Q2 Ends on a Good Note, Shows Consumer Momentum Heading Into Q3
- The ADP Employment Report for June gained a moderate 188,000 private sector jobs.
- The June ISM Non-Manufacturing Survey PMI decreased to a still-expansive 52.2 for the month.
- Auto sales for June jumped to a 16.0 million unit annual rate, breaking out of a 7-month plateau.
- Initial Claims for Unemployment Insurance fell by 5,000 to hit 343,000 for the week ending June 29.
- The May U.S. International Trade Gap widened to -$45.0 billion, pushed out by non-petroleum imports.
U.S. economic data heading into the July 4th holiday was generally positive and consistent with the idea that the economy is maintaining moderate momentum at the start of the third quarter. According to the ADP National Employment Report, 188,000 jobs were added in the private sector in June, the strongest gain since February in that report. Small businesses, with less than 50 employees, added a solid 84,000 jobs for the month. This is a good sign given concern about small business hiring as requirements for the Affordable Healthcare Act ramp up this year. The +188K private-sector jobs in the June ADP report would be consistent with a gain of about 180,000 jobs in the official BLS payroll survey due out Friday morning, July 5th. This would likely be enough to bring the unemployment down a tenth to 7.5 percent. In other labor news, initial claims for unemployment insurance fell by 5,000 to hit a level of 343,000 for the week ending June 29. This month-end reading on UI claims is not contemporaneous with the mid-month BLS payroll survey, but it is in character with an economy that is growing moderately and adding jobs near the 180,000/month rate.
The ISM non-manufacturing index eased, counter to expectations, to 52.7 in June. This is still comfortably above the break-even 50 mark, indicating that conditions in the service sector continue to improve. The employment sub-index stepped up from 50.1 in May to 54.7 in June, point to more hiring in the months ahead. The only main component of the index to fall below 50 for June was export orders, which dipped to 47.5, reflecting soft global economic conditions. We see that showing up in the May international trade data as well. The U.S. trade gap widened in May to $45.0 billion as total exports eased by $0.5 billion and imports increased by $4.4 billion. The pressure on imports was mostly on the non-petroleum side, including gains in both industrial supplies and consumer goods (particularly cell phones). Trade is shaping up to be a moderate drag on Q2 real GDP growth. More evidence of a resilient U.S. consumer is seen in June auto sales. Moderate job creation, solid income growth, improving consumer confidence, ample pent-up demand, and low interest rates all contributed to a break-out month for U.S. auto sales in June. Total sales stepped up to a 16.0 million unit annual rate, breaking out of a range-bound pattern for the last seven months when sales averaged 15.2 million from November through May.
Market Reaction: U.S. stock markets opened with losses. Treasury yields are down at the long end of the yield curve. NYMEX crude oil is up to $101.58/barrel as political tension increases in Egypt. The dollar is down against the yen and the euro.