Hiring Held Steady, The FOMC Did Not: July 29 – August 2

The Fed lowered its interest rate target even as the labor market continued to create jobs. Here are the five things we learned from U.S. economic data released during the week ending August 2.

#1Job creation continued in July. The Bureau of Labor Statistics indicates that nonfarm payrolls expanded by a seasonally adjusted 164,000 jobs during the month. While off from June’s downwardly revised 193,000 job gain, this was 106th straight month of payroll expansion. Private-sector employers added 148,000 workers during the month, split between 15,000 in the goods-producing sector and 133,000 in the service sector. Industries adding the most workers in July were health care/social assistance (+50,400), professional/business services (+38,000), financial activities (+18,000), and manufacturing (+16,000). Average hourly earnings have risen 3.2 percent over the past year to $27.98.

A separate household survey kept the unemployment rate of 3.7, which was just above its multi-decade low of 3.6 achieved back in May. 370,000 people entered the labor market, pushing the labor force participation rate up a 1/10th of a percentage point to 63.0 percent. The same measure for adults aged 25 to 54 fell by 2/10ths of a percentage point to 82.0 percent. Falling to post-recession lows were the median length of unemployment (8.9 weeks, matching the business cycle low hit in January), the count of part-time workers seeking a full-time job (3.984 million), and the broadest measure of labor underutilization, the “U-6” series (7.0 percent).

#2The Fed cuts its short-term interest rate target. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted continued strength in the labor market and household spending. Yet the FOMC remained concerned about “soft” business investment and inflation compensation that had “remain[ed] low.” Due to “implications of global developments for the economic outlook as well as muted inflation pressures,” the FOMC voted to cut the fed funds target rate by 25-basis points to a range between 2.00 and 2.25 percent. Two FOMC voting members (George and Rosengren) both opposed the target rate cut. The dissents and the somewhat muted statement about how it will “act as appropriate” in the future leaves up in the air expectations on potential additional rate cuts.

#3Growth in personal spending slowed in June. The Bureau of Economic Analysis reports real personal consumption expenditures (PCE) rose a seasonally adjusted 0.2 percent. While this was the fourth consecutive monthly increase, it was its smallest gain of the four. Consumer spending on goods jumped 0.4 percent as expenditures on nondurable goods rose 0.7 percent and that on durables slipped 0.1 percent. Services spending on edged up 0.1 percent. Funding the increased spending was a 0.3 percent gain in real disposable income. The savings rate edged up 1/10th of a percentage point to +8.1 percent. Over the past year, real consumer spending has risen 2.5 percent, boosted by a 3.3 percent jump in real disposable income.

#4The trade deficit held steady in June. Per the Census Bureau and the Bureau of Economic Analysis, exports dropped by $4.4 billion to $206.3 billion (-2.2 percent versus June 2018) while imports fell by $4.6 billion to $261.5 billion (+1.2 percent versus June 2018). The resulting trade deficit of -$55.2 billion was $0.2 smaller than that of May but 16.3 percent greater than that of a year earlier. The goods deficit narrowed by $0.8 billion to -$75.1 billion (+8.2 percent versus June 2018) while services surplus shrank by $0.6 billion to +$20.0 billion (-9.3 percent versus June 2018). The former was the product a $3.9 billion drop in exported goods (including for consumer goods, capital goods, and automobiles) and a $4.7 billion slowdown in imported goods (including for crude oil, petroleum products, and consumer goods).

#5One measure of consumer sentiment rebounded in July, another was steady. The Conference Board’s Consumer Confidence Index jumped by 11.4 points during the month to a seasonally adjusted reading of 135.7 (1985=100), reversing a sharp drop in June and hitting a 2019 high point. The current conditions index added 7.6 points to a reading of 170.9 while the expectations index rose by 14.6 points to 112.2. 40.1 percent of survey respondents characterized current business conditions as good versus 11.2 percent that saw them as being “poor.” Similarly, 46.2 percent of consumers report that jobs were “plentiful” versus just 8.7 percent that felt jobs were “hard to get.” The press release said the results suggest “robust spending in the near-term despite slower growth in GDP.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment came in at a seasonally adjusted 98.4. This matched the preliminary July reading reported a few weeks ago and represented a mere 2/10ths of a point gain from June and a half point increase from a year earlier. The present conditions index shed 1.2 points during the month to a reading of 110.7 (July 2018: 114.4) while the expectations index added 1.2 points to 90.4 (July 2018: 87.3). While noting that sentiment had remained “remarkably stable” over the past few years, the press release wonders whether the recently announced expansion in tariffs on Chinese imports may lessen “overall consumer confidence.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 27, 2019, First-Time Claims, seasonally adjusted): 215,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 211,500 (-1.7% vs. the same week a year earlier).
Factory Orders (June 2019, New Orders, seasonally adjusted): $493.8 billion (+0.6% vs. May 2019, -1.2% vs. June 2018.
ISM Manufacturing Report on Business (July 2019, PMI (Index>50 = expanding manufacturing sector): 51.2 (vs. June 2019: 51.7).
Construction Spending (June 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.287 trillion (-1.3% vs. May 2019, -2.1% vs. June 2018).
Pending Home Sales (June 2019, Index (2001=100), seasonally adjusted): 108.3 (vs. May 2019: +2.8%, vs. June 2018: +1.6%).

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

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