The U.S. stock market finished the week relatively flat as better than expected jobs data was offset by Federal Reserve Chairman Jerome Powell’s concerns on slowing inflation. Interest rates edged slightly higher as the 10-year treasury yield increased from 2.50% to 2.53%, while the spread between the 10-year treasury yield and the 2-year treasury yield was unchanged at 0.21%. The price of gold dropped 0.65% to $1,280 an ounce as the Fed’s decision to leave the Fed’s fund rate unchanged outweighed the boost it received from better than expected jobs data. Meanwhile the U.S. Dollar Index (DXY), which typically moves inversely to the price of gold, also dropped from 98.03 to 97.48 as better than expected jobs data outweighed the Fed’s decision to leave the Fed’s fund rate unchanged. The price of crude oil fell 1.56% to $61.85 a barrel as U.S. crude oil inventories hit their highest levels since September of 2017.
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This Week’s Economic Highlights
- Consumer spending, which accounts for nearly 70% of U.S. economic activity, realized its largest one month increase in ten years of 0.9% in March. Meanwhile personal incomes only increased a moderate 0.1% in March, which dropped the savings rate to 6.5% as consumer spending outpaced personal income.
- Core Personal Consumption Expenditure (PCE), the inflation indicator that is most closely followed by the Federal Reserve, increased 0.1% in March. Year-over-year, core PCE has grown at a rate of 1.6%, its lowest since September of 2017.
- The ISM manufacturing index continues to trend lower as it drops from 55.3% in March to 52.8% in April. (Any reading above 50% indicates more manufacturing companies are expanding than shrinking.)
- The Federal Reserve Open Market Committee (FOMC) unanimously voted to leave the Fed’s Fund rate range unchanged at the 2.25% to 2.50% level. In support of their decision, many Fed officials feel that the economy is growing “at a solid rate”, despite a recent slowdown in inflation.
- Initial unemployment claims were unchanged at 230,000 for the week ending April 27th after spiking by 37,000 the week prior. However, the more stable four week moving average of initial claims increased by 6,500 to 212,500. Continuing unemployment claims, which lag initial claims by a week, rose a slight 17,000 to 1.67 million.
- The U.S. added a solid 263,000 jobs in April and dropped the unemployment rate to a 49-year low of 3.6%. Meanwhile wage growth, as measured by the average hourly pay, continues to grow at an above average annual rate of 3.2% and currently sits at $27.77 an hour.
The Federal Reserve Open Market Committee (FOMC) have been discussing a new form of quantitative easing which they refer to as a “standing repo facility”. The standing repo facility would allow banks to exchange treasuries for their reserves and would aid in the effort to shrink the Federal Reserve balance sheet and increase liquidity during difficult economic times.