Payrolls Expand Again, But at a Slower Rate: January 1 – 5

Payroll growth slowed in December, but purchasing managers indicate robust economic activity. Here are the five things we learned from U.S. economic data released during the week ending January 5.

#1Employers added fewer workers during December, but the unemployment rate remained at a 17-year low. Nonfarm payrolls expanded by a seasonally adjusted 148,000 during the month, the slowest pace of job creation since hurricanes dragged down hiring back in September. Bureau of Labor Statistics data finds that nonfarm employment grew by 2.055 million for all of 2017, the fewer number of jobs added in a year since 2010. Private sector employers added 146,000 workers during the month, split between 55,000 new goods-producing jobs and 91,000 new service sector workers. Industries adding the most workers during the month were construction (+30,000), health care/social assistance (+29,200), leisure/hospitality (+29,000), manufacturing (+25,000), and professional/business services (+19,000). Retail was a big drag as the industry shed 20,300 workers during December. The average workweek held firm at 34.5 hours (December 2016: 34.4 hours). Average weekly earnings grew by $3.11 during December to $918.74, up 2.8 percent from a year earlier.Job Creation 2005-2017--010518

Based on a separate survey of households, the unemployment rate was unchanged at 4.1 percent, where it has been for the past three months. Before that, the unemployment rate had not been this low since December 2000. 64,000 people entered the labor force during the month, but the labor force participation rate remained stuck at 62.7 percent. The median length of unemployment fell by 4/10ths of a month to 9.1 weeks (December 2016: 10.8 weeks). 4.915 million people were “involuntary” part-time workers (i.e., had a part-time position but were seeking a full-time opportunity), down from 5.514 million a year earlier. The broadest measure of labor underutilization from BLS (the “U-6” series) inched up by 1/10th of a percentage point to 8.1 percent. This same measure was at 9.1 percent a year earlier and was dramatically below its recession peak of 17.1 percent during both March and April 2010.

#2Both exports and imports grew during November as the trade deficit expanded. The Census Bureau and the Bureau of Economic Analysis report that exports increased by $4.4 billion during the month to a seasonally adjusted $200.2 billion (+8.3 percent versus November 2016) while imports surged $6.0 billion to $250.7 billion (+8.4 percent versus November 2016). The resulting trade deficit of -$50.5 billion was an increase of $1.6 billion from October, up 8.9 percent from a year earlier, and the largest trade deficit since January 2012. The goods deficit expanded by $1.7 billion to -$70.9 billion while the services surplus widened by $0.1 billion to +$20.4 billion. A closer look at the former finds exports of goods grew by $4.3 billion, led by a $2.5 billion increase in capital goods exports (including civilian aircraft), a $1.0 billion increase in automotive vehicles/parts/engines exports, and a $0.7 billion gain in consumer goods exports. Imports of goods grew by $6.0 billion, reflecting a $2.4 billion jump in consumer goods exports, a $2.2 billion hike in industrial supplies and materials exports (including crude oil), and a $1.6 billion increase in capital goods orders. The U.S. had its biggest goods trade deficits with China (-$33.5 billion), European Union (-$13.5 billion), Mexico (-$5.8 billion), and Japan (-$5.8 billion).

#3Purchasing managers report business activity growth continued during December. The Institute for Supply Management’s Purchasing Managers Index (PMI) increased by 1.5 points during the month to a seasonally adjusted 59.7. This was the 16th straight month in which the PMI was above a reading of 50.0—indicative of an expanding manufacturing sector—and its best reading since September. Four of the PMI’s five components improved during the month: new orders (up 5.4 points to 69.4), production (up 1.9 to 65.8), inventories (up 1.5 points to 48.5), and supplier deliveries (up 1.4 points to 57.9). The index tied to employment shed 2.7 points to a reading of 57.0. Sixteen of the 18 tracked manufacturing sectors expanded during December, led by machinery, computer/electronic products, and paper products. The press release noted that survey respondents’ comments “reflect[ed] expanding business conditions.”

The ISM’s measure for the service sector shed 1.5 points to a reading of 55.9. Even with the decline to its lowest point since August, the NMI has remained above a reading of 50.0 for 96 consecutive months. Only two of the NMI’s four components showed growth during November:  supplier deliveries (up 1.5 points to 55.5) and employment (up a full point to 56.3). Losing ground were index components for new orders (off 4.4 points to 54.3) and business activity/production (off 4.1 points to 57.3). Fourteen of 18 tracked service sector industries expanded during the month, led by retail, utilities, and entertainment/recreation. The press release noted commenters reported they had “finished the year on a positive note” and were optimistic about “business conditions and the economic outlook going forward.”

#4Factory orders gained during November. New orders for manufactured goods jumped 1.3 percent during the month to a seasonally adjusted $488.1 billion, per the Census Bureau This was the fifth increase in factory orders over the past six months, placing the measure 8.0 percent above its year-ago mark. Transportation goods orders increased 4.1 percent, reflecting gains for civilian and defense aircraft of 14.7 percent and 12.4 percent, respectively, and a 1.1 percent bounce in orders for motor vehicles. Net of transportation goods, factory orders rose 0.8 percent during the month and has gained 7.6 percent over the past year. Rising during the month were orders for furniture (+1.6 percent), primary metals (+0.9 percent) and electrical equipment/appliances (+0.6 percent) while new orders dropped for machinery (-1.0 percent), computer/electronics (-0.5 percent), and fabricated metal products (-0.2 percent). Shipments gained for the 11th time in 12 months, with a 1.2 percent increase to $491.2 billion. Unfilled orders rose eked out a 0.1 percent increase (its third consecutive advance) while inventories expanded 0.4 percent (its 12th gain over the past 13 months). 

#5Construction spending rose during November. The Census Bureau estimates the seasonally adjusted annualized value of construction put into place grew 0.8 percent during the month to $1.257 trillion. This represented a 2.4 percent increase from the same month a year earlier. Private sector construction spending jumped 1.0 percent to an annualized $964.3 billion (+2.6 percent versus November 2016). Residential expenditures also gained 1.0 percent to $530.8 billion (+7.9 percent versus November 2016) while nonresidential spending increased 0.9 percent to $433.5 billion (which was nevertheless off 3.1 percent from a year earlier). Public sector construction spending edged up 0.2 percent in November to an annualized $292.7 billion. This was up 1.8 percent over the previous year. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 30, 2017, First-Time Claims, seasonally adjusted): 250,000 (+3,000 vs. previous week; +9,000 vs. the same week a year earlier). 4-week moving average: 241,750 (-4.7% vs. the same week a year earlier).
Vehicle Sales (December 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.85 million (+1.8% vs. November 2017, -1.7% vs. December 2016).
FOMC minutes

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

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