Job Creation and Consumer Goods Imports Both Slow: What We Learned During the Week of May 2 – 6

April was the slowest month in terms of 2016 job creation while the trade deficit shrinks in the face of weakness in consumer goods imports. Here are the 5 things we learned from U.S. economic data released during the week ending May 6.

#1Employers added fewer jobs in April than they had in any other month since last September. The Bureau of Labor Statistics reported that nonfarm payrolls expanded by a seasonally adjusted 160,000 jobs during the month. The BLS also lowered its estimates of February and March job gains by 12,000 and 7,000, respectively. This was the 67th straight month of job gains. Private sector employers added 171,000 jobs—the service sector added 174,000 workers while the goods producing side shed 3,000 jobs. The largest payrolls gains occurred in professional/business services (+65,000), health care/social assistance (38,200), leisure/hospitality (+22,000) and financial activities (+20,000). 050616graphicMeanwhile, private sector average weekly hours worked inched up 1/10th of an hour to 34.5. The resulting average weekly earnings of $880.79 was up 2.5% from a year earlier.

A separate survey of households kept the unemployment rate of 5.0% (vs. 5.4% in April 2015). Reversing recent positive trends, 362,000 people left the labor force during April and the labor force participation rate dropped by 2/10ths of a percentage point to 62.8%, near its multi-decade low. The median length of unemployment held steady at 11.4 weeks (April 2015: 11.6 weeks), while the percentage of unemployed workers without a job for at least half a year fell to a post-recession low of 25.7%.  Also falling to a post-recession low is the count of people with part-time work that were seeking a full-time job, off 161,000 to 5.962 million. Finally, the broadest measure of labor underutilization by the BLS (the U-6 series) slipped 1/10th of a percentage point to 9.7%, matching February’s reading and that was its post-recession low.

#2The trade deficit narrowed in March as import activity drops. The Census Bureau and the Bureau of Economic Analysis estimate that the trade balance was at a seasonally adjusted -$40.4 billion, down $6.6 billion from February and the smallest deficit in 13 months. Import activity slowed by $8.0 billion to $217.1 billion while exports dropped by $1.6 billion to $176.6 billion. Imports were 9.1% below year ago level while exports were off 5.4% from March 2015 readings. The goods deficit narrowed by $6.0 billion to -$58.5 billion while the goods surplus expanded by $0.5 billion to +$18.1 billion. Pulling down the goods deficit was a $5.1 billion decline consumer goods imports (including those for toys/games/sporting goods and cotton apparel/household goods) and a $1.6 billion drop in capital goods imports. The “real” goods deficit, based on 2009 chained dollars, contracted by $5.8 billion to -$57.4 billion (-13.6% vs. March 2015). The U.S. had its largest nominal goods deficits during the month with China, the European Union, Germany, Japan and Mexico.

#3The defense sector drives manufacturing gains in March, but factory orders remain well below the year ago pace. New orders for manufactured goods grew for the 2nd time in 3 months with a 1.1% increase to a seasonally adjusted $458.4 billion, according to the Census Bureau. Even with the recent gains, this was 4.2% below year ago levels. As we saw with the previous week’s durable goods report, most of the gain in factory orders was for defense aircraft, the orders for which jumping 65.3%. Net of defense, new factory orders grew 0.2%. Other sectors seeing order gains were nondurable goods (+1.5%), primary metals (+0.6%) and machinery (+0.5%). Falling were orders for electrical equipment/appliances (-2.6%), fabricated metal products (-1.3%) and computers/electronics (-0.7%). Shipments grew for the 1st time after 8 straight months of decline (+0.5%) to $464.7 billion. Unfilled orders dropped for the 3rd time in 4 months with a 0.1% decline to $1.183 trillion while inventories expanded for the 1st time after 8 monthly declines with a 0.2% gain to $635.1 billion.

#4Purchasing managers say manufacturing barely grew during April while the service sector enjoyed healthier gains. The Purchasing Managers’ Index (PMI) from the Institute for Supply Management lost a full point to a seasonally adjusted 50.8. This was the 2nd straight month in which the index was above a reading of 50.0—the threshold between a growing and contracting manufacturing sector—but the decline means the pace of expansion was slower than that of March. 4 of 5 PMI components declined during the month: new orders (55.8), production (54.2), supplier deliveries (49.1) and inventories (45.5). The employment index added 1.1 points but remained in contractionary territory of 49.2. 11 of 18 tracked manufacturing industries expanded during the month, led by wood products, printing, paper products, and plastics/rubber.

Meanwhile, the headline index of ISM’s measure of service sector activity added 1.2 points to seasonally adjusted reading of 55.7, its highest point of the year and the 75th straight month above a reading of 50.0. 2 of 4 index components improved during the month:  new orders (59.9, its best since last October) and employment (53.0, its highest point since last December). The measure for business activity shed a full point to 58.8 while the supplier deliveries measure held steady at 51.0. 13 of 18 tracked service sector industries expanded during April, led by information, management of companies and accommodation/food services.  The press release noted that survey respondents’ comments “reflect optimism about the business climate and the direction of the economy.”

#5Private construction spending grew for a 2nd straight month in March. The Census Bureau estimates the value of construction put into place was at a seasonally adjusted annualized rate of $1.114 trillion, up 0.3% from February 2016 and 8.0% from a year earlier. Private construction spending jumped 1.1% for the month to a SAAR of $842.3 billion (+8.5% vs. March 2015 levels). This included a 1.6% jump in residential construction spending as new multi-family unit residential construction spending surged 5.6% (new single-family home spending was flat during the month). Public sector spending contracted 1.9% to a SAAR of $295.2 billion, which was nevertheless still 6.7% above year ago levels.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending April 30, 2016, First-Time Claims, seasonally adjusted): 274,000 (+17,000 vs. previous week; +7,000 vs. the same week a year earlier). 4-week moving average: 258,000 (-7.1% vs. the same week a year earlier).
–  Productivity (1st quarter 2016, Nonfarm Labor Productivity, seasonally adjusted annualized rate): -1.0% vs. Q4 2015; +0.6% vs. Q1 2015.
Vehicle Sales (April 2016, seasonally adjusted annualized rate): 17.42 million (+5.1% vs. March 2016; +4.0% vs. April 2015).
Consumer Credit (March 2016, Outstanding Non-Real Estate Credit Balances, seasonally adjusted)L $3.592 trillion (+$29.7 billion vs. February 2016, +6.6% vs. March 2015).

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

The Fed Stays Put, GDP Barely Grows: What We Learned During the Week of April 25-29

The Fed does not make a move again as Q1 economic growth disappoints. Here are the 5 things we learned from U.S. economic data released during the week ending April 29.

#1The Fed holds steady again. Unsurprisingly, the Federal Open Market Committee (FOMC) voted to keep the fed funds target rate at between 0.25% and 0.50% for a 3rd straight meeting following its rate hike last December. The policy statement released following last week’s meeting noted that the economy “appears to have slowed” even as the labor market “improved further.” Other contrasts painted in the policy statement included an “improved” housing market and “soft” net exports and fixed business investment. In addition, inflation remained below its 2 percent target, in part due to weakness in energy prices. The FOMC also voted to keep its policy of reinvesting principal payments made on its massive holdings of mortgage-backed securities and agency debt and to continue rolling over maturing Treasury securities. So, when will the FOMC bump up rates again? The statement was not specific, but said that rate hikes will be “gradual” and that the fed funds target rate will remain “below levels that are expected to prevail in the longer run.” The full FOMC did not agree on the strategy—Esther George wanted a 25-basis point hike rate hike at this meeting.

#2Early 2016 economic growth was like that of the end of 2015: Crummy. The Bureau of Economic Analysis initial estimate of Q1 2016 Gross Domestic Product (GDP) has the U.S. economy growing at a feeble seasonally adjusted annualized rate of 0.5%. This was the slowest pace of economic expansion in 2 years and was below the growth rates of the 2nd, 3rd and 4th quarters of last year of +3.9%, +2.0% and +1.4%, respectively. Consumption and government spending were the only major components of the economy that contributed to GDP growth. Yet, the contribution from consumption—adding 127-basis points to Q1 GDP growth—was the smallest in a041916 year, reflective of tepid gains in spending growing (at a SAAR of only +1.9% vs. +2.4% during the final 3 months of 2015 and +3.0% during Q3 2015). Slowing fixed investment cost 27-basis points to Q1 GDP growth, including an annualized 1.6% drop in nonresidential (business) fixed investment. Residential fixed investment jumped an annualized 14.8% and added nearly a half point to GDP point. Businesses shed $17.5 billion in inventories, leading to a 33-basis point drag on GDP growth. Slowing exports cost another 31-basis points in GDP growth. The BEA will revise its estimate of Q1 GDP twice over the next 2 months.

#3Personal spending was essentially flat in March. The Bureau of Economic Analysis indicates that personal spending grew 0.1% to a seasonally adjusted annualized rate of $12.527 trillion. After adjusting for inflation, “real” personal consumption expenditures (PCE) were flat for the month and were up only 2.6% from a year earlier. Real spending on goods increased 0.3%, as a 0.7% gain in nondurables spending outpaced a 0.3% slowing in spending for durable goods (largely due to a 1.9% drop in spending for cars/trucks). Real spending on services slowed 0.1%. The softness in spending came even as personal income gained 0.4%. Disposable income also grew 0.4%, with real disposable income increasing 0.3% after adjustments for price variations. Personal incomes were 4.2% above March 2015 levels, with real disposable income up 3.1%. Meanwhile, the savings rate grew to its highest point more than a year with a 3/10ths of a point gain to +5.4%.

#4Orders for durable goods grew in March, but the gains were largely centered on defense aircraft. The Census Bureau said new orders for manufactured goods increased 0.8% during the month to a seasonally adjusted $230.7 billion. Even with the gain, new orders were 2.5% below year ago levels. Orders for transportation goods grew 2.9%, but the increase was centered around defense aircraft orders surging 65.7%. Falling were orders for civilian aircraft (-5.7%) and motor vehicles (-3.0%). Net of transportation goods, new orders slipped 0.2% for the month and were 1.4% below year ago levels. Increasing were orders for primary metals (+0.8%) and machinery (+0.5%) while orders declined for electrical equipment/appliances (-3.0%), fabricated metal products (-1.6%) and computers/electronic products (-0.6%). Shipments for durable goods declined for the 3rd time in 4 months (-0.5% to $237.0 billion, -1.5% vs. March 2015). Net of transportation goods, shipments improved 0.2% but remained 2.0% below March 2015 levels.

#5Consumers were less confident about the economy, especially when looking towards the future. The Consumer Confidence Index from the Conference Board lost 1.9 points to a seasonally adjusted reading of 94.2 (1985 = 100), essentially giving back all that it had gained in March and putting it near its lowest reading since last fall. The drop came solely from the expectations index, which declined 4.3 points to 79.3 (its lowest point in more than 2 years). The current conditions index added 1.5 points to 116.4, which was its highest reading since February. 13.4% of survey respondents expect business conditions will improve over the next 6 months (vs. 14.7% saying so in March) while 11.0% expect conditions will worsen (vs. 9.5% saying so in March). While stating that sentiment had “continued on its sideways path,” the press release stated that the survey’s findings suggest “no slowing in economic growth.”

Also falling was the Index of Consumer Sentiment from the University of Michigan. The measure shed 2.0 points to a seasonally adjusted 89.0, its lowest reading since last September and down 7.2% from the same month a year earlier. Like with the Conference Board Survey, the current conditions sentiment improved (up 1.1 points to 106.7) while the expectations index pulled back (down 3.9 points to 77.6). The press release claims the declines were “still far short of indicating an impending recession,” but may be reflective of “growing uncertainty about the economic policies advocated by various presidential candidates.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending April 23, 2016, First-Time Claims, seasonally adjusted): 257,000 (+9,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 256,000 (-8.9% vs. the same week a year earlier).
New Home Sales (March 2016, seasonally adjusted annualized rate): 511,000 (-1.5% vs. February 2016, +5.4% vs. March 2015).
Pending Home Sales (March 2016, Index: 2001 = 100, seasonally adjusted):  110.5 (February 2016: 109.0; March 2015: 109.0).
Bankruptcies (March 31, 2016, Filings Over the Past 12 Months): 833,515 (-8.5% vs year earlier).
Case-Shiller Home Price Index (February 2016, 20-City Index, seasonally adjusted): +0.7% vs. January 2016; +5.4% vs. February 2015.

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