Job Creation Surprises to the Upside: December 2 – 6

Job creation accelerated in November while trade activity slackened in October. Here are the five things we learned from U.S. economic data released during the week ending December 6.

#1Employers added more workers in November than in any other month since January. Nonfarm payrolls expanded by a seasonally adjusted 266,000 workers during the month, up from the 193,000 added in September and October’s 156,000 gain. The now-settled General Motors strike held down job creation during those two months—employment in motor vehicles/parts rose by 41,300 in November as strikers returned to their jobs. The Bureau of Labor Statistics has private-sector employment blooming by 254,000 workers, split between gains of 206,000 in the service sector and 48,000 in the goods-producing side of the U.S. economy. Industries reporting the biggest job gains included health care/social assistance (+60,200), manufacturing (+54,000), leisure/hospitality (+45,000), and professional/business services (+38,000). Average weekly earnings have risen 3.1 percent over the past year to $973.18.Nonfarm payrolls November 2018 - November 2019

A separate survey of households has the unemployment rate falling back to a multi-decade low of 3.5 percent (it also was at 3.5 percent in September). A modest 40,000 people entered the labor force during November while the labor force participation rate slipped 1/10th of a point to 63.2 percent. The labor force participation rate for adults 25 to 54 held steady at 82.8 percent. The median length of unemployment crept up by 1/10th of a week to 9.4 weeks (November 2018: 9.0 weeks), while the count of part-time workers mostly held steady at 4.322 million workers (although down 9.6 percent from a year earlier). The BLS’s broadest measure of labor underutilization (the “U-6” series) slipped by 1/10th of a point to 6.9 percent, matching the multi-decade low achieved in September.

#2The trade deficit narrowed significantly in October as overall trade activity slowed. The Census Bureau and the Bureau of Economic Analysis indicate that imports fell by $4.3 billion during the month to a seasonally adjusted $254.3 billion (-4.7 percent versus a year earlier) while exports slipped $0.4 billion to $207.1 billion (-1.4 percent versus the previous year). The resulting trade deficit of -$47.2 billion was $3.9 billion smaller than the prior month and off 16.7 percent from a year earlier. The goods deficit contracted by $3.7 billion to -$68.0 billion (October 2018: -$77.3 billion) while the services surplus grew by $0.2 billion to +20.8 billion (October 2018: +$20.6 billion). The former not only included sharp declines in imports of both consumer goods and automobiles, but also fewer exports of cars and both consumer and capital goods. The U.S. had its biggest goods deficits with China (-$27.8 billion), the European Union (-$14.3 billion), and Mexico (-$7.8 billion).

#3Factory orders and shipments showed some life in October. The Census Bureau reports that new orders for manufactured goods grew 0.3 percent during the month to a seasonally adjusted $497.0 billion (-0.4 percent versus October 2018). Durable goods orders jumped 0.5 percent (helped by a 0.7 percent bounce in transportation orders) while nondurable goods orders held steady. Also stemming a decline were shipments, which grew by less than 0.1 percent to $500.2 billion (+0.8 percent versus October 2018). Unfilled orders inched up 0.1 percent to $1.164 trillion (-1.6 percent versus October 2018), while inventories expanded 0.1 percent to $698.8 billion (+2.3 percent versus October 2018).

#4Purchasing managers say that the manufacturing sector contracted for a fourth straight month in November. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, slipped by 2/10ths of a point to a seasonally adjusted 48.1. This was the fourth straight month in which the PMI was under a reading of 50.0, which is the threshold between a growing and contracting manufacturing sector. Among the five PMI components, two (production and supplier deliveries) improved during November, while the other three (inventories, employment, and new orders) fell. Only five of 18-tracked manufacturing industries reported growth during the month, led by apparel, food/beverage/tobacco, and paper products. The press release noted that survey respondents’ sentiment was “neutral regarding near-term growth.”

#5Growth in the service sector slowed in November. The headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business—the NMI—lost 8/10ths of a point to a reading of 53.9. Even with the drop, the NMI has been over a reading of 50.0 for 118 consecutive months, indicative of an expanding service sector. Among the four index components, the one tied to business activity fell sharply while that for supplier delivers suffered a smaller decline. Rising were NMI components for employment and new orders. Twelve of 18-tracked service sector industries grew in November, led by real estate, health care/social assistance, and arts/entertainment/recreation. Commenters to ISM’s survey said they were “hampered by constraints in labor resources.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 30, 2019, First-Time Claims, seasonally adjusted): 203,000 (-10,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 217,750 (-4.3% vs. the same week a year earlier).
Construction Spending (October 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.291 trillion (-0.8% vs. September 2019, +1.1% vs. October 2018).
Consumer Credit (October 2019, Outstanding Non-Real Estate Back Credit Balances, seasonally adjusted): $4.165 trillion (+$18.9 billion vs. September 2019, +4.8% vs. October 2018).
Wholesale Trade (October 2019, Inventories of Merchant Wholesalers, seasonally adjusted): $675.6 billion (+0.1% vs. September 2019, +3.8% vs. October 2018).

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Consumers Check Their Spending: November 25 – 29

Personal spending and overall economic activity chilled in the fall weather. Here are the five things we learned from U.S. economic data released during the week ending November 29.

#1Personal spending reflected caution in October. The Bureau of Economic Analysis indicates real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month, its smallest increase since February. Real spending on goods slumped 0.2 percent, pulled down by a 0.8 percent drop for durable goods. Expenditures on both nondurable goods and services each grew 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.3 percent, even as nominal personal income held steady and nominal personal income slipped 0.1 percent. Real disposable income dropped 0.3 percent. As a result, the savings rate shed 3/10ths of a point to +7.8 percent, its lowest point since July. Over the past year, real PCE has risen 2.3 percent, while real disposable income has grown 2.8 percent.Real Personal Consumption Expenditures: January - October 2019

#2The U.S. economy grew more robustly in Q3 than previously thought. The Bureau of Economic Analysis’ second estimate of Q3 Gross Domestic Product (GDP) now places the quarter’s economic expansion at a seasonally adjusted annualized rate (SAAR) +2.1 percent, up from the previously reported 1.9 percent gain. The upward revision was due to higher than previously reported levels of private inventory accumulation, business investment, and personal spending. Of the major components of the economy, only those tied to personal spending, government spending, fixed residential investment, and private inventory accumulation led to GDP growth. The same report finds Q3 corporate profits were soft, edging up by a mere 0.2 percent during the quarter and off 0.8 percent from a year earlier. The BEA will update its Q3 GDP and corporate profits data once again on December 20. 

#3…But the rate of economic expansion appears to have decelerated sharply in October. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic data points, lost 36-basis points during the month to a reading of -0.71. The CFNAI’s three-month moving average, which removes some of the month-to-month volatility, fell to its lowest mark since May with a ten-basis point loss to -0.31. The negative reading does not imply the U.S. economy contracted during the month, however, as the moving average remained above -0.70 (the marker for negative growth). Still, only 27 of the 85 economic indicators made a positive contribution to the CFNAI, while the other 58 measures had a negative impact. Indicators linked to production and employment had the most substantial negative impact on the CFNAI in October.

#4Durable goods orders showed some life in October. The Census Bureau estimates new orders for manufactured durable goods grew 0.6 percent during the month to a seasonally adjusted $248.7 billion. Transportation goods orders rose 0.7 percent, boosted by increases for both defense (+18.1 percent) and civilian (+10.7 percent) aircraft. Net of transportation goods, core durable goods orders gained 0.6 percent. Rising were orders for fabricated metal products (+1.8 percent), machinery (+1.3 percent), and computers/electronics (+0.7 percent). Orders slowed for electrical equipment/appliances (-1.7 percent) and primary metals (-1.4 percent). Signaling some vigor was business investment as civilian capital goods orders net of aircraft grew 1.2 percent in October.

#5New home sales slipped in October. The Census Bureau reports sales of new single-family homes decreased 0.7 percent during the month to a seasonally adjusted annualized rate of 733,000 units. Even with the decline, new home sales were 31.6 percent ahead of their year-ago pace. Sales grew during the month in two Census regions—West (+7.1 percent) and Midwest (+4.2 percent)—but slowed in the Northeast (-18.2 percent) and South (-3.3 percent). There were 322,000 new homes available for sale at the end of the month, up a modest 0.3 percent from September but off 3.3 percent from a year earlier. This was equivalent to a 5.3 month supply of homes on the market (versus a 7.2 month supply a year earlier).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 23, 2019, First-Time Claims, seasonally adjusted): 213,000 (-15,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-2.1% vs. the same week a year earlier).
Consumer Confidence Index (November 2019, Index (1985=100), seasonally adjusted): 125.5 (vs. October 2019: 126.1).
Pending Home Sales (October 2019, Index (2001=100), seasonally adjusted): 106.7 (vs. September 2019: 108.6; vs. October 2018: 102.2).
FHFA House Price Index (September 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. August 2019, +5.1% vs. September 2018.
Agricultural Prices (October 2019, Prices Received by Farmers): -2.6% vs. September 2019, -0.6% vs. October 2018.
Beige Book

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Economic Data Sends Mixed Messages: November 18 – 22

While leading indicators suggest economic weakness, both housing and sentiment gained momentum. Here are the five things we learned from U.S. economic data released during the week ending November 22.

#1Forward-looking economic indicators remained sluggish in October. The Conference Board’s Leading Economic Index (LEI) pulled back for a third consecutive month with a 1/10th of a point decline to 111.7 (2016=100). The LEI has remained within a small range over the past year. Only five of ten LEI components made positive contributions, led by building permits while manufacturing index components dragged down the measure. The coincident index held steady at a reading of 106.5, up 1.4 percent from a year earlier. Three of four coincident index components made positive contributions, led by personal income. The lagging index inched up 1/10th of a point to a reading of 108.1, with three of seven index components making a positive contribution (led by the length of unemployment). The press release says the results suggest “the economy will end the year on a weak note, at just below two percent growth.”

#2Previously home sales bounced back in October. Existing home sales, as measured by the National Association of Realtors, increased 1.9 percent during the month to a seasonally adjusted annualized rate of 5.46 million units. Sales expanded in the South (+4.4 percent) and Midwest (+1.6 percent) but slowed in the Northeast (-1.4 percent) and West (-0.9 percent). Sales have risen 4.6 percent over the past year, with three of four Census regions enjoying positive 12-month comparables. Sales matched that of a year earlier in the Northeast. The supply of homes tightened further, falling 2.7 percent to 1.77 million units, the equivalent to a 3.9 month supply. The median sales price of $270,900 was up 6.2 percent from a year earlier. The press release attributes the improvement in sales to “[h]istorically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates.”

#3Housing starts rebounded in October. The Census Bureau reports that housing starts gained 3.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.314 million units. Starts were 8.5 percent ahead of their year-ago mark. Single-family home starts grew 2.0 percent in October while those of multi-family units rose 6.5 percent. Permit activity presents a positive outlook—the number of issues permits increased 5.0 percent during the month to an annualized 1.391 million permits. This was up 14.1 percent from a year earlier. The annualized count of completed homes surged 10.3 percent in October to 1.256 million homes (+12.4 percent versus October 2019).

#4Sentiment among homebuilders remained solid in November. The National Association of Home Builders’ Housing Market Index (HMI) came in at a seasonally adjusted reading of 70. The measure was off a point from October but up ten points from a year earlier. Further, the HMI has been above a reading of 50—indicative of more homebuilders seeing the housing market as “good” as opposed to being “poor”—for 65 straight months. The HMI grew three in four Census regions: Northeast (up three points to 63), West (up two points to 85), and Midwest (up a point to Midwest). The HMI shed two points in the South to a reading of 74. The press release notes that builders report “ongoing positive conditions,” boosted by low interest rates and a robust labor market.

#5Consumer confidence rose to its highest level since the summer. The University of Michigan’s Index of Consumer Sentiment added 1.3 points in November to a seasonally adjusted reading of 96.8 (1966Q1=100). Even with the increase, the measure was off 7/10ths of a point from a year earlier. While the current conditions index shed 1.6 points during the month to 111.6 (November 2018: 111.6), the expectations index improved by 3.1 points to 87.3 (November 2018: 88.1). The press release points out that the headline index has been above a reading of 95.0 in 30 of the past 35 months, a show of strength not seen since a period between 1998 and 2000.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 16, 2019, First-Time Claims, seasonally adjusted): 227,000 (Unchanged vs. previous week; +3,000 vs. the same week a year earlier). 4-week moving average: 221,000 (+0.1% vs. the same week a year earlier).
State Employment (October 2019, Nonfarm Payrolls, seasonally adjusted): vs. September 2019: up in 4 states, down in 1 state, and essentially unchanged in 45 states and the District of Columbia. Vs. October 2018: Up in 27 states and essentially unchanged in 23 states and the District of Columbia.
Treasury International Capital Flows (September 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +15.4 billion (vs. August 2019: -$42.0 billion, vs. September 2018: +$8.5 billion.
FOMC Minutes

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