Gradually Digging Out: August 3 – 7

Labor market growth downshifted, but both the manufacturing and sector sectors pointed towards more growth. Here are the five things we learned from U.S. economic data released during the week ending August 7.

1. Payrolls grew for a third straight month in July, albeit at a slower pace. The Bureau of Labor Statistics estimates nonfarm payrolls expanded a seasonally adjusted 1.763 million jobs. This follows gains of 4.791 million and 2.725 million in June and May, respectively, but leaves the nonfarm payrolls 12.881 million smaller than they were in February. Private-sector payrolls grew by 1.462 million, spilt by gains in the goods-producing and service sectors of 1.423 million and 39,000, respectively. Industries with the most hiring were leisure/hospitality (+592,000), government (+301,000), retail (+258,300), health care/social assistance (+191,400), and temporary help services (+143,700).

Based on a separate household survey, the unemployment rate dropped 9/10ths of a percentage point to 10.2 percent. A year earlier, it was at a mere 3.7 percent. (The BLS notes that misclassified survey data may have resulted in an underreporting in the unemployment rate by upwards of a full percentage point, although that “probably overstates the size of the misclassification error”). 62,000 people left the labor force—as a result, the labor force participation rate slipped by 1/10th of a point to 61.4 percent (July 2019: 63.0 percent). Dropping by 2/10ths of a percentage point to 81.3 percent was the labor force participation rate for adults aged 25 to 54 (July 2019: 82.1 percent). Also, there were 8.443 million part-time workers who are seeking a full-time opportunity, down 619,000 for the month but still 112.5 percent greater than that of a year earlier. Rising was the median length of unemployment to 15.0 weeks, compared to 13.6 weeks in June and 9.0 weeks a year earlier. The broadest measure of labor underutilization—the U-6 series—fell by 1.5 percentage points to 16.5 percent. In July 2019, the same indicator was at 6.9 percent.

2. Purchasing managers indicated a second month of recovery in both manufacturing… The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, added 1.6 points in July to 54.2, its best reading since March 2019. The PMI has grown for two straight months, and this also was the second consecutive reading above 50.0, indicative of an expanding manufacturing sector. Improving were indices tracking new orders, production, and employment. Thirteen of eighteen tracked industries sectors expanded in July, led by wood products, furniture, and textiles. The press release noted that a 54.2 PMI reading “corresponds to a 3.3-percent increase in real gross domestic product (GDP) on an annualized basis.”

3. …and in the service sector in July. The Services PMI, also from the ISM, added a full point to a reading of 58.1. Like in the case of the manufacturing measure, the services PMI had increased and was above the critical 50.0 threshold for a second straight month. While the business activity/production and new orders indices advanced, the employment measure slipped. Fifteen of 18 service sector industries reported growth, led by arts/entertainment/recreation, health care/social assistance, and retail. Survey respondents were “mostly optimistic about business conditions and the economy as businesses continue to reopen” but also remained “concerned about the pandemic.”

4. Factory orders enjoyed a second consecutive month of growth. The Census Bureau reports that new orders for manufactured goods surged 6.2 percent in June to a seasonally adjusted $437.2 billion. Even with this gain and May’s 7.7 percent advance, however, new orders for the first six months of 2020 was still 10.1 percent under that for the same six months in 2019. Durable goods orders rose 7.6 percent while nondurables advanced 5.0 percent. Civilian nonaircraft capital goods orders—a proxy for business investment—increased 3.4 percent. Shipments rose 9.8 percent to $457.3 billion, with gains for durable and nondurable goods of +15.1 percent and +5.0 percent, respectively. Unfilled orders shrank by 1.4 percent to $1.093 billion, while inventories expanded 0.6 percent to $690.9 billion.

5. The trade deficit narrowed in June as both exports and imports slightly recovered. Per the Census Bureau and the Bureau of Economic Analysis, exports jumped 9.4 percent to a seasonally adjusted $158.3 billion (-24.4 percent vs. June 2019) and import activity rose 4.7 percent to $208.9 billion (-19.9 percent vs. June 2019).  The resulting trade deficit contracted by 7.5 percent in June to -$50.7 billion, 2.0 percent smaller than that a year earlier. The goods deficit narrowed by $4.0 billion to -$72.2 billion while the services surplus eked out a modest $0.1 billion increase to +$21.5 billion. The former reflected both increased exported goods (including for automobiles, capital goods, and industrial supplies/materials) and imported goods (including automobiles, consumer goods, capital goods, and industrial supplies/materials).

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending August 1, First-Time Claims, seasonally adjusted): 1,186,000 (-249,000 vs. the previous week, +938,000 vs. the same week a year earlier). 4-week moving average: 1,337,750 (+523.7% vs. the same week a year earlier).
  • Wholesale Inventories (June 2020, Inventories of Merchant Wholesalers, seasonally adjusted): $633.3 billion (-1.4% vs. May 2020, -5.6% vs. June 2019).
  • Construction Spending (June 2020, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.355 trillion (-0.7% vs. May 2020, +0.1% vs. June 2019).
  • Consumer Credit (June 2020, Outstanding Non-Real Estate Back Credit Balances, seasonally adjusted): $4.125 billion (-$8.9 billion vs. May 2020, +0.1% vs. June 2019).
  • Senior Loan Officer Survey

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

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