Payrolls Expand, Unemployment Falls: July 30 – August 3

The frantic pace of hiring cooled a bit while the Fed takes a break. Here are the five things we learned from U.S. economic data released during the week ending August 3.  

#1Employers added fewer jobs while the unemployment rate fell during July. The Bureau of Labor Statistics reports nonfarm employers added a seasonally adjusted 157,000 workers during the month. This was down from the sharply upward estimates of May and June job creation of 268,000 and 248,000, respectively, but also represented the 94th straight month of payroll expansion. The private sector added 170,000 jobs during July while the public sector shed 13,000 workers. The former was split between 52,000 new jobs in the goods-producing sector and 118,000 added workers in the service sector. Industries adding the most workers were professional/business services (+51,000), leisure/hospitality (+40,000), manufacturing (+37,000), and health care/social assistance (+33,500). The average hour week slowed by 1/10th of an hour to 34.5 hours (July 2017: 34.4 hours) while mean hourly wages grew by seven cents to 27.05 (July 2017: 26.34). The resulting average weekly earnings of $933.23 was up 3.0 percent from a year earlier.

The unemployment rate slipped by 1/10th of a percentage point to 3.9 percent, just above the 3.8 percent post-recession low achieved in May (July 2017: 4.3 percent). 105,000 people entered the labor market during the July, which kept the labor force participation rate at 62.9 percent. The labor participation rate for adults aged 25-54 eked out a 1/10th of a point increase to 82.1 percent. The median length of unemployment jumped to 9.5 weeks (up 6/10ths of a week from June but still under July 2017’s median of 10.4 weeks). The count of “involuntary” part-time workers—part-time workers who seek a full-time opportunity—dropped by 172,000 to 4.567 million people (July 2017: 3.233 million). Finally, the broadest measure of labor underutilization by the BLS (the “U-6” series) fell to a post-recession low of 7.5 percent, down 3/10ths of a point from June and a full percentage point of July 2017.labor underutilization 080318

#2The Fed does not surprise (i.e., does nothing). The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as being “at a strong rate” and the labor market as having “continued to strengthen.” Further, it sees core inflation being near its two-percent target rate while consumer and business investment spending having “grown strongly.” Looking towards the future, the Fed sees risks to be “roughly balanced” between those on the upside and downside. As a result, the FOMC voted unanimously to maintain the fed funds target rate at a range between 1.75 and 2.00 percent, a policy that the statement called “accommodative.” The general consensus has the FOMC going for a quarter-point rate hike at its next meeting in September. 

#3The trade deficit grew for the first time in four months during June. The Census Bureau and Bureau of Economic Analysis estimates exports slowed by $1.5 billion to $213.8 billion (+9.8 percent versus June 2017) while imports increased by $1.6 billion to $260.2 billion (+8.6 percent versus June 2017). The resulting trade deficit of -$46.3 billion was up $3.6 billion from May and 3.4 percent larger than June 2017’s deficit. The trade deficit for the first six months of 2018 totaled -$291.2 billion, up 7.2 percent from the same six months in 2017 and 17.7 percent from the first six months in 2016. The goods deficit grew by $3.1 billion during June to -$68.8 billion while the services surplus was virtually unchanged at +$22.5 billion. In the case of the former, exports of goods dropped by $1.7 billion (including declines in exports of pharmaceutical preparations, jewelry, automobiles, and civilian aircraft (and engines)). Imports of goods grew by $1.4 billion, led by increases for pharmaceutical preparations and crude oil. The U.S. had its largest goods deficits with China (-32.5 billion), the European Union (-$12.8 billion), and Mexico (-$6.7 billion).

#4Consumer spending held firm during the last days of spring. Real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during June, according to the Bureau of Economic Analysis. Spending on durable goods and services each increased 0.4 percent while that on nondurable goods slipped 0.1 percent. Without adjustments for inflation, nominal PCE grew 0.4 percent, matching the change in nominal personal income and nominal disposable income. After adjusting for price variation, real disposable personal income gained 0.3 percent during June. The savings rate remained steady at +6.8 percent (note that both the savings rate and income data series were revised upward with the publication of this report). Over the past year, real spending has grown 2.8 percent (its best 12-month comparable since last November) while real disposable has increased 3.1 percent (its best 12-month comparable since October 2015).

#5Businesses appear concerned about the possible effects of tariffs. The Institute for Supply Management’s Purchasing Managers Index (PMI) shed 2.1 points during the month to a reading of 58.1. This was the 23rd straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of the five PMI components declined during July: supplier deliveries (-6.1 points to 62.1), production (-3.8 points to 62.3), and new orders (-3.3 points to 60.2). Rising were measures for inventories (+2.5 points to 53.3) and employment (up a half point to 56.5). Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, electrical equipment/appliances, and apparel. The press release notes that survey respondents were “overwhelmingly concerned about how tariff-related activity” will impact their business.

The ISM’s measure for business activity in the service sector also slumped as the NMI dropped by 3.4 points to 55.7. Even if this is the lowest reading for the NMI since last August, it represented the 102nd consecutive month with the index indicating an expansion of the service sector. Three of four NMI components fell from the June readings: business activity/production (down 7.4 points to 56.5), new orders (down 6.2 points to 57.0), and supplier deliveries (off 2.5 points to 53.0).  Improving was the measure tracking employment (up 2.5 points to 56.1). Sixteen of 18 tracked nonmanufacturing industries grew during July, led by mining, public administration, and agriculture/forestry/fishing/hunting. The press release blames the “cooling off” of the service sector on concerns about “tariffs and deliveries.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 28, 2018, First-Time Claims, seasonally adjusted): 218,000 (+1,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 214,500 (-11.4% vs. the same week a year earlier).
Factory Orders (June 2018, New Orders for Manufactured Goods, seasonally adjusted): $501.7 billion (+0.7% vs. May 2018, +6.1% vs. June 2017).
Pending Home Sales (June 2018, Index (2001=100), seasonally adjusted): 106.9 (+0.9% vs. May 2018, -2.5%
Vehicle Sales (July 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (-2.7% vs. June 2018, -0.1% vs. July 2017).
Construction Spending (June 2018, Value of Construction Put in Place): $1.317 trillion (-1.1% vs. May 2018, +6.1% vs. June 2017).
Conference Board Consumer Confidence (July 2018, Index (1985=100), seasonally adjusted): 127.4 (May 2018: 127.1).
Case-Shiller Home Price Index (May 2018, 20-City Index, seasonally adjusted): +0.2% vs. April 2018, +6.5% vs. May 2017). 

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

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