U.S. economic indicators in early June look consistent with moderate-to-strong real GDP growth for the soon-to-be-complete second quarter. We are forecasting a 3.6 percent real GDP growth rate for Q2, which we believe will be the strongest quarterly growth rate for the year.
The ISM Non-Manufacturing Index climbed to 58.6 in May. Anything above 50 indicates overall improving conditions. A number close to 60, or above, is considered strong. Fourteen out of fifteen industries reported growth in May, only information services reported a contraction. Anecdotal comments talked about strong demand, concern about input price increases and shortages of qualified labor.
The nominal U.S. international trade gap narrowed for the second consecutive month to -$46.2 billion in April. Total exports increased by $0.6 billion in April with help from petroleum exports. Imports declined by $0.4 billion with fewer cell phone imports after the surge last fall. With just one month of data for the second quarter, it looks like trade will be a positive factor for current quarter GDP.
Productivity growth for Q1 was revised down to just a 0.4 percent annualized rate. Unit labor costs for nonfarm businesses increased at a 2.9 percent annualized rate in the first quarter of this year, and were up by 1.3 percent since 2017Q1. The low productivity numbers imply that wage gains will cause many companies to increase their prices.
Mortgage applications jumped by 4.1 percent for the week ending June 1, with similar gains in both purchase and refi apps. This was the first increase in purchase apps in seven weeks, a hopeful but weak sign for home sales. According to the Mortgage Bankers Association the rate for a 30-year fixed rate mortgage eased to 4.75 percent at the end of May.
The price of West Texas Intermediate crude oil was stable near $65 per barrel this week, after approaching $75 per barrel in mid-May. Supply side concerns, which pushed prices up through April and May, were countered with concerns about softer demand from China, and a larger-than-expected gain in U.S. inventories.
The Job Opening and Labor Turnover Survey (JOLTS) data for April showed an ongoing strong job openings rate of 4.3 percent, maintaining the all-time high for that series reached in March. The hiring rate ticked back up to a strong 3.8 percent. The separations rate was unchanged at 3.6 percent, indicating ongoing worker confidence.
Initial claims for unemployment insurance dipped by 1,000 for the week ending June 2, to hit 222,000. Continuing claims gained 21,000, to hit 1,741,000 for the week ending May 26, still a very low number.
European bond markets were rattled by political uncertainty in Italy, ongoing signs of stress in the European banking sector and by increasing speculation that the European Central Bank will further decrease their asset purchases this year.
There is near universal expectation that the Federal Reserve will increase the fed funds rate range to 1.75-2.00 percent at the conclusion of the upcoming FOMC meeting of June 12/13.
For a PDF version of this report click here: Comerica-Economic-Weekly-06082018.
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