The minutes of the Fed’s July 29-30 meeting were released on last Wednesday, and they note that “some participants” were comfortable calling for a relatively prompt reduction of policy accommodation. But only hawkish Philadelphia Fed President Charles Plosser officially dissented to the July policy statement maintaining language that accommodation would remain in place for a "considerable time” after the Fed completes its asset purchases in October. The minutes did not include a discussion of the timing of the first interest-rate increase, although Fed officials have previously forecast it would occur sometime in mid-2015. The minutes also make clear that the majority of committee members, presumably including Janet Yellen, believe more evidence of declining labor market slack is needed before any move to increase rates.
But it was European Central Bank (ECB) President Mario Draghi who stole the show at the Federal Reserve’s annual Jackson Hole conference on Friday to wrap up the week. Draghi emphasized that the ECB has several unconventional monetary tools at the ready to combat a struggling Eurozone economy. By stating that inflation expectations continued to fall, Draghi appeared to move closer to a European asset purchase program.
For the week, the S&P 500 added +1.71%, the Dow Jones Industrial Average gained 2.03%, and the MSCI EAFE (developed international) increased +0.77%.
Here are the 3 stories this week that rose above the noise:
A New Reason to Question the Official Unemployment Rate
A new academic paper suggests that the official unemployment rate reported each month by the Labor Department appears to have become less accurate over the last two decades due in large part to the survey response rate which has dropped from 96 percent in the 1980s to 89 percent today. And, with those less willing to respond likely having a more unfavorable job experience, the extent of economic pain in the country today is likely understated.
Technology has contributed to the lower response rates with the advent of caller ID and the decline of landlines. Additionally, more people today potentially view the survey as an intrusion into their privacy than in the past. The paper also highlights that individuals respond differently during the early and later stages of their unemployment.
The Shifting Economics of Global Manufacturing
The Boston Consulting Group recently published a research report that analyzed the cost competitiveness of the 25 largest exporting economies. According to their analysis, several countries that have historically provided low-cost manufactured goods—including Russia, Brazil and China—have experienced a decline in global competitiveness over the previous decade.
On the other hand, the U.S. and Mexico saw their cost competiveness improve more than all of the other 23 largest exporting countries over the last decade. Several factors including wages, exchange rates and rising energy costs are changing the manufacturing landscape. This could ultimately result inmanufacturing becoming more regionalized as low-cost manufacturing nations exist in all regions of the world.
A New Reason to Question the Official Unemployment Rate
A new academic paper suggests that the official unemployment rate reported each month by the Labor Department appears to have become less accurate over the last two decades due in large part to the survey response rate which has dropped from 96 percent in the 1980s to 89 percent today. And, with those less willing to respond likely having a more unfavorable job experience, the extent of economic pain in the country today is likely understated.
Technology has contributed to the lower response rates with the advent of caller ID and the decline of landlines. Additionally, more people today potentially view the survey as an intrusion into their privacy than in the past. The paper also highlights that individuals respond differently during the early and later stages of their unemployment.
The Shifting Economics of Global Manufacturing
The Boston Consulting Group recently published a research report that analyzed the cost competitiveness of the 25 largest exporting economies. According to their analysis, several countries that have historically provided low-cost manufactured goods—including Russia, Brazil and China—have experienced a decline in global competitiveness over the previous decade.
On the other hand, the U.S. and Mexico saw their cost competiveness improve more than all of the other 23 largest exporting countries over the last decade. Several factors including wages, exchange rates and rising energy costs are changing the manufacturing landscape. This could ultimately result inmanufacturing becoming more regionalized as low-cost manufacturing nations exist in all regions of the world.
Surging U.S. Stocks Echo Dot-Com Rally with Cheaper P/E
With the S&P 500 Index crossing above 2,000 for the first time to new all-time highs, many investors question whether the current markets are reaching extended levels, similar to the dot-com days. One big difference is valuation – today’s S&P 500 today trades at a price earnings (P/E) ratio of 19, or 19 times the annual earnings of the S&P 500, compared with a P/E of 30 back in 2000.
Another significant difference is breadth. Today’s current bull market has seen widespread gains across sectors, whereas the technology bubble was concentrated in computer shares. However, some investors worry that the recent spate of technology IPOs is a concern that mirrors the dot-com era when companies that were yet to make a profit began offering shares for the first time. Option traders have displayed their concern as seen by the current put/call ratio which is currently near the highest levels since October 2008.
With the S&P 500 Index crossing above 2,000 for the first time to new all-time highs, many investors question whether the current markets are reaching extended levels, similar to the dot-com days. One big difference is valuation – today’s S&P 500 today trades at a price earnings (P/E) ratio of 19, or 19 times the annual earnings of the S&P 500, compared with a P/E of 30 back in 2000.
Another significant difference is breadth. Today’s current bull market has seen widespread gains across sectors, whereas the technology bubble was concentrated in computer shares. However, some investors worry that the recent spate of technology IPOs is a concern that mirrors the dot-com era when companies that were yet to make a profit began offering shares for the first time. Option traders have displayed their concern as seen by the current put/call ratio which is currently near the highest levels since October 2008.
Articles chosen and summarized by the First Allied Asset Management, Inc. investment management team.
