Expect Solid Job Growth in Upcoming BLS State Release

On Friday November 20th, the BLS will release the state wage and salary employment data through October. In light of the release of U.S. employment earlier this month, the state data is likely to show solid job growth in most cases. This brief overview of the national economy sets the tone for the upcoming release of the Colorado data.

The U.S. Economy
In a nutshell, some of the top reasons to feel upbeat about the U.S. economy are:
• U.S. Consumer Sentiment is up as measured by the University of Michigan Consumer Sentiment Survey.
• There was strong U.S. job growth for October – 271,000 jobs were added.
• The U.S. unemployment rate continues to decline. Theoretically, the U.S. is at or near full employment and the economy is operating efficiently.
• The ISM Non-Manufacturing Purchasing Managers Index is strong.
• Construction spending continues to be strong.
• Many companies are cash rich and they are strategically expanding through mergers and acquisitions.
• Inflation remains low.

Turbulence – Concerns That we Have Come to Grips With
There are always reasons for people to feel jittery about the economy.
• Since 2010 there have been concerns that the Greek debt crisis would unravel the EU. Those concerns reappeared earlier this year, but have subsided.
• There are worries that the slowdown in the growth rate for the Chinese economy and the impact it will have on their immediate trading partners will cause a downturn in the global economy. This is less of an issue than it was several months ago
• The summer volatility in the equity markets has subsided. The VIX has dropped from almost 41 in late August to about 17 on November 19th. Much of the lost ground has been regained. For example, the S&P 500 closed at 2,081 on November 19th, up from 1,868 in late August.
• The inaction of the Fed to raise interest rates is reminiscent of a shy high school boy who is smitten with his first girl friend. He keeps thinking, “Is now the right time for me to kiss her.” And she is thinking, “He must not like me because he won’t kiss me.” While many agree that a rate increase is long overdue, the issue is the timing of that increase – just like that first kiss. Now is the time.

Turbulence – Areas that Continue to Make us Uneasy
Terrorism and the price of oil are areas that cause everyone to toss and turn at night.
• It is unlikely we will ever get used to the “sick-in-your-stomach feeling” caused by ISIS and other terrorist groups. Their direct impact is psychological. Indirectly, consumers will be more cautious and businesses will be obligated to spend more on security.
• For over a year now, the price of oil has disrupted the economies in Tier I oil producing states. In some states such as Colorado, production has remained strong; however, it will likely drop off as there is a glut of oil and a lack of storage facilities. Problems in the industry could be exacerbated by further declines in the price for a barrel of oil caused by the glut. Some industry experts project oil could drop to $20 per barrel.

Other National Concerns
Holiday retail sales are projected to increase by 3.5% to 4.0% compared to last year and online sales will be double that amount. This is solid growth, but is an issue only in the sense that it is not stronger.

The major concern about the U.S. economy is the manufacturing sector. The ISM manufacturing index has trended downward since August 2014 and has been near 50 for the past two months. Purchasing managers are ambivalent about the level of growth in their companies. At the moment the industry appears to be on the verge of a downturn.

Concluding Thought
With this as a background, Coloradans should expect the upcoming BLS report to say that job growth will be much stronger than recent months.

Summer Volatility in S&P 500 Not as Bad as it Seemed

In July the S&P 500 Index gained 79.5 points, an increase of 4.9%.

In August, the S&P 500 hiccupped and fell 52.8 points for a decline of 3.1%. Historically, the equity markets often dip in August, so the correction did not catch most people by surprise.


In July and August the historical late summer tendencies were discussed, but that didn’t stop some writers and economists from attributing the August volatility to a series of events at home and abroad.

Across the pond there were worries about chemical warfare in Syria, the instability of Egypt, and the chess match Vladimir Putin and President Obama were playing with Edward Snowden as their pawn. North Korea, Benghazi, and Iran’s threat to produce nuclear weapons were recent memories.

At home, attention was focused on whether Janet Yellen’s feet would fit in the glass slipper that will be left behind by Ben Bernanke. The Fed also captured the heart of many with the question “to taper or not to taper”? Those who looked Into the not-too-distant future could see that the members of Congress were entering preseason training camp to play another game of chicken with the federal budget.

At the time, concern was expressed that these events might derail the bull market. As September approached, these events turned out to be nothing more than a case of nasty indigestion.

Plop, plop. fizz, fizz. The S&P 500 appears to be poised for a quick recovery in September.

A look at the VIX shows the volatility associated with the excitement of the summer was minimal compared to previous crises.

Note: VIX is a weighted blend of prices for a range of options on the S&P 500 index. VIX measures market expectations of near term volatility conveyed by stock index option prices. VIX is produced by the Chicago Board of Exchange (CBOE) to volatility of the S&P 500 index over the next 30 days.

©Copyright 2011 by CBER.

Dow Jones Posts Solid Gains in 2012

During recessions many investors wonder whether or not investing in the stock market is a solid investment. They have reason to feel this way. The market peaked on October 9, 2007 at 14,164 and bottomed out at 6,547 on March 9, 2009.

Some investors haven’t forgotten. When polled they believe the market has continued to perform poorly. Actually, the market has come back nicely.

At the end of 2012 it had returned to 12,938 – about 19% of its 2007 peak value. A look at the annual performance of the Dow Jones Industrial Average follows:

• 2007 6.4%
• 2008 -33.8%
• 2009 18.8%
• 2010 11.0%
• 2011 5.5%
• 2012 5.8%.

Improvement in the equity markets is an important part of the recovery. With four years of gains, consumers more confident about their perceived wealth and are more likely to purchase goods and services. As long as consumers are staying within their means, the spending spurs growth in the economy.

©Copyright 2011 by CBER.

10 Years After 9/11 – Interest Rates and Equity Markets

In 2000, the national economy had been on a run that lasted about eight years. Interest rates were reasonable and the equity and housing markets were on an upward trend that seemed like it would never end.

Then 2001 and 9/11 hit!

The following comparisons show differences in key interest rates for December 2000 and December 2010:

Fed Funds Rate
Dec 2000 month-end 6.40%
Dec 2010 month-end .18%

30-year Fixed Rate Mortgage Fannie Mae
Dec 2000 month-end 7.41%
Dec 2010 month-end 4.47%

30-year FRM Fannie Mae FHA/VA
Dec 2000 month-end 7.20%
Dec 2010 month-end 5.06%

The following comparisons show differences in the equity markets for the same period.

S&P 500 Composite
Dec 2000 month-end 1,320,28
Dec 2010 month-end 1,257.64

DJIA (30 industrials)
Dec 2000 month-end 10,786.85
Dec 2010 month-end 11,577.51

Nasdaq Composite
Dec 2000 month-end 2,657.81
Dec 2010 month-end 2,631.56

Not only did the Lost Decade show a lack of gains in employment, it showed losses a lack of gains in financial
markets. (Source: FreeLunch.com)

©Copyright 2011 by CBER.