Last week, June’s labor report was strong enough to likely prompt the Fed to hold interest rates at their current level (and forestall a rate cut). Feeding off the latest labor figures, stocks pushed ahead during the holiday-shortened week. The Nasdaq led the way, gaining close to 2.0%, followed by the large caps of the S&P 500 and the Dow, each of which enjoyed a solid week. The Global Dow gained close to 1.0%, despite evidence of a slowing global economy. Pulling up the rear was the Russell 2000, which added over 0.5% in value by last week’s end. Despite the performance of stocks, long-term bond yields held steady as prices inched down marginally.
LAST WEEK’S ECONOMIC HEADLINES
- There were 224,000 new jobs added in June, according to the Bureau of Labor Statistics. Employment growth has averaged 172,000 per month thus far this year, compared with an average monthly gain of 223,000 in 2018.
- The two main sources for predicting manufacturing activity according to purchasing managers, the Institute for Supply Management® and IHS Markit, each reported that operating conditions in the manufacturing sector were relatively stagnant in June. The Markit report saw its manufacturing index inch up 0.1 percentage point to 50.6 in June compared to May. New order growth was the slowest it has been in almost three years. As output waned, manufacturers reined in hiring at its slowest pace in several years. Inflationary pressures remained muted despite slight accelerations in rates of output charge and input price inflation.
- The report from the Institute for Supply Management® saw its purchasing manufacturing index fall 0.4 percentage point in June from May. Survey respondents reported that new orders fell, while production and new hires increased.
- In the non-manufacturing or services sector, business slowed in June to its lowest rate in almost two years, according to the latest Non-Manufacturing ISM® Report On Business®. New orders, employment, and business activity (production) each dropped off in June, while costs edged up. This report, coupled with the reports on business activity in the manufacturing sector, may reinforce the expectation that the Federal Reserve will reduce interest rates later this summer.
- The Census Bureau reported last week that the goods and services international trade deficit was $55.5 billion in May, up $4.3 billion from the April deficit. May exports were $210.6 billion, $4.2 billion more than April exports. May imports were $266.2 billion, $8.5 billion more than April imports. May figures show monthly surpluses with South and Central America ($4.1 billion and Hong Kong ($2.6 billion). Notable monthly trade deficits in May existed with China ($30.1 billion), the European Union ($16.9 billion), Mexico ($9.1 billion), and Japan ($6.0 billion).
EYE ON THE WEEK AHEAD
Inflationary pressures have been weak for much of the year. This week, both the Consumer Price Index and the Producer Price Index for June are out and will provide a good indication of the direction of consumer prices for the rest of the summer.