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May 6, 2022

Economic Update



Steve Scranton

SVP, Chief Investment Officer and Economist
Employment Report

Despite the drama and turmoil occurring in the US financial markets, the US employment data continues to try and remind people that jobs are still being added and the economy is still growing. The Bureau of Labor Statistics (BLS) reported a 428,000 gain in jobs in April. This matched the gain in March and exceeded the median forecast of economists surveyed by Bloomberg. The forecast was for a 380,000 gain. The BLS revised the past two months data which resulted in a net revision lower of 39,000.

Summary

 

April

March

Growth in non-farm payrolls

428,000

428,000

Average hourly earnings growth (year-over-year)

5.5%

5.6%

Labor force participation rate

62.2%

62.4%

Unemployment rate

3.6%

3.6%

Underemployment rate

7.0%

6.9%

Change in labor force

-363,000

418,000

 

Establishment Survey

All industries sectors saw jobs growth in April with Leisure & Hospitality continuing to be the leader for jobs growth. Jobs growth was also more diversified as nine industries added at least 20,000 jobs.

Top Four Industries for Jobs Growth

Industry

Jobs Gain/(Loss)

Leisure & Hospitality

78,000

Education & Health Services

59,000

Manufacturing

55,000

Transportation & Warehousing

52,000

 

Bottom Four Industry Sectors For Jobs Growth

The Utilities industry sector continues to show the slowest jobs growth but, the Construction industry sector was not far behind. This is probably a combination of an inability to find qualified help as well as housing activity slowing due to the combination of rising mortgage rates and housing becoming less affordable for more people. We continue to see the pattern that two of the highest paying industry sectors—Utilities and Mining& Logging—have the smallest jobs growth.

Industry

Jobs Gain/(Loss)

Utilities

300

Construction

2,000

Mining & Logging

9,000

Other Services

11,000

 

Employers saw minor improvement on the wage front as hourly average earnings slowed from a 5.6% annualized rate in March to a 5.5% rate in April. That may be good news for employers but, it does not help the average worker pay their bills as the rise in their expenses continues to outstrip the rise in their wages. The average worker did not see their income grow due to working more hours or overtime. The average work week remained unchanged at 34.6 hours and average overtime remained unchanged at 3.4 hours.

Household Survey

The Household Survey continues to diverge from the Establishment Survey. The Household Survey showed 353,000 less people employed in April versus March. This may be the “Great Resignation” that keeps being discussed. It appears that people are quitting their jobs and simply dropping out of the labor force. Those not in the labor force rose by 478,000. Remember, the labor force is comprised of people working or people unemployed and actively looking for work. If you quit your job and are not looking for another job, you are not in the labor force.

Rising prices appear to be forcing more workers to seek a second job to pay the bills. The number of multiple jobholders rose 423,000 in April. The encouraging news, for some, is the fact that people working part-time for economic reasons declined by 137,000.

For those who were already unemployed the situation deteriorated. The average duration of someone being unemployed rose from 24.2 weeks to 25.0 weeks. The percent of people unemployed for 27 weeks or more rose from 23.9% to 25.2%.

Conclusions

  • April’s employment report continues to show a nation that is adding jobs. That is a sign of economic growth.
  • Even though jobs are being added, for many they are needing to take on multiple jobs in order to meet their financial obligations.
  • I continue to believe that the economy is still growing but at a slower pace.
  • The employment data is another data point that does not show evidence of an imminent recession.
  • April’s jobs report will not change the Federal Reserve’s strategy for raising interest rates. It remains on course to raise the overnight Federal Funds rate by 0.50% at its June 15th
  • Whether the positive employment report is enough to calm the nerves of investors and traders in the financial markets remains to be seen.

Patrick Dawson

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Fixed Income Update



Brian Brill

Vice President
Senior Portfolio Manager

Interest rates took a wild ride as vaccine euphoria versus winter is coming might be the best title to describe this week for fixed income investors.

The week started off with positive news but in the world of bonds, good news is generally bad for bond prices as yields rise. For the first three hours on Monday morning, financial markets moved in a single straight line frenzy with long-term yields reaching their highest levels since March. The catalyst for this move was an announcement from Pfizer/BioNTech that they have  produced a vaccine that is showing promising results in preliminary testing, preventing greater than 90% of COVID-19 infections. This was great news and markets got wrapped up in the possibility of getting our society and economy back to normal. But euphoria is giving way to reality as these benefits may be more of a 2021 story. As the week ends, focus has pivoted from optimism over COVID-19 vaccine efficacy to increased infection rates. The national infection rate has trended toward 1.5%, the largest daily increase since late July, New York City has threatened to shut down in-person learning at public schools, and Chicago issued a stay-at-home advisory effective Monday.

Acknowledging the rising cases and the diminished chances for a fiscal package this year, Federal Reserve officials have turned dovish. Just last week, Fed Chair Jerome Powell said “We think that this very large effective (asset purchase) program is delivering about the right amount of accommodation and support for the markets,” but this week he indicated that the Fed may need to do more to combat near-term downside risks to the economy. Powell said this week, “We do see the economy continuing on a solid path of recovery, but the main risk we see to that is clearly the further spread of the disease here in the United States. A COVID-19 vaccine is certainly good and welcome news for the medium term. The next few months could be challenging. It's just too soon to assess with any confidence the implications of the news for the path of the economy, especially in the near term. The path forward is going to be challenging for a number of reasons, my sense is that we will need to do more, and that Congress may need to do more as well on fiscal policy."

The Fed has few options for further accommodation as rates are floored at the lower band and forward guidance indicates rates will remain at current levels through 2023. This leaves the possibility that they may revise Operation Twist which means buying more long-term securities.

Time will tell if this policy option becomes more of a possibility and market participants will be focused on the December Federal Open Market Committee (FOMC) meeting for guidance.

For the week, Treasury yields traded in a much wider range but still increased between 3 and 8 basis points. 


Company Spotlight

APPLE INC

Apple is in impressive financial health. We remain comfortable purchasing debt issued by the firm.

AMERICAN EXPRESS CO

American Express is in good financial health, evidenced by strong capital levels and exceptional credit quality. We remain comfortable purchasing debt issued by AXP.

BOEING CO/THE

Boeing's decision to shutter MAX production and the opacity surrounding a return-to-service timeline have put pressure on the firm’s credit metrics. We remain comfortable with our holdings of Boeing at this time.

COLGATE-PALMOLIVE CO

Colgate filed its 10-Q this week. We don’t anticipate the firm will have any problems meeting it’s near term debt obligations and remain comfortable purchasing debt issued by the firm.

COSTCO WHOLESALE CORP

Costco submitted its financial statements this week. They reflect a very strong company with little risk of default. We continue to remain comfortable purchasing debt issued by Costco.

EBAY INC

EBay’s financial statements reflect a company in healthy financial shape. We remain comfortable purchasing debt issued by the firm.

GENERAL ELECTRIC CO

GE's financial statements show a company that is navigating a transitionary period. We continue our wait-and-see approach to GE's massive corporate transformation.

CORNING INC

Corning released its 10-Q this week. The firm continues to maintain a strong balance sheet and consistent, healthy free cash flow. We remain comfortable with Corning's ability to meet debt obligations.

ALPHABET INC-CL C

Alphabet's financial statements, filed this week, show an impressively solid balance sheet and substantial free cash flow generation. We remain comfortable purchasing debt issued by the firm.

HONEYWELL INTERNATIONAL INC

Honeywell is an industry leader in both products and financial strength, we are comfortable purchasing debt issued by the firm.

INTL BUSINESS MACHINES CORP

IBM filed financial statements this week. The firm continues to generate adequate cash from operations to cover debt obligations. We remain comfortable purchasing debt issued by IBM.

INTEL CORP

Intel's financial statements show a company with manageable debt levels and meaningful cash flows. We believe Intel has no foreseeable problem meeting its future debt obligations.

3M CO

3M filed its 10-Q this week. The firm continues to report a strong balance sheet, ample liquidity and substantial free cash flow. We remain comfortable purchasing debt issued by the firm.

MICROSOFT CORP

Microsoft's financial statements continue to show consistently significant revenue generation and a strong balance sheet. We remain comfortable purchasing debt issued by the firm.

NIKE INC -CL B

With strong financial statements and the ability to allocate capital as management sees fit, Nike is in impressive financial health. We remain comfortable purchasing debt issued by Nike.

ORACLE CORP

Oracle submitted financial statements this week. The firm continues generate remarkably consistent free cash flow, sufficient enough to fund its generous capital return program and service its debt obligations. We remain comfortable purchasing debt issued by Oracle.

PROCTER & GAMBLE CO/THE

P&G reported a very nice quarter and the financial statements continue to reflect the benefits of scale. We remain comfortable with the firm's ability to service its debt obligations.

TJX COMPANIES INC

TJX's financial statements, filed this week, reflect a company in sound financial health. We remain comfortable purchasing debt issued by TJX.

 

November 13, 2020
Index
Current
Last Week
Wk Chg
Last Year
Yr Chg
Tax-exempt MMF
.05%
.05%
.00%
1.01%
-.96%
Taxable MMF
.07%
.07%
.00%
1.74%
-1.67%
2-Year Treasury
.18%
.15%
.03%
1.59%
-1.41%
5-Year Treasury
.41%
.36%
.04%
1.63%
-1.22%
10-Year Treasury
.90%
.82%
.08%
1.82%
-.92%
30-Year Treasury
1.65%
1.60%
.05%
2.30%
-.65%
5-Year Exp. Inflation
1.65%
1.55%
.09%
1.54%
.11%
2-Year Corporate*
.41%
.38%
.03%
1.90%
-1.49%
5-Year Corporate*
.89%
.85%
.04%
2.17%
-1.28%
10-Year Corporate*
1.71%
1.67%
.04%
2.70%
-.98%
30-Year Corporate*
2.73%
2.74%
.00%
3.38%
-.65%
2-Year Municipal**
.31%
.28%
.04%
1.17%
-.86%
5-Year Municipal**
.43%
.41%
.02%
1.31%
-.88%
10-Year Municipal**
.99%
.97%
.02%
1.76%
-.77%
30-Year Municipal**
1.78%
1.74%
.04%
2.41%
-.63%
10-Year German Govt Bond
-.55%
-.62%
.07%
-.36%
-.19%
10-Year U.K. Govt Bond
.34%
.27%
.06%
.71%
-.37%
10-Year Japanese Govt Bond
.02%
.01%
.01%
-.09%
.10%
10-Year Spanish Govt Bond
.11%
.09%
.01%
.45%
-.34%
10-Year Italian Govt Bond
.66%
.64%
.02%
1.32%
-.66%
Fed Funds
.25%
.25%
.00%
1.75%
-1.50%
Prime Rate
3.25%
3.25%
.00%
4.75%
-1.50%
Dollar***
$92.75
$92.23
$0.52
$98.16
-$5.41
CRB
$151.86
$147.70
$4.16
$180.09
-$28.23
Gold
$1,886.10
$1,951.70
-$65.60
$1,473.40
$412.70
Crude Oil
$40.15
$37.14
$3.01
$56.77
-$16.62
Unleaded Gasoline****
$1.13
$1.08
$0.04
$1.49
-$0.37
Note:  Municipal yields are as of the previous business day.
* Composite A
** General Obligation AA+
*** Int'l value of the U.S. dollar (Avg. exchange rate between the dollar and 6 major world 
    currencies).
**** Futures price per gallon