August 6, 2017 – The U.S. labor market generated 209,000 jobs in July while the unemployment rate dipped by 0.1% to 4.3%, matching a 16-year low.  The labor force participation rate ticked up by 0.1% to 62.9%, or roughly where it has averaged the last several years.  Average hourly earnings rose just 0.3% for the month, or 2.5% over the past year.   More importantly, the Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE) Index was unchanged in June and rose just 1.4% compared to a year ago.  Core PCE which excludes food and energy costs, increased only 0.1% last month and 1.5% in the past year.  July’s employment report is solid but not game changing for the Fed given tepid inflation data.  The real question is how long can the current steady growth and low inflation environment last?  If labor market slack remains, then wage growth and overall inflation could stay at current low levels for an extended period of time.  In contrast, less slack could trigger stronger wage gains leading to higher inflation and a faster pace of Fed rate hikes.  The bond market seems to be indicating overall inflation will remain low as it has been for the last several years.  The 10 Year Treasury were little changed on the week despite the robust labor market report.  Over the past 3 months, rates have remained within a 25 basis point trading range.  For Alternative Lenders, the environment remains strong.  

This week, Kabbage announced a $250 million equity investment from Japanese telecom giant SoftBank. The company plans to use the money to expand its lending products for small businesses and explore non-lending products and services for these customers, including invoicing and payments products.  Bread, the consumer purchase finance technology company that builds customizable pay-over-time solutions for online merchants, announced that it completed $126 million of equity and debt financing.  Menlo Ventures led the equity round, with participation from Bessemer Venture Partners, RRE Ventures, and others.  The debt facility was provided by Victory Park Capital.  PeerIQ announced our $12M Series A round, led by TransUnion, Hearst Financial Venture Fund, and Macquarie Group.  Kroll Bond Ratings has assigned preliminary ratings to Prosper Marketplace Issuance (PMIT 2017-2) which priced last week. The three classes of notes, classes A, B, and C, totaling $501.06 million, were assigned preliminary ratings of A, BBB, and B+ respectively.

Opinions expressed within the commentary are general opinions of Chris Lalli and Jae Lim and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  Payden & Rygel, TIAA-CREF, Orchard Platform