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August 25, 2014 - Economists: Labor Market is Growing Less "Fluid"

| August 25, 2014
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Despite lingering concerns about the Ukrainian crisis, markets picked up steam last week, giving the Dow and S&P 500 their best weekly performance since April. For the week, the S&P 500 grew 1.71%, the Dow gained 2.03%, and the Nasdaq rose 1.65%.[1] Last week, headlines were largely dominated by the annual economic symposium in Jackson Hole that plays host to some of the world's most powerful financial players. Though the format of the event is casual, central bankers, academics, and economists use the meeting to discuss important economic issues from the day.[2] One key session from this year's meeting centered on labor market dynamics.

Economic research suggests that the U.S. labor market is not as flexible as it once was and that the fluidity of workers between jobs is falling. According to results presented at Jackson Hole, factors like an aging workforce that is less likely to change jobs, higher training and regulatory requirements to take many positions, and dominant firms driving others out of business, are all contributing to the problem. Why does this fluidity matter?

Part of what makes a labor market strong is the ability for workers to transition between jobs and industries as needs and conditions change. Across industries, researchers found a decline of about 25% in the rate at which jobs were created and eliminated between 1990 and 2013. The implications of this decline could be particularly serious for the young or the less skilled, who may struggle to find jobs or progress in their careers.[3]

Federal Reserve Chair Janet Yellen seems to support this view, painting a picture of a still-fragile labor market that requires accommodative monetary policy in her speech Friday. In another big speech, European Central Bank President Mario Draghi stated that the ECB stands ready to provide further liquidity to boost the EU's sluggish economy.[4]

Looking ahead, Russia and Ukraine will be in the spotlight as Russian President Vladimir Putin and Ukraine President Petro Poroshenko are scheduled to meet on Tuesday.[5] The S&P 500 is also bumping up against 2,000 points, a key technical milestone. Though we don't place a lot of faith in technical indicators, investor psychology may come into play, and markets may experience some volatility as investors consider whether further short-term upside is likely.[6]

ECONOMIC CALENDAR:

Monday: New Home Sales, Dallas Fed Mfg. Survey
Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence
Wednesday: EIA Petroleum Status Report
Thursday: GDP, Jobless Claims, Corporate Profits, Pending Home Sales Index
Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

HEADLINES:

Jobless claims fall. Weekly new unemployment claims fell more than expected, dropping below 300,000. While weekly data is volatile, there were no seasonal factors affecting the data, pointing to sustained improvement in the labor market.[7]

Housing starts heat up in July. A measure of homebuilding soared 15.7% last month, showing that builders may be feeling confident about their prospects in the coming months. While monthly starts are volatile, the increase could show that the housing market isn't down for the count yet.[8]

Existing home sales increase for fourth straight month. July sales of previously owned homes soared, hitting the highest pace of growth in 2014. Hopefully, increased inventory levels will stabilize prices and give homebuyers an opportunity to purchase.[9]

Chinese factory activity slumps. China's factory sector slumped to a three-month low, renewing concerns that the world's second largest economy might be slowing down. Economists hope that government measures to support growth will keep economic momentum up.[10]


These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.


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Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

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  1. http://goo.gl/8DVnFZ
  2. http://www.economist.com/blogs/economist-explains/2014/08/economist-explains-12
  3. http://www.reuters.com/article/2014/08/22/us-usa-fed-employment-idUSKBN0GM0WM20140822
  4. http://www.cnbc.com/id/101939954
  5. http://www.cnbc.com/id/101941201
  6. http://www.reuters.com/article/2014/08/23/us-usa-stocks-weekahead-idUSKBN0GM1Z220140823
  7. http://www.cnbc.com/id/101936663
  8. http://www.marketwatch.com/story/us-home-construction-heats-up-in-july-2014-08-19
  9. http://www.forbes.com/sites/erincarlyle/2014/08/21/july-existing-home-sales-hit-highest-pace-of-2014/
  10. http://www.reuters.com/article/2014/08/21/china-economy-flash-pmi-idUSL4N0QQ1S420140821
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