As expected, the Federal Open Market Committee (FOMC) left the target range for the federal funds rate unchanged, at 2.25%-2.50%. The FOMC made a technical change to the interest on excess reserves rate (IOER), lowering it by 5 basis points to 2.35%, to push the effective federal funds rate back toward the middle of the range – but this was not a change in the stance of monetary policy. The FOMC acknowledged that consumer spending and business fixed investment slowed in the first quarter and that inflation was below the Fed’s 2% goal. However, in his press conference, Fed Chair Powell downplayed low inflation as being due to transitory factors, and when asked about the possibility of cutting rates, Powell responded that “we don’t see a strong case for moving in either direction.”
The April Employment Report was quirky. Nonfarm payrolls rose by 263,000, led by gains in professional & business services, education & healthcare, and government. Construction payrolls rose moderately, but manufacturing posted only a modest gain and we continued to lose jobs in retail. Seasonal adjustment (a late Easter) may have distorted the April payroll figure, although bad weather in February likely pushed out seasonal gains (unadjusted payrolls rose by 2.13 million between January and April, vs. 2.38 million a year ago). Average Hourly Earnings rose 0.2% (+3.2% y/y), up 0.3% for production workers (+3.4% y/y). The unemployment rate fell to 3.6% (from 3.8%), although that was due to a drop in labor force participation (probably a seasonal adjustment issue).
The week’s other data reports were mixed but generally consistent with moderate growth. Unit auto sales fell in April, after they spiked higher in March. The ISM monthly surveys were softer than expected. Consumer confidence improved.
Next week, the economic calendar thins out, with the two key inflation reports on Thursday and Friday. Both are expected to reflect higher gasoline prices, but core inflation should remain mild. The late Easter appears to have distorted apparel prices (down 1.9% in March, likely to snap back in April).
|Last||Last Week||YTD return %|
All expressions of opinion reflect the judgment of the Research Department of Raymond James & Associates, Inc. and are subject to change. There is no assurance any of the forecasts mentioned will occur or that any trends mentioned will continue in the future. Investing involves risks including the possible loss of capital. Past performance is not a guarantee of future results. International investing is subject to additional risks such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks, which may be greater in emerging markets. While interest on municipal bonds is generally exempt from federal income tax, it may be subject to the federal alternative minimum tax, and state or local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related interest income to federal income tax. Municipal bonds may be subject to capital gains taxes if sold or redeemed at a profit. Taxable Equivalent Yield (TEY) assumes a 35% tax rate.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 index is an unmanaged index of small cap securities which generally involve greater risks. An investment cannot be made directly in these indexes. The performance noted does not include fees or charges, which would reduce an investor’s returns. U.S. government bonds and treasury bills are guaranteed by the US government and, if held to maturity, offer a fixed rate of return and guaranteed principal value. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government. Treasury bills are certificates reflecting short-term (less than one year) obligations of the U.S. government.
Commodities trading is generally considered speculative because of the significant potential for investment loss. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. Specific sector investing can be subject to different and greater risks than more diversified investments. Gross Domestic Product (GDP) is the annual total market value of all final goods and services produced domestically by the U.S. The federal funds rate (“Fed Funds”) is the interest rate at which banks and credit unions lend reserve balances to other depository institutions overnight. The prime rate is the underlying index for most credit cards, home equity loans and lines of credit, auto loans, and personal loans. Material prepared by Raymond James for use by financial advisors. Data source: Bloomberg, as of close of business May 2, 2019.