The final week of March capped off a month of solid equity market gains and encouraging macroeconomic data. New data shows a continued strengthening of labor markets and a reduction in volatility. Bond yields fell during the week, and the dollar depreciated against most major currencies.
All three major U.S. equity market indices were up more than 6.5 percent on the month, while the Nasdaq composite index climbed nearly three percent during the week ending April 1. Volatility, as measured by the VIX, fell to its lowest level since August 2015. Indeed, nearly all major U.S. asset classes posted gains during the month, following a bearish January and February. West Texas Intermediate (WTI) crude oil prices jumped 13.6 percent in March, though they declined more than 2.5 percent during the most recent week.
Manufacturing Purchasing Managers Index (PMI) data for March from the Institute for Supply Management (ISM) suggests improvement in manufacturing conditions (see above chart). The PMI, which can be thought of as the weighted percentage of purchasing managers who report positively (above 50 suggests growth), posted its first increase in six months. As a bonus, this monthly report comes with possibly the most pithy explanation accompanying any statistic:
PMI® at 51.8%
New Orders and Production Growing
Employment and Inventories Contracting
Supplier Deliveries Slower
The U.S. economy added 215,000 jobs in March, while unemployment figures ticked up slightly to five percent. However, as evidenced in the dashboard and in previous posts, an increase in the labor force participation rate tells a more complex story than an increase in the unemployment rate. A strong labor market will attract people who are otherwise not participating (someone without a job but not looking for work is not considered unemployed under the headline unemployment figure from the BLS). The labor force participation rate has experienced its first six consecutive months without decline since 2005, as people are being drawn into a decent labor market.
Across the board, U.S. bond yields fell during the past week. The real yield curve on a five-year U.S. treasury pushed negative, reaching further than a quarter point into the red (see below). The yield on a ten-year treasury fell to 1.79 percent on Friday, from 1.91 a week earlier. Corporate bond yields in all credit segments were also down during the one-week period.
Touching on some additional data, personal and personal disposable income both increased by 0.2 percent in February. The personal savings rate ticked up to 5.4 percent in February, from 5.3 percent in January. As expected, the net international investment position of the United States continued to deteriorate in Q4 of 2015. The economic policy uncertainty monthly index fell nearly 22 percent in March, providing further evidence for a reduction in uncertainty-related volatility.
Lastly, over the past week the U.S. dollar depreciated against all major non-pegged currencies. Notably, the greenback weakened by more than two percent against the Swiss franc and Canadian dollar, more than one and a half percent against the Yen, and around one percent against the Yuan during the five-day period.