A Big Bounce in June Job Creation: What We Learned During the Week of July 4 – 8

Payrolls and service sector activity both rebounded in June after showing weakness during May. Here are the 5 things we learned from U.S. economic data released during the week ending July 8.

#1June was the best month for job creation since last October. The Bureau of Labor Statistics estimates nonfarm employers added a seasonally adjusted 287,000 workers during the month. This was a sharp improvement from the measly 11,000 job gain during May (which reflected a downward revision from its original estimate of 38,000 added jobs). The private sector expanded payrolls by 265,000 workers, with the vast majority of the gain in the service sector (+256,000). Industries with the largest job adds were leisure/hospitality (+59,000), health care/social assistance (+58,400), information (+44,000, which includes the impact of Verizon strikers returning to work), professional/business services (+38,000), and retail (+29,900). The same report kept the average number of hours worked at 34.4 hours for the month (off 1/10th of an hour from a year earlier) with average weekly earnings at $880.98 (+2.3% vs. June 2015).

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A separate survey of households has the seasonally adjusted unemployment rate being at 4.9%, up 2/10ths of a point from May but still off 4/10ths of a point from a year earlier. The unemployment rate increased in part because this survey found a far weaker pace of job creation compared to the establishment survey data reported above (+67,000) and because 414,000 entered the labor force during the month. The labor force participation rate inched up 1/10th of a percentage point to 62.7%, which stays nevertheless near its multi-decade low. The same survey finds a number of new post-recession lows: the count of “involuntary” part-time works fell to 5.843 million, the median length of unemployment dropped to 10.3 weeks, and the broadest measure of labor underutilization inched down to 9.6%.

#2Higher imports resulted in a larger trade deficit for a 2nd straight month during May. The Census Bureau/Bureau of Economic Analysis have export activity slowing by $0.3 billion to $182.4 billion (-4.2% vs May 2015) while imports grew by $3.4 billion to $223.5 billion (-3.1% vs. May 2015). The resulting trade deficit expanded by $3.7 billion to -$41.1 billion. This was the widest trade deficit since February, putting it 2.4% larger than the deficit from a year earlier. The goods deficit expanded by $3.6 billion to -$62.2 billion while the services surplus slipped by $0.1 billion to +$21.1 billion. The former expanded because of declining exports for civilian aircraft, computer accessories, and automotive vehicles/parts, along with increased imports of nonmonetary gold, crude oil, consumer goods, and civilian aircraft. Adjusted for inflation using 2009 chained dollars, the “real” goods deficit grew by $3.6 billion to -$61.1 billion as exports decreased by $1.8 billion and imports increased by $1.8 billion. The U.S. had its largest goods deficits with China, the European Union, Germany, Mexico, and Japan.

#3Fewer orders for military planes pulled down factory orders during May. The Census Bureau places its estimate of new orders for manufactured goods at a seasonally adjusted $455.2 billion, down 1.0% from April and 1.2% below its year ago pace. The report included a small downgrade from the prior week’s estimate of durable goods orders as this report shows a 2.3% drop (vs. a 2.2% decline reported a week earlier). Transportation goods orders slumped 5.7%, with sharp declines for defense aircraft (-35.3%) and ships/boats (-20.6%). New orders for motor vehicles gained 0.8%. Other major durable goods product lines experiencing declining orders were primary metals (-1.8%), electrical equipment/appliances (-0.6%), fabricated metal products (-0.3%), and furniture (-0.1%). Meanwhile, nondurables orders gained 0.3% during the month. Shipments increased for a 3rd straight month with a less than 0.1% improvement to $456.5 billion (-3.2% vs. May 2015). Unfilled orders grew for the 4th time in 5 months (+0.2%) while inventories contracted for the 12th time in 13 months (- 0.1%).

#4The service sector rebounded in June. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business added 3.6 points during June to a seasonally adjusted 56.5, putting the measure at its highest point since last November. The index has been above the expansion/contraction threshold of 50.0 for 77 straight months. All 4 index components improved from their May marks: new orders (+5.7 points to 59.9), business activity (+4.4 points to 59.5), employment (+3.0 points to 52.7), and supplier deliveries (+1.5 points to 54.0). 15 of 18 tracked service sector industries grew during the month; including, mining, arts/entertainment/recreation, and management of companies. The press release characterizes the results as being a “strong rebound” from May’s survey figures that it says reflected a one-month “cooling off.”

#5Consumer credit balances expanded again in May, but credit cards were not a major source of the increase. The Federal Reserve reports that outstanding consumer credit balances (net of all real estate-backed loans, including mortgages) were at a seasonally adjusted $3.624 trillion at the end of May, up $18.6 billion from April and 6.3% from a year earlier. The latter represented the smallest 12-month gain in consumer credit balances since March 2013. Revolving credit card balances expanded by only $2.4 billion to $953.3 billion (+5.4% vs. May 2015). Nonrevolving credit balances (e.g., auto loans, college loans) grew by $16.2 billion to $2.670 trillion (+6.6% vs. May 2015).

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 2, 2016, First-Time Claims, seasonally adjusted): 254,000 (-16,000 vs. previous week; -37,000 vs. the same week a year earlier). 4-week moving average: 264,750 (-4.9% vs. the same week a year earlier).
FOMC meeting minutes

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

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