See this week's numbersFriday, February 3, 2017

Is the waiting game back on?

The first Federal Open Market Committee (FOMC) meeting of the year came and went with little fanfare this week. As expected, the Committee unanimously voted to keep the benchmark interest rate unchanged at 0.50 to 0.75 percent. This was the first meeting since December, when the Federal Reserve raised both interest rates and the expectation for more aggressive rate moves in 2017. Both Fed and market watchers were hoping for some concrete guidance on what the committee’s next steps would be. The tone of the press release was neither overly aggressive nor passive, but rather just paved the way for the option to move rates in March. Despite the promise of three rate moves in 2017, the futures market is currently placing a 24 percent chance of an increase in March. As for the state of the economy, the statement acknowledged improvement in consumer and business sentiment, as well as continued strengthening of the labor market. Inflation appears to be heading steadily toward the Fed’s target of two percent.

Other Key Indicators this Week:

Jobs – The country added 227,000 jobs in January, far more than the estimated increase of 175,000. This was the largest increase and the first time job additions topped 200,000 in four months. Retail and construction added the most jobs, while the government lost 10,000 jobs. The strength of job gains was overshadowed by a renewed weakness in earnings. Wages rose 0.1 percent for the month, half the increase in December. Annual earnings were up 2.5 percent versus 2.8 percent a month ago. The disconnect between more jobs and lower wages suggests there is still slack in the labor market and room for improvement. Another area of concern was the increase in the underemployment rate from 9.2 percent to 9.4 percent. The unemployment rate increased a tenth of a percentage point to 4.8 percent.

Manufacturing – The ISM manufacturing index rose to 56 percent in January, the highest since November 2014. This was the fifth consecutive increase and points to a significant turnaround in the manufacturing industry. The orders and production gauges within the index climbed to the highest levels in two years. In a separate report that supports the strong ISM data, factory orders rose 1.3 percent in December. The proxy for business spending increased 1.0 percent following a 0.7 gain in November. Core new orders climbed 2.9 percent in 2016, after declining in 2015.

Housing – Pending home sales rebounded in December, increasing 1.6 percent after declining 2.5 percent the previous month. The increase occurred even after mortgage rates increased to their highest level in two years. Signed contracts rose the most in the West, while the South had the biggest increase since April. Year over year, pending home sales fell 2.0 percent. Home ownership continues to improve, despite rising prices and a lack of inventory. The home ownership rate increased to 63.7 percent in the fourth quarter. Home ownership peaked in June 2004, with 69.2 percent of the population owning their home.

Between the Numbers:

A recent study by Filene Research Institute revealed that 93 percent of consumers do not plan to borrow over the next six months. More than 80 percent of respondents are concerned about their current debt levels, according to findings in the study. Student loan, healthcare and credit card debt were among the types of debt causing the most stress.

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.

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