The Fed left their interest rate policy unchanged. They’re still concerned about low inflation and sluggish wage growth. But on the bright side, they mentioned that consumer and business confidence rose. We’ll see if that translates into stronger economic results.
The jobs report on February 3, 2017 was mixed. We added more jobs than expected so the markets reacted favorably, but looking more closely we can see that the unemployment rate ticked higher while wages grew less than expected.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of February 3, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
The U.S. Created 227,000 Jobs in January… The unemployment rate ticked up to 4.8%, largely reflecting more people in the labor force.
What it means – Job creation beat expectations by 50,000, but the totals for November and December were revised lower by 39,000. Labor force participation moved up from 62.7% to 62.9%. Wages increased a mere 0.1% last month, and December’s 0.4% gain was revised lower to only 0.2%. The wage report tempered the good news on the job front. This report doesn’t give the Fed any reason to raise rates in March.
Federal Reserve Holds Short-Term Rates at 0.50% to 0.75%... In line with expectations, the Fed held rates steady this month.
What it means – The next meeting is in March, and that’s when things will get interesting. The current statement from the Fed noted that inflation will pick up, which is a more definitive note than in the past. But it also noted that compensation inflation, meaning higher wages, remains soft. There was no mention of politics.
Given President Trump’s rapid-fire tempo during his first couple of weeks in office and the ensuing confusion, it will be interesting to see what happens between now and the March meeting. If Trump keeps rocking the boat, the economic scene on the home front could be very different.
Since our Federal Reserve has reiterated many times that it’s “data-driven,” we all have to wait and see what happens over the next several weeks before we have any clue as to what the Fed will do in March.
S&P CoreLogic Case-Shiller Home Price Index Up 5.3% for the Year in November… The index, which is released on a two-month lag, jumped 0.9% for the month.
What it means – The index reached its highest level ever in November, right before mortgage rates jumped. Since then, home sales have trailed off. As noted last week regarding existing and new home sales, the mix of higher prices, higher cost mortgages, and the lack of higher income is taking its toll. It’s interesting that home prices have held on this long. I don’t expect it to last.
IMF Reiterates Need for European Countries to Forgive Greek Debt… The IMF still forecasts that Greece will default on its current debt, and won’t participate in further bailouts unless the country extracts concessions from creditors.
What it means – Greece is still broke, but there’s a difference between insolvent and non-functioning. Because the Greek state continues to operate, the country’s crisis has fallen out of the headlines. But make no mistake, Greece cannot pay its bills. The IMF is right to insist that the country will default.
Now it’s up to the bankers and administrators of the euro zone to figure out their next move. If they give in and forgive Greek debt, countries like Germany will revolt. If they hold the line, Greece will eventually default. Either way, it leaves the euro in turmoil for years to come.
Puerto Rico Governor Signals Changes to Debt Deal… Newly-elected Governor Rossello signed legislation allowing him to identify essential services, which would be paid for ahead of debt service.
What it means – Since last summer, Puerto Rico has operated under Congressional protection, allowing the commonwealth to operate without fear of lawsuits while the island pays for services without servicing its debt. These activities violate the Commonwealth’s constitution, but who’s going to complain? This political cover is supposed to expire in February, opening the floodgates for bondholder lawsuits. Now the new governor has stepped into the mix, signing a law that allows him to put “essential” services ahead of bond payments, and pay for such services without defaulting on the debt. Never mind that it’s still unconstitutional.
None of it matters. Puerto Rico is dead broke. It has more than $70 billion in debt, just a few billion dollars in assets, 45% poverty, and twice the unemployment rate of the United States. Bondholders should be angry at the Puerto Rican government for swindling them, but they should direct a bit of that anger at themselves for not heeding the many warning signs that have flashed over the years. This was a long time in the making.
And don’t look now, but the U.S. Virgin Islands are having a mini budget crisis of their own. It won’t, and can’t, be on the scale of Puerto Rico since this territory doesn’t carry near the same level of debt, but they still can’t pay their bills.
Federal Reserve Employee Convicted of Using Fed Computers to Mine Bitcoin… From 2012 to 2014, Nicholas Berthaume programmed Fed computers to assist in verifying bitcoin transactions to earn bitcoin for his personal account. He was sentenced to a year of probation and fined $5,000.
What it means – Employees making unauthorized use of government property is nothing new, but the irony of a Fed employee mining bitcoin is worth noting! No one knows how much bitcoin Berthaume earned, but chances are it wasn’t enough to cover his fine. Unlike the good old days in the late 2000s when a person could turn his home computer over to bitcoin at night and earn a few bucks, now it takes a server farm. The cost of the hardware and required electricity make it a break-even proposition at best.
McDonald’s Gave Away Big Macs Through Vending Machine… At a Boston location, the fast-food company allowed customers to exchange their Twitter handles for freshly-cooked Big Macs provided through a vending machine without human interaction.
What it means – Mickey-D’s promises this was just a marketing stunt meant to spread the word about its new Mac, Jr. and Grand Mac burgers, and not an attempt to showcase new, employee-free service. Right.
With higher wages in the offing and technology getting cheaper by the minute, the fast-food giant would be crazy not to devise new ways of lowering headcount. Some stores already feature kiosk ordering systems. Why not provide those in a hurry a way to buy a burger from a box?
Potential U.S. Bacon Shortage Fears Overblown… While it’s true that U.S. pork belly reserves fell to their lowest level in 50 years, the Ohio Pork Council claims that fears of a bacon shortage are overdone.
What it means – I didn’t even know this was a thing, but I’m glad it’s over! The council set up a website, www.baconshortage.com, which was a publicity stunt. The council president noted that U.S. pig farmers will produce 3% more pork than last year, setting another record, and that we’re in no danger of running out of bacon. Thank goodness! But I do have a question. Why does bacon need publicity? Are there people out there that don’t know bacon makes everything better?
Next Week – The first full week of February is very light on economic reports. Politics will dominate the headlines and the markets.
We are on a mission to save your assets.
200 N. Westlake Blvd., Suite 109
Westlake Village, California 91362-3783
805.495.2077 800.266.2077 888.WHY.BEPOOR
The information presented here has been provided by HS Dent. HS Dent is an economic research company that uses various techniques to study the potential impact of various changes in demographic trends in our economy. No one person or strategy can accurately predict market movements. Certain statements contained within are forward-looking statements including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Undue reliance should not be place on such statements because, by their nature, they are subject to known and unknown risks and uncertainties.
The opinions in this article are for general information only. They are not intended to provide specific advice or recommendations for any individual and do not constitute an endorsement by NPC. To determine which investments may be appropriate for you, consult with your financial professional. Please remember that investment decisions should be based on an individual’s goals, time horizon, and tolerance for risk.
Indices are unmanaged measures of market condition. It is not possible to invest directly into an index. Past performance is no guarantee of future results. In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss
Securities and advisory services offered through National Planning Corporation (NPC), Member
FINRA/SIPC, a Registered Investment Adviser. Investors Advantage and NPC are separate and unrelated companies.