Key Monthly Economic News
- Employment: February's employment report showed continued strengthening in the labor sector with 235,000 new jobs added in the month, on the heels of 238,000 new jobs added in January. Over the last 12 months ended in February, average hourly earnings have risen by $0.71, or 2.8%. This increase is a good sign for the economy but puts pressure on profit margins at companies.
- Interest rates: Following its meeting in March, the Federal Open Market Committee raised the target range for the federal funds rate by 25 basis points to 0.75%-1.00%. This is the first interest rate change for 2017, although two more increases are expected this year per the FOMC.
- Inflation: Inflation, as measured by personal consumption expenditures, reached the Fed's 2.0% annual target in February. Consumer prices are up 2.7% for the year, a mark that is not only well above the Fed's 2.0% target for inflation, but stands as the highest rate of growth in almost five years. Even the core rate, which excludes energy, is holding steady at 2.2% since February 2016.
- International markets: The UK formally began the process of leaving the EU. This action now opens a two-year window for Britain to negotiate the terms of its exit. The bottom line is that nothing dramatic is likely to happen whether economically or in the investment markets as a result of this despite the initial reactions in June 2016.
Market pundits have been telling us that the market’s sudden rise that begin after the elections in November is the result of the so-called “Trump Trade.” This is shorthand for an expectation that companies and individuals will soon be paying fewer taxes and be burdened by fewer regulations, leading to higher profits and greater productivity. Add in promised infrastructure spending, and the expectation was an economic boom across virtually all sectors.
The good news is that corporate profits have been increasing over the last quarters. This will likely need to continue to justify U.S. stock prices and plow through the negative news – much of which will likely be resulting from the sausage-making in Washington.
If employment remains strong and consumer prices trend higher, the Fed may raise the target rate another 0.25% in May, tentatively with at least one more rate increase likely before the end of the year.
As always: stay disciplined, focus on those things you can control, and ignore the rest.
To Your Prosperity,
Kevin Kroskey, CFP®, MBA