This was a busy week, between the kickoff of the Olympics, earnings season as well as the conclusion of the two-day Federal Reserve policy meeting, and I’d like to take a moment to review the latest economic headlines from the United States, which I consider to be the oasis among the global economic slowdown.
The Jobs Market
Jobless claims rose by 8,000 to 365,000. It looks like the dust has settled from the temporary layoffs at automobile factories which caused the volatility we experienced the past few weeks. Now that we have reached a more stable hiring environment, I’m hopeful that jobless claims can continue to trend downwards.
The Labor Department reported that 163,000 new jobs were created in July, the best monthly payroll job growth since February. July payrolls were also substantially above economists’ estimates, which called for 100,000 new jobs to be created. Despite this apparent good news, the unemployment rate rose to 8.3%, up from 8.2% in June. The headline figure is fantastic, but the details are somewhat troubling, especially the fact that 195,000 workers left the workforce in July. Additionally, the average workweek remains at 34.5 hours, which is simply too low to create more robust job growth; it needs to rise to at least 37 hours before more jobs are created.
Personal income surged 0.5% in June to the highest pace this year, even as consumer spending declined 0.1% in June on a seasonally adjusted basis. Interestingly enough, consumers spent more on services while cutting their purchases of durable goods like cars. Wages rose the most since March, and instead of blowing these gains immediately, many decided to sock away the extra income, so the savings rate rose to the highest level in 12 months.
Consumer confidence rose for the first time in five months—up from 62.7 in June to 65.9 in July. The biggest change was that consumers are now more optimistic about economic growth in the next six months—the measure of future expectations increased from 73.4 to 79.1! This reading trumped the 61.0 consensus estimate. This bodes well for consumer spending in July and even beyond, because consumers are now more optimistic about where the economy will be in six months.
The Housing Market
Thanks to a jump in home building, construction spending advanced 0.4% in June to a seasonally adjusted rate of $842 billion. While June’s results matched economists’ expectations, May’s figure was upwardly revised from 0.9% to 1.6%. Additionally, April construction spending was upwardly revised from a 0.6% gain to 0.9%. Compared with June 2011, construction spending has risen 7%. I’m especially encouraged to hear that April and May construction spending was higher than initially expected; at it stands, these increases could add as much as 0.2 percentage points to second-quarter GDP growth, which was initially forecast at just 1.5%.
The Commerce Department reported that June durable goods dipped 0.5%; this came far below economists’ estimates of a 1% rise. May’s durable goods orders were also downwardly revised from 0.7% to 0.5%. In June, orders for new machinery dropped 2.1% while motor vehicles orders dipped 0.7%. However, orders for civilian aircraft surged 14.2%, helping to offset those losses. This was one of the more downbeat economic reports of the week; this makes the third out of four months that new orders have declined. Following the prior week’s mixed results for durable goods orders, it’s clear that the manufacturing sector could be softening.
Next week, we’ll receive data on consumer credit, the trade balance and wholesale inventories. With these reports and earnings season in full swing, you better bet that I’ll have plenty of updates in this daily blog.
Have a great weekend,