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International Trade In Goods

Highlights
Forget about tariffs and trade wars. Exports in May surged a convincing 2.1 percent to pull down the nation’s goods deficit to a much lower-than-expected $64.8 billion in May. The results will add further to second-quarter GDP forecasts where high-end estimates were already approaching 5 percent.

The export gain is led by a 12.8 percent monthly jump in foods & feeds and includes a 3.7 percent gain for capital goods which are the nation’s strongest exports. And consumer goods also rose, up 3.2 percent. The overall gain comes despite a 3.1 percent decline in industrial supplies, a component where swings in oil prices dominate.

Imports were nearly neutral in May, up only 0.2 percent following a 0.4 percent decline in April. Auto imports fell 1.2 percent in the month with consumer imports, which is the Achilles heel of U.S. trade, down 1.0 percent. Imports of industrial supplies, again reflecting oil prices, fell 0.7 percent. A category that shows a gain, and here perhaps a welcome one pointing to rising business investment, is imports of capital goods which jumped 3.4 percent.

This is a very healthy report and it may offer a signpost of the nation’s trade performance going into a summer of cross-border discontent.

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Housing Starts

Highlights
The good news in May’s housing starts report is centered in the present, less so in the outlook. Starts jumped 5.0 percent in the month to a 1.350 million annualized rate that hits the top end of Econoday’s consensus range and that should give a boost to residential investment in the second-quarter GDP report. Good news also comes from completions which rose 1.9 percent to a 1.291 million rate which will help feed a housing market starving for immediate supply.

The question of future supply is still very positive but, however, has not improved in the May report as building permits fell for a second straight month and very steeply in May, down 4.6 percent to a 1.301 million rate. Weakness includes single-family homes, down 2.2 percent to a 844,000 rate, and once again multi-family units which are down 8.8 percent to a 457,000 rate.

Back to the good news as the breakdown for starts shows a 3.9 percent rise in single-family homes to 936,000 and a 7.5 percent gain for multi-units to 414,000. The gain for completions is entirely centered in the key single-family category, up 11.0 percent to 890,000 to offset a 13.8 percent decline for multi-units.

Building in the housing sector, given reports of shortages of construction workers and also construction equipment, may be progressing at the fastest rate possible based on year-on-year rates of growth: at 20.3 percent for starts, 10.4 percent for completions with permits at 8.0 percent.

The new home market, where sales are up in the low double digits, is a leading sector of the economy but appears to be bumping up against capacity constraints. Showing much less strength than new home sales have been resales which have been surprisingly flat and which will be updated with tomorrow’s existing home sales report.

http://mam.econoday.com/byshoweventfull.asp?fid=485716&cust=mam&year=2018&lid=0&prev=/bymonth.asp#top

 

Fed Chair Press Conference

Highlights
“Great shape” is how Jerome Powell describes the state of the U.S. economy, stressing strong growth in the jobs market over the last couple of years. In reaction to this, Powell says the Fed, after years of accommodation, is now gradually normalizing policy in an effort to head off the risk of wage-driven inflation.

Powell is warning that inflation, due to high oil prices, may run over its 2 percent symmetric target during the summer, but only briefly. He said policy makers would only be concerned if inflation were to persistently run either above or below target, which he does not expect. On the risk of wage inflation, he does cite reports of labor shortages but notes that there has yet, in what he concedes is a mystery, to be much reaction in wages. And Powell also pointed to the positives of low unemployment, including how it may pull workers at the margin into the labor force.

On Washington policies, he said lower tax rates and fiscal stimulus will likely have a “significant” positive impact on demand. On tariffs, he acknowledged reports that they may be holding down business investment and hiring but he emphasized that such effects have yet to appear in the economic numbers.

On questions over the neutral rate, that is when the funds target neither holds back nor stimulates the economy, Powell acknowledges that it may be reached “relatively soon”. He stressed the importance of the gradual path for rate hikes which he said has been the “right thing” for the economy. Note that based on the latest FOMC forecasts, the neutral rate will be hit after four more 25-basis-point hikes.

Asked about credit risks in the economy, the chair said leverage among non-banks in the corporate sector is high but that defaults are low and that interest rates are still low. He stressed that debt among households, where credit stress was high in the 2008 collapse, is not a problem. On the flattening underway in the yield curve, he attributed the rise in short rates to the rise underway in the funds target and the relative stability of long rates to demand for safety. There were no questions on the unwinding of the Fed’s balance sheet which, for mortgage-backed securities, is noticeably behind schedule.

In a special note, the chair announced that beginning next year, in an effort to enhance transparency and the flexibility of policy, press conferences will be scheduled at each FOMC, formerly ever other FOMC.

 

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JOLTS Report

Highlights
For the first time in nearly 20 years of existing records, the number of job openings, at 6.698 million in April, is exceeding the number of unemployed actively looking for work, at 6.346 million in April (subsequently falling in last week’s employment report to 6.065 million in May).

And though 5.578 million were hired in April, the gap between openings and hires in today’s JOLTS report, at 1.120 million, is the second largest on record next only to March’s 1.147 million. This gap suggests that employers are having a hard time finding people to fill the jobs.

Today’s report is a standout milestone of full employment that will capture the attention of monetary hawks whose focus is the risk of wage inflation.

http://mam.econoday.com/byshoweventfull.asp?fid=486198&cust=mam&year=2018&lid=0&prev=/bymonth.asp#top

 

GDP Quarter 1

Highlights
A lot of jostling in the components isn’t apparent in the headline which, at 2.2 percent annualized growth, hits Econoday’s second-estimate consensus for first quarter GDP. Nonresidential investment gets a 3.1 percentage point upgrade to a 9.2 percent annualized rate while investment on the residential side gets a 2 point downgrade to a minus 2.0 percent rate.

Inventories increased by $20.2 billion in the quarter, down from $33.1 billion in the first estimate, while net exports totaled minus $650.9 billion vs an initial $645.9 billion. The revisions trim the contribution from inventories to plus 0.13 from an initial plus 0.43 with net exports trimmed to plus 0.08 from plus 0.20.

Consumer spending was downgraded only by 1 tenth, rising at a 1.0 percent rate and reflecting a 3 tenths downward revision to service spending which is at plus 1.8 percent in the second estimate. Government purchases are also downgraded by 1 tenth to plus 1.1 percent.

The upgrade for nonresidential investment reflects greater gains for structures and intellectual property along with equipment which however is lagging the other components. The decline for residential investment underscores what has been and continues to be uneven results for building and home sales.

All in all, it was a strong quarter for business, with investment perhaps getting a boost from this year’s corporate tax cut, and a soft one for the consumer as spending sputtered and residential investment went into reverse. But the early outlook for the second quarter is positive with most forecasts calling for a return to the 3 percent area.

 

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Import and Export Prices

Highlights

With the strengthening of the dollar, we have seen a very minimal increase in the average cost of imported goods. With the increases “hovering near zero on a month to month basis and barely over zero on a yearly basis. Much of this minimal increase can be seen as a result of the current monthly increase to the price of imported iron and steel mill products right around 4%.

This near zero increase in import prices comes in stark contrast to the increases to the US’s export prices. Even with extremely sluggish prices of agricultural goods, year on year overall export prices are up 3.8%.  These increases in export prices in comparison to imports are a good indicator of an overall increase in wealth in the hands of Americans as a whole.

Consensus data predicts for imports to rise 0.5% in cost in the month of April, while export prices rising at 0.3%.

 

http://mam.econoday.com/byshoweventfull.asp?fid=485798&cust=mam&year=2018&lid=0&prev=/byweek.asp#top

 

Jobless Claims May 2018

Highlights
Initial jobless claims came in at 211,000 in the April 28 week, only 2,000 higher from the prior week’s 209,000 which remains a 49-year low. The latest 4-week average, down a very sizable 7,750 to 221,500, is a 45-year low. Continuing claims fell 77,000 in lagging data for the April 21 week to 1.756 million which, for this reading, is also a 45-year low. And the unemployment rate for insured employees is down another notch, 1 tenth lower to only 1.2 percent.

Trends for this series are once again moving lower, consistent with strong demand for labor in results that will firm expectations for strength in tomorrow’s employment report for April.

 

http://mam.econoday.com/byshoweventfull.asp?fid=485216&cust=mam&year=2018&lid=0&prev=/byweek.asp#top

Industrial Production

Highlights
Industrial production rose a very solid 0.5 percent in March for a 4.3 percent year-on-year rate with mining once again leading the report, jumping 1.0 percent on top of February’s 2.9 percent surge to lift year-on-year volumes to a 10.8 percent gain. Utilities also had a good March, with output up 3.0 percent in the month following a 5.0 percent weather-related decline in February. Year-on-year, utility output is up 5.3 percent.

Now the not-so-impressive news. Manufacturing production managed only a 0.1 percent gain which is just short of Econoday’s already modest consensus. Year-on-year, production volumes are up only 3.0 percent though there are positive details in the March report. Business equipment output is solid and up 4.4 percent on the year with the selected hi-tech component showing plenty of strength, up 1.2 percent on the month and 8.9 percent on the year. Vehicle production is another positive, up 2.7 in March for an 8.2 percent year-on-year rate that, however, looks aggressive given what have been mostly moderate results for vehicle sales.

Tariffs imposed on steel and aluminum during the month don’t appear to have had any measurable effect in this report though they probably didn’t help construction supplies where output fell a monthly 0.3 percent. Turning to capacity rates, overall utilization climbed 3 tenths to 78.0 percent but is still short of the nearly 80 percent trend several years ago. But clear stress is evident in mining where capacity is at 90.1 percent. In sum, there are plenty of positives with details helping to offset the headline disappointment for manufacturing production while mining remains one of the economy’s top drivers.

Note that traditional non-NAICS numbers for industrial production may differ marginally from NAICS basis figures.

Inflation

Highlights
A drop in gas prices pulled down consumer prices in March which came in at Econoday’s low estimate for a 0.1 percent decline. But the core rate, which excludes energy, did hit expectations at a modest 0.2 percent monthly gain with the year-on-year rate rising 3 tenths to 2.1 percent which also hits expectations.

But the gain in the yearly rate shouldn’t raise any eyebrows since it reflects an easy comparison with March last year when wireless service prices started to plunge. The balance of core items in today’s report is showing only limited pressure with downward pull coming from apparel, at minus 0.6 percent, and education & communications, at minus 0.2 percent.

Energy was the weakest factor in the month, down 2.8 percent with gasoline down 4.9 percent. Food is not a factor in the month, rising only 0.1 percent.

But there are some items that are showing a little pressure, at least in March. Medical care rose 0.4 percent following February’s 0.1 percent decline with dental services jumping 1.2 percent. Housing is also showing pressure, though moderate, at a second straight 0.3 percent monthly gain with the closely watched owners’ equivalent rent also up 0.3 percent.

This report is roughly in line with the Federal Reserve’s expectations: modest pressure that is slowly building. Note that the Fed’s 2 percent inflation goal is tied to its PCE index not the CPI which runs a bit hotter. But both move in the same direction which on trend continues to be very slightly higher.

Durable Good Orders

Highlights
Significant strength is the verdict for February’s durable goods orders and with it, significant strength is now the tangible outlook for this year’s factory sector. Durable goods orders jumped 3.1 percent in February to just top Econoday’s high estimate with ex-transportation orders, at a gain of 1.2 percent, very near the high estimate. The most convincing strength in the report comes from core capital goods (nondefense ex-aircraft) where orders surged 1.8 percent, which is well beyond the high estimate, with related shipments jumping 1.4 percent in what will give a major boost to business investment in the first-quarter GDP report.

Total shipments rose a very sharp 0.9 percent with ex-transportation shipments up 1.0 percent. Unfilled orders, which have been weak, showed improvement with a 0.2 percent gain. Turning to inventories, they rose a healthy 0.4 percent but, relative to shipments, need to be refilled as the inventory-to-shipments ratio fell one notch to 1.64. The dip in this reading points to the need for restocking which will be a special plus for factory payrolls.

Looking at product groups, orders for primary metals, which are now in special focus given the prospect of trade tariffs, surged 2.7 percent in the month in a gain that may reflect, based on anecdotal reports, rising prices for steel and aluminum. Fabrication orders rose 0.8 percent in the month with machinery, which is at the heart of the capital-goods group, rising 1.6 percent. Civilian aircraft orders, which are typically volatile month-to-month, supported February’s results, up 25.5 percent, with motor vehicles also showing unusual strength at 1.6 percent.

Year-on-year rates of growth are moving from the mid-single digits to the high single digits led by 8.9 percent overall with ex-transportation up 8.1 percent and capital goods up 8.0 percent. Today’s report helps confirm the enormous strength that has been posted over the last year by regional and private factory surveys and points to a sector that will increasingly contribute to employment growth and to GDP growth.

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