May International Trade, JOLTS, Consumer Credit, June NFIB Survey

Backward Looking Data Pile on Soft Q2 Story, Forward Looking Data Points to Similar Q3

  • The U.S. International Trade gap narrowed in May to -$48.7 billion with cheaper energy imports.
  • The Job Openings and Labor Turnover Survey for May showed more hiring, but also more separations.
  • May Consumer Credit increased by $17.1 billion with gains in both revolving and nonrevolving balances.
  • The June NFIB Small Business Survey plunged, as small businesses scaled back hiring and spending plans.

Lagging economic reports for May remain consistent with the soft Q2 GDP growth story, while a leading indicator for Q3 shows more of the same.  International trade now looks like it will be a small drag on Q2 real GDP growth, even though the nominal trade gap narrowed in May. Lower petroleum prices in May narrowed the gap between total exports and total imports by about $2 billion to -$48.7 billion. Exports gained $0.4 billion, all on the services side, while imports fell by $1.6 billion, all on the goods side. After adjusting for price changes, the movement in the real trade balance does not look as good. The real trade balance for goods for April and May together still averages above the Q1 average, meaning that trade still looks like a small drag on Q2 GDP, consistent with our expectation of a lackluster 1.7 percent annualized real GDP growth rate for Q2. The official advance estimate of Q2 real GDP growth will be released by the BEA on Friday, July 27. The Job Openings and Labor Turnover Survey (JOLTS) for May is also consistent with the soft Q2 GDP story. The good news in the JOLTS data for May was that both the rate of job openings and the hiring rate increased above the 2011 average. However, the hiring rate still looks flatter than expected at the third anniversary of the end of the Great Recession. Consumer credit for May showed a larger than expected increase. Balances were up $17.1 billion as consumers added $8.0 billion to revolving balances, and $9.1 billion to non-revolving balances. The consumer credit report contains the most positive numbers in today’s Economic Alert, confirming an end to consumer deleveraging.

The National Federation of Independent Business’s monthly survey for June showed a plunge in their small business optimism index of three points to 91.4, indicating soft economic conditions at mid-summer. Labor data from the survey indicate that the pace of small business hiring will be soft in July, noteworthy because small firms, of less than 50 employees, have accounted for over half of the private-sector payroll job gains so far in 2012. Inventory gains remain weak among small businesses, dragging on GDP. Also, capital spending plans remain in “maintenance” mode. Lack of credit is not holding back small businesses. Ninety-seven percent of small business reported that all their credit needs were met or that they were not interested in borrowing.  The June NFIB survey does not include the effect of the Supreme Court decision on health care, nor does it include the new transportation bill.

Market Reaction: U.S. equities opened with gains. Treasury yields are up. NYMEX crude oil is up to $85.66/barrel. The dollar is up against the yen and down versus the euro.

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