Money Talk Podcast, Friday June 3, 2016
Landaas & Company newsletter June edition now available.
Advisors on This Week’s ShowMax Hoelzl and Joel Dresang)
Week in Review (May 30-June 3, 2016)
Significant economic indicators & reports
Markets and government offices closed to observe Memorial Day
Consumers contributed more than analysts expected to economic growth in April. The Bureau of Economic Analysis reported that consumer spending grew by 1%, the most since Aug. 2009, as personal income grew 0.4%. Driving more than two-thirds of gross domestic product, consumers had been holding back in recent months. The personal saving rate fell to 5.4% of disposable income from 5.9% in March. The same report showed inflation remains below the Federal Reserve target of 2%.
The U.S. housing recovery continued in March with the overall S&P/Case-Shiller home price index reaching within 4% of its all-time high, set in 2006.
For the 12-city composite index, prices increased 5.4% in April – more than double the pace of inflation. A housing economist for Standard & Poor’s cited improving labor markets, low mortgage rates and limited housing supply as drivers for the price gains. As a percentage of household, supply is the lowest it has been since the 1980s.
The Conference Board said its consumer confidence survey showed less optimism toward the economy in May. Much of the downgrade came from opinions about current conditions, which have been relatively high. Expectations – which are a better harbinger of consumer spending – also dipped, though not as much, suggesting continued caution.
The annual rate of construction spending declined in April, following a March pace that was the highest since before the recession. Although down 1.8% from March, spending was 4.5% above the pace in April 2015 and remained higher than the level before the 2008 financial collapse. The Commerce Department reported that residential construction spending rose 8% from a year ago, led by multi-family housing.
The manufacturing index of the Institute for Supply Management increased in May and signaled expansion for the third month in a row after five months of contraction. Growth in new orders and production slowed from April. Exports expanded for the third month in a row, reflecting moderated currency exchange rates. Hiring, though, shrank for the sixth consecutive month, in part because of continued weakness in the oil and mining industries.
A component of the manufacturing sector – and one closely tied to consumer spending – the automotive industry had a faster pace of motor vehicle sales in May. At an annual sales rate of 11.5 million vehicles, car dealers experienced a slight slowing from the year-earlier pace, according to Auto Data Corp. Year-to-year, trucks outpaced cars because of lower gas costs; imports outpaced domestics because of the stronger dollar.
The moving four-week average for initial unemployment claims fell for the first time in five weeks, when the average hit its lowest point since December 1973. Job losses remained 58% beneath the long-term average, according to Labor Department data, indicating an extended reluctance by employers to let go of their workers.
Employers added 38,000 jobs in May, much less than expected and only a fraction of the three-month (116,000) and 12-month (219,000) averages. Data from the Bureau of Labor Statistics showed payroll counts slowing to their meekest gain since September 2010. The unemployment rate dipped to 4.7%, its lowest level since November 2007, just before the recession. Average hourly wages rose 2.5% from May 2015, which could improve potential for more consumer spending.
Along with the rise in the May manufacturing index, factory orders in April rose for the third time in four months. The Commerce Department said commercial aircraft and cars led the new orders, but sales contracts increased for the third time in four months even excluding transportation equipment. Total orders dropped 2.3% from April 2015, but an indicator for business investments gained for the first time in three months.
The U.S. trade deficit widened 5.4% in April from a March gap that was the narrowest since December 2013. Exports rose 1.5% from March while imports increased 2.1%, according to the Bureau of Economic Analysis, suggesting gains in spending by businesses and consumers.
The Institute for Supply Management said its May non-manufacturing index signaled the 76th consecutive month of expansion for those industries, although the growth slowed from April, reaching the lowest point since Feb. 2014.
Where the Markets Closed for the Week
- Nasdaq – 4,943, up 9 points or 0.2%
- Standard & Poor’s 500 – 2,099, unchanged
- 10-year U.S. Treasury Note – 1.70%, down 0.15 point
- Dow Jones Industrial – 17,807, down 66 points or 0.4%