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Jobs

The December Employment Report showed strength across the labor market, including a 5.0% employment rate, 2.4% wage growth and employment gains of 292,000. Although the trend for initial claims has been rising, the initial jobless claims series continues to run below trend. Also, new job openings continue to further show a tightening labor market. The Labor Department reported initial jobless claims dropped 16,000 to 278,000 in the week ending January 23, 2016. The four-week moving average was 283,000. The BLS posted the Labor Cost Index hiked 0.6% in December.

Inflation

In December, headline consumer prices dropped 0.1% as energy prices continued to burden the index. Headline inflation rose 0.7% y/y, while the core index rose 2.1% over the same time period, this was the highest number since June of 2012. In spite of the drop in headline inflation, the core index moved higher showing that inflationary pressures are moving gently, but deliberately, toward the Fed’s 2.0% mandate. Producer prices continued to fall. The producer price index dropped 1.0% y/y in December, after dropping 1.1% the previous month.

Rates

The 10-year U.S. Treasury note yield dropped -0.13% to 1.94% for the week ending January 29, 2016. The Fed reported that labor conditions have further improved, and voted to maintain the current target range for the federal funds rate. The Fed held short-term interest rates constant at 0.25% in January. Many interpreted the Fed’s language on financial market and global economic concerns for an indication that a second rate hike in March was going to happen. Overall, the Fed carefully distinguished between dovish and hawkish in their attempt to restore confidence in the markets that rate hikes will be data dependent and gradual, without sending an overly dovish message that could be interpreted as alarming for markets.

Growth

The BEA’s first estimate of 4Q 2015 GDP showed the U.S. economy growing at a 0.7% saar. The data continues to show headwinds from a strong dollar, low oil prices and an inventory overhang. Consumption growth lightened, but remained firm in 4Q, with consumer expenditures rising 2.2% saar following a 3.0% rise in 3Q 2015. The Commerce Department posted that durable goods orders slipped 5.1% and new home sales increased 10.8% in December. S&P/Case-Shiller noted that home prices reported a 5.3% y/y increase in November, a rise from a 5.1% increase in October.

Profits

The expectations for 4Q earnings season are dropping, but remain in positive territory. The S&P Dow Jones Indices reported that of the 73 S&P 500 Index companies reporting 4Q earnings, 53 companies beat analysts’ estimates, as of January 21, 2016. With 48.9% of market cap having reported, J.P. Morgan Asset Management estimates S&P 500 earnings of $27.94 for 4Q, leading to a y/y growth rate of 4.5%. If we subtract energy this number increases to 10.7%. While these numbers might continue to drop over the next few weeks as energy companies begin to report earnings, the corporate sector is showing resilience in spite of skepticism over slowing global growth.

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