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Politics, Weather and Nuclear Threats

Learning Opportunities

There is nothing like a few threats to get the market going. If you were one of the many people who thought bond yields could only move higher this year, well…you may need to rethink that. Bond yields and stock prices trended lower this week, mostly in a flight to safety move over the many uncertainties we currently face. Tension continued to mount after North Korea announced it had tested a hydrogen bomb. The news intensified North Korea’s nuclear power from a regional to a global threat. Closer to home, at the same time Texas and Louisiana continue to recover from Hurricane Harvey, the Southeast began preparing for what is being called the largest and most powerful hurricane to hit the U.S. since 1935. The exact path of Hurricane Irma as it approaches the mainland remains uncertain, leaving most of Florida and the Southeast coast on high alert.

And, of course, there is always something new in Washington to make us scratch our heads. The debt ceiling was front and center this week. After threatening to shut down the government if funding for "the wall" was not included in the budget plan, President Trump changed course and agreed to a three-month temporary extension of the debt ceiling. Trump sided with the Democrats’ plan, rather than the longer extension the Republicans were suggesting. Congress still needs to approve the agreement, but Wall Street is viewing the decision as a sign of a more balanced Washington that may be able to begin accomplishing its agenda.

Other Key Indicators this Week:

Unemployment Claims – The first economic report on the effects of Hurricane Harvey hit the wires this week. The number of weekly unemployment claims increased by 62,000 last week. This is the largest gain in almost five years. Over 50,000 of the claims came from Texas. This number will certainly grow if Hurricane Irma impacts Florida and the Southeast coast as expected. Much of the economic data over the next couple of months will be impacted by the hurricanes, and it will challenge economists, the Fed and investors to assess both the short- and long-term impacts on the U.S. economy.

Productivity – Second quarter labor productivity rose 1.5 percent, the highest level since third quarter 2016. Both the level of output and hours worked improved from first quarter. Output more than doubled in the second quarter, increasing 4.0 percent from 1.8 percent. Hours worked increased 2.5 percent versus 1.6 percent in the first quarter. The improvement in productivity levels is a welcome sign in what has been described as a low-productivity economic rebound. Unfortunately, wages are still struggling to catch up. Hourly earnings increased 1.8 percent in the second quarter, far less than the 4.9 percent improvement in the first quarter. The inconsistent pace of wage appreciation remains a mystery for economists who had been hoping for a more substantial turnaround as the labor force strengthens.

Strategically for Credit Unions:

Even as interest rates remain historically low, credit unions are proving they are smart investors. Average investment yield at credit unions increased to 1.54 percent at the end of June, according to the Trust for Credit Unions. This is up 10 basis points from the previous quarter. Investment totals declined 4.8 percent. Give yourself a deserved pat on the back.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.