The Labor Market’s 7-Year Winning Streak Ended Last Month: October 2 – 6.

Employment in leisure & hospitality and in retail fell after the recent hurricanes. Here are the five things we learned from U.S. economic data released during the week ending October 6.  

#1Hurricanes Harvey and Irma weighed heavily on September employment data. For the first time since September 2010, nonfarm payrolls contracted during the month, shrinking by a seasonally adjusted 33,000 jobs. The Bureau of Labor Statistics’ report points out that both hurricanes detrimentally impacted nonfarm payrolls based on its survey of establishment employment during the week that includes September 12 (note that hurricane Irma made landfall in Florida on September 10). The consensus view is that the payroll hit is likely to be fleeting. Private sector employment contracted by 40,000 jobs, with an increase of 9,000 on the goods-producing side of the economy and a decline of 49,000 in the service sector. Taking a particularly large hit was leisure/hospitality, where payrolls shrank by 111,000. Also shedding jobs were information (-9,000) and retail (-2,900). Adding workers were transportation/warehousing (+21,800), health care/social assistance (+13,100), professional/business services (+13,000), and financial activities (+10,000). The average hours worked held steady at 34.4 hours while average hourly earnings increased by 12 cents to $26.55 (September 2016: $25.81). Average weekly earnings have grown 2.9 percent over the past year.

The separate survey of households saw the unemployment rate the unemployment rate drop by 2/10ths of a percentage point to a seasonally adjusted 4.2 percent. This was the measure’s lowest point since February 2000 (although these numbers may be affected by data collection issues in storm-affected areas). The median length of unemployment slipped by 2/10ths of a week to 10.3 weeks (matching its year-ago mark) while the count of part-time workers seeking a full-time opportunity fell to another post-recession low at 5.122 million (September 2016: 5.874 million). Finally, the broadest measure labor underutilization reported by the BLS (the U-6 series) shed 3/10ths of a percentage point to 8.3 percent. The last time the U-6 series was this low was June 2007. Do not be surprised to see many of the numbers in this report be subject to unusually large revisions in the coming months with improved data collection.labor underutilization 2005-17 100717

#2The trade deficit narrowed slightly during August. The Census Bureau and the Bureau of Economic Analysis indicate that exports grew by $0.8 billion during the month to a seasonally adjusted $195.3 billion (+4.2 percent versus August 2016) while imports slowed $0.4 billion to $237.7 billion (+4.0 percent versus August 2016). The resulting difference of -$42.4 billion was the smallest trade deficit since last September. The three-month moving average for the trade deficit—$43.2 billion—was at its lowest point since last November but was up 2.6 percent from the same time a year ago. The goods deficit contracted by $0.9 billion during August to -$64.4 billion while the goods surplus expanded by $0.3 billion to +$22.0 billion. Taking a closer at the former finds goods exports growing by $0.6 billion, with increased exports of consumer goods (including pharmaceuticals) and telecommunication equipment and a decline in exports of fuel oil and foods/beverages. Imports of goods slowed by $0.4 billion, with declining imports of industrial suppliers/materials and capital goods. Vehicle imports grew by $0.5 billion. The U.S. had its largest goods trade deficits with China (-$29.7 billion), the European Union (-$10.9 billion), Japan (-$6.3 billion), and Mexico (-$5.8 billion).

#3Purchasing managers report increased business activity during September. The Institute for Supply Management says that its Purchasing Managers Index (PMI) added a full two points during the month to a reading of 60.8. This was the 13th straight month in which the index was above a reading of 50.0—indicative of an expanding manufacturing sector—and the measure’s highest reading since May 2004. Four of five PMI components improved during the month: supplier deliveries (up 7.3 points to 64.4), new orders (up 4.3 points to 64.6), production (up 1.2 points to 62.2), and employment (up 4/10ths of a point to 60.3). The index for inventories shed three full points to 52.5. Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, machinery, and nonmetallic mineral products. The press release noted that respondents’ comments “reflect expanding business conditions” and that the recent hurricanes had affected supply chain prices.

The ISM’s headline measure for the service sector stayed above a reading of 50.0 for a 93rd consecutive month. The NMI surged by 4.5 points during September to a seasonally adjusted 59.8. All four index components improved from their August readings: supplier deliveries (up 7.5 points to 58.0), new orders (up 5.9 points to 63.0), business activity/production (up 3.8 points to 61.3), and employment (up 6/10ths of a point to 56.8). Fifteen of 18 tracked nonmanufacturing segments of the economy expanded during September, led by retail trade, management/support services of companies, and information. The press release reported that survey respondents’ comments “indicate a good outlook for business conditions” even with “the impact on the supply chain from the recent hurricanes.”

#4Factory orders grew in August. The Census Bureau reports that new orders for manufactured goods grew 1.2 percent during the month to a seasonally adjusted $471.7 billion. As noted here last week, orders for civilian aircraft rebounded from July’s huge drop with a 44.8 percent surge. This led to a 5.1 percent overall gain in transportation goods (new orders for automobiles increased 0.7 percent). Net of transportation goods, new orders grew 0.4 percent during the month. Durable goods orders jumped 2.0 percent during August while those for nondurable gained 0.4 percent. Civilian, non-aircraft capital goods orders—a proxy for business investment—increased 1.1 percent during the month. Shipments grew for the eighth time in nine months with a 1.2 percent bump to $471.7 billion. Net of transportation goods, shipments gained 0.6 percent. Unfilled orders edged up by less than 0.1 percent to $1.133 trillion while inventories expanded for the ninth time in ten months with a 0.4 percent increase.

#5Construction spending grew in August. Per the Census Bureau, the value of construction put into place increased 0.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of $1.218 trillion. This was 2.5 percent above the annualized rate of construction spending from a year earlier. Private sector construction spending grew 0.4 percent during August to a SAAR of $954.8 billion (+4.7 percent vs. August 2016). Private sector residential construction gained 0.4 percent, with gains of 0.3 percent and 0.9 percent for new-single and multi-family homes, respectively. Private sector nonresidential spending rose 0.5 percent, with increases across most categories of construction (manufacturing and communication being the exceptions). Public sector construction spending jumped 0.7 percent during the month to a SAAR of $263.5 billion, which was nevertheless 5.1 percent below its year-ago spending pace. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 30, 2017, First-Time Claims, seasonally adjusted): 260,000 (-12,000 vs. previous week; +13,000 vs. the same week a year earlier). 4-week moving average: 268,250 (+6.2% vs. the same week a year earlier).
Vehicle Sales (September 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 18.57 million units (+15.1% vs. August 2017, +4.8% vs. September 2016).
Wholesale Inventories (August 2017, Merchant Wholesale Inventories, seasonally adjusted): $608.1 billion (+0.9% vs. July 2017, +4.5% vs. August 2016).
Consumer Credit (August 2017, Outstanding Non-Real Estate Backed Consumer Loans, seasonally adjusted): $3.766 trillion (+$13.1 billion vs. July 2017; +5.5% vs. August 2016).

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

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