The data dump ahead of the Fourth of July weekend yielded some good results, sending equity markets off to the races. The quality of recent U.S. economic data reinforces two points of view. First, the Q1 GDP stumble was an aberration not indicative of the overall direction of the economy. Second, this is a mid-cycle economy well past the early stages of recovery.
Payroll job growth in June was robust at +288,000. The unemployment rate fell to 6.1 percent. Average hourly earnings were up 2.0 percent over the previous 12 months, not inherently inflationary as long as productivity growth returns to a similar rate. We expect to see job growth ease next month, in part due to seasonal adjustment issues involving local government employment.
Initial claims for unemployment insurance for the week ending June 28 ticked up by 2,000 to hit 315,000. The low 300,000s are consistent with ongoing improvement in labor market conditions. The high 200,000s are consistent with rapid improvement.
The U.S. international trade gap narrowed in May, to -$44.4 billion. It looks like trade will be a small drag on Q2 GDP. We will be completing our July U.S. Economic Update next week. Q2 real GDP growth looks set to be in the vicinity of +2.5 percent.
Auto sales were off to the races in June, up to a 17.0 million unit annual rate. Seventeen million is a mid-cycle number. We expect to see stronger months over the remainder of 2014 and through 2015, but we should also expect to see some weaker months too.
The ISM Manufacturing Index for June dipped inconsequentially to 55.3, still a solid reading showing that manufacturing conditions continue to improve. The ISM Non-manufacturing Index also dipped slightly in June, to a still-strong 56.0.
The next scheduled meeting of the Federal Open Market Committee is July 29/30. We expect to see another $10 billion tapering of the Fed’s active asset purchase program and no change to interest rate policy. The next big event for the Fed may be the release of a new set of “exit principles” promised sometime later this year.
For now, enjoy the barbeque and fireworks. Have a happy and safe Fourth of July!
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 07-03-14.