Weekly Economic Commentary
July 16, 2018
Real Hourly Earnings rose 0.1% in the initial estimate for June (unchanged y/y).
The Producer Price Index rose 0.3% in June (+3.4% y/y). Food fell 1.1% (-1.0% y/y), while energy rose 0.8% (+17.2% y/y) and trade services rose 0.7% (+3.1% y/y). Ex-food, energy and trade services, the PPI rose 0.3% (+2.7% y/y).
Import Prices fell 0.4% in June (+4.3% y/y), reflecting a 2.6% drop in food, feeds, and beverages (-2.1% y/y). Petroleum fell 0.8% (+37.9% y/y), while natural gas fell 6.0% (-27.8% y/y). Ex-food & fuels, import prices edged down 0.1% (+1.8% y/y), with prices of industrial supplies and materials up 0.3% (+18.8% y/y). There was little or no inflation in finished imported goods. Capital goods slipped 0.1% (+0.6% y/y), autos edged down 0.1% (0.0% y/y), and consumer goods fell 0.3% (+0.3% y/y).
Jobless Claims fell 18,000 in the week ending July 7, but it’s not unusual for the figures to be distorted around major holidays. The four-week average was 223,000, consistent with a further tightening in labor market conditions.
The Job Opening and Labor Turnover Survey (JOLTS) data for June were consistent with a further tightening of job market conditions. The hiring rate (for the private-sector) rose to 4.3%. In a strong job market, workers are more likely to quit to pursue employment elsewhere. The quit rate rose to 2.7% in May, the highest since April 2001.
Treasury reported a $74.8 billion Budget Deficit for June (vs. $90.4 billion in June 2017). For the first nine months of FY18, the deficit totaled $608 billion, vs. $523 billion for the first nine months of FY17. Corporate tax receipts were down 27.6% y/y.
The University of Michigan’s Consumer Sentiment Index edged down to 97.1 in mid-July, vs. 98.2 in June, near the 12-month average (97.7). Sentiment continues to be supported by favorable job and income prospects, with those under the age of 45 anticipating the largest income gains since July 2000. The report also showed growing concerns about the potential negative impact of tariffs (“the primary concerns expressed by consumers were a decline in the future pace of economic growth and an uptick in inflation”). According to the report, “while consumers may not understand the intricacies of trade theory, they have substantial experience making decisions about the timing of discretionary purchases based on prospective trends in prices.”
The Index of Small Business Optimism edged down to 107.2 in June, vs. 107.8 in May, still elevated by historical standards.
The Bank of Canada raised its target for the overnight rate by 25 basis points, to 1.5%, noting that the economy was operating close to its capacity. The BOC expects that further gradual increases will be warranted.