The Weekly Market Snapshot from Frazier Allen for the week of August 12th, 2012
Market Commentary by Scott J. Brown, Ph.D., Chief Economist
Nonfarm payrolls rose more than expected in July, reducing fears that the economy may be headed back into recession. One shouldn’t put too much weight on any one particular month, especially July. However, the figures are consistent with the broad range of data suggesting moderate growth over the near term – not especially strong, but not terribly weak either.
At face value, the July payroll increase (+163,000) was consistent with the view that mild winter weather pulled forward seasonal gains that would have occurred in spring and early summer. Nonfarm payrolls averaged a 151,000 gain over the first seven months of 2012, vs. a 153,000 pace in 2011.
Government remained a moderate drag on job growth. State and local government payrolls fell by 7,000 and the federal government lost 2,000. One difference between the current recovery and past recoveries is that government is subtracting from, rather than adding to, overall GDP growth (we’re talking specifically about the GDP components, government consumption and investment, not transfer payments or regulations).
The broad range of recent data continue to suggest an economy that’s expanding fast enough to absorb the growth in the working-age population, but not enough to make up for much of the ground that was lost in the labor market during the downturn. The unemployment rate has fallen over the last couple of years, but that’s largely due to a decrease in labor force participation. As individuals exhaust their unemployment insurance benefits, they tend to give up looking for a job and are no longer officially counted as unemployed. That trend may have played itself out. The unemployment rate has been little changed in recent months. The employment/population ratio, a better gauge of labor utilization, has been trending roughly flat.
Where does this leave Federal Reserve policymakers? The data are not screaming for further accommodation. We’ll get one more employment report before the September 12-13 policy meeting. Unless that report is a disaster, or if there is a renewed threat of deflation, the Fed is likely to stand pat. The Fed could respond to downside risks. However, the fiscal cliff and Europe appear to be somewhat less threatening than they did a month ago. Lawmakers are still unlikely to do anything until after the election, but they are talking about it and seem to appreciate the economic consequences. Avoiding the fiscal cliff means enduring another year of elevated budget deficits, but that’s not a problem for the financial markets (at least for now). The ECB is expected to restart its bond purchase program in September, once again averting an immediate disaster, but not really solving Europe’s underlying problems.
|Last||Last Week||YTD return %|
Consumer Money Rates
|Dollars per British Pound||1.561||1.621|
|Dollars per Euro||1.228||1.423|
|Japanese Yen per Dollar||78.690||77.090|
|Canadian Dollars per Dollar||0.992||0.991|
|Mexican Peso per Dollar||13.107||12.367|
|10-year municipal (TEY)||2.95||3.12|
Treasury Yield Curve – 8/10/2012
S&P Sector Performance (YTD) – 8/10/2012
|Import Prices (July)|
|Producer Price Index (July)
Retail Sales (July)
|Consumer Price Index (July)
Industrial Production (July)
|Building Permits, Housing Starts (July)|
|Consumer Sentiment (mid-August)
Leading Economic Indicators (July)
|Bernanke Speech (Jackson Hole)|
|Labor Day Holiday (markets closed)|
|ECB Policy Meeting|
|Employment Report (August)|
|Fed Policy Meeting
Bernanke Press Briefing
[320left]Past performance is not a guarantee of future results. There are special risks involved with global investing related to market and currency fluctuations, economic and political instability, and different financial accounting standards. The above material has been obtained from sources considered reliable, but we do not guarantee that it is accurate or complete. There is no assurance that any trends mentioned will continue in the future. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Investing involves risk and investors may incur a profit or a loss.
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Tax Equiv Muni yields (TEY) assume a 35% tax rate on triple-A rated, tax-exempt insured revenue bonds.
The information contained herein has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. Data source: Bloomberg, as of close of business August 9th, 2012.