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March 2016 Economic Update

After a miserable January, the Dow Jones Industrial Average managed to gain 0.30% in February. While stock markets around the world struggled to advance, gold and oil rallied to a remarkable degree. U.S. economic indicators offered some bright spots, but also some disappointments. Housing indicators were mixed. Still, Wall Street seemed to show a tiny bit of optimism by month’s end (or maybe it was simply reduced pessimism). Investors hoped there would soon be less correlation between oil prices and stock prices.1

Judging from January’s personal spending report, it appeared consumers were finally starting to spend some of the money they had been saving thanks to lower gas prices. The Bureau of Economic Analysis reported that consumer spending improved 0.5% in the first month of the year, as did consumer wages. January core retail sales rose 0.6%, though the headline advance was only 0.1%.2,3

According to the Bureau of Labor Statistics, the core Consumer Price Index rose 0.3% in January; the core Producer Price Index ascended o.4%. The headline number was smaller in each case (0.1% for the PPI, 0.0% for the CPI), but the real story was the 2.2% annualized rise for core consumer prices. The core PPI was even up 0.6% in 12 months.4

Hiring did moderate a little in January. Employers added 151,000 jobs in that month, the Labor Department noted; the jobless rate dipped to 4.9% with the U-6 rate including the underemployed at 9.9%. America had not seen unemployment at less than 5% since February 2008. Across the year ending in January, the economy had created an average of more than 200,000 jobs per month.5

The Conference Board’s January index fell 5.6 points and hit 92.2, a 7-month low. The University of Michigan’s consumer sentiment index fell just 0.3 points month-over-month to 91.7.2,6

Unexpected improvement took place in the Institute for Supply Management’s manufacturing PMI. Economists polled by MarketWatch forecast a February reading of 48.5 for the indicator; instead, it came in at 49.5. In related good news, the Federal Reserve said U.S. industrial output had increased 0.9% in January.7,8

As for the services sector, ISM’s most recent non-manufacturing PMI (January) declined 2.3 points to 53.5%, still indicating sector expansion. (The reading, however, was a 23-month low.) Durable goods orders were up 4.9% in January, 1.8% minus transportation orders.2,9

On February 16, four OPEC member nations (Saudi Arabia, Qatar, Russia, and Venezuela) reached a preliminary accord to limit their oil production to the levels it had reached in January. OPEC output topped 33 million barrels per day in the first month of the year, a 20-year peak. As a result, the price of WTI crude regained the $30 level. By month’s end, Saudi Arabia was already capping its monthly crude production.10,11

For the fifth time in 12 months, China lowered its requirements on bank cash reserves. Investors hoped for further stimulus, as China’s latest official factory PMI and Markit/Caixin factory PMI both showed declines, coming in respectively at 49.0 and 48.0 in February. The nation’s official non-manufacturing PMI also fell 0.8 points in February to 52.7.11,12

On February 29, the Dow closed at 16,516.50, the S&P 500 at 1,932.23, the Nasdaq at 4,557.95, and the Russell 2000 at 1,033.90. Across February, the Dow was the lone gainer, up 0.30%; the Russell lost 0.14%, the S&P 0.41%, and the Nasdaq 1.21%. February brought another advance for the CBOE VIX, which gained 1.73% to a month-end close of 20.55. The standout February performance came from the PHLX Gold/Silver index, which jumped 39.07% as precious metals prices climbed.1

DJIA -5.21 -8.91 +7.02 +5.02
NASDAQ -8.98 -8.17 +12.76 +9.98
S&P 500 -5.47 -8.19 +9.12 +5.09
10 YR TIPS 0.32% 0.17% 1.03% 2.02%

Sources: wsj.com, bigcharts.com, treasury.gov – 2/29/161,20,21

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.

In January and February, the correlation between oil prices and stock prices seemed remarkably pronounced. In March, we will hopefully witness it weaken. We have seen signs that the economy is gaining momentum, or at least not stalling out: the recent half-percent rise in personal spending, the improved Q4 GDP reading, the resilience in existing home sales, the February ISM manufacturing PMI that came in above expectations. Saudi Arabia’s recent pledge to try and stabilize the oil market may have helped oil find a bottom. China’s reduction of capital ratios for its banks may have stimulated a bit greater appetite for risk among institutional investors. So, with these encouraging developments in place, March might turn out to be a calmer and more bullish month on Wall Street.11

UPCOMING ECONOMIC RELEASES: The roll call of major economic indicators for the rest of the month is as follows: the February Labor Department jobs report (3/4), January wholesale inventories (3/9), February retail sales, the February PPI, and January business inventories (3/15), a Federal Reserve interest rate decision, the February CPI, and also February industrial output, housing starts, and building permits (3/16), the preliminary University of Michigan consumer sentiment index for March (3/18), NAR’s report on February existing home sales (3/21), February new home sales (3/23), February durable goods orders (3/24), the BEA’s last assessment of Q4 GDP (3/25), February personal spending and pending home sales (3/28), the Conference Board’s March consumer confidence index and the January S&P/Case-Shiller home price index (3/29), and then, arriving a little early, both the March ADP employment change report (3/30) and March’s Challenger job-cut report (3/31). The University of Michigan’s final March consumer sentiment index appears relatively late on April 1.


This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. 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The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies.  The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. 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1 – wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [2/29/16]
2 – tradingeconomics.com/united-states/calendar [2/26/16]
3 – investors.com/news/economy/retail-sales-looked-stronger-in-january-as-consumer-stays-solid/ [2/12/16]
4 – investing.com/economic-calendar/ [2/19/16]
5 – forbes.com/sites/samanthasharf/2016/02/05/mixed-jobs-report-151000-jobs-added-in-january-unemployment-rate-down-to-4-9/ [2/5/16]
6 – tinyurl.com/zc93as5 [2/26/16]
7 – marketwatch.com/economy-politics/calendars/economic [3/2/16]
8 – reuters.com/article/us-usa-economy-idUSKCN0VQ1NV [2/17/16]
9 – tradingeconomics.com/united-states/non-manufacturing-pmi [3/2/16]
10 – sltrib.com/home/3597976-155/opec-oil-output-slips-from-record [2/29/16]
11 – cnbc.com/2016/02/28/oil-prices-rise-signs-mount-that-market-is-bottoming-out.html [2/29/16]
12 – cnbc.com/2016/02/29/china-official-manufacturing-pmi-comes-in-at-490-down-from-494-in-january-caixin-to-come.html [2/29/16]
13 – bbc.com/news/business-35694107 [3/1/16]
14 – msci.com/end-of-day-data-search [2/29/16]
15 – money.cnn.com/data/commodities/ [2/29/16]
16 – marketwatch.com/investing/index/dxy/historical [2/29/16]
17 – zacks.com/stock/news/208586/january-new-home-sales-fall-can-housing-stay-strong-in-16 [2/25/16]
18 – forbes.com/sites/erincarlyle/2016/02/29/pending-home-sales-fall-2-5-in-january-continuing-downward-sales-slide/ [2/29/16]
19 – freddiemac.com/pmms/archive.html [3/1/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F27%2F15&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F27%2F15&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F27%2F15&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F28%2F11&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F28%2F11&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F28%2F11&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F28%2F06&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F28%2F06&x=0&y=0 [2/29/16]
20 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F28%2F06&x=0&y=0 [2/29/16]
21 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [3/1/16]