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Jobs

The labor market continues to tighten as the economy grows. The Labor Department stated initial jobless claims dropped by 18,000 to 259,000 in the week ending March 5, 2016. The four-week moving average was 267,500. 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

Headline consumer prices were flat in January and y/y growth hiked to 1.4% from 0.7% in December. Energy prices dropped 6.5% over the year, the smallest 12-month decline since November 2014, supporting the increase in headline index growth. Core prices increased higher than expected at 0.3% in January and 2.2% over the last 12 months. Producer prices also grew in January, rising 0.1% following services prices. Inflation data continued to rise in February with import prices dropping less than the forecast, 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 increased 0.10% to 1.98% for the week ending March 11, 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 BLS stated both import and export prices dropped in February. The Commerce Department posted sales of wholesale goods dropped 1.3% and inventories increased 0.3% in January. 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 3, 2016, of the 493 S&P 500 Index companies reporting 4Q earnings, 67.9% – 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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