Initial jobless claims increased by 20,000 to 287,000 in the week ending December 26, 2015. The four-week moving average was 277,000.The unemployment rate was unchanged in November at 5.0%. Nevertheless, payroll additions of 211,000, higher revisions to the previous two months’ job gains and an October job openings number of 5.5 million (the second highest number recorded), convey even further narrowing than determined by the headline rate. The employment status allowed the Fed to raise rates last week, and healthy aggregate demand in the economy relative to anemic supply suggests that unemployment will likely drop faster than the Fed predicted in 2016.
In November, headline consumer prices remained flat, in line with the consensus anticipation, dragged lower by falling food and oil prices. Headline inflation is currently up 0.5% from November 2014, while the energy index is down 14.7% from November 2014. Core CPI increased to 2.0% y/y growth and has improved by 0.1% m/m. With the burden from energy prices set to dissolve in early 2016, headline inflation should also shift closer to the Fed’s 2.0% mandate in the medium term.
The 10-year U.S. Treasury note yield increased 0.02% to 2.27% for the week ending December 31, 2015. The Federal Reserve showed its confidence in the health of the U.S. economic recovery by raising short-term interest rates 0.25% last week. This move was a unanimous decision by the voting members of the Committee, and this decision ends seven years of a near-zero interest rate policy. The rate hike was well communicated to the investing community, so the market reacted to the announcement positively, with stocks rallying and Treasury yields remaining comparably stable. However, now that the obstacle of the first rate increase has passed, markets need to prepare for the Fed’s expectations for future interest rate increases.
The NAR Pending Home Sales Index dropped 0.9% in November. The S&P/Case-Shiller U.S. National Home Price Index posted a y/y increase with a 5.2% annual gain in October, up 0.3% from September. The U.S. economy grew at a 2.0% q/q saar pace, the BEA showed in its final estimate of 3Q 2015 GDP. The data shows a larger inventory overhang than originally estimated, leading to a moderate revision downward from the second estimate. Inventory accumulation in the first half of the year reduced 0.7% from 3Q 2015 growth, revised up from the original estimate of -1.4%. However, the lower-than-expected negative hit from inventory accumulation means a forceful headwind to future growth as the pace of inventory accumulation returns to average levels. Consumption remained steady in 3Q, with consumer expenditures increasing 3.0% y/y following a 3.6% rise in 2Q.
According to S&P Dow Jones Indices, as of December 24, 2015, of the 17 S&P 500 Index companies reporting 4Q earnings, 13 beat analysts’ estimates. S&P 500 3Q stock buybacks rose 14.5% to $150.6 billion, an increase from the $131.3 billion reported in the 2Q, according to a preliminary report from S&P Dow Jones Indices. The total stock repurchases represent a 3.7% y/y rise.