August 2018
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National Non-Operating Observations
Overall macroeconomic conditions remained stable in July. U.S. employment, as measured by the monthly change in non-farm payrolls, continued the strong, consistent growth it has shown since early 2011, reporting 157,000 new jobs in July. The Bureau of Labor Statistics also revised the May and June numbers to include an additional 59,000 jobs. U.S. policymakers have kept a keen eye on the overall employment picture and its corresponding impact on wage and price inflation, especially as the U.S. economy appears to be nearing full employment.
The Federal Reserve has raised its benchmark interest rate twice in 2018 and is broadly expected to raise rates twice more before year end, which has put upward pressure on short-term rates. The next Federal Open Market Committee meeting is scheduled to end on September 26, with many market participants expecting another rate increase. However, long-term interest rates have not increased as much, and even decreased broadly from April to July 2018. This has led to a broad flattening of the borrowing yield curve, with investors only demanding relatively small increases in yield for lending money for longer maturities.
†2Q 2018 Estimate
*60/40 Asset Allocation assumes 30% S&P 500, 20% MSCI World, 10% MSCI EM, 40% Barclays Agg.

July 2018
Month Over Month Change (bps)
Year Over Year Change (bps)

GDP Growth
Unemployment Rate
Personal Consumption Expenditures
30yr MMD
30yr Treasury
Monthly Return on 60/40 Asset Allocation*
Non-Operating Assets
World stock markets have rallied since the 2008-09 financial crisis and have shown strong, coordinated growth since the 2016 U.S. election. Interest rates across the world have also fallen to historic lows. Both these developments have been positive for equity and fixed income investment portfolios.
Despite a strong July, U.S. and world markets have had a lackluster 2018. The S&P 500 Index is up 5.3 percent year to date (with 3.6 percent of that increase in July alone), and the Barclays Agg. Index is down 1.6 percent year to date (no change in July). A stronger U.S. dollar has hit emerging markets hard, with exchange rates dropping and emerging market equities down 6.1 percent year to date (despite being up 1.7 percent in July).
Strong earnings growth from U.S. companies and a positive macroeconomic picture have continued to support the overall stock market, but volatility has returned. The U.S. is implementing tariffs against many of its major trading partners, to unknown short-term or long-term effect, and several emerging markets (namely Turkey and Argentina), have experienced capital flight, which has hit their currencies and economies hard.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
Non-Operating Liabilities
Capital markets borrowing levels, as approximated here by the ’30-yr U.S. Treasury’ and ’30-yr MMD Index,’ are dependent upon macroeconomic conditions, including inflation expectations, GDP growth and investment opportunities elsewhere in the market. For July, the 30-yr U.S. Treasury increased by 0.09 percent (ending at 3.08 percent) and the 30-yr MMD Index increased by 0.07 percent (ending at 3.01 percent).
Investment flows into and out of mutual funds directly impact the appetite and portfolio composition of long-term investors. Fund inflows generally are moderate and consistent over some time horizon. Fund outflows typically are large and sudden, as external events affect investor sentiment, resulting in selling bonds at lower prices and driving yields up. Flows for this year have oscillated slightly, but recent months have seen sizeable positive net inflows—with a monthly average of $1.85 billion since May.
Long Term
Last Twelve Months
Long Term
Last Twelve Months
National Observations
National Observations
©2018 Kaufman, Hall & Associates, LLC
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