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…
Unemployment Rate Report
It’s the first Friday of the month, which means that we have the payroll report from last month. This morning, the Labor Department reported that February’s unemployment rate remained at 4.1% for the fifth-straight month, sticking to a 17-year low. U.S. employers added 313,000 new payroll jobs in February, exceeding economists’ forecasts for an addition of roughly 205,000 new jobs. Last month, average hourly earnings for employees increased by four cents to $26.75, following a seven cent gain in January. Also, the labor force participation rate inched up from 62% to 63%. Considering that we haven’t seen this many jobs added since October 2015, this is a very positive report.
Meanwhile, earlier this week ADP reported an addition of 235,000 jobs in February. Both reports point to robust growth within the U.S. job market. Overall, these strong results provide further indication that the Federal Reserve will be raising rates in the next FOMC meeting, scheduled for March 20 through March 21.
Consumer Credit Report
This past Wednesday, the Federal Reserve posted January’s Consumer Credit Report. Even though consumer credit grew $13.9 billion to a record seasonally adjusted $3.85 trillion in January, it still came in below expectations for a $17.4 billion increase. This represents an annual growth rate of 4.3% in consumer borrowing.
Interestingly, consumers’ use of credit cards dropped significantly. Revolving credit rose just 0.8% in January, after a sharp 7.2% jump in December. This is the smallest monthly gain since February 2015. However, while the pace of revolving credit slowed, revolving credit is still above $1 trillion. Non-revolving credit expanded 5.6% for the second consecutive month, coming in at $2.82 trillion. As a reminder, this category includes vehicle financing and student loans.
All-in-all, the slowdown in credit card usage is not all that surprising given poor retail sales of late. While this report was softer than anticipated, it is just the first measure of consumer borrowing in 2018. Considering that consumer sentiment is sitting at a record high, I look for consumers to become more willing to open their pockets and spur a strong wave of borrowing in the months ahead.
Balance of Trade Report
On Wednesday, the Commerce Department reported that the U.S. trade deficit surged to more than a 9-year high in January. Specifically, the trade deficit increased 5.0% to $56.6 billion, up from a revised $53.9 billion in December. This is the most that the trade deficit has widened since the October 2008 financial crisis.
Breaking it down, U.S. exports tumbled 1.3% from December to $200.9 billion in January, the most in more than a year. Petroleum imports increased to a three-year high, but capital and consumer goods fell enough to counteract that. So, imports were virtually unchanged at $257.5 billion. The deficit with China soared 16.7% to $35.5 billion. Meanwhile, the trade gap with Mexico narrowed from $5.4 billion to $4.1 billion.
If you recall, a bigger trade deficit can be drag on GDP growth, which partly explains why we saw last week’s first estimate for fourth-quarter GDP get revised slightly lower. And it’s possible that we could see GDP estimates further decrease as the next set of estimates are released over the next several weeks.
In the end, the widening trade deficit could dampen first-quarter GDP figures. While a boost in household spending and business investment has spurred imports, overseas sales of U.S.-made goods haven’t been enough to outpace imports. However, the U.S. has been accelerating its shale oil production. In fact, the U.S. Energy Information Administration (EIA) recently reported that U.S. shale crude oil production is expected to rise by 110,000 barrels per day in March. So in the long run, I’m looking for the domestic energy boom to help reduce the trade deficit.
Factory Goods Orders
Tuesday’s report from the Commerce Department revealed that factory goods orders plunged 1.4% in January to $491.7 billion, a six-month low. Results were largely in line with economists’ expectations and end five-straight months of growth. The decrease was largely due to a broad-based decline in demand for U.S.-made goods.
Orders for non-defense capital goods excluding aircraft—commonly used as a gauge for business spending plans—dropped 0.3%, instead of the 0.2% decline reported in the advance estimate last month. Orders for transportation equipment also lost their edge, spiraling 10% lower to $77.7 billion. On the other hand, shipments of core capital goods—used to determine business equipment spending in the GDP report—inched 0.7% higher in January.
Despite the slowdown in the manufacturing sector, which grew a healthy 4.8% in 2017, as I’ve said before, the new tax plan will likely boost business spending this year. With corporate taxes falling from 35% to 21%, American companies are going to become more competitive globally, which should in turn support the manufacturing sector.
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,