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The Numbers Say it All...Almost

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The U.S. added 164,000 jobs in April, the March total was revised higher by 33,000 and the unemployment rate fell to 3.9 percent – the lowest rate since 2000. By those measures, the labor market is humming along quite nicely. The one weak data point in the Labor Department's monthly job report was wages. Hourly earnings fell short of estimates, rising just 0.1 percent for the month and 2.6 percent from a year ago. The recent high mark of 2.8 percent, reached in January, is starting to become a distant outlier with the realization that wages still have room to improve.

The decline in the unemployment rate, while good to see, was affected more by the 246,000 people leaving the workforce than by more people getting jobs. As for where the job additions came from, manufacturing posted the seventh month of increases. Construction rebounded from a weak March, but was still light due to the harsh early spring weather. The report does not change the Federal Reserve's rate plan, but, rather, reinforces the path they are on.

Other Key Indicators this Week:

FOMC – The May FOMC meeting can probably be summed up using a phrase coined in 2016: "meh". The press release following the two-day meeting was neither hawkish nor dovish. Committee members gave no indication of how much more they intend to increase the fed funds rate this year. They did acknowledge that inflation has "moved close" to the two percent target, a definite switch from the earlier language of suggesting inflation "continued to run below" the target rate. Probably the most significant takeaway from the press release was the addition of the word "symmetric" to reflect the committee’s willingness to allow inflation to run below or above their target without causing alarm. So for now, the markets remain in limbo once again until the June FOMC meeting.

Income, Spending – Personal spending increased 0.4 percent in March, the largest gain since December. The strong performance, a good way to end an otherwise weak quarter for consumption, gives optimism for the months ahead. Incomes rose 0.3 percent for the second month in a row. Core consumption over the past 12 months jumped to 1.9 percent, the highest level in over a year. The surge shouldn't cause alarm, however, since it just reflects the fall-off of large declines from March 2017. In other words, it is a calculation adjustment to a new normal. The savings rate fell to 3.1 percent, consistent with the continued reports of strong consumer confidence and spending. Interest rates, despite moving higher, remain historically low and support spending.

Strategically for Credit Unions:

The yield curve continues to be front and center. The two-year note yield drifted lower after the FOMC press release, causing the curve to steepen a couple of basis points. Without any new information on the number of rate hikes in the Fed’s toolkit this year, the market positioned itself for fewer increases, rather than more. Then came the job report, which put the curve back to 45 basis points. The front end of the curve is all about the Fed, while the long end remains torn between a booming economy and continued demand for an ever-growing supply of bonds.

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.