Week of September 14, 2015

The flip-flop continues. Equity markets have bounced between gains and losses for the past ten weeks. Last week, a difficult start was reversed by Friday as investors welcomed more favorable jobs data. The S&P 500 and the Dow Jones Industrial Average rose 2.1% while the Nasdaq Composite moved higher by 3%. The back-and-forth trading may continue this week as all investors are hyper-focused on the Federal Reserve who meets on the 16th and 17th to decide on what could potentially be the first rate hike in nearly a decade.

JOLTing Wages Higher, Soon Perhaps

Last week the Labor Department reported its latest Job Opening and Labor Turnover Survey, more commonly known as the JOLTS report. Nonfarm job openings in July rose by 430,000 to 5.7 million, the highest level since December 2000. This figure was way ahead of expectations; economists forecasted just 5.3 million openings. While the number of job openings grew, the amount of new hires fell to less than 5 million. The widening gap between these two figures illustrates that businesses are having difficulty filling jobs at current wages and/or there is a lack of skilled workers for the open positions. Either way, the remedy for the imbalance is rising wages, something that has been stubbornly lacking during the current recovery.

^{Source: Wall Street Journal, September 9, 2015, https://blogs.wsj.com/economics/2015/09/09/job-openings-in-july-rise-to-record-high/}

Pass the Syrup, Please

The fall of commodity prices over the past several months has brought nothing but bad news including slowing growth in emerging markets and global stock market volatility to name a few.  However, there is some good news; breakfast is getting cheaper. An equal-weighted average of six breakfast related commodities tracked by the Financial Times (wheat, milk, coffee, orange juice, sugar, and lean hogs) is at its lowest level since 2010. A combination of improving yield forecasts from the US Department of Agriculture, improving weather worldwide, and concerns that demand will slow in China have contributed to sharp declines over the past month. With the exception of milk, each of the six commodities is down double-digit rates year-to-date. Coffee has collapsed the most (28%) while sugar and wheat are close behind (22% and 23%, respectively). While milk is up year-to-date, prices are still down 33% from the same period last year due to depressed demand from both China and Russia.

^{Source: Financial Times, September, 2015 (subscription required),  https://www.ft.com/intl/cms/s/0/3c014a9e-56ec-11e5-a28b-50226830d644.html?siteedition=intl#axzz3lQuYJDMV}

Outlook for Oil Price

The outlook for oil prices became murkier last week when two influential organizations predicted depressed prices for the near future. First, members of the Organization of the Petroleum Exporting Countries (OPEC) reported an outlook of $40-50 for Brent crude oil through the remainder of 2015. This is down from earlier expectations of a quick rebound to $70-80 by year-end. Additionally, one member was quoted as saying the correction is going to take a long time. OPEC delegates see the market rebalancing sometime in 2016 and now expect $60 per barrel by early next year. Later in the week, Goldman Sachs published a more dire outlook that called for prices of $20 a barrel. The Wall Street firm noted that this was not a base-case scenario, but noted that production has not been curtailed fast enough and prices this low may be needed to clear the oversupply.

^{Source: Bloomberg, September 11, 2015, https://www.bloomberg.com/news/articles/2015-09-11/-20-oil-possible-for-goldman-as-forecasts-cut-on-growing-glut}

Fun Story of the Week

Are you thinking of selling your home? If so, you should tidy up and list it before the election cycle gets into full swing next year. Recently a Princeton economist published results from a study that looked at home sales in 35 states during gubernatorial elections between 1999 and 2006. The research found that during election years, home sales declined between two and three tenths of a percent. This seems meaningless, but the impact from elections is roughly the same as well-understood influences on the housing market. Even more interesting was that closely contested races caused a bigger decline in home sales. In elections where the winner won less than 55% of the vote, home sales declined nearly half a percentage point. This study supports previous research by the California Realtors Association that showed a similar effect on home prices – the average price of a home rose just 4.5% during an election year compared to 5-6% gains for all other years.

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