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Rising Rates, New Tariffs, Mixed Stock Results

FED, NEW TARIFFS GET WALL STREET’S ATTENTION

As expected, the Federal Reserve adjusted the target range on the federal funds rate to 1.75%-2.00% on Wednesday. The central bank’s latest dot-plot projection, however, raised some eyebrows: it showed four interest rate increases planned for 2018 instead of three. The median forecast of Fed officials puts the benchmark interest rate at 2.4% at the end of this year, on the way to a peak of 3.4% in 2020. Friday morning, the Trump administration announced new 25% tariffs on at least $34 billion of Chinese imports. Hours later, China retaliated, declaring that it would levy 25% import taxes on a minimum of $34 billion of goods from America. The U.S. and China both plan to implement their new tariffs on July 6.1,2

YEARLY INFLATION REACHES 2.8%

The latest Consumer Price Index shows the highest 12-month inflation reading in six years; the core CPI (which leaves out food and fuel costs) rose 2.2% in the year ending in May. Both the headline and core CPI were up 0.2% last month. Wholesale inflation, as measured by the Producer Price Index, increased 0.5% in May.3,4

AN IMPRESSIVE ADVANCE FOR RETAIL SALES

According to the Department of Commerce, the May gain was 0.8% (0.9% with car and truck buying factored out). This follows an April improvement of 0.4% (revised up from 0.3%).4

A MIXED WEEK FOR THE MAJOR INDICES

Once again, the Nasdaq Composite outran the Dow Jones Industrial Average

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Q2 GDP Expectations Surge.

100 MONTHS OF GROWTH FOR SERVICE BUSINESSES

The Institute for Supply Management announced this milestone as it revealed a 58.6 May reading for its non-manufacturing purchasing manager index. That excellent reading was well north of the 56.8 mark seen in April. Fourteen of the fifteen service industries followed by the PMI reported expansion in May; the information sector was the only outlier.1

Q2 GDP OUTLOOK BRIGHTENS

Is the economy now expanding at the rate of 5% a year? The bold new estimate by the Federal Reserve Bank of Atlanta nearly says as much. The Atlanta Fed projects a 4.6% GDP reading for Q2. The first quarter saw a 2.2% rate of growth, and the economy grew 2.3% for all of 2017.2

SOCIAL SECURITY TO TAP ITS RESERVES THIS YEAR

Last week, Social Security’s trustees announced that the program needs to dip into its trust funds for the first time in 36 years in order to fully fund itself in 2018. In their annual report, the trustees noted that monthly benefits could be reduced

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Strong Job Growth Continues

HIRING, HOUSEHOLD SPENDING STRENGTHEN

Net job growth surprised to the upside in May: companies added 223,000 more workers than they laid off or fired. At 3.8%, the unemployment rate is now where the Federal Reserve thought it would be at the end of 2018, and it is also at its lowest level since April 2000. Underemployment, as measured by the Department of Labor’s U-6 jobless rate, fell 0.2% in May to a 17-year-low of 7.6%. Year-over-year wage growth was measured at 2.7% in this latest labor market snapshot. In another sign of a strong economy, the Department of Commerce said that consumer spending grew by a noteworthy 0.6% in April, with consumer incomes rising 0.3%.1,2

CONSUMER CONFIDENCE REBOUNDS

The Conference Board’s closely watched consumer confidence index improved to 128.0 in May, rising 2.4 points from its April mark. Analysts polled by MarketWatch expected a reading of 127.5.2

FACTORY SECTOR CONTINUES TO BOOM

Growth picked up in U.S. manufacturing last month, according to the Institute for Supply Management’s May purchasing manager index. At an impressive reading of 58.7, the PMI was 1.4 points better than it was in April and matched its average reading over the past 12 months. The index has not been below 56.5 for a year. Any reading above 50.0 indicates expansion.3

WALL STREET SHRUGS AT NEW IMPORT TAXES

The Trump administration is following through on its pledge to impose tariffs

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18-Year Low for Unemployment Rate

JOBLESS RATE HITS 18-YEAR LOW

Unemployment fell to 3.9% in April, the Department of Labor said Friday – the smallest percentage seen since late 2000. Additionally, the U-6 underemployment rate declined to 7.8%, a 17-year low. Payrolls expanded with 164,000 net new jobs last month; the economy has created an average of 200,000 jobs a month so far in 2018, compared to 177,000 a month in 2017.1

PERSONAL SPENDING IMPROVES 0.4%

The March gain reported by the Bureau of Economic Analysis was the best since the 0.5% advance in December. Personal wages increased 0.3% for March, replicating the gain from February.2

ISM INDICES RETREAT

Purchasing manager indices at the Arizona-based Institute for Supply Management showed the factory and service sectors of the economy cooling down in April from a red-hot degree of expansion. ISM’s manufacturing PMI fell 2.0 points to 57.3, and its non-manufacturing PMI dropped by the same amount to 56.8.3

NASDAQ RISES; DOW, S&P FALL SLIGHTLY

All three major Wall Street indices rallied

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Q1 Economic Growth Exceeded Expectations

MAIN STREET SUSTAINS ITS OPTIMISM

America’s two most respected consumer confidence indices just improved. The University of Michigan’s final April household sentiment gauge rose a full point from its initial reading to 98.8 last week, and the Conference Board’s index came in at a great 128.7 for April – 1.7 points higher than its March mark.1

HOW FAST DID THE ECONOMY GROW IN Q1?

According to the Department of Commerce, the annualized pace of growth was 2.3%. That beat the 2.0% consensus forecast from MarketWatch. The Federal Reserve believes the economy will expand 2.7% this year.1,2

SPRING BRINGS THE HOME BUYERS OUT

The National Association of Realtors says that existing home sales rose 1.1% in March; the median sale price was $250,400, 5.8% higher than last year. Census Bureau data shows a 4.0% advance for new home buying last month.3

A SLIGHT WEEKLY RETREAT FOR EQUITIES

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