U.S. markets were down during the August 1 week with the Dow Jones Industrial Average falling 2.75% and the S&P 500 Index down 2.69%. A number of significant economic reports were released during the week which also included the July meeting for the Federal Reserve’s Federal Open Market Committee.
No major surprises were revealed in the Federal Reserve’s FOMC statement which was released on Wednesday, July 30 following its two day meeting. The FOMC reported it would continue tapering its QE3 program; decreasing its mortgage-backed securities purchases by $5 billion to $10 billion and long-term Treasury purchases by $5 billion to $15 billion. At this rate the QE3 asset purchases are expected to end in October.
The FOMC also reported it would keep the federal funds rate unchanged as expected at 0% - 0.25%. Economists still foresee an increase in the federal funds rate near mid-2015 given the continued tapering and market assessment.
During the week, some of the economy’s key indicators were released. On Wednesday, the Bureau of Economic Analysis released its second quarter GDP report which stated improved growth in the economy after a paltry first quarter report. The BEA reported second quarter GDP growth was 4% on a seasonally adjusted annual rate basis. The positive second quarter report added further evidence that the first quarter’s negative growth was likely due to stalled activity from winter weather. The report also included a slight upward revision to the first quarter’s GDP, improving it to -2.1% from -2.9%.
On Friday, August 1 the Bureau of Economic Analysis also reported a slight decrease in the PCE Price Index which showed an increase of 1.6% from June 2013 compared to 1.7% in the previous month’s reading. At 1.6% the price inflation rate still falls below the Federal Reserve’s 2% objective and does not appear to show signs of deflation risk either.
Indicators of the U.S. economy’s labor market were also released during the week. The ADP’s private sector employment report was released on Wednesday, July 30 and showed an increase in private sector jobs of 218,000. This was down from June’s increase of 281,000. July’s increase of 218,000 was just below economists’ consensus of 235,000 but still within the predicted range of 200,000 to 270,000.
The Bureau of Labor Statistics released its July Employment Situation report on Friday, August 1 which showed an increase of 209,000 jobs in July. Similar to sentiment in the private sector report the BLS report was on the lower side of economists’ expectations but still showed steady improvement. Economists’ consensus was for an increase of 233,000 while the predicted range was from 200,000 to 280,000. In addition to the slightly weaker than expected jobs report the unemployment rate also increased slightly from 6.1% to 6.2%.
While the week’s economic reports were mainly positive the labor market showed some resistance and markets continued to digest ongoing geopolitical events as well as international credit risks. As a result the major U.S. market indexes were down overall for the week. In the S&P 500 all sectors were lower for the week with the greatest drop in the Energy sector which fell 4%. In the Dow Jones Industrial Average, financial companies led the index’s decrease with American Express (NYSE:AXP) down 5.94% and JPMorgan Chase (NYSE:JPM) down 4.29% for the week.