Global Investment Strategy
Global Macro Strategy Report
May 12, 2015
Analysis and outlook for the global economy
Sameer Samana, CFA ®
Senior Global Strategist
» U.S. payrolls increased in line with expectations and showed
an improvement over last month’s disappointing number.
» Ahead of the release, many investors were worried about a
really weak number (that would suggest an economic
slowdown) or a really strong number (that may lead the
Federal Reserve to raise rates too soon). The “Goldilocks”
number helped assuage both of those concerns.
What it may mean for investors
» The solid payrolls data reinforces our positive economic
outlook for the remainder of the year. We believe there is still
time for investors to get fully invested to strategic targets,
especially in equities.
U.S. payrolls continue steady improvement
Last week’s closely-watched U.S. payrolls and unemployment data was in line with consensus expectations,
continuing the trend of a gradually improving U.S. labor market. The release reinforces our view that the weakness
in first-quarter economic data was a result of temporary weather-related and West Coast port shutdown-related
factors and U.S. economic growth should improve throughout the remainder of the year. We also believe the goodbut-not-great number, along with mild gains in wages, may prompt the Federal Reserve (Fed) to raise interest rates
in the second half of the year, and do so at a measured pace. Given the constructive fundamentals of the U.S. equity
market, investors should use pullbacks in U.S. equities to add exposure that is in line with strategic targets.
Investors approached last Friday’s release of the monthly payrolls data with apprehension. On the one hand, a
disappointing number would make for two consecutive bleak data points and possibly suggest that the U.S.
economy was headed for yet, another slowdown. On the other hand, a really strong number might strengthen the
Fed’s case for a June rate hike, which many investors already had called into question as being premature.
Ultimately, the actual number of 223,000 jobs that were created in April was an improvement over the revised
85,000 jobs created in March, and very close to the 12-month average (see chart 1).
This “Goldilocks” number seems to have assuaged investor concerns of both an economic slowdown and a June
rate hike, and reinforces our view that U.S. economic growth remains on track. In addition, the tepid increase in
wages that the report pointed out also suggests that the Fed may have to wait a little while longer for the wage
increases it has been anticipating, but there are signs the increases are coming. The chart on the next page shows
that as the 12-month average number of jobs created rises, the number of employers planning to raise wages also
increases. This correlation indicates that as slack declines in the labor market and skilled employees become more
difficult to recruit, employers find themselves struggling to attract and retain talent. If this trend continues, we
could see an uptick in wage growth in the second half of the year, which may lead to improvement in consumer
confidence and spending. That bodes well for economic growth prospects and the possibility for the positive
equity market performance trend to continue.
For these reasons, we believe there is still time for investors to fully participate in today’s markets, especially in
equities. Investors should use pullbacks in stock prices to their potential advantage and continue to take
allocations towards recommended long-term targets. As a reminder, for 2015 we continue to believe that U.S.
equities will outperform developed-market equities, and emerging market stocks will lag both asset classes.
© 2015 Wells Fargo Investment Institute. All rights reserved.
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Global Investment Strategy—| U.S. payrolls continue steady improvement | May 12, 2015
Chart 1: Number of jobs created vs. planned compensation increases
400
25
200
20
100
0
15
-100
-200
10
-300
Index level
Number of jobs created (in thousdands)
300
-400
5
-500
-600
-700
1987
1991
1995
1999
2003
2007
2011
0
2015
Change in non-farm payrolls (12-month average) - Left Axis
NFIB Small Business Compensations Plans Index (12-month average) - Right Axis
Sources: Wells Fargo Investment Institute, Bloomberg
Data sample: Payrolls data is monthly from Apr. 1, 1987 to Apr. 30, 2015 and NFIB Small Business Compensation Plans Index is monthly from Apr. 1, 1987 to Mar. 31, 2015
As of May 8, 2015
Risk Factors
All investing involves some degree of risk, whether it is associated with market volatility, purchasing power or a specific
security. Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other
investments.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation,
political and economic instability, and different accounting standards. This may result in greater share price volatility. These
risks are heightened in emerging markets.
Disclaimers
Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII) WFII is a registered investment
adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A.,
Wells Fargo Advisors and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.
The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of
this report and are for general information purposes only and are not intended to predict or guarantee the future performance of
any individual security, market sector or the markets generally. GIS does not undertake to advise you of any change in its
opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that
are inconsistent with, and reach different conclusions from, this report.
This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any
investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment
decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information,
including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon.
Brokerage products and services are offered through Wells Fargo Advisors. Wells Fargo Advisors is the trade name used by two
separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members
SIPC, non-bank affiliates of Wells Fargo & Company. CAR 0515-02282
© 2015 Wells Fargo Investment Institute. All rights reserved.
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