Macroeconomic Overview: Following the release of forecasts from the IMF in April, the World Bank released predictions for global economic growth in early June. World Bank figures are lower than those issued by the IMF (World Bank estimates for global GDP are 2.4% for 2016, 2.7% for 2017, 2.9% for 2018 parallel figures for the IMF are 3.1% for 2016, 3.5% for 2017, and 3.6% for 2018), but are highly correlated.
World Bank estimates suggest that the global economy could expand at its fastest rate since the immediate wake of recession next year. Higher rates of growth in advanced economies are expected to translate into stronger demand for goods from emerging markets and therefore to boost economic growth globally. The World Bank emphasized downside risks to their estimates. Among the risks identified were heightened trade protectionism, financial market disruption, and weakened rates of long-term potential growth.
Although job growth has been inconsistent in 2017, most economic indicators remain positive for the U.S. economy. Consumer confidence is near its highest level in 15 years and the unemployment rate is at its lowest level since the early 2000s.
Employment: The U.S. economy was estimated to have added 138,000 jobs in May. This is a significantly lower reading than the one from a month ago, which initially estimated job growth in April to be 211,000. This month's revisions lowered the figure for April to 174,000 (-37,000) and lowered the figure for March from 79,000 to only 50,000 (-29,000). The average monthly expansion in payrolls for 2017 is 162,000. Over the same five months one year ago, the average was 157,000. In the rest of the year last year, job growth accelerated to an average over 200,000 per month, lifting the average for all of 2016 to 187,000.
The unemployment rate decreased slightly last month, dropping from 4.4% to 4.3%. Since January, the unemployment rate has fallen 0.5 percentage points. The current level is marginally below the lowest readings posted between 2006 and 2007, during the last time period of low unemployment, and is the lowest reading since 2001. Despite being at the lowest levels since the early 1970s, initial claims for unemployment insurance, a proxy for layoffs, continue to trend downward and this has been a factor pulling the unemployment rate lower.
Wage growth slowed for the second consecutive month in May, and was below the 2.5% level for the first time since the spring of 2016. Generally, when the unemployment rate falls to low levels, wages tend to increase due to increased competition for labor. However, a characteristic of the current economic expansion, has been slow wage growth. For the past several years, consumer spending has been helped by lower than average rates of inflation. With inflation low, consumer discretionary income was able to rise even though wages were not increasing much. Since the fall of 2016, inflation rates shifted higher. With wage growth flat to lower, this has meant slower growth in discretionary income. This may explain the recent slow rates of growth in consumer spending.
Consumer Confidence & Spending: The Conference Board's Index of Consumer Confidence declined for a second consecutive month in May, losing 1.5 points in posting a reading of 117.9. However, even with recent declines, last month's value still ranks among the highest values recorded in the past 15 years.
In the latest available data, the Bureau of Economic Analysis indicated that overall consumer spending rose 0.2% month-over-month in April (inflation-adjusted data). This was the second consecutive month where spending increased (+0.5% in March), following two months of contraction in January (-0.3%) and February (-0.1%). In April, overall spending was 2.6% higher than a year ago.
Expenditures on clothing also posted consecutive month-over-month declines in January (-0.9%) and February (-2.7%), but were higher in March (+1.8%) and April (+0.7%). Year-over-year, apparel spending has been negative each month of 2017 (-0.3% in January, -1.4% in February, and -0.1% in March, and -0.9% in April). The weakness in consumer spending on clothing reflects only part of the challenge that many traditional apparel retailers have been facing. Another major issue is the strong growth in on-line sales, which have caused floor space to become a significant liability.
Consumer Prices & Import Data: Inverse to changes in monthly spending, retail prices for apparel declined in March (-1.0%) and April (-0.6%) after rising in January (+1.1%) and February (+1.7%). Throughout 2017, average retail prices were 0.8% higher than they were over the same time period last year. In April, the CPI for clothing was 0.5% higher than it was a year ago.
In seasonally-adjusted terms, average prices for cotton-dominant apparel imports were unchanged month-over-month in April. At their current level, average sourcing costs remain near the lowest values posted outside of the 2008/09 recession.