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Jobs Jump in January

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Life is good, according to January's job report. Not only did U.S. companies add 200,000 jobs in January, but wages increased the most since 2009. Hourly earnings were up 2.9 percent from a year ago and up 0.3 percent for the month. Some of the wage gains can be attributed to an increase in the minimum wage in 18 states, as well as bonuses initiated from the tax changes. Hiring was broad-based across industries. A drop in the number of hours worked, usually a worrisome detail, was potentially due to a number of people unable to work their full-time jobs as a result of bad weather across most of the country. The unemployment rate remained at 4.1 percent.

Other Key Indicators this Week:

Spending – Nothing can keep the consumer down. Consumer spending rose 0.4 percent in December and was revised higher for November. Incomes also rose 0.4 percent, as worker pay increased the most in three months. Given we are spending as much as we are earning, the savings rate decline to 2.4 percent, the lowest level in 12 years, comes as no surprise. The Federal Reserve's inflation gauge, which is tied to consumption, increased year-over-year 1.7 percent. This is 0.1 percent lower than the previous month and still shy of the Fed’s 2.0 percent target.

Auto Sales – Auto sales started the year slower than they ended 2017, but still showed up at the party. Automobile dealers sold 17.1 million autos on a seasonally adjusted annual basis in January, the third January with sales above the 17 million rate. Incentive activity increased 9.8 percent from January last year, and the average transaction price was 1.9 percent higher. The luxury car segment had its first increase in over two years, rising 2.7 percent. I guess those big red bows worked.

Housing – Finally, one of the monthly housing reports for December was positive. Pending home sales increased 0.5 percent during the last month of 2017, for the third increase in a row. The number of contracts signed to purchase an existing home rose the most in the South, up 2.6 percent, and declined the most in the Northeast, falling 5.1 percent. While the report is considered a leading indicator of activity, the National Association of Realtors warns not to get overly optimistic. A severe lack of supply, the impending tax changes and rising prices could limit home sales for this spring. A related report from S&P CoreLogic Case-Shiller revealed home prices in the top 20 metropolitan cities increased 6.4 percent in November, the largest gain in three years. The national home-price gauge rose 6.2 percent from the previous year.

Strategically for Credit Unions:

The message from the Federal Reserve was neither hawkish nor dovish. The FOMC upgraded their outlook of the economy, citing improvement in job gains, household spending and business investment. Inflation is expected to move toward the Fed's objective of 2.0 percent over the medium term. The committee left interest rates unchanged at 1.25 to 1.50 percent and expects further gradual increases in the federal funds rate. However, the Fed does not appear to be in any hurry to raise interest rates.  They continue to state that the fed funds rate is likely to remain below levels expected to "prevail in the long-term."

Sarina Freedland –Senior Investment Officer

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