June’s Consumer Confidence Research Notes

by Jim Baird on June 28, 2016

CCConsumer confidence improves more than expected in June

The overall mood of U.S. consumers improved markedly in June, as economic data suggested that the economy accelerated after a soft opening to the year.

The Conference Board Consumer Confidence Index rose to 98.0 in June, up from a revised 92.4 reading for the prior month and easily exceeding expectations for a modest uptick. Improving expectations for the future and an improving assessment of current conditions were both apparent among those surveyed.

With the upward move, consumer confidence is above its long-term average of 92.6, improving markedly after being relatively range-bound over the past several months.

The positive report on consumer attitudes built on an upward revision to Q1 GDP that raised the rate of growth to 1.1% from an initial estimate of 0.5% in the report released earlier today. While the economy stumbled in the first few months of the year, it now appears that it did not soften as much as initially believed. More recent data continues to point to a pickup in activity in the second quarter, with growth expected to return to the 2.0 – 2.5% trend rate of recent years.

While consumers have been fairly resilient to market volatility and slower growth thus far in 2016, the recent referendum decision by British voters to leave the EU shocked the capital markets and sent a ripple of worry around the globe. Most expect that the near-term effect on the UK economy will be negative, but the impact on the U.S. economy should be negligible.

Although household spending tightened to begin the year, as confidence slipped amid capital market volatility and flagging economic growth, combined retail sales growth in April and May marked the strongest two-month gain in over two years. Retail sales were up 0.5% in May, supported by strong sales at gas stations, although it remains the weakest retail sector over the past year.

The bottom line is that the outlook for consumers looks good, supported by a growing economy, generally solid labor market conditions, an improving wage outlook, manageable debt levels, and moderate inflation. Near-term market volatility may give households reason for pause, but consumer spending should remain a key support for the economy in the coming quarters.

Jobless Claims (week of 6.18.16) Research Notes

by Jim Baird on June 28, 2016

JCJobless claims decline more than expected; remain below 300,000 for 68th consecutive week

Initial jobless claims fell by 18,000 to 259,000 for the week ended June 18, bringing the 4-week average down to 267,000.

Generally, economists view claims below 300,000 as being indicative of a healthy labor market. This morning’s release marks the 68th consecutive week that jobless claims have come in below that threshold, the longest streak in over four decades.

The sharp decline in claims bodes well for June nonfarm payrolls, as that survey by the Bureau of Labor Statistics was also conducted last week. With an already low level of claims edging lower still, payrolls will be expected to rebound after the exceptionally disappointing May report.

Nonfarm payroll growth slipped in May as the economy produced a paltry 38,000 new jobs, well below expectations of 155,000 or more. While that result was exacerbated by striking telecom workers, it was still a surprisingly weak advance. Job creation had already slowed considerably in recent months, but a solid gain for June would help to alleviate concerns about the pace of job creation moving forward.

Given the weak pace of growth during the first quarter, a slowdown in job creation is not entirely surprising as it takes time for companies to react to changing conditions and adjust their hiring practices. However, survey data indicates that job openings remain near all-time highs, as businesses have struggled to find skilled workers to fill the positions. Today’s report helps to make the case that even if employers aren’t hiring as rapidly, they also aren’t trimming their payrolls aggressively. The bottom line is that overall labor market conditions are not as bad as one might assume based on May’s nonfarm payroll print alone.

As concerns over the state of the global economy have waned in recent weeks and the Brexit question soon to be resolved, the Fed’s focus on incoming U.S. economic data should increase. Whether the recent stumble in job creation is an aberration or the beginning of a new trend remains to be seen, but it has the attention of policymakers. Given the Fed’s downward revisions to forward-looking growth and interest rate expectations released last week, it’s clear that its bias to raise rates is a tempered one, and the upward trajectory for short-term rates will remain a gradual one.

Special Commentary

June 24, 2016

EXECUTIVE SUMMARY Voters in the UK took a historic step in voting to leave the Eurozone, marking the first time a member nation has exited the trade union. Global equity, bond, and currency markets all experienced volatility in the immediate aftermath of the vote. The S&P 500 opened roughly 3% below yesterday’s close, while UK, […]

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Special Commentary

June 23, 2016

EXECUTIVE SUMMARY After months of buildup, the United Kingdom (UK) now stands at the precipice of a critical referendum that will decide its future as a member of the European Union (EU). Recent polls indicate that voters are evenly split, with the outcome of the vote a virtual coin toss. From an economic perspective, the […]

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May’s CPI Research Notes

June 16, 2016

Consumer Price Index rose by 0.2% in May; less than economists had anticipated Inflation edged higher in May, reflecting not only increasing energy costs, but continued increases in prices across the service sector. The Consumer Price Index rose by 0.2% in May, an increase that was less than economists had anticipated. Over the past year, […]

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Market Perspectives (June 2016)

June 14, 2016

Executive Summary U.S. stocks enjoyed broadly positive returns in May, with small-caps leading the way. Year to date, mid-caps have returned 5.0%, followed by large-caps at 3.6% and small-caps with 2.3%. International equities experienced renewed headwinds from a strengthening dollar last month, as returns were modestly negative in developed and emerging market stocks. Most bond […]

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May Retail Sales Research Notes

June 14, 2016

Retail sales rise 0.5% in May, beating expectations Retail sales rose by 0.5% in May, beating economist expectations for a 0.3% increase, while April retail sales were left unchanged at 1.3%.  Excluding automobile sales, the May increase was still solid at 0.4%. Rising oil prices boosted gas station sales, which rose 2.1% in May.  Over […]

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Consumer Sentiment Research Notes

June 10, 2016

Sentiment slips modestly in June on diminished expectations for the economy in coming quarters Consumers were modestly less optimistic in June, as a dimmer outlook for the economy in the coming months weighed on their collective mood. The University of Michigan Consumer Sentiment Index declined fractionally this month, coming in at 94.3. Despite slipping from […]

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May’s Employment Situation Research Notes

June 3, 2016

 Job creation plummets in May; unemployment rate dips to 9-year low First the good news: the unemployment rate declined to 4.7% in May, its lowest point since November 2007. That positive headline number doesn’t begin to tell the whole story, however. Even as other data on the economy faltered since late last year, solid job […]

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Consumer Sentiment Research Notes

May 27, 2016

Sentiment up in May less than previously reported; Q1 GDP nudged higher The collective mood of consumers edged a bit higher in May, as the University of Michigan Consumer Sentiment Index improved to 94.7 from 89.0 in April. However, this second look at sentiment was lower than the previous estimate for the month of 95.8 […]

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