Money Talk Podcast, Friday July 15, 2016
Advisors on This Week’s Show
(with Max Hoelzl and Joel Dresang)
Week in Review (July 11-15, 2016)
Significant economic indicators & reports
No major reports released
In a sign that businesses may be getting stockpiles more in line with demand, wholesale inventories rose less than sales in May. The Commerce Department said inventories rose 0.1% or one-fifth the gain in sales. As a result, the ratio of inventories to sales decreased, though it’s still at levels last seen during the recession.
The Bureau of Labor Statistics said May job openings fell 5.8% from the record 5.8 million set in April. Employers posted 5.5 million openings, the first decline since November. Hiring numbers dropped to the lowest since 2014, but the rate of workers quitting their jobs – a measure of employment confidence – remained at pre-recession levels.
No major reports released
The moving four-week average for initial unemployment claims fell for the sixth time in seven weeks, reaching 28% below the 49-year average. Data from the Labor Department show jobless claims have stayed below the long-term average every week for more than three and a half years. That suggests a persistent reluctance among employers to let workers go, which should help secure jobs and raise wages, fueling consumer confidence and spending.
In another sign that the Federal Reserve can afford continued patience in raising short-term interest rates, wholesale inflation remained low in June. Although the 0.5% gain from May was the biggest in more than a year and more than analysts expected, the Bureau of Labor Statistics report showed the core Producer Price Index (excluding food and energy prices) rose less than 1% in the last 12 months – about half of the Fed’s target rate.
The broadest measure of inflation, the Consumer Price Index, rose more than analysts expected in June, suggesting continued economic growth. The Bureau of Labor Statistics said gasoline prices increased for the fourth month in a row, although they’re still 15% cheaper than last June. The year-to-year inflation rate was 1% but inched up to 2.3% after excluding volatile energy and food prices. That was the biggest year-to-year core inflation rate since the recession ended seven years ago.
The Federal Reserve reported 0.6% higher industrial production in June, the biggest gain so far in 2016. Mining output was down 10.5% from the year before, but utilities were up 0.5% and manufacturing eked out a 0.4% gain. The report offered signs of recovery in the industrial sector after months of doldrums related to slower global growth. The telltale capacity utilization rate rose to the highest point since February, still far enough below the long-term average to indicate little pressure on inflation.
A prime sign of consumer spending, which drives about 70% of U.S. economic activity, advanced more than analysts expected in June as retail sales rose 0.6%. The Commerce Department reported higher sales in 11 of 13 categories, including gas stations, which benefited from higher prices. Clothing stores and restaurants were the only retailers with shrinking revenue. Year-to-year, retail sales rose 2.7%, below the 4.4% long-term pace but an improvement from recent months.
In a separate report, Commerce said business inventories increased slightly in May, at the same rates as sales. That meant the inventories-to-sales ratio was unchanged, still near its level at the end of the recession. Together, companies are overestimating demand, which tends to hamper further growth in production and hiring.
The University of Michigan said its preliminary consumer sentiment reading for July dipped from the end of June, mostly because wealthier investors worried about the initial stock sell-off after the British vote to leave the European Union. Overall, consumers remain relatively content with current economic conditions and appear on pace to spend 2.7% more in 2016 and in 2017, according to the report.
Where the Markets Closed for the Week
- Nasdaq – 5,030, up 73 points or 1.5%
- Standard & Poor’s 500 – 2,162, up 32 points or 1.5%
- 10-year U.S. Treasury Note – 1.59%, up 0.23 point
- Dow Jones Industrial– 18,517, up 370 points or 2%