May’s job report, where payrolls increased by 75,000, was a disappointment after much stronger gains in March and April which were revised lower. The tepid reading was significantly off the average pace set in the last twelve months and jobs added year-to-date are more than 30% off the pace set during the same time last year. Despite the deceleration the U.S. economy remains in growth mode as it chugs along in this extended economic cycle. Wages continue to see healthy increases, but low-skilled workers continue to see limited bargaining power. The unemployment and labor participation rate remained steady at 3.6% and 62.8% respectively. The dissipating 2018 federal tax cuts, deceleration in retail sales, combined with rising headwinds in the form of weaker global economic growth and elevated geopolitical risks generate expectations for more modest job creation going forward.
*WTI Crude Oil Spot Price. Data points through end of June 2019. Change represents month-over-month change.
GDP increased by 3.1% in 1Q19, a solid uptick after the modest reading in 4Q18 of 2.2%. The acceleration was driven primarily by the rebound in trade early in 2019 as well as increased state and local government spending. Imports saw a healthy positive reading after witnessing declines in the second half of 2018 and exports’ contribution increased 30 bps from the previous quarter. State and local government spending was the other largest contributor after seeing its strongest contribution reading since 1Q2016. Many metros across the U.S. have increased infrastructure spending over the last few months which has boosted local economies.
As threats of a trade war mount and key indicators signal that the end of the growth cycle may be near, consumer confidence slipped in June 2019, falling to 121.5 – its lowest level since September 2017. Mixed signals from key economic indicators along with rising trade tensions with China and Mexico have contributed to growing uncertainty. While still elevated relative to its long-term average, the index’s recent volatility points to falling optimism among U.S. consumers.
Despite rising headwinds, household spending remained buoyant, fueling retail sales growth through May 2019. A reflection of the strength in equity markets and tight job market, retail spending increased in May 2019, rising by 2.7% y-o-y, assuaging concerns of a sharp drop-off in economic growth in the second quarter. Although positive, retail sales growth has decelerated in comparison to the same time last year.
The peak home-selling season in the U.S. is in full swing and attractive lending rates await potential buyers. 30-year fixed mortgage rates have dropped to their lowest levels in two and a half years, and growth in home sales prices has continued to slow. The Case-Shiller National Home Price Index revealed a 3.5% annual increase in April, down from a 3.7% y-o-y increase recorded in March. The annualized rate of single-family housing starts remains in the same range that has been witnessed over the last three years, and the inventory in months-of-supply increased from 5.9 to 6.4 months between April and May. With declining mortgage rates and decelerating home sales prices, the housing market appears to be shifting in favor of homebuyers.
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