The indexes finished with mixed results for the month of June on global economic concerns and worries that President Trump’s ambitious spending plans will be derailed, but all three posted solid gains for the second quarter. The DOW rose 1.6% for the month and 3.3% for the quarter, closing at 21,350, the NASDAQ lost 0.9% for the month but was up 3.9% for the quarter, closing at 21,350 and the S&P, the index most closely followed by economists, rose 0.5% for the month and 2.6% for the quarter, closing at 2,423.
CONSUMER CONFIDENCE RISES TO 118.9
The New York-based Conference Board's Consumer Confidence Index rose to 118.9 in June after falling to 117.9 in May. The Present Situation Index rose to a 16-year high of 146.3 in June after inching up to 140.7 in May. The Expectations Index slipped to 100.6 after dropping to 102.6 in May. It was the third consecutive drop for Expectations. The Conference Board said that consumers still remain optimistic that the economy will continue to expand in the months ahead. Economists say a level of 90 indicates that the economy is on solid footing and a level of 100 or more indicates growth. Analysts caution that the real driver behind consumer spending is income growth and that labor market trends are a more accurate predictor of consumer behavior.
CONSUMER SPENDING RISES 0.1%
Consumer spending rose just 0.1% in May after rising 0.4% in April. The personal consumption expenditures index (PCE) fell 0.1% in May, dragged down by decreases in prices for consumer goods and energy. Excluding food and energy, the PCE index rose 0.1% and was up 1.4% year-over-year, well below the Fed’s target of 2%. After tax incomes grew a solid 0.6% in May after rising 0.4% in April, although most of the increase was due to a $45.4 billion increase in personal dividend income. Wages and salaries increased just $6.7 billion in May after accounting for most of the increase in after tax incomes in April. The personal savings rate rose to 5.5%, the highest rate since last September. Consumer spending is closely watched by economists because it accounts for 70% of U.S. economic activity.
CONSUMER PRICES FALL 0.1%
The Consumer Price Index (CPI) fell 0.1% in May after rising 0.2% in April, and has now fallen in two out of three months after rising slowly but steadily for the preceding year. The CPI was up 1.9% from May 2016, the third consecutive month in which year-over-year gains have eased. Core inflation, which excludes food and energy, rose 0.1% after rising 0.1% in April and was up 1.7% year-over-year, the weakest year-over-year gain in core inflation in two years.
UNEMPLOYMENT RISES TO 4.4%
The unemployment rate inched back up to 4.4% in June after falling to a decade-low of 4.3% in May and the economy added 220,000 new jobs. Job gains for April and May were revised up by a total of 47,000 jobs. Employment growth has averaged 180,000 per month thus far this year, in line with the average monthly gain of 187,000 in 2016. However, over the past three months job gains have averaged 194,000 per month. Employment in most major industries, including construction, was little changed over the month. Average hourly earnings rose by 4 cents to $26.25 and have risen 63 cents per hour or 2.5% thus far this year. The labor force participation rate has stabilized in the past several months, but remains below the rates seen for both men and women over the past two decades. Productivity, inflation and wage growth have all been persistently sluggish. Fed Chair Janet Yellen has said that the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.
DURABLE GOODS ORDERS FALL 1.1%
Durable goods orders fell 1.1% in May after falling 0.7% in April. It was the second consecutive decline in durable goods orders and the largest decline in six months. The decline was primarily due to a big drop in the volatile categories of military and commercial aircraft. Orders excluding transportation, which can also be a highly volatile category, rose 0.1% in May. Orders for non-defense capital goods excluding aircraft, which are seen as a proxy for business spending, fell 0.2% in May after being virtually flat in April. Shipments in the same category, which factor into GDP, rose 0.8% after falling 0.1% in April. The durable goods report is often both volatile and subject to sharp revisions. Wells Fargo noted that recent softness in orders suggests that the surge early in the year is fading and expects the factory sector to slow down.
CHICAGO PMI RISES TO 65.7
The Chicago Purchasing Managers’ Index (PMI) rose to 65.7 in June after rising to 59.4 in May. It was the fifth consecutive month the PMI increased. Four of the five components rose in June, with only Employment falling slightly. New Orders rose by more than 10 points to 71.9 in June, the highest level since May 2014. Production continued to strengthen, rising 4.5 points to 67.7. Order Backlogs continued to rise, reaching levels last seen in July 1994. Inventories fell 3.6 points to 51.9 in June, the lowest level since the start of the year. Prices Paid were broadly stable after easing for three consecutive months. PMI panelists reported continuing increases in the price of steel and plastic products, but said suppliers were holding off passing along price increases.
WHOLESALE PRICES FLAT
The Producer Price Index (PPI) was flat in May after rising 0.5% in April and was up 2.4% over the past 12 months. Energy prices fell 3% in May and food costs fell 0.2%. Core inflation, which excludes volatile food, energy and trade services prices, fell 0.1% in May but was up 2.1% over 12 months. The PPI for inputs to construction was up 3.2% year over year. Steady consumer demand and more stable commodity costs are expected to keep producer prices moving upwards; the strong dollar could moderate increases.
Q1 GDP REVISED UP TO 1.4%
GDP growth in the first quarter was revised up to 1.4% from the 1.2% upward revision of the second reading and the dismal 0.7% first reported, according to the Commerce Department’s third and final estimate. The upgrade reflected revised strength in consumer spending and exports and matches the growth rate recorded in the second quarter of 2016. Analysts expect growth to accelerate in the second quarter, fueled by solid hiring and growing consumer spending. The latest estimates from the regional Federal Reserve boards show expected Q2 growth between 2.9% and 3.2%. Since 2000, first quarter GDP has averaged 1.0%, followed by an average growth of 2.6% in the second quarter. Many analysts are forecasting growth for the entire year of around 2.3%, up from 1.6% GDP growth in 2016, which was the poorest showing in five years.
JOB OPENINGS RISE
The number of job openings rose to the highest number on record in April, 6.04 million, from 5.7 million in March, according to the latest Jobs Opening and Labor Turnover Survey (JOLTS). The number of hires fell over the month from 5.3 million to 5.1 million, the lowest since April 2016. There were a total of 6.04 million job openings in April. The high number of openings and the lower number of hires indicates that some employers are still having trouble filling positions, especially for jobs that require specialized skills. There were a total of 5.0 million separations and 3.0 million quits. The quits rate was unchanged at 2.1%. When the most recent recession began in December 2007 there were 1.9 unemployed persons per job opening. The ratio peaked at 6.6 per job opening in July 2009 and trended down through 2015 before leveling off between 1.2 and 1.4. Quits hit a low in September 2009 and now are higher than they were prior to the recession. For most of JOLTS history, the number of hires has exceeded the number of job openings, but since January 2015 this relationship has reversed, with job openings outnumbering hires in most months. A rising quits rate generally leads to faster wage growth. The JOLTS report is one of Fed Chair Janet Yellen’s preferred economic indicators.
FED RAISES RATES
The Federal Reserve raised interest rates by 25 basis points to a range of 1.0% to 1.25% at its meeting in mid-June. It was the second rate increase in three months. The Fed cited continued U.S. economic growth and job market strength and announced it would begin cutting its holdings of bonds and other securities this year. The decision was an expected part of the Fed’s plan to slowly raise rates. The Fed's policy-setting committee indicated the economy had been expanding moderately, the labor market was continuing to strengthen and a recent softening in inflation was seen as transitory. Fed Chairman Janet Yellen was mostly upbeat about the economy, but said that the Fed would keep a close eye on inflation.
CLIMATE ACCORD WITHDRAWAL CREATES DISCORD
President Donald Trump’s decision to pull the U.S. out of the historic Paris Climate Control initiative created divisions among the members of his CEO advisory group. The CEOs of Walmart and IBM will remain on the council, but CEOs of Disney and Tesla are leaving. While he said he would remain, Walmart CEO Doug McMillon said he was disappointed in the decision and thinks it’s important for countries to work together to reduce greenhouse gas emissions. Many other prominent members of the council said they disagreed with the decision but feel that remaining on the council allows them to contribute by having an ongoing direct dialogue with the president.
PRESIDENT MEETS WITH IT EXECS
President Trump met with the heads of 18 U.S. technology companies, including Apple, Amazon, Microsoft, Google, IBM and Adobe, looking for help making the government’s computing systems more efficient. Trump cited estimates that the government could save up to $1 trillion over 10 years by updating systems, cutting costs, eliminating waste and improving service.
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