Jobs

The labor market continues to tighten as the economy grows. The Labor Department stated initial jobless claims increased by 7,000 to 265,000 in the week ending March 21, 2016. The four-week moving average was 268,000. 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 -0.10% to 1.88% for the week ending March 18, 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

The BLS stated the core CPI increased 0.3% and the CPI dropped 0.2% in February. Producer prices dropped 0.2% in February. The Commerce Department reported housing starts increased 5.2% and retail sales dropped 0.1% in February, while business inventories increased 0.1% in January. The Conference Board Leading Economic index increased in February. In the BEA’s second estimate of 4Q 2015 GDP showed the U.S. economy growing at a 1.0% saar, a higher revision from the previously estimated of 0.7% growth. The higher revision reflected lower imports and more inventory investment than was initially estimated. Those positives were canceled out by tiny downward revisions to government consumption and spending.

Profits

According to the S&P Dow Jones Indices, as of March 10, 2016, of the 493 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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