Economic Indicators Dashboard – May 2015 Update

- A blue color band represents the typical range for this indicator. +/- 1 standard deviation of historical values for the indicator fall in this range.
- An orange marker shows the most recent value – the closer the marker is to the blue bar, the closer it is to historically typical conditions.
- A grey area outside of the blue band which shows the range actual conditions.
- An arrow shows the most recent three-month trend indicating if it is moving toward or away from the typical range
Market Indicators
Market Volatility has steadily decreased since the beginning of 2015. In January, volatility (as measured by the CBOE VIX Index) was slightly over 19%, right in the middle of the typical historical range. Since that time, it has decreased to the current level of 13%, which is at the low end of the historical range. 10 Yr. U.S. Treasury Yield is still very low by historical standards. However, it has risen sharply from its low of 1.64% in January, and is now currently sitting well above 2.0%. The yield is expected to continue to trend upward as the market anticipates U.S. Fed action to start raising interest rates. The May reading of 2.13% marks the highest month end yield seen year to date. Russell strategists expect the U.S. Federal Reserve to start tightening monetary policy in September. May’s strong employment report gives confidence to the view that the economy continues to improve and can handle higher interest rates. An increase in interest rates should be viewed as a signal from the Fed that they believe the U.S. economy is finally on stable footing following the Global Financial Crisis.Economic Indicators
Core Inflation fell 0.09% to -0.11% from April’ reading of -0.02%. Falling energy prices (which appear to have recently stabilized) are mainly responsible for the negative inflation number, pushing it well outside the expected historical range. Russell expects low to moderate inflation in the near term. Unemployment rose in May to 5.5%, a slight increase from April, when the unemployment rate was 5.4%. While the top-line number worsened slightly, a closer reading of the employment report indicates an increase in labor force participation, which is good news for the economy, and boosts the odds of a September rate hike in our view. Economic Expansion (as measured by GDP) turned into economic contraction in May. Annualized GDP growth in May was measured at -0.70%, down almost 1% from April. The U.S. economy appears to have hit a soft patch in the first two quarters of the year. However, Russell strategists believe that economic growth should be robust for the remainder of 2015. Despite the low reading, May’s economic expansion still remains within one standard deviation of the historical range.The bottom line
We believe that these eight indicators will influence the shape of continued market and economic recovery. Despite a few lackluster readings for May, don’t sweat the small stuff: on the whole we consider May’s data to be strong.Russell Investments’ ownership is composed of a majority stake held by funds managed by TA Associates with minority stakes held by funds managed by Reverence Capital Partners and Russell Investments’ management. Copyright © Russell Investments 2015. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an “as is” basis without warranty. RFS 15405