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.

Slightly Better Q1 GDP, Spending & Manufacturing Grow: What We Learned During the Week of June 27 – July 1

We get another small upward revision in Q1 GDP, we see that consumer spending grew in May, and we hear that June may have been a decent month for manufacturing. Here are the 5 things we learned from U.S. economic data released during the week ending July 1.

#1Even after a small upward revision in GDP, Q1 economic growth was weak. The 3rd estimate of Q1 Gross Domestic Product (GDP) has economic activity expanding at a seasonally adjusted annualized rate (SAAR) of paltry 1.1%. This was up from the previous estimate of 0.8% growth reported a month ago and the 0.5% growth rate reported as the initial estimate two months ago. The latest data from the Bureau of Economic Analysis reflected higher than previously believed levels of exports and nonresidential fixed investment. As with the previous Q1 GDP reports, the positive contributors to economic growth were consumption, fixed residential investment, net exports, and government expenditures. The same report finds corporate profits grew for only the 2nd time in the past 6 quarters—profits from current production increased $34.7 billion or 1.8%. On July 29, we will get our first estimate of Q2 GDP

#2Consumer spending grew for 2nd straight month in May. The Bureau of Economic Analysis finds “real” personal consumption expenditures (PCE) increased 0.3% during the month, following April’s 0.8% surge in spending. Real spending, which is adjusted for price variation, was up 2.7% from a year earlier. Real spending on goods increased 0.6%, with gains in durable and nondurable goods spending of 0.6% and 0.5%, respectively. Spending on services grew a more modest 0.1%. Without price adjustments, “nominal” PCE grew 0.4% during the month. A 0.2% gain in “nominal” personal income, wages, and disposable income funded the increase in spending. “Real” disposable income inched up 0.1%, putting it 3.2% above year ago levels. Meanwhile, the savings rate slipped 1/10th of a point to +5.3%.070116

#3Purchasing managers report late spring gains in manufacturing activity. The Purchasing Managers’ Index from the Institute for Supply Management added 1.9 points during June to a seasonally adjusted 53.2. This was the PMI’s 4th straight month above a reading of 50.0, indicative of an expanding manufacturing sector. All 5 components of the PMI improved from their May readings: new orders (+2.3 points to 57.0), production (+2.1 points to 54.7), employment (+1.2 points to 50.4), supplier deliveries (+1.3 points to 55.4), and inventories (+3.5 points to 48.5). 13 of 18 tracked manufacturing sectors expanded during the month, led by printing, textile mills, petroleum/coal, and food/beverage/tobacco.

ISM also released the results from a supplement survey of purchasing managers conducted following the British voters’ decision to withdraw from the European Union. More than 3 in 5 procurement managers said that the Brexit vote would have a “negligible impact” on their business while a third were expecting a negative impact. But even that may overstate their level of concern as the vast majority of survey respondent anticipating detrimental effects only expect a “slightly negative impact.” Purchasing managers see the most likely significant impact from Brexit being have to adjust to changes in the exchange value of the U.S. dollar, followed by changes in global demand and changes in demand from U.K. customers.

#4Construction spending slowed for a 2nd straight month. The Census Bureau reports that the seasonally adjusted annualized value of construction put into place during May was $1.143 trillion, off 0.8% from April and up only 2.8% from a year earlier. Private construction spending slipped 0.3% during the month to $850.3 billion (+4.7% vs. May 2015). Private sector residential spending was flat for the month, with a 1.3% drop in construction spending for new single-family units and a 1.8% bump up in spending for multi-family units. Nonresidential construction spending contracted 0.7%, pulled down by reduced spending on religious, educational, manufacturing, and commercial construction. Public sector spending dropped 2.3% during the month to $284.0 billion (-2.6% vs. May 2015).

#5A measure of consumer sentiment bounces up during June. Contrasting with the results from the University of Michigan’s sentiment survey reported here last week, the Conference Board’s Consumer Confidence Index gained 5.6 points during June to a seasonally adjusted 98.0 (1985 = 100). This was the index’s best reading since last September. Measures for both present and expected conditions improved during the month: the former added 5.1 points to 118.3 while the latter gained 6.0 points to a reading of 84.5. 26.9% of survey respondents described current economic conditions as “good” while only 17.7% said that they were “bad.” They were less sanguine about the labor market as nearly equal percentages of Americans saw the number of jobs as being “plentiful” (23.4%) and “hard to get” (23.3%). The press release noted that “consumers remain cautiously optimistic about economic growth in the short-term.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending June 25, 2016, First-Time Claims, seasonally adjusted): 268,000 (+10,000 vs. previous week; -12,000 vs. the same week a year earlier). 4-week moving average: 267,000 (-3.0% vs. the same week a year earlier).
Vehicle Sales (June 2016, seasonally adjusted annualized rate): 16.66 million vehicles (-4.5% vs. May 2016, -2.0% vs. June 2015).
Pending Home Sales (May 2016, Index (2001 = 100), seasonally adjusted: 110.8 (-3.7% vs. April 2016, -0.2% vs. May 2015).
Case-Shiller Home Price Index (April 2016, 20-City Index, seasonally adjusted): +0.5% vs. March 2016, +5.4% vs. April 2015.

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