The most recent read on broad U.S. economic growth showed a deceleration in the final quarter of 2014. Real gross domestic product increased at an annualized rate of 2.2 percent in the fourth quarter of 2014. This pace of growth represents a slow-down from the prior two quarters, which saw growth of 5.0 percent in the third quarter and 4.6 percent in the second quarter. For the full-year 2014, real GDP increased by 2.4 percent. Corporations felt the effects of the slowdown during the final months of 2014. The Commerce Department reported that after-tax corporate profits fell by 3 percent from the prior quarter. Consumers, however, continued to spend at the fastest pace since the first quarter of 2006 as real personal consumption expenditures increased at 4.4 percent. There appear to be two major factors influencing the willingness of consumers to spend. The first is the job market, which has continued to expand over the past several months. In February, total non-farm payroll employment rose by 295,000. Over the past 12-months, monthly gains in non-farm payrolls have averaged 266,000. In addition, the unemployment rate fell to 5.5 percent. This is the lowest level for the headline unemployment number since May 2008 and is down from the peak of 10 percent during the depths of the recession in 2009. The other factor aiding consumers has been the rapid decline in energy prices. The average retail price of a gallon of fuel is currently $2.45 compared to an average price of $3.57 one year ago.
After falling 3.0 percent in January and rising 5.75 percent in February, the Standard & Poor’s 500 Index closed out the month of March 1.58 percent lower, leaving it slightly positive so far in 2015. The Dow Jones Industrial Average and the S&P 500 both set record closing highs in early- March, while the NASDAQ Composite breached the 5,000- level on a closing-basis three times during the month. Foreign and emerging market stocks staged a turn-around during the first quarter with both the MSCI EAFE and Emerging Markets indexes outperforming the S&P 500 after underperforming three out of the past four calendar years. Small-cap stocks performed well during the quarter with the Russell 2000 Index rising by 4.32 percent, while growth stocks out-performed value stocks.
Interest rates ended the quarter lower with interim moves driven by concerns over weak global economic growth countered by relatively stronger U.S. growth and anticipated interest rate moves by the Federal Reserve. The yield on the 10-year US Treasury note declined in January and early-February due to concerns over global economic growth. The 10-year yield fell to a low of 1.64 percent in late-January, the lowest since May 2013. During the month of February and continuing through the early part of March yields rose, hitting a peak of 2.24 percent on March 6th following the most recent release of the monthly employment situation by the Bureau of Labor Statistics. Since early-March yields have drifted downward, trading below 2 percent over the final two weeks of the quarter.