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Week In Review – July 9 2018
Week In Review – July 9 2018

Week In Review – July 9 2018

U.S. Economy Created 213,000 Jobs in June… The jobs total in May was revised higher by 21,000. Unemployment ticked up from 3.8% to 4.0%, reflecting more people participating in the labor force.

What it means – The increasing number of jobs and people looking for work are both positive trends. One disappointment in the report was earnings. Average hourly earnings increased 0.2%, missing expectations of 0.3%, and the yearly change remained stuck at 2.7%.

Even with exceptionally low unemployment and more job openings than people looking for work, there isn’t much wage inflation. Still, these numbers should be comforting to the Fed governors who are sticking to their plan for higher rates.

The birth/death adjustment, which the Bureau of Labor Statistics uses to capture job losses and gains that don’t show up in the survey (read here: guessed at), added 104,000 jobs to the non-seasonally adjusted totals for last month. Care to guess how much the non-existent jobs paid?

Fed Minutes Show Governors Concerned About Tariffs… The minutes from the last Fed meeting revealed expected conversations about inflation, interest rates, and GDP growth, but they also included a twist. The governors are worried that the trade spat might derail growth.

What it means – Most of what we read in the minutes we’d already heard in Fed Chair Powell’s comments right after the meeting last month. The Fed expects to raise rates two more times this year, and will most likely push rates to the point where they are no longer promoting growth, but are neutral.

In addition to the expected comments, the Fed governors also talked about trade tariffs possibly hurting economic growth and driving down long-term interest rates. This could be part of the reason that long-term rates and short-term rates are converging, and might lead to an inverted yield curve. Maybe, maybe not.

Long-term and short-term rates are closer than they’ve been in recent months, but the difference between the two has been shrinking since the Fed started raising rates. It isn’t that long-term rates are falling dramatically, it’s that long-term rates aren’t going up even as short-term rates climb. This implies investors aren’t so optimistic about long-term economic growth, which is mirrored by the Fed’s long-term GDP estimates of 1.8%. The trade tiff might be part of the calculation, but it’s not a main determinant.

U.S. Implements Tariffs on Chinese Goods… The U.S. slapped tariffs on some Chinese goods, and the Chinese retaliated, officially kicking off the trade wars.

What it means – This has been months in the making. The question is, where does it end? No one knows, but will likely end within months if not weeks. We might complain about tariffs in the U.S., but they are causing real pain in China where the main stock market is now down more than 20% from recent highs. When the tariffs are lifted, expect world markets to pop.

The heady times might not last long, but they should give most equities at least a short-term boost as investors breathe a collective sigh of relief.

U.S. Factory Orders Increased 0.4% in May… Orders for April were revised higher, up from negative 0.8% to minus 0.4%, and May factory orders beat the estimate of no change.

What it means – Aircraft orders were weak in May, which we saw in last week’s durable goods orders report. But factory orders improved anyway, based on higher non-durable orders for energy products. Core orders for capital goods (non-defense, excluding aircraft), rose 0.3% after expanding 2.0% in April.

The activity should lead to a solid GDP report for the second quarter.

Eurozone Unemployment Fell 0.1% to 8.4%… German unemployment remained at 3.4%. Italian and Spanish unemployment dipped to 10.7% and 15.8%, respectively.

What it means – The overall rate of unemployment across the eurozone is the lowest since December 2008. That’s great news, but it highlights the fact that European countries, particularly the Southern nations hardest hit by the downturn, still struggle to put their populations back to work. Youth unemployment is down 2.5% from a year ago, but still sits at 16.8%.

With rates this high, any economic slowdown will cause significant problems in their labor markets, exacerbating the problems they haven’t fixed.

Auto Sales Reach 17.5 Million… Auto sales topped expectations, improving from an annual pace of 16.9 million to 17.5 million.

What it means – We still want new vehicles. And not just any new ride, but big, fat, American SUVs and pickup trucks. Domestic auto sales jumped from an annual pace of 13 million in May to 13.6 million in June. Apparently, no one cares about potential new tariffs on foreign cars. We didn’t pull forward demand on imports. We’ve been expecting weak auto sales since the first quarter. It hasn’t happened. But that doesn’t mean everything is sunshine and roses.

The average car loan now extends more than 69 months and the average payment is $523. That’s more than $6,000, after tax, committed to vehicle payments every year. And then there’s car insurance. Eventually affordability will play a part. We think the same thing about housing, yet, real estate prices keep climbing.

The Country of Asgardia Is Accepting Citizens… The population of Asgardia wants immigrants to join its Space Kingdom. The “country” controls no land mass. Instead, it controls a single satellite. Russian billionaire Igor Ashurbeyli created the idea of the space-based nation to give people access to space unfettered by earth-based governments. While it probably doesn’t affect your daily life, the Outer Space Treaty requires governments to oversee and authorize all space activities. If you “move” to Asgardia, you’ll be free of that restriction. Sort of.

The Space Kingdom has its own government, complete with a constitution and flag. While the rules of conduct and goals of Asgardia might be different from other countries, they still govern the behavior of citizens. It seems you can’t get beyond the long arm of the law, even in space.

Data supplied by Dent Research/Delray Beach Publishing
“When the facts change, I change my mind.
What do you do, sir?” ~ John Maynard Keynes
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