The week yielded a mixed bag of economic data indicating some strength in America’s recovery. A new Department of Labor study showed unemployment claims rose 20,000 to 294,000, ahead of economists’ expectations. As wages have risen and job openings continue to soar, economists expected more employers to find qualified workers and boost both incomes and the employment rate.
The Federal Reserve has boosted one estimate of second quarter GDP as housing and small business data improves. The Atlanta Fed’s GDPNow indicator rose 50 basis points to 2.2% as Fed economists cited expectations for higher consumer spending and fixed investment.
The upgrade comes amidst a report from CoreLogic, a real estate research firm, which showed a tremendous decline in foreclosures. Total foreclosures in America fell 14.9% on a year-over-year basis in March, with just 427,000 foreclosures on the market. That represents 1.1% of homes.
As job growth remains extremely weak and labor market indicators stay negative, the Federal Reserve is considering ignoring inflation in the short-term as it sets monetary policy. Federal Reserve Bank of Chicago President Charles Evans said in a conference in London that the central bank might need to ignore high inflation in setting its monetary policy.
“Overshooting a little bit just to make sure you get to 2% strikes me as quite sensible,” he said, while acknowledging that inflation has been above the Federal Reserve’s 2% target for several months.
In an increasing sign that U.S. workers cannot afford to buy houses as much as they used to, unemployment claims rose as mortgage rates fell, suggesting demand for houses is dropping as employment declines.
A surprising jump in factory orders may reverse a decline in U.S. exports, but weak demand remains throughout America and the world.
The trade balance deficit between America and the rest of the world fell 14%, due largely to a major decline in exports, which fell nearly 1% from February, as foreign markets continue to struggle with a strong dollar, low commodity prices, and stagnating growth. Meanwhile, cash-strapped Americans are buying fewer foreign-made goods, as imports fell 3.6% from the prior month.
Home prices are going up even more in America, but wages are not rising for most middle class Americans. A new study by CoreLogic shows a 6.7% year-over-year increase in home prices in March. Home prices have gone up in every month over the last four years, according to CoreLogic.
Amid weakening manufacturing activity and poor economic growth in the beginning of the year, the United States Treasury has decided to pay less debt in the coming months.
The first quarter of 2016 saw America paying $112 billion of its bills, but because of higher spending than expected and lower receipts from a weak tax base, the Treasury’s coffers are being pressured. That means the federal government will pay just $65 billion of its debts in the second quarter, down significantly from the $112 billion it paid in the first three months of 2016.
After a major decline in economic growth, further indicators of weakness in the U.S. economy are coming from various studies. The Chicago Purchasing Managers Index (PMI) fell to 50.4 in April, indicating that activity just barely expanded. That was far above the expectation that the index would almost hold its previous reading of 53.6.
GDP growth in the United States fell significantly, growing just 0.5% in the first quarter of 2016. Despite economists’ predictions of continued economic strength, real GDP growth was just 0.5% in the first three months of this year after rising 1.4% in the fourth quarter of 2015. Economists had expected 0.7% growth after downgraded estimates throughout the quarter, largely due to weak data from the housing, manufacturing, and export sectors.
With home sale growth weakening and America’s trade balance worsening, the Federal Reserve announced it would not increase interest rates.
