Labor Market Conditions
Nonfarm payroll growth of 222,000 was strong in the June employment report butnot6 average hourly earnings which only 0.2 percent higher, part of the mix that makes for only a moderate 1.5 in the labor market conditions index.
In a mixed report employers are finally catching up with their hirings as job openings, at 5.666 million in May fell back 5.0 percent and hiring, at 5.472 million, shot up 8.3 percent. The hiring total is a new record for the series while job openings are second lowest of the year. Other movement in this report is a 1 tenth rise in the quits rate to 2.2 percent which hints perhaps at worker confidence and willingness to switch jobs which may be a positive for wage traction.
Purchase applications for home mortgages fell a seasonally adjusted 3 percent In the week of July 7th. Applications for refinancing fell 13 percent from the previous week to the lowest level since January 2017. The refinance share of mortgage activity fell 2.8 percentage points to 42.1 percent. The decline in applications was registered despite adjustments for the Fourth of July holiday. On an unadjusted basis, purchase applications were down a much sharper 22 percent from the previous week. The weekly decline shaved the year on year purchase index gain by 3 percentage points to 3 percent.
Wages are on the rise but with only a modest to moderate rise. Economic growth is described as light to moderate across the Federal Reserve’s 12 districts. Consumer spending is rising in most districts but at a slower pace. This edition of the beige book, especially with descriptions of inflation and introduction to the word slight for the downside description of growth, is perhaps the weakest beige book of the year. There are, however, some indications of strength wit hthe3 report nothing that qualified workers are in short supply and the labor market is continuing to tighten for both skilled and unskilled labor and especially in the construction and high tech sectors. Looking at the report on net, it appears to still remain at modest to moderate in most region and economic readings. These results will not pull forward expectations for the next rate hike.
Initial jobless claims held little changed at 247,000 in the week of July 8th, with the prior week revised only slightly higher at a gain of 2,000 to a level of 250.000. The four week average4 is up 2,250 to 245,750 which is lightly above the moth-ago trend in what in not a favorable indication for the July employment report. Continuing claims, where data lag by a week, fell 20,000 to 1.945 million with this four wee3k average at 1.949 million, also slightly up. The unemployment rate for insured workers is unchanged at a very low 1.4 percent.
Janet Yellen Speaks
Janet Yellen conceded that wage pressures are weak but warned it’s premature to conclude that inflation trends are falling back below 2 percent. The Fed’s chair also mentions, like she did in her first day of testimony, she declined to say how low the Fed’s balance sheet will be reduced to, saying only that she expects the Fed’s reserves currently at $4.5 trillion, to be reduced substantially. She also repeated that it’s the FOMC’s goal to hold only Treasuries on the Fed’s balance sheet.
Consumer Price index
In what is one of the very weakest 4-month stretch in 60 years of records, core consumer prices could manag3e only a 0.1 percent increase in June. This represents the third straight 0.1 percent showing for the core, which excludes food and energy, that was preceded by the very rare 0.1 percent decline March. Total prices were unchanged in the month with food neutral and energy down 1.6 percent. Housing, which is a central category, continues to moderate, also coming in at 0.1 percent following a 0.2 percent gain in May. Apparel is down for a fourth month in a row with transportation, reflecting falling vehicle prices, down for a second month. Medical care, which had been moderating, picked up with a 0.4 percent gain while prescription drugs which Janet Yellen has been citing for specials weakness, bounced back with a 1.0 percent gain. However, wireless telephone service, another area cited by Yellen for weakness, posted yet another sizable decline of 0.89 percent in June. Year on year the core is steady at 1.7 percent with total prices, down 3 tenths to 1.6 percent.
Economic expectations are falling while current conditions remain high, a combination that the consumer sentiment report warns points to economic slowing ahead. The consumer sentiment index fell a sharp 2 points in the preliminary results for July to a much lower than predicted level of 93.1. The expectations component is down nearly 4 points to 80.2 for the lowest reading since before the election, in October of last year. Republican expectations have been falling sharply from their steep highs, down to 108.9 for a more than 7 point decline from June. Democrat expectation is actually improving slightly, but remains very low at 63.2. Current conditions rose slightly in the month to 113.2 which is a positive indication for this months’ consumer activity. But it’s future activity that may be in trouble. Inflation expectations edged higher in the month but remain very low at 2.7 percent for the one year outlook and 2.6 percent for the five year.