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TLV Economy: August 5, 2017

May your choices reflect your hopes, not your fears.”
- Nelson Mandela
 
LEYENDECKER ECONOMIC VIEW
 
The roaring sentiment increase after Trump’s election is subsiding somewhat while America’s organic economy continues to muddle its way forward. Car sales are weak, but housing sales are picking up. Construction activity is steady. Wages are trying to rise while consumption still seems dependent on growing consumer debt. Job growth continues at a worthwhile pace.
 
The stock market rise has made the bulls happy while the bears seem ever more bearish. For the bears, stocks were too high before Trump was elected. Now they are even higher. And real estate in all the coastal geographies is benefiting from foreign capital that still seems to view the U.S. as the world’s safest harbor and quite possibly its most dynamic and sustainable economy.
 
Major policy changes that many hoped would be economically stimulating are stuck in the swamp. Yet behind the scenes, this new administration is loosening the regulatory noose that’s been tightening around the private sector’s neck for several years. And the constant drumbeat of Make America Great Again is causing trade partners and geopolitical adversaries to be more accommodating to American interests.
 
Making America Great Again isn’t something that can happen overnight. As a good friend is fond of saying, oftentimes progress is nothing more than three tough yards at a time and a load of dust.
 
ECONOMIC DASHBOARD
A log of recent releases of data impacting our world
 
EMPLOYMENT
 
Bureau of Labor Statistics on Employment
Restaurant and bars lead job growth
(August 4, 2017) Total nonfarm payroll employment increased by 209,000 in July, and the unemployment rate was little changed at 4.3%. Employment increased in food services and drinking places, professional and business services and health care.
 
Conference Board Help Wanted Online Index
Slight decrease in online help wanted index
(August 2, 2017) Online advertised vacancies decreased by 157,700 to 4,605,700 in July, according to The Conference Board Help Wanted OnLine Data Series, released today. The June Supply/Demand rate stands at 1.46 unemployed for each advertised vacancy, with a total of 2.2 million more unemployed workers than the number of advertised vacancies. The number of unemployed was approximately 7 million in June.
 
INDUSTRY
 
Commerce Department on Construction
Good rise for first six months of 2017 compared to 2016
(August 1, 2017) Construction spending during June 2017 was estimated at a seasonally adjusted annual rate of $1,205.8B, 1.3% below the revised May estimate if $1,221.6B. The June figure is 1.6% above the June 2016 estimate. During the first 6 months of this year, construction spending amounted to $577.0B, a 4.8% increase over the same period in 2016.
 
Edmunds on Auto Sales
Auto sales decline over 2016
(June 2017) Sales for the first half of 2017 are down 2.3% over the same period in 2016. The average auto loan reached an all time high of 69.3 months in June.
 
HUD/Census Bureau on Home Sales
Good momentum over June 2016
(July 26, 2017) Sales of new-single family houses in June 2017 were at a seasonally annual adjusted rate of 610,000. This is 0.8% above the revised May rate of 605,000 and is 9.1% above the June 2016 estimate of 559,000. The current estimated 5.4-month supply represents a continuing tightening in the home market.
 
U.S. Census Bureau on Durable Goods
Rebound from April and May declines
(July 27, 2017) New orders for manufactured durable goods in June increased $14.9B or 5.5% to $245.6B. This increase, up following two consecutive monthly decreases, followed a 0.1% May decrease. Excluding transportation, new orders increased 0.2%. Excluding defense, new orders increased 6.7%. Transportation equipment, also up following two months of declines, led the increase, $14.6B or a 19% to $91.6B.
 
CONSUMER
 
Personal Income and Outlays from the BEA
Disposable income down, consumption up
(August 1, 2017) Personal income decreased $3.5 billion in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) decreased $4.2 billion and personal consumption expenditures (PCE) increased $8.1 billion.
 
Consumer Debt from the Federal Reserve
Consumer debt still growing much faster than income
(July 10, 2017) In May, consumer credit increased at a seasonally adjusted annual rate of 5.75%. Revolving credit increased at an annual rate of 8.75%, while nonrevolving credit increased at an annual rate of 4.75%.

St. Louis Fed on Savings
Savings rate steady for month but below recent peak
(August 1, 2017) The personal savings rate for June 2017 rose to 5.8% of disposable income from 5.7% in May. The most recent peak in savings came in at 6.2% in March 2016. The more recent bottom of 2.6% was achieved in August 2007. Personal savings rates averaged above 10% between 1960 and 1980. The personal savings rate was at 12.7% of disposable income in November 1981. Since then, ever-cheaper credit seems to have resulted in ever-smaller savings.
 
ECONOMIC SENTIMENT
 
NFIB Small Business Sentiment
Small business optimism fades in June
(June 2017) The Index of Small Business Optimism fell 0.9 points to 103.6, but sustained the surge in optimism that started the day after the election. The Index peaked at 105.9 in January and has dropped 2.3 points to date. Four of the 10 Index components posted a gain, five declined, and one was unchanged. Per the report: “Progress is being made, but poorly communicated, and the biggest issues, healthcare and tax reform, remain stuck in the bowels of Washington politics. Economic growth in the first half of this year will be about the same as we have experienced for the past three or four years, no real progress. There isn’t much euphoria in the outlook for the second half of the year.”
 
Institute for Supply Management PMI
Slight decline in Purchasing Manager’s Index
(August 1, 2017) The July PMI registered 56.3%, a decrease of 1.5 percentage points from the June reading of 57.8%. The New Orders Index registered 60.4%, a decrease of 3.1 percentage points from the June reading of 63.5%. The Production Index registered 60.6%, a 1.8 percentage point decrease compared to the June reading of 62.4%.
 
Conference Board Leading Economic Index
Confidence rebounding despite Washington gridlock
(July 20, 2017) The Conference Board Leading Economic Index for the U.S. increased 0.6% in June to 127.8 following a 0.2% increase in May and a 0.2% increase in April. “The U.S. LEI rose sharply in June, pointing to continued growing in the U.S. economy and perhaps even a moderate improvement in GDP growing in the second half of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research. “The broad-based gain in the U.S. LEI was led by a large contribution in housing permits, which improved after several months of weakness.”
 
Conference Board Consumer Confidence
Consumer confidence rebounds in July
(July 25, 2017) The Conference Board Consumer Confidence Index, which had declined marginally in June (a downward revision), improved in July. The Index now stands at 121.1, up from 117.3 in June. The Present Situation Index increased from 143.9 to 147.8, while the Expectations Index rose from 99.6 last month to 103.3.
 
Institute for Supply Management Non-Manufacturing Survey
Slower service economy growth
(August 3, 2017) The NMI registered 53.9%, which is 3.5 percentage points lower than the June reading of 57.4%. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 55.9%, 4.9 percentage points lower than the June reading of 60.8%, reflecting growth for the 96th consecutive month, at a slower rate in July.
 
THE BIG PICTURE
 
GDP from the BEA
Second quarter rebound
(July 28, 2017) Real gross domestic product increased at an annual rate of 2.6% in the second quarter of 2017, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2% (revised).
 
BLS on Consumer Prices
Slight inflation, but not much
(July 14, 2017) The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in June on a seasonally adjusted basis. Over the last 12 months, the all items index rose 1.6%. The energy index declined again in June, falling 1.6%; this offset an increase in the index for all items less food and energy. All the major energy component indexes declined, with the gasoline index falling 2.8%. The food index was unchanged in June, with the index for food at home declining slightly as five of the six major grocery store food group indexes decreased.  

Monetary Policy from the Federal Reserve
No new rate rise yet, still cautiously optimistic
(July 12, 2017) From Janet Yellen’s report to Congress:
 
“The Committee continues to expect that the evolution of the economy will warrant gradual increases in the federal funds rate over time to achieve and maintain maximum employment and stable prices. That expectation is based on our view that the federal funds rate remains somewhat below its neutral level--that is, the level of the federal funds rate that is neither expansionary nor contractionary and keeps the economy operating on an even keel. Because the neutral rate is currently quite low by historical standards, the federal funds rate would not have to rise all that much further to get to a neutral policy stance. But because we also anticipate that the factors that are currently holding down the neutral rate will diminish somewhat over time, additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2% goal. Even so, the Committee continues to anticipate that the longer-run neutral level of the federal funds rate is likely to remain below levels that prevailed in previous decades.”
 
NEWS YOU CAN USE
 
The future of renewable energy is in Texas
California has among the most pro-environmental laws in the country. But in terms of producing the most renewable energy in sheer quantity, Texas takes the lead. Iowa, Oklahoma, Kansas and the Dakotas generate the largest share of their power from renewables. These states are in the lead because the see both the environmental and economic benefits of the renewables they choose to use. Texas produces more wind energy than most countries.
 
Oil giants make a play for Millennial hires
As fossil fuel companies prepare for a “big crew change,” will the oil industry successfully be able to lure Millennials away from Silicon Valley? An industry rebrand is underway to appeal to an environmentally conscious generation, with mixed results so far.
 
AND JUST FOR FUN
 
All the things Millennials have been accused of killing
Napkins, diamonds, golf and department stores are among the list of 17 things Millennials have no interest in. (Napkins?)
 
IN CASE YOU MISSED IT
 
TLV Deep Dive: July 2017
Outsmarting our smartphones
 
TLV Careers: July 19, 2017
Stop eating lunch at your desk
 


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