AMERIPRISE FINANCIAL, INC.
Investors Take the Weak Jobs Report in Stride
04/07/2015 | David Joy
The much anticipated March jobs report was decidedly weaker than expected, adding to the already ample evidence of a sluggish first quarter. But investors have so far taken the softer data in stride, expecting growth to rebound now that winter is receding into memory. The jobs report seems to be an outlier. Although the unemployment rate remained unchanged at 5.5 percent, far fewer jobs were created than expected and the previous months' totals were revised somewhat lower. But the 126,000 new non-farm jobs that were created in March was the lowest monthly total in over a year, and does suggest that weather played a role.
There was one component to the employment report that bears watching. Average hourly earnings rose 0.3 percent, resulting in a year-over-year increase of just 2.1 percent, suggesting that wage pressures remain subdued. However, the annualized rate of increase in the first quarter rose to 4.0 percent, which could suggest that pressure is beginning to build.
Fed's Sense of Urgency to Increase Rates Likely to Subside
Overall, the weak tone to the report should reduce any sense of urgency at the Federal Reserve in determining when to first raise rates. But it is just one data point, and not necessarily the start of a trend toward labor market weakness. Until it is either confirmed or refuted by subsequent data, investors are likely to discount its meaning. In fact, to the extent that it alleviates some near-term upward pressure on the dollar, which is a stiff headwind for corporate profitability, and makes a June rate increase temporarily less likely, investors may view the March jobs weakness as a net positive.
Weak Corporate Earnings Projected
That is not to say that economic weakness is to be viewed favorably. While it may keep the Fed at bay, it also will weigh on first quarter earnings reports, which kick-off this week. According to Factset, aggregate earnings for the S&P 500 are expected to fall by 4.6 percent compared to Q1 2014, the first quarterly decline since Q3 2012. In addition, although analyst estimates are typically revised lower from the start of a quarter to its end, this year's 8 percent downward revision is twice the historical average. Of course, it's also true that actual results often exceed expectations, and this time around may be no different. Still, there is little question that the overall results should be weak.
The collapse in energy prices is expected to result in a 64 percent decline in that sectors bottom line. Excluding energy, aggregate earnings expectation would be a positive 3.4 percent. Along with energy, materials, utilities, telecom, consumer staples and tech are also expected to decline. Only healthcare, financials, consumer discretionary and industrials are predicted to show gains.
Although this week's economic calendar in the U.S. is relatively light, it does include the release of the minutes from the Fed's March meeting. At that time there were no dissents from the committee's decision to drop the word "patient" from its statement regarding the timing of a first rate increase. Clearly, the decision to do so was enough to assuage hawks concerned about the risk of rising inflationary pressure, while simultaneously satisfying the doves that the committee remains data dependent. The minutes will hopefully provide some insight into whether the committee's views are, indeed, as unified as last month's vote indicates.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
04/07/2015 | David Joy
The much anticipated March jobs report was decidedly weaker than expected, adding to the already ample evidence of a sluggish first quarter. But investors have so far taken the softer data in stride, expecting growth to rebound now that winter is receding into memory. The jobs report seems to be an outlier. Although the unemployment rate remained unchanged at 5.5 percent, far fewer jobs were created than expected and the previous months' totals were revised somewhat lower. But the 126,000 new non-farm jobs that were created in March was the lowest monthly total in over a year, and does suggest that weather played a role.
There was one component to the employment report that bears watching. Average hourly earnings rose 0.3 percent, resulting in a year-over-year increase of just 2.1 percent, suggesting that wage pressures remain subdued. However, the annualized rate of increase in the first quarter rose to 4.0 percent, which could suggest that pressure is beginning to build.
Fed's Sense of Urgency to Increase Rates Likely to Subside
Overall, the weak tone to the report should reduce any sense of urgency at the Federal Reserve in determining when to first raise rates. But it is just one data point, and not necessarily the start of a trend toward labor market weakness. Until it is either confirmed or refuted by subsequent data, investors are likely to discount its meaning. In fact, to the extent that it alleviates some near-term upward pressure on the dollar, which is a stiff headwind for corporate profitability, and makes a June rate increase temporarily less likely, investors may view the March jobs weakness as a net positive.
Weak Corporate Earnings Projected
That is not to say that economic weakness is to be viewed favorably. While it may keep the Fed at bay, it also will weigh on first quarter earnings reports, which kick-off this week. According to Factset, aggregate earnings for the S&P 500 are expected to fall by 4.6 percent compared to Q1 2014, the first quarterly decline since Q3 2012. In addition, although analyst estimates are typically revised lower from the start of a quarter to its end, this year's 8 percent downward revision is twice the historical average. Of course, it's also true that actual results often exceed expectations, and this time around may be no different. Still, there is little question that the overall results should be weak.
The collapse in energy prices is expected to result in a 64 percent decline in that sectors bottom line. Excluding energy, aggregate earnings expectation would be a positive 3.4 percent. Along with energy, materials, utilities, telecom, consumer staples and tech are also expected to decline. Only healthcare, financials, consumer discretionary and industrials are predicted to show gains.
Although this week's economic calendar in the U.S. is relatively light, it does include the release of the minutes from the Fed's March meeting. At that time there were no dissents from the committee's decision to drop the word "patient" from its statement regarding the timing of a first rate increase. Clearly, the decision to do so was enough to assuage hawks concerned about the risk of rising inflationary pressure, while simultaneously satisfying the doves that the committee remains data dependent. The minutes will hopefully provide some insight into whether the committee's views are, indeed, as unified as last month's vote indicates.
Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, Inc. Member FINRA and SIPC.
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