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Jobs jump in July

Employers added 255,000 jobs in July. This was much stronger than the 170,000 jobs economists were expecting. Revisions for the past two months added another 18,000 jobs to the total. The three-month average job growth is 190,000. Mining was the only major sector that lost jobs. The unemployment rate remains at 4.9 percent. Wages rose 0.3 percent for July and remain up 2.6 percent year-over-year. The labor participation rate increased to 62.8 percent. The underemployment rate, considered by some to be more representative of the labor force, rose slightly to 9.7 percent. According to the household survey, 420,000 people returned to the labor force. All in all, the report represents respectable activity for this sluggish recovery.

Other Key Indicators this Week:

Spending and Income – For the fifth month out of six this year, spending outpaced income growth. While spending increased 0.4 percent for the second month in a row in June, incomes grew at half that pace, 0.2 percent. The increase in consumption was driven largely by spending on non-durable goods and services. Higher electricity and gasoline costs also contributed to the gain. Spending on larger-ticket durable goods, including autos, fell 0.3 percent. The 0.3 percent gain in salary and wage income for the month was offset by declines in dividend and interest income. Total personal income was up 2.7 percent from a year ago in June, compared to a 4.0 percent gain at the end of 2015. The savings rate fell to 5.3 percent from 5.5 percent. The decline in savings suggests consumers are dipping into savings to make up for the deterioration in income.

Manufacturing – The ISM manufacturing index fell to 52.6 in July from a one-year high of 53.2 percent. Production activity increased, while orders were little changed, falling just 0.1 percent. The employment index fell for the seventh out of eight months, remaining in contracting territory at 49.4 percent. Of the 18 categories, 11 reported growth. Apparel, machinery and electrical equipment were among the industries posting contraction.

Auto Sales – Total auto sales increased 0.5 percent in July to an annualized pace of 17.8 percent, the best annualized pace in eight months. Sales incentives and fleet car sales played a dominant role in the better-than-expected sales results. TrueCar Inc. estimates car buyers spent $49 billion on light vehicles in July. Even with the strong activity, industry analysts warn of an eventual slowdown this year. New cars will face growing competition from the glut of leased cars coming off leases that are available for resale.

Other Key Indicators this Week:

The yield curve continues to flatten, thereby shrinking the net interest rate margin between borrowing and lending rates. Demand for loans should continue to be strong for the remainder of the year. Loan delinquency rates have fallen in the past 10 years from 1.19 percent to 0.72 percent. Credit unions should be alert to any changes in credit quality of their loans, which would easily erode the yield gain from a lending portfolio.

Note: Behind the Numbers will not be published next week, August 12. The Market Overview and Data Report and Credit Union Rate Survey will be issued Wednesday, August 10.

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.

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