Weekly Economic Update 8/13/2018 Facebook Google+ Twitter LinkedIn Email INFLATION AT 2.9%, CORE INFLATION AT 2.4% Friday, the Department of Labor reported these annualized gains through July of this year for the Consumer Price Index. Both the headline and core CPIs rose 0.2% last month, matching the consensus forecast of economists polled by Reuters. The yearly core inflation increase is the largest on record since September 2008. (The core inflation reading leaves out food and energy costs.) The Producer Price Index was flat in July, with the yearly advance declining slightly to 3.4%; the core PPI rose 0.3%, resulting in

Weekly Economic Update 7/30/2018 In this week’s recap: an impressive Q2 GDP reading, a consumer sentiment dip, a falloff in home buying, and the end of a long stock market correction. Facebook Google+ Twitter LinkedIn Email Print Pinterest First estimate of Q2 GDP: 4.1% Not since the third quarter of 2014 has the economy grown at such a pace. In its report released Friday, the Bureau of Economic Analysis noted 4.0% growth in consumer outlays during the quarter, a 7.3% improvement in business spending, and 3.5% more federal government spending. The BEA also revised the first-quarter GDP number up 0.2%

Weekly Economic Update 7/23/2018 Facebook Google+ Twitter LinkedIn Email ANOTHER GOOD MONTH FOR RETAIL SALES Americans are spending freely, as new Census Bureau data confirms. Retail sales advanced 0.5% last month, matching the consensus forecast of economists surveyed by Reuters, in the wake of a revised 1.3% May gain. (May was the best month for buying since last September.) The only negative note: core retail sales were flat in June. (Core sales exclude food, fuel, auto, and home improvement purchases.)1 HOUSING STARTS SINK TO A 9-MONTH LOW Taking their biggest monthly fall since November 2016, starts unexpectedly dropped 12.3% in

INFLATION NEARS 3% The federal government’s Consumer Price Index rose 2.9% across the 12 months ending in June, a level of annualized inflation last seen in February 2012. Yearly inflation has now increased for five straight months (although the headline CPI went north only 0.1% last month). The core CPI, which removes food and fuel costs, rose 0.2% in June, bringing its 12-month gain to 2.3%. Over the past 12 months, the cost of fuel oil climbed 30.8%; the cost of gasoline, 24.3%. Feeling the effect of those advances, the Producer Price Index rose 3.4% in the year ending in

INCOME AND SPENDING RISE, ALONG WITH CORE INFLATION According to the latest monthly Department of Commerce snapshot, personal incomes improved 0.4% in May. Personal spending, however, advanced just 0.2% (half the gain forecast by economists polled by Reuters) and was actually flat when adjusted for inflation. May also brought the sixth straight 0.2% monthly increase for the core PCE price index, which the Federal Reserve uses as its inflation yardstick. The core PCE was up 2.0% year-over-year through May, reaching the central bank’s annualized inflation target for the first time in more than six years.1 CONSUMER CONFIDENCE GAUGES SHOW JUNE

TARIFF TALK INTENSIFIES Major economic powers proposed additional import taxes last week, as investors wondered if a global trade war was now underway. Monday evening, President Trump stated that he had instructed U.S. Trade Representative Robert Lighthizer to identify another $200 billion of Chinese products to subject to a new 10% import duty. Shortly before the trading week began, the European Union proclaimed it would place import taxes on $3.3 billion of U.S. products, in retaliation to recently imposed metals tariffs. Friday, President Trump mulled imposing a 20% tax on autos arriving from the E.U. unless it lifts such import

FED, NEW TARIFFS GET WALL STREET’S ATTENTION As expected, the Federal Reserve adjusted the target range on the federal funds rate to 1.75%-2.00% on Wednesday. The central bank’s latest dot-plot projection, however, raised some eyebrows: it showed four interest rate increases planned for 2018 instead of three. The median forecast of Fed officials puts the benchmark interest rate at 2.4% at the end of this year, on the way to a peak of 3.4% in 2020. Friday morning, the Trump administration announced new 25% tariffs on at least $34 billion of Chinese imports. Hours later, China retaliated, declaring that it

100 MONTHS OF GROWTH FOR SERVICE BUSINESSES The Institute for Supply Management announced this milestone as it revealed a 58.6 May reading for its non-manufacturing purchasing manager index. That excellent reading was well north of the 56.8 mark seen in April. Fourteen of the fifteen service industries followed by the PMI reported expansion in May; the information sector was the only outlier.1     Q2 GDP OUTLOOK BRIGHTENS Is the economy now expanding at the rate of 5% a year? The bold new estimate by the Federal Reserve Bank of Atlanta nearly says as much. The Atlanta Fed projects a 4.6%

HIRING, HOUSEHOLD SPENDING STRENGTHEN Net job growth surprised to the upside in May: companies added 223,000 more workers than they laid off or fired. At 3.8%, the unemployment rate is now where the Federal Reserve thought it would be at the end of 2018, and it is also at its lowest level since April 2000. Underemployment, as measured by the Department of Labor’s U-6 jobless rate, fell 0.2% in May to a 17-year-low of 7.6%. Year-over-year wage growth was measured at 2.7% in this latest labor market snapshot. In another sign of a strong economy, the Department of Commerce said

HOME SALES DECLINE Both new and existing home sales weakened in April, according to reports from the Census Bureau and National Association of Realtors. Resales were down 2.5%; new home buying, 1.5%. NAR chief economist Lawrence Yun cited “the utter lack of available listings on the market” as the “root cause” of the retreat in resales. Existing home sales were down 1.4% year-over-year through April; on the other hand, the pace of new home buying improved 8.4% in the same 12 months. Zillow says that existing home values soared 8.7% in the year ending in April; that is the largest

OIL HITS A 4-YEAR PEAK The price of WTI crude settled at $71.36 on Thursday, hours after Bank of America Merrill Lynch analysts forecast $90 oil by spring 2019 and a “risk of $100 a barrel” Brent crude next year. Thursday’s close was oil’s highest settlement since November 2014. Futures rallied 1.4% on the week after the Trump administration said that the U.S. would exit the Iran nuclear deal and reinstate sanctions against that OPEC member. That implies reduced global oil supply. As of Friday evening, no other OPEC country had committed to produce more oil in response. WTI crude

JOBLESS RATE HITS 18-YEAR LOW Unemployment fell to 3.9% in April, the Department of Labor said Friday – the smallest percentage seen since late 2000. Additionally, the U-6 underemployment rate declined to 7.8%, a 17-year low. Payrolls expanded with 164,000 net new jobs last month; the economy has created an average of 200,000 jobs a month so far in 2018, compared to 177,000 a month in 2017.1   PERSONAL SPENDING IMPROVES 0.4% The March gain reported by the Bureau of Economic Analysis was the best since the 0.5% advance in December. Personal wages increased 0.3% for March, replicating the gain from

MAIN STREET SUSTAINS ITS OPTIMISM America’s two most respected consumer confidence indices just improved. The University of Michigan’s final April household sentiment gauge rose a full point from its initial reading to 98.8 last week, and the Conference Board’s index came in at a great 128.7 for April – 1.7 points higher than its March mark.1   HOW FAST DID THE ECONOMY GROW IN Q1? According to the Department of Commerce, the annualized pace of growth was 2.3%. That beat the 2.0% consensus forecast from MarketWatch. The Federal Reserve believes the economy will expand 2.7% this year.1,2 SPRING BRINGS THE HOME

CONSUMERS BOUGHT MORE IN MARCH According to a report from the Department of Commerce, retail sales jumped 0.6% last month. That was the biggest monthly gain recorded since November (and the first monthly advance of 2018). Sales of cars and trucks were up 2.0%, making March the best month for that category since September.1  CONSTRUCTION ACTIVITY INCREASES New Census Bureau data shows housing starts improved 1.9% in March; also, building permits rose 2.5%. In February, permits fell 4.1% and starts declined 3.3%.2     INDUSTRIAL OUTPUT RISES 0.5% This March gain reported by the Federal Reserve followed a (revised) 1.0% advance

CONSUMER SENTIMENT INDEX DESCENDS SLIGHTLY In its initial April edition, the University of Michigan’s survey of household sentiment saw its index decline to 97.8 from its final March reading of 101.4. The survey’s chief economist, Richard Curtin, believed that “uncertainty surrounding the evolving [U.S.] trade policy” affected the reading, but he added that “confidence still remains relatively high.”1   A SURPRISE RETREAT FOR THE HEADLINE CPI Economists polled by Briefing.com assumed the Consumer Price Index would rise 0.1% in March. Instead, it fell by that amount, largely due to a dip in gasoline costs. Core consumer inflation increased 0.2% and matched

HIRING WEAKENED IN MARCH Payrolls expanded by only 103,000 net new jobs last month, according to the latest employment report from the Department of Labor. Some economists wondered if harsh weather distorted the number (job growth was also poor in March 2015 and March 2017). The main jobless rate stayed at 4.1%; the broader U-6 rate, counting the underemployed, fell 0.2% to 8.0%, an 11-year low. Yearly wage growth was at 2.7%. Lastly, February’s huge net job gain was revised up by 13,000 to 326,000.1     TRADE TENSIONS PERSIST Thursday night, the Trump administration announced the possibility of $100 billion

HAS CONSUMER SPENDING MAINTAINED ITS PACE? A new Department of Commerce report states that consumer spending rose 0.2% in February as consumer incomes improved 0.4%. These numbers replicated January’s gains. Even so, the personal savings rate hit a 6-month peak of 3.4% in February, suggesting that spending may have leveled off in the first quarter. Newly revised data shows that the economy was very healthy in the fourth quarter. Real consumer spending (personal spending adjusted for inflation) increased 4.0% while Gross domestic product expanded at a 2.9% annual rate. (The previous Q4 GDP estimate was 2.5%.)1,2     STILL PLENTY OF

TRADE WAR POSSIBILITY WEIGHS ON STOCKS Last week, the U.S. imposed excise taxes on steel and aluminum imported from select countries and announced that up to $60 billion of Chinese imports would also soon face tariffs. These protectionist moves weakened bullish sentiment on Wall Street. The S&P 500 fell steadily Thursday and Friday and had its worst week since 2016, slipping 5.95% to 2,588.26; the Dow Industrials sank 5.67% on the week to 23,533.20. The Nasdaq Composite settled at 6,992.67, down 6.54% for the week.1,2   FED MAKES ITS FIRST INTEREST RATE MOVE OF 2018 After Federal Reserve officials voted to

PRICE GAINS EASE There was no half-percent spike in inflation in February. In contrast to January’s big jump, the headline Consumer Price Index rose 0.2% in the second month of 2018, with the core CPI following suit; the year-over-year CPI gain ticked slightly higher to 2.2%. The headline and core Producer Price Index also increased 0.2% last month; yearly wholesale inflation rose just 0.1% to 2.8%.1      THE CONSUMER IS CONFIDENT Displaying a preliminary March reading of 102.0, the University of Michigan’s consumer sentiment index reached a 14-year peak last week. Analysts polled by Reuters expected the gauge to decline

FEBRUARY SAW A HIRING SURGE Payroll growth was truly impressive last month. According to the latest Department of Labor report, employers added 313,000 net new jobs, including 61,000 in the construction industry; economists polled by Reuters projected a total February gain of 200,000. With the labor force participation rate reaching a 6-month high, the headline jobless rate stayed at 4.1% and the broader U-6 rate at 8.2%. Yearly wage growth declined to 2.6%.1  SERVICE BUSINESSES ARE THRIVING The Institute for Supply Management’s February snapshot of service industry growth was quite positive. ISM’s non-manufacturing purchasing manager index did wane slightly, losing