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Jobs

The labor market continues to tighten as the economy grows. The Labor Department stated initial jobless claims dropped by 13,000 to 253,000 in the week ending April 9, 2016. The four-week moving average was 265,000. Although the number of job openings dropped in February, it continues to be very high at 5.4 million open jobs. Some of these jobs are likely to be filled by people entering the labor force; the unemployment rate increased in March to 5.4% primarily due to the fact the recovery is drawing people back into the labor force.

 

Inflation

Core consumption prices increased 0.1% in March, the slowest pace since August 2015, and y/y growth dropped to 2.2%. Headline consumer prices (which include energy components and volatile food) hiked 0.1% in March, backed by energy prices that increased for the first time since November. Airline fares, apparel and food prices pulled on the overall index in March, while medical care, education and shelter continued to rise. Other inflation data also weakened last month, with core PPI prices declining 0.1% and import prices rising below expectations in March.

Rates

The 10-year U.S. Treasury note yield increased 0.04% to 1.76% for the week ending April 15, 2016. The Fed held short-term interest rates stable in the rage of 0.25%-0.50% in March. The Fed also lowered its projections for increasing the federal funds rate in 2016 from four to two, and Fed Chair Yellen has restated that they will proceed with caution. However, the combination of a low unemployment rate and the highest core CPI reading of the expansion, it suggests that the economic climate in the U.S. is tough enough to withstand a rate increase. J.P. Morgan Funds stated “We caution that this very easy monetary policy increases the odds that they may eventually need to tighten more sharply than the market expects.”

Growth

In its final estimate of 4Q 2015 GDP, the BEA displayed the U.S. economy growing at a seasonally adjusted annual rate (saar) of 1.4%, an increased modification from the earlier statement of 1.0% growth. Looking ahead, a larger-than-expected slowdown in inventory accumulation so far this quarter likely means the investment component of GDP will contribute less than expected in 1Q 2016 GDP. The Commerce Department posted retail sales declined 0.3% last month. The BLS reported that both the core CPI and CPI increased 0.1% in March. Import prices increased 0.2%, while export prices were flat and producer prices dropped 0.1% in March. The Fed reported industrial production declined 0.6% last month.

 

Profits

The 1Q earnings season unofficially started last week with several major banks reporting earnings. According to the S&P Dow Jones Indices, as of April 7, 2016, of the 22 S&P 500 Index companies reporting 1Q earnings, 19 beat analysts’ estimates. Analysts are expecting a drop in y/y growth as companies continued to struggle with a strong dollar and low oil prices through the start of the year. Earnings growth is expected to rise later on this year as these macroeconomic headwinds deplete.

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