U.S. GDP numbers were released last Friday, which means we can now finish 2015 year-in-review series by taking a look at major economic indicators. The employment situation continued to improve in 2015 (Exhibit 1). The U.S. economy added 2.6 million new jobs (221,000 a month), but that was 15% lower than 3.1 million jobs added in 2014. Total employment increased 1.9% which was quite a bit better than the steady 0.7% population growth. The unemployment rate ended the year at 5.0%, which is in the range of what Fed currently considers full employment. U-6 rate finally dropped below 10% – it’s a broader measure defined as “Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons”.
Exhibit 1 – Employment
GDP growth remained in the 2% range last year, which is decent if unspectacular (Exhibit 2). Inflation, as measured by Consumer Price Index, decelerated even further and came in at 0.7% (energy price drop!). This level is well below the Fed’s 2% target and something to keep an eye on as an indicator of Fed’s rate raises. Dollar continued its surge going up another 11%. Although it’s hard to see any fundamental reasons it would drop, historically such surges have slowed or reversed.
Exhibit 2 – Growth & Inflation
Public debt increased seems to have stabilized around $18.1 trillion (Exhibit 3). On the positive side, a combination of tax hikes and spending cuts led to another drop in budget deficit. It declined by 9% to $439 billion or (only) 2.5% of GDP. Despite ending QE3 in late 2014, Federal Reserve’s balance sheet was steady at $4.2 trillion. Fed is likely to maintain this elevated asset level for years by buying more paper to replace maturing holdings.
Exhibit 3 – Debt & Deficit
Note: Public debt figure as of Q3:2015
S&P 500 earnings growth went negative for the first time since 2008 (Exhibit 4). This was driven by both declining sales and contracting profit margins. P/E multiple expanded further 6.2% to 19.35x, which offset earnings decline to produce an almost flat year for the index. 10-Year Treasury rate rose slightly to 2.27%, although the average rate throughout the year was actually lower than in 2014. 30-Year Fixed Mortgage rates also rose 10 basis points ending the year just under 4%.
Exhibit 4 – Earnings & Rates
Note: Q4:2015 S&P 500 earnings are consensus estimates as of Jan 29, 2016
Finally, the housing sector continued improving (Exhibit 5). Unit growth was quite impressive and price increases also accelerated from the 2014 levels. Auto sales jumped 6% to 17.8 million a year, the highest level since the year 2000.
Exhibit 5 – Housing & Autos
Note: S&P Case-Shiller 20-City Home Price Index as of Nov 2015
Just an FYI
My second child (a little girl 🙂 ) is due next week, so I plan on taking a blogging hiatus for a few weeks. I will return with new posts sometime in March.