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April 1, 2022

Economic Update



Steve Scranton

SVP, Chief Investment Officer and Economist
Employment Report

The Bureau of Labor Statistics reported another strong month of jobs growth. The data continues to show some of the lower paying industry sectors as the leaders in jobs growth and the highest paying sectors seeing little jobs growth. This may be due to multiple factors including, but not limited to:

  • People who quit their jobs because they could live off the savings they built from the stimulus checks and child tax credit now are returning to work as the benefits have ended.
  • Gradual lifting of restrictions related to the virus and
  • Children now back at school full-time allowing parents to return to work.

Summary

 

February

January

Growth in non-farm payrolls

678,00

588,000

Average hourly earnings growth (year-over-year)

5.1%

5.7%

Labor force participation rate

62.3%

62.2%

Unemployment rate

3.8%

4.0%

Underemployment rate

7.2%

7.1%

Change in labor force

304,000

1,393,000

 

Establishment Survey

There were no industries reporting job losses in February although, two industries saw no jobs growth. The top four industries accounted for two-thirds of all jobs created. Leisure & Hospitality was, once again, the leader in jobs growth.

Top Four Industries for Jobs Growth

Industry

Jobs Gain/(Loss)

Leisure & Hospitality

+179,000

Education & Health Services

+112,000

Professional & Business Services

+95,000

Construction

+60,000

 

Bottom Four Industry Sectors For Jobs Growth

Three of the highest paying industries saw the least jobs growth

Industry

Jobs Gain/(Loss)

Information Services

-0-

Utilities

-0-

Mining & Logging

+9,000

Government

+24,000

 

On the surface, it would appear that businesses saw the pace of wage increases slow in February as average hourly earnings slowed from a 5.7% annualized growth rate in January to a 5.1% rate in February. The problem is that the average hours worked by employees increased and overtime increased. This is most evident in the goods producing side of the economy. The overall average work week increased from 34.6 hours in January to 34.7 hours in February but, the average work week in manufacturing rose from 40.3  hours to 40.7 hours and the average work week for mining & logging rose from 44.3 hours to 45.0 hours. The goods producing side of the economy is working their employees longer hours because they cannot find enough workers. On top of that, average overtime increased from 3.4 hour to 3.6 hours. The net result is that annualized growth rate for average weekly hours rose from 4.3% in January to 5.4% in February.

Household Survey

The headline unemployment rate fell from 4.0% to 3.8% as the Household Survey showed 548,000 people reporting they found employment in February while only 304,000 new people entered the labor force looking for jobs. The broadest measure of unemployment/underemployment actually rose from 7.1% in January to 7.2% in February.

All of the employment increase from the Household Survey was in full-time jobs. Full-time jobs increased 642,000 while part-time jobs decreased 94,000. The number of people working multiple jobs increased 326,000.

For those already unemployed the picture deteriorated in February. The average duration of people being unemployed rose from 24.6 weeks in January to 26.6 weeks in February. The percent of people unemployed for 27 weeks or more rose from 25.9% to 26.7%.

Conclusions

  • Despite the continued reports of labor shortages, jobs growth continues at a healthy pace. Unfortunately, that jobs growth is concentrated in a few industries.
  • Lack of qualified help is forcing many businesses to work their employees longer hours and more overtime. This is not a sustainable solution over the long-term as productivity may suffer if employees become fatigued and burned out.
  • The data continues to support the Federal Reserve’s message that full employment has been achieved and now is the time to focus on inflation.
  • February’s data supports the Federal Reserve’s message that interest rate increases will begin after their March 16th policy meeting.

Patrick Dawson

MASTER CHEF

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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