Personal Income and Outlays

Personal income and outlays post gains for the fifth straight month. The personal income and outlays report, recorded by the BEA, show wages and salaries increasing for the fifth straight month. Personal income increased by an estimated $47.8 billon or 0.3 percent in March. Disposable income increased by 0.3 percent as well, up to $39.8 billion, and personal consumption expenditures increased by an estimated $61.7 billion or 0.4%. The wages and salaries component drove five-month increase drove the rise in personal income in the month of March.

Pending Home Sales Index

After posting a very sharp 3.1 percent gain in February, March gains for pending sales of existing homes rose just 0.4 percent in March to 107.6, down significantly from the growth seen in February. Though this growth is down March marks the second consecutive monthly rise. The lack of housing inventory available is to blame for the small increase seen in March. Pending home sales could be more robust if buyers had the supply to meet their demand. The healthy economic conditions are creating demand for borrowers to purchase homes, but the lack of inventory is holding these borrowers from obtaining a home that is affordable for them.

PMI Manufacturing Index

US manufacturing activity remained robust as the overall economy grew for the 108th consecutive month. Though activity in April remained strong the pace of growth did slow from the previous months. The April PMI registered at 57.3 percent, this marks the second consecutive month of declines and is down two percentage points from March’s reading of 59.3. February’s PMI came in at a high 60.8 percent which is the highest recorded in the past year. A PMI reading above 50 percent indicates that the manufacturing industry generally is growing, while a reading below 50 indicates general construction. The April PMI indicates the 20th straight month of growth in the manufacturing sector. The strong growth was led by the continu4d expansion in new orders, production activity, employment, and inventories, suppliers are continuing to struggle and deliver with the high demand seen in recent months.

ISM Non Mfg Index

In the month of April the ISM non manufacturing index slowed  to a four month low, it fell from March’s 58.8 to 56.8 on a seasonally adjusted basis. Despite this drop the non manufacturing sector still continues its streak of overall growth, as April market the 99th straight month of expansion. The April reading of 56.8 came in below expectations as economists forecasted a level of 58.2

Construction Spending

Construction sending dropped 1.7 percent in March, the biggest setback in 11 months, this decline is due to number of factors, including the largest drop in home building in nine years. The March decline represented the first monthly drop since last July and the biggest contraction since a 1.8 percent fall back in April 2017. Spending on residential construction was down 3.5 percent for the worst showing since April 2009 when it declined 4.2 percent. Economists are predicting construction spending to contribute to overall growth this year even though interest rates are and have been on the rise all year. Home mortgage rates are at their highest levels in four years and at the Federal Reserve meeting for the month it is expected that members will vote to keep gradually raising rates this year to guard against inflation pressures getting out of hand. Spending on nonresidential projects fell 0.4 percent with office buildings and commercial projects both down were down. Government projects remained unchanged in the months. A 2.2 percent rise in spending by the federal government offset a 0.3 percent dip in state and local projects. A 3.5 percent drop in residential spending reflected a 2.7 percent fall in spending on apartment construction and a smaller 0.4 percent decline in single family home construction. The decline I nonresidential construction reflected weakness in spending on construction of offices, shopping centers, hotels, health care facilities and factories. Total construction spending had been rising steadily since last August. Despite the recent March drop in construction spending, expenditure in the construction sector had been rising steadily since last August; spending at an annual rate of $1.28 trillion is close to record highs and 3.6 percent above the level a year ago.

Mortgage Applications

US mortgage applications fell last week as interest rates reached their highest levels in more than 4 ½ years. Mortgage requests fell 1.6 percent to 258.1 in the week ending in April 27th. The weekly survey shows a 4% decline in refinance activity and a 2% drop in purchase activity, despite these declines the year on year rate was at a positive 5% growth rate. The refinance share of mortgage activity decreased from 37.2 down to 36.5 percent of total mortgage application activity, this is the lowest level its been at since September of 2008.

FOMC Meeting Announcement

At the Federal Reserve meeting this month members voted to keep interest rates unchanged at an interest rate range of 1.5%-1.7%, as most economists predicted after rates were raised at the previous March meeting. In the Fed statement the committee indicated that the labor market has continued to strengthen, and that economic activity has been rising at a moderate rate. The committee also noted that overall inflation sand inflation for items other than food and energy have moved closer to the target rate of 2 percent. Job gains have been strong, on average, and in recent months the unemployment rate has stayed low.

Jobless Claims

New applications for US jobless benefits increased less than expected last week and the number of Americans receiving unemployment aid fell to its lowest level sine 1973, pointing to the tightening labor market conditions. Initial claims for state unemployment benefits rose 2,000 to a seasonally adjusted level of 211,000 for the week ending in April 28th. Claims dropped to a level of 209,000 in the prior week, the lowest level since December of 1969. Economists’ forecasted claims were to rise 225,000 in the latest week, compared to the 211,000 level the week ended in. The labor market is considered to be near or at full employment. The unemployment rate is at a near or at full employment. The unemployment rate is at a 17 year low of 4.1 percent close to the Federal Reserve’s forecast of 3.8 percent by the year end.

Employment Situation

After a disappointing employment situation in March where only 103,000 jobs were created; this month’s employment situation report is back on the upward trend similar to what has been reported in most recent months. It is still nowhere near February’s large growth in the construction, retail, manufacturing, and business services. The report showed that total non-farm payroll employment rose by 164,000 jobs last month, as the unemployment rate dropped by 0.2 percentage points for the first change in six months to 3.9 percent, a level below the 4% mark; the unemployment rate has been over 4% since 2000, this marks the first time the rate has been below 4%. The number of unemployed people decreased by 300,000 to 6.3 million. Although the employment rate has reached its lowest level in 18 years, the hourly earnings rate rose by only 2.6 percent or 67 cents. This is nowhere near the wage needed for aspiring buyers to reach homeownership. Wage growth lags significantly behind the fast pace of increasing home prices which reached a rate of 8 percent on a year over year basis. Record setting income growth or an increase in homes available for sale would solve this problem and would help to bring price growth in line with income growth.