U.S. economic indicators in early May were good. Some are coming down off of very strong readings, so the directional comparisons may look disconcerting, but overall, metrics are consistent with an ongoing moderate GDP expansion.
Payroll job growth in April was moderate, up by 164,000 net new jobs for the month. Average hourly earnings were up by 0.1 percent for the month and 2.6 percent over the previous 12 months, so wage pressure was light. The unemployment rate fell to 3.9 percent, the lowest it has been since December 2000. The average workweek was unchanged at 34.5 hours, about where it has been since early 2012.
Nonfarm labor productivity increased at a sluggish 0.7 percent annual rate in the first quarter. Over the previous year, productivity was up by just 1.3 percent. Increasing productivity growth will be required to keep the expansion cycle going in the medium term. Unit labor costs were up at a 2.7 percent annualized rate in Q1, the strongest gain in the last four quarters.
The ISM Non-Manufacturing Index eased to a still-positive 56.8, a little below the very strong near-60 reading from earlier this year. All eighteen industries reported growth for the month. Anecdotal comments were positive with some focus on rising prices.
The ISM Manufacturing Index for April eased again to a still-positive 57.3, after dipping in March. Seventeen out of eighteen reporting industries said that they expanded in April. Anecdotal comments talked about strong sales, shortages of trucking services and concern over the possibility of trade tariffs.
The U.S. international trade gap narrowed significantly in March, to -$49.0 billion, from -$57.7 billion in February. Exports of goods grew while imports of goods shrank. The March numbers are close to those implied by the Q1 GDP report, so we expect no significant revision to Q1 GDP due to trade.
Nominal personal income increased by 0.3 percent in March, the same percentage increase as February. After adjusting for inflation and taxes, real disposable income increased by 0.2 percent in March, and was up a respectable 1.7 percent over the previous 12 months. Nominal consumer spending increased by 0.4 percent. The PCE price index was unchanged for the month, so real consumer spending also increased by 0.4 percent in March. Over the previous 12 months, the PCE price index was up by 2.0 percent. With spending growing faster than income, the personal saving rate declined to a fairly low 3.1 percent in March.
Auto sales eased in April to a 17.1 million unit rate, from 17.5 million in March.
Total construction spending for March fell by 1.7 percent, weighed down by private residential projects. This data is backwards looking, reinforcing the weak residential fixed investment numbers in first quarter GDP.
The Federal Reserve did as widely expected, and left the fed funds rate unchanged at the Federal Open Market Committee meeting of May 1/2. We expect to see the next fed funds rate increase to the range of 1.75-2.00 percent at the conclusion of the upcoming FOMC meeting over June 12/13. According to the CME Group, the implied odds of a June 13 rate hike are at 95 percent.
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