See this week's numbersFriday, October 7, 2016

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Job market is "solid"

The U.S. added 156,000 jobs in September, and the unemployment rate moved higher to 5.0 percent. These are the headline statistics the media outlets will repeat today and tomorrow. However, the underlying details are just as important in understanding the bigger picture. The two-month revision subtracted 7,000 jobs, bringing year-to-date job growth to 1,601 jobs. The three-month average is 178,000. The latter two statistics are the lowest since 2013. Yet, from market and analysts' reactions, it appears we have a new normal – 150,000 jobs per month are needed for stable growth. Historically, a gain of 250,000 jobs per month was considered the norm. The good news in the report was an increase in the hourly earnings, both monthly (0.2 percent) and year-over-year (2.6 percent). The labor participation rate increased to 62.9 percent, the highest rate since February. Overall, analysts believe the report is ”solid” and reflects steady income growth in a labor market that may be close to full employment.

Other Key Indicators this Week:

ISM – The news from the Institute for Supply Management (ISM) was overwhelmingly positive in September. The manufacturing gauge increased to 51.5 from 49.4, moving away from the first contraction period in six months. A reading above 50 signifies growth. The expansion puts the average rate for the third quarter at 51.2, just shy of second quarter’s 51.8 rate. While almost all areas within the gauge increased, the largest improvement was a surge in new orders, moving to 55.1 from 49.1. Production activity, employment, order backlogs and inventory also posted increases that should give way to even stronger activity in the coming months.

The non-manufacturing, or service, index moved from the slowest pace in over six years to the fastest pace in 11 months. The index jumped to 57.1 from 51.4, led primarily by employment and orders. The gain in these particular areas suggests businesses are feeling confident the economy will continue to expand. Fourteen industries expanded, while four contracted. The index covers an array of industries, ranging from agriculture to retail.

Auto Sales – Auto sales increased to an annualized sales pace of 17.6 million in September from 16.9 million in August. This was the second highest pace of sales for the year. Year-to-date sales are up 0.5 percent from last year. Sales of minivans increased the most of all categories, surging 19.4 percent on a year-to-date basis from September 2015. At the other end of the spectrum, sales of large cars experienced the biggest decline, falling 56 percent. The Big Three automakers each posted double-digit gains.

Strategically for Credit Unions:

The Treasury market turned a corner this week as yields pushed upward. Except for a brief blip in August, yields reached the highest levels since June. The yield curve has widened by six basis points since September, to 89 basis points. The change in sentiment stemmed from a variety of reasons – data hinting at an economic rebound in September after a lackluster August, higher oil and commodity prices, Federal Reserve officials suggesting a rate increase could occur as early as November, and a feeling of "yields being too low." While market participants may be reacting to suggestions about a near-term rate move, the fed funds futures market is still placing a higher bet on December (63 percent) than November (26 percent) for a change.

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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