At this juncture, we have an improving US economy measured by increasing employment.  We expect a rebound in gross domestic product in the second and third quarters.  However, the US faces headwinds such as continued low oil prices affecting energy production in the U.S., a strong US dollar adversely affecting exports and a Federal Reserve that is likely to raise interest rates this year.  Housing and auto sales however are strong.

The markets seem to be preoccupied with the FED and we’ve seen interest rates moving up the past few weeks.  This week the International Monetary Fund asked the FED to delay rate hikes until 2016 but I doubt this will affect the FED’s decision.  We are still looking at September to December for the first rate hike.  Although these are likely to be small and gradual.  The FED will look at both employment and prices.  While we are seeing good employment numbers, inflation is still well below the FED’s target of 2%.

This week saw an OPEC meeting and the result was no change in production limits.  Also, the situation in Greece drags on with some agreements and compromise but still significant differences.  A lot of economic data was released.  US Stocks were slightly lower on the week.  Treasury prices fell sharply as yields rose in anticipation of the FED’s rate increase.  Commodity prices fell.  In economic news:

• The Commerce Department reported:
  • Consumer spending decreased by 0.1% in April while personal income rose 0.4%. March’s consumer spending was revised upwards from 0.4% to 0.5%.
  • The personal savings rate increased from 5.2% in March to 5.6% in April.
  • The personal consumption expenditures price index, which is the FED’s preferred gauge of inflation rose 0.1% in April, the smallest increase since October 2009. Excluding the volatile food and energy sectors prices in April were 1.2% higher than a year ago.
  • The US trade gap narrowed in April, shrinking 19.2%, the sharpest drop in over six years. Keep in mind that March saw a huge increase after the resolution of the West Coast port strike.  US exports rose 1% in April but are down 2.6% from a year ago due to the strong dollar.  April imports were down 3.6% from a year ago.
• The Institute for Supply Management reported:
  • S. manufacturing rose in May to 52.8 from 51.5 in March and April. Anything over 50 represents expansion and the figures represent an acceleration in May.  All components of the index rose in May.
  • Inventories rose to 51.5 from 49.5 in April.
  • Non-Manufacturing, services sector activity, fell to 55.7 in May from 57.8 in April. This was the lowest level in 12 months.
• The US Labor Department reported:
  • First time claims for unemployment in the prior week fell 8,000 to 276,000. The four week moving average of claims rose 2,750 to 274,750.
  • Productivity fell a seasonally adjusted 3.1% annual rate in the first quarter. The decrease was blamed on the first quarter contraction of growth.  Year over year productivity rose 0.3%
  • Non-farm US payrolls rose a seasonally adjusted 280,000 in May much more than expected. This robust figure had the largest gains in non-manufacturing such as business services, leisure, hospitality and health care.  The unemployment rate actually increased from 5.4 to 5.5% as more people joined the workforce.  April’s jobs gains were revised from 223,000 to 221,000 and March was revised up from 85,000 to 119,000.
  • Wages rose 1.3% in May, more than expected. Year over year wages increase 2.3%.

These are the opinions of Loren Rex and Erik Smtih and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.