A New Low for the Unemployment Rate: October 1 – 5

The unemployment rate dropped to a multi-decade low while the trade deficit widened to a six-month high. Here are the five things we learned from U.S. economic data released during the week ending October 5.  

#1The unemployment rate fell to a 49-year low during September. The Bureau of Labor Statistics reports that nonfarm payrolls grew by a seasonally adjusted 134,000 during the month, below the 165,000 and 270,000 jobs created during July and August. Some of the slowdown in job creation can be linked to the effects of Hurricane Florence, which weighed on the retail (-20,000 jobs) and leisure/hospitality (-17,000) sectors. Private sector employers added 121,000 jobs during September, less than half of the 254,000 private sector jobs added in August. Industries adding the most workers during September were professional/business services (+54,000), health care/social assistance (+29,800), transportation/warehousing (+23,800), and construction (+18,000). The average number of hours worked remained at 34.5 hours (September 2017: 34.3 hours) while average weekly earnings increased by $2.76 to $939.78 (+3.4 percent versus September 2017).

Based on a separate survey of households, the unemployment rate dropped to its lowest reading since December 1969 at 3.7 percent. This was down 2/10ths of a percentage point from August and a half percentage point from the same month a year earlier. 150,000 people entered the labor force during the month, but the labor force participation rate remained at 62.7 percent (September 2017: 63.0). The labor force participation rate for adults aged 25 to 54 shed 2/10ths of a percentage point to 81.8 percent, matching its year-ago reading. The median length of unemployment was 9.2 weeks, off 9/10ths of a week from September 2017 while the number of part-time workers seeking a full-time position has fallen 9.8 percent over the past year to 4.642 million people. Finally, the broadest measure of labor underutilization (the U-6 series) came in at 7.5 percent, just above its post-recession low (September 2017: 8.3 percent).

Unemployment Rate 1968=2018 100518

#2The trade deficit grew to a six-month high in August. Export activity slowed $1.7 billion during the month to a seasonally adjusted $209.4 billion (+7.1 percent versus August 2017) while imports grew by $1.5 billion to $262.7 billion (+9.6 percent versus August 2017), per the Census Bureau and the Bureau of Economic Analysis. The resulting trade deficit of -$52.2 billion represented a $3.2 billion increase for the month, a 20.5 percent jump from the same month a year earlier, and the largest trade deficit since February. The goods deficit blossomed by $3.6 billion to -$76.7 billion (+17.2 percent versus 2017) while the service surplus widened by $0.4 billion to +$23.5 billion (+10.2 percent versus August 2017). The former was hurt by declining exports of crude oil/petroleum products and soybeans and increased imports of automotive vehicles and cell phones. The U.S. had its largest goods deficits with China (-$34.4 billion), the European Union (-$14.9 billion), and Mexico (-$8.7 billion).

#3Aircraft orders fueled factory orders in August, but core capital orders struggled. The Census Bureau reports that new orders for manufactured goods jumped 2.3 percent during the month after falling 0.5 percent in July. The seasonally adjusted $510.5 billion estimate for new orders represented a robust 10.0 percent increase over the past year. As noted with the previous week’s durable goods report, much of the rise was the product of the 69.0 percent surge in civilian aircraft orders and the 17.0 percent bounce in orders for defense aircraft. Net of transportation goods, factory orders managed a mere 0.1 percent increase. Durable goods orders rose 4.4 percent to $259.6 billion while orders for nondurables gained 0.2 percent to $250.9 billion. Civilian capital goods orders net of aircraft—a proxy of business investment—slumped 0.9 percent. Shipments grew 0.5 percent during the month to $504.0 billion (+7.8 percent versus August 2017), with the gain shrinking to a 0.2 percent increase after removing transportation goods. Shipments of core capital goods contracted 0.2 percent during August.

#4Purchasing managers report business activity largely held firm in September. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, slid by 1.5 points to a reading of 59.8. Even with the decline, this was the 25th consecutive month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Only two of the five PMI components improved during the month:  production (+0.6) and employment (+0.3). Dropping were PMI components linked to supplier deliveries (-3.4), new orders (-3.3), and inventories (-2.1). Fifteen of 18 manufacturing industries expanded during September, led by textile mills, “miscellaneous” manufacturing, and plastics/rubber products. The press release noted that survey respondents remained “overwhelmingly concerned about tariff-related activity.”

The NMI, the headline index from the Nonmanufacturing Report on Business, jumped by 3.1 points to a reading of 61.6. This was the measure’s 104th straight month with a reading above 50.0. All four NMI components jumped during the month: employment (+5.7), business activity/production (+4.5), new orders (+1.2), and supplier deliveries (+1.0). Seventeen of 18 tracked nonmanufacturing industries grew during September, led by mining, real estate, and wholesale trade. The press release noted the survey respondents were “positive” about current market conditions but were concerned about “capacity, logistics and the uncertainty with global trade.”

#5Construction spending inched up in August. The Census Bureau estimates the value of construction put in place grew 0.1 percent during the month to a seasonally adjusted annualized rate of $1.319 trillion. This was 6.5 percent ahead of August 2017’s annualized rate. Private sector construction spending slowed 0.5 percent to $1.007 billion (+4.4 percent versus August 2017). Dropping during the month were expenditures on both private sector residential (-0.7 percent) and nonresidential (-0.2 percent) spending. Public sector spending rose 2.0 percent during August to an annualized $316.7 billion. Public sector construction spending has surged 14.0 percent over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 29, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -47,000 vs. the same week a year earlier). 4-week moving average: 207,000 (-24.9% vs. the same week a year earlier).
Consumer Credit (August 2018, Outstanding Non-Real Estate Backed Consumer Credit, seasonally adjusted): $3.935 trillion (+$20.1 billion vs. July 2018, +4.7% vs. August 2017).

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

 

Hiring Remains Firm, Trade Deficit Shrinks: July 2 – 6

Employers continued to hire in June while the trade deficit fell to a 1.5 year low in May. Here are the five things we learned from U.S. economic data released during the week ending July 6.  

#1The labor market remained hot during the open days of summer. Nonfarm employers expanded their payrolls by 213,000 workers, per the Bureau of Labor Statistics. While down from the 244,000 added jobs in May, it essentially matched the 213,700 monthly average of the past year. Private sector employers added 202,000 jobs during June, split by 53,000 workers in the goods-producing side of the economy and 149,000 positions in the service sector. Industries adding the most jobs during the month were professional/business services (+50,000), manufacturing (+36,000), health care/social assistance (+34,700), and leisure/hospitality (+25,000). Retailers, on the other hand, shed 21,600 workers during the month. The average workweek remained at 34.5 hours (June 2017: 34.4 hours) while average hourly wages inched up by five cents. The resulting average weekly earnings of $903.81 was up 3.0 percent.Job Gains-2008-2018 070618

A separate survey of households found the unemployment rate jumping 2/10ths of a percentage point to 4.0 percent (June 2017: 4.3 percent). The good news is that this was the result of 601,000 people entering the labor force during the month. As a result, the labor force participation rate also grew by 2/10ths of a percentage point to 62.9 percent. Labor force participation remains below pre-recession levels, although that partially (but not totally) reflects an aging populace. The labor force participation rate for adults 25 to 54 was 88.9 percent in June, down 2/10ths of a percentage point from May but up 4/10ths of a percentage point from a year earlier. There is some progress still needed here too—the 25-54 participation rate was about two full percentage points higher during the previous economic expansion. Falling to post-recession lows were the median length of unemployment (8.9 weeks) and the number of people with a part-time job seeking a full-time opportunity (4.743 million people). The BLS’s broadest measure of labor underutilization (the “U-6” series) shed 2/10ths of a percentage point to 7.8 percent, matching its post-recession low.

#2The trade deficit narrowed to its smallest reading in 19 months. The Census Bureau and the Bureau of Economic Analysis report that exports grew by $4.1 billion to $215.3 billion (+11.7 percent versus May 2017) while imports increased by a more modest $1.1 billion to $258.4 billion (+8.3 percent versus May 2017). As a result, the trade deficit contracted by $3.0 billion to -$43.1 billion, down 6.0 percent from a year earlier and its smallest reading since October 2016. The goods deficit narrowed by $2.6 billion to -$65.8 billion (off 1.5 percent from May 2017) while the goods surplus widened by $450 million to +$22.7 billion (up 8.5 percent from May 2017). The former included the impact of a $3.6 billion rise in exported goods (including sizable gains for civilian aircraft and soybeans). The U.S. had its largest goods deficits in May with China (-$32.0 billion), the European Union (-$11.9 billion), and Japan (-$5.7 billion).

#3Factory orders grew during May, thanks to a gain in nondurable goods. New orders of manufactured goods increased 0.4 percent during the month to a seasonally adjusted $498.2 billion. This represented the Census Bureau measure’s third gain in four months, leaving new factory orders up 9.2 percent from a year earlier. Durable goods orders decreased 0.4 percent (an improvement from the 0.6 percent decline previously reported). Falling were orders for transportation goods (-1.1 percent), fabricated metals (-1.1 percent), primary metals (-0.3 percent), and computers/electronics (-0.2 percent) while machinery (+1.2 percent) and furniture orders (+1.1 percent) both increased. Nondurable goods orders grew 1.1 percent during the month. Nondefense capital goods net of aircraft—a proxy of business investment—inched up 0.3 percent. Shipments grew for the 12th time in 13 months with a 0.6 percent increase to $496.1 billion (+7.2 percent versus May 2017). Durable goods shipments gained by less than 0.1 percent while those of nondurables rose 1.1 percent. Unfilled orders grew for the sixth time in seven months (+0.5 percent to $1.161 trillion) while inventories expanded for the 19th time in 20 months (+0.2 percent to $668.4 billion)

#4Purchasing managers signal business activity expanded during June. The Institute for Supply Management’s Purchasing Managers Index (PMI) added 1.5 points to a seasonally adjusted reading of 60.2. This was the 22nd straight month in which the PMI has been above a reading of 50.0, which is indicative of an expanding manufacturing sector. Three of five PMI components improved from their May readings: supplier deliveries (up 6.2 points to 68.2), production (up 8/10ths of a point to 62.3), and inventories (up 6/10ths of a point to 50.8). The new orders and employment components each suffered small declines. Respondents from 17 of the 18 tracked manufacturing sectors reported growth during June, led by textile mills, wood products, and nonmetallic mineral products. Survey respondents expressed concerns about “employment resources and supply chains [that] continue to struggle,” and “how tariff related activity is and will continue to affect their business.”

The ISM’s measure for the nonmanufacturing sector of the economic added a half point to a seasonally adjusted 59.1. The NMI has been above the expansionary/contractionary threshold for 101 consecutive months. Only two of the NMI’s four components gained during the month: new orders (up 2.7 points to 63.2) and business activity/production (up 2.6 points to 63.9). The employment and supplier deliveries components both lost ground during June. Seventeen of 18 tracked service sector industries grew during the month, led by mining, wholesale trade, and retail. The press release reported that while survey respondents were “optimistic,” they were concerned about “tariffs, capacity constraints, and delivery.”

#5Construction spending grew in May. The Census Bureau estimates the seasonally adjusted annualized value of construction put into place increased 0.4 percent during the month to $1.309 trillion. This was 4.5 percent ahead of the year-ago rate. Private sector spending grew 0.3 percent to an annualized $1.005 trillion (+4.4 percent versus May 2017). Private sector residential construction spending expanded 0.8 percent during the month while private sector nonresidential construction spending slowed 0.3 percent (including falling activity in both the manufacturing and commercial sectors). Public sector spending was at an annualized $301.1 billion, up 0.7 percent for the month and 4.7 percent over the past year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 30, 2018, First-Time Claims, seasonally adjusted): 231,000 (+3,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 224,500 (-8.2% vs. the same week a year earlier).
Vehicle Sales (June 2018, Light Vehicle Sales, seasonally adjusted annualized rate): 17.47 million vehicles (+3.3% vs. May 2018, +4.6% vs. June 2017).
FOMC Meeting Minutes

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

Job Creation, Consumer Spending Rise: May 28 – June 1

The labor market continued to chug along this spring. Here are the five things we learned from U.S. economic data released during the week ending June 1.

#1Job creation accelerated while the unemployment rate fell to another post-recession low in May. The Bureau of Labor Statistics reports that nonfarm payrolls expanded by a seasonally adjusted 223,000 jobs during the month, its largest single-month increase in three months and its 92 consecutive monthly gain. Public sector employers added 218,000 workers to their payrolls during the month while public sector payrolls expanded by 5,000. Industries adding the most jobs during May were health care/social assistance (+31,700), retail (+31,100), construction (+25,000), leisure/hospitality (+21,000), transportation/warehousing (+18,700), and manufacturing (+18,000). The average workweek held steady at 34.5 hours (May 2017: 34.4 hours) while the average for weekly earnings of $928.74 represented a 3.0 percent increase from that of a year earlier.

Nonfarm Payrolls 2014-2018-060118

Based on a separate survey of households, the unemployment rate slipped by 1/10th of a percentage point to 3.8 percent. The unemployment rate has not been this low since April 2000. The size of the labor force grew by a mere 12,000 while the labor force participation rate dropped by 1/10th of a percentage point to 62.7 percent (near its lowest reading in 40+ years). The labor force participation rate of adults aged 25-54 also declined by 1/10th of a percentage point to 81.9 percent. The typical length of unemployment was 9.2 weeks, down from 9.8 weeks in April and 10.4 weeks a year earlier. The broadest measure of labor underutilization—the U-6 series—shrank by 2/10ths of a percentage point to 7.6 percent. The same measure was at 8.4 percent a year earlier.

#2GDP growth slightly less robust during Q1 than previously thought. The Bureau of Economic Analysis estimates the Gross Domestic Product (GDP) for the first three months of 2018 was at $19.957 trillion on a seasonally adjusted annualized rate (SAAR). After adjusted for inflation, real GDP grew 2.2 percent (SAAR) during Q1, just below the 2.3 percent increase reported a month earlier and under the 2.9 percent growth rate achieved during the final three months of 2017. The biggest positive contributors to Q1 GDP growth were (in descending order) nonresidential fixed investment (adding 105-basis points to GDP growth), personal spending (+71-basis points), government expenditures (+20-basis points), change in private inventories (+13-basis points), and net exports (+8-basis points). Residential fixed investment cost eight-basis point of GDP growth during the quarter. Corporate profits slipped 0.6 percent during Q1 but were 4.3 percent ahead of that from Q1 2017. The BEA will revise its Q1 GDP estimate again later this month.

#3Personal spending rose for a second straight month in April. Real personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis following a 0.5 percent bump in March. The Bureau of Economic Analysis reports that spending on goods and services each gained 0.4 percent, with the increases for the former split by +0.3 percent and +0.4 percent for durable and nondurable goods, respectively. The increase in spending outpaced the 0.2 percent gain in real disposable income. Funding the difference was a contraction in the savings rate (down 2/10ths of a percentage point +2.8 percent). Over the past year, real PCE has grown 2.7 percent while real disposable income has expanded 1.9 percent. The same report finds inflation—as measured by the PCE deflator—growing 0.2 percent during April and rising 2.0 percent over the past year. The same comparbles for the core deflator (which removes both energy and food) were +0.2 percent and +1.8 percent, respectively.

#4Purchasing and supply executives report manufacturing activity accelerated in May. The Institute for Supply Management’s Purchasing Managers Index (PMI) added 1.4 points during the month to a seasonally adjusted reading of 58.7. This was the 21st straight month in which the PMI was above a reading of 50.0, indicating an expanding manufacturing sector. Four of five components of the index improved from their April readings: production (up 4.3 points to 61.5), new orders (up 2.5 points to 61.2), employment (up 2.1 points to 56.3), and supplier deliveries (up 9/10ths of a point to 62.0). The inventories index lost 2.7 points to 50.2. Sixteen of 18 tracked manufacturing sectors expanded during the month, led by textiles, nonmetallic mineral productions, and electrical equipment. The press release noted that survey respondents indicated that demand was “robust” but that tightness in both the labor market and supply chain are weighing on activity.

#5The private sector drove April construction spending. The Census Bureau places the seasonally adjusted annualized rate (SAAR) of construction put in place at $1.310 trillion, up 1.8 percent for the month and 7.6 percent from a year earlier. Private sector construction spending rose 2.8 percent to an annualized $1.014 trillion (+7.6 percent versus April 2017). Private sector residential construction spending jumped 4.5 percent, even though single-family home construction was flat during the month. Nonresidential spending increased 0.8 percent during April. Public sector construction spending slowed 1.3 percent during the month to an annualized $296.1 billion. Even with the decline, public sector spending has grown 7.7 percent over the past year. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 26, 2018, First-Time Claims, seasonally adjusted): 221,000 (-13,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 222.250 (-7.9% vs. the same week a year earlier).
Vehicle Sales (May 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.91 million units (-1.5% vs. April 2018, +0.7% vs. May 2017).
Conference Board Consumer Confidence (May 2018, Index (1985=100), seasonally adjusted): 128.0 (vs. April 2018: 125.6).
Pending Home Sales (April 2018, Index (2001=100), seasonally adjusted): 106.4 (vs. March 2018 = 107.8, vs. April 2018 = 108.7).
Agricultural Prices (April 2018, Prices Received by Farmers, not seasonally adjusted): -2.2% vs. March 2018, -3.1% vs. April 2017).
Beige Book

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