- The U.S. economy added 223,000 jobs in May, beating economists’ expectations and exceeding the previous month’s gain. The unemployment rate dropped to 3.8%, the lowest level since April 2000. Hourly wage growth improved by 2.7% year over year. According to economists, the strong jobs report should keep the Federal Reserve (Fed) on target for a rate hike in June and will likely increase the number of forecasted hikes before year-end.
- President Donald Trump proposed sharp tariffs on steel and aluminum from Canada, Mexico and the European Union. The trade levies (25% on imported steel and 10% on imported aluminum) heighten the risk of retaliatory tariffs on U.S. products by some of the country’s largest trading partners.
- First-quarter gross domestic product (GDP) was revised lower in the second estimate, from 2.3% to 2.2% annualized growth. Consumer spending increased by just 1.0%—the slowest pace in five years. Analysts believe the economy remains on track to hit 3% annual growth in 2018, driven by tax reform and increased government spending.
- The trade deficit tightened slightly in April to $68.2 billion. (Smaller trade deficits support GDP growth). Exports dropped by 0.5% on weakness in vehicles and capital goods; imports also fell by 0.5%, primarily within consumer goods.
- The latest Fed Beige Book focused on modest wage gains and a moderate economic expansion, which continues to support the case for a rate hike at the central bank’s June meeting; it also concentrated on tariff-impacted steel prices.
- Initial jobless claims fell by 3,000 to 221,000 in the week ending May 26. The less-volatile four-week moving average grew by 2,500 to 222,250. Continuing claims decreased by 16,000 to 1.73 million in the week ending May 19 and remained near a 45-year low. Economists remained confident that the job market was nearly (if not completely) at full employment.
- Personal income expanded by 0.3% in April, with wages and salaries rising by 0.4%. Consumer spending advanced by 0.6% for the month. The core personal consumption expenditures reading (the Fed’s preferred measure of inflation) inched 0.2% higher for the month and jumped by 1.8% year over year.
- The Institute for Supply Management’s manufacturing purchasing managers’ index (PMI) expanded at a faster pace in May compared to the prior month. A similar report by Markit Economics, however, showed that manufacturing decelerated from April’s three-year high. Both reports indicated inflationary pressures tied to the recent tariffs imposed on steel imports.
- China’s manufacturing sector continued to advance for the twelfth consecutive month in May; strength in output and new orders slightly offset a dip in employment.
- Japanese manufacturing activity remained in expansion territory despite slowing in May, as increased demand in new export orders mitigated slackening growth in new orders.
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