Stocks Lower, Interest Rates Higher for the Week

Highlight of this Week’s Review:

1. Don’t forget to take advantage of the online 2014 tax information available on the Liberty system.
2. S. stock indices closed out the week lower and interest rates moved higher on recent employment data.
3. New employment figures bring the unemployment rate down to 5.5%, but is this the “real” picture in today’s economy?
4. FED rate hike now sooner than later?

READ ON FOR FURTHER DETAILS………………………………………………… 

Tax Information Reminder:

2014 income tax information for investment accounts is available to you online through the Liberty system.  You can access your 1099 forms, as well as a “CSV” file that can be used to download all transactions from your Trust Company of America accounts for 2014.  Be sure your or your tax preparer take advantage of this to save both time and money.  REMEMBER:  If you only have a retirement account such as an IRA, there will be no tax reporting unless you received a distribution from the account during the calendar year.  Call us if you have any questions or if we can assist you in accessing your online tax information.

The Markets:

Stocks closed out last week on a negative note.  The Dow Jones Industrial Average dropped 1.52% for the week, but is still slightly positive for 2015, up .19% for this year through Friday.  The Standard & Poor’s 500 also fell by 1.58%, now up just .60% year-to-date as of Friday’s close.  (MarketWatch)

Interest rates rose on the latest employment figures bringing the possibility of a rate hike sooner than later, with the markets now pricing the possibility of a Fed move sometime around June.  The yield on the 10 year U.S Treasury jumped to 2.24% compared to 2.17% at the first of the year.  (U.S. Treasury)  The average rates for a 30 year fixed mortgage now stand from 3.875 to 4.125%.  (Bankrate.com)

Oil prices ended the week slightly higher, with West Texas Intermediate Crude closing the week at $49.78 per barrel, up .26.  (CNBC).

The Economy:

Full employment – that’s a headline you probably didn’t expect. On Friday the Bureau of Labor Statistics reported the unemployment rate fell from 5.7% in January to 5.5% in February. According to the Federal Reserve’s Economic Projections of Fed Board Members and Fed Bank Presidents, the economy is considered to be at full employment when the jobless rate is within a range of 5.2-5.5%. We’re there.

First of all, full employment isn’t a rate of zero. There will always be what’s called frictional unemployment, or those who are voluntarily or involuntarily between jobs. And there will always be structural unemployment, or those whose skills are no longer relevant in today’s modern economy.

But it sure doesn’t feel like we’re at full employment. Yes, surveys of consumer confidence from the University of Michigan and the Conference Board put sentiment at levels consistent with an economic expansion that’s in its six year. Still, full employment?

Some of the hesitation probably has to do with the deep scars left by the Great Recession. With the exception of a few industries, wage growth and much of the economic recovery have been pretty tepid. Plus, a rate of 5.5% is the lowest since May 2008 (BLS), when we were already six months into the last recession (National Bureau of Economic Research-NBER).

The Fed also continues to hold rates at near zero – the emergency level implemented at the end of 2008. It’s not a resounding signal of confidence in the economy.

But other measures of the labor market have yet to fully recover. For example, while the number of long-term unemployed has fallen significantly, it’s still at levels near what we saw at the peak of the nasty 1982 recession, and we’re still above levels associated with the 1990 and 2001 recessions – see Figure 1.

Further, 6.6 million individuals want full-time work but can only find part-time work, which is near the peaks reached in the 1982 and 1990 recessions (BLS). There’s been significant progress but more is needed.

There are still plenty individuals that are able and willing to work, and that is likely restraining wage growth, even as demand for labor is rising.  We suspect the Fed’s estimate of full employment may be too high. It’s been nearly 15 years and the makeup of the labor force has changed since then, but the jobless rate dipped to 3.9% at the end of 2000 (BLS). And it fell to 4.4% in late 2006 and early 2007.

Continued employment growth also brings us closer to the day when the Fed will likely start raising interest rates. It’s a day that savers having been eyeing for quite some time.

We hope you all have a great week ahead.  Please don’t hesitate to call us if you every have any questions or concerns.  We are here to serve

God Bless,

Your TEAM at F.I.G. Financial Advisory Services, Inc.

 

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