31\/2012<\/td>\n \n \n \n \n \n \n 3\/1\/2013<\/td>\n \n \n \n \n \n \n 3\/8\/2013<\/td>\n \n \n \n \n \n