Money Talk Podcast, Friday May 5, 2017
Landaas & Company newsletter May edition now available.
Advisors on This Week’s Show
(with Max Hoelzl)
Week in Review (May 1-5, 2017)
Significant economic indicators & reports
Consumer spending, which accounts for about 70% of U.S. economic activity, was unchanged in both March and February, according to the Bureau of Economic Analysis. Personal income rose in March, though less than analysts expected. As a result, the personal savings rate increased to 5.9% of disposable income, giving consumers greater spending potential down the road. Also in the report, the Federal Reserve’s preferred measure of inflation showed a year-to-year gain of 1.6%, farther from the central bank’s target of 2%.
The Commerce Department provided more evidence of the choppy housing recovery, with total construction expenditures dipping 0.2% in March from an all-time record in February. Spending on residential building – accounting for 42% of the total – helped expenditures rise 3.6% from March 2016.
Manufacturing growth slowed in April for the second month in a row but still signaled the eighth consecutive month of industry expansion. The Institute for Supply Management showed relative strength in production and export orders, both of which experienced faster growth. Expansion covered most manufacturing sectors, with 16 of 18 industries reporting growth.
Another sign of American consumers sitting on their wallets was a lower-than-expected pace of motor vehicle sales in April. At an annual rate of 16.9 million cars and trucks, April was only 1.6% ahead of March, which set the lowest pace since 2014, according to statistics from the trade group Autodata Corp. Imported trucks continued to have better sales trends than U.S.-made vehicles.
Non-manufacturing expanded for the 86th consecutive month in April with new orders growing at the fastest pace in 12 years, according to the ISM Non-Manufacturing Index. Only one group of purchase managers (those in farming, fishing and forestry) said their industry was contracting. Based on the index, the ISM said the economy is growing at a 3.3% annual rate.
The Bureau of Economic Analysis said the U.S. trade deficit narrowed in March, reaching its smallest gap in five months. The $43.7 billion difference between the goods and services the country imports vs. what it exports was only slightly narrower than in February. Imports fell 0.7%, and exports rose 0.9%, in a sign that global demand for U.S. products may be strengthening.
One of the most puzzling and troubling aspects of the U.S. economy is weak worker productivity, which actually declined in the first quarter. The Bureau of Labor Statistics reported that output per hour worked dropped at an annual rate of 0.6% in the first three months. Productivity is key to sustainable economic growth, especially as demographics point to a diminishing work force. To compare, the average annual productivity rate since World War II has been 2.1%. It has been 1.2% since 2007.
The moving four-week average for initial unemployment claims rose for the first time in five weeks, although remaining well below the 50-year average, as it has since early 2013. Labor Department data show claims persistently suggesting employer reluctance to let go of their workers.
The Commerce Department said factory orders rose 0.2% in March but mostly on the wings of commercial aircraft. Excluding the volatile transportation equipment category, manufacturing demand fell 0.3%. Plans for non-defense capital goods excluding aircraft, a proxy for business investments, rose 1.6% and were up 4.9% year-to-year, which may be a sign that companies could be adding the technology and equipment needed to make workers more productive.
Employers added more jobs than expected in April, although fewer than previously estimated in March. The Bureau of Labor Statistics said the unemployment rate fell to 4.4%, the lowest point in nearly 10 years. Even a measure of under-employment hit a 2007 low. On the other hand, average hourly wages rose 2.5% from the year before, the slowest pace since August. Economists say rising wages are needed to fuel consumer spending.
Where the Markets Closed for the Week
- Nasdaq – 6,101, up 53 points or 0.9%
- Standard & Poor’s 500 – 2,399, up 15 points or 0.6%
- 10-year U.S. Treasury Note – 2.35%, up .07 point
- Dow Jones Industrial – 21,007, up 66 points or 0.3%