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Economic Update

May 5, 2014

Economic themes: Ukraine, Employment, GDP, FOMC, Personal Income & Outlays, ISM Indexes.

  • Ukraine: Violence continues as Ukraine seeks to regain control of the eastern industrial region of Odessa from pro-Russian separatists.  U.S and EU leaders have pledged further sanctions to Putin’s inner circle if they continue to fail to engage in diplomatic solutions.  Putin still does not seem afraid.
  • Employment: Nonfarm payrolls gained 288k in April, well above forecasts of a 215k increase, and the unemployment rate ticked down to 6.3%.  Gains were seen across most sectors.  Wages remain stagnant.  Labor participation declined 806k, to 62.8%, the lowest since 1978.  Market participants are eagerly awaiting next month’s report, to understand if the bounce back has legs, or is attributed to weather related delays.
  • GDP: Gross Domestic Product increased by 0.1% in the first quarter, below forecasts of 1.1%, as adverse weather slowed economic growth across the nation.  Prices increased by 1.3%, below forecasts of 1.7%, and below the Fed’s preferred gauge of 2%.  Personal consumption expenditures led the index up, and exports led the index down.
  • FOMC: As expected, the Fed announced they will taper by an additional $10 billion per month, to $45 billion per month, and left the Federal Funds Rate unchanged between 0-0.25%.  They see economic activity improving after weather related delays in the first quarter.  The employment market is fairly mixed, though improving modestly.  Federal Funds Futures contracts imply the Fed may increase the Federal Funds Rate in mid-2015.
  • Personal Income & Outlays: The consumer is back, as personal income increased by 0.5% in March, and is up 3.4% over the past year.  Consumer spending increased by 0.9% in March, and is up 4% over the past year.  Inflation remained weak, up 0.2% in March, and 1.1% over the past year.  The figures give the Fed some room to remain accommodative.
  • ISM Indexes: The ISM Manufacturing Index posted a 54.9 reading for April, above forecasts of 54.3. Strength was seen in employment and new order components, with most component readings higher.  The ISM Non-manufacturing Index posted a 55.2 reading in April, above forecasts of 54.2, led by the new orders component.  Weakness was seen in employment.  Overall, the economy growing at a moderate pace, though is not necessarily leading to gains across all employment sectors.

Municipal market themes: CalPERS, North Las Vegas.

  • CalPERS: The retirement system filed an amicus brief challenging Detroit’s bankruptcy.  CalPERS continues to defend unsustainable benefits promised by state and local governments, which have made it difficult for some to provide essential services.  Some believe that the failure to reform pension obligations for previously bankrupt cities, such as Vallejo, may force them back into bankruptcy.
  • North Las Vegas: Fitch ratings released a report saying a state takeover of North Las Vegas is appearing less likely in the near term.  The budget for the upcoming fiscal year includes expenditure reductions, expense deferrals, and reserve draws to show a semblance of balance.


This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.

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