06 Aug Pending Home Sales, Employment Cost Index, Personal Incomes, Consumer Spending & Core Inflation, Case-Shiller Home Price Index, Chicago PMI, Consumer Confidence, ISM Manufacturing Index, and more…
Pending Home Sales
US pending home sales rose 0.9% in June. The index tracks real estate transactions in which contract has been signed yet the transaction has yet to close. It rose to a level of 106.9 in June but was lower than last years level for the sixth month in a row, this month had a 2.5% decline to sales on a yearly basis. The increase that occurred this month beat economists forecast of 0.8% growth for the month. The housing market appears to be increasingly running on fumes as demand continues to overwhelm supply. Sales of previously-owned homes tumbles to a five-month low in June, however, June did mark the first month with an increase to inventory in three years, this may have helped to boost the pending home sales. International purchases of US real estates slid 21% from April 2017 to March 2018, foreign buyers and recent immigrants accounted for 8% in this period. This is down 10% in the 12-month period up to March 2017. It is uncertain about whether this decline is temporary or will persist. It is expected that overall existing home sales in 2018 will see a 1% decline compared to the year before, while the median existing home price is forecasted to increase by 5%.
Employment Cost Index
American workers are finally reaping the benefits of the lowest unemployment rate and best jobs market in decades: wages and benefits are rising at the fastest pace in a decade. The unemployment index rose 0.6% in the second quarter just a tick below estimates of 0.7%. The cost of worker compensation in the form of pay and benefits edged up to 2.8% to mark the biggest yearly gains since mid-2008. Wages rose 0.5% in the second quarter. The biggest increase was in the benefits employees received, they jumped 0.9% to mark the largest advance in four years. Employees in the private sector are faring better than those in the government sector. The Employment Cost Index reflects how much companies, governments, and nonprofit institutions pay employees in wages and benefits. Wages and compensation are going up because unemployment is way down. The jobless rate has tumbled to an 18-year low of 4% after the hiring of millions of people in the past eight years. More and more companies complain they cannot find enough skilled workers. Firms have sought to fill openings by offering benefits such as more vacation time or flexible hours, as well as offering higher pay. While bigger paychecks are great for workers, the Federal Reserve is watching closely to see if rising compensation is affecting inflation.
Personal Incomes, Consumer Spending & Core Inflation
Consumer spending rose a solid 0.4% in June; while gross domestic product surged 4.1% in the period from April to June. Economists had forecasted a slightly higher 0.5% increase in spending. Incomes also rose 0.4%. The PCE index, the Federal Reserve’s preferred inflation gauge, rose 0.1%. The core rate which strips out food and energy increased by 0.1% as well. The rate of inflation over the past 12 flat lined at 2.2% in June. Although that matches a six-year high, inflation appeared to have reached a peak, at least temporarily after the prolonged upturn. Similarly, the yearly change in the core rate was unchanged at 1.9%. Americans spent more at restaurants and hotels as summer got underway; auto dealers posted strong sales as well. The increase in spending was supported by rising incomes. Even though spending rose sharply in the spring and early summer, the US savings rate held steady at 6.8%. The best jobs market in decades has put millions of people to work, boosted incomes and given Americans the confidence to spend. On the downside, however, labor shortages and continuing rising costs for raw materials have pushed up inflation after a long period of calm. If inflation keeps increasing, the Federal Reserve would have to raise US interest rates higher. The central bank is aiming to keep a nine-year-old expansion on track without letting inflation get out of hand; if it were to fail the economy could plunge into another recession. Both wages and inflation were tame in the second quarter after increasing significantly in the first quarter. Consumers are finding themselves in much better shape than previously reported with more income and a much higher saving rate than expected this far into a business cycle expansion.
Case-Shiller Home Price Index
The Case-Shiller index rose a seasonally adjusted 0.4% and was up 6.4% for the year in the month of May. The 20-city index rose a seasonally adjusted 0.2% and was up 6.5% from a year ago. Home price gains are decelerating, but still remain strong and are running well ahead of wage gains and inflation. In the three-month period ending in May, three cities had annual appreciation in the double-digit percentages. No cities had monthly declines. The slowdowns are modest and may even signal a long-awaited soft landing for an overheated housing market. In other signs that the skewed supply demand dynamic that has pushed prices higher may be weakening. In June, inventory was just a bit higher than a year ago for the first time in three years. This may have helped to boost June home purchase contract signings.
The Chicago PMI rose 1.4 points to 65.5 in July, the highest reading in six months. Readings above 50 indicate improving conditions. The new orders and production indexes also hit six-month highs, while the prices paid index reached a ten year high!
Americans are still plenty confident in the US economy which has been growing for more than nine years and shows little sign of slowing. The consumer confidence index rose to 127.4 in July from a revised 127.1 in the month prior. Although just below a recent peak of 130, this reading is still one of the highest in 18 years. The present situation index is a measure how the economy is doing right now; it rose to 165.9 from 161.7. The expectations index that looks into the future six months declined to 101.7 from a previous reading of 104. The economy had one of its best quarterly performances with growth surging 4.1% in the three months from April to June. Strong hiring and low unemployment as well as rising income are giving the economy a lift. Disputes over trade and rising US interest rates could dampen this growth as soon as the fall. Consumers’ assessment of present day condition improved, this suggests that economic growth remains strong. However, while expectations continue to reflect optimism in the short-term economic outlook, back to back declines suggest consumers do not foresee growth accelerating.
ISM Manufacturing Index
American manufacturers grew less rapidly in July, held back by shortages of skilled labor, higher costs for raw materials due to tariffs and difficulty getting enough transportation. The ISM manufacturing index dipped to 58.1% in July from 60.2%; for the lowest reading since April, it is however still a strong overall number. Economists had forecasted a higher total to the index of 59.5%. Readings over 50% indicate more companies are expanding instead of shrinking, while numbers over 55% indicate very strong growth. The ISM’s new orders index slid 3.3 percentage points to 60.2, and production fell 3.8 points to 58.5%. The employment gauge edged up to 56.5% from 56.0%. The supplier’s deliveries index dropped a sharp 6.1 points to a still strong 62.1% reading. This index is a window into the US economy and how fast its expanding. Automakers and other manufacturers are still growing rapidly despite the tariffs recently implemented by President Trump and threats of retaliation from other companies. The biggest problem for most companies is recruiting skilled workers in a tight labor market, getting raw materials at a decent price and finding enough truckers to transport their goods. Though these may be good problems to have, they are leading to higher prices and in effect possibly higher inflation. If inflation continues rise, the Federal Reserve is likely to increase US interest rates higher than what was previously expected.
Construction spending fell 1.1% in June, as both residential and nonresidential spending dropped. Even with the decline, spending has climbed 6.1% over the last 12 months. May’s growth rate was revised to show a 1.3% increase instead of a previously reported 0.4% gain. The June seasonally adjusted annual level of 1.32 trillion was above the initially reported May reading of $1.31 trillion.
The Federal Reserve in its most recent meeting upgraded the assessment of the economy and hinted at another rate hike as soon as September. The Fed voted unanimously to keep its benchmark federal-funds rate at 1.75% and 2%. The Fed noted that job gains and economic activity have been “strong.” The FOMC expect that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation. Since the last Fed meeting, the government reported the economy grew at a solid 4.1% annual rate in the second quarter. Economists say that is fast enough to keep downward pressure the unemployment rate and put more upward pressure on wages. Inflation has picked up this year, rising 2.2% in the 12 months ending in June. Markets are pricing in about a 90% probability of another gradual rate hike in September and a 70% chance of another in December. The market and the Fed part ways about the outlook for 2019. The central bank has targeted three more rate hikes in 2019, but the market is pricing in only one increase.
Motor Vehicle Sales
US auto sales slowed in July as rising interest rates, higher gasoline prices, and falling demand for passenger cars negatively effected the industry’s momentum after its strong first half of the year. Buyers continued to flock to higher priced sport utility vehicles and pickup trucks despite the creeping higher fuel prices. Analysts predict July could be a turning point for US auto industry sales, which had been tracking at a near record pace for the first six months bat are expected to cool in the second half of the year.
Weekly Jobless Claims
Initial jobless claims are a tracker for layoffs in the US; claims crept higher at the end of July but still remained near a half century low. New claims inched up by 1,000 to 218,000 in the week of July 22 to July 28. Economists had forecasted a higher reading of 220,000. Until recently claims haven’t been this low since the early 1970’s. The economy reached a 4.1% rate of growth in the spring, powered by higher consumer spending and business investment. Strong growth has led to more hiring and has reduced unemployment down to an 18 year low. The more stable monthly average of claims dropped by 3,500 to 214,500 in the latest week. This is the second lowest reading during the nine year old expansion which began in mid-2009. The number of people collecting unemployment benefits, also known as continuing claims, also declined by 23,000 to 1.72 million. These continuing claims are almost a quarter of a million-lower compared to the same time last year. The economy may surpass 3% growth in 2018 for the first time in 13 years. Virtually every industry is hiring and the labor market hasn’t been this good in decades.
Nonfarm Payrolls, Unemployment Rate, Average Hourly Earnings
The US posted another solid hiring gains in July, showing that companies are still able to find enough workers to meet the growing needs of a rapidly expanding US economy. 157,000 new jobs were created last month despite widespread complaints among business about a shortage of skilled labor. The increase in hiring fell below the 195,000 forecasts, but job gains in May and June were stronger than previously reported. The smaller gain in employment was also a result of the governments cutting jobs in education during the summer break as well as the closures of Toys R Us. Otherwise hiring may have topped 200,000. Unemployment slipped below 4% again to 3.96% as more people found work. The jobless rate is at a nearly two decade low. The complaints about how hard it is to find good workers still aren’t inducing companies to increase salaries and wages. Hourly pay rose 7 cents in July to $25.07, but the 12-month rate of wage gains remained unchanged at 2.7%. Even these increases have been largely eaten up by rising inflation. Wages usually rise 3% to 4% a year when the labor market is as tight as it is now. White collar professional firms added 51,000 jobs last month, continuing a strong run of employment gains. Manufacturers filled 37,000 jobs. Health car providers hired 34,00 and bars and restaurants increased staff by 26,000. Construction companies took on an additional 19,000 workers despite a nationwide shortage of labor. Builders are saying it is increasingly hard to find experienced carpenters, framers, concrete pourers, etc. The financial industry and government were the only industries to trim employees. Banks and insurers cut 5,000 jobs and government jobs declined by 13,000. The total number of new jobs created in June and May was upwardly revised by a combined 59,000.
The trade deficit rose 7% in June, marking the first increase in four months, keeping the US on track to post the largest annual gap in a decade even as the White House escalated tariffs in an effort to bring it down. The deficit climbed to $46.3 billion from a revised $43.2 billion in May. Economists had forecasted a slightly higher $46.6 billion gap. The US deficit added up to $291 billion in the first six months of 2018, compared with $272 billion in the first half of 2017. US exports fell 0.6% to $213.8 billion just a month after hitting a record high. The biggest drop was in new cars and trucks, as well as exports of drugs, jewelry, and passenger planes. Soybean exports surged again following a similar spike in May as buyers sought to stock up before the retaliatory tariffs are implemented. Soybean shipments were nearly 50% higher in the first six months of this year as compared to the firs six months of 2017 when shipments were at 10.9 billion, now currently at $15.2 billion. Exports could soon taper off sharply as the tariffs kick in. Imports rose 0.6% to $260.0 billion. The US imported more oil and pharmaceutical drugs while oil imports were the highest in three and a half years. The newly imposed tariffs by President Trump on foreign steel and aluminum appeared to have an effect as import of both metals sank in June. Part of the reason the trade deficit continues to increase is that the US economy is doing well compared to other countries and Americans can afford to buy more imports. The rising value of the dollar has also made American exports more expensive for foreign customers to buy. The US has run trade deficits for years, and it is unlikely that any president could quickly reduce them. The US doesn’t even produce many of the goods that it imports from China in mass quantities. An intensifying trade war with Chinese is a wild car, most economists predict the trade gap will increase at a faster pace in the second half of the year. If it does, the annual deficit could surpass last year’s total of $552 billion and hit the highest level since 2008. A bigger trade deficit could reduce the US economy’s gross domestic product. Exports will rise over the quarter, but strong domestic demand growth will lift imports at a more rapid pace than exports.
ISM Nonmanufacturing Index
The Institute for Supply Management said Friday that its non-manufacturing index fell to 55.7% in July from 59.1%, for an 11-month low. Economists had expected an increase to a reading of 58.6%. Like most indexes, a reading above 50% indicates expansion. There was a sharp 7.4-point drop in production, the new orders index sank 6.2% to 57%. There were complaints from purchasing managers about tariffs and slow deliveries as well as overseas growth. Business is up overall, but a lot of question loom over the rest of the year. These include concerns about international markets and increasing tariffs that impact the landed costs of goods. There has been a cooling off in growth for the non-manufacturing sector. The second longest post war economic expansion continues to be the driving force behind gains, as the index has been above the level indicating expansion for 102 consecutive months. Service businesses are more insulated.