Economic Data

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Economic

Commentary

Economic Data

March 30, 2016

LINDSEY M. PIEGZA

CHIEF ECONOMIST

(312) 454-3873

PIEGZAL@STIFEL.COM

Fed to “Proceed Cautiously in Adjusting Policy”

Yesterday, in a speech to the Economic Club of New York, Chairman Yellen emphasized the need

to “proceed cautiously” with adjusting policy against the backdrop of lingering risks to the

domestic economy as a result of global and financial market developments. At the same time,

however, the Chairman reiterated a continued expectation of a "gradual" removal of

accommodation. Yellen, furthermore, highlighted the fluid nature of the Fed's forecast; this

"guidance," Yellen said, should be understood as a "forecast" for the trajectory of rates, "not a plan

set in stone that will be carried out regardless of economic developments.” In other words, the Fed

reserves the right to change their expected pathway of rates, accelerating or extending the timeline

for additional hikes based on the evolution of the data.

“Given the risks to the outlook, I consider it appropriate for the Committee to proceed cautiously in

adjusting policy.”

– Chair Yellen, March 29, 2016

Bottom Line: The Chairman's Dovish comments seem to call into question the Fed's ability to

meet even their new lowered bar of expectations for additional rate hikes this year. Recall, in

March, the Committee reduced their outlook from four to just two rate increases in the remaining

nine months of 2016. Furthermore, Yellen's comments seem at odds with other policy maker's

recent remarks alluding to the possibility of an additional rate hike as early as April. After

listening to Yellen's comments yesterday, not only does April appear to be off the table, but the

prospect of a second hike in June appears less likely at this point.

In response to Yellen’s Dovish comments yesterday, yields fell and the dollar weakened as the

market interpreted the Chairman’s remarks to mean potentially fewer rate hikes this year than

projected at the latest March FOMC meeting. With the Fed increasingly positioned to extend the

likely timeline of additional rate increases over the foreseeable future, December’s liftoff is looking

more and more like a possible policy mistake; with lingering weakness in the domestic and global

economy, it appears as if the Fed initiated liftoff after backing themselves into a corner rather than

based on realized (and expected) improvement in the data. Now, facing the reality of a still-fragile

economy - coupled with fragility abroad - the Fed is continuing to expand the likely timeframe for

additional rate hikes suggesting more of a “one and done” scenario than a “gradual” change in

policy.

The full text of Chair Yellen’s speech, “The Outlook, Uncertainty, and Monetary Policy”:

http://www.federalreserve.gov/newsevents/speech/yellen20160329a.htm

Please see the last page of this

report for important

disclosures and disclaimers.

2016 Stifel, Nicolaus & Company, Incorporated One South Street, 15 th Floor Baltimore, MD 21202 Member NYSE Member SIPC 888.290.1762


Economic

Commentary

Economic Data

March 30, 2016

Yesterday, Consumer Confidence increased from 92.2 to 96.2 in March, a two-month high.

assessment declined from 115 to 113.5, however, expectations improved from 79.9 to 84.7.

In the details, current

Consumer Confidence

Source: Bloomberg

Japanese production fell 6.2% in February, the largest one-month drop since March of 2011 when a devastating earthquake

crippled the country’s supply chain. The weakness in February was the result of sluggish demand - both domestic and

international.

According to the Asian Development Bank (ADB), “huge industrial overcapacity” will continue to drag on Chinese growth

this year. The ADB anticipates Chinese GDP to slow to 6.5% this year and 6.3% in 2017. In contrast, Beijing expects 6.5-

7% GDP for 2016 and an average growth rate of 6.5% over the next five years.

Lawmakers in Washington have proposed a plan that would allow Puerto Rico to restructure some of its $70B debt. While

the legislation would not grant access to Chapter 9, the plan would award the territory some of the legal tools found in

bankruptcy. The proposal comes just weeks ahead of an expected default of the island's de facto finance authority. The

proposal, however, is not without its drawbacks; the restructuring process also calls for putting Puerto Rico's finances under a

presidentially appointed oversight board.

According to reports, the Brazilian Democratic Movement Party has left the governing coalition of President Dilma Rousseff.

While not entirely unexpected, the departure of the country’s largest party increases the odds Rousseff could be impeached in

the near-term.

In U.S. politics, none of the three remaining Republican presidential candidates agreed to support the eventual GOP nominee

for president. Last night, each was given the option to renew their "loyalty pledge.” All three respectfully declined.

This morning, ADP reported a 200k rise in March employment. While hardly robust, a 200k monthly gain is still a positive,

“modest” increase for the U.S. labor market.

Page | 2

2016 Stifel, Nicolaus & Company, Incorporated One South Street, 15 th Floor Baltimore, MD 21202 Member NYSE Member SIPC 888.290.1762


Economic

Commentary

Economic Data

March 30, 2016

With little data out today or yesterday, the highlight of the week’s economic calendar is Friday’s employment report.

According to Bloomberg, nonfarm payrolls are expected to rise 210k in March following a 242k rise in February.

Furthermore, average hourly earnings are expected to fall 0.1% in March. Year-over-year, average hourly earnings are

expected to maintain a 2.2% pace at the end of Q1, down from a recent peak of 2.6% at the end of last year.

Average Hourly Earnings, YoY

Source: Bloomberg

-Lindsey Piegza, Chief Economist

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2016 Stifel, Nicolaus & Company, Incorporated One South Street, 15 th Floor Baltimore, MD 21202 Member NYSE Member SIPC 888.290.1762


Economic

Commentary

Economic Data

March 30, 2016

Glossary

FOMC – Federal Open Market Committee

GDP – Gross Domestic Product

Economic Releases

Date Time Event Period Prior Revised Surv(H) Surv(L) Surv(M) Actual

03/28 07:30 Advance Goods Trade Balance Feb -$62.228b -$62.398b -$60.000b -$64.400b -$62.200b -$62.864b

03/28 07:30 Personal Income Feb 0.50% -- 0.30% -0.10% 0.10% 0.20%

03/28 07:30 Personal Spending Feb 0.50% 0.10% 0.30% -0.20% 0.10% 0.10%

03/28 07:30 Real Personal Spending Feb 0.40% 0.00% 0.30% -0.10% 0.10% 0.20%

03/28 07:30 PCE Deflator MoM Feb 0.10% -- 0.00% -0.40% -0.10% -0.10%

03/28 07:30 PCE Deflator YoY Feb 1.30% 1.20% 1.10% 0.70% 1.00% 1.00%

03/28 07:30 PCE Core MoM Feb 0.30% -- 0.30% 0.00% 0.20% 0.10%

03/28 07:30 PCE Core YoY Feb 1.70% -- 1.90% 1.70% 1.80% 1.70%

03/28 09:00 Pending Home Sales MoM Feb -2.50% -3.00% 2.50% -2.60% 1.20% 3.50%

03/28 09:00 Pending Home Sales NSA YoY Feb -0.90% -1.50% 0.50% -0.60% -0.40% 5.10%

03/28 09:30 Dallas Fed Manf. Activity Mar -31.8 -- -10 -32 -25.8 -13.6

03/29 08:00 S&P/Case-Shiller US HPI MoM SA Jan 0.78% 0.71% -- -- -- 0.52%

03/29 08:00 S&P/CaseShiller 20-City Index NSA Jan 182.75 182.59 183.07 182.4 182.74 182.56

03/29 08:00 S&P/CS 20 City MoM SA Jan 0.80% 0.78% 1.00% 0.50% 0.70% 0.80%

03/29 08:00 S&P/CS Composite-20 YOY NSA Jan 5.74% 5.65% 6.40% 5.40% 5.73% 5.75%

03/29 08:00 S&P/Case-Shiller US HPI NSA Jan 175.65 175.49 -- -- -- 175.42

03/29 08:00 S&P/Case-Shiller US HPI YOY NSA Jan 5.43% 5.34% -- -- -- 5.43%

03/29 09:00 Consumer Confidence Index Mar 92.2 94 96.5 91 94 96.2

03/30 06:00 MBA Mortgage Applications 25-Mar -3.30% -- -- -- -- -1.00%

03/30 07:15 ADP Employment Change Mar 214k 205k 225k 150k 195k 200k

03/31 06:30 Challenger Job Cuts YoY Mar 21.80% -- -- -- -- --

03/31 07:30 Initial Jobless Claims 26-Mar 265k -- 278k 260k 265k --

03/31 07:30 Continuing Claims 19-Mar 2179k -- 2214k 2180k 2194k --

03/31 08:00 ISM Milwaukee Mar 55.22 -- -- -- -- --

03/31 08:45 Chicago Purchasing Manager Mar 47.6 -- 55 48 50.8 --

03/31 08:45 Bloomberg Consumer Comfort 27-Mar 43.6 -- -- -- -- --

03/31 09:00 Revisions: Wholesale Sales, Inventories

04/01 07:30 Change in Nonfarm Payrolls Mar 242k -- 250k 125k 210k --

04/01 07:30 Two-Month Payroll Net Revision Mar 30k -- -- -- -- --

04/01 07:30 Change in Private Payrolls Mar 230k -- 245k 105k 190k --

04/01 07:30 Change in Manufact. Payrolls Mar -16k -- 6k -10k 1k --

04/01 07:30 Unemployment Rate Mar 4.90% -- 5.00% 4.80% 4.90% --

04/01 07:30 Average Hourly Earnings MoM Mar -0.10% -- 0.50% 0.10% 0.20% --

04/01 07:30 Average Hourly Earnings YoY Mar 2.20% -- 2.40% 2.10% 2.20% --

04/01 07:30 Average Weekly Hours All Employees Mar 34.4 -- 34.5 34.4 34.5 --

04/01 07:30 Change in Household Employment Mar 530 -- -- -- -- --

04/01 07:30 Labor Force Participation Rate Mar 62.90% -- -- -- -- --

04/01 07:30 Underemployment Rate Mar 9.70% -- -- -- -- --

04/01 08:45 Markit US Manufacturing PMI Mar F 51.4 -- 52.9 51.4 51.5 --

04/01 09:00 ISM Manufacturing Mar 49.5 -- 53.2 48 50.8 --

04/01 09:00 ISM Prices Paid Mar 38.5 -- 45 39 44 --

04/01 09:00 ISM New Orders Mar 51.5 -- -- -- -- --

04/01 09:00 Construction Spending MoM Feb 1.50% -- 1.20% -0.50% 0.10% --

04/01 09:00 U. of Mich. Sentiment Mar F 90 -- 92 89 90.5 --

04/01 09:00 U. of Mich. Current Conditions Mar F 105.6 -- -- -- -- --

04/01 09:00 U. of Mich. Expectations Mar F 80 -- -- -- -- --

04/01 09:00 U. of Mich. 1 Yr Inflation Mar F 2.70% -- -- -- -- --

04/01 09:00 U. of Mich. 5-10 Yr Inflation Mar F 2.70% -- -- -- -- --

04/01 11:00 Revisions: Industrial Production

04/01 Wards Domestic Vehicle Sales Mar 13.74m -- 14.00m 13.20m 13.80m --

04/01 Wards Total Vehicle Sales Mar 17.43m -- 18.00m 16.80m 17.50m --

Source: Bloomberg

Page | 4

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Economic

Commentary

Economic Data

March 30, 2016

This material is prepared by the Fixed Income Strategy Department of Stifel Nicolaus & Co (“Stifel”). This material is for

informational purposes only and is not an offer or solicitation to purchase or sell any security or instrument or to participate

in any trading strategy discussed herein. The information contained is taken from sources believed to be reliable, but is not

guaranteed by Stifel as to accuracy or completeness. The opinions expressed are those of the Fixed Income Strategy

Department and may differ from those of the Fixed Income Research Department or other departments that produce similar

material and are current as of the date of this publication and are subject to change without notice. Past performance is not

necessarily a guide to future performance. Stifel does not provide accounting; tax or legal advice and clients are advised to

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Stifel Nicolaus & Co is a broker-dealer registered with the United States Securities and Exchange Commission and is a

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ADDITIONAL INFORMATION AVAILABLE UPON REQUEST

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2016 Stifel, Nicolaus & Company, Incorporated One South Street, 15 th Floor Baltimore, MD 21202 Member NYSE Member SIPC 888.290.1762

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