Encouraging Economic News Will Keep Trade Shows Humming
Oceanside, CA - Economists breathed a sigh of relief after the latest U.S. retail sales report reflected better data and higher performance. Retail sales in May surged 1.2%, and April and March numbers were revised upward, providing evidence that consumers are coming out of hibernation. Also, the May employment report exceeded expectations, as did a slew of other healthy reports. “All this good news supports a solid Second Quarter rebound from the dismal First Quarter,” said Frank Chow, chief economist for Trade Show Executive Media Group.
Looking at the details, sales at most major retail sectors flourished, with auto dealers and gasoline stations posting the strongest sales. Excluding auto (2%) and gas (3.7%), sales climbed a solid 0.7%. Also, retail sales rose 0.2% in April instead of being flat and March was revised up from 1.1% to 1.5%. Some economists cautioned the early Memorial Day holiday gave shoppers an extended period, so sales results may not be as good as they appear. Still, the strength of the increase was a pleasant surprise to most analysts, Chow said.
Retail sales are about one-third of consumer spending and provide an early indication of how the rest of consumer spending will perform. In June, the Atlanta Fed forecast of 2Q GDP growth shot up from 1.1% to 1.9% due to the May retail report. Moreover, retailers have been adding new workers at a steady clip, a signal they expect sales to remain firm or better in the coming months, said Chow. They’ve hired 135,000 workers through the first five months of 2015, well ahead of last year’s pace.
Speaking of jobs, May payrolls climbed by 280,000 — the most in five months, bringing the average monthly jobs increase over the last 12 months to 255,000, up 23% from a year ago. The gains were distributed broadly across industries: professional and business services, leisure and hospitality, health care, construction, transportation, warehousing and finance. The few weak sectors included manufacturing, which exhibited little change, and mining, including oil and gas extraction, which reflected a decline.
The separate Household Survey by the Bureau of Labor Statistics (BLS) reported the unemployment rate ticked up from 5.4% to 5.5%, mainly due to 397,000 people entering the labor force, causing the participation rate to improve by 0.1% to 62.9%. “Together, both results were encouraging,” said Chow, “but still far from pre-recession levels.” He pointed out that in May 2007, the unemployment rate was 4.4% and the participation rate was at 66%.
A Breakout Trend?
Hidden inside the BLS report is a potential breakout trend: young people, under the age of 25, accounted for 76% of the job gains and an astounding 96% of the labor force participation increase. Just over half the jobs created went to young women. “If that development can be sustained, that means more households will be forming, paying off student loans and buying a car or house,” said Chow.
“Young people — especially women — have been mostly left out of the hiring boom the past few years,” Chow noted. The current unemployment rate for teenagers is 17.9%, and over 10% for adults between 20 and 25. Participation rates for young people fell during the Great Recession from 60% to around 55%.
More Encouraging News
Even more important, worker pay accelerated in May. Average hourly earnings from private payrolls increased 0.3% from the prior month and up 2.3% from May 2014, exceeding the average gain during the recovery. “Though the U.S. is still far from full employment levels, such recent job and wage gains reveal corporate executives are convinced the economy is regaining its footing following the Q1 slump,” said Chow. The only downside is that rising employment may encourage the Fed to raise rates sooner than expected to ward off inflation.
A Rebounding Economy
Other reports that support a rebounding economy in the months ahead:
- The JOLTs Report posted a record 5.4 million job openings in April.
- Builders broke ground on an annualized 1.14 million homes in April, the most since November 2007.
- Factory orders improved in May - the fastest pace in five months, according to the Institute for Supply Management.
- The University of Michigan’s Consumer Sentiment Index jumped to 94.6 in June after hitting a six-month low of 90.7, a sign that families may ramp up spending.
- The trade gap tumbled (19.2)% in April as exports rose slightly and imports fell.
Meanwhile, the rest of the world is taking a deep breath amidst escalating geopolitical uncertainty. In Europe, debt-laden Greece is pushing the Eurozone to the edge of disunion. Athens has been scrambling to reach a bailout deal with international lenders since the Syriza-led anti-austerity government was elected in January. The Greece crisis has slammed global markets and sent the country’s economy back into recession with Q1 unemployment at 26.6%.
Islamic terrorist groups have started wars and barbaric hostilities in the Middle East and Africa:
- ISIS continues to conquer more territory in Iraq and Syria.
- Militant Boko Haram is attempting to overthrow the government in Nigeria.
- Several jihadist groups including ISIS, al-Qaeda and Ansar al-Sharia are joining a civil war in Libya.
- Al-Qaeda in the Arabian Peninsula (AQAP) and Houthi rebels have brought Yemen to the brink of collapse.
- Taliban insurgents continue to wage war in Afghanistan and Pakistan.
Russia is at war in Ukraine, supplying assistance to separatist forces despite sanctions from the U.S. and NATO allies. Iran continues to expand its nuclear capabilities even as it negotiates to limit the program. Finally, can China successfully navigate a softer landing as it transitions to a domestic-driven economy? “All of these issues have huge economic implications,” Chow warned.
Despite the global turmoil, the U.S. economy seems to be slowly strengthening. Although business investment weakening, it looks like consumer spending, jobs and housing will pick up the slack to support a continuation of slow growth. “The good news for trade show organizers is that corporate investment in shows will not likely change anytime soon,” Chow said.
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