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July 2019
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National Non-Operating Observations
The U.S. labor market continued to shrug off economic headwinds in June, with nonfarm payrolls adding 224,000 jobs after a disappointing May report of only 75,000 jobs added. The unemployment rate rose for the first time in six months from a 49-year low of 3.6 percent in May to 3.7 percent in June. Labor numbers continue to defy expectations of economic weakening amid ongoing trade battles and weakening manufacturing and construction activity indicators.
U.S. manufacturers’ growth in new orders has been slowing over the past year and was flat in June for the first time since 2015. The ISM Manufacturing Survey dipped to 51.7 from May’s reading of 52.1, coming closer to the benchmark of 50 which typically indicates contraction. Additionally, residential construction activity decreased by 8 percent year-over-year in the three months from March to May, according to the U.S. Census Bureau. The U.S. manufacturing and construction sectors have escaped relatively unscathed from the downturn hitting Europe and Asia that has seen global manufacturers’ new export orders fall for a tenth consecutive month in June. According to JP Morgan’s global purchasing manager’s survey, economists expect trade tensions and tariffs to have a detrimental effect on the U.S. manufacturing and construction sectors due primarily to supply chain disruptions and cost increases.
The Federal Reserve met in June and left its benchmark rate unchanged in the target range of 2.25 percent to 2.5 percent. The central bank’s median target rate is still 2.4 percent for June, which is unchanged from its March projection. However, eight members of the Federal Open Market Committee (FOMC) indicated support for one rate cut this year, according to the “dot plot” projections released after the June 18-19 meeting. Chairman Powell opened the door to the possibility of rate cuts, stating in his press conference that “many participants now see the case for somewhat more accommodative policy has strengthened.” Additionally, the committee dropped the word “patient” in its policy approach description, which economists see as a nod to a more dovish turn. While the FOMC itself is not projecting a rate cut in 2019, economists and market participants still expect at least one rate cut in 2019.
†1Q 2019 U.S. Bureau of Economic Analysis “Third” Estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

June 2019
Month Over Month Change
Year Over Year Change

GDP Growth
Unemployment Rate
+10 bps
(30 bps)
Personal Consumption Expenditures
(40 bps)
(3 bps)
+31 bps
30yr MMD
(1 bps)
(63 bps)
30yr Treasury
(4 bps)
(46 bps)
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
June was a strong month for investment assets across the board, with a blended 60/40 allocation increasing 4.4 percent. Equities bounced back after the S&P 500 decreased 6.6 percent in May, with June seeing a 6.9 percent gain. The index is now up 17.3 percent since the start of 2019. The Dow Jones and NASDAQ also had excellent months with all three U.S. indices close to their all-time highs. Internationally, the MSCI World index increased 6.46 percent and the MSCI Emerging Markets Index increased 5.70 percent in June. The Barclays Aggregate Index also rose in June, up 1.26 percent on the month. The blended 60/40 asset allocation is now up 11.80 percent since the start of the year and at its highest level in over a decade.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
Municipal funds continue to see strong inflows amid a dearth of tax-exempt bond supply. Positive sentiment from investors caused $6.28 billion to enter muni funds in June, with $46.9 billion entering the market since the start of 2019. The 1Q 2019 Fed Flow of Funds report released in June showed household investors have increased their muni holdings by 4.4 percent since 1Q 2018. Post tax-reform, corporate muni holdings have decreased by 11.2 percent, with investors subject to individual income tax now representing 70 percent of municipal bondholders. Property & casualty and life insurance companies reported an increase in holdings while banks reported a decrease in holdings. Additionally, household investment in muni bonds grew 3.7 percent year-over-year. 30-year MMD and 30-year Treasury rates held steady in June after dramatic decreases of 70 bps and 45 bps respectively from the start of the year through June. 30-year MMD ended the month at 2.31 percent, down 1 bp month-over-month. 30-year Treasury yields decreased 4 bps in June. In the short-term markets, 1M LIBOR finished June at 2.40 percent, down only 10 bps since the beginning of 2019. After plummeting 88 bps in May, the tax-exempt short-term benchmark SIFMA ended the month at 1.90 percent, up 48 bps month-over-month and 19 bps on the year.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Note: Taxable and tax-exempt debt capital markets, as approximated here by the ‘30-yr U.S. Treasury’ and ‘30-yr MMD Index,’ are dependent upon macroeconomic conditions, including inflation expectations, GDP growth, and investment opportunities elsewhere in the market. A key measure to track is bond fund flows, particularly in the more supply and demand sensitive tax-exempt market. Fund flows are monies moving into bond funds from new investment and principal and interest payments on existing and maturing holdings. Strong fund flows signal generally that investors have more cash to put to work, a boon to the demand. Fund inflows generally are moderate and consistent over time while fund outflows are typically large and sudden, as external events affect investor sentiment, resulting in quick position liquidation which can drive yields up considerably in a short amount of time.
National Observations
National Observations
©2019 Kaufman, Hall & Associates, LLC
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