European Central Bank's rate shift increases Treasuries (Part 5 of 5)
Gallup’s job creation index reports strong nationwide hiring trends
The results of Gallup’s job creation index were released on Wednesday, June 4. The Index touched a new six-year high, coming in at 27. Job creation was more or less evenly distributed among regions in the U.S., with the exception of the East, where the score was below-average at 23.
Private sector hiring showed stronger growth trends compared to the government sector, reaching a new high of 29. As private sector workers outnumber government sector workers by a ratio of more than 5:1, private sector figures make more of an impact on the overall index reading. Most of the hiring in the government sector took place at the state and local government levels.
What is Gallup’s U.S. jobs creation index?
The results of Gallup’s U.S. jobs creation index is based on a monthly telephonic survey conducted in all 50 states in the U.S. and the District of Columbia. The survey is based on the participants’ responses about their employer’s hiring policies. The participants include both full-time and part-time workers. The results of May’s survey were based on a sample size of 17,993 adults.
Gallup’s U.S. consumer spending measure
Gallup released the results of its consumer spending measure on Monday, June 2. Average daily expenditure for Americans surged to a six-year high of $98 in May, according to the report. The estimate was $10 higher than last month. It was also higher than the $90 reported in May, 2013. The difference between the increase in spending between April–May at $10 is the highest since 2008, when average daily spending surged by $28. The increase has largely been attributed to the three-day Memorial Day weekend, when respondents reported a daily spending average of $134.
What does Gallup’s U.S. consumer spending indicator measure?
Gallup tracks daily discretionary expenditures through ~13,000 interviews with American adults, which queries survey respondents on their discretionary spending expenditure the previous day. The expenditure estimate doesn’t include regular household bills and what consumers spent on big-ticket items like refrigerators, cars, etc.
Implications for investors
Average daily consumer spending and jobs creation are key to the consumption component of GDP. Consumption expenditure makes up about two-thirds of the economy. An improvement in the outlook for jobs would improve consumer spending as well and benefit stocks, especially consumer discretionary stocks like The Gap (GPS). Investors can gain exposure to the consumer discretionary sector by investing in ETFs like the State Street SPDR S&P Retail ETF (XRT) and the State Street Consumer Discretionary Select Sector SPDR (XLY).
An improvement in the jobs market and consumer spending usually precedes interest rate increases, which would reduce the prices of bonds. However, the bond market (AGG) has stayed firm due to demand from long-term institutional investors (like pension funds). These investors have sought to match the duration of their long-term liabilities with long-term Treasury securities. As a result, yields for Treasuries actually declined in the month of May. Yields on 30-year Treasury bonds declined by eight basis points in the month of May to 3.33% on May 30. Yields on 7–10 year Treasury bonds (IEF) declined the most—yields decreased by 15 basis points each in the month of May to 2.06% and 2.48% respectively, on May 30.
Browse this series on Market Realist:
- Part 1 - European Central Bank’s rate moves cause Treasuries to increase
- Part 2 - Why ISM’s PMI readings increase on broad-based industry gains
- Part 3 - Markit PMI: Why conditions are improving for the consumer sector
- European Central Bank
- consumer spending