The employment situation continues to improve, although some key labor indicators are lagging. The U.S. economy added 201,000 new jobs in August and the unemployment rate held steady at 3.9%. The professional and business services and healthcare sectors have seen the largest gains over the last year adding an aggregate of 820,000 jobs. Although August readings are in line with the current cycle average, June and July saw downward revisions by an aggregate of 50,000 jobs. Additionally, the labor participation rate and employment-population ratio remain stagnant as the long-term unemployed and marginally attached workers have seen no improvement over the last twelve months. As the holiday season approaches in a high consumer confidence environment expect employment and retail sales to receive a near term boost.
*WTI Crude Oil Spot Price. Data points through end of September 2018. Change represents month-over-month change.
The economy continues to build on the momentum set last quarter as the economy witnessed the first above 4% annual growth rate since Q3 2014. Net exports were the bright spot after showing the largest uptick in nearly five years despite the volatility in trade talks. Personal consumption continued to be robust with goods and services growing at nearly double their long-term averages as consumer confidence continues to set new highs. Despite the positives, gross private investment came in flat as private inventories and residential investment declines outweighed gains in non-residential investment. In the near term, personal consumption should remain robust, but new rounds of tariffs and the uptick in interest rates could put a dent on exports and other activity.
Despite trade and rising late-cycle risks, consumer confidence continues to breach new cyclical highs. Wage growth has improved, while job creation remains healthy. Through September 2018, the six-month average consumer confidence index rose to 130.4 from 119.2 one year ago – an 18-year high. As a result of sustained economic growth, supported by recent tax cuts, consumers remain optimistic.span>
Following several months of robust growth, the pace of retail sales has moderated. Despite this recent deceleration, retail sales still rose by more than 7% y-o-y% in September 2018 – an indication of the health of U.S. consumers. In addition to recent fiscal stimulus, consumers have benefitted from stronger wage growth, sustained home price appreciation, and stock market prices continually testing new highs. Expanding at a double-digit rate, e-commerce retail sales continue to grow and now account for close to 10% of total U.S. retail sales.
The U.S. housing sector continues to firm up, though it is hitting capacity constraints relative to labor availability, wages, and rising materials costs. Starts for single-family homes so far this year are up from a year ago despite some monthly volatility. However, weakness in household formation and rising interest rates could put a damper on demand going forward. Some of that drag on demand is evident in the pickup in months’ supply of for-sale housing units. At 6.1 months of supply, this is the most inventory in the market since 2011. Homebuilder sentiment is holding steady and although 5 points below December 2017’s high of 72, is indicating that positive momentum for building conditions will continue short term.
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