Stocks fell for the second straight week, with all of the major benchmark stock indexes losing ground. The Dow led the declines, followed by the Global Dow, the Russell 2000, the S&P 500, and the Nasdaq. Although the employment report for June (see below) showed a moderate decline in the number of new jobs added, wages continued to track higher, which could support further interest rate hikes by the Federal Reserve. The Fed meets next on July 26, and the latest employment data makes another pause in rate increases highly unlikely. Whether the rate hike is 25.0 basis points or 50.0 basis points is open to conjecture. Crude oil prices advanced for the second straight week as export cuts by Saudi Arabia and Russia began to impact prices. Ten-year Treasury yields increased by 24.0 basis points, impacted by the weakest number of new job hires in three years and rising wages.
Last Week’s Economic News
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Employment slowed somewhat in June. There were 209,000 new jobs added last month, down from the 2023 average of 278,000 per month, and well off the monthly average of 399,000 since May 2022. In May, employment continued to trend up in government, health care, social assistance, and construction. Both the unemployment rate, at 3.6%, and the number of unemployed persons, at 6.0 million, changed little in June. The unemployment rate has ranged from 3.4% to 3.7% since March 2022. The labor force participation rate, at 62.6%, and the employment-population ratio, at 60.3%, were unchanged in May from the previous month. In June, average hourly earnings rose by $0.12, or 0.4%, to $33.58. Over the past 12 months, average hourly earnings have increased by 4.4%. The average workweek edged up by 0.1 hour to 34.4 hours in June.
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According to the latest Job Openings and Labor Turnover Summary (JOLTS), the number of job openings fell 496,000 to 9.8 million in May. In May, the largest decreases in job openings were in health care and social assistance (-285,000), finance and insurance (-139,000), and other services (-78,000). Job openings increased in educational services (+45,000), state and local government education (+37,000), and federal government (+24,000). The number of hires increased by 107,000 in May, with hires in durable goods manufacturing increasing by 41,000. Total separations include quits, layoffs and discharges, and other separations. Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. The number of total separations increased 211,000 in May. The number of quits increased 250,000 to 4.0 million.
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Manufacturing contracted for the second straight month in June, according to the latest survey from S&P Global. The S&P Global US Manufacturing Purchasing Managers’ Index™ posted 46.3 in June, down from 48.4 in May. Manufacturing has declined in seven of the last eight months. A sharper decline in new orders caused manufacturing output to decrease. Survey respondents generally attributed the decline in demand to inflationary pressure and higher interest rates.
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Unlike the manufacturing sector, services expanded in June. According to the latest purchasing managers’ index from S&P Global, new orders increased for the fourth straight month. The June PMI™, at 54.4, rose at the second-fastest pace in over a year. Survey respondents were more upbeat in their expectations for the remainder of the year and sought to expand employment accordingly. Even with the expansion, higher interest rates and increased wage demands pushed cost burdens higher for service providers. Nevertheless, in an attempt to remain competitive, selling prices increased at the slowest rate since February.
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The goods and services trade deficit decreased by $5.5 billion to $69.0 billion in April. Exports fell 0.8%, while imports declined 2.3%. Year to date, the goods and services deficit decreased $101.7 billion, or 22.8%, from the same period in 2022. Exports increased $48.0 billion, or 3.9%. Imports decreased $53.7 billion, or 3.2%.
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The national average retail price for regular gasoline was $3.527 per gallon on July 3, $0.044 per gallon lower than the prior week’s price and $1.244 less than a year ago.
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For the week ended July 1, there were 248,000 new claims for unemployment insurance, an increase of 12,000 from the previous week’s level, which was revised down by 3,000. According to the Department of Labor, the advance rate for insured unemployment claims for the week ended June 24 was 1.2%, unchanged from the previous week’s rate. The advance number of those receiving unemployment insurance benefits during the week ended June 24 was 1,720,000, a decrease of 13,000 from the previous week’s level, which was revised down by 9,000.
Eye on the Week Ahead
Quite a bit of attention will be focused on the Consumer Price Index and the Producer Price Index, which are released this week. The CPI inched up 0.1% in May and 4.0% for the year. The PPI declined 0.3% in May and was up only 1.1% for the 12 months ended in May.
Have a nice week!
Sincerely,
Robert G. Carpenter