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Strong Jobs Report Eases Fears of Recession

But far more top earners are citing tariffs as a cause for concern
“We have had a solid first half of 2019, and we expect our business to continue on an upward course.” - 
Marc Curreri
Dockmate U.S. CEO

“We have had a solid first half of 2019, and we expect our business to continue on an upward course.”
- Marc Curreri Dockmate U.S. CEO

A key measure of consumer confidence declined in June, but the U.S. economy added 224,000 jobs, easily exceeding analysts’ expectations in a sharp rebound from the previous month — and easing fears that the nation might be heading for a recession.

The unemployment rate edged higher, to 3.7 percent, but that was because more people joined the labor force and were looking for jobs.

“Recession concerns are overblown,” Gus Faucher, chief economist at PNC Financial Services, told The Washington Post. “There’s no indication the labor market is in trouble, or the broader U.S. economy.”

The U.S. Department of Labor reported “notable” job gains in professional and business services (51,000), health care (35,000), and transportation and warehousing (24,000). Manufacturing added 17,000 jobs during the month.

The Labor Department also revised its April jobs number downward by 8,000, to 216,000, and lowered its May number by 3,000, to 72,000. After the revisions, job gains still averaged a solid 171,000 during the past three months.

The government says average hourly wages rose by 0.2 percent, to $27.90, in June. During the past 12 months, average hourly earnings have increased by 3.1 percent. Wage gains have continued to be smaller than normally would be expected in an economy that has been growing for a decade.

“The lack of acceleration in wage growth suggests that this recovery is still incomplete,” Martha Gimbel, director of research at Indeed Hiring Lab, told The Washington Post. “This is an important reminder that there are still workers who have not fully benefited from this recovery.”

The Conference Board reported that its Consumer Confidence Index fell from 131.3 in May to 121.5 in June. Fears related to the nation’s trade dispute with China appeared to have been a factor in the sharp decline. “After two consecutive months of improvement, consumer confidence declined in June to its lowest level since September 2017,” said Lynn Franco, senior director of economic indicators at The Conference Board. “The decrease in the Present Situation Index was driven by a less favorable assessment of business and labor market conditions.

“Consumers’ expectations regarding the short-term outlook also retreated,” Franco added. “The escalation in trade and tariff tensions earlier [in June] appears to have shaken consumers’ confidence. Although the index remains at a high level, continued uncertainty could result in further volatility in the index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”

A second national measure of consumer confidence also slipped in June, as the University of Michigan’s Consumer Sentiment Index fell to 98.2 from 100 in May. “June’s small overall decline was entirely due to households with incomes in the top third of the distribution, who more frequently mentioned the negative impact of tariffs, cited by 45 percent, up from 30 percent” in May, Richard Curtin, chief economist of the university’s Surveys of Consumers, stated in a press release.

“Most of the June slippage was concentrated in prospects for the national economy, with the unemployment rate expected to inch upward instead of drifting downward in the year ahead,” Curtin added.

Marc Curreri, CEO of Dockmate U.S., the North American distributor of Belgium-based Dockmate, says he worries about the possible effects on the U.S. economy from a slowdown that America’s trade partners are experiencing.

“During the past few years, the economy of the United States has managed to grow 2 to 3 percent per year with strong consumer spending while maintaining low or at-target inflation levels,” Curreri said. “While the domestic economy looks healthy, I worry about a spillover of economic slowdown from the United States’ major trading partners. The manufacturing-industrial sectors of China and the most powerful member states of the European Economic Area are nearly contracting.

“The yield curve indicates that our economy is late in the business cycle,” Curreri adds. “As a consequence of the systematic risks posed to global markets and our own, the Federal Reserve will have to cut interest rates to prevent the yield curve from inverting and causing panic in equity markets, which are obviously a key source of wealth for many investors.”

There also is political uncertainty ahead, Curreri says. The 2020 presidential election is likely to be contentious, and 469 U.S. congressional seats — 34 in the Senate and all 435 in the House — will be on the ballot. “We expect that our company growth will continue at the consistent rate that we have achieved in the recent past throughout the balance of 2019 and into mid- to late 2020,” he says.

Based in Mechelen, Belgium, Dockmate offers a wireless handheld remote-control system for a boat’s engines, thrusters, anchor and horn.

Curreri says Dockmate’s business is dependent “on how confident boaters are with their financial situation and on their willingness to spend money on leisure goods in general.”

However, Curreri adds, “we have learned that boaters are very passionate about this recreation, and downturns might result in money being spent for less-expensive items, such as maintaining and upgrading their boats, versus buying new ones.

“Dockmate can be considered as a reasonably priced upgrade to boats in our target market range [35 feet and up],” he adds. “Many boaters consider our product a necessity rather than a luxury, and so hopefully the net effect of an eventual downturn will not be dramatically significant for us.”

Curreri says 2018 was the entry year for Dockmate’s product in the United States. “Sales certainly exceeded our modest first-year expectations,” he says. “We have had a solid first half of 2019, and we expect our business to continue on an upward course throughout the fall boat show season and the balance of the year.”

Although Curreri believes a rate cut is coming, the strong jobs report could give the Federal Reserve pause. The central bank left interest rates unchanged at a meeting in mid-June but indicated that it could decide to cut them soon if the United States and China cannot reach an agreement to resolve their trade war.

Slowing global growth also has the central bank concerned. “The case for somewhat more accommodative policy has strengthened,” Federal Reserve Chairman Jerome H. Powell said June 19 after the Fed’s rate-setting Federal Open Market Committee concluded a two-day meeting. “It’s really trade developments and concerns about global growth that are on our minds. … Risks seem to have grown.”

Powell also said, “It’s important that monetary policy not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook.”

The Fed stated in a press release that the “committee will closely monitor the implications of incoming information for the economic outlook and will act as is appropriate to sustain the expansion.”

The Fed indicated that nearly half of the members of the committee foresaw a rate cut this year. The central bank’s benchmark federal funds rate is currently set in a target range of 2.25 to 2.5 percent.

The Fed also said the labor market was still strong and that the economy continued to expand at a moderate pace. The description of moderate growth was, however, a downgrade from the previous month, when the central bank said the economy was “solid.”

The mood among the nation’s small businesses improved in May, as the Small Business Optimism Index of the National Federation of Independent Business rose 1.5 points, to 105.

“Optimism among small business owners has surged back to historically high levels, thanks to strong hiring, investment and sales,” NFIB president and CEO Juanita D. Duggan stated in a press release. “The small business half of the economy is leading the way, taking advantage of lower taxes and fewer regulations, and reinvesting in their businesses, their employees and the economy as a whole.”

The NFIB reported that expectations rose among small business owners for sales, business conditions and expansion, and that 30 percent of business owners surveyed said they planned capital outlays in the next few months — a level the NFIB called historically high.

“Small business owners are demonstrating a continued confidence in the strength of the economy and are betting capital spending dollars on it,” NFIB chief economist William Dunkelberg stated in a press release. “This solid investment performance is supporting ongoing improvements in productivity and real wages.”

Inflation remained in check in May, as the Labor Department reported that the Consumer Price Index rose just 0.1 percent. The core CPI, which strips out food and energy costs, also rose just 0.1 percent.

The U.S. Department of Commerce reported that retail sales rose 0.5 percent in May, with nearly all categories of businesses achieving solid gains. The only declines were reported among food and beverage, department and clothing stores.

The Conference Board reported that its Leading Economic Index, after three consecutive increases, was unchanged in May, remaining at 111.8. The index attempts to predict future economic activity.

“Positive contributions from financial conditions and consumers’ outlook offset the weakness in stock prices and the manufacturing sector,” Ataman Ozyildirim, director of economic research at The Conference Board, stated in a press release. “The yield spread’s contribution to the LEI was neither positive nor negative. While the economic expansion is now entering its 11th year, the longest in U.S. history, the LEI clearly points to a moderation in growth toward 2 percent by year end.”

In housing, builder confidence in the market for newly built single-family homes slipped 2 points, to 64, in June on the National Association of Home Builders/Wells Fargo Housing Market Index. The NAHB reported that sentiment levels have been in a “solid range” in the low to mid-60s for the past five months. Any reading above 50 indicates improvement.

The NAHB also reported that all of the HMI indices were lower in June. The index measuring current sales conditions fell 1 point, to 71. The component gauging expectations in the next six months dropped 2 points, to 70, and the metric charting buyer traffic dropped 1 point, to 48.

“While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues,” NAHB chairman Greg Ugalde, a home builder and developer from Torrington, Conn., stated in a press release.

NAHB chief economist Robert Dietz, also in a release, stated: “Despite lower mortgage rates, home prices remain somewhat high relative to incomes, which is particularly challenging for entry-level buyers. And while new-home sales picked up in March and April, builders continue to grapple with excessive regulations, a shortage of lots and a lack of skilled labor that are hurting affordability and depressing supply.”

The Commerce Department reported new-home sales at a seasonally adjusted annual rate of 626,000 in May, 7.8 percent lower than in April. It was the second consecutive monthly decline. Sales were at their lowest level since December.

The news was better for home resales. The National Association of Realtors reported that existing-home sales rose 2.5 percent in May from the April results, to a seasonally adjusted annual rate of 5.34 million. The NAR reported that each of the four major regions of the country saw an increase in sales.

Lawrence Yun, the NAR’s chief economist, says the gain shows that consumers are taking advantage of favorable conditions. “The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding,” he says.

The NAR says the median existing-home price in May was $277,700, up 4.8 percent from the same month a year earlier. The price increase marked the 87th consecutive month of year-over-year gains. 

This article originally appeared in the August 2019 issue.


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