Looking Behind and Looking Ahead

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Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

In this article we’ll recap the events and news over the past month that mattered most to the economy and markets, your credit union, and your members. Then we’ll look ahead at the key upcoming events you need to know.

Behind us—The trade war saga continued to roil the stock market through March and into April. The market reacted violently to both good news and bad news. Despite White House assurances the tariffs are all part of a negotiation strategy, there is no resolution in sight or a clear plan forward. While the stock market was on a roller coaster, the bond market moved surprisingly little. While the stock market dips did put a lid on rates, bond traders mostly ignored the short-term stock gyrations. 

  • Nonfarm Payrolls rose a disappointing 103,000 in March, but this comes after the stunning gain of 326,000 in February. The best way to look at jobs is over a three-month period. For the first three months of 2018, the average gain has been a very solid 202,000
  • Hourly wages rose by .3% on the month and the year-over-year rate rose to 2.7%
  • Over the first two months of 2018, California reported an average monthly gain of gain of 32,000. This is on pace with the rate of job creation in 2017
  • The California year-over-year wage growth number rose to 3.8% versus the national average of 2.7%
  • Consumer Confidence remained near a 17-year high, and Retail Sales posted a solid gain. Consumers remain unconcerned about the trade news
  • Auto sales surprised to the upside in March with a rate of 17.5 million units annualized
  • The Fed, under new Fed Chairman Powell, did as expected and raised the fed funds rate to a range of 1.50% to 1.75%. The Fed also maintained the forecast of two more increases this year and three next year. To his credit, Chairman Powell said no one should worry about the Fed’s distant rate forecasts

Ahead for you—April will be another month in which news on the threat of a trade war will likely steal the focus away from the economy. The first big test will be the North American Free Trade Agreement (NAFTA) discussions. Trump has said he wants a deal in a week or so. Meeting this self-imposed deadline and signing a long-lasting agreement would be a big plus for stock market and a shot-in-the-arm to business confidence. A NAFTA failure and an increase in trade tensions with China would be a big setback for stocks and perhaps a boost to bond prices. 

  • April 11—Consumer Price Index. Inflation data has replaced jobs data as the most important data to the bond market. This could be very important to the bond market is it varies significantly from expectations
  • April 16—Retail Sales for March. Sales have posted solid, if unexciting gains this year. March sales are expected to show much stronger gains, at least partially due to tax refunds
  • April 27—Preliminary estimate of 1st quarter GDP. This erratic preliminary indicator has no implications for Fed policy, but it still often causes strong market reactions if surprising
  • May 4—Jobs report. Another huge upside surprise in Nonfarm Payrolls unlikely. Wage component will be the focus

Bottom line—The economy continues to perform well in 2018, and the pace could pick up if corporate spending accelerates due to corporate tax cuts. But, the issues on trade are casting a cloud on the outlook.

Article by Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

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