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 good, but a definite plateauing in jobs, auto sales, and housing seems evident. The levels are very healthy but not in an uptrend. Both stocks and bonds have continued to trade sluggishly, with speculative traders driving the action in both markets. The turn of the calendar to September did not bring investors back to the markets. The markets remain in limbo awaiting definitive news on the trade war with China.

  • Nonfarm Payrolls increased by 201,000, but there were 50,000 in downward revisions to the two prior months. The 12-month average monthly gain is a still strong 196,000, but that is down from 224,000 three months earlier.
  • The Unemployment Rate was steady at 3.9%.  
  • Hourly wages rose by .4% on the month and the year-over-year rate rose to 2.9%, the highest level since 2009. While this is good news, it is just one month. We need to see a trend of these numbers.
  • Consumer Confidence remained near a 17-year high, and Retail Sales posted a solid gain. Consumers remain unconcerned about the trade news.
  • Auto sales were good, but sales were below the annualized sales pace of 17 million units for the second month in a row.  
  • Housing starts slipped and there were some noticeable declines in homes that sold. While the supply of existing homes on the market contributed to slowing sales of existing homes, the supply of new homes rose again to historically “normal” levels.

Ahead for you—The economic data ahead should continue to be positive and the Fed is almost certain to raise the funds rate, but investors are far more interested in seeing the trade headlines in September as one or more big events are likely.     

  • Sept. 13—CPI—Since February, the year-over-year core rate has moved from 1.8% to 2.4%. Bond traders are expecting the rate to hold or decline from this level. A continued rise in the rate would be a concern for the Fed.
  • Sept. 14—Retail Sales—Sales surprised to the upside last month. Can this trend continue?
  • Sept. 26—FOMC announcement and Jerome Powell press conference. An increase in the funds rate is 99.9 percent certain. The focus will be on the Fed’s guidance about the timing of additional increases.
  • Oct. 5—Jobs report—A further slowing in job gains isn’t expected, but a tight labor pool could inhibit stronger growth. Wages will be the most important component of the report.
  • Anytime—More trade news. The comment period on the $200 billion in Chinese goods Trump wants to slap 25 percent tariffs on has ended. The enforcement announcement could come at any time. While this could be very negative for the future of the economy, traders might be cautious in making assumptions.

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. September could be a pivotal month. If the trade war “gets real” with the $200 billion list, the stock market could suffer, and businesses could get more conservative with capital spending and hiring plans. Surprisingly positive news would boost stocks and send rates sharply higher.  

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

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