Amid uptick in jobs data, a reason to pause

At first glance, the January jobs report issued today painted a picture of an economy firmly on the mend. We believe there are indeed many positives at hand, but we are also cautious about some potential soft spots. For instance, a broader look at historical employment indicators (such as those published by regional Federal Reserve Banks, among others) suggests that a critical problem within the employment picture has not been alleviated. That problem is stagnant wages. In short, we believe wage growth needs to be on better footing before we can say that the economy is on a long-term path to expansion.

Which brings us to interest rates. Will headline job growth eventually nudge rates higher? Some investors are probably thinking along those lines, but we caution them against being overly bullish on rates at this point. Even if rates bump up during the coming months, there is a strong chance that they will represent so-called false positives.

From a wider viewpoint, we believe fixed income investors will be well served by avoiding the urge to play a guessing game with rates. It will be more productive, we feel, to stay invested rather than create unnecessary choppiness by moving in and out of the market.

The views expressed represent the Manager's assessment of the market environment as of Feb. 6, 2015, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Views are subject to change without notice and may not reflect the Manager's views.

Investing involves risk, including the possible loss of principal.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

Notes from the desk

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