Market Summary: Quarterly Review April - June 2023

Latest Economic Reports

• Employment: Employment rose by 339,000 in May from April, in line with an average monthly gain of 341,000 over the prior 12 months. In May, employment continued to trend upward in professional and business services, health care, government, construction, transportation and warehousing, and social assistance. The unemployment rate rose 0.3 percentage point to 3.7%. In May, the number of unemployed persons rose by 440,000 to 6.1 million. The employment-population ratio, at 60.3%, and the labor force participation rate, at 62.6%, were little changed from the previous month. Both measures have shown little net change since early 2022. In May, average hourly earnings increased by $0.11, or 0.3%, to $33.44. Over the past 12 months ended in May, average hourly earnings rose by 4.3%. The average workweek edged down 0.1 hour to 34.3 hours.
• There were 239,000 initial claims for unemployment insurance for the week ended June 24, 2023. The total number of workers receiving unemployment insurance was 1,742,000. By comparison, over the same period last year, there were 213,000 initial claims for unemployment insurance, and the total number of claims paid was 1,340,000.
• FOMC/interest rates: The Federal Open Market Committee maintained the federal funds target range rate at the current 5.00%-5.25% in June. The Committee essentially decided to assess the effects of prior rate increases. However, the FOMC indicated that more rate hikes are likely, noting that inflation remained elevated, while economic activity expanded at a modest pace and job gains have been robust. Overall, the FOMC will base its decisions on available data, and "will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments." The summary of economic projections has the federal funds rate at 5.6% in June from 5.1% in March, which suggests the fed interest rate will be increased by 50.0 basis points by the end of 2023.
• GDP/budget: Economic growth slowed minimally in the first quarter, as gross domestic product increased 2.0%, according to the third and final estimate from the Bureau of Economic Analysis. GDP rose 2.6% in the fourth quarter. The deceleration in first-quarter GDP compared to the previous quarter primarily reflected downturns in private inventory investment and residential fixed investment. Consumer spending, as measured by personal consumption expenditures, rose 4.2% in the first quarter compared to a 1.0% increase in the fourth quarter. Consumer spending on long lasting durable goods jumped 16.3% in the first quarter after decreasing 1.3% in the prior quarter. Spending on services rose 3.2% (1.6% in the fourth quarter). Nonresidential fixed investment increased 0.6% after climbing 4.0% in the fourth quarter. Residential fixed investment fell 4.0% in the first quarter, significantly better than the 25.1% decrease in the fourth quarter. Exports increased 7.8% in the first quarter, following a decrease of 3.7% in the fourth quarter. Imports, which are a negative in the calculation of GDP, increased 2.0% in the first quarter after declining 5.5% in the previous quarter. Consumer prices increased 4.1% in the first quarter compared to a 3.7% advance in the fourth quarter. Excluding food and energy, consumer prices advanced 4.9% in the first quarter (4.4% in the fourth quarter).
• The federal budget had a $240.3 billion deficit in May, well above the May 2022 deficit of $66.2 billion. The deficit for the first eight months of fiscal year 2023, at $1,164.9 trillion, is much higher than the $426.2 billion deficit over the same period of the previous fiscal year. In May, government receipts totaled $307.5 billion for the month and $3.0 trillion for the current fiscal year. Government outlays were $547.8 billion in May and $4.2 trillion through the first eight months of fiscal year 2023. By comparison, receipts in May 2022 were $389.0 billion and $3.4 trillion through the first eight months of the previous fiscal year. Expenditures were $455.2 billion in May 2022 and $3.8 trillion through the comparable period in FY22.
• Inflation/consumer spending: According to the latest Personal Income and Outlays report, the personal consumption expenditures price index edged up 0.1% in May and 3.8% since May 2022. Prices excluding food and energy advanced 0.3% in May, following increases of 0.4% in April and 0.3% in March. Prices for goods decreased 0.1%, while prices for services increased 0.3%. Food prices increased 0.1% and energy prices decreased 3.9%. Since May 2022, consumer prices for food increased 5.8%, while energy prices declined 13.4%. Personal income rose 0.4% in May, 0.1 percentage point greater than the April increase. Disposable personal income increased 0.4% in May after advancing 0.3% in April. Consumer spending increased 0.1% in May, after rising 0.6% in the previous month.
• The Consumer Price Index rose 0.1% in May after increasing 0.4% in April. Over the 12 months ended in May, the CPI advanced 4.0%, down from 4.9% for the year ended in April. Excluding food and energy prices, the CPI rose 0.4% in May and 5.3% over the last 12 months. Contributing to the May CPI advance were increases in prices for shelter (0.6%) and used cars and trucks (4.4%). In May, food prices increased 0.2% and 6.7% since May 2022. Energy prices fell 3.6% in May and are down 11.7% over the 12 months ended in May.
• Prices that producers received for goods and services decreased 0.3% in May, following a 0.2% increase in the previous month. Producer prices increased 1.1% for the 12 months ended in May. The Producer Price Index saw prices for goods fall 1.6%, while prices for services increased 0.2%. Producer prices less foods, energy, and trade services were unchanged in May after increasing 0.1% in the previous month. Prices less foods, energy, and trade services advanced 2.8% for the year ended in May after increasing 3.3% from the 12 months ended in April.
• Housing: Sales of existing homes increased 0.2% in May. Since May 2022, existing-home sales dropped 12.7%. According to the report from the National Association of Realtors®, job gains, a dearth of inventory, and fluctuating mortgage rates have contributed to the decline in sales of existing homes. The median existing home price was $396,100 in May, up from $385,900 in April but lower than the May 2022 price of $408,600. In May, unsold inventory of existing homes represented a 3.0-month supply at the current sales pace, up from the April pace of 2.9 months. Sales of existing single-family homes dropped 0.3% in May and 20.0% from May 2022. The median existing single-family home price was $401,100 in May, up from the April price of $390,200 but well below the May 2022 price of $415,400.
• New single-family home sales advanced in May, climbing 12.2%, marking the third consecutive monthly increase. Sales were up 20.0% from a year earlier. The median sales price of new single-family houses sold in May was $416,300 ($402,400 in April). The May average sales price was $487,300 ($495,600 in April). The inventory of new single-family homes for sale in May decreased to 6.7 months, down from 7.6 months in April.
• Manufacturing: Industrial production declined 0.2% in May after increasing 0.5% the previous month. Manufacturing increased 0.1% in May, bolstered by 0.3% increase in durables, which was offset by a 0.1% decrease in nondurables. In May, mining fell 0.4%, while utilities dropped 1.8%.The decrease in mining was driven primarily by decreases in coal mining and support activities (in particular, oil and gas well drilling).The output of utilities declined for the second consecutive month, as electric utilities fell in May, while natural gas utilities remained unchanged. Total industrial production in May was 0.2% above its year-earlier level. Major market groups posted mixed results in May. Notable gains were recorded in defense and space equipment and construction supplies. Most other major market groups recorded modest declines.
• New orders for durable goods increased 1.7% in May after increasing 1.2% in April. New orders for transportation equipment led the overall increase, advancing 3.9% in May, marking the third consecutive monthly advance. Excluding transportation, new orders increased 0.6% in May. Excluding defense, new orders rose 3.0%. Over the past 12 months, new orders for durable goods have increased 3.5%.
• Imports and exports: May saw both import and export prices decrease. Import prices fell 0.6%, following a 0.3% increase in April. Prices for imports declined 5.9% over the past year, the largest 12-month drop since the index declined 6.3% for the 12 months ended in May 2020. Import fuel prices decreased 6.4% in May, following a 4.1% jump in April. The May decline in import fuel prices was the largest monthly drop since August 2022. Nonfuel import prices edged down 0.1% in May after being unchanged in the previous month. Lower prices in May for nonfuel industrial supplies and materials and foods, feeds, and beverages more than offset higher prices for automotive vehicles and capital goods. Nonfuel import prices declined 1.6% over the past year. Export prices dropped 1.9% in May, the largest monthly decrease since December 2022. Falling prices for both agricultural and nonagricultural exports contributed to the overall decline in export prices in May. Export prices fell 10.1% for the year ended in May, the largest 12-month decline since the series was first published in September 1984.
• The international trade in goods deficit fell $6.0 billion, or 6.1%, in May over April. Exports of goods for May were $1.0 billion, or 0.6%, below April exports. Imports of goods were $6.9 billion, or 2.7%, less than April imports. The May decrease in exports was mainly attributable to declines in other goods (-13.2%) and foods, feeds, and beverages (-14.2%). The decrease in May imports was largely driven by a 7.3% decline in consumer goods.
• The latest information on international trade in goods and services, released June 7, was for April and revealed that the goods and services trade deficit was $74.6 billion, an increase of 23.0% from the March deficit. April exports were $249.0 billion, 3.6% less than March exports. April imports were $323.6 billion, 1.5% above March imports. For the 12 months ended in April, the goods and services deficit decreased 23.9%. Exports increased 5.8%, while imports decreased 2.3%.
• International markets: China's post-pandemic economic recovery showed new signs of weakness in June. Manufacturing in China contracted for the third straight month in June, while the services sector also weakened. The latest data likely prompted the Chinese government to lower the one-year loan prime rate by 10 basis points. With inflationary pressures continuing to rise, the Bank of England hiked interest rates by 50 basis points in June, marking the 13th consecutive interest rate increase. Elsewhere, in Germany, manufacturing declined in both goods and services sectors. What was often the fulcrum of the German economy, weak global demand has impacted German exports. For June, the STOXX Europe 600 Index was flat; the United Kingdom's FTSE slid 0.8%; Japan's Nikkei 225 Index gained 5.3%; and China's Shanghai Composite Index dipped 0.9%.
• Consumer confidence: The Conference Board Consumer Confidence Index® increased in June to 109.7, up from a revised 102.5 in May. The Present Situation Index, based on consumers' assessment of current business and labor market conditions, rose to 155.3 in June, higher than the May reading of 148.9. The Expectations Index, based on consumers' short term outlook for income, business, and labor market conditions, advanced to 79.3 in June from 71.5 in May. According to the Conference Board's report, the Expectations Index has remained below 80.0, the level associated with a recession within the next year, since February 2022, with the exception of a brief uptick in December 2022. However, June's reading was just a shade below 80.0 and up sharply from the prior month's rate.
  
  

Eye on the Quarter Ahead

During the third quarter, investors will likely focus on inflation data and the Federal Reserve's response. Concerns over slowing economic activity, both here and globally, also will influence the market going forward.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.

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