The Unemployment Rate Falls to a 16-Year Low: May 29 – June 2

The last time the unemployment rate was this low, it was 2001. But the pace of job creation during May was relatively modest. Here are the 5 things we learned from U.S. economic data released during the week ending June 2.

#1The unemployment rate fell to a 16-year low, but employers slowed the pace of hiring. The Bureau of Labor Statistics reports that nonfarm employers added a seasonally adjusted 138,000 workers to their payrolls during the month, down from April’s job gain of 174,000 jobs but well above the 50,000 added workers during March. If the job openings and turnover data released in recent months are any indication, some of the weakness in this report may be due to employers being unable to find qualified candidates for their openings. Whatever the case, the private sector saw payrolls expand by 147,000 workers, with the gain split between 131,000 new jobs in the service sector and 16,000 new workers in the service sector. Industries most responsible for the month’s job creation were professional/business services (+38,000), health care/social assistance (+32,300), leisure/hospitality (+31,000), construction (+11,000), and financial activities (+11,000). The average workweek was at 34.4 hours, unchanged from both April 2017 and May 2016. Average weekly earnings grew by $1.38 during the month to $901.97 (+2.5 percent vs. May 2016).Unemployment Rate 1997-2017-060217

Based on a separate survey of households, the unemployment rate slipped 1/10th of a percentage point to 4.3 percent, its lowest point since May 2001. This was partially the result of 429,000 people leaving the labor force during the month to 159.784 million. The labor force participation rate declined by 2/10ths of a percentage point to 62.7 percent. This places the labor force participation rate closer to its multi-decade low, but that is explained partially by older Americans leaving the labor force due to retirement. Even though the typical length of unemployment edged up by 2/10ths of a week to 10.4 weeks, the measure has remained within a tight range between 10.0 and 10.4 weeks since last summer. The same survey also found that the count of “involuntary” part-time workers contracted by 53,000 to 5.219 million (May 2016: 6.409 million). Finally, the broadest definition of labor underutilization (the U-6 series) fell to its lowest reading since November 2007 with a 2/10ths decline to 8.4 percent.

#2Consumers were spending money during April. “Real” personal consumption expenditures (PCE) grew by 0.2 percent during the month, which had followed a 0.5 percent gain during March and a 0.1 decline in February. Per the Bureau of Economic Analysis, real spending on goods jumped 0.7 percent during April, split between a 1.1 percent surge in spending on durable goods and a 0.5 percent increase in spending of nondurables. Services spending was virtually unchanged for the month. Over the past year, real PCE has grown a moderate 2.6 percent, with spending on goods gaining 3.6 percent and spending services increasing 2.1 percent. Without adjusting for price variations, nominal PCE rose 0.4 percent, its biggest single-month increase since last December. Supporting the gain in spending was a 0.4 percent increase in both personal and disposable income. After adjusting for inflation, real disposable income increased 0.2 percent during April and has grown 1.9 percent over the past year. Meanwhile, the savings rate held steady at +5.3 percent for a third consecutive month.

#3The trade deficit widened to a four-month high during April. The Census Bureau and the Bureau of Economic Analysis estimates exports dropped by $0.5 billion during the month to a seasonally adjusted $191.0 billion (+5.0 percent vs. April 2016) while imports grew by $1.9 billion to $238.6 billion (+8.3 percent vs. April 2016). As a result, the seasonally adjusted trade deficit expanded by $2.3 billion to -$47.6 billion, which was 23.9 percent larger than the deficit of a year earlier. The goods deficit grew by $2.3 billion to $68.4 billion (+16.1 percent vs. April 2016) while the goods surplus held steady at +$20.8 billion (+1.4 percent vs. April 2016). The former increased as imported goods grew by $1.8 billion (thanks to greater imports of cell phones, art/collectibles, and capital goods) and exported goods slipped by $0.4 billion (thanks to smaller exports for consumer goods and automotive vehicles). The U.S. had its largest goods deficits with China (-$32.1 billion), the European Union (-$13.2 billion), Mexico (-$6.4 billion), and Germany (-$5.5 billion).

#4Purchasing managers indicate that manufacturing held steady during May. The Institute for Supply Management’s Purchasing Managers Index (PMI) inched up 1/10th of a point to a seasonally adjusted reading of 54.9. This was the ninth straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved during the month: new orders (up 2.0 points to 59.5), employment (up 1.5 points to 53.5), and inventories (up a half point to 51.5). Falling were measures of supplier deliveries (down 2.0 points to 53.1) and production (off 1.5 points to 57.1). Fifteen of 18 tracked manufacturing industries expanded during May, led by nonmetallic mineral products, furniture, and plastics/rubber products. The press release noted the purchasing managers’ comments generally reflected “stable to growing business conditions.”

#5Survey results suggest a slight cooling of consumer sentiment. The Conference Board’s Consumer Confident Index declined for a second straight month as it lost 1.5 points to a seasonally adjusted reading of 117.9 (1985=100). The measure has lost 7.7 points since March (when it had hit a 16-plus year high) but nevertheless remained at strong levels. The current conditions index added edged up by 4/10ths of a point to 140.7 while the expectations measure shed 2.8 points to 102.6. In all, 29.4 percent of survey respondents characterized current economic conditions as “good” (vs. 30.8 percent that said the same in April) while 13.7 percent stated that they were “bad” (unchanged from the percentage indicating the same in April). Slightly less hopeful was the short-term economic outlook: 21.3 percent of respondents expected business conditions would improve (April 2017: 25.1 percent) while 10.1 percent were expecting conditions to worsen (April 2017: 10.4 percent). The Conference Board in its press release said that even with the decline in overall sentiment, they expected “little change in overall economic conditions” as consumers “remain optimistic that the economy will continue expanding into the summer months.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 27, 2017, First-Time Claims, seasonally adjusted): 248,000 +13,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 238,000 (-13.4% vs. the same week a year earlier).
Vehicle Sales (May 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.66 million vehicles (-1.3% vs. April 2017, -3.0% vs. May 2016).
Pending Home Sales (April 2017, Index (2001=100), seasonally adjusted): 109.8 (-1.5 points vs. March 2017, -3.8 points vs. April 2016).
Construction Spending (April 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.219 trillion (-1.4% vs. March 2017, +6.7% vs. April 2016).
Agricultural Prices (April 2017, Prices Received by Farmers (Index: 2011=100, seasonally adjusted): 96.7 (+2.0% vs. March 2017, +4.4% vs. April 2016).
Case-Shiller Home Price Index (March 2017, 20-City Index, seasonally adjusted): +0.9% vs. February 2017, +5.9% vs. March 2016).
Beige Book

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

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