The Independent Market Observer

Monday Update: Economy Starting to Hit Its Limits

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Jun 5, 2017 3:28:33 PM

and tagged In the News

Leave a comment

Monday updateLast week’s data was mixed, with some strong areas offset by areas of weakness. Looking at the big picture, growth is likely to continue and even accelerate over the next couple of quarters. Still, the economy is starting to hit its limits, particularly in employment.

Last week’s data

We saw good news on the consumer front. On Tuesday, personal income grew as expected, by 0.4 percent for April, on continued job and wage growth. This was an improvement from 0.2-percent growth for March. Personal spending growth was also strong, at 0.4 percent in April, with the March figure revised up from flat to growth of 0.3 percent. These very positive results suggest that consumers are spending again after a slow winter.

Also on Tuesday, the Conference Board consumer confidence survey declined from a downwardly revised 119.4 to 117.9. But the index remains close to a 16-year high, and the three-month average is now at the highest level since January 2001. The decline came almost exclusively from expectations, rather than current conditions, which rose even further. Overall, despite the small decline, this remains a positive signal for the second half of the year. Given both growing incomes and high confidence levels, the consumer will continue to support the recovery.

On Thursday, the ISM Manufacturing Index did well, beating expectations by rising slightly from 54.8 to 54.9 against an expected flat result. The growth was broad based, with 83 percent of industries expanding, and the index remains securely in expansion territory. Looking at the details, both new orders and the employment subindex rebounded. With sentiment still positive, the rebound in new orders, in particular, could be a sign of accelerating growth going forward.

The international trade report was released on Friday. The results disappointed, with the trade deficit widening to a three-month high of $47.6 billion. This number is up from an upwardly revised $45.3 billion and well above expectations of $44.0 billion. Exports fell by 0.3 percent on declines in auto and consumer goods trade, while imports were up by 0.8 percent. Trade will most likely be a drag on economic growth in the second quarter and offset some of the gains from consumers and business.

Finally, on Friday, the jobs report also disappointed, adding 138,000 jobs in May, well below the expected increase of 182,000. On top of this shortfall, the prior months were revised down by 66,000. Job growth appears to be slowing on a trend basis, with the average for the past three months down to 121,000 per month, as companies find it harder to locate qualified workers. The unemployment rate dropped to 4.3 percent from 4.4 percent, the lowest in 16 years, and the underemployment rate dropped to 8.4 percent from 8.6 percent, the lowest since November 2007. Against these signs of a tightening labor market, wage growth dropped from 0.3 percent to 0.2 percent growth on a monthly basis and to 2.5 percent on an annual basis—the lowest pace in over a year. So, while both employment and wages continue to rise, the trend is slowing, which typically happens toward the end of an expansion.

What to look forward to

Last week was full of economic data releases. In contrast, this week will be quite slow.

The only report of significance, the ISM Non-Manufacturing Index, was released on Monday. This is a diffusion index conveying business sentiment in all areas except manufacturing, with values above 50 indicating expansion. The number came in slightly below expectations, at 56.9 versus 57.1. This result was also down from a very positive 57.5 in April. Despite the decline, however, the data still signals strong growth, although at a slightly slower rate. Again, this suggests that while the expansion continues, we may be getting close to the end of the cycle.

Have a great week!

  Subscribe to the Independent Market Observer -

Subscribe via Email

New call-to-action
Crash-Test Investing

Hot Topics

New Call-to-action



see all



The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.


Please review our Terms of Use

Commonwealth Financial Network®