Sunday, June 5, 2016

Weekly MAD Economic Review

I'll keep this one short and sweet as we all try to enjoy the early days of summer.  It was actually quite a busy week with only 4 days due to Memorial Day.

We started off with Personal Income and Spending. Income rose by 0.4% while spending rose 1.0%.  I'd personally like to see it the other way around.  ISM Index came in at 51.3 which still shows growth, and was up just a bit from the prior month. ISM Services also came in at 52.9.  Both readings are key to stay above the 50 level to show some growth.  Construction spending decreased -1.8% so it remains to be seen if this is a temporary decline as the previous reading showed 1.5% growth.

Then we got a big bummer on Friday. NFP came in at 38K, which means the economy only added that many jobs. That sent markets all over the place and people were questioning if a Fed rate hike is now off the table.  Interestingly the unemployment rate came down to 4.7%.  A big contributor to the decline was a reduction in the labor force participation rate which which decreased to 62.6% from 62.8%. Not exactly encouraging.  I still don't think this means a Fed rate hike is off the table. In fact I'm somewhat more inclined to think the Fed will raise rates another 25bps in June or July.  With both ISM's above 50, and the unemployment rate at 4.7%, I think that gives them enough room to really consider a hike.  The market heavily disagrees with me a June hike is in the cards as expectations fell from 30% to 6% on Friday.

The markets sold off initially on the NFP news, but were able to climb back most the day. Either way the S&P 500 ended the week barely changed, the Dow had a slight loss, the Nasdaq a slight gain, and the Russell came in with a nice 1.1% climb. Small caps had a real rough start to the year, but have seemed to gain a lot of traction lately.


IndexStarted WeekEnded WeekChange% ChangeYTD %
DJIA17873.2217807.13-66.09-0.42.2
Nasdaq4933.504942.529.020.2-1.3
S&P 5002099.062099.130.070.02.7
Russell 20001150.451163.3612.911.12.4

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