U.S. economic indicators from this week were generally positive and consistent with ongoing moderate economic growth in the third quarter. Also this morning we see another escalation in the trade war with China. So far, most U.S. economic data shows little evidence of a negative impact from trade disputes. However, as the tariffs and counter-measures broaden in scope, increase in magnitude and extend over time, there will be more and more measurable effects.
July payrolls increased by 157,000 net new jobs, below expectations given the stronger 219,000 net gain seen in the July ADP employment numbers. The good news in today’s official Bureau of Labor Statistics job count was the positive revision of 59,000 more jobs over May and June. If we add the revision for May and June to the July total gain, that puts us up 216,000 jobs from last month’s estimate. The U.S. unemployment rate ticked back down to 3.9 percent. Average hourly earnings were up 0.3 percent for the month, warm but not hot. Over the last year, average hourly earnings were up 2.7 percent. The Consumer Price Index increased by 2.8 percent over the twelve months ending in June, so most workers are not seeing real gains.
The U.S. international trade gap widened in June, by $3.2 billion, to negative $46.3 billion. Exports of goods decreased by $1.7 billion while exports of services eased by $0.2 billion. Imports of goods were up by $1.4 billion. Imports of services were little changed, down $0.1 billion in June. The trade result from June should have little impact on the Q2 real GDP estimate of 4.1 percent real growth.
Auto sales eased from a 17.2 million unit rate in June, to a 16.8 million unite rate in July. We look for a gradual decline in auto sales over the next year as affordability drops.
The ISM Manufacturing Index dropped just over two points in July, from a robust 60.2, back to a still-strong 58.1, indicating ongoing expansive conditions for U.S. manufacturers. The new orders, production and employment sub-indexes were all in expansion territory.
The ISM Non-Manufacturing Index fell from 59.1 in June to 55.7 in July. The business activity/production sub-index cooled noticeably from 63.9 in June, to 56.5 in July, which is still a positive number.
The income and spending data was revised along with the recent GDP revision. There was a major change to the personal saving rate, which alters the story about U.S. consumers. We now see a fairly flat saving rate, hovering around 7 percent, since 2013. This implies that consumers are not over-extended, and they can keep spending without setting up a debt overhang-correction cycle.
The Case-Shiller U.S. National House Price Index was up by 0.4 percent for the month in May, gaining 6.4 percent over the previous 12 months. Most of the 20 cities tracked showed monthly price increases. Western cities still show stronger gains. Seattle topped the 20-city list, increasing by 1.4 percent in May.
The Employment Cost Index was up a moderate 0.6 percent over the second quarter. Civilian wages were up by 2.8 percent over the year ending in June. Benefit costs were up by 2.9 percent over the year. Stronger productivity growth in Q2 will help employers absorb the added costs without pushing up their prices (broadly speaking).
For a PDF version of this report, click here: Comerica Economic Weekly August 3, 2018
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