Looking Behind and Looking Ahead

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Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

In this article we’ll recap the events and news over the past month that mattered most to the economy and markets, your credit union, and your members. Then we’ll look ahead at the key upcoming events you need to know.

Behind us—The trade war saga dominated the markets through most of March and well into April, but the rhetoric from the Administration cooled a bit as actual talks are beginning. That calmed the stock market for a while, but that bit of good news was soon forgotten as the stock market seemed lost for a direction. Interest rates were on the rise, as the 10-year yield rose over 3% for the first time since 2014, but rates have retreated a bit with stocks struggling to recapture an upward bias.  

  • Nonfarm Payrolls bounced back in April with a gain of 164k and an upward revision to the March number of 30,000. For the first four months of 2018, the average gain has been a very solid 202,000
  • The Unemployment Rate fell to 3.9%, the lowest since December 2000
  • Hourly wages rose only .1% on the month and the year-over-year rate fell to 2.6%
  • Nonfarm Payrolls for March fell by 7k in California, and only 42,000 jobs have been added so far in 2018. But this pattern of weak numbers in the first half of the year is the same as we saw last year, only to see a big rebound in jobs the second half. The Unemployment Rate remained at the record low of 4.3%
  • The California year-over-year wage growth number remained at 3.8%
  • Consumer Confidence remained near a 17-year high, and Retail Sales posted a solid gain. Consumers remain unconcerned about the trade news
  • Auto sales surprised to the upside again in April. Autos sales have now posted an eight-month string of annualized sales rates of 17 million units or more
  • As expected, the Fed left the funds rate unchanged in May. The statement language remained positive on the economy and sanguine on inflation

Ahead for you—May could be another month in which news on the threat of a trade war will steal the focus away from the economy. The U.S. is off to a shaky start in talks with China, but it is early. NAFTA discussions will also begin making headlines. Trump has backed off his demand for a quick deal. 

  • May 10—Consumer Price Index. With core inflation rate moving higher, this will be a very important number to the bond market. Rates are likely to move sharply is the inflation rate either falls or rises more than expected
  • May 15—Retail Sales for April. After a weak start to the year, Retail Sales bounced back in March, but some economists are expecting growth to be slow as the tax cut legislation is proving to be a disappointment for consumers.
  • June 1—Jobs report. Another huge upside surprise in Nonfarm Payrolls unlikely. Wage component will be the focus.
  • June 13—FOMC rate decision. Currently, the market is looking for the Fed to raise the funds rate again to a range of 1.75% to 2%.

Bottom line—The economy continues to perform well in 2018, but the future of corporate spending and hiring could be influenced by stock prices. Should stocks fall, possibly due to disappointing trade news, corporations will likely save and not spend the big tax windfall. The stock market is not always important to the economy. But the current time is an exception to that rule. 

Article by Dwight Johnston, Vice President and Chief Economist for the California and Nevada Credit Union Leagues.

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