Saturday, June 02, 2018
In the face of persistent fears that the world could be facing a trade war and a synchronized slowdown, the U.S. economy enters June with a good deal of momentum. Friday's data provided convincing evidence that domestic growth remains intact even if other developed economies are slowing.
A better-than-expected nonfarm payrolls report coupled with a convincing uptick in manufacturing and construction activity showed that the second half approaches with a tail wind blowing.
"The fundamentals all look very solid right now," said Gus Faucher, chief economist at PNC. "You've got job growth and wage gains that are supporting consumer spending, and tax cuts as well. There's a little bit of a drag from higher energy prices, but the positives far outweigh that. Business incentives are in good shape."
The day started off with the payrolls report showing a gain of 223,000 in May, well above market expectations of 188,000, and the unemployment rate hitting an 18-year low of 3.8 percent.
Then, the ISM manufacturing index registered a 58.7 reading -- representing the percentage of businesses that report expanding conditions -- that also topped Wall Street estimates. Finally, the construction spending report showed a monthly gain of 1.8 percent, a full point higher than expectations.
The most recent slate of widely followed barometers could see economists ratchet up growth expectations.
Already, the Atlanta Fed's GDPNow tracker sees the second quarter rising by 4.8 percent. CNBC's Rapid Update puts the April-to-June period at 3.6 percent.
Andrew Hunter, U.S. economist at Capital Economics, said the ISM number alone is consistent with GDP growth of better than 4 percent, though he thinks the second quarter will be in the 3 percent to 3.5 percent range.
"With global growth set to hold up fairly well in the near term, this suggests that manufacturing activity should continue to expand at a solid pace," Hunter said in a note. "That said, if the Trump administration continues to pursue protectionist policies and provoke retaliation from other countries, the export-focused manufacturing sector would be most exposed."
Admin's note: Participants in this discussion must follow the site's moderation policy. Profanity will be filtered. Abusive conduct is not allowed.