ELLIOTT D. POLLACK
FOR IMMEDIATE RELEASE
August 5, 2019
The Monday Morning Quarterback
A quick analysis of important economic data released over the last week
It was a big week for economic news. The FED cut rates for the first time in 10 years. Then, Trump took the steam out of the FED’s announcement by announcing a 10% tariff on $300 billion worth of Chinese goods starting September 1st. Also, the U.S. created 164,000 new jobs in July which was slightly above expectations.
That’s a lot to digest. Let’s take it one bite at a time.
First, the Federal Reserve cut the fed funds rate by a quarter of a point to a target range of 2.0%-2.25%. This was the first rate cut in more than a decade. It was also the first rate cut with an unemployment rate under 4%. The FED also announced that it would end its balance sheet reduction program and that the future of rate cuts in 2019 was not as certain as many expected. Yet, while the vote was not unanimous, it showed by its actions that it would continue to act in a manner that would sustain the economic expansion. The current period of very low interest rates is not over.
Overall, the cut was a preemptive move to keep the economy, which has been slowing, on a growth path. And while growth (albeit slower growth) continues, signs of uncertainty are beginning to show up. Global economic growth has slowed and other central banks have taken more accommodative policy positions. Indeed, interest rates in much of Europe and parts of Asia are less than zero. Trade issues continue to be a problem. Inflation has been surprisingly low. The second quarter GDP figures also showed weakness in business investment and housing.
Second, President Trump announced that the U.S. would impose a 10% tariff on $300 billion worth of Chinese goods. He also said that trade talks would continue. Based on the stock market’s reaction, investors did not like it. While the action was not a complete surprise, without an idea of when the back and forth trade skirmishes might end, the level of uncertainty created was not looked upon favorably.
Third, the 164,000 new jobs were slightly above expectations. At the same time, May and June numbers were revised downward by 41,000 jobs. So, during those two months, the 296,000 total jobs reported turned into 255,000 new jobs. Not bad, but, it was still a significant revision. The July number was in line with average employment growth in the first six months of the year.
The FED cut the target rate on FED funds by 25 basis points to 2.0%-2.25%. This was an attempt by the FED to prevent the slowdown in economic growth in the U.S. from getting worse. Given the low rate of inflation and wage growth, the FED had the room. The FED was also worried about slow growth in the rest of the world and continued uncertainty over trade issues. If there was a surprise in the announcement, it was that the FED created uncertainty over the probability of future rate cuts. Overall, though, it was a sign that the FED wants the 10-year-old economic expansion to continue.
President Trump announced that starting September 1st, he will impose a 10% tariff on $300 billion of Chinese goods. This story is not over.
Total nonfarm payroll employment increased by 164,000 in July. Over the last year, the sectors that have increased the most in numerical terms have been Educational and Health Services, Professional and Business Services, Leisure and Hospitality, and Construction.
Personal income growth remained steady in June with growth of 0.4%. Personal income now stands 4.9% over a year ago. Disposable personal income grew by 0.4% as well and stands 4.7% over a year ago while personal consumption expenditures were up 0.3% for the month and was up 3.9% over year-earlier numbers. This is a positive result.
Both major measures of consumer confidence were up in July. The Conference Board’s consumer confidence index was 135.7 in July. That’s up from 124.3 in June and 127.9 a year ago. The University of Michigan’s consumer sentiment index was up only slightly to 98.4 in July. That’s up from 98.2 in June and 97.9 a year ago. This measure of confidence remains high and is just slightly below its cyclical high.
The ISM’s manufacturing index fell to 51.2 in July from 51.7 in June and 58.4 a year ago. Keep in mind that any reading above 50 suggests that the manufacturing sector is expanding.
Sales of autos and light trucks fell modestly in July to a 16.8 million annual rate from a 17.1 million annual rate in June and 16.9 million (annual rate) a year ago.
Construction spending fell in June by 1.3% as both private and public construction spending fell. It is now down 2.1% from a year ago.
According to the S&P/Case-Shiller home price index, the rate of growth in home prices continues to moderate. Home prices in May were 2.4% above year-earlier levels according to the 20-City Composite. While a year ago, they were 6.5% above year-earlier levels. Home prices are now increasing less than income growth. This, combined with lower mortgage rates, should aid affordability of housing.
Aircraft operations at Sky Harbor International Airport continued to grow in May. On a year over year basis, the number of people who enplaned grew by 1.7% while the number who deplaned grew by 1.5%.
According to the S&P/Case-Shiller home price index, home prices in Greater Phoenix in May stood 5.7% above year earlier levels. This is significantly above the U.S. average of 3.4% but down slightly from the 7.2% reported a year ago. This will hurt affordability in the area.
Elliott D. Pollack & Company (EDPCo) offers a broad range of economic and real estate consulting services backed by one of the most comprehensive databases found in the nation. This information makes it possible for the firm to conduct economic forecasting, develop economic impact studies and prepare demographic analyses and forecasts. Econometric modeling and economic development analysis and planning are also part of our capabilities. EDPCo staff includes professionals with backgrounds in economics, urban planning, financial analysis, real estate development and government. These professionals serve a broad client base of both public and private sector entities that range from school districts and utility companies to law firms and real estate developers.
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