U.S. Economy Showing No Shortage of Strength Through May

​Last week’s economic news continued to signal a booming U.S. economy. In summary, the NFIB’s Small Business Optimism Index rose to its second-highest all-time level of 107.8; the Consumer Price Index (CPI) for May, often a sign of inflation, rose 2.8% over the last twelve months; and Federal Reserve officials elected to raise rates a quarter of one percentage point to keep the economy from growing too quickly. The Fed’s Board of Governors also signaled for an extra rate hike for 2018. 

• The National Federation of Independent Business, or NFIB, released results from their May 2018 Small Business Optimism Index on Tuesday last week. The monthly publication reported its second highest level in the survey’s 45-year history at 107.8. In detail, the report showed near-record highs in expansion optimism, positive earnings reports, positive sales reports, and plans to raise prices. Furthermore, reports of compensation increases, paired with concerns about labor quality, reached all-time highs for the survey. Thirty-five percent of firms reported increasing employee compensation in May. 
  
  • The report also highlighted some macro-signals for the broader economy. Of owners included in the survey, 47% reported spending on new equipment and 24% on acquired vehicles in the month of May. Higher capital expenditures can signal growth among the supply chain and across industries. Also, a net 15% of owners reported higher nominal sales in the past three months than the three months prior.

• U.S. consumer prices increased at their largest year-over-year rate since 2012. According to data published last week by the Bureau of Labor Statistics, the Consumer Price Index rose by 2.8% last May from twelve months prior. According to Bloomberg, much of the contribution to the gain came from rising fuel prices and housing costs. Excluding fuel and food items, the CPI’s most volatile components, consumer prices rose by a much steadier 2.2% from this time last year.

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• The Federal Reserve exited their two-day June meeting last Wednesday, raising the target federal-funds rate by 25 basis-points (a quarter of one percent) to a range between 1.75% and 2%. The federal-funds rate is the rate at which banks lend money to one another to meet capital requirements and is often a benchmark for lending rates across the economy. Fed officials also signaled that they could pick up the pace of interest rate increases to four hikes in 2018, up from their original plan of three, to keep the economy from overheating. Fed chairman Jerome Powell says that the Fed’s decision is another signal of the economy’s strength.