Employers Resume Hiring: October 30 – November 3

Employers resumed adding workers in October while holds off another rate hike until (probably) December. Here are the five things we learned from U.S. economic data released during the week ending November 3.

#1Payrolls rebounded in October while the September jobs decline turned into a small gain. Per the Bureau of Labor Statistics, nonfarm payroll employment grew by a seasonally adjusted 261,000. This followed September’s hurricane caused weak payroll expansion of a mere 18,000 jobs. The latter represented an improvement from the previously reported estimate for September payrolls, which had shown a contraction of 33,000 jobs. Because of the revision to September’s payrolls data, employment has now grown for 85 consecutive months with nonfarm employers adding 162,000 workers on average over the past three months. The goods-producing side of the private sector economy added 33,000 workers while private service sector payrolls swelled by 219,000 workers. The most notable industry was leisure/hospitality, which added 106,000 jobs following a hit of 102,000 jobs during September. Other sectors adding significant numbers of workers were professional/business services (+50,000), health care/social assistance (+33,500), and manufacturing (+24,000). Wage growth remained weak: average weekly earnings were at $912.63, up 2.4 percent from the same month a year earlier.

A separate survey of households has the unemployment falling by 1/10th of a percentage point to 4.1 percent. This is down 7/10ths of a percentage point from a year earlier and its lowest point since December 2000. The unemployment rate was pulled down in part by the 765,000 people who had exited the labor force during the month. The resulting labor force participation rate of 62.7 percent was its lowest point since May and puts it near a 40+ year low. (Some of that reflects an aging population reaching retirement age—the labor force participation rate for adults aged 25 to 54 was at 81.6 percent, matching its year-ago rate). Falling to post-recession low is the count of part-time workers who are seeking a full-time opportunity. This count of “involuntary” part-time workers declined by 369,000 to 4.753 million (-18.8 percent versus October 2016). The typical length of unemployment decreased by 4/10ths of a week to 9.9 weeks (October 2016: 10.2 weeks). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) dropped 4/10ths of a percentage point to 7.9 percent. The last time the U-6 series was this low was back in December 2006 (which ended up being the lowest reading for the measure during the 2001-2007 economic recovery).Labor Force Participation Rate 2007-2017

#2The Federal Reserve leaves its short-term interest rate target alone, for now. Minutes released following this past week’s meeting of the Federal Open Market Committee (FOMC) meeting notes that both economic activity and the labor market had continued to improve “despite hurricane-related disruptions.” This included household spending continuing to expand “at a moderate rate” and business investment that “has picked up in recent quarters.” The committee believes the hurricanes are “unlikely” to have a significant impact on economic activity over the medium term, with further strengthening of the labor market expected to continue. In this environment, the FOMC voted unanimously to keep the fed funds target rate at a range between 1.00 and 1.25 percent. The policy statement, without being explicit, would seem to indicate that we should expect a quarter point target rate bump at the FOMC’s final 2017 meeting in December. (The other Fed news of the week was President Trump’s nomination of Fed governor Jerome Powell as the new chairman of the central bank.)

#3Personal spending surged in September. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.6 percent on a seasonally adjusted basis during the month. This was its largest monthly gain since March. Real spending on durable goods jumped 3.5 percent while that on both nondurables and services grew a more modest 0.3 percent during September. The surge in durable goods spending is partially the result of deferred and replacement purchases following the recent hurricanes. Over the past year, real PCE has grown 2.7 percent, which includes a 7.3 percent bump up in durable goods spending. Nominal spending, which is not adjusted for inflation, jumped 1.0 percent. Both nominal personal and nominal disposable incomes grew 0.4 percent during the month. After adjusting for price variation, real disposable income was unchanged during the month and has risen 1.2 percent over the past year. The savings rate dropped by a half percentage point during September to +3.1 percent, its lowest reading since early 2008.

#4The trade deficit widened slightly during September. Per the Census Bureau and the Bureau of Economic Analysis, exports increased $2.1 billion during the month to a seasonally adjusted $196.8 billion (+4.6 percent versus September 2016). At the same time, imports expanded by $2.8 billion to $240.3 billion (+6.1 percent versus September 2016). The resulting trade deficit of -$43.5 billion was up $0.7 billion from August but 13.1 percent greater than that of a year ago. The goods deficit grew by $0.6 billion during September to -$65.4 billion (+10.0 percent versus a year earlier) while the services surplus shrank by $0.2 billion to +$21.9 billion (+4.4 percent versus a year earlier). Industrial supplies exports (particularly crude oil) grew by $1.9 billion while pharmaceutical preparation exports fell by $1.0 billion. Capital goods imports jumped $1.5 billion while industrial supplies/materials increased by $1.1. billion. Passenger car imports declined $0.5 billion during September. The U.S. had its biggest goods trade deficits with China (-$29.9 billion), the European Union (-$14.6 billion), Germany (-$5.9 billion), and Japan (-$5.9 billion).

#5Purchasing managers describe robust business activity in October. The Purchasing Managers Index (PMI) from the Institute for Supply Management shed 2.1 points during the month to a seasonally adjusted reading of 58.7. Even with the drop, this was the 14th consecutive month in which the PMI –a measure of activity in the manufacturing sector of the U.S. economy—was above a reading of 50.0, the threshold between a growing and contracting manufacturing sector. All five components of the PMI declined from September: inventories (-4.5), supplier deliveries (-3.0), new orders (-1.2), production (-1.2), and employment (-0.5). Sixteen of 18 tracked manufacturing industries expanded during October, led by paper products, nonmetallic mineral products, and machinery. The press release noted survey respondents’ comments had reflected “expanding business conditions.”

The headline index from the ISM’s Report on Business for the nonmanufacturing sector of the economy inched up by 3/10ths of a point to 60.1, measure’s highest market in its nine-year history and the 94th straight month in which it was above 50.0. Two of the index’s four components grew during the month: business activity/production (up 9/10ths of a point to 62.2) and employment (up 7/10ths of a point to 57.5). The new order index slipped 2/10ths of a point to 62.8 while the supplier deliveries measure held steady at 58.0.  Sixteen of 18 tracked service sector industries reported growth during October, led by agriculture, construction, and transportation/warehousing. The press release indicated that survey respondents continued to have a “positive outlook for business conditions.”

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

Jobless Claims (week ending October 28, 2017, First-Time Claims, seasonally adjusted): 229,000 (-5,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 232,500 (-9.0% vs. the same week a year earlier).
Factory Orders (September 2017, New Orders for Manufactured Goods, seasonally adjusted): $478.5 billion (+1.4% vs. August 2017, +7.0% vs. September 2016).
Vehicle Sales (October 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 18.09 million units (-2.6% vs. September 2017, +1.2% vs. October 2016).
Conference Board Consumer Confidence (October 2017, Index (1985=100), seasonally adjusted): 125.9 (vs. September 2017: 120.6).
Case-Shiller Home Price Index (August 2017, 20-City Index, seasonally adjusted): +0.5% vs. July 2017, +5.9% vs. August 2016.
Agricultural Prices (September 2017, Prices Received by Farmers): 91.8 (-1.7% vs. August 2017, +6.3% vs. September 2016).

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

Higher Gas Prices Boost Inflation, For Now: October 9 – 13

Rising gas prices boosted not only overall inflation but also retail sales. Here are the five things we learned from U.S. economic data released during the week ending October 13.

#1Retail sales surged in September, but much of the advance reflected higher gas prices. The Census Bureau tells us that retail and food services sales jumped 1.6 percent during September to a seasonally adjusted $483.9 billion. This was the largest single-month gain since March 2015. Much of September sales surge was the result of higher gasoline prices leading to a 5.8 percent bump in sales at gas stations and a 3.6 percent sales increase at auto dealers (in part the result of people replacing cars damaged by recent hurricanes). Net of activity at both gas stations and auto dealers retail sales increased 0.5 percent. Sales grew at building materials retailers (+2.1 percent, boosted by hurricane preparation and recovery), grocery stores (+1.0 percent), restaurants/bars (+0.8 percent), and apparel retailers (+0.4 percent). Sales slowed at electronics/appliance stores (-0.8 percent), furniture retailers (-0.4 percent), department stores (-0.4 percent), health/personal care stores (-0.4 percent), and sporting goods/hobby retailers (-0.2 percent). Overall retail sales have grown 4.4 percent over the past year.Retail Sales September 2017-101317

#2Consumer prices roses in September, largely centered around the gas pump. The Bureau of Labor Statistics’ Consumer Price Index (CPI) jumped 0.5 percent during the month, its largest single monthly increase since February 2013. Much of the gain in CPI occurred at the gas pump as gasoline prices rose 13.1 percent (its largest month-to-month increase since June 2009). CPI for all energy goods surged 6.1 percent while that for food edged up by only 0.1 percent. Net of energy and food, core CPI increased 0.1 percent during September and was up 1.7 percent over the past year. The latter remained below the Federal Reserve’s two-percent inflation rate target. Prices grew for shelter (+0.3 percent), transportation services (+0.3 percent), and medical care services (+0.1 percent). Falling were prices for medical care commodities (-0.8 percent), new vehicles (-0.4 percent), used vehicles (-0.2 percent), and apparel (-0.1 percent).

#3Wholesale prices rose during September, thanks to higher prices for gasoline and services. Final demand Producer Price Index (PPI) grew 0.4 percent on a seasonally adjusted basis during the month, its biggest single-month increase since April. The core measure—final demand net of food, energy, and trade services—grew a more modest 0.2 percent, according to the Bureau of Labor Statistics. Over the past year, final demand PPI has increased 2.6 percent while the core measure’s 12-month comparable has grown 2.1 percent. Wholesale prices for final demand goods jumped 0.7 percent, pushed up by a 3.4 percent gain in energy prices (wholesale gasoline prices rose 10.9 percent). PPI for final demand goods was unchanged. Net of energy and food, final demand goods prices increased 0.3 percent, its largest gain since April. Prices for final demand service jumped 0.4 percent, with rises of 1.0 percent and 0.8 percent for transportation/wholesale services and trade services, respectively.

#4The count of job openings and the number of people hired slipped in August. Per the Bureau of Labor Statistics, there were a seasonally adjusted 6.082 million job openings at the end of August. This was down 58,000 from July but up 10.8 percent from the same month a year earlier. Private sector employers reported 5.566 million job openings at the end of the month, an 11.7 percent increase from August 2016. Among the industries with the largest percentage year-to-year gains in openings were construction (+34.2 percent), wholesale trade (+20.1 percent), manufacturing (+17.1 percent), transportation/wholesaling (+14.9 percent), health care/social assistance (+13.6 percent), and accommodation/leisure services (+13.1 percent). Companies hired a seasonally adjusted 5.430 million people during August, a drop of 79,000 from July but 2.7 percent above the August 2016 hiring pace. Private sector hiring totaled 5.105 million jobs, up 2.2 percent from a year earlier. Industries with the largest year-to-year percentage increases in hiring were manufacturing (+31.3 percent), construction (+14.2 percent), and financial activities (+13.3 percent). Industries with sharp year-to-year percentage declines in hiring included wholesale trade (-14.4 percent), government (-14.0 percent), and retail (-6.9 percent). 5.228 million people left their jobs during August, down 132,000 from July but 3.3 percent the year-ago pace. 3.194 million people quit their jobs during the month, up 2.5 percent from year earlier, while layoffs have increased 4.2 percent from a year earlier to 1.729 million.

#5Small business owner sentiment declined in September. The Index of Small Business, from the National Federation of Independent Business, shed 2.3 points during the month to a seasonally adjusted reading of 103.0. This was the measure’s lowest reading since last November. Six of the ten components of the index fell during the month, led by sharp declines in the indices for expected real sales (down 12 points), whether it is a good time to expand (down ten points), and on plans to make capital outlays (down five points). Only three index components increased from August: plans to increase inventories (up five points), current inventories (up two points), and plans to increase employment (up a point). The press release downplayed the impact of the recent hurricanes had on the lower index reading, noting that “[t]he drop-off was consistent around the country regardless of region.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 7, 2017, First-Time Claims, seasonally adjusted): 243,000 (-15,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 257,500 (+3.0% vs. the same week a year earlier).
University of Michigan Consumer Sentiment (October 2017-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 101.1 (+6.3% vs. September 2017, +15.9% vs. October 2016).
Business Inventories (August 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.889 trillion (+0.7% vs. July 2017, +3.6% vs. August 2016).
FOMC Meeting Minutes

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

The Labor Market’s 7-Year Winning Streak Ended Last Month: October 2 – 6.

Employment in leisure & hospitality and in retail fell after the recent hurricanes. Here are the five things we learned from U.S. economic data released during the week ending October 6.  

#1Hurricanes Harvey and Irma weighed heavily on September employment data. For the first time since September 2010, nonfarm payrolls contracted during the month, shrinking by a seasonally adjusted 33,000 jobs. The Bureau of Labor Statistics’ report points out that both hurricanes detrimentally impacted nonfarm payrolls based on its survey of establishment employment during the week that includes September 12 (note that hurricane Irma made landfall in Florida on September 10). The consensus view is that the payroll hit is likely to be fleeting. Private sector employment contracted by 40,000 jobs, with an increase of 9,000 on the goods-producing side of the economy and a decline of 49,000 in the service sector. Taking a particularly large hit was leisure/hospitality, where payrolls shrank by 111,000. Also shedding jobs were information (-9,000) and retail (-2,900). Adding workers were transportation/warehousing (+21,800), health care/social assistance (+13,100), professional/business services (+13,000), and financial activities (+10,000). The average hours worked held steady at 34.4 hours while average hourly earnings increased by 12 cents to $26.55 (September 2016: $25.81). Average weekly earnings have grown 2.9 percent over the past year.

The separate survey of households saw the unemployment rate the unemployment rate drop by 2/10ths of a percentage point to a seasonally adjusted 4.2 percent. This was the measure’s lowest point since February 2000 (although these numbers may be affected by data collection issues in storm-affected areas). The median length of unemployment slipped by 2/10ths of a week to 10.3 weeks (matching its year-ago mark) while the count of part-time workers seeking a full-time opportunity fell to another post-recession low at 5.122 million (September 2016: 5.874 million). Finally, the broadest measure labor underutilization reported by the BLS (the U-6 series) shed 3/10ths of a percentage point to 8.3 percent. The last time the U-6 series was this low was June 2007. Do not be surprised to see many of the numbers in this report be subject to unusually large revisions in the coming months with improved data collection.labor underutilization 2005-17 100717

#2The trade deficit narrowed slightly during August. The Census Bureau and the Bureau of Economic Analysis indicate that exports grew by $0.8 billion during the month to a seasonally adjusted $195.3 billion (+4.2 percent versus August 2016) while imports slowed $0.4 billion to $237.7 billion (+4.0 percent versus August 2016). The resulting difference of -$42.4 billion was the smallest trade deficit since last September. The three-month moving average for the trade deficit—$43.2 billion—was at its lowest point since last November but was up 2.6 percent from the same time a year ago. The goods deficit contracted by $0.9 billion during August to -$64.4 billion while the goods surplus expanded by $0.3 billion to +$22.0 billion. Taking a closer at the former finds goods exports growing by $0.6 billion, with increased exports of consumer goods (including pharmaceuticals) and telecommunication equipment and a decline in exports of fuel oil and foods/beverages. Imports of goods slowed by $0.4 billion, with declining imports of industrial suppliers/materials and capital goods. Vehicle imports grew by $0.5 billion. The U.S. had its largest goods trade deficits with China (-$29.7 billion), the European Union (-$10.9 billion), Japan (-$6.3 billion), and Mexico (-$5.8 billion).

#3Purchasing managers report increased business activity during September. The Institute for Supply Management says that its Purchasing Managers Index (PMI) added a full two points during the month to a reading of 60.8. This was the 13th straight month in which the index was above a reading of 50.0—indicative of an expanding manufacturing sector—and the measure’s highest reading since May 2004. Four of five PMI components improved during the month: supplier deliveries (up 7.3 points to 64.4), new orders (up 4.3 points to 64.6), production (up 1.2 points to 62.2), and employment (up 4/10ths of a point to 60.3). The index for inventories shed three full points to 52.5. Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, machinery, and nonmetallic mineral products. The press release noted that respondents’ comments “reflect expanding business conditions” and that the recent hurricanes had affected supply chain prices.

The ISM’s headline measure for the service sector stayed above a reading of 50.0 for a 93rd consecutive month. The NMI surged by 4.5 points during September to a seasonally adjusted 59.8. All four index components improved from their August readings: supplier deliveries (up 7.5 points to 58.0), new orders (up 5.9 points to 63.0), business activity/production (up 3.8 points to 61.3), and employment (up 6/10ths of a point to 56.8). Fifteen of 18 tracked nonmanufacturing segments of the economy expanded during September, led by retail trade, management/support services of companies, and information. The press release reported that survey respondents’ comments “indicate a good outlook for business conditions” even with “the impact on the supply chain from the recent hurricanes.”

#4Factory orders grew in August. The Census Bureau reports that new orders for manufactured goods grew 1.2 percent during the month to a seasonally adjusted $471.7 billion. As noted here last week, orders for civilian aircraft rebounded from July’s huge drop with a 44.8 percent surge. This led to a 5.1 percent overall gain in transportation goods (new orders for automobiles increased 0.7 percent). Net of transportation goods, new orders grew 0.4 percent during the month. Durable goods orders jumped 2.0 percent during August while those for nondurable gained 0.4 percent. Civilian, non-aircraft capital goods orders—a proxy for business investment—increased 1.1 percent during the month. Shipments grew for the eighth time in nine months with a 1.2 percent bump to $471.7 billion. Net of transportation goods, shipments gained 0.6 percent. Unfilled orders edged up by less than 0.1 percent to $1.133 trillion while inventories expanded for the ninth time in ten months with a 0.4 percent increase.

#5Construction spending grew in August. Per the Census Bureau, the value of construction put into place increased 0.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of $1.218 trillion. This was 2.5 percent above the annualized rate of construction spending from a year earlier. Private sector construction spending grew 0.4 percent during August to a SAAR of $954.8 billion (+4.7 percent vs. August 2016). Private sector residential construction gained 0.4 percent, with gains of 0.3 percent and 0.9 percent for new-single and multi-family homes, respectively. Private sector nonresidential spending rose 0.5 percent, with increases across most categories of construction (manufacturing and communication being the exceptions). Public sector construction spending jumped 0.7 percent during the month to a SAAR of $263.5 billion, which was nevertheless 5.1 percent below its year-ago spending pace. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 30, 2017, First-Time Claims, seasonally adjusted): 260,000 (-12,000 vs. previous week; +13,000 vs. the same week a year earlier). 4-week moving average: 268,250 (+6.2% vs. the same week a year earlier).
Vehicle Sales (September 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 18.57 million units (+15.1% vs. August 2017, +4.8% vs. September 2016).
Wholesale Inventories (August 2017, Merchant Wholesale Inventories, seasonally adjusted): $608.1 billion (+0.9% vs. July 2017, +4.5% vs. August 2016).
Consumer Credit (August 2017, Outstanding Non-Real Estate Backed Consumer Loans, seasonally adjusted): $3.766 trillion (+$13.1 billion vs. July 2017; +5.5% vs. August 2016).

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