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10/12/2016
Market Update

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The U.S. economy added a less-than-expected 156,000 jobs in September, all but eliminating the odds of a November interest-rate hike; however, a December rate increase remains on the table. Unemployment ticked up by 0.1% to 5.0%, yet a 0.1% increase in the participation rate depicted an expanding workforce. Wages grew by 2.6% year over year — an improvement on the stubborn 2% (or lower) annual growth since the 2008 financial crisis.
This Week
  • The U.S. economy added a less-than-expected 156,000 jobs in September, all but eliminating the odds of a November interest-rate hike; however, a December rate increase remains on the table. Unemployment ticked up by 0.1% to 5.0%, yet a 0.1% increase in the participation rate depicted an expanding workforce. Wages grew by 2.6% year over year — an improvement on the stubborn 2% (or lower) annual growth since the 2008 financial crisis.
  • Markit’s U.S. manufacturing index slid in September to 51.5 from 52.0. New orders saw their weakest growth so far this year, while a strong U.S. dollar pushed export sales into contraction for the first time in four months. Production fell to a three-month low and hiring was also weak. Markit attributes the weak report to the upcoming presidential election, which has delayed customer decisions. In contrast, a similar reading from the Institute for Supply Management (ISM) showed a modest rebound, thanks to new order and production growth.
  • ISM’s non-manufacturing index received a boost in September due to an increase in the business-activity, new-order and employment components of the reading — an upgrade from August’s weakness, which seemed to be an exception to the survey’s otherwise consistently strong year. Markit’s September service sector measurement concurred, although showed that new-order growth remains a challenge.
  • The U.S. trade deficit (which measures the changes in levels of imports and exports) expanded in August by $1.2 billion. Export growth, which rose 0.8%, could not keep pace with import growth, which climbed 1.2%. The solid total imports figure is a result of a strong U.S. dollar, which reduces the cost of foreign goods for American businesses and consumers, who purchased more foreign-made airplanes, computers and cell phones; American spending in Brazil during the Summer Olympics also contributed.
  • Mortgage-purchase applications ticked down by just 0.1% for the week ending September 30, but the year-over-year reading sank by 14%. The sharp annual decline may have less to do with dampening home-buying demand and more with mortgage disclosure regulations that went into effect one year ago, according to the Mortgage Bankers’ Association. Refinancing activity climbed by 5% for the same week.
  • Despite rising consumer credit (which grew by more than $16 billion in August, mostly from student loans and vehicle financing), delinquencies fell to a record low in the second quarter — likely due to a strengthening job market and rising wages.
  • The British pound hit a three-decade low against the U.S. dollar this week as investors speculated on potential Brexit fallout. British Prime Minister Theresa May announced that she intends to invoke Article 50 of the Lisbon Treaty in late March 2017, which will allow Britain two years to negotiate new trade and defense agreements with the European Union. The currency’s depreciation largely benefits multi-national British companies and exporters; importers (and likely consumers) face higher costs.
  • Eurozone producer prices dipped by 0.2% in August for the first time since April due to energy-price swings; however, year-over-year prices increased by 0.5%.

 

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