Job Creation and the Trade Deficit Both Grow: March 5 – 9

Payroll growth surprised to the upside while the trade deficit widened once again. Here are the five things we learned from U.S. economic data released during the week ending March 9.

#1Employers accelerated their pace of hiring during February. Nonfarm payrolls grew by a seasonally adjusted 313,000 workers during the month, the most jobs added since June 2016. Further, the Bureau of Labor Statistics upwardly revised its estimates of December and January job gains by a combined 54,000. Nonfarm employers have added 2.281 million people to their payrolls over the past year, for a monthly average of 190,083 jobs. Private sector employers added 287,000 jobs to their payrolls in February, split between 100,000 in the goods-producing side of the economy and 187,000 in the service sector. The industries adding the most workers during the month included construction (+61,000), retail (+50,300), professional/business services (+50,000), manufacturing (+32,000), health care/social assistance (+29,100), and financial activities (+28,000). The average workweek inched up by 1/10th of an hour to 34.5 hours (February 2017: 34.4) while average weekly earnings grew by $4.06 to $922.88 (up 2.9 percent over the past year).Growth in Employment-030918

Based on a separate survey of households, the employment rate remained at its post-recession low of 4.1 percent for a third consecutive month. An impressive 806,000 people entered the labor force, leading to a 3/10ths of a percentage point increase in the labor force participation rate to 63.0 percent, its highest point since last September. The labor force participation rate for adults aged 25 to 54—arguably a better measure of the number of adults in their prime working years—rose by half of a percentage point to a post-recession high of 82.2 percent. The typical length of unemployment slipped by 1/10th of a week to 9.3 weeks (February 2017: 10.1 weeks). 5.160 million people held a part-time job but were seeking a full-time opportunity, down from the 5.670 million at the same time a year earlier. The broadest measure of labor underutilization published by the BLS—the U-6 series—held firm at 8.2 percent (February 2017: 9.2 percent).

#2The U.S. trade deficit widened for a fifth consecutive month. The Census Bureau and the Bureau of Economic Analysis reports that exports declined 1.3 percent to a seasonally adjusted $200.9 billion while imports shrank by less than 0.1 percent to $257.5 billion. The resulting trade deficit expanded by 5.0 percent to -$56.6 billion. The trade deficit has grown by 16.2 percent over the past year. The goods deficit jumped by $2.8 billion to -$76.5 billion while the services surplus eked out a $0.1 billion increase to +$19.9 billion. The former resulted from a $3.3 billion decrease in exported goods (thanks to a decline in exports of both civilian aircraft and industrial supplies/materials). The U.S. had its largest goods deficits with China (-$35.5 billion), the European Union (-$15.0 billion), Germany (-$6.3 billion), Mexico (-$5.6 billion), and Japan (-$5.6 billion).

#3The service sector continued growing at a solid if slightly slower rate in February. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business shed 4/10ths of a point to a reading of 59.5. This was the 97th straight month in which the NMI was above a reading of 50.0, indicative of an expanding service sector. The NMI slipped because of a sharp 6.6 point drop in the index component associated with employment (to a still expanding reading of 55.0). Two other index components grew during February (business activity/production (up 3.0 points) and new orders (up 2.1 points)) while that for supplier deliveries held firm. Sixteen of 18 tracked nonmanufacturing industries expanded during the month, led by education services, transportation/warehousing, and utilities. The press release noted that a “majority of respondents continue to be positive about business conditions and the economy.”

#4Even with a small upward revision for Q4, productivity gains continued to disappoint. The Bureau of Economic Analysis raised its estimate of nonfarm labor productivity during the final three months of 2017from a 0.1 percent decrease to being unchanged on a seasonally adjusted basis. This was the outcome of output growing 3.2 percent and the number of worked gaining 3.3 percent. Manufacturing sector productivity surged 6.0 percent during Q4, thanks to a 6.6 percent increase in output resulting from a mere 0.5 percent increase in the number of hours worked. Durable goods manufacturing productivity jumped 8.1 percent while that for nondurable goods manufacturing increased 3.4 percent. For all of 2017, nonfarm business productivity gained by a feeble 1.2 percent, which was nevertheless an improvement from being unchanged for all of 2016. Manufacturing sector productivity inched up 0.6 percent during 2017 after having gained by only 0.4 percent and 0.3 percent in 2016 and 2015, respectively.

#5Consumers took on credit card debt at a slower rate in January. The Federal Reserve indicates that outstanding consumer credit balances (net of any real estate related loans—e.g., mortgages, home equity loans) totaled a seasonally adjusted $3.855 trillion at the end of the month, up $13.9 billion from December and 5.3 percent from a year earlier. Balances of nonrevolving credit (e.g., student loans, college loans) jumped by $12.8 billion during the month to $2.825 trillion (+5.0 percent versus January 2017). Not rising as much were outstanding revolving credit balances (e.g., credit cards), which inched up by $0.7 billion to $1.030 trillion (+6.1 percent versus January 2017). Revolving balances had risen by $6.1 billion and $11.3 billion during December and November, respectively.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 3, 2018, First-Time Claims, seasonally adjusted): 231,000 (+21,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 222,500 (-8.6% vs. the same week a year earlier).
Factory Orders (January 2018, New Orders for Manufactured Goods, seasonally adjusted):$491.7 billion (-1.4% vs. December 2017, -6.6% vs. January 2017).
Wholesale Trade (January 2018, Inventories of Merchant Wholesalers, seasonally adjusted): $619.1 billion (+0.8% vs. December 2017, +4.8% vs. January 2017).
Beige Book

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

Retail Sales & Manufacturing Chilled in January: February 12 – 16

Retail sales and manufacturing output paused in January. Here are the five things we learned from U.S. economic data released during the week ending February 16.

#1A drop in auto sales pulled down retail activity in January. The Census Bureau indicates that retail and food services sales were at $492.0 billion during the month, down 0.3 percent from the prior month but still 3.6 percent above that of a year earlier. Some of the drop reflects a sharp 1.3 percent slowdown in sales at auto dealers and parts stores. Net of that, retail sales were unchanged for the month and paced 4.2 percent ahead of the year earlier. Sales grew during the month at gas stations (+1.6 percent, thanks to higher prices at the pump), apparel retailers (+1.2 percent), department stores (+0.8 percent), and electronics/appliance retailers (+0.5 percent). Sales slowed at retailers focused on building materials (-2.4 percent), health/personal care (-1.2 percent), sporting goods/hobbies (-0.8 percent), and furniture (-0.4 percent). Nonstore retailers (including internet retailers) also had a soft month with sales only matching that of December—nevertheless, nonstore retailer activity was 10.2 percent ahead of their January 2017 pace.Retail sales Jan18 Dec 17 021618.png

#2Manufacturing output did not budge for a second straight month. The Federal Reserve estimates manufacturing sector output was unchanged during January, following a similarly flat month in November. Production of durable goods edged up 0.2 percent during the month while nondurable goods output matched that of December. Overall industrial production slowed 0.1 percent during the month after having risen 0.4 percent during December. Mining production dropped for a second straight month (-1.0 percent) while output at utilities gained 0.6 percent. Versus a year earlier, industrial production has grown 3.7 percent while manufacturing sector output was up a more modest 1.8 percent. Factories continued to be somewhat underutilized—capacity utilization in the manufacturing sector held firm for the month at 76.2 percent, up 1.2 percent from a year earlier but two percentage points below its long-run average. Capacity utilization for all industrial production dropped by 2/10ths of a percentage point to 77.5 percent. Nonetheless, this was a 1.2 percent increase from a year earlier.

#3Inflation took a greater hold in January. The Consumer Price Index (CPI) surged 0.5 percent on a seasonally adjusted basis, the biggest single-month gain for the Bureau of Labor Statistics’ measure since last September. A part of the increase was the result of higher prices for both fuel oil (+9.5 percent) and gasoline (+5.7 percent) that led to a 3.0 percent jump in energy CPI. Food prices grew at a more modest 0.2 percent. Net of energy and food, core CPI jumped 0.3 percent for the month. Apparel prices swelled 1.7 percent (its biggest increase since 1990(!) while those for transportation (+0.8 percent) and medical care (+0.6 percent) services also had large gains. Rising more modestly were prices for used cars (+0.4 percent) and shelter (+0.2 percent) while prices slipped 0.1 percent for both new vehicles and medical care commodities. CPI has risen 2.1 percent over the past year while the core measure remained just under the Federal Reserve’s two-percent target rate at +1.8 percent.

The Producer Price Index (PPI) for final demand bounced 0.4 percent on a seasonally adjusted basis during January, after being unchanged in December and gaining 0.4 percent in November. The index’s core measure (which removes the impact of energy, food, and trade services) also swelled 0.4 percent, which was the core measure’s largest increase since last April. PPI for final demand goods jumped 0.7 percent, which included a 3.4 percent rise in energy PPI (wholesale gasoline prices rose 7.1 percent). Wholesale food prices slumped 0.4 percent, pulled down by falling prices eggs (-38.9 percent). Net of energy and food, final demand goods PPI increased 0.2 percent (down from 0.3 percent gains in both last November and December). PPI for final demand services grew 0.3 percent. Over the past year, PPI has risen 2.7 percent while the core measure of wholesale prices has increased 2.5 percent over the same 12 months.

#4Housing starts jumped in January, with data suggesting further gains this year. The Census Bureau reports that housing starts increased 9.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.326 million units. This was 7.3 percent ahead of the year-ago rate and its highest point since October 2016. Single-family home units started at a slower pace (+3.6 percent) than had multi-family home units (+19.7 percent). Looking towards the future, the number of issued building permits surged 7.4 percent on both a month-to-month and year-to-year basis to 1.396 million permits (SAAR), its highest point since June 2007. Builders completed 1.166 million homes (SAAR) during January. While this was off 1.9 percent from that of December 2017, it represented a 7.7 percent improvement from a year earlier.

#5Small business owners start 2018 more optimistic. The Small Business Optimism Index, from the National Federation of Independent Business, added two full points during January to a seasonally adjusted 106.9. This was up a full point from a year earlier and “one of the strongest readings” for the measure in its 45-year history. Six of the ten index’s components improved from their December 2017 marks, led by earnings trends (up 11 points), whether it is a good time to expand (up five points), expected economic conditions (up four points), and plans to increase inventories (up four points). Slipping by three points were measures for expected real sales and current inventories. The press release notes that “small business owners have never been more positive about the economy.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 10, 2018, First-Time Claims, seasonally adjusted): 230,000 (7,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 228,500 (-7.4% vs. the same week a year earlier).
Import Prices (January 2018, All Imports, not seasonally adjusted): +1.0% vs. December 2017, +3.6% vs. January 2017. Nonfuel Imports: +0.4% vs. December 2017, +1.9% vs. January 2017.
Export Prices (January 2018, All Exports, not seasonally adjusted): +0.8% vs. December 2017, +3.4% vs. January 2017. Nonagricultural Exports: +0.9% vs. December 2017, +3.7% vs. January 2017.
Housing Market Index (February 2018, Index (>50 = “Good” housing market), seasonally adjusted): 72 (vs. January 2018: 72, vs. February 2017: 67).
Monthly Treasury Statement (January 2018, Budget Surplus/Deficit): +$49.2 Billion (vs. December 2017: -$23.2 billion, January 2017: +$51.3 billion). 1st Four Months of FY2018: -$175.7 billion (+10.8% vs. 1st four months of FY2017).
Business Inventories (December 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.902 trillion (+$7.1 billion vs. November 2017, +3.2% vs. December 2016).
University of Michigan Index of Consumer Sentiment (February 2018-preliminary, Index (1966Q1=100, seasonally adjusted): 99.9 (vs. January 2018: 95.7, vs. February 2017: 96.3).
Treasury International Capital (December 2017, Net Domestic U.S. Securities Purchases by Foreign Investors, not seasonally adjusted): +$34.2 billion (vs. November 2017: +$34.8 billion, vs. December 2016: -$13.1 billion).

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

Industrial Production Grew, Housing Starts Chilled: January 15 – 19

Utilities and mining boost industrial production, while housing construction took a step backward in December. Here are the five things we learned from U.S. economic data released during the week ending January 19.

#1Industrial production surges in December, but the advance in manufacturing was far more modest. The Federal Reserve reports manufacturing output grew 0.1 percent on a seasonally adjusted basis during the month, putting it 2.4 percent ahead of December 2016’s manufacturing output. Durable goods production gained 0.3 percent, led by a 2.0 percent jump in motor vehicles output. Production of nondurables slipped 0.1 percent, hurt by a decline in output of petroleum/coal products, chemicals, and plastics/rubber products. Overall industrial production jumped 0.9 percent during December, leaving it up 3.6 percent versus a year earlier and making 2017 the best year for industrial production since 2010. Cold winter weather drove a 5.6 percent bounce in output at utilities while higher gas/oil extraction led to a 1.6 percent advance in mining output.

#2Home construction paused in December. The Census Bureau estimates the seasonally adjusted annualized rate (SAAR) of homes started slumped 8.2 percent during the month to 1.192 million units. With the decline, the housing starts were 6.0 percent below their year-ago pace. Still, 2017 was the best year for housing starts since 2007. Sales dropped during the month in all four Census regions: South (-14.2 percent), Northeast (-4.3 percent), Midwest (-2.2 percent), and West (-0.9 percent). Single-family home starts plummeted 11.8 percent during December to 836,000 units (+3.5 percent versus December 2016). Starts of multifamily units picked up 2.6 percent to 352,000 (nevertheless was 21.6 percent below the pace of a year earlier). The softness in housing starts may be short-lived as the permitting activity remained ahead of the year-ago pace. The SAAR of issued permits edged down 0.1 percent during the month to 1.302 million permits, which was 2.8 percent ahead of the annualized rate of issued permits of a year earlier. Finally, the annualized rate of homes completed during the month gained 2.2 percent to 1.177 million homes, a 7.4 percent gain from December 2016.Housing Starts 1998-2017--011918

#3Homebuilders remained confident in early 2018. The National Association of Home Builders’ Housing Market Index lost two points during January to a seasonally adjusted 72. Even with the decline, this was seven points ahead of the HMI’s year ago mark and the 43rd consecutive month in which the measure of homebuilder sentiment was above a reading of 50 (which means more builders see the market as “good” as opposed as being “poor”). The HMI surged by nine points in the Northeast (62), but lost ground in the Midwest (down seven points to 69), South (off three points to 72), and West (losing a point to 83). Losing one point were measures of single-family home current (79) and expected sales (78). The index tracking the traffic of prospective buyers shed four points to 54. The press release said the HMI’s continued strength is “a sign that housing demand should continue to grow in 2018.”

#4Consumer sentiment eased in early January. The preliminary January reading from the University of Michigan’s Index of Consumer Sentiment was at a seasonally adjusted 94.4, down 1.5 points from December and off 4.1 points from a year earlier. Further should this number hold when updated at the end of the month, it would be the sentiment measure’s lowest reading since last July. The current conditions index lost 4.6 points during the month to a reading of 109.2 (January 2017: 111.3) while the expectations index added a half point to 84.8. The press release noted that “the survey recorded persistent strength in personal finances and buying plans.”

#5The latest Beige Book points to stable economic growth during the final weeks of 2017. The 12 Federal Reserve District Banks indicated that the economy was growing at a “modest to moderate” rate in 11 of those districts and at a “robust” pace in the area served by the Dallas bank. Retailers said that sales were growing, with some respondents saying that the holiday season had beat expectations. The housing market stagnated, however, because of “limited” inventory while auto sales were “mixed.” Employers indicated challenges in finding qualified workers. Nevertheless, wage continued to grow only at a “modest pace,” although business leaders in some districts were expecting wage pressures in the new year. Respondents also noted that inflation was “modest to moderate” with prices building in manufacturing, construction, and transportation inputs in some regions. Comments received by the district banks indicated business leaders were “optimistic” about 2018 economic prospects. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 13, 2018, First-Time Claims, seasonally adjusted): 220,000 (-41,000 vs. previous week; -21,000 vs. the same week a year earlier, the lowest count since February 1973). 4-week moving average: 244,500 (-0.7% vs. the same week a year earlier).
Treasury International Capital Flows (November 2017, Change in Net Foreign Purchase of U.S. Securities, not seasonally adjusted): +34.8 billion (vs. October 2017: +$10.5 billion, November 2016: +$20.5 billion).

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