Quarterly Market Review: July - September 2019

• Employment: Total employment increased by 130,000 in August after adding 159,000 (revised) new
jobs in July. The average monthly job gain so far in 2019 fell to 158,000 per month (223,000 in 2018).
Notable employment increases for August occurred in professional and business services (37,000),
health care (24,000), financial activities (15,000), and social assistance (13,000). The unemployment
rate remained at 3.7% in August. The number of unemployed persons fell slightly to 6.0 million (6.1
million in July). The labor participation rate edged up 0.2 percentage point to 63.2%, and the
employment-population ratio was 60.9% (60.7% in July). The average workweek increased 0.1 hour to
34.4 hours for August. Average hourly earnings increased by $0.11 to $28.11. Over the last 12 months
ended in August, average hourly earnings have risen 3.2%.

• FOMC/interest rates: The Federal Open Market Committee followed July's 25-basis-point cut by
lowering interest rates another 25 basis points in September. The federal funds rate range has been
decreased by 50 basis points so far this year. Interestingly, the Committee's action was not unanimous.
Of the 10 members voting, 1 voted for a 50-basis-point reduction, while 2 members opted for no rate
reduction. Nevertheless, in support of its decision to reduce interest rates, the Committee noted that
inflation continues to run below the Fed's 2.0% target rate, business fixed investment and exports have
weakened, and global economic developments are uncertain.

• GDP/budget: Economic growth slowed in the second quarter but was still solid. According to the third
and final estimate of the gross domestic product, the second quarter grew at an annualized rate of 2.0%.
The first quarter saw an annualized growth of 3.1%. Consumer prices and spending increased in the
second quarter, rising 2.4% and 4.6%, respectively. Pulling the GDP down in the second quarter were
negative contributions from business fixed investment (equipment, software, structures, etc.) and
exports. The federal budget deficit was $200 billion in August ($119.7 billion in July). Through the first 11
months of the fiscal year, the government deficit sits at $1,067 billion,18.8% more than the deficit over
the same period last year.

• Inflation/consumer spending: Inflationary pressures remain weak, as consumer prices showed no
increase in August and are up 1.4% over the last 12 months. Consumer prices excluding food and
energy inched up 0.1% in August (0.2% increase in July) and 1.8% since August 2018. In August,
consumer spending rose 0.1% (0.5% in July). Personal income and disposable (after-tax) personal
income climbed 0.4% and 0.5%, respectively, in August.

• The Consumer Price Index increased 0.1% in August following a 0.3% advance in July. Over the 12
months ended in August, the CPI rose 1.7%. Energy prices fell 1.9% on the month with gasoline down
3.5%. Prices less food and energy rose 0.3% in August — the same increase as in July. Since last
August, core prices (less food and energy) are up 2.4%.

• According to the Producer Price Index, the prices companies received for goods and services rose 0.1%
in August after increasing 0.2% in July. The index increased 1.8% for the 12 months ended in August.
Prices for goods fell 0.5% in August, pulled down by falling energy prices. Prices for services increased
0.3% last month. However, the price index less foods, energy, and trade services jumped 0.4% in
August after dropping 0.1% the prior month. The price index less foods, energy, and trade services
increased 1.9% over the last 12 months.

• Housing: Activity in the housing market can be described as erratic at best. Existing home sales jumped
1.3% in August after climbing 2.5% in July. Year-over-year, existing home sales are up 2.6%. Existing
home prices fell in August, as the median price for existing homes was $278,200, down from July's
median price of $280,800. Nevertheless, existing home prices were up 4.7% from August 2018. Total

housing inventory for existing homes for sale in August decreased to 1.86 million (1.89 million in July),
representing a 4.1-month supply at the current sales pace. After falling close to 9.5% in July, sales of
new single-family houses climbed 7.1% in August. New home sales are up 18.0% over their August
2018 estimate. The median sales price of new houses sold in August was $328,400 ($305,400 in July).
The average sales price was $404,200 ($372,700 in July). Inventory at the end of August was at a
supply of 5.5 months (5.9 months in July).

• Manufacturing: According to the Federal Reserve, industrial production rose 0.6% in August after
falling 0.1% July. Manufacturing output advanced 0.5% following a 0.4% drop in July. In August, mining
output and utilities climbed 1.4% and 0.6%, respectively. Total industrial production was 0.4% higher in
August than it was a year earlier. Orders for durable goods increased for the second month in a row in
August, climbing 0.2% after increasing 2.0% in July. New orders for capital goods used by businesses to
produce consumer goods fell 2.1% in August. New orders for capital goods excluding transportation
increased 0.5% last month, while new orders for capital goods excluding defense fell 0.6%.

• Imports and exports: Both import and export prices ebbed in August, falling 0.5% and 0.6%,
respectively. For the year, import prices are down 2.0%, while export prices are off 1.4%. In August, a
drop in fuel prices was the main drag on import prices, while falling agricultural and nonagricultural
prices pulled export prices lower. The latest information on international trade in goods and services, out
September 4, is for July and shows that the goods and services deficit was $54.0 billion, down from the
revised $55.5 billion deficit in June. July exports were $207.4 billion, $1.2 billion more than June exports.
July imports were $261.4 billion, $0.4 billion less than June imports. Year-to-date, the goods and
services deficit increased $28.2 billion, or 8.2%. Exports decreased $3.4 billion, or 0.2%. Imports
increased $24.9 billion, or 1.4%. The advance report on international trade in goods (excluding services)
revealed the trade deficit rose to $72.8 billion in August, up from $72.5 billion in July. Exports of goods in
August were $137.8 billion, $0.2 billion more than July exports, while imports of goods were $210.6
billion, $0.5 billion more than July imports.

• International markets: British Prime Minister Boris Johnson attempted to shut down Parliament for
several weeks as part of his effort to shunt opponents to his plan to push through a "no deal" Brexit by
October 31. However, the UK Supreme Court ruled the move was unlawful. This decision will likely put
pressure on Johnson to resign. How this affects Brexit moving forward remains unclear. Household
spending helped push the eurozone gross domestic product ahead 0.2% in the second quarter. The
eurozone economy has grown 1.2% year-over-year. In China, economic activity worsened in August as
industrial production slowed to its weakest pace since 2012, most likely impacted by the trade war with
the United States.

• Consumer confidence: While consumer confidence has been relatively strong for much of the year, it
did fall back in August. Consumers' assessment of current business and labor market conditions
decreased, as did consumers' short-term outlook for income, business and labor market conditions.