The U.S. economy added fewer jobs in August than analysts had expected, but the economy overall continues to show signs of solid growth.
Job growth was at 156,000 for the month, below analysts’ median forecast of 170,000, and the jobless rate rose slightly, from 4.3 percent to 4.4 percent, but multiple economic reports released during the month were positive.
From retail sales to consumer confidence, from the Empire State Index on manufacturing to the Conference Board’s Leading Economic Index, there were signs the economy has momentum it is likely to sustain for the rest of the year.
A good place to start is the Commerce Department’s report on retail sales for July. Sales were up 0.6 percent, the largest increase in seven months, and they exceeded economists’ forecasts.
MarketWatch said strong demand for new cars and Amazon’s Prime Day specials helped make the month a success for retailers.
“American shoppers flocked to the malls in July, suggesting consumers are well-positioned to propel the economy forward in the second half,” Sal Guateri, a senior economist at BMO Capital Markets in Toronto, told Reuters. “It should tamp down chatter about the Fed delaying rate hikes until next year.”
Excluding automobiles, gasoline, building materials and food services, sales rose 0.5 percent in July. Not only that, the government also revised its results for June to show that sales rose 0.3 percent, rather than falling 0.2 percent.
Confidence runs high
Separately the country’s top two gauges of consumer sentiment remain at high levels.
The Conference Board said its Consumer Confidence Index rose to 122.9 in August, up from 120 in July, and the University of Michigan’s Consumer Sentiment Index slipped slightly, to 96.8, from a mid-month reading of 97.6, but remained “at a very favorable level,” Richard Curtin, chief economist of the university’s Surveys of Consumers, said in a statement.
Curtin also said the index has been higher during the first eight months of this year than in any year since 2000.
“The renewed strength in 2017 was mainly due to consumers’ favorable assessments of their own financial situations. Lows in unemployment, inflation and interest rates, as well as renewed gains in the value of their homes and stock portfolios, pushed personal financial evaluations to near all-time peaks,” he said.
“Consumer confidence increased in August following a moderate improvement in July,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement.
“Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”
Inflation in check
July reports on personal income and consumer spending, the most recent data available, show positive trends. The Commerce Department said personal income rose 0.4 percent for the month, up from a flat reading in June, and consumer spending rose 0.3 percent, up from 0.2 percent in June.
“The consumer continues to do the heavy lifting when it comes to economic growth,” Chris Rupkey, chief economist at MUFG in New York, told Reuters. “Inflation is in the slow lane for now, and this is likely to make Fed officials cautious on the need to raise rates a third time this year.”
Inflation remains low. The Personal Consumption Expenditures Price Index, the gauge the Federal Reserve prefers to use, rose 0.1 percent.
Auto sales, however, declined in August. U.S. sales of new cars and trucks dropped 2 percent in August, according to Autodata Corp. Some automakers did well during the month — sales at General Motors were up 7.5 percent from the same month last year, and sales at Toyota were up 7 percent and at Volkswagen by 9 percent.
But sales at Hyundai sank 25 percent. Sales at Nissan fell 13 percent, and at Fiat Chrysler they were down 11 percent. Sales declined by 2 percent at Ford and Honda.
Hurricane Harvey hurt demand in the Houston area, which is the ninth-largest vehicle market in the country, but rebuilding efforts after the storm are expected to drive demand for new cars and pickup trucks to replace those that were destroyed by flooding.
“We think we will see sales in the area increase pretty quickly and we’re confident that will boost the entire market,” Michelle Krebs, an analyst for Autotrader, told Bloomberg. “It’s a big truck and SUV market already, so we expect sales of those vehicles will be strong.”
The housing market did not have a strong July, the most recent month for which data are available.
The Commerce Department said new-home sales were 9.4 percent lower, at a seasonally adjusted annual rate of 571,000, than the June rate of 630,000, and 8.9 percent lower than the July 2016 estimate of 627,000.
“Sales of new homes fell year over year in July, the first annual decline in more than a year and a disappointing bump in the road in what has otherwise been a good, not great, year for new home sales,” Aaron Terrazas, a senior economist at the real estate hub Zillow, wrote in a research note in remarks that U.S. News & World Report cited in a story about the results. “The decline was driven by annual drops in home sales activity in every region except the booming West.”
Terrazas also said the sales data should be “read with caution” because they could be revised at a later date. He was optimistic about the current sales trend.
The National Association of Realtors said existing-home sales also fell in July, to their lowest level since August of 2016 — a seasonally adjusted annual rate of 5.44 million, down 1.3 percent from the downwardly revised June pace of 5.51 million.
Bloomberg said the housing market’s greatest difficulty is that there are a limited number of properties for sale. That is keeping gains in home prices above the pace of pay increases, so buyers have fewer options.
“Buyer interest in most of the country has held up strongly this summer and homes are selling fast, but the negative effect of not enough inventory to choose from and its pressure on overall affordability put the brakes on what should’ve been a higher sales pace,” Lawrence Yun, the NAR’s chief economist, said in a statement. “Contract activity has mostly trended downward since February and ultimately put a large dent on closings last month.”
This article originally appeared in the October 2017 issue.