Is 138,000 Enough to Make the Fed Move?

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Analysts and economists had hoped for, and expected, a stronger report. The Labor Department reported the U.S. added 138,000 jobs in May, far below the estimated 182,000. Over the past three months, an average 121,000 jobs were added monthly. That average has steadily declined since February’s average of 201,000 jobs. The healthcare industry added the most workers, followed by business and professional services. Information services and manufacturing topped the list of industries reporting a decline in jobs. The low level of hiring suggests employers may be having a difficult time finding skilled workers, or they are not willing to expand without definite signs of real economic growth. Somewhat contrary to the low number of total jobs added is the decline in the unemployment rate to 4.3 percent, the lowest level since May 2001. The decline is due primarily to a drop in the size of the labor force, with the number of unemployed falling less than the number of employed. While considered weak, most analysts believe the job report should not deter the Federal Reserve from increasing interest rates on June 14. The overall economic picture slants toward continued growth this year.

Other Key Indicators this Week:

Housing – The last of the key housing indices for April sums up the spring shopping season – disappointing. Pending home sales, a measure of contracts signed, fell 1.3 percent in April. This was the second month in a row of declining sales. The West was the only major geographical area to show an increase in sales. The story on slow sales is becoming all too familiar – no supply and rising prices. The number of homes on the market in April fell nine percent from a year ago. At the same time, home prices rose 5.8 percent in March from the prior year. Some of the price increase is normal for this time of year, but lack of inventory is adding pressure. High demand areas of the country, such as Dallas and Denver, are pushing prices about 40 percent above pre-recession peak levels.

Spending – The consumer is back! Or, at least back enough to keep the economy moving forward after a very sluggish first quarter. Personal spending rose 0.4 percent in April, the largest monthly gain since December. Even better news was the upward revision for spending in March, from unchanged to a gain of 0.3 percent. Incomes also increased 0.4 percent, with the salary and wages component rising 0.7 percent. The boost to income allowed consumers to get back to one of their favorite hobbies – shopping – while maintaining an average savings rate of 5.3 percent. The price gauge tied to spending, one of the Federal Reserve’s key measures for inflation, was 1.7 percent year-over-year. This was a drop of 0.2 percent from a month ago and the second decline after reaching the highest level since 2012. The declining trend prompted some Fed members and analysts to question how much the Fed will actually increase interest rates this year.

Strategically for Credit Unions:

Auto sales were weak again in May, falling for the fifth consecutive month and registering less than 17 million annualized sales for the third month in a row. Demand continues to grow for trucks and SUVs over cars. The overabundance of cars is creating additional deals, as dealers try to move inventory. J.D. Power estimated incentives rose about seven percent in May. Credit unions should consider adding promotions on car loans versus truck loans to attract loan demand.

Note: There will be no Behind the Numbers next week. The Market Overview & Data Report and CU Rate Survey will be released next Thursday, June 8.

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.