The economy has sped up a bit during spring. In April, consumer spending rose 0.4%, its biggest gain since December. Spending was aided by rising incomes and tax refunds. Lower inflation reflected in decreasing oil prices also gave households extra bolster. Even with a curb in inflation, the Federal Reserve sent a strong signal June 1 that it will raise interest rates in June and soon begin shedding some of its $4.5 trillion in bond holdings.
Experts give little indication that the U.S. economy will reach its 3% growth this year with health-care and tax reform still stymied in Congress. There are expected surges in infrastructure spending. According to the Fed’s recently released Beige Book — a summary of economic conditions in the United States by Federal Reserve district —districts showed falling prices for certain final goods, including groceries, apparel, and autos.
Job creation surged in May due to a jump in construction positions and a boom in professional and business services. Private payrolls increased by 253,000, ahead of expectations. Economists expect the report to show that private payrolls grew by 185,000 in May from 174,000 in April. Experts predict that the unemployment rate, now 4.4%, is headed to 4%.
Even with all the uncertainty, the Dow, S&P 500, and Nasdaq were all on track to post monthly gains. Tech-heavy Nasdaq gained 2.5 in May and posted a seven-month winning streak, its longest since 2013. The Dow, S&P 500 and Nasdaq closed lower on May 31 after financials dropped 0.8%. Treasury yields fell steeply compared to where they began trading in 2017. On May 31, the benchmark 10-year yield hung near 2.19%. It started the year near 2.5 percent. The Chicago Board Options Exchange (CBOE) Volatility Index – or VIX – which is widely considered the best gauge of fear in the market, traded near 10.4.
The Commerce Department said durable goods orders fell 0.7% in April after rising 2.3% in March. This was the first downturn since durable goods orders fell 4.6% in November. Orders for transportation equipment fell 1.2%, pulled down by a 9.2% drop in orders for civilian aircraft.
The Consumer Confidence Index, which previously decreased in April, fell again in May. But U.S. consumers are still optimistic overall. The index now stands at 117.9, mostly in line with what economists expected for May. The Consumer Confidence Index last fell to 120.3 in April after hitting 125.6 in March, its highest level since December 2000. Economists closely watch the mood of consumers because their spending makes up about 70 percent of U.S. economic activity.
In the coming month, we will be watching the second quarter. Though economists are all over the place regarding how much improvement will occur, the overall outlook is expected to improve. We will also keep close watch on how decisions concerning the Paris Accord on climate change may affect trade with other countries.
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That’s it for this month’s educational economic update.
Disclosure: While we believe the information in this report is reliable, we cannot guarantee its accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or a solicitation for the purchase or sale of any security. Please consult your financial professional before making any investment decision. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining markets. The indices mentioned are unmanaged and cannot be invested into directly. Past performance does not guarantee future results.