Weekly Economic Update

(+) Like its manufacturing counterpart the previous week, the non-manufacturing ISM improved more than expected for July, from 52.2 to 56.0, outperforming the median consensus estimate of 53.1.  Core business activity improved to over 60, coupled with gains in new orders; however, employment declined slightly.  The reading points to continued and strengthening economic activity, as has been anticipated for the 2nd half of this year (at least relative to the first half).

(+) The U.S. trade deficit narrowed by -22% in June to -$34.2 billion, which was sharply narrower than the forecasted -$43.5 bill and its tightest level in four years.  This resulted from an increase in exports (+2.2%), led by strong gains in consumer goods; and a decline in imports (-2.5%).  The imports decline was largely due to increasingly lower purchases of petroleum (-13% over the past year) and electronic goods, such as cell phones.  This better-than-expected export activity may serve as a slight boost to revisions of 2nd quarter GDP growth results.

(+) The July Federal Reserve Senior Loan Officer Opinion Survey of 73 domestic banks and 22 U.S. branches of foreign banks showed a continued easing in commercial/industrial lending standards—as well as an improvement in loan demand during the three months since the last survey.  Banks generally reported an easing in standards to mid-to-large firms, as well as smaller firms (albeit the latter to a lesser degree).  Most importantly, virtually no banks were tightening standards.  (As a side note:  this may be part of the problem with the recovery, in that smaller businesses have not been getting the benefits of a pass-through of credit to the same extent larger firms are, which has carried forward to a reluctance to expand and hire.)

Similarly, in commercial real estate, lending standards eased and demand rose strongly.  On the residential side, lending standards eased a bit for prime mortgages but tightened in the sub-prime space.  However, an underlying theme also showed that home equity loan standards haven’t eased and banks remained somewhat picky in reviewing home borrower creditworthiness (not a surprise post-recession).  In other consumer loans, such as auto and credit cards, lending standards eased while demand increased just slightly.  Overall, this report showed a general theme of higher business/consumer demand of most types of loans, while banks were continuing to show a tendency to ease standards—both of these trends are pro-growth.  Based on other data, consumer credit card balances are see-sawing back and forth month to month with no clear trend—however, it appears most consumers aren’t significantly increasing their credit card use.

(-) Wholesale inventories for June came in weaker than anticipated, falling -0.2% versus an expected +0.4% increase.  Additionally, May’s growth was also revised down by just over half a percent.  The primary catalyst for this drop was in the ex-petroleum category.  On one hand, this lower ratio of inventories-to-sales could signify better production numbers going forward, as needed to catch up with any sales increases that might occur.

(-) The June government JOLTS report of job openings and labor turnover was mixed, with more-than-expected job openings (3,936 vs. 3,895 forecast), but hiring was less robust and fell a few tenths of a percent relative to the previous month.  Layoff and discharge rates declined to just over 1%, so were also headed in a positive direction and ‘quit rates’ were unchanged (the latter is something the Fed watches as a measure of employment sentiment).

(+) Initial jobless claims for the Aug. 8 week rose a bit to 333k from a revised 328k the prior week, but were lower than the expected consensus 335k figure.  No special factors stood out in this release as the summer adjustments appear to be fading.  Continuing claims for the July 27 week rose to 3,018k, higher than the 2,950k expected.

Period ending 8/9/2013

1 Week (%)

YTD (%)

DJIA

-1.35

19.54

S&P 500

-0.98

20.14

Russell 2000

-1.06

24.37

MSCI-EAFE

0.34

12.43

MSCI-EM

-0.42

-9.84

BarCap U.S. Aggregate

0.14

-2.16

U.S. Treasury Yields

3 Mo.

2 Yr.

5 Yr.

10 Yr.

30 Yr.

12/31/2012

0.05

0.25

0.72

1.78

2.95

8/2/2013

0.04

0.30

1.36

2.63

3.69

8/9/2013

0.05

0.32

1.36

2.57

3.63

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