There were a number of important economic data releases last week, with better-than-expected results for consumer confidence and hiring in June serving as highlights. The June jobs report showed that hiring accelerated during the month, demonstrating the positive impact from eased restrictions at the state and local levels. This week will be relatively quiet, with only three major economic updates scheduled.
Last Week’s News
On Tuesday, the Conference Board Consumer Confidence Index for June was released. The index increased by more than expected, rising from an upwardly revised 120 in May to 127.3 in June. The forecasts were for a modest decline to 119. The index now sits at its highest level in 16 months, signaling that consumer confidence is back to pre-pandemic levels. This result echoed a similar improvement in the University of Michigan consumer sentiment survey for June, which was released earlier in the month. Confidence has improved markedly this year, largely driven by public health improvements and the easing of state and local restrictions that have allowed businesses to reopen and hire more workers. Historically, higher confidence levels have supported consumer spending growth, so this strong result bodes well for June’s spending reports. Overall, this encouraging report highlights the very real progress we’ve made so far this year.
Thursday saw the release of the weekly initial jobless claims report for the week ending June 26. The number of initial unemployment claims fell from an upwardly revised 415,000 the week before to 364,000. This decline, which was larger than the forecasted drop to 388,000 initial claims, represents the lowest number of layoffs in a week since the start of the pandemic. The improvement was widespread, as weekly initial claims declined in most states. Throughout the year, we’ve made notable progress in getting weekly initial unemployment claims closer to historically normal levels, due largely to public health improvements and reduced state and local restrictions. As this report shows, the labor market recovery picked up steam toward the end of the month, which is a good sign for overall hiring in June.
On Thursday, the ISM Manufacturing index for June was released. The index fell from 61.2 in May to 60.6 in June, against economist estimates for a result of 60.9. Manufacturers cited continued supply and labor shortages and rising prices as factors for the slightly lower confidence. Still, this is a diffusion index, where values above 50 indicate expansion, so the June result signals continued manufacturing growth. The index has now been in expansionary territory for 13 months in a row. Manufacturers have been steadily increasing output in order to meet rising demand spurred by the reopening and the economic recovery. Overall, this report showed that high level of consumer demand has continued to support the manufacturing recovery, despite headwinds created by rising prices and tangled supply chains.
On Friday, the international trade report for May was released. The trade deficit widened during the month, with the overall deficit coming in at $71.2 billion. This result is larger than the downwardly revised $69.1 billion deficit for April, but slightly smaller than the $71.3 billion deficit expected. The trade deficit is now at its second-largest level on record, trailing only the $75 billion deficit we saw in March. Exports increased by 0.6 percent in May, but a 1.3 percent increase in imports was more than enough to offset the rise in exports and result in the wider deficit. High levels of domestic demand and low business inventories have supported a surge in imports recently, leaving the overall level of imports well above pre-pandemic levels. Given the continued global economic recovery, exports are expected to see continued growth in the months ahead. Nonetheless, tangled supply chains and transportation disruptions may slow the overall pace of export growth.
We finished the week with Friday’s release of the June employment report. During the month, 850,000 jobs were added, in a step up from the upwardly revised 583,000 jobs added in May and above estimates for an additional 720,000 jobs. This result represents the best month for job growth since August 2020, when more than 1.5 million jobs were added. The continued easing of state and local restrictions has spurred job growth, resulting in the past two consecutive months with accelerated hiring. The hard-hit leisure and hospitality sector was the major beneficiary in June, seeing the addition of 343,000 jobs. This trend largely reflects the tailwind from recent reopening efforts. Despite the faster-than-expected rate of hiring, however, the unemployment rate ticked up from 5.8 percent to 5.9 percent. Forecasts were for a decline to 5.6 percent, as the labor force participation rate was unchanged. The relatively high unemployment rate and low participation rate compared to pre-pandemic levels signal that the labor market is still under pressure. Work must be done to get us back to full employment, which supports the Fed’s current accommodative policy.
What to Look Forward To
Tuesday saw the release of the ISM Services index for June. This widely followed measure of service sector confidence declined by more than expected, dropping from 64 in May to 60.1 in June. Forecasts were for a more modest move to 63.5. This is another diffusion index, where values above 50 indicate expansion. Accordingly, this report signals continued growth for the service sector, despite the larger-than-expected decline for the index. Service sector confidence remains well above the pre-pandemic high of 56.7 we saw in February 2020, highlighting the positive impact of the ongoing economic recovery. Service sector confidence was supported during the month by high levels of consumer demand, especially in previously hard-hit sectors such as in-restaurant dining, hotels, and air travel. Material and labor shortages continued to serve as a tailwind for faster service sector growth in June. Nonetheless, the continued expansion for the service sector in June was an encouraging sign that businesses are successfully adapting despite the economic headwinds.
On Wednesday, the FOMC meeting minutes from the recent June meeting are set to be released. The Fed cut interest rates to virtually zero at the start of the pandemic last March, and there were no major changes made at this meeting, as expected. Likewise, the Fed did not change its ongoing asset purchase program, which currently consists of $120 billion in purchases per month. Despite the lack of major announcements, changes to the Fed’s dot plot, released after the meeting, captured market attention. Economists will look to the minutes for any discussion regarding the path of monetary policy, especially potential plans for tapering asset purchases. The minutes should also touch on recent inflationary pressures across various sectors of the economy, although Fed board members have largely reiterated the view that inflation is transitory. Ultimately, although the minutes should not be surprising, they are expected to give economists insight into current thinking at the Fed.
We’ll finish the holiday-shortened week with Thursday’s release of the initial jobless claims report for the week ending July 3. Economists expect 350,000 initial unemployment claims to be filed, in an improvement from the 364,000 initial claims filed the week before. If estimates hold, this report would mark a new low for weekly initial claims since the start of the pandemic, bringing the pace of layoffs closer to historically normal levels. For reference, in 2019, we averaged roughly 220,000 initial claims per week. Continued improvement at the recent pace could get us near to normal levels by the end of the summer. Given the importance of the labor market for the overall economic recovery, this report will continue to be widely monitored. It provides a timely update on the health of the job market.
That’s it for this week—thanks for reading!