151,000 New Jobs in August: What We Learned During the Week of August 29 – September 2

Employers added fewer jobs in August, while consumers continued to spend in July. Here are the 5 things we learned from U.S. economic data released during the week ending September 2.

#1The pace of hiring cooled slightly in August, probably starving off a Fed rate hike later this month. The Bureau of Labor Statistics estimates nonfarm payrolls grew by a seasonally adjusted 151,000 jobs during the month, down from gains of 271,000 and 275,000 in June and July, respectively. Private sector employers added 126,000 jobs during the month, including 150,000 new service sector jobs. The service sector industries with the largest employment gains were health care/social assistance (+36,100), leisure/hospitality (+29,000), professional/business services (+22,000), retail (+15,100), financial activities (+15,000), and transportation/warehousing (+14,900). The goods producing side of the economy shed 24,000 jobs, with payroll losses in manufacturing (-14,000), construction (-6,000), and mining/logging (-4,000). Public sector employment grew by 25,000 jobs. The average number of nonfarm hours worked dropped by 1/10th of an hour to 34.3 (August 2015: 34.6 hours) while average weekly nonfarm earnings dropped by $1.54 to $882.54 (+1.5% vs. August 2015).

The separate survey of households kept the unemployment rate at 4.9% for a 3rd consecutive month. 176,000 people entered the labor force with the labor force participation rate remaining at rather low 62.8% (August 2015: 62.6%). 6.053 million people held part-time jobs but were seeking a full-time opportunity (its highest in 3 months but down 6.6% from a year earlier). The median span of unemployment dropped by 4/10ths of a week to 11.2 weeks (August 2015: 12.1 weeks). Finally, the broadest measure of labor underutilization (the “U-6” series) remained at 9.7% (August 2015: 10.3%).

The next meeting of the Federal Open Market Committee will be on September 20 and 21, for which there had been speculation that an interest rate hike was on the table. Yet, voting FOMC members that were probably on the fence on whether to support a quarter point hike in the fed funds target rate will likely to use this softer pace of job creation to defer the hike to a future meeting. 

#2Real personal spending grew for a 4th straight month in July. The Bureau of Economic Analysis estimates “real” personal consumption expenditures (PCE) grew 0.3% during the month and were 3.0% above year ago levels. Spending on goods jumped 0.6% (its best month since April and up 3.8% vs. July 2015), split between a 1.9% increase in spending for durable goods and a 0.1% slip in spending on nondurables. The former was boosted by a healthy 4.5% bounce in spending for vehicles and a 1.0% gain in home furnishings expenditures whereas the latter was hurt by declines in spending for food and apparel. Spending on services gained 0.2% during July and was 2.6% above year ago levels. Without adjustments for price variations, nominal PCE grew 0.3% during the month to a seasonally adjusted annualized rate of $12.798 trillion. The increased in spending was funded by a 0.4% gain in personal income to a SAAR of $16.023 trillion. Both nominal and real disposable incomes gained 0.4% during the month, with the 12-month comparables for the two at +3.6% and +2.7%, respectively. The savings rate picked up 2/10ths of a percentage point to +5.7%. A year earlier, the savings rate was at +5.8%.

#3A boost in exports narrowed the trade deficit in July. The Census Bureau and the Bureau of Economic Analysis report that exports grew $3.4 billion to a seasonally adjusted $186.3 billion (-2.0% vs. July 2015) while imports slowed by $1.8 billion to $225.8 billion (-1.8% vs. July 2015). The resulting trade deficit of -$39.5 billion was down $5.2 billion from the previous month and 1.1% from the same month a year earlier. The goods deficit contracted by $5.3 billion to -$60.3 billion (-1.8% vs. July 2015) while the services surplus slipped $0.1 billion to +$20.9 billion. Goods exports grew $3.6 billion, reflecting a matching sized gain in soybeans exports. Goods imports slowed by $1.9 billion, with a decline in imports of consumer goods (including, pharmaceutical preparations and cell phones) and capital goods (largely civilian aircraft). The U.S. had its largest goods deficits with China (-$29.4 billion), European Union (-$11.8 billion), and Japan (-$6.0 billion).

#4Purchasing managers indicate manufacturing activity shrank in August. The Institute for Supply Management’s Purchasing Managers Index (PMI) dropped by 3.2 points to a reading of 49.4. This was the PMI’s lowest reading since January and the 1st time it was below the expansionary/contractionary threshold of 50.0 since March. All 5 index components declined from their July readings: new orders (-7.8 points to 49.1), production (-5.8 points to 49.6), employment (-1.1 points to 48.3), supplier deliveries (-9/10ths of a point to 50.9), and inventories (1/2 point to 49.0). Only 6 of 18 tracked manufacturing industries reported growth during the month, led by printing, nonmetallic mineral products, and computers/electronic products.

#5Construction spending held steady in July despite gains in the private sector. The Census Bureau puts the seasonally adjusted annualized value of construction put into place during the month at $1.153 trillion, essentially June’s pace and 1.5% above year July 2015’s rate. Private sector construction spending grew 1.0% during the month to a SAAR of $866.5 billion (+4.4% vs. July 2015), with gains of 0.3% and 1.7% in residential and nonresidential construction, respectively. The former’s gain occurred even though new construction of single-family and multifamily homes declined. Greater than 1% month-to-month gains on nonresidential spending resulted for lodging, manufacturing, educational, commercial, communications, and power. Public sector construction spending slowed 3.1% during the month and was 6.5% below the year ago pace.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 27, 2016, First-Time Claims, seasonally adjusted): 263,000 (+2,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 263,000 (-4.7% vs. the same week a year earlier).
Productivity (Q2 2016, Nonfarm Business Labor Productivity, seasonally adjusted): -0.6% vs. Q1 2016, -0.4% vs. Q2 2015.
Vehicle Sales (August 2016, seasonally adjusted annualized rate): 17.00 million vehicles (-5.0% vs. July 2016, -4.4% vs. August 2015).
Conference Board Consumer Confidence (August 2016, Index (1985=100), seasonally adjusted): 101.1 (+4.4 points vs. July 2016, -0.2 points vs. August 2015).
Factory Orders (July 2016, New Orders, seasonally adjusted): $454.8 billion (+1.8% vs. June 2016, -3.5% vs. July 2015).
Pending Home Sales (July 2015, Index (2001=100), seasonally adjusted): 111.3 (+1.3% vs. June 2016, +1.4% vs. July 2015).
Case-Shiller Home Price Index (June 2016, 20-City Index, seasonally adjusted): -0.1% vs. May 2016, +5.1% vs. June 2015.
Agricultural Prices (July 2016, Prices Received by Farmers, seasonally adjusted): -3.7% vs. June 2016, -10.0% vs. July 2015.

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

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