July 6, 2018
It's Friday and that means it's time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don't worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let's take a look at this week's big headlines…
The Institute of Supply Management (ISM) announced that its manufacturing index rose to 60.2 in June, up from 58.7 in May. This is the second highest reading for the ISM manufacturing index in the past 14 years—it's just a bit below the record hit in February. The new orders and employment components of the ISM manufacturing index remained strong. I should add that due to the heat wave that has enveloped much of the U.S., utility output will likely rise and further boost the ISM manufacturing index, and well as factory orders, in the next couple months.
On Thursday, ADP reported that 177,000 private sector jobs were created in June. This was below economists' consensus estimate of 190,000 jobs. However, ADP also revised May's private payrolls up to 189,000, up from 178,000.
On Friday, the Labor Department reported that 213,000 payroll jobs were created in June. This was better than economists' consensus estimate of 200,000. The payrolls for April and May were also revised up by a combined 37,000 to 175,000 (up from 159,000) and 244,000 (up from 223,000), respectively.
Interestingly, the unemployment rate rose in June to 4%, up from 3.8% in May. This was due to approximately 601,000 individuals being added to the labor force, many of which were recent college graduates. The labor force participation rate rose to 62.9% in June, up from 62.7% in May. Wages rose only by 0.2% to $26.98 per hour. Overall, the payroll report was positive and the lack of wage inflation may cause the Fed to hesitate a bit before raising key interest rates later this year.
The Federal Open Market Committee (FOMC) released the minutes from its last monthly meeting on Thursday. There were a few key takeaways. First, the Fed seemed relieved that it has finally hit its 2% inflation target. If you remember, the last time that it hit this target was in 2011.
Second, there was plenty of talk about the U.S. and China tariffs. I wouldn't be surprised if the Fed used this as an excuse to postpone further rate increases. At this point, I expect one more interest rate hike from the Fed this year. However, it all depends on what market rates do. So we remain in a "Goldilocks" environment where low interest rates and robust economic growth are propelling the stock market higher.
That's all I have for you this week. I'll be in touch again next week with the latest ratings out of Portfolio Grader.
Until next week,