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June 2019
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National Non-Operating Observations
A drop in the pace of hiring in May surprised many economists, with nonfarm payrolls increasing just 75,000 against an expected 180,000. Furthermore, the prior month’s job numbers were revised downward, with April’s adjusted to 224,000 from 236,000, and the March numbers lowered from 189,000 to 153,000—a total reduction of 75,000. Much of the hiring slowdown occurred in sectors dependent on trade, suggesting that tariffs are starting to have a greater impact on the U.S. labor market. Even so, the unemployment rate remained at 3.6 percent, its lowest level since December 1969.
The U.S. Bureau of Economic Analysis revised its Q1 Gross Domestic Product (GDP) number down to 3.1 percent from 3.2 percent the previous month. The GDP remains healthy, however, especially considering concerns over the economic effect of the 35-day partial government shutdown earlier this year. A GDP above 3.0 percent generally is considered to be close to a full potential expansion path.
Notwithstanding the positive GDP number, trade concerns and uncertainty persist. The Trump Administration reached a deal in May to lift tariffs on steel and aluminum imports from Canada and Mexico, moving the countries closer to ratifying the United States-Mexico-Canada Agreement (USMCA), the proposed replacement for the North American Free Trade Agreement (NAFTA). However, President Trump also threatened tariffs on all Mexican imports until the country takes action to “dramatically reduce” illegal migration.
Trade tensions between the U.S. and China continue unabated. China raised tariffs on $60 billion of U.S. goods in May, in response to the U.S. raising tariffs on an additional $200 billion of Chinese imports from 10 percent to 25 percent. Trade concerns seem to be manifesting somewhat in U.S. manufacturing activity. The Institute for Supply Management’s manufacturing reading for the month of May fell to 52.1, its lowest level since October 2016. A reading above 50 still indicates expansion, but even so, production, inventories, and supplier deliveries all fell in May.
†1Q 2019 U.S. Bureau of Economic Analysis “Second” Estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

May 2019
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
After four positive months, May was the first negative month in 2019, with a -3.23 percent decline in the blended 60/40 Asset Allocation. Equities had their worst month since December 2018, as the aforementioned trade concerns and overhang of federal uncertainty maintain headlines. The S&P 500 was down 6.58 percent for the month. Foreign equities did not fare much better, with the MSCI World Index down 6.08 percent and the MSCI Emerging Markets Index down 7.53 percent. The Barclays Aggregate Bond Index was up 1.78 percent in May, as investors move from equities into fixed income.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
Municipal fund flows remained strong in May, as investors continued to move away from equities and put their money into bonds. A total of $7.4 billion entered municipal funds in May, continuing the run of inflows since the start of 2019. More than $40.2 billion has entered the muni market this year, a stark contrast to $69.8 billion having departed domestic equity funds since January. The strong demand for bond funds and low supply in the tax-exempt bond market continue to drive down yields.
The 30-year MMD and 30-year Treasury rates continued their recent declines in May. The 30-year MMD ended the month at 2.32 percent, down 23 bps month over month, and down 70 bps since the start of the year. Meanwhile, 30-year Treasury yields decreased 36 bps in May and are now down 45 bps since the start of the year. In the short-term markets, 1M LIBOR finished May at 2.43 percent, down only 7 bps since the beginning of 2019. After spiking up 80 bps in April, the tax-exempt short-term rate (SIFMA) normalized, ending the month at 1.42 percent, down 88 bps month over month and 29 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 generally signal 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 typically are large and sudden, as external events affect investor sentiment. This results 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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