Payrolls Expand Again, But at a Slower Rate: January 1 – 5

Payroll growth slowed in December, but purchasing managers indicate robust economic activity. Here are the five things we learned from U.S. economic data released during the week ending January 5.

#1Employers added fewer workers during December, but the unemployment rate remained at a 17-year low. Nonfarm payrolls expanded by a seasonally adjusted 148,000 during the month, the slowest pace of job creation since hurricanes dragged down hiring back in September. Bureau of Labor Statistics data finds that nonfarm employment grew by 2.055 million for all of 2017, the fewer number of jobs added in a year since 2010. Private sector employers added 146,000 workers during the month, split between 55,000 new goods-producing jobs and 91,000 new service sector workers. Industries adding the most workers during the month were construction (+30,000), health care/social assistance (+29,200), leisure/hospitality (+29,000), manufacturing (+25,000), and professional/business services (+19,000). Retail was a big drag as the industry shed 20,300 workers during December. The average workweek held firm at 34.5 hours (December 2016: 34.4 hours). Average weekly earnings grew by $3.11 during December to $918.74, up 2.8 percent from a year earlier.Job Creation 2005-2017--010518

Based on a separate survey of households, the unemployment rate was unchanged at 4.1 percent, where it has been for the past three months. Before that, the unemployment rate had not been this low since December 2000. 64,000 people entered the labor force during the month, but the labor force participation rate remained stuck at 62.7 percent. The median length of unemployment fell by 4/10ths of a month to 9.1 weeks (December 2016: 10.8 weeks). 4.915 million people were “involuntary” part-time workers (i.e., had a part-time position but were seeking a full-time opportunity), down from 5.514 million a year earlier. The broadest measure of labor underutilization from BLS (the “U-6” series) inched up by 1/10th of a percentage point to 8.1 percent. This same measure was at 9.1 percent a year earlier and was dramatically below its recession peak of 17.1 percent during both March and April 2010.

#2Both exports and imports grew during November as the trade deficit expanded. The Census Bureau and the Bureau of Economic Analysis report that exports increased by $4.4 billion during the month to a seasonally adjusted $200.2 billion (+8.3 percent versus November 2016) while imports surged $6.0 billion to $250.7 billion (+8.4 percent versus November 2016). The resulting trade deficit of -$50.5 billion was an increase of $1.6 billion from October, up 8.9 percent from a year earlier, and the largest trade deficit since January 2012. The goods deficit expanded by $1.7 billion to -$70.9 billion while the services surplus widened by $0.1 billion to +$20.4 billion. A closer look at the former finds exports of goods grew by $4.3 billion, led by a $2.5 billion increase in capital goods exports (including civilian aircraft), a $1.0 billion increase in automotive vehicles/parts/engines exports, and a $0.7 billion gain in consumer goods exports. Imports of goods grew by $6.0 billion, reflecting a $2.4 billion jump in consumer goods exports, a $2.2 billion hike in industrial supplies and materials exports (including crude oil), and a $1.6 billion increase in capital goods orders. The U.S. had its biggest goods trade deficits with China (-$33.5 billion), European Union (-$13.5 billion), Mexico (-$5.8 billion), and Japan (-$5.8 billion).

#3Purchasing managers report business activity growth continued during December. The Institute for Supply Management’s Purchasing Managers Index (PMI) increased by 1.5 points during the month to a seasonally adjusted 59.7. This was the 16th straight month in which the PMI was above a reading of 50.0—indicative of an expanding manufacturing sector—and its best reading since September. Four of the PMI’s five components improved during the month: new orders (up 5.4 points to 69.4), production (up 1.9 to 65.8), inventories (up 1.5 points to 48.5), and supplier deliveries (up 1.4 points to 57.9). The index tied to employment shed 2.7 points to a reading of 57.0. Sixteen of the 18 tracked manufacturing sectors expanded during December, led by machinery, computer/electronic products, and paper products. The press release noted that survey respondents’ comments “reflect[ed] expanding business conditions.”

The ISM’s measure for the service sector shed 1.5 points to a reading of 55.9. Even with the decline to its lowest point since August, the NMI has remained above a reading of 50.0 for 96 consecutive months. Only two of the NMI’s four components showed growth during November:  supplier deliveries (up 1.5 points to 55.5) and employment (up a full point to 56.3). Losing ground were index components for new orders (off 4.4 points to 54.3) and business activity/production (off 4.1 points to 57.3). Fourteen of 18 tracked service sector industries expanded during the month, led by retail, utilities, and entertainment/recreation. The press release noted commenters reported they had “finished the year on a positive note” and were optimistic about “business conditions and the economic outlook going forward.”

#4Factory orders gained during November. New orders for manufactured goods jumped 1.3 percent during the month to a seasonally adjusted $488.1 billion, per the Census Bureau This was the fifth increase in factory orders over the past six months, placing the measure 8.0 percent above its year-ago mark. Transportation goods orders increased 4.1 percent, reflecting gains for civilian and defense aircraft of 14.7 percent and 12.4 percent, respectively, and a 1.1 percent bounce in orders for motor vehicles. Net of transportation goods, factory orders rose 0.8 percent during the month and has gained 7.6 percent over the past year. Rising during the month were orders for furniture (+1.6 percent), primary metals (+0.9 percent) and electrical equipment/appliances (+0.6 percent) while new orders dropped for machinery (-1.0 percent), computer/electronics (-0.5 percent), and fabricated metal products (-0.2 percent). Shipments gained for the 11th time in 12 months, with a 1.2 percent increase to $491.2 billion. Unfilled orders rose eked out a 0.1 percent increase (its third consecutive advance) while inventories expanded 0.4 percent (its 12th gain over the past 13 months). 

#5Construction spending rose during November. The Census Bureau estimates the seasonally adjusted annualized value of construction put into place grew 0.8 percent during the month to $1.257 trillion. This represented a 2.4 percent increase from the same month a year earlier. Private sector construction spending jumped 1.0 percent to an annualized $964.3 billion (+2.6 percent versus November 2016). Residential expenditures also gained 1.0 percent to $530.8 billion (+7.9 percent versus November 2016) while nonresidential spending increased 0.9 percent to $433.5 billion (which was nevertheless off 3.1 percent from a year earlier). Public sector construction spending edged up 0.2 percent in November to an annualized $292.7 billion. This was up 1.8 percent over the previous year. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 30, 2017, First-Time Claims, seasonally adjusted): 250,000 (+3,000 vs. previous week; +9,000 vs. the same week a year earlier). 4-week moving average: 241,750 (-4.7% vs. the same week a year earlier).
Vehicle Sales (December 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.85 million (+1.8% vs. November 2017, -1.7% vs. December 2016).
FOMC minutes

The opinions expressed here are not necessarily those of Kevin’s current employer. 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.

Hiring Rebounds in April, The Fed Stays Put for Now: May 1 – 5

After pausing in March, employers picked up the pace of hiring in April. Here are the 5 things we learned from U.S. economic data released during the week ending May 5.

#1The labor market regained its momentum in April. The Bureau of Labor Statistics estimates nonfarm payrolls expanded by a seasonally adjusted 211,000 during the month, sharply up from the 79,000 net hires in March and much closer to February’s 232,000 job gain. Private sector employers added 194,000 jobs during April, split between 173,000 net hires in the service sector and 21,000 in the goods-producing sector of the economy. Industries with the biggest payroll gains included leisure/hospitality (+55,000), professional/business services (+39,000), health care/social assistance (+36,800), and financial services (+19,000). Even the retail sector, which had been shedding workers in recent months, manage to add 6,300 jobs during March. The average number of hours worked edged up by 1/10th of an hour to 34.4 hours (April 2016: 34.4 hours) while average weekly earnings have grown 2.5 percent over the past year to $900.94.

A separate survey of household finds the unemployment rate dropping by 1/10th of a percentage point to 4.4 percent, off 6/10ths of a point from a year earlier and its lowest point in ten years. Only 12,000 people entered the labor force during the month while the labor force participation rate inched down by 1/10th of a percentage point to 62.9 percent. The typical length of unemployment slipped 1/10th of a week to 10.2 weeks (April 2016: 11.2 weeks). The count of part-time workers seeking a full-time job fell by 281,000 to another post-recession low of 5.272 million (April 2016: 5.970 million). Finally, the broadest measure of labor underutilization (the U-6 series) fell to post-recession low of 8.6 percent (down 3/10ths of a percentage point from March and 1.1 percentage points from a year earlier). The U-6 measure had peaked during the last recession at 17.1 recent back in April 2010.Unemployment Labor Underutilization 2000-2017-050517

#2The Federal Reserve holds its short-term interest target rate, as expected, but does not appear concerned about recent weak economic data. The policy statement released following the conclusion of this week’s Federal Open Market Committee notes that economic activity had “slowed,” but also highlights that the labor market “continued to strengthen” including a comment that job gains were “solid.” Further, while household spending increased “only modestly,” the statement noted that “the fundamentals underpinning the continued growth of consumption remained solid.” Also, inflation was closing in on the Fed’s two-percent target rate. Finally, the statement noted that near-term risks to economic growth were “roughly balanced.” As a result, the committee voted unanimously to keep the fed funds target at between 0.75 percent and 1.00 percent, a rate that statement characterizes as being “accommodative.” Despite some recent weak economic data (the employment data above notwithstanding), the statement was largely unchanged from that following the March FOMC meeting. This would seem to suggest that the committee members appear to be ready for another bump in short-term rates at its next meeting at June.

#3The trade deficit was virtually unchanged even as both exports and imports slowed during March. Per the Census Bureau and the Bureau of Economic Analysis, exports and imports each declined $1.7 billion during the month leaving the goods and services deficit at -$43.7 billion. The trade deficit for goods grew by $0.4 billion while the surplus in services grew by a matching $0.4 billion. Exports of goods contracted by $2.1 billion, pulled down by a $1.8 billion decline in exports of industrial supplies/materials and a $0.9 decrease in automotive vehicles. Imports of goods decreased by $1.7 billion resulting from falling imports of capital goods and industrial supplies/materials. The U.S. had its largest goods deficits with China (-$31.4 billion), the European Union (-$10.0 billion), Mexico (-$6.5 billion), Japan (-$6.5 billion), and Germany (-$5.0 billion).

#4Real personal spending grows for the first time in 2017 during March. The Bureau of Economic Analysis finds that “real” personal consumption expenditures (PCE) grew 0.3 percent during the month, following declines of 0.1 percent and 0.3 percent during February and January, respectively. Real spending on goods edged up 0.1 percent during the month as a 1.5 percent gain in spending of nondurable goods just outpaced the 2.5 percent drop in durables. Real spending on services grew 0.4 percent during March (although this partially reflects a weather-related increase in utility spending). Over the past year, real personal consumption expenditures have grown 1.8 percent, smaller than the +2.1 percent and +1.9 percent 12-month comparables reported for February and January, respectively. Without adjustments for inflation, nominal consumer spending was unchanged during March. Nominal personal income and disposable income both grew at a 0.2 percent rate during March (their smallest monthly gains since last November) while real disposable income jumped 0.5 percent. Real disposable income has grown 2.4 percent over the past year, its best 12-month comparable since last November. Meanwhile, the savings rate grew by 2/10ths of a percentage point to +5.9 percent, its highest point since last August.

#5Construction Spending, particularly that for nonresident structures and in the public sector, slowed during March. The Census Bureau reports that the seasonally adjusted annualized rate of construction put in place slipped 0.2 percent during the month to $1.218 trillion. This was up 3.6 percent from a year earlier. Private sector construction spending was unchanged from February at $940.2 billion (SAAR), which was nevertheless 7.0 percent above that of March 2016. Private sector residential construction spending jumped 1.2% during the month, with much of the gain coming from a 2.0 percent bump in spending of new multi-family properties. Private sector non-residential spending declined 1.3 percent during March, pulled down by lower construction spending for the commercial, office, educational, religious, amusement/recreation, transportation, and power properties. Public construction spending declined 0.9 percent to a SAAR of $278.1 billion. This was off 6.5 percent from the same point a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 29, 2017, First-Time Claims, seasonally adjusted): 238,000 (-19,000 vs. previous week; -38,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-7.6% vs. the same week a year earlier).
Factory Orders (March 2017, New Orders for Manufactured Goods, seasonally adjusted): $478.2 billion (+0.2% vs. February 2017, +5.8% vs. March 2016).
Vehicle Sales (April 2017, Vehicle Retail Sales, seasonally adjusted annualized rate): 16.88 million units (+1.6% vs. March 2017, -3.0% vs. April 2016.
Productivity (1st Quarter 2017-preliminary, Nonfarm Business Labor Productivity, seasonally adjusted): -0.6% vs. Q4 2016, +1.1% vs. Q1 2016.
ISM Manufacturing Report on Business (April 2017, Purchasing Managers Index (>50=Growth in Manufacturing, seasonally adjusted): 54.8 (vs. March 2017: 54.8).
ISM Nonmanufacturing Report on Business (April 2017, NMI (>50=Growth in Nonmanufacturing, seasonally adjusted): 57.5 (vs. March 2017: 55.2).
Consumer Credit (March 2017, Outstanding Non-Real Estate Back Consumer Loan Balances, seasonally adjusted):  $3.806 trillion (+$16.4 billion vs. February 2017, +6.0% vs. March 2016).

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