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Steel News October 17, 2018 04:30:10 AM

AIIS Newsletter: October 2018 Market Update

Paul Ploumis
ScrapMonster Author
The trade deficit in August, according to the BEA, reached a six-month high of $53.2 billion.

AIIS Newsletter: October 2018 Market Update

SEATTLE (Scrap Monster): The unemployment rate in September fell to its lowest point in nearly half a century as the economy continues to show signs of strength.

Although employers added only 134,000 jobs nationwide – the lowest monthly total in a year, possibly because of the impact of Hurricane Florence – the unemployment rate dropped 0.2 percentage points to 3.7 percent, a level not seen since 1969, according to the Bureau of Labor Statistics (BLS). The reduction partly resulted from the addition of 87,000 jobs created to the July and August totals.

Wages in September were 2.8 percent higher than a year earlier, down slightly from the 2.9 percent growth in August, BLS reported. Those increases are strong by post-Great Recession standards – the August growth was the highest in nine years – but they were still well below the average annual raises workers enjoyed before the downturn in the late 2000s.

With unemployment at historically low levels, wage growth improving and economic expansion in the second quarter at 4.2 percent, according to the Bureau of Economic Analysis (BEA), the Federal Reserve is expected to continue its plan, as Fed Chairman Jerome Powell described it in late September, of “gradually returning interest rates closer to the levels that are normal in a healthy economy.”

Following its Sept. 25-26 meeting, the Federal Reserve Federal Open Market Committee, noting that “the labor market has continued to strengthen and … economic activity has been rising at a strong rate,” announced a quarter-point hike in interest rates. The third increase of the year brought the target range for the federal funds rate to 2 to 2.25 percent. Notably, the Fed, in its announcement, did not describe its monetary policy as “accommodative,” as it has routinely done while rates have been low.

In early October, Powell noted that, since wages have not increased as much as might be expected given the low unemployment rate, inflation has stayed near – and often below – the Fed’s target rate of 2 percent, which has allowed the central bank to avoid rapid interest rate hikes.

“This historically rare pairing of steady, low inflation and very low unemployment is testament to the fact that we remain in extraordinary times,” Powell said.

Amid the expansion, some are warning that President Donald Trump’s approach to trade has the potential to ruin a good thing. In addition to imposing tariffs on steel and aluminum imports from around the world, Trump has placed levies on about half of the roughly half-trillion dollars in annual imports from China.

A group of business and farming representatives lamented in an Oct. 5 column in The Hill that, “In the face of these positive [economic] indicators, the administration seems determined to snatch failure from the jaws of success by escalating its trade war with our top trading partners.”

“Proponents of tariffs say they are necessary to deal with unfair trade practices committed by other countries,” they wrote. “But punitive measures have done nothing to end these practices; instead they will do more damage to American businesses, workers and consumers than they’ll ever do to the offending countries.”

While Trump has argued that the tariffs are needed to alter the United States’ balance of trade, the trade deficit in August, according to the BEA, reached a six-month high of $53.2 billion, which was close to the largest monthly difference between exports and imports during the past nine years. Compared to the first eight months of 2017, the 2018 year-to-date trade deficit is $31 billion (or 8.6 percent) higher.

The Institute for Supply Management found, from its monthly survey of supply executives for its Purchasing Managers Index, that tariffs are having a negative impact on the manufacturing sector, with the institute’s chairman of the survey committee noting, for example, that “steel and aluminum disruptions,” among other factors, “continue to limit potential.” Nevertheless, the September index of 59.8, a point and a half below the 14-year high in August, showed that confidence in the sector remains strong.

Consumer confidence, as measured by The Conference Board’s Consumer Confidence Index, reached an 18-year-high of 138.4 in September. (The index’s baseline is 100 in 1985.)

“These historically high confidence levels should continue to support healthy consumer spending, and should be welcome news for retailers as they begin gearing up for the holiday season,” the group’s director of economic indicators said.

The University of Michigan reported similar results, with its September Index of Consumer Sentiment rising nearly four points to 100.1, marking just the third time since January 2004 that the index exceeded the century mark. Researchers found, though, that there is still one concern weighing on consumers.

“Consumers anticipated continued growth in the economy and expected the unemployment rate to continue to slowly decline during the year ahead,” the survey’s chief economist said. “The single issue that was cited as having a potential negative impact on the economy was tariffs. Concerns about the negative impact of tariffs were cited by nearly one-third of all consumers in September.”

Housing starts in August increased by 9.2 percent from July and by 9.4 percent from August 2017, according to the Census Bureau and the Department of Housing and Urban Development, while existing home sales were essentially unchanged from July to August – which was an improvement after four consecutive monthly decreases, the National Association of Realtors reported.

The association has, for some time, attributed the buying slowdown to a lack of houses for sale, but its chief economist suggested in September that, “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market.”

The median price for an existing home in August was $264,800, up 4.6 percent from August 2017. This marked the 78th straight month in which the median price was higher than a year earlier.

The Dow Jones Industrial Average closed September at 26,458.31, up 6.6 percent since Jan. 1, while the S&P 500 Index ended the month at 2,913.98, for a year-to-date gain of 8.1 percent.

The U.S. dollar, at the end of September, was trading at 0.86 euros, 0.77 pounds, 113.7 yen and 6.87 yuan.

In his recently released book on the Trump administration, Fear, Bob Woodward recounts that, while returning from the G20 summit in Germany in July 2017, the president made a note on a speech he was soon to give that read, “Trade is bad.” (In the end, he did not include that comment in the speech.) While not always expressed quite this explicitly, Trump’s negative attitude toward trade is a recurring theme in the book, particularly in accounts of his interactions with former National Economic Council Director Gary Cohn, who often tried – unsuccessfully – to explain economic principles to the president and, in return, was disparaged by his boss as a “globalist.” The frustration that Cohn – who resigned in April after Trump announced his steel and aluminum tariffs – must have felt is now being shared by businesses and consumers who see the strongest economy in perhaps 20 years being put at risk for no good reason. Even people who cannot give a textbook definition of comparative advantage or a historical summary of the Smoot-Hawley Tariff Act know instinctively what Trump refuses to learn: Trade is good.

 Courtesy: AIIS

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