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:
Personal Income Unexpectedly Drops
For the month of April, personal income increased 0.4% while personal spending was flat. Economists were looking for personal income to grow 0.3% and for spending to rise 0.2%. This is higher than March, when personal income increased less than 0.1%. Because income rose faster than spending, the savings rate rose to 5.6%, up from 5.2% in March. Also interesting was that the Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index rose just 0.1% in April, so there is virtually no sign of inflation. This is a sign that consumers remain cautious. In fact, consumer spending is now running at the slowest pace in several years, which just not bode well for overall GDP growth. At the same time, the fact that there’s virtually no inflation suggests that the Fed will not raise rates anytime soon.
Construction Spending Soars
In April, U.S. construction spending surged 2.2% to a seasonally adjusted rate of $1 trillion. Notably, U.S. construction spending is now near a six and a half year high. Economist forecasted a rise of just 0.7% in spending, so this surpassed expectations. Meanwhile, March spending was revised to reflect a 0.5% increase, compared with the previously reported 0.6% decrease. A 1.8% increase in private construction helped boost spending in April. Meanwhile, a 3.3% jump in public construction spending helped offset a 3.6% drop in federal government construction outlays. It looks like things are finally starting to warm up in the construction market; this should help to offset some of the recent setbacks we saw in the first quarter.
Factory Goods Orders Fall
The Commerce Department reported that new orders for factory goods unexpectedly declined 0.4% in April. Economists were expecting flat orders for the month. March factory goods orders were slightly revised up to 2.2%. Meanwhile, durable goods fell 1% and demand for non-durable goods rose 0.2%. Overall, factory orders have slipped in eight of that past nine months. This was a disappointing report; economists were expecting orders to remain steady after March’s unexpected increase, which had previously broken a seven month losing streak.
Trade Deficit Pulls-back From Record High
The U.S. trade deficit shrank by 19% to $40.9 billion in the month of April. This was a $10.5 billion pullback from the previously reported figure for March, which represented the largest percentage increase in 18 years. Better yet, April’s gap was much narrower than economists’ expectations of a $42 billion deficit. In April, exports increased 1% to $189.9 billion and imports declined 3.3% to $230.8 billion. The good news is that this was the largest monthly drop in the trade deficit in six years. Exports are now running at the highest level in 2015; there is no doubt that the West Coast port slowdown had impacted trade and caused exports to plunge in March. So it appears that the trade deficit may not be as big a drag on GDP growth in the second quarter as it was in the first quarter, even though a strong U.S. dollar is making U.S. exports more expensive.
Jobless Claims Decline
For the week ending May 29, initial claims for unemployment fell 8,000 to a seasonally adjusted 276,000. Economists were looking for claims to rise to 285,000. Meanwhile, the four-week moving average rose to 274,750, from 272,000 the previous week. This is the 13th week that jobless claims fell below 300,000, another sign that things are looking brighter for the economy.
Unemployment Rate Ticks Up
The Labor Department announced that 280,000 jobs were added in May. Not only was this substantially better than economists’ consensus estimate of 225,000, it also represented the largest monthly increase since December. And, for the first time this year, there were no substantial downward revisions in the previous months. Instead, March payrolls were revised up 34,000 to 119,000, and April payrolls were revised down 2,000 to 221,000. As I mentioned in the June 2015 Monthly Issue, these revisions are a big deal, because the household survey oftentimes double counts those with multiple temporary jobs. At the same time, the unemployment rate rose to 5.5% in May, up from 5.4% in April. This was because 397,000 more people decided to look for work. And while labor force participation rose to 62.9% in May, up from 62.8% in April, it is still near the lowest level in 37 years. While the unemployment rate increased for the month of May, overall the job market is looking much firmer and looks like it’s gaining more momentum as we head into the summer months. While this may have some investors worried about a possible rate hike, I still think there’s a long way to go before we hit the Fed’s strict requirements.
That’s all I have for you this week; I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.
Have a great weekend,