Friday, February 3, 2017

Higher markets as January job gains beat expectations

Dow jumped up 153 (back over 20K), advancers over decliners better than 4-1 & NAZ gained 20.  The MLP index added 1 to the 335s & the REIT index rose 1+ to the 341s.  Junk bond funds were little changed & Treasuries finally found buyers.  Oil went over 54 & gold was higher (more below).

Dow Jones Industrials

Crude Oil Mar 17

Gold Futures,Apr-2017

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US employers added the most workers in 4 months while wage growth slowed more than projected, suggesting some slack remains in the labor market.  The 227K increase in payrolls followed a 157K rise in Dec, according to the Labor Dept.  The forecast called for a 180K advance.  The jobless rate rose to 4.8% & average hourly earnings grew 2.5% from Jan 2016, the weakest since Aug.  The data, representing the final figures under Obama, indicate the job market is still enjoying steady growth though isn't tight enough yet to result in a bonanza for worker pay.  Hiring is expected to cool as the economy nears full employment, Trump has pledged to bring people back into the workforce & boost wages further thru tax cuts, infrastructure investment & looser regulation.  Jan results were helped by hiring in construction, retail, finance & professional services.  The 36K increase in construction payrolls was the largest since Mar.  Revisions to the previous two months subtracted 39K jobs from payrolls.  The Nov gain was cut to 164K from 204K, while Dec's change rose by 1K to 157K.  The unemployment rate, which is derived from a separate survey of households, increased from the previous month's 4.7%, where it was projected to hold in Jan.  The participation rate, showing the share of working-age people in the labor force, increased to a 4-month high of 62.9% from 62.7%.  It has been hovering close to the lowest level in more than 3 decades.  There were 5.84M Americans in Jan who were working part-time though would rather have a full-time position, a measure known as part-time for economic reasons.

Payrolls in U.S. Increase 227,000 While Wage Growth Weakens

America's service industries expanded in Jan at about the same pace as in the previous month, indicating resilience in the biggest part of the economy.  The Institute for Supply Management non-manufacturing index was 56.5 last month after 56.6 in Dec (matching the highest level since Oct 2015).  Readings above 50 signal expansion at service industries, which account for about 90% of the economy.  Business activity & new orders eased last month from more than one-year highs, while a measure of employment accelerated.  Together with the ISM's latest factory survey, which showed a 5th straight month of expansion, the figures signal steady demand that will keep driving economic growth.  The non-manufacturing survey covers an array of industries including utilities, retailing, & health care, & also factors in construction & agriculture.  The Jan report showed the services employment gauge increased to 54.7 from 52.7 the prior month.  The new orders measure cooled to 58.6 from 60.7.  The business activity index, which parallels the ISM factory production gauge, easing to 60.3 from 60.9.  The December readings were the highest since Oct 2015.  Earlier this week, data showed the ISM manufacturing index climbed in Jan, the strongest since Nov 2014.  As in manufacturing, inflation is firming at service providers.  The index of prices paid jumped to 59, the highest since Apr 2014, from 56.1.

Growth in U.S. Services Industries Was Steady in January

Gold demand rebounded to a 3-year high in 2016 as investor concerns over political issues including Brexit spurred demand for a haven.  Purchases thru exchange-traded funds helped global demand climb about 2% to 4309 metric tons last year, the World Gold Council said.  The recovery in ETF's offset a decline in coin & jewelry demand & reduced buying by central banks.  Gold gained the most in 5 years in 2016 as the Federal Reserve delayed interest-rate increases & the UK vote to leave the EU boosted demand.  The metal has posted more gains this year as Trump's unorthodox approach to governing unnerves investors & concerns mount about more political upheaval in Europe.  Demand for gold in ETFs & similar products totaled 532 tons last year, the 2nd highest level on record.  That helped increase total investment demand by 70% to a 4-year high of 1561 tons.  Still, combined bar & coin demand was “exceptionally soft” until Q4, falling about 2% to 1029.2 tons for the whole year.  Central banks cut purchases by 33% to a 6-year low of 383 tons, partly because of pressure on foreign-exchange reserves.  Jewelry demand dipped 15% to a 7-year low of 2041 tons as consumers in India scaled back purchases, partly as Prime Minister Narendra Modi withdrew large banknotes in a war on black money.  Total Indian consumer demand fell 21% last year to 675 tons & may be 650-750 tons this year.  In China, the top consumer, total buying declined 7% to 913 tons.  Chinese consumer demand is estimated at 900-1000 tons this year.

Gold Demand Rises to Three-Year High on Political Upheaval

Bank stocks rallied on Trump's plan to scale post-crisis regulations.  Dow is back over 20K, flirting with a new record.  Much of the stock buying is from hopes on Trump making changes that will grow GDP faster & that will add jobs to improve consumer spending.  With all the news comping out of DC, it is difficult to separate hope from reality.  Today hope is winning out.

Dow Jones Industrials

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