Falling unemployment and rising home prices were the two constants in June’s economic data while the rest of the metrics we track were a mixed bag. The third reading for Q1 GDP showed just a 2% annualized growth rate in the first quarter, slightly below expectations.
Rising short-term interest rates and the growing specter of a global trade war are starting to work their way into the data and will likely impact the economy going forward.
The unemployment rate for May edged down to just 3.8%, the lowest reading in nearly 20 years. The underemployment rate dipped to 7.6% while the labor force participation rate fell to 62.7% Average hourly earnings edged up a higher than expected +0.3% and are now up +2.7% YoY. Initial Jobless Claims averaged 221K on the month.
Home Prices Grind Higher
Home prices continued to grind higher as June’s report on April prices showed the S&P CoreLogic CS US home price index up 6.4% YoY. New Home Sales for May surged a better than expected 6.7% while Existing Home Sales were down slightly. Housing Starts for May rose 5.0% MoM while the MBA Mortgage Application index rose 5.1%.
Inflation data was mixed although May’s Producer Price Index report showed a higher than expected +0.5% MoM surge in prices at the wholesale level, while consumer prices edged up +0.2%. Producer prices are now up +3.1% YoY while consumer prices rose +2.8% YoY. The PCE Deflator for May rose +0.2% MoM and is up just +2.3% YoY.
As suggested at the outset above, short-term interest rates are trending higher as the Federal Reserve raised the Funds rate 0.25% at its June meeting. 3-month LIBOR has risen from 1.70% at the start of the year to 2.34% today.
Along with short-term interest rate pressures is a looming trade war. Tariffs are being enacted on an ever widening range of goods and the repercussions are only beginning to be felt. Should tensions escalate and spill over into a global trade war, we would expect inflation to surge and GDP to be negatively impacted. While we remain bullish on the impact of the tax reform act, we remain hopeful that cooler heads will prevail on trade and a major war can be averted.
This article was written by the team at Nottingham Advisors, a participant in the ETF Strategist Channel.