Companies Continue to Hire, But Wage Growth Lags: July 31 – August 4

Employers continued to expand their payrolls during July, but they were stingier with pay hikes. Here are the five things we learned from U.S. economic data released during the week ending August 4.

#1The pace of job creation remained solid in July, pay raises were not. The Bureau of Labor Statistics tells us that nonfarm payrolls grew by a seasonally adjusted 209,000 during the month. While off from the 231,000 jobs added during June, it still beat the average monthly job gain of 179,833 over the past 12 months. Private sector employers added 205,000 workers during the past month, split between 183,000 new jobs in the service sector and 22,000 in the goods producing side of the economy. Industries adding the most workers during the month were leisure/hospitality (+62,000), professional/business services (+49,000), health care/social assistance (+45,000), and manufacturing (+16,000). Less positive was the slow growth in hourly earnings, which grew by only nine cents during July to $26.36. While the average number of hours worked per week held steady during the month at 34.5 hours (July 2016: 34.4), average weekly earnings have grown a good but not great 2.8 percent over the past year to $909.42.Monthly Job Creation 2011-2017-080417

Based on a separate survey of households, the unemployment rate slipped back down to its post-recession low of 4.3 percent. (-1/10th of a percentage point from June and -6/10ths of a percentage point from July 2016). 349,000 people entered the labor force during the month, leading to the labor force participation rate to increase by 1/10th of a percentage point to 62.9 percent (July 2016: 62.8 percent). While the typical length of unemployment grew by a full week during July to 10.6 weeks, this was down from 11.5 weeks during July 2016. The number of part-time workers seeking a full-time opportunity declined by 42,000 to 5.282 million (-11.0 percent versus July 2016). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) was at 8.6 percent for the third time over the past four months. A year earlier, the same measure was at 9.7 percent.

#2Exports increased during June, leading to a narrowing of the trade deficit. The Census Bureau and Bureau of Economic Analysis report that exports grew by $2.4 billion during the month to a seasonally adjusted $194.4 billion (+5.8 percent versus June 2016) while imports shrank by $0.4 billion to $230.0 billion (+4.6 percent vs. June 2016). This left the trade deficit at -$43.6 billion, $2.7 billion smaller than that of May and off 0.4 percent from a year earlier. The goods deficit contracted by $2.1 billion to -$65.2 billion (June 2016: +$65.2 billion) while the goods surplus expanded by $0.6 billion to +$21.6 billion (June 2016: +21.4 billion). Exports of goods grew by $1.7 billion, including gains by capital goods (+$0.8 billion) and soybeans (+$0.6 billion). Goods imports slowed by $0.4 billion, pulled down by declines of both crude oil (-$1.4 billion) and consumer goods (-$0.9 billion). The United States had its largest goods trade deficits with China (-$31.3 billion), the European Union (-$12.5 billion), and Germany (-$12.5 billion).

#3Personal spending sputtered in June while it turns out that Americans were not saving as much as previously believed. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) were unchanged during the month, leaving them up 2.4 percent from a year earlier (the softest 12-month comparable in 2017). Real spending on goods fell 0.2 percent, with decreases of 0.1 percent and 0.2 percent for durable and nondurable goods, respectively. Spending on services inched up 0.1 percent. Nominal (not adjusted for inflation) PCE was at $13.818 trillion on a seasonally adjusted annualized basis, up 0.1 percent for the month. Both personal and disposable income held steady during June, with real disposable income down 0.1 percent. The savings rate slipped by 1/10th of a percentage point to +3.8 percent. This data reflected the annual revision to the entire data series, which resulted in a lower savings rate than previously reported. Finally, the PCE deflator, a measure of inflation, was unchanged for the month with the core measure (net of energy and food) up a mere 0.1 percent. The year-to-year comparables for both price measures were below the Federal Reserve target of two percent at +1.4 percent and 1.5 percent, respectively.

#4Factory orders soared in June, in large part due to civilian aircraft orders. New orders for manufactured goods jumped 3.0 percent during the month to a seasonally adjusted $481.1 billion, per the Census Bureau. This was 9.8 percent greater the value of new factory orders from the same month a year earlier. Like with the prior week’s report on durable goods orders, the highlight was the 131.1 percent surge in orders for civilian aircraft. Combining that with a 0.3 percent slip in defense aircraft orders and a 0.1 percent bump in vehicle orders, new orders for transportation goods gained 19.0 percent during June. But net of transportation goods, new orders fell 0.2 percent to $389.4 billion, which was 5.0 percent ahead of the value during June 2016. Durable goods orders increased 6.4 percent (again, think civilian aircraft) while orders for nondurable slowed 0.3 percent. Shipments declined 0.2 percent to $471.5 billion (non-transportation goods shipments edged down 0.1 percent). Unfilled orders grew for the third time in four months with a 1.3 percent increase while inventories swelled for the seventh time in eight months with a 0.2 percent gain.

#5Both the manufacturing and service sectors grew at a slightly slower pace during July. The Institute for Supply Managements’ Purchasing Managers Index (PMI) shed 1.5 points during the month to a reading of 56.3. Even with the decline, the PMI has been above a reading of 50.0—consistent with an expanding manufacturing sector—for 11 consecutive months. Four of five components of PMI declined during the month: new orders (off 3.1 points to 60.4), employment (off 2.0 points to 55.2), production (off 1.8 points to 60.6), and supplier deliveries (off 1.6 points to 55.4). The inventories index, however, added a point during the month to a reading of 50.0. Fifteen of 18 tracked manufacturing industries expanded during the month, led by plastic/rubber products, electrical equipment/appliances, and wood products. The press release characterized purchasing managers’ comments as “reflect[ing] expanding business conditions.”

Meanwhile, the ISM’s measure of activity in the non-manufacturing side of the U.S. economy—the NMI—fell by 3.5 points to a reading of 53.9. While this was the NMI’s lowest reading since last August, represented the measure of service sector activity’s 91st straight month above the expansionary/contractionary threshold of 50.0. All four index components fell during the month: business activity/production (down 4.9 points to 55.9), new orders (down 5.4 points to 55.1), employment (down 2.2 points to 53.6), and supplier deliveries (down 1.5 points to 51.0). Fifteen of 18 tracked non-manufacturing industries expanded during the month; including, accommodation/food services, information, and education services. The press release stressed that “[t]he majority of respondents’ comments were mostly positive about business conditions and the state of the economy.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 29, 2017, First-Time Claims, seasonally adjusted): 240,000 (-5,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 241,750 (-7.1% vs. the same week a year earlier).
Construction Spending (June 2017, Value of Construction Put in Place, seasonally adjusted): $1.206 trillion (-1.3% vs. May 2017, +1.6% vs. June 2016).
Vehicle Sales (July 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (0.4% vs. June 2017, -5.9% vs. July 2017).
Agricultural Prices (June 2017, Prices Received by Farmers (Index: 2011=100): 98.1 (-0.1% vs. May 2017, +4.6% vs. June 2016).

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

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