The Inside Scoop on the Economy's Next Big Shift

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, starting with the market moving Unemployment Rate Report:

Hiring Picks Up in July

The big news this week was the July payroll report. The Labor Department reported that 215,000 payroll jobs were created in July, which was in-line with economists’ consensus estimate. May and June payrolls were revised up by 14,000, which is a bit encouraging, since every month this year that have been downward revisions. The unemployment rate remained unchanged at 5.3%. Average hourly earnings rose 0.2% to $24.99 per hour and in the past 12 months, wages have risen 2%. Labor forces participation remained unchanged at 62.6%, which is the lowest rate since 1977. I should also add that on Wednesday, ADP reported that the private sector only created 185,000 jobs in July, down from a revised 229,000 in June. Overall, the job market is improving, but at a slower pace, so I suspect that the “data dependent” Fed will want an even stronger labor market before raising key interest rates.

Outlays on Construction Projects Slows

In June, U.S. construction spending increased 0.1% to a seasonally adjusted rate of $1.06 billion. This is the smallest gain in five months and missed economists’ estimates of a 0.6% increase. However, spending is still 12% higher than a year ago. Meanwhile, May spending was revised up to reflect a 1.8% increase, compared with the previously reported 0.8% rise. While construction pace did slow down, overall spending amounted to $482.7 billion for the first six months of the year; this is 8% higher than the $446.8 billion reported for the same period in 2014.

Orders for Factory Goods Rises

The Commerce Department reported that new orders for factory goods increased 1.8% in June, falling short of economists’ estimates of a 2% rise. May factory goods orders were slightly revised down to 1.1%. Meanwhile, durable goods climbed 3.4% and demand for non durable goods rose 0.4%. This was a solid report; a surge in transportation equipment and other goods drove the rebound of orders from the previous month’s decline.

Trade Gap Widens in June

The U.S. trade deficit expanded by 7.1% to $43.8 billion in the month of June. This was wider than economists’ estimates of $42.7 billion. Meanwhile, May’s trade gap was revised down from $41.9 billion to $40.9 billion. In June, exports decreased $0.2 billion to $127.6 billion and imports increased $2.7 billion to $191.1 billion. The main reason why the trade gap expanded in June is due mostly to an increase in imports and the strong dollar hindering exports. However, this report should not have any major impact on GDP, since this was already taken into account in last week’s GDP report, and May’s revised numbers also help to balance things out.

Americans Save More in June

For the month of June, personal income increased 0.4% while personal spending also rose 0.2%. Economists were looking for personal income to grow 0.3%. Meanwhile, May’s personal income data was revised down from 0.5% to 0.4% for personal income, and from 0.9% to 0.7% for personal spending. Because income rose faster than spending, the savings rate rose to 4.8%, up from 4.6% in May. Also interesting was that the Fed’s favorite inflation indicator, the Personal Consumption Expenditure (PCE) index, decreased 0.1% in May, so there is still no sign of inflation. So, consumers remain cautious and consumer spending is still running at the slowest pace in several years. And considering that current PCE suggests there’s really no inflation, I still do not think that the Fed will not raise rates anytime soon.

Layoff Activity Remains Low

For the week ending August 1, initial claims for unemployment increased by 3,000 to a seasonally adjusted 270,000. Economists were looking for claims to rise to 271,000. Meanwhile, the four-week moving average fell 6,600 to 268,250. This is the 22nd week that jobless claims fell below 300,000, another sign that things are looking brighter for the labor market.

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,

Louis Navellier

Louis Navellier

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