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Retail sales shift to a higher gear

The consumer appears to have finally found the shopping bug again. After three months of disappointing activity, retail sales exploded in April with a gain of 1.3 percent. This was the largest monthly increase since March 2015. Even more impressive was the 0.9 percent increase in the control group, which strips out sales of autos, gasoline and building materials. This increase was the highest in almost two years. The April report reflects a key shift in where consumers are spending their dollars. Internet sales surged 2.1 percent for the month, with a 10.2 percent rise over the past 12 months. Compare this to a 1.7 percent decline at department stores. Other areas of strength included sales at restaurants, sporting goods stores and auto dealers. Auto sales rose 3.5 percent after falling for the past two months. No matter which way the report is dissected, the information renews faith that consumer spending has not disappeared, as some analysts had feared.

Other Key Indicators this Week:

PPI – Wholesale prices rose 0.2 percent in April. This was the first increase in overall prices since January. Prices increased 0.2 percent for goods and 0.1 percent for services. Within the services category, the largest decline came from a 0.4 percent drop in transportation and warehousing pricing. The biggest contributor to the increase was a 4.5 percent rise in portfolio management costs. On the goods side of the index, food prices fell 0.3 percent and energy costs were up 0.2 percent. On an annualized basis, wholesale prices were unchanged.

JOLTS – After last week’s somewhat disappointing report on the number of jobs added in April, the most recent Job Openings and Labor Turnover Survey (JOLTS) brought some optimism back to the table. Job openings climbed to the second-highest level in March. The 2.7 percent increase in job openings suggests employers are feeling confident about the economic outlook. The need for additional workers spread across almost all sectors, with the greatest demand in professional and business services and hospitality and leisure. Although the hiring rate fell from 3.8 percent to 3.7 percent, it remains above the 3.6 percent average for the past year. The rise in job openings, along with a lower hiring rate, suggests employers may be having a tougher time finding the right worker. This could translate into higher wages as some of the excess slack in the labor market begins to diminish. Another indicator of optimism is the "quits" rate, which measures the rate at which people voluntarily leave their job. The rate remained at 2.1 percent, just above the average for 2015.

Consumer Outlook – The University of Michigan’s May report on consumer confidence surged to 95.8 percent, the highest level in 11 months. The preliminary measure of consumers’ outlook was stronger than most analysts expected. The index of economic conditions increased to 108.8 percent from 106.7 percent. The measure of consumer expectations rose by 10 percentage points to 87.5 percent.

Strategically for Credit Unions:

Treasury yields ended the week mixed. Shorter-term yields moved higher on the heels of strong economic reports. At the other end of the curve, the 10-year Treasury note yield closed the week lower in reaction to declines in the stock market. The 10-basis-point flattening of the yield curve is consistent with the broader view for interest rate increases by the Federal Reserve. The next FOMC meeting is in June, giving the markets plenty of time to adjust and readjust to the forecast of the day.

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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