Friday, April 29, 2016

Behind the GDP Figure

Why was economic growth so slow in the first quarter? Here are three answers:

Business investment posted its worst performance since the tail end of the last recession. Fixed nonresidential investment - mostly commercial real estate - declined at a 5.9 percent pace in the first quarter, the sharpest drop since the second quarter of 2009. Spending on equipment dropped 8.6 percent and spending on structures fell 10.7 percent.

Consumer spending continued to decelerate in the first three months of 2016, rising at a 1.9 percent pace compared with 2.4 percent in the fourth quarter. Spending on goods stalled, rising just 0.1 percent.

Foreign trade continued to be a headwind: Net exports subtracted 0.34 percentage point from the first quarter’s growth rate, the seventh time in the past nine quarters that trade was a drag on overall GDP growth. The trade gap widened as exports dropped 2.6 percent from the fourth quarter.

Thursday, April 28, 2016

Slow Growth for the First Quarter

Disappointing news from the Commerce Department this morning: The U.S. gross domestic product advanced at a seasonally adjusted annualized rate of just 0.5 percent in the first quarter. That was the worst quarterly performance for our economy in two years.

The economy had expanded 1.4 percent in the fourth quarter of 2015, and at 2.0 percent in the third quarter. For all of 2015, GDP advanced 2.4 percent, the same rate as in 2014.

These slow starts to the year are nothing new. GDP shrank in the opening quarter of 2014 and grew by just 0.6 percent in the first quarter of 2015. Both years, growth bounced back to more typicsal numbers over the balance of the year.

Wednesday, April 27, 2016

Protecting Yourself from Elder Debt

Recent research from the New York Federal Reserve has shed some light on a persistent but little-discussed problem: The heavy debts owed by many of American’s retired population. This is an issue that has skyrocketed in recent years. Debt held by borrowers between the ages of 50 and 80 increased by roughly 60 percent from 2003 to 2015.

The amount of student debt held by Americans age 65 and older reached $18.2 billion in 2014, up from just $2.8 billion in 2005, according to the Government Accountability Office. Roughly 150,000 Americans had a portion of their Social Security garnished last year to pay down their student loans. On top of that, the median mortgage held by Americans 65 and older more than doubled between 2001 and 2013, to $88,000 from $43,400.

There ware ways to protect yourself from ending up with too much debt as you reach retirement. We invite you to read the new article on our Web site, "The Stealthy Problem of Elder Debt," to learn more.

Tuesday, April 26, 2016

Investors Fleeing from Hedge Funds

Investors withdrew a net of $4.6 billion from hedge funds in March, according to eVestment, marking the fifth month out of the past six where redemptions exceeded allocations. The March figures brought the first-quarter outflow to a total of $14.35 billion.

One exception to the exodus: hedge funds that invest in commodities. Those funds netted more investor cash in the first quarter than any other type of hedge fund, and their $4 billion of inflows was that category’s largest for any quarter in more than six years.

Despite the outflows, hedge-fund performance hasn't been half bad lately. In March, an all-strategies benchmark of hedge funds delivered returns of 2.82 percent, according to Preqin, which tracks hedge fund performance, making it the best month for hedge funds since January 2012. But that still fell short of the 4.3 percent return produced by a more traditional mix of stocks and bonds.

Monday, April 25, 2016

Big Money in Home Sales

Has the American housing market completely recovered from the hosing bubble and the Great Recession? U.S. home sellers in March on average sold for $30,500 more than those homes were purchased for. That means a 17 percent average gain in price.

That's the highest average price gain for home sellers in any month since December 2007 at the onset of the Great Recession, according to RealtyTrac, a housing data source.

The median sales price of single family homes and condos in March was $210,000, up 9 percent from the previous month and up 11 percent from a year ago. March was the 49th consecutive month with a year-over-year increase in the U.S. median home price, which is still 8 percent below its previous peak of $228,000 in July 2005.

Friday, April 22, 2016

Earnings Batter Stock Prices

It looks like a tough earnings season: According to a report in the Wall Street Journal, the S&P 500 companies are on track to see profits shrink by 8.9 percent in the first quarter. Even the big boys are struggling: Microsoft and Alphabet (the parent of Google) both reported disappointing numbers and outlooks after the bell on Thursday, and fell in trading today.

The financial sector seems to have had the worst of it. Bank of America’s earnings dropped 18 percent. Goldman Sachs’ earnings fell by an incredible 60 percent. 

Still, the markets are more or less surviving. The S&P 500 is still up on the year, albeit by just 2.3 percent.

Monday, April 18, 2016

The Curious Case of Retailer Buybacks

Investors often look at share repurchases as signs of management confidence, but a new study shows that may not hold for retailers. Citigroup analysts looked at buybacks for the 50 retail and apparel companies they cover since 2011. It focused on instances of companies repurchasing 5 percent or more of their outstanding shares within a year.

Out of 71 such instances, on average, the stocks underperformed the S&P Retail Index by more than 10 percentage points in the year following the repurchase, Citigroup found. The companies’ stocks underperformed the index in the year following the repurchases in 44 of 71 instances, outperforming only 27 times.

Why does that happen? One hypothesis suggests that retailers may be buying back stock not because the stock is valuable, but to cushion earnings per share the following year.

Friday, April 15, 2016

Banks Lead Stocks Higher

After all the fears over tumbling profits, the big banks have been doing fairly well so far this earnings season, relatively speaking. Though the financial sector is still the worst-performing in the S&P 500 so far this year, the sector rose for a fifth consecutive session yesterday - even though their profits still fell.

Bank of America reported a fall in first-quarter profit, hurt by declining trading revenue and low interest rates. Wells Fargo said its profit fell as it grappled with a slump in oil prices. But for both, earnings per share came in above analysts’ expectations, and both stocks gained.

The upshot: The Dow Jones Industrial Average posted its biggest gain in a month this week, fueled by the rise in bank stocks. Overall, the index reached its highest level since July 20.

Thursday, April 14, 2016

The Good News on New Jersey's Economy

The Fed’s Beige Book came out this week, with some good anecdotal data from New Jersey. The Fed says that several areas of commerce around the state are rebounding from slower growth in the prior period: Brokers reported modest growth of existing home sales, auto dealers reported modest growth following a period in which sales were flat, and manufacturers reported modest growth following prior reports of slight declines.

Northern New Jersey's market for single-family homes continues to improve modestly, although prices are still being held down by a sizable overhang of distressed properties, which is coming down only gradually. Industrial and warehouse construction has also picked up in northern New Jersey.

But maybe the most surprising good news is out of Atlantic City. “Unseasonably warm weather altered activities in the mountains and attracted more visitors to the shore,” the Book reported. “Atlantic City casino revenues rose 15 percent in February compared with the prior year - a rare increase that may reflect stronger-than-normal convention bookings.”

Wednesday, April 13, 2016

The Upside of College Loans

We hear a lot about college debt weighing heavily on young people today, but a new study shows where the real problem lies: students who take out college loans but don't earn a degree. For those who do earn a degree, student debt doesn't seem to be a problem with financial success later in life.

According to a study from Navient, among 25-to-30-year-olds who borrowed for college and earned a bachelor’s or higher, 38 percent held a mortgage. But among those who took out student debt but never earned a degree, just 14 percent had a mortgage. Among all 25-to-30-year-olds, 22 percent had a mortgage.

Student debt seemed to help in more personal areas as well. Those who borrowed for college and obtained a bachelor’s or higher had the highest rate of marriage at 60 percent.  But college dropouts who borrowed for college had a marriage rate of just 33 percent.

Tuesday, April 12, 2016

Back to Work

Even in the improving job market over the past few years, one number has remained troubling: the labor force participation rate continued to drop. But that may be turning around now. More than two million people have flooded into the work force since September, the biggest six-month gain in records going back to 1990, using data adjusted for changes in population estimates.

Even if participation just stays steady, that would be an improvement from recent experience. The labor participation fell from 66.2 percent in 2008 to a four-decade low of 62.4 percent last September.

Much of that decline was due to the retirement of baby boomers, a development that is continuing but one whose impact has been temporarily offset by the return of previously discouraged workers. The participation rate has now increased up to an even 63 percent.

Monday, April 11, 2016

The Growth Forecasts

How bad have things gotten for the energy sector? FactSet is now predicting that the sector's earnings will drop by more than 100 percent in the first quarter year-over-year. They are projecting a 103.8 percent year-over-year  decline, because the sector is now expected to report an aggregate loss  of $485 million for the quarter, compared to year-ago earnings of $12.9  billion.

The biggest forecasted winner is the Telecom sector, which is expected to have earnings growth of  13.2 percent. But that's skewed a bit, because the merging companies of AT&T and DirecTV are being compared to just AT&T from a year ago. Excluding that merger, the estimated earnings growth rate for the Telecom sector would fall to 1.5 percent.

That would give the Consumer Discretionary sector the highest projected earnings growth, at 10.0 percent. The strongest areas within this sector are internet  retail, projected to have 81 percent earnings growth, and automobile manufacturers, projected at 49 percent.   

Friday, April 8, 2016

Charge It!

One sign of a growing economy: Revolving credit outstanding, mostly credit cards, increased at a 3.74 percent annual pace in February. That same figure had actually contracted by 0.31 percent in January. Revolving credit has gone up in 11 of the past 12 months.

Increased levels of credit are considered a sign a sign that steady job creation is helping secure household finances. Overall borrowing by U.S. consumers also picked up a little in February; outstanding consumer credit rose by a seasonally adjusted $17.22 billion in February from the prior month.

This has turned into a longstanding trend almost from the end of the recession. Overall consumer credit has grown every month for the past four and a half years.

Thursday, April 7, 2016

The Demise of the Starter Home

For a long time, the traditional path of home ownership in America involved buying a starter home, a small house that befits the smaller salaries and smaller family that most young adults have. As that household prospered and grew, it then set its sights on a much larger home, maybe moving from the city to the suburbs.

But that tradition no longer holds for many people. According to a new Bank of America poll of more than 1,000 adults 18 and older who would like to buy a home in the future, 75 percent of first-time buyers would rather bypass a starter home, even if they’d have to save more to do it. And 35 percent said they’d want to retire in that first home.

And they want to start out in the suburbs. The report found that 52 percent of first-time home buyers want a home in the suburbs. Only 26 percent said they wanted to live in the city and 22 percent said they wanted to live in a rural area.

Wednesday, April 6, 2016

Hiring Takes Off

Some more good employment news, following on the heels of last week's jobs report: More Americans were hired to start a new job in February than in any month since before the recession that began in 2007—about 5.4 million people, according to the Labor Department's Job Openings and Labor Turnovers Survey.

Yesterday’s report also showed an increase in the number of people who voluntarily quit a job in February, which rose to about three million from 2.9 million. Labor economists generally regard the overall rate of quitting as a sign of the labor market’s health. When the economy is thriving, more people have the opportunity or the confidence to search for a better job.

Today’s report also shows a continued low rate of layoffs. The layoff rate in February was 1.2 percent of workers, close to the record low of 1.1 percent. Unlike during the recession, the majority of workers who leave a job today do so of their own accord.

Tuesday, April 5, 2016

More Roller Coaster Rides Ahead?

As we said yesterday, the first quarter of 2016 was a roller coaster ride for the markets. The S&P 500 index recorded 26 moves in either direction of 1 percent or more, in either direction, from one day’s close to the next during the quarter. That's double the average number and the sixth most ever.

Does that mean anything for the rest of the year? If history is a guide, we could be in for a huge move over the remainder of the year. The S&P 500 has had five years with similar volatility to what we've seen so far this year, all since 2000. And all five ended with a big change in the market.

The funny thing is, during three of those years — 2000, 2001 and 2008 — the S&P 500 notched double-digit declines. But in 2003 and 2009, the S&P 500 ended up recording a nearly 25 percent gain.

Monday, April 4, 2016

Biggest Winners from the First Quarter

The first quarter of 2016 ended last Friday, and it was an up-and-down quarter for most investors: The major indexes were all down by around 10 percent as of mid-February, but rallied to post modest gains on the quarter.

The biggest winners of 2016 so far have also been on a roller coaster ride. Every single one of the S&P's biggest gainers in the first quarter had been down in 2015.  Those stocks:
  1. Freeport McMoRan up 52.7% so far in 2016; down 71.0% in 2015
  2. Newmont Mining up 47.7% so far in 2016; down 4.8% in 2015
  3. Urban Outfitters up 45.5% so far in 2016; down 35.2% in 2015
  4. Michael Kors up 42.2% so far in 2016; down 46.7% in 2015
  5. Wynn Resorts up 35.0% so far in 2016; down 53.5% in 2015
  6. PVH up 34.5% so far in 2016; down 42.5% in 2015
  7. Range Resources up 31.6% so far in 2016; down 54.0% in 2015
  8. Exelon up 29.1% so far in 2016; down 25.1% in 2015
  9. EQT up 29.0% so far in 2016; down 31.1% in 2015
  10. Cabot Oil & Gas up 28.4% so far in 2016; down 40.3% in 2015

Friday, April 1, 2016

March Jobs Report

The jobs situation seems to have settled into a comfortable groove at this point. According to the March employment report released by the Bureau of Labor Statistics this morning, the economy added 215,000 jobs for the month, and has now added an average of 209,000 jobs per month this year. The headline unemployment rate ticked up from 4.9 to 5.0 percent.

Among the industries, retail was the big winner in March, adding 48,000 jobs, the single-largest number of any sector. Over the past 12 months, retail has added 378,000 jobs. Meanwhile, employment in manufacturing declined by 29,000 in March, and mining lost 12,000 jobs. Since reaching a peak in September 2014, employment in mining has decreased by 185,000.

Maybe the best news from this morning is that the labor force participation rate continues to move upward, to 63 percent in March from 62.9 percent in February. It is up 0.6 percentage point since September, meaning more people keep coming into the labor force.