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Jobs rebound in June

Rebound is an understatement, if you believe the data. U.S. employers added 287,000 jobs in June. This follows a downward revision for May to 11,000 jobs from the previously reported increase of 38,000 jobs. The data collection appears flawed to create such a dramatic swing in hiring practices. In any event, the large increase in June brings renewed hope that the labor market is still moving forward, despite volatility in the reports. The six-month average job gain is 171,000 this year, compared to 220,000 in 2015. The unemployment rate increased to 4.9 percent from 4.7 percent in May. Over 400,000 people re-entered the labor force. The labor participation rate rose to 62.7 percent from 62.6. Wages improved modestly, increasing 0.1 percent during the month. Year-over-year wage growth is at 2.6 percent. Health care, professional and business services, and retail industries experienced solid gains. The return of 35,000 workers from the recent Verizon strike boosted the increase in information technology jobs. This strong data is unlikely to sway the Federal Reserve to increase rates this year.

Other Key Indicators this Week:

Trade Deficit – The U.S. trade deficit widened by 10.1 percent in May to $41.4 billion, the largest percentage move since August 2015. The increased shortfall was led by a greater amount of imported than exported goods. Imports rose 1.6 percent to a three-month high. Exports declined by 0.2 percent. American companies imported more cars, mobile phones, apparel and industrial supplies as the economy began to pick up after a sluggish first quarter. There was less demand overseas for American-made aircraft, computers and auto parts.

ISM Data – Both key manufacturing and non-manufacturing indices from the Institute of Supply Management were positive in June. The manufacturing index increased almost two points to 53.2, the highest reading in more than a year. Manufacturing was expansive throughout the second quarter. The three major components of the index – new orders, production and employment – all posted higher measures. The non-manufacturing index, which focuses on the service industries, improved over three points to 56.5, the highest reading since November. New orders and business activity increased more than four points. The employment component moved above the 50 mark, signifying a growth pattern versus slowing conditions.

FOMC Minutes – There was little new information to glean from the minutes of the June FOMC meeting. The committee remained divided on the future path of interest rates. There was some concern over the weak May job report, and most members felt it would be prudent to wait for more data. The committee was also worried about the volatility the upcoming Brexit vote (it was scheduled a week after the FOMC meeting) posed and chose to wait until after the decision was made.

Strategically for Credit Unions:

The shrinking yield curve is going to make it more difficult for credit unions to sustain strong net interest income levels. On the positive side, credit unions should be able to maintain low deposit rates and still keep funds from leaving. Lower interest rates should spur loan demand and refinancing activity.

Note: Register here for the Mid-Year Economic Update streaming video presentation on July 13 at 1:00 p.m. CT.

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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