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Jobs

The labor market continues to tighten as the economy grows. The Labor Department stated initial jobless claims increased by 6,000 to 265,000 in the week ending March 19, 2016. The four-week moving average was 259,750. 242,000 jobs were added to the labor market in February, and the previous two months were revised upwards, beating expectations in both months. The BLS reported the unemployment rate remains unchanged at 4.9% and continues to stay at its lowest since February 2008. While the employment report was strong, weakness in mining employment was noted again, and wage growth continues to be restrained. However, strong payrolls growth and a near record number of job openings in the most recent Job Openings and Labor Turnover Survey report (JOLTS) should keep the Fed on the right path to raise rates later in the year.

Inflation

Core consumption prices increased to 2.3% y/y growth in February, the strongest rise of the expansion. Headline consumer prices (which include energy components and volatile food) dropped -0.2% this month. Most of this decline was caused by the 6.0% drop in energy prices. The shelter, apparel and health care components displayed firm price appreciation in the month, causing the core measure to rise. Other inflation data continued to grow in February with import prices declining less than previously forecasted, providing more evidence the consumption deflator is inching towards the Fed’s inflation target of 2%.

Rates

The 10-year U.S. Treasury note yield decreased 0.03% to 1.91% for the week ending March 24, 2016. The Fed held short-term interest rates stable in the rage of 0.25%-0.50% this month. The Fed also lowered its projections for increasing the federal funds rate in 2016 from four to two. The dovish statement and projections set off a broad rally in U.S. Treasuries and equities. With 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. The increased modification emulated more thorough information on personal consumption, which increased by more than the previous estimate. Detracting from this expansion were declines in exports, nonresidential fixed investment and government spending. The Commerce Department posted new home sales increased and durable goods orders dropped in February. The NAR reported existing home sales declined 7.1% in March. Flash Markit Economics reports showed U.S. manufacturing and services grew slightly, while manufacturing in Japan contracted in March.

Profits

The BEA reported corporate profits dropped 7.8% at a quarterly rate in 4Q 2015. According to the S&P Dow Jones Indices, as of March 17, 2016, of the 495 S&P 500 Index companies reporting 4Q earnings, 68.7% – beat analysts’ estimates. With 90% of the S&P 500 market cap having reported, the 4Q earnings season has softly moved into negative territory. Overall earnings dropped 5.7% y/y, but earnings ex-energy increased 7.8%. Companies beating on revenues were at an unsatisfactory 38%, but those beating on the bottom line maintained a healthy 68%, with blows from a lingering strong dollar and low energy prices, 1Q 2016 could also demonstrate a struggle for profits, but analysts expect profits to bounce back in the latter half of 2016.

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