The U.S. Economy Added 390,000 Jobs in May… The jobs growth beat the consensus estimate of 320,000. The unemployment rate remained steady at 3.6%. Weaker data may arrive soon as technology companies are reporting expected staff reductions.
What it means— When the Fed is tightening, good news becomes bad news. Investors were hoping for a weak jobs report, which would have put future rate hikes into question. The solid jobs report strengthened the case for 50–basis point hikes at the June and July Fed meetings and likely at the September Fed meeting as well.
Stock futures sank after the release, and the 10-year Treasury bond yield climbed to 2.96%. Average hourly earnings increased 0.3% last month and are up 5.2% for the year. That’s great, unless you happen to have 8% inflation, which means workers are making more but still able to purchase less. While investors sent equities lower on the news, the markets remain range-bound for the week. It’s worth noting that jobs and unemployment are lagging indicators. By the time they turn decidedly negative, the economy will already be lower.
Atlanta GDPNow Model Drops Second-Quarter GDP Growth Estimate to 1.3%… After including the latest construction spending data on June 1, the model dropped the estimate from 2.5% to 1.3%.
What it means— The latest estimate still shows strong consumer spending, but the economy likely will be held back by retailers, flush with inventory, not restocking shelves and imports, led by oil, far outpacing exports.
Now we can add falling construction spending to the list, as home builders try to stay ahead of their changing environment. If inflation averages 8% for the quarter and real GDP growth is 1.3%, then nominal growth is 9.3%, which is very strong. However, rising mortgage rates are slowing applications and listing time on market is lengthening suggesting softer prices may be coming.
With earnings trailing inflation, the only way consumers can expand real spending is to spend down savings or take on more debt. If the economy contracts in the second quarter, it will mark the start of a recession, which may give the Fed a reason to pause its tightening in September regardless of persistent inflation.
OPEC+ Will Raise Output Quota by 648,000 Barrels Per Day in July and August… The increase is larger than the current monthly increase of 436,000 barrels per day.
What it means— Notice the exact wording, “OPEC+ will raise output quota…” Whether the producers pump more oil is up for debate, as the oil-producing nations don’t meet their quotas today. The sanctions on Russia aren’t working like Western nations want them to, but Russian oil sales are down about 800,000 barrels per day, or 10%, from their pre-war levels. Some nations, like Nigeria, lose so much oil to piracy on their pipelines and inefficiencies that it’s hard to see how they can pump more. Away from Russia, only Saudi Arabia and the U.A.E appear to have sustainable excess capacity, and those nations aren’t likely to pump enough to make up for the shortfalls of others.
Summer travel season is beginning with higher demand for gasoline and jet fuels. China’s government is attempting to stimulate the economy. If successful, oil demand will stay high even if OPEC+ members increase production. Whatever OPEC+does is marginal. The largest reserves are in the U.S. which has been shut down by the Administration. Even with the announced higher quotas, expect oil prices to go higher, not lower, in the months ahead.
Louisiana Men Try to Move a House Without Anyone Noticing… Tony Domingue and Nico Comeaux had a plan. They wanted to move a house—as in, an entire home—but didn’t want to deal with the headaches of permits and other bureaucratic red tape. To avoid detection, they decided to attempt the feat around 3:00 AM. What could go wrong? Police were called to the neighborhood around 3:30 AM and found the truck, trailer, and house abandoned and blocking the road. Domingue and Comeaux apparently hadn’t correctly estimated the needed clearance and had taken out mailboxes, road signs, trees, and power poles before giving up. In the process, the pair knocked out power to 700 people.
Data supplied by HS Dent Research
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