What I Saw Last Week

US Construction Spending was basically flat in May (I had forecast a 0.3% increase) following an upwardly revised 0.7% decline (from -1.4%) in April.

Con Spend

Non-residential spending was up 0.3% month-over-month, so the drag in May was residential spending, which declined 0.5%.

Total private construction spending was down 0.6%, with declines in both residential spending (-0.6%) and non-residential spending (-0.7%). Despite the decline, private construction spending was up 6.2% year-over-year.

Total public construction spending jumped 2.1%, paced by a 1.9% increase in non-residential spending (which accounted for 98% of public construction spending). Non-residential spending made up the difference and increased 9.2% month-over-month. On a year-over-year basis, public construction spending was down 0.6%.

The takeaway from the report is that, with private residential spending down in May, housing market growth will continue to be pinched by limited supply.

U.S. Non-Farm Payrolls rose by 222,000 in June – well above my call for an increase of 173,000.


Over the past three months, job gains have averaged 194,000 per month as May payrolls were revised up to 152,000 from 138,000 and the April number was also revised higher to 207,000 from 174,000.

With payroll gains exceeded 200,000 in June, and upward revisions to payroll numbers for April and May, it would be natural to expect to see average hourly earnings increasing; however, this was not the case and failed to corroborate the Fed’s expectation that a tight labor market will ultimately produce stronger wage inflation.

June average hourly earnings increased 0.2% after increasing a downwardly revised 0.1% (from 0.2%) in May. Over the last 12 months, average hourly earnings have risen by just 2.5%, versus 2.4% for the 12-month period ending in May.

The takeaway from the report is that the weak year-over-year growth in average hourly earnings is likely to give the Fed some cause for pause when considering the timing of its next rate hike.

The June Unemployment Rate ticked back up to 4.4% – I had expected it to have remained at 4.3%.

U RAte

Notably, the U-6 unemployment rate, which accounts for both unemployed and underemployed workers, increased to 8.6% from 8.4% in May.

The takeaway here is that the increase in the unemployment rate was a function of more people (372,000) entering the labor force in search of work.

What to Watch for This Week

Consumer Credit rose by $8.1B in April and the May number should be higher with total credit increasing by $12.7B.

U.S. Retail Sales were a disappointment in May when they contracted by 0.3% as consumers remained guarded with their discretionary spending.  The June number should be modestly better and I anticipate a modest 0.1% increase.

Inflation, as measured by the Consumer Price Index, has been essentially benign and I expect this to continue as wage growth is clearly not apparent.  As such, it is likely that CPI will have remained static in June.

Consumer Sentiment ended June at an index level of 95.1.  The early July number is unlikely to have moved at all.