May was a risk-off month as the S&P 500 fell 6.58%. For the week, not only did equities get crushed but bonds zoomed higher pushing the 10-year treasury yield below the fed funds rate. Not a single S&P sector closed higher this week and S&P 500 fell below its 200-day moving average. U.S.- China trade tensions escalated seemingly every day this week. Chinese media suggested that Beijing could restrict exports of rare earth minerals to the U.S. Additionally, Chinese media said Beijing is drafting a list of “unreliable” foreign companies that harm the interests of its companies. Thursday evening things got worse when President Trump announced a 5% tariff on imports from Mexico starting on June 10, adding that the tariffs will move to 25% on Oct. 1 unless Mexico takes actions to curb the flow of undocumented migrants entering the U.S.
Global Bond Yields
Foreign Exchange Market
The Baker Hughes rig count gained +1 this week. There are 984 oil and gas rigs operating in the US – down 76 over last year.
- Brent Crude Oil lost 9.75% this week closing at $61.99/bbl
- WTI Crude Oil lost 8.75% this week to close at $53.50/bbl
- Heating Oil lost 6.67% this week closing at $1.84/gallon
- Natural Gas lost 6.01% this week closing at $2.45 per million BTUs
- Unleaded Gas lost 7.41% this week closing at $1.77/gallon
- Gold gained 2.14% this week closing at $1311.10/oz
- Silver gained 0.08% on the week closing at $14.57/oz
- Palladium gained 0.62% this week closing at $1333.90/oz
- Platinum lost 1.08% this week closing at $794.20/oz
- Copper lost 2.20% this week closing at $2.64/lb
Weekly Unemployment Claims – Released Thursday 5/30 – In the week ending May 25th, initial claims were 215,000 increasing 3,000 from the previous week’s revised level. The 4-week moving average was 216,750, a decrease of 3,750 from the previous week’s revised average.
Job Openings & Labor Turnover Survey JOLTS – Released Tuesday 5/7 – The U.S. Bureau of Labor Statistics reported the number of job openings rose to 7.5 million on the last business day of March. Over the month, hires and separations were little changed at 5.7 million and 5.4 million, respectively. Within separations, the quits rate remained unchanged at 2.3% at a level of 3.4 million. The layoffs and discharges rates were little changed at 1.1%.
April Jobs Report – BLS Summary – Released 5/3 – The US Economy added 263k nonfarm jobs in April and the Unemployment rate declined by 0.2% to 3.6%. Unemployment has reached its lowest level since December 1969. April’s 263k increase and March’s 189k increase in nonfarm jobs has stifled concerns over recession and provided relief from concerns that had developed after February’s small 20k increase. The March report was revised down 7k. Average hourly earnings increased by 4 cents. Hiring highlights include Education and Health Services +62k, Professional and Business Services +76k, Leisure and Hospitality +34k, Construction +33k, and Retail Trade -12k.
- Average hourly earnings increased by 6 cents/ 0.22% in April y/y hourly earnings are up 3.2%.
- U3 unemployment declined by 0.2% to 3.6%. U6 unemployment rate also held steady at 7.3%.
- The labor force participation rate declined slightly by 0.2% to 62.8% (Unchanged year to year).
- Average workweek decreased slightly by 0.1 hours to 34.4 hours.
Employment Cost Index – Released 4/30 – Compensation costs for civilian workers increased 0.7% for the 3-month period ending in March 2019. The 12-month period ending in March 2019 saw compensation costs increase by 2.8% versus 2.7% in March 2018. Wages and salaries were up 2.9% for the 12-month period ending March 2019, versus 2.7% for the 12-month period ending March 2018. Benefit costs increased 2.6% for the 12-month period ending March 2019. For private industry workers, compensation costs increased 2.8% year-over-year, versus 2.8% for the 12 months ending March 2018. Wages and salaries increased 3.0% year-over-year, versus 2.9% for the 12 months ending March 2018. Benefit costs increased by 2.4%, versus 2.5% for the 12 months ending March 2018. This report is published quarterly.
This Week’s Economic Data
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Chicago PMI – Released 5/31 – Chicago PMI increased 1.6 points in May rising to 54.2, up from 52.6 in April. Despite the uptick in sentiment, the survey points to softness in business activity as the three-month average slips to a two-year low. Since the turn of the year, slower growth in demand and production has presented weaker labor demand. Employment fell below both the three-month and 12-month averages reaching its lowest level since October 2017. Factory gate prices increased slightly following last month’s dramatic decline with the rise in the price of oil. Firms were asked about supply-side issues with 40% claiming adverse impacts from supply side issues citing tariffs and delays adding costs and reducing competitiveness. Indicators are below their last year averages but moving toward their long-term means suggesting conditions are neither great nor bad.
Personal Income – Released 5/31 – Personal Income increased 0.5% in April after seeing a 0.1% increase in March according to the BEA. The majority of the increase in April was due to increases in personal interest income, wages and salaries, and government social benefits to persons. Real PCE (the Feds preferred inflation gauge) declined less than 0.1% in April. Real disposable personal income increased by 0.1% in April.
Second Estimate of 1st Quarter GDP – Released 5/30 – According to the second estimate released by the Bureau of Economic Analysis, Real Gross Domestic Product (Real GDP) increased at an annual rate of 3.1% in the first quarter of 2019. The second estimate is based on more complete source data than was available for the advance estimate. The advance estimate, estimated real GDP, increased at 3.2% in the 1st quarter. The first quarter increase in real GDP observed positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, state and local gov’t spending, and nonresidential fixed income. Also, imports decreased in the first quarter further increasing gains to real GDP. Positive contributions were partly offset by a decrease in residential fixed investment. A third estimate for first quarter GDP growth will be released on June 27, 2019.
Consumer Confidence – Released 5/28 – The Consumer confidence index increased in May following an increase in April. The Index now shows a reading of 134.1 up from 129.2 in April. The increase in Consumer Confidence in May has brought the index levels back to levels seen last Fall hovering near 18-year highs. Consumer confidence levels suggest consumers expect the economy to continue to expand at a solid pace in the short term. Consumers continue to view both business and labor market conditions favorably.
Recent Economic Data
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Durable Goods – Released 5/24 – New orders for manufactured durable goods decreased $5.4 billion or 2.1% to $248.4 billion in April. The decrease in April follows a 1.7% increase in March. Two of the last three months have seen declines. Transportation equipment declined 5.9%, driving the decrease by $5.4 billion to $85.4 billion.
New Residential Sales – Released 5/23 – Sales of new single-family homes declined 6.9% to 673k, seasonally adjusted, in April. The median sales price of new homes sold in April was $342.2k with an average sales price of $393.7k. At the end of April, the seasonally adjusted estimate of new homes for sale was 332k. This represents a supply of 5.9 months at the current sales rate.
Existing Home Sales – Released 5/21 – Existing home sales declined slightly by 0.4% in April. Sales declined to a seasonally adjusted rate of 5.19 million. Sales are currently down 4.4% from one year ago. Housing inventory increased to 4.2 months of inventory and the existing homes for sale increased to 1.83 million. The median sales price for all types of homes was $267,300, up 3.6% year/y.
Housing Starts – Released 5/16 – New home starts in April were at a seasonally adjusted rate of 1.235 million; up 5.7% above March but 2.5% below last April’s rate. Building Permits were at a seasonally adjusted rate of 1.296 million, up 0.6% compared to March and down 5.0% over last year.
Retail Sales – Released 5/15 – U.S. retail sales for April 2019, were $513.4 billion, a decrease of 0.2% from the previous month. Retail sales are up 3.1% year to year.
Industrial Production and Capacity Utilization – Released 5/15 – Industrial production declined 0.5% in April following a 0.1% decrease in March. Manufacturing output declined 0.5% in April following no change in March. Capacity utilization declined 0.6% to 77.9%. Utilization is 1.9% below its long-run (1972-2018) average.
Consumer Price Index – Released 5/10 – The Consumer Price Index increased 0.3% in April. Core CPI, which excludes food and energy increased 0.1%. The monthly changes left total CPI up 2.0% year-over-year and core CPI up 2.1%.
U.S. Trade Balance – Released 5/9 – The U.S. Trade deficit was $50.0 billion in March, up $0.7 billion from $49.3 billion in February. March exports were $212.0 billion, $2.1 billion more than February exports. March imports were $262.0 billion, $2.8 billion more than February imports. The goods and services deficit decreased $5.8 billion year to date. Year to date exports and imports increased $14.0 billion or 2.3% and $8.2 billion or 1.1% respectively.
Producer Price Index – Released 5/9 – The Producer Price Index for final demand increased 0.2% in April. Core PPI was unchanged. Year over year the index for final demand rose 2.2%.
Consumer Credit – Released 5/7 – Consumer credit increased at a seasonally adjusted annual rate of 4.25% in the first quarter of 2019. Revolving and nonrevolving credit increased 1.50% and 5.25% respectively. Consumer credit increased at a seasonally adjusted annual rate of 3.0%in March. Total Outstanding consumer credit is currently at $4.052 trillion.
PMI Non-Manufacturing Index (ISM Services) – Released 5/3 – Economic activity in the non-manufacturing sector grew in April for the 11th consecutive month. ISM Non-Manufacturing registered 55.5 percent, which is 0.6 percentage points lower than the March reading of 56.1 percent. This represents continued growth in the non-manufacturing sector, at a slightly slower rate.
PMI Manufacturing ISM Index – Released 5/1 – April PMI decreased 2.5% to 52.8% from March’s reading of 55.3%. The New Orders Index was down 5.7% from March’s reading of 57.4% to 51.7% for April. The Production Index registered 52.3% down 3.5%.
U.S. Construction Spending – Released 5/1 – Construction spending declined by 0.9% in March measuring at a seasonally adjusted annual rate of $1,282.2 billion. The March figure is 0.8% below the March 2018 estimate. Private construction spending was 0.7% below the revised February estimate at $961.5 billion. Public construction spending was 1.3% below the revised February estimate at $324.7 billion.
US Light Vehicle Sales – Released 4/3 – U.S. light vehicle sales were at a seasonally adjusted annual rate (SAAR) of 18.01 million units in March versus a SAAR of 17.04 million units in February. The March run rate was up 1.7% from the SAAR of 17.71 million units for March 2018.
Next week we get data on U.S. Construction Spending, ISM Services, PMI Manufacturing ISM Index, Consumer Credit, the U.S. Trade Balance, and the May Jobs Report.