In contrast to the weak 2nd quarter real GDP numbers that were released about 10 days ago, employment figures that were just released combined with the strong showing in employment in June suggests that the economy is in high gear (or at least in as high of a gear as it’s going to get into in this expansion). Obviously, the stock market seems to be pleased. While weak GDP for the 2nd quarter and the employment results in June and July don’t fit together, they suggest that the 3rd quarter will be stronger.
Last week’s data also indicated that consumers seem to be more willing to use revolving credit (credit cards), that auto sales were very strong, manufacturing was still anemic, and that housing remains strong. While it’s not a perfect picture, it’s a lot better than the one that existed just two months ago.
- Total nonfarm employment rose 255,000 in July after an upwardly revised gain of 292,000 in June. This was above expectations. Employment is now 1.7% above a year ago. Professional and business services added 70,000 jobs in July and has added 550,000 jobs over the past 12 months. That amounts to about 22.5% of all the jobs created over the past year. Health care employment increased by 43,000 in July and 477,000 jobs over the past 12 months. That’s about 19.5% of all the jobs created over the past year.
- The unemployment rate held steady at 4.9% in July. A year ago, it stood at 5.3%.
- Personal income grew by 0.2% in June and now stands 2.7% above a year ago. Disposable personal income is up 3.1% from a year ago and personal consumption expenditures are up 0.4% from May and 3.7% from a year ago. Thus, the savings rate has declined from 5.8% a year ago and 5.5% in May to 5.3% in June.
- While overall consumer credit was soft in June, revolving credit posted a large gain in the month. Revolving credit (mostly credit cards) were up 0.8% for the month and 5.4% over a year ago. Non-revolving credit, mostly auto and student loans, were up 0.2% for the month and are 5.9% above a year ago. Given the strength in auto sales in July, next month’s credit numbers should tell a different story.
- July proved to be a very strong month for vehicle sales, pointing to accelerating strength for consumer spending. There were 17.8 million vehicles sold (annualized rate) in the month. This compares to 16.7 million units in June.
- New orders for manufactured goods in June, down for two consecutive months, declined 1.5%. This followed a 1.2% May decrease. Inventories also declined which kept the inventories to shipments ratio in line.
- Both the ISM manufacturing and non-manufacturing indexes remained above 50. That indicates that both sectors are still expanding. The manufacturing index did decline, however, from 53.2 in June to 52.6 in July. Non-manufacturing declined from 56.5 to 55.5.
- Over the past year, the median price of an existing home sale went from $210,000 to $224,000, a 6.7% gain. On the other hand, the median price of a new home sale went from $315,065 to $318,660, a 1.1% gain. This may indicate two things. One is that home builders, given the cost of building a new home and the extensive costs added by regulation and fees, are finding it difficult to meet what is the median of the resale market. If they could do so at a reasonable margin, they would, of course, do so. The other is that despite this, the ratio of the cost of a new home to a resale home, while still about the approximately 125% historic norm, is moving down from the very high ratios seen in 2009-2012. As the ratio continues to decline, new homes will become more competitive with existing homes.
Article courtesy: Elliott D. Pollack & Company
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