|
The economy continues to improve with this past week's highlight a healthy employment report. The Fed is keeping safe rates of return non-existent, and key equity indexes are hitting record highs and major milestones.
 The fireworks started a day early before the Fourth of July holiday as both the Dow and S&P 500 hit record highs. The Dow topped 17,000, just six months after finishing above 16,000.
The week got off to a slow start with equities little changed despite a strong gain in pending home sales.
 The Dow Jones Industrial Average finished at an all-time high of 17,068 (up nearly 1.3% for the week). The S&P 500 also closed at a record level, hitting 1,985 for the first time. Investors traded cautiously on the last day of the month and quarter.
On the first day of July, the Dow and S&P 500 hit new highs after favorable manufacturing data for both the U.S. and Asia. Also, motor vehicle sales were healthy. On Wednesday, most major indexes were little changed even as ADP employment sharply topped expectations. However, the Dow and S&P 500 nudged up to additional record highs although the Dow just fell short of 17,000.
On Thursday, the last day of trading for the week, an unexpectedly strong jobs report for June sent stocks higher and the Dow over the 17,000 mark.
 Equities were up this past week. The Dow was up 1.3 percent; the S&P 500, up 1.2 percent; the Nasdaq, up 2.0 percent; the Russell 2000, up 1.6 percent; and the Wilshire 5000, up 1.3 percent.
Equities were up in June. The Dow was up 2.1 percent; the S&P 500, up 3.2 percent; the Nasdaq, up 5.7 percent; the Russell 2000, up 6.5 percent; and the Wilshire 5000, up 3.7 percent.
 Equities were up in the second quarter. The Dow was up 3.7 percent; the S&P 500, up 6.0 percent; the Nasdaq, up 6.8 percent; the Russell 2000, up 3.0 percent; and the Wilshire 5000, up 5.6 percent.
For the year-to-date, major indexes are up as follows: the Dow, up 3.0 percent; the S&P 500, up 7.4 percent; the Nasdaq, up 7.4 percent; the Russell 2000, up 3.8 percent; and the Wilshire 5000, up 7.1 percent.
Weekly percent change column reflects percent changes for all components except interest rates. Interest rate changes are reflected in simple differences.
 Treasuries ended the week up somewhat strongly. After essentially no change Monday on little news, rates rose Tuesday on stronger than expected manufacturing data (new orders from Markit and ISM reports), auto sales, and on increased belief the economic data are healthy enough for the Fed to nudge up its schedule for increases in policy rates. On Wednesday, a strong ADP employment report bumped up yields with rates firming Friday on the healthy BLS employment situation.
For this past week Treasury rates were up as follows: the 2-year note, up 4 basis points; the 5-year note, up 10 basis points; the 7-year note, up 10 basis points; the 10-year note, up 10 basis points; and the 30-year bond, up 10 basis points. The 3-month T-bill was down 2 basis points.
 Throughout the week, daily changes in the spot price of West Texas Intermediate were on the downside. However, only Wednesday was significant. Crude declined just over a dollar a barrel on news that Libyan rebels announced that the country's ports were open for oil exports. Throughout the week, the increased belief that internal strife in Iraq would not interrupt oil production weighed on prices.
Net for the week, the spot price for West Texas Intermediate dropped $1.69 per barrel to settle at $104.03.
The second quarter ended on solid footing—ranging from the consumer sector, to housing, to manufacturing.
 The labor market appears to be gaining momentum. Total nonfarm payroll jobs increased 288,000 in June after a 224,000 gain in May and a 304,000 rise in April. The net revision for the prior two months was up 29,000. The consensus forecast for June was for 211,000. April's gain was the first plus 300,000 figure since January 2012.
The unemployment rate surprisingly fell to 6.1 percent from 6.3 percent in May. Expectations were for 6.3 percent. The U6 underemployment rate edged down to 12.1 percent from 12.2 percent in May.
Turning back to the payroll report, private jobs gained 262,000 after a 224,000 boost the month before. Analysts forecast 210,000. The goods-producing sector increased 26,000 after a gain of 22,000 in May. For the latest month, manufacturing was up 16,000; construction bumped up 6,000; and mining rose 4,000. Private service-providing industries jumped 236,000 in June after a 202,000 increase the month before. For June, the gain was led by trade & transportation (largely retail trade) and by professional & business services.
Government jobs jumped 26,000 after being flat in May.
 Average weekly hours were unchanged at 34.5 hours, matching expectations. Growth in average hourly earnings held steady at 0.2 percent, also matching the consensus.
Looking ahead to the personal income report, from the payroll survey, private aggregate weekly earnings rose 0.4 percent in June, pointing to a moderately strong rise in private wages & salaries. Production worker hours in manufacturing were soft for the month with a 0.1 percent rise, suggesting a sluggish manufacturing component for June industrial production.
Overall, the employment report for June indicates that the second quarter indeed was regaining momentum-especially after taking into account upward revisions. Also, the boost in retail trade employment suggests that businesses are more optimistic about consumer spending. In contrast, soft construction employment indicates that sector is slow.
 The consumer sector clearly is adding to second quarter growth. In an early signal of strength for June economic data, vehicle sales rose 1.2 percent in June to a 17.0 million annual rate which is the strongest rate since way back in July 2006. Sales of both North American-made and foreign-made vehicles rose in the month with domestic cars and imported trucks showing special strength. The latest data point to yet another strong gain for the motor vehicle component of the retail sales report which rose 1.4 percent in May and a boost in personal spending in second quarter GDP.
 Housing may be showing a spring thaw boost. Existing home sales, which showed life in April and especially May, may be showing more life in June and July based on pending home sales which were up a very strong 6.1 percent in May. This gain, coming off a low base, was the largest since the housing stimulus efforts of April 2010.
All regions showed solid gains led by the Northeast, which has proven to be the strongest region for existing home sales, and followed by the West where sales have been the weakest. June data suggest a third straight gain for final sales of existing homes which would be the strongest run since this time last year, just before the Fed began to wind down stimulus. The Dow moved off off opening lows following today's report.
 Construction spending data lag most construction indicators. But recent months have been volatile and reflect sluggish construction activity on average.
May construction spending rose less than expected but April was revised up sharply. Outlays increased 0.1 percent after a 0.8 percent rise in April (originally up 0.2 percent).
The latest rise was led by a 1.1 percent boost in private nonresidential spending, following a 0.1 percent increase the month before. Public spending rose 1.0 percent after a 2.1 percent jump in April.
Private residential spending fell 1.5 percent after rising 0.5 percent the month before. Weakness for this component was in both new one-family outlays and multifamily outlays.
On a year-ago basis, total outlays were up 6.6 percent in May, compared to 7.9 percent the prior month.
Overall, construction spending averaged over the last two months is on a moderate uptrend. April's upward revision points to improvement in the construction components of second quarter GDP.
Manufacturing is back to adding to economic growth according to private surveys at the national level. June was a very strong month for Markit's US manufacturing sample where the PMI came in at 57.3 versus 57.5 in the mid-month flash reading and compared to 56.4 in May. New orders, centered nearly entirely on domestic demand, led the report, at 61.2 versus an already very strong 58.8 in May. Backlog orders are unchanged at 56.0 which is very strong for this reading. Lagging behind were export orders which barely showed any monthly growth, at 50.6.
Output, at 61.0, is already very strong and looks to strengthen further given the strength in orders. Employment also looks to strengthen though growth here currently remains no better than moderate, at 54.0.
 Turning to the ISM manufacturing report, new orders also were the key highlight of the ISM report for June, overshadowing the headline composite index which held steady at 55.3. New orders rose 2.0 points to a very strong 58.9 which point to acceleration for general activity in the months ahead. Production, at 60.0, is already very strong as are imports, at 57.0 for a 2.5 point gain.
The composite indexes for both Markit and ISM for June are a little in contrast (stronger) than the meager 0.1 percent rise manufacturing production worker hours from the June employment situation. However, the new orders data from the surveys are encouraging for this sector.
 The trade deficit in May narrowed somewhat more than expected.
The trade gap shrank to $44.4 billion from $47.0 billion in April. Exports rebounded 1.0 percent in May after slipping 0.1 percent the prior month. Imports dipped 0.3 percent, following a 1.1 percent boost in April.
The shrinking of the trade deficit was led by the petroleum gap which narrowed to $15.2 billion from $18.0 in April. Also, the services surplus improved to $18.9 billion from $18.6 billion. However, the goods excluding petroleum gap widened a bit to $47.0 billion from $46.6 billion in April.
In May, the goods deficit decreased $2.4 billion from April to $63.3 billion.
The improvement in the goods balance was not a price effect. The real goods trade balance shrank to $52.0 billion from $53.9 billion in April.
The latest report will likely increase estimates for second quarter GDP.
For the second quarter, the recovery has regained strength across a variety of sectors. Clearly, the consumer and manufacturing sectors are gaining strength. However, construction is uncertain. But the latest and positive employment data suggest that there may be better numbers ahead at least for housing. Second quarter GDP growth should be relatively strong.
With a relatively light schedule, the focus is on the consumer. After this past week's favorable employment report for June, attention will be on whether other consumer sector indicators confirm the better jobs numbers. But there likely will be a good chance of pullback after recently strong numbers. Job openings were up notably in the latest report for April. For consumer credit, a record monthly gain was set in April. As usual, jobless claims will get trader attention—especially for indicating whether or not labor market improvement continues.
The NFIB Small Business Optimism Index in May rose sharply for a second straight month, up 1.4 points to 96.6 for the best reading of the recovery, since September 2007. The biggest monthly gains came from those who expect the economy to improve followed by sales expectations. Earnings trends were also up as were expansion plans and, very importantly, hiring plans. Economic data have been rebounding out of the slow winter and now include small business sentiment.
NFIB Small Business Optimism Index Consensus Forecast for June 14: 97.0
Range: 96.0 to 98.0
The Labor Department's Job Openings and Labor Turnover Survey indicated that there were 4.455 million job openings on the last business day of April, up from a revised 4.166 million in March (previously estimated at 4.014 million). The consensus called for 4.025 million job openings in April with the miss heavily affected by the upward revision to March. The number of job openings rose for total private and was little changed for government. In retail trade and in arts, entertainment, and recreation, the number of job openings increased in April. The number of openings also increased in the Midwest region in April.
The hires rate (3.4 percent) and separations rate (3.3 percent) were unchanged in April. Within separations, the quits rate (1.8 percent) and the layoffs and discharges rate (1.2 percent) were unchanged in April. Hires posted at 4.708 million-marginally higher than 4.706 million in March-up only 2,000 for the latest month. There were 4.496 million total separations in April, essentially unchanged from March's 4.491 million.
JOLTS job openings Consensus Forecast for May 14: 4.400 million
Range: 4.350 million to 4.495 million
Consumer credit outstanding surged $8.8 billion for one of the very largest gains on record. Revolving credit had been noticeably lagging non-revolving credit which also rose sharply in April, up $18.0 billion reflecting heavy vehicle financing and, as usual, government acquisition of student loans. Together, consumer credit rose a record $26.8 billion.
Consumer credit Consensus Forecast for May 14: +$17.5 billion
Range: +$13.8 billion to +$22.0 billion
Initial jobless claims for the June 28 week were essentially steady at 315,000 versus 313,000 the prior week. Over the past six weeks, initial claims, ranging between 304,000 and 318,000, have held at some of their best levels of the recovery. The 4-week average was at 315,000, again little changed from recent weeks. Continuing claims, reported with a 1-week lag, have also been showing improvement. Continuing claims did rise 11,000 in the June 21 week to 2.579 million, but the 4-week average was down 6,000 to a new recovery low 2.580 million.
Jobless Claims Consensus Forecast for 7/5/14: 315,000
Range: 305,000 to 321,000
Wholesale inventories rose 1.1 percent in April, matching the pace in March. Sales rose 1.3 percent versus 1.6 percent in March. The stock-to-sales ratio was unchanged for a second month at a lean 1.18. Inventories of autos at the wholesale level have been coming down and, given the surge of sales in May, auto inventories may be coming down further. In a positive indication of housing activity, wholesales inventories of both furniture and lumber have also been coming down.
Wholesale inventories Consensus Forecast for May 14: +0.6 percent
Range: +0.4 to +0.7 percent
The U.S. Treasury monthly budget report showed a $130.0 billion deficit for May following a $106.9 surplus in the tax month of April. Rising tax receipts together with cuts in defense spending continue to trim down the government's debt which, eight months into the government's fiscal year, is down a year-on-year 30.3 percent. Fiscal year-to-date receipts, driven by gains in individual and corporate taxes, are up 7.5 percent from this time last year while outlays, held down by a 5.9 percent year-on-year decline in defense, are down 2.3 percent. Looking ahead, the month of June has been mixed regarding deficits and surpluses. Over the past 10 years, the average deficit for the month of June has been $2.6 billion and $29.6 billion over the past 5 years. The June 2013 surplus came in at $116.5 billion.
Treasury Statement Consensus Forecast for June 14: $86.5 billion
Range: $70.0 billion to $110.0 billion.
R. Mark Rogers is the author of The Complete Idiot's Guide to Economic Indicators, Penguin Books.
He can also be found on a weekly broadcast talking about the U.S. economy, the easiest way to find him is by going to iTunes and searching for "Simply Economics."
Econoday Senior Writer Mark Pender contributed to this article.
|
![[Econoday]](images/econoday_logo_slim.gif){kind=logo}
![[Econoday]](images/logo.gif){kind=logo}