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 economic news continues to be very good and exceed forecasts in most cases, but the continuing negative headlines on trade is keeping a firm lid on rates. The FOMC did raise the fed funds rate as expected, but longer-term bond rates have since fallen below levels before the Fed move.     

  • Nonfarm Payrolls were stronger than expected with a gain of 213,000 and upward revisions to the two prior months of 37,000 The 12-month average gain is a strong 211,000
  • The Unemployment Rate rose to 4% on a big increase in people declaring themselves back in the job market
  • Hourly wages rose by .2% on the month and the year-over-year rate rose to 2.7%, indicating there is still little upward pressure on wages
  • With so many job sectors reporting difficulty in finding workers, wages should be rising more
  • 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 again in June as auto makers reported an annualized sales pace of 17.5 million units
  • Housing starts continued to trend higher, but the lack of existing home supply continues to restrict sales and put upward pressure on home prices. Affordability is a growing concern
  • The FOMC raised the fed funds rate to a range of 1.75% to 2.00% and forecasts two more this year and three in 2019, but they left plenty of wiggle room in case the trade situation starts to impact the economy

Ahead for you—The markets have essentially been on hold since May. Investors in both stocks and bonds seem to have checked out for the summer. Only truly significant news on trade, good or bad, will bring investors back in for an extended time to set a direction.    

  • July 12 – Consumer Price Index. With core inflation rate moving higher, this will be a very important number to the bond market. Rates are likely to move sharply is the inflation rate either falls or rises more than expected
  • July 16 – Retail Sales
  • July 27 – Preliminary estimate of 2nd quarter GDP. While this first estimate of GDP is highly unreliable, this could be a big deal to the bond market
  • Aug. 1 – FOMC meeting. No changes are expected and there will be no press conference after the meeting
  • Aug. 3 – Jobs report. Wage component will be the focus

Bottom line—The bottom line has not changed this month. The economy if firing away on all cylinders, but there is skepticism mostly due to worries about trade. Should stocks fall, possibly due to disappointing trade news, corporations will likely save and not continue to spend. The stock market is not always important to the economy. But the current time is an exception to that rule. The next couple of months should the market closer to deciding how to factor in the trade issue.

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

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