Employers Hire, The Fed Cuts: March 2 – 6

While not impacting the labor market yet, the coronavirus pushed the Fed to take action and weighed on purchasing managers’ business outlook. Here are the five things we learned from U.S. economic data released during the week ending March 6.

#1Hiring activity surged in February. Nonfarm payrolls rose by a seasonally adjusted 273,000 during the month, matching January’s gain as the most since early 2018. The same Bureau of Labor Statistics’ report also presented upward revisions for January and December payrolls that reflected the addition of 85,000 more workers that previously reported. (One caution to the February figures is that the BLS collected most of its February data by mid-month and may not reflect a possible hiring slowdown as the impact of coronavirus was spreading across the nation and world.) The goods-producing side of the economy added 61,000 jobs while service sector employment swelled by 167,000 workers. Industries experiencing the biggest payrolls gains included health care/social assistance (+56,500), leisure/hospitality (+51,000), government (+45,000), construction (+42,000), and professional/business services (+41,000). Average hourly wages of $981.09 were up 3.0 percent from a year earlier.

Based on a separate households survey, the unemployment rate slipped 1/10th of a point to 3.5 percent (a multi-decade low hit several times over the past year). Contracting was the labor force, shedding 60,000 people. The labor force participation rate held steady at 63.4 percent while the same measure for adults aged 25 to 54 backed off by 1/10th of a point to 83.0 percent. The median length of unemployment dropped by 2/10ths of a week to 9.1 weeks, while the number of part-time workers seeking a full-time job grew 136,000 to 4.318 million.

#2The Federal Reserve cut its short-term interest rate target to offset economic impacts from the coronavirus. The statement released from this past week’s emergency meeting of the Federal Open Market Committee stressed that “[t]he fundamentals of the U.S. economy remain strong. But due to “evolving risks to economic activity” from COVID-19, the committee unanimously voted to cut the fed funds target rate by a half-point to a range of 1.00 and 1.50 percent. The statement also stressed that the FOMC was “closely monitoring” the situation and “will use its tools and act as appropriate to support the economy.”

#3Trade activity slowed in January. The Census Bureau and Bureau of Economic Analysis report that exports declined $0.8 billion to $208.6 billion (up 1.1 percent from January 2019) while imports dropped $4.2 billion to $253.9 billion (down 2.4 percent from January 2019). The resulting trade deficit of -$45.3 billion was $3.3 billion smaller than that of January and 15.8 percent from a year earlier. The goods deficit narrowed by $2.6 billion to -$67.0 billion while the services surplus expanded by $0.6 billion to +$21.7 billion. Weighing on January export activity were declines for civilian aircraft and crude oil. The U.S. had its biggest goods deficits with China, the European Union, and Mexico.

#4Supply managers report a flat manufacturing sector and growth in services during February. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, shed 8/10th of a point to 50.1. This was the second month in which the PMI was above the critical growth/contraction threshold of 50.0. The most notable among the PMI components was the measure of supplier deliveries, adding 7/10ths of a point to 51.7. Readings above 50.0 for this measure are indicative of slowing deliveries with some comments from survey respondents reporting delayed shipments from “coronavirus-impacted countries.” Fourteen of 18-tracked manufacturing industries expanded in January, led by wood products, furniture, and plastic/rubber products. The press release stated that despite the current challenges, respondents’ comments were “marginally positive regarding near-term growth.”

The ISM’s service sector measure of business activity, the NMI, added 1.8 points to a reading of 57.3. This was the 121 consecutive month in which the service sector had expanded. Three of our NMI components—new orders, employment, and supplier deliveries—grew during the month, while the mark for business activity fell. Sixteen of 18 service sector industries reported growth in February, led by accommodation/food services and management of companies/support services. The press release indicated the survey respondents were “concerned about the coronavirus and its supply chain impact.”

#5Factory orders slowed in January. The Census Bureau estimates new orders for manufactured goods declined 0.5 percent to a seasonally adjusted $497.9 billion. Transportation goods orders slipped as a slowdown in orders for defense aircraft and ships/boats counterbalanced a jump for civilian aircraft and motor vehicles. Net of transportation goods, core factory orders slowed 0.1 percent. Rising were orders for primary metals (+2.1 percent), and machinery (+2.1 percent), and fabricated metal products (+1.1 percent). Falling were orders for electrical equipment/appliances (-1.1 percent), nondurable goods (-0.8 percent), and computers/electronics (-0.2 percent). A proxy for business investment (orders for civilian nonaircraft capital goods) grew 1.1 percent. Shipments fell for the third straight month, losing 0.5 percent to $501.8 billion, while inventories contracted 0.1 percent to $703.4 billion. Unfilled orders essentially held steady at $1.157 trillion.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 29, 2020, First-Time Claims, seasonally adjusted): 216,000 (-3,000 vs. previous week; -2,000 vs. the same week a year earlier). 4-week moving average: 213,000, -3.8% vs. the same week a year earlier).
Productivity (2019 Q4, Nonfarm Business Labor Productivity, seasonally adjusted annualized rate): +1.2% vs. 2019 Q3, +1.8% vs. 2018 Q4.
Construction Spending (January 2020, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.369 trillion (+1.8% vs. December 2019, +6.8% vs. January 2019).
Wholesale Inventories (January 2020, Total Inventories of Merchant Wholesalers, seasonally adjusted): $671.6 billion (-0.4% vs. December 2019, +0.4% vs. January 2019.
Consumer Credit (January 2020, Outstanding Non-Real Estate-Back Consumer Loan Balances seasonally adjusted): $4.203 trillion (+12.0 billion vs. December 2019, +4.4% vs. January 2019).
Beige Book

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

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