Last Friday’s strong jobs report seems to have alleviated fears of a recession for the time being, but it also likely supported a more aggressive response from the Federal Reserve as it tries to dampen rising inflation. Stocks started July on a strong note, with each of the major benchmark indexes posting solid gains. The tech-heavy Nasdaq, which has been hit hard during the first half of the year, gained over 4.5%, although it remains more than 25.0% below its 2021 year-end value. The small caps of the Russell 2000, down more than 21.0% from the beginning of the year, jumped nearly 2.5% higher last week. Wall Street is likely to see volatility continue until investors see signs that the Fed is backing off its current path of rate increases. With corporate earnings season right around the corner, traders will focus on company forecasts as well as inflation data to assess the health of the economy.
Last Week’s Economic News
- Employment rose by a higher-than-expected 372,000 in June, with notable job growth occurring in professional and business services, leisure and hospitality, and health care. The unemployment rate was 3.6% for the fourth month in a row, and the number of unemployed persons was essentially unchanged at 5.9 million in June.
- The services sector saw new orders decrease in June, with price pressures and economic uncertainty hitting demand. According to the latest report, the S&P Global US Services PMI Business Activity Index registered 52.7 in June, remaining above 50.0, thereby signaling an increase in business activity, albeit at a slower pace than in May when the PMI registered 53.4. Business confidence outlook for the year ahead dropped to a 21-month low. On a more positive note, employment continued to increase sharply.
- According to the latest Job Openings and Labor Turnover report, the number of job openings decreased in May to 11.3 million, a drop of about 427,000 from the April total. The largest decreases in job openings were in professional and business services (-325,000), durable goods manufacturing (-138,000), and nondurable goods manufacturing (-70,000). In May, the number of hires, at 6.5 million, and the number of total separations, at 6.0 million, were little changed from the prior month’s respective totals. Over the 12 months ended in May, hires totaled 78.4 million and separations totaled 72.0 million, yielding a net employment gain of 6.4 million.
- The international goods and services trade deficit for May was $85.5 billion, down $1.1 billion, or 1.3%, from the April deficit. According to the latest information from the Bureau of Economic Analysis, in May exports increased 1.2% and imports advanced 0.6%. Year to date, the goods and services deficit increased $126.5 billion, or 38.4%, from the same period in 2021. Exports increased $197.1 billion, or 19.4%. Imports increased $323.6 billion, or 24.0%.
- The national average retail price for regular gasoline was $4.77 per gallon on July 4, $0.101 per gallon below the prior week’s price but $1.649 higher than a year ago. Also as of July 4, the East Coast price decreased $0.10 to $4.59 per gallon; the Gulf Coast price fell $0.15 to $4.35 per gallon; the Midwest price dropped $0.09 to $4.73 per gallon; the West Coast price slid $0.09 to $5.69 per gallon; and the Rocky Mountain price rose $0.02 to $5.00 per gallon. Residential heating oil prices averaged $3.94 per gallon on July 1, about $0.42 per gallon less than the prior week’s price. According to the U.S. Energy Information Administration, gasoline consumption during the second quarter of 2022 and into the beginning of July remained lower than 2021 levels. Excluding the pandemic year of 2020, this would be the lowest second quarter of gasoline consumption since 2001. Although U.S. gasoline consumption has not completely returned to pre-pandemic levels, it generally increased from mid-2020 through the first quarter of 2022. April was the first month this trend reversed.
- For the week ended July 2, there were 235,000 new claims for unemployment insurance, an increase of 4,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended June 25 was 1.0%, an increase of 0.1 percentage point from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended June 25 was 1,375,000, an increase of 51,000 from the previous week’s level, which was revised down by 4,000.
Eye on the Week Ahead
This is a busy week for the release of important economic data. Most of the attention, however, will focus on the Consumer Price Index for June. May saw consumer prices jump unexpectedly higher at 1.0%. Consumer prices have risen 8.6% since June 2021. Several analysts suggest that the June CPI will come in lower than the May figure.
Have a nice week!