Strong Job Creation, Wage Gains Not So Much: What We Learned During the Week of January 4-8

The labor market ended 2015 on a strong note while the views of purchasing managers chilled a bit. Here are the 5 things we learned from U.S. economic data released during the week ending January 8.

#1Q4 2015 was the best 3 months of job creation in a year. According to the Bureau of Labor Statistics, U.S. nonfarm payrolls grew by a seasonally adjusted 292,000 during December, following gains of 252,000 and 307,000 in November and October, respectively. The resulting 3-month moving average of 283,667 was the highest seen since last January. Private sector employers added 275,000 workers to their payrolls (the most in 12 months), split by 230,000 in the service sector and 45,000 on the goods producing side. The month’s 010816graphicadded jobs were spread across the economy with the industry sectors adding the most workers were professional/business services (+73,000), education/health services (+59,000), construction (+45,000), leisure/hospitality (+29,000) and government (+17,000). Even as payrolls swelled, the average number hours worked remained at 34.5 hours (December 2014: 34.6 hours) and average hourly wages slipped by 35 cents to $870.78 (+2.2% vs. December 2014).

A separate survey of households kept the unemployment rate at 5.0% for a 3rd consecutive month as 466,000 people entered the labor force. The labor force participation rate crept up by a 1/10th of a percentage point to a still low 62.6% (December 2014: 62.7%). The median length of unemployment fell 2/10ths of a week to another post-recession low of 10.5 week (December 2014: 12.6 weeks). The count of “involuntary” part-time workers slipped by 63,000 workers to 6.022 million (December 2014: 6.786 million) while the U-6 series (the BLS’ broadest measure of labor underutilization) held steady at 9.9% (December 2014: 11.2%).

#2Slowing imports, but not growing exports, led to a narrowing of the trade deficit in November. The Census Bureau and Bureau of Economic Analysis has the goods and services deficit shrinking by $2.2 billion to -$42.4 billion, staying within the low-to-mid $40 billion range where it has been most months over the past 2 years. Imports contracted by $3.8 billion to $224.6 billion (-4.9% vs. November 2014) while exports declined by $1.6 billion to $182.2 billion (-7.1% vs. November 2014). Also falling were the services surplus (off $0.1 billion to +$18.9 billion) and the goods deficit (off $2.3 billion to -$61.3. The latter included a $3.0 billion decline in imports of consumer goods (including cell phones and pharmaceutical preparations) and capital goods. After adjusting for inflation, the “real” trade deficit declined by $1.4 billion to -$59.6 billion (2009 chained dollars), which was nevertheless up 22.6% from November 2014 levels. The U.S. had its largest goods deficits during November with China, the European Union and Japan.

#3Construction spending declined for the 1st time since the summer of 2014, but remained well above year ago levels. The Census Bureau estimates the seasonally adjusted annualized value of construction put in place decreased 0.4% during November to $1.122 trillion (+10.5% vs. November 2014). Private sector construction spending decreased 0.2% during the month to $828.2 billion (+12.1% vs. November 2014). Residential spending edged up 0.3% to $427.9 billion (+10.8% vs. a year ago) while nonresidential spending declined 0.7% to $400.3 billion (+13.6% vs. a year ago). Among key components of the former: spending on new single-family homes was 9.3% above year ago levels while the 12-month comparable for multi-family units was +24.5% Even with a 1.0% drop during the month, the SAAR of public sector construction spending at $294.3 billion was 6.0% above year ago levels.

#4New factory orders fell for a 3rd time in 4 months in November. The Census Bureau reports that new orders for manufactured goods declined 0.2% during the month to a seasonally adjusted $472.2 billion (-4.2% vs. November 2014). Orders for durable goods were essentially unchanged from October while orders for nondurables slowed 0.4%. Among major product categories, orders increased for electrical equipment/appliances (+1.8%), fabricated metals (+1.1%) and computer/electronic products (+1.0%) while falling for primary metals (-2.9%) and machinery (1.4%). Orders were unchanged for furniture and transportation equipment (motor vehicles: +0.6%, civilian aircraft: -22.2%). A measure of business investment—new orders for nondefense capita goods net of aircraft—declined 0.6% during the month and was 0.9% below year ago levels.

#5Two purchasing manager reports slipped during December.
The Institute for Supply Management indicates that the headline index from its Report on Business for Manufacturing, the Purchasing Managers’ Index (PMI), lost 4/10ths of a point to 48.2. This was not only the PMI’s lowest reading since June 2009, it also was the 2nd consecutive month in which the measure was below a reading of 50.0, indicative of a contracting manufacturing sector. 4 of 5 index components also were below a reading of 50.0 (production, new orders, inventories and employment), with the 1st 3 improving from their November marks. 10 of 18 tracked manufacturing industry sectors (led by apparel, plastics/rubber products and machinery) contracted during the month, while only 6 enjoyed increased business activity (led by printing, textile mills and paper products).

The headline index from the ISM’s nonmanufacturing report also edged down 6/10ths of a point. But the reading of 55.3 was the diffusion index’s 71st straight month being above a reading of 50.0. December’s decline resulted from a 4.5 point drop in the supplier deliveries index. The other 3 index components—business activity, new orders and employment—all improved from November and were above a reading of 50.0. 11 of 18 tracked service sector industries grew during the month, led by accommodation/food services, management of companies & support services and retail. The press release noted that a “majority of respondents’ comments remained positive above business conditions and the overall economy.”

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending January 2, 2016, seasonally adjusted): 277,000 (-10,000 vs. previous week; -18,000 vs. same week a year earlier). 4-week moving average: 275,750 (-4.7% vs. same week a year earlier).
Vehicle Sales (December 2015, seasonally adjusted annualized rate): 17.34 million units (-4.6% vs. November 2015; -2.5% vs. December 2014).
Consumer Credit (November 2015, total outstanding non-real estate balances): $3.526 trillion (+$13.9 billion vs. October 2015; +6.8% vs. November 2014).
Minutes from the December 2015 meeting of the Federal Open Market Committee.

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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