After the S&P 500 rose 4.69% in the second quarter, we turned the page to a new month – and another record close for U.S. equities. Last week’s holiday-shortened trading schedule was packed full of data releases which generally pointed to a domestic economy with solid momentum heading into the third quarter. On Tuesday it was manufacturing data from the world’s two largest economies that helped boost the prospects for a second-half pickup in economic growth.
Wednesday’s private employment report from Automated Data Processing (ADP) raised the bar for Thursday’s Bureau of Labor Statistics (BLS) nonfarm payrolls data, which was released a day earlier than normal because of the 4th of July holiday. The ADP report of 281,000 jobs added in June was the biggest gain in private-sector jobs since November 2012 and well above the consensus expectation of 205,000.
For the week, the S&P 500 gained +1.44%, the Dow Jones Industrial Average added +1.32%, and the MSCI EAFE (developed international) rose +1.39%.
Here are the 3 stories this week that rose above the noise:
5 Takeaways from the June Employment Rate
The U.S. economy added 288,000 non-farm jobs in June. The unemployment rate dropped to 6.1 percent, while the labor-force participation rate remained steady at 62.8 percent, indicating the drop in the unemployment rate was caused by more people finding work than people giving up on looking for jobs.
Another positive in the employment report was the rise in factory payrolls. Manufacturing jobs have increased for 11 consecutive months and may help spur wage inflation because manufacturing jobs typically pay above-average wages.
Yellen’s Economy Echoes Burns’s More than Greenspan’s
A recent Bloomberg article details an important dilemma potentially facing Fed policy makers in the coming years, which is slow productivity gains continuing to weigh on economic growth even as the labor market normalizes and inflation picks up steam. This article discusses the period when Arthur Burns was Fed Chairman in the 1970s for comparison, during which inflation rocketed higher while the economy stagnated.
The current backdrop appears very mild by comparison, however unless productivity growth suddenly increases, the Fed’s job is likely to be somewhat more complicated than during the Greenspan years. This potentially increases the risk of a monetary policy misstep and may at some point force the Fed to raise rates more aggressively than is currently reflected in investor expectations.
A Future Where the Internet is Available to All
Mark Zuckerberg, the creator of Facebook, recaps the remaining growth potential of connecting the portion of the global population that remains unconnected to the Internet in an article from The Wall Street Journal. According to the article, only a little more than one-third of the world is connected – about 2.7 billion people.
He cites research from McKinsey & Co. that shows the Internet already accounts for a larger share of economic activity in many developed countries than agriculture and energy and, over the previous five years, created 21 percent of GDP growth. A recent study by Deloitte found that expanding Internet access in developing countries would create 140 million jobs and lift 160 million people out of poverty.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
