View PDF


Although the April payroll number came in below consensus at 160,000, this number displays some of the weakness noticed during Q1 of this year. This weakness serves as a reminder that the pace of job creation should slow over the course of 2016. The unemployment rate remained at 5.0% and average hourly earnings hiked 0.2% in March, boosting y/y gains 2.5%. The April employment report makes a rate hike in June unlikely. While a single economic data point does not embody a trend, going forward it is important to keep an eye on the employment numbers for signs that weakness in business investment is starting to hit the labor market, as this will further continue to keep the Fed on hold.


Gasoline prices increased 10% in April, as headline consumer prices rose 0.4%. Outside of gas prices there was a moderate price increase and core CPI rose 0.2% in the month, but y/y core CPI dropped to 2.1%. The slow rise of import prices in April convey that price appreciation may continue, but the crucial economic indicator that the Fed is looking for an early sign of greater pressure on core inflation is wage growth.


The 10-year U.S. Treasury note yield increased 0.14% to 1.85% for the week ending May 20, 2016. The Fed held short-term interest rates stable in the range of 0.25%-0.50% in April, but the release of the FOMC meeting minutes disclosed the Committee thinks that it may be suitable to increase the target rate in June. The increasingly hawkish comments from Fed officials combined with the tone of the minutes raised the market’s assumption for a rate increase from 4% to over 30%. If economic data continues to positively improve and the Fed prepares the market for the move, then it is not out of the question that a rate hike in June could be executed.



The first estimate of 1Q 2016 GDP showed the U.S. economy growing at a 0.5% q/q saar. As expected, low commodity prices continued to constrain investment and a strong dollar negatively hit trade. Also, after a large buildup in recent years, businesses are slowly decreasing inventory expansion. As the headwinds from slower inventory expansion and lower energy investment spending decline, stronger growth in housing and consumption should allow economic growth to increase toward the trend.


With 93% of the companies in the S&P 500 reporting earnings, analysts’ current estimate for 1Q 2016 EPS is -6.7% overall and -4.2% excluding the energy companies. Companies continue to battle with the strong dollar and low oil prices through the beginning of 2016, but analysts expect to see earnings growth reemerge later this year as these macroeconomic headwinds deplete.



View Disclosure

Leave a Reply

Your email address will not be published. Required fields are marked *