Labor Market Expands Slower and Auto Sales Decline in July

​Last week, the Bureau of Labor Statistics reported the unemployment rate fell, hourly wages grew modestly, and the economy added fewer jobs than expected. Also last week, the Federal Open Market Committee decided to leave the federal funds rate unchanged and automakers announced U.S. sales fell in July.

• According to major automakers on Wednesday, U.S. auto sales declined during July, with the exception of Fiat Chrysler, who reported a 6% rise in sales. New vehicle sales in the U.S. rose during the first half of 2018, thanks in-part to the recent tax cut. That growth, however, is expected to fall back in the latter half of the year in the face of rising interest rates and a glut of nearly new used vehicles on the market. Fiat Chrysler’s growth in sales was due to higher sales to individual customers, driven by a 15% jump in sales for its high-margin Jeep brand. Toyota, Nissan, Ford, and Honda all reported overall declines in sales. However, drops in SUV and pickup sales were not as large as the declines in passenger car sales. For some brands, sales of SUVs and pickups actually grew, demonstrating the shifting consumer preferences towards larger, less fuel-efficient vehicles.

• At its two-day meeting that ended Wednesday, the Federal Open Market Committee (FOMC) upgraded its assessment of the U.S. economy and voted unanimously to leave the federal funds rate unchanged. The Fed also hinted at further gradual increases in the target range for the federal funds rate. Just over a week ago, the Commerce Department reported 4.1% annual growth in U.S. GDP and earlier this month the Bureau of Labor Statistics reported a 2.2% rise in consumer prices. With this new information, the Committee has updated its opinion of the economy to “strong,” yet Fed policy remains “accommodative.” The FOMC held discussions about tweaking Fed language to shift monetary policy away from “accommodative” to “normalization.” The FOMC is watching closely for interest rates as they reach neutral levels and for inflation to stabilize at a 2% rate.

• The U.S. labor market continued to demonstrate its strength in July’s Employment Situation Summary produced by the Bureau of Labor Statistics. The headline unemployment rate ticked down to 3.9% during July, down 0.1% from 4.0% in June. The rate, which measures the number of participants in the labor market actively searching for work, remains at historically low levels. Average hourly earnings grew 2.7% in July from one year prior, marking the third straight month above 2.7% and the best stretch in the last nine years. However, the last time the U.S. economy had such a low unemployment rate, wages were growing at a 4.0% annualized rate. Employers also slowed their hiring to 157,000 jobs in July, down from 248,000 in June and 268,000 in May. July job growth missed economists’ expectations of 190,000 jobs but is still signaling a rapidly expanding economy.