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 was quite good over the past month, but worries about the Italian political turmoil, negative trade headlines, and emerging market woes kept a firm lid on rates. The 10-year note, after topping 3% a couple of weeks ago, fell as low as 2.75% on Italian story. Yield did quickly bounce higher but never returned to the previous highs.    

  • Nonfarm Payrolls were stronger than expected with a gain of 223,000. The 12-month average gain is a strong 191k. With the Unemployment Rate so low, monthly numbers this strong indicates people are coming off the sidelines and back into the job market.
  • The Unemployment Rate fell to 3.8%, the lowest since April 2000, which is also the lowest since 1969.
  • Hourly wages rose by .3% on the month and the year-over-year rate rose to 2.6%.
  • With so many job sectors reporting difficulty in finding workers, wages should be rising more.
  • Nonfarm Payrolls for rose 40k after being down 7,000 in April. This erratic pattern is a carbon-copy of first half of 2017. The Unemployment Rate hit a new all-time low of 4.2%.
  • 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 May. Autos sales have plateaued but at a strong level.

Ahead for you—News on trade will likely be even more dominant in June as several supposed deadlines are set to expire. Positive or negative outcomes will impact the markets. The Fed is expected to raise the funds rate this month. Traders will be focused on the Fed’s forward guidance.   

  • June 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
  • June 13—FOMC statement and press conference
  • June 14—European Central Bank meeting – This is important as the U.S. bond market has been taking cues from the European bond market. The ECB is expected to indicate when they intend to exit their QE program.
  • June 15—Retail sales for May. Sales have been very good, but stock traders are hoping to see the consumer step up a notch.     
  • June 6—Jobs report. Another upside surprise in Non-farm Payrolls unlikely. Wage component will be the focus.  

Bottom line—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 Fed has avoided reacting to stocks and to politics under Powell. Could he be tested?

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

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