A look back at the June 10 week revealed a few interesting pieces of economic data, but nothing that would definitively point to a conclusion about whether a downturn is on the horizon or not. In fact, the numbers might suggest that the economy isn’t doing too badly at all even as the geopolitical news turns sour.
At the top of the list of better-than-expected numbers was the 0.5% increase in retail and food sales in May that got some heft from a substantive upward revision in April to up 0.3% (previously down 0.2%). There were a few soft spots in the categories of spending, but on the whole consumers were willing to spend on hard goods. Sales excluding motor vehicles were also up 0.5%, as well as “core” sales – excluding motor vehicles, building materials, and gasoline.
The week began with the numbers of Job Openings and Labor Turnover (JOLTS) for April. These lag the more important Employment Situation by a month and reflected the very strong payroll adds seen in April but did not yet take into account the significantly slower hiring in May. Nonetheless, JOLTS numbers indicated that job openings remain plentiful, new hiring brisk, layoffs relatively few, and that workers are still switching employment at record levels. The Beveridge Curve (rate of job openings versus the unemployment rate) showed very little slack in the labor market.
The data on inflation was so-so. Overall the CPI, PPI, and Import Price Index for May came in about as expected due to falling prices for energy. While upward inflation pressures remained mild, they were not absent and at the core reflected that prices are rising about in line with the Fed’s 2% objective. If anything, the risks to prices are on the upside while trade policy with China is unsettled and geopolitical events could start to drive energy costs up again.
The Atlanta Fed’s Business Inflation Expectations measure for June matched the Fed’s objective for a second month in a row. On the other hand, the University of Michigan’s 1- and 5-year inflation expectations declined fairly sharply. The 5-year measure reached a series low of 2.2%. This could fuel calls for the FOMC to defend the credibility of its inflation target by lowering rates. However, I would anticipate some upward revision when the final numbers are reported on June 28.
Initial jobless claims inched up 3,000 to 222,000 in the June 8 week, probably from the end of the school year and layoffs of education service workers. The insured rate of unemployment as of the June 1 week remained at 1.2% where it has been for the past 13 months.
At present there isn’t a strong argument to be made that the FOMC needs to immediately lower rates to support price stability and/or address the credibility of its inflation objective. Balancing this against the strong labor market, the FOMC consensus may be reluctant to increase accommodation for insurance purposes or not.
The NFIB’s Small Business Optimism Index took a surprise turn higher in May to 105.0 after 103.5 in April and was the highest since 107.4 in October, just when growth appeared to lose momentum. Survey respondents were more positive for both present and future conditions. The preliminary University of Michigan Consumer Sentiment Index for June moderated to 97.9 from the 100.0 of May, but levels of consumer confidence are still solid by this measure. In spite of heightened risks and uneasiness about the economic outlook, both businesses and consumers remain quite optimistic in the historical context.
As a footnote to the week’s numbers, on Monday Boeing reported no new orders for aircraft in May and an increase in cancellations of its 737 MAX aircraft. There are plenty of orders still in the pipeline to keep Boeing plants busy for some time yet. However, the crashes associated with the 737 MAX plane are going to be a drag on aircraft orders for some time. Boeing will probably pull out all the stops to book fresh orders in June at the Paris Airshow and address the public relations disaster head-on.
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