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05/18/2015
Market Update

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The U.S. and U.K. economies continued to exhibit positive but slow momentum, while most countries in the eurozone (apart from France and Greece) surprised to the upside. Reports from Asia were negative overall, with Japan the lone bright spot.
This Week
  • The U.S. and U.K. economies continued to exhibit positive but slow momentum, while most countries in the eurozone (apart from France and Greece) surprised to the upside. Reports from Asia were negative overall, with Japan the lone bright spot.
  • U.S. labor-market reports were mixed. A disappointing ADP Employment Report (169,000 private-sector jobs added in April versus consensus expectations of over 200,000) was followed by a lukewarm Employment Situation report from the Department of Labor (DOL) on Friday. Nonfarm payroll growth was essentially in line with expectations at 223,000, and the unemployment rate fell to 5.4%. However, the prior report’s surprisingly weak initial estimate for March was revised even lower to 85,000.
  • Initial jobless claims were much lower than expected in the week ending May 2, according to the DOL, while Challenger reported that planned layoffs rose significantly in April, driven by weakness in the energy sector.
  • Productivity declined nearly 2% in the first quarter according to the Bureau of Labor Statistics, although this was in line with expectations. Unit labor costs were 5% higher, above consensus expectations of 4.6%. If these trends persist, corporate profit margins could come under pressure.
  • The U.S. trade deficit was much wider than expected in March. Given the weak initial first-quarter growth estimate, this could lead to negative growth estimates in subsequent revisions.
  • Renewed strength was seen in the Institute for Supply Management (ISM) Non-Manufacturing Index for April, which exceeded the high end of expectations. The report should bode well for a rebound in economic activity during the second quarter. Inflation pressures remained well contained.
  • Growth eased in the U.S. service sector, according to Markit; but, encouragingly, hiring was robust. In contrast to the ISM Non-Manufacturing report, input prices rose at their fastest rate in six months.
  • After contracting for seven straight months, factory orders were 2.1% higher in March, according to the Census Bureau. This was in line with expectations.
  • The manufacturing and service sectors of several European countries—most notably Italy and Spain—surprised to the upside in April, according to Markit. In contrast, eurozone retail activity was essentially flat during the month.

 

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