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Goldilocks is in the House Again

June's job report is being described as "just so-so" and "steady as she goes." Job additions were better than expected (up 213,000), wage gain was not so great (0.2 percent for the month, 2.7 percent year-over-year), and the unemployment rate was good and bad (4.0 percent). The unemployment rate increased from a 48-year low because 601,000 new people began looking for a job. This is not necessarily a bad thing given the imbalance of jobs to people. The fact that the U.S. can continue adding at least 200,000 jobs each month in a tight labor market is a sign we still have capacity to expand. With that expansion should come higher wages. While improved from a year ago, wages are not keeping pace with the continued level of hiring. There are a lot of details and a lot of ways to analyze those details in a monthly job report. For this month, the report is "as good as it gets," with room for improvement.

Key Indicators this Week:

ISM – The ISM index for manufacturing jumped more than expected in June to 60.2. This was only the third time the index surpassed 60 since 2004, with all three times occurring in the past year. The strength in manufacturing comes just as the U.S. is bracing for a pullback due to the impending trade tariffs. Some of the increase can be attributed to companies attempting to acquire materials before the tariffs take place, evidenced by an increase in the supplier delivery component of the index. New orders and production, two closely monitored data points, remained elevated in June, suggesting that factory activity should continue increasing in coming months.

Auto Sales – Total auto sales topped a 17 million annualized rate for the fourth time this year. Sales rose 3.8 percent to 17.3 million. And, as has been the pattern for months, SUV and trucks remain the vehicle of choice, accounting for 10 percent of all sales. Sedan sales, on the other hand, fell 11.6 percent. Overall sales are up 4.8 percent from June 2017. The big unknown is how the industry will fare in coming months if trade tariffs are put in place. Most auto manufacturers agree the price of a new vehicle could increase by several thousand dollars. Kelly Blue Book estimated new vehicle prices are up 2.1 percent from a year ago.

FOMC Minutes – The minutes from the June FOMC meeting weren't overly enlightening. We already knew from the meeting the Fed was taking a more aggressive stance toward raising interest rates. The minutes did reveal a lot of conversation about changing future press release language from "accommodative" to "neutral." There was also considerable concern expressed about the impact of a potential trade war on the global economies. Committee members agreed the yield curve should be watched but remain supportive of gradual rate hikes.

Strategically for Credit Unions:

The 10-year Treasury note is dancing to a different drumbeat. Once a barometer of U.S. economic health, the note no longer reacts to data, good or bad. Instead, geopolitical issues and the Federal Reserve are changing the course of the curve. The yield curve continued to narrow this week as trade issues, the price of oil and concern about the economic health of other countries took center stage. Add in an aggressive Fed, and you get a shrinking spread. The yield curve narrowed to 28 basis points this week, the narrowest since August 2007.

Sarina Freedland – Senior Investment Officer

Although this information has been obtained from sources we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. All herein listed securities are subject to availability and change in price. Past performance is not indicative of future results. Changes in any assumption may have a material effect on projected results.