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It's all about the Fed – again

The second week of each month is usually light for economic data releases. With little new news, the attention this week turned, once again, toward the Federal Reserve and their next move. The much-anticipated Federal Open Market Committee meeting is scheduled for next week, June 14 and 15. Until last week, most market participants and economists were in heated debates over whether the Fed would make the next interest rate move at this meeting or wait until July. So much for a short-lived debate. The monthly job report for May was weak enough to remove any hope for a rate increase in the next couple of months. Federal Reserve Chair Janet Yellen’s comments earlier this week at a meeting in Philadelphia were generally optimistic on economic growth, but she admitted the recent data bears some re-examination. In her words, “new questions about the economic outlook have been raised by recent labor market data.” While the Fed is the first to say they do not put too much emphasis on single data points, but rather look at the big picture, they have reacted to individual news items in the past. There is sure to be some heated discussion at next week’s key meeting. We will get the outcome on June 15, but the full minutes, released three weeks later, may be more interesting.

Other Key Indicators this Week:

JOLTS – The Job Openings and Labor Turnover Survey (JOLTS) provided some valuable insights into the labor market that are not available in the monthly Labor Department job report. The number of job openings rose 2.1 percent in April to the highest level since July 2015. At the same time, the pace of hiring fell 0.2 percent to 3.5 percent. The quits rate, which reflects the number of people willingly leaving their jobs, declined to 2.0 percent from 2.1 percent. More importantly, the rate of separations was unchanged from the prior month. In total, the report reflects a labor market in which the pace of hiring has slowed, even while employers face a need for more workers. There has been no significant increase in wage pressure, which is helping keep the quits rate low. The need for more workers suggests that employers are optimistic about future demand and economic growth. Let’s hope this adds up to a better monthly job report in June.

Productivity – Productivity has been remained weak, even as the labor market has strengthened. The revised data for first quarter shows that non-farm productivity fell 0.6 percent, up from the estimated decline of 1.0 percent. Output increased 0.9 percent, while hours worked rose 1.5 percent. Labor costs were up 4.5 percent for the first quarter and up 3.0 percent over the past four quarters.

Consumer Credit – Consumers took on less debt in April than was estimated. Consumer credit increased $13.42 billion, a 4.5 percent increase. This compares to a 9.6 percent increase the prior month. Revolving debt increased $1.6 billion, a gain of 2.1 percent. This was the smallest gain in three months. Non-revolving debt grew $11.8 billion, an increase of 5.4 percent.

Strategically for Credit Unions:

Stay the course. Even though the financial markets remain on a roller coaster, it is best to look at the big picture. The uncertainty of future rate hikes continues to flatten the yield curve. Longer-term rates are falling more than short-term rates are rising. Loan demand continues to be strong. Auto sales are heating up again, driving higher loan demand. Credit unions posted a gain of over 15 percent in auto loan growth during the first quarter. With April sales better than March, the trend should continue through the summer.

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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