Manufacturing Faltered Again in December: December 30 – January 3

Purchasing managers report manufacturing activity slowed for a fifth straight month. Here are the five things we learned from U.S. economic data released during the week ending January 3.

#1A measure of economic activity in manufacturing fell to a more than ten-year low in December. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, shed 9/10ths of a point to a reading of 47.2. This reading was the PMI’s lowest point since June 2009 and its fifth straight month under 50.0 (the threshold between an expanding and contracting manufacturing sector). Three of five PMI components fell during the month: production (-5.9 points), employment (-1.5 points), and new orders (-0.4 points). PMI components tied to supplier deliveries (+2.6 points) and inventories (+1.0 point) each climbed. Only three manufacturing industries expanded in December: food/beverage/tobacco, miscellaneous manufacturing, and computer/electronic products. The press release noted that “global trade” remained a key focus area for many manufacturers and that sentiment was “marginally positive regarding near-term growth.”

#2Construction spending grew in November. The Census Bureau places the seasonally adjusted annualized value of construction put into place during the month at $1.324 trillion, up 0.6 percent from October and 4.1 percent from a year earlier. Despite November’s gain, construction spending during the first 11 months of 2019 was 0.8 percent under that of the first 11 months of 2018. The Census Bureau also revised estimates for September and October spending upwards. Private sector expenditures grew 0.4 percent to $985.5 billion (+1.6 percent), including a 1.9 percent bounce in private sector residential spending. Private nonresidential spending fell 1.2 percent. Public sector construction expenditures gained 0.9 percent to $338.6 billion, up 12.4 percent from a year earlier.

#3The Conference Board finds that consumer sentiment “dipped” slightly in December. The Consumer Confidence Index slipped by 3/10ths of a point to a seasonally adjusted reading of 126.5. The present conditions index added 3.4 points to 170.0, while the expectations index lost 2.9 points to 97.4. 38.7 percent of survey respondents said that business conditions were “good” while only 11.1 saw them as being “bad.” An even higher percentage of Americans see jobs as being “plentiful” (47.0 percent) versus being “hard to get” (13.1 percent). The press release cautioned that “there is little to suggest that growth, and in particular consumer spending, will gain momentum in 2020.”

#4Pending home sales rebounded in November. The National Association of Realtors’ measure of home purchase contract signings increased 1.2 percent during the month to a seasonally adjusted 108.5 (2001=100). The index jumped 5.5 percent in the West and gained 1.0 percent in the Midwest but edged down in both the South (-0.2 percent) and Northeast (-0.1 percent). The Pending Home Sales Index was 7.4 percent ahead of its year-ago reading with positive 12-month comparables in all four Census regions, including a 14.0 percent jump in the West. The press release noted November’s increase occurred despite “insufficient level of inventory” of homes for sale.

#5Two reports find home prices rose at a moderate pace in October. The Federal Housing Finance Agency’s House Price Index increased a seasonally adjusted 0.2 percent during the month. The measure, which tracks prices of homes purchased with a conforming mortgage, gained in six of nine Census regions, led by the West South Central (+0.7 percent), East South Central (+0.7 percent), Pacific (+0.6 percent), and Middle Atlantic (+0.6 percent). Over the past year, the Housing Price Index has risen 5.0 percent, with the largest 12-month comparables in the Mountain (+6.7 percent), South Atlantic (+6.1 percent), and East South Central (+5.8 percent) regions.

The 20-City Case-Shiller Home Price Index grew 0.4 percent (seasonally adjusted) in October, up from a 0.3 percent bump in September. The measure grew in 18 of the 20 tracked cities, with home prices rising 0.7 percent in Atlanta, Los Angeles, and Seattle. The index has risen 2.2 percent over the past year, with positive year-to-year comparables in 19 of 20 cities (San Francisco being the exception). The press release characterized the home price data as “reassuring.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 28, 2019, First-Time Claims, seasonally adjusted): 222,000 (-2,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 233,250 (-5.2% vs. the same week a year earlier).
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Payroll Growth Moderated: September 30 – October 4

The U.S. economy continued to create jobs in September, albeit at a more restrained rate. Here are the five things we learned from U.S. economic data released during the week ending October 4.

#1Job creation slowed, but the unemployment rate fell to a 50-year low in September. Nonfarm payrolls expanded by a seasonally adjusted 136,000 during the month, its smallest increase in four months and below 2018’s 223,000 average monthly job gain. The same Bureau of Economic Analysis report upwardly revised previously reported job gain estimates by 7,000 for July and 38,000 for August. The private sector added 114,000 workers in September, with all but 5,000 of the added job gains coming from the service sector. Industries added the most jobs were health care/social assistance (+41,400), professional/business service’s (+34,000), leisure/hospitality (+21,000), and transportation/warehousing (+15,700). Meanwhile, retailers shed 11,400 workers. Average weekly earnings of $966.30 were up 2.6 percent from a year earlier.

A separate household survey finds the unemployment rate falling by 2/10ths of a percentage point to 3.5 percent, its lowest reading since December 1969. 117,000 people entered the job market during the month, leading the labor force participation rate at 63.2 percent (the measure for adults 25 to 54 also held steady during the month at 82.6 percent). Also, mostly unchanged was the count of part-time workers seeking full-time work (4.350 million people) while the median length of unemployment grew by a half week to 9.4 weeks. Dropping to a data series low was the broadest measure of labor underutilization (the “U-6” series), shedding 3/10ths of a point to 6.9 percent.

#2Purchasing managers report that manufacturing contracted again in September while the service sector’s advance was less robust. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business failed to exceed 50.0—the threshold between an expanding and contracting manufacturing sector—for a second straight month. The PMI came in at 47.9, off 1.3 points from August as only one of five PMI components made a positive contribution (new orders). Dragging down the PMI were lower readings for inventories, production, employment, and supplier deliveries. Only three of 18-tracked manufacturing industries expanded in September: “miscellaneous” manufacturing, food/beverage/tobacco, and chemical products. The press release noted that “global trade remains the most significant issue” affecting manufacturing with sentiment being “cautious regarding near-term growth.”

The headline measure from the Non-Manufacturing Report on Business stayed above a reading of 50.0 as it has for the past 116 months. But the NMI slumped by 3.8 points to a reading of 52.6, its worst mark since August 2016. The supplier deliveries index was the only one of the four NMI components to make a positive contribution, as new orders, business activity/production, and employment lost ground in September. Thirteen of 18 tracked industries reported growth during the month, led by utilities, retail, construction. The press release noted that “respondents are mostly concerned about tariffs, labor resources and the direction of the economy.”

#3Factory orders edged down in August. The Census Bureau estimates new orders for manufactured goods slipped 0.1 percent during the month to a seasonally adjusted $499.8 billion. New factory orders over the first eight months of 2019 also off 0.1 percent of that of the same period in 2018. Durable goods spending increased 0.2 percent during August but orders on nondurables pulled back 0.3 percent. Net of transportation goods, core factory orders held steady during the month while orders of core civilian nonaircraft capital goods—a proxy for business investment—declined 0.4 percent. Shipments fell for a second straight month, losing 0.1 percent to $503.0 billion. Unfilled orders, on the other hand, gained for a second consecutive month (+0.1 percent to $1.163 trillion). Inventories contracted by less than 0.1 percent to $695.9 billion.

#4The trade deficit widened in August. The Census Bureau and the Bureau of Economic Analysis reports that while exports grew 0.2 percent (to a seasonally adjusted $207.9 billion, virtually matching that of August 2018) during the month, imports bloomed 0.5 percent (to $262.8 billion, also essentially matching that of a year earlier). The resulting trade deficit of -$54.9 billion was 1.6 percent greater than that of July but equaled that of the same month a year ago. The goods deficit expanded by $0.8 billion to -$74.4 billion (2.7 percent versus August 2018) while the services surplus narrowed by less than $0.1 billion to +$19.5 billion (-9.6 percent versus August 2018). Rising were exports of fuel oil, nonmonetary gold, and soybeans, while civilian aircraft exports slowed. On the import side, there were increases for consumer goods (including cell phones) and capital goods but also a substantial decline for industrial supplies/materials.

#5Construction spending was soft in August. The Census Bureau places the seasonally adjusted annualized value of construction put into place during the month at $1.287 trillion, up 0.1 percent from July but 1.8 percent under the year-ago pace. Private sector spending mostly held steady in August at $955.0 billion (-4.0 percent versus August 2018), with residential sector spending rising 0.9 percent but nonresidential spending slumping 1.0 percent during the month. Public sector construction spending gained 0.4 percent in August to an annualized $332.3 billion, up 4.6 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 28, 2019, First-Time Claims, seasonally adjusted): 219,000 (+6,000 vs. previous week; +1,000 vs. the same week a year earlier). 4-week moving average: 212,500 (Unchanged vs. the same week a year earlier).

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

Hiring Bounced Back: July 1 – 5

The labor market rebounded in June. Here are the five things we learned from U.S. economic data released during the week ending July 5.  

#1Job creation recovered in June. The Bureau of Labor Statistics tells us that nonfarm payrolls expanded by a seasonally adjusted 224,000 during the month, a sharp surge versus May’s 72,000 created jobs and just above April’s 216,000 payrolls jump. Private sector employers added 191,000 workers (up from an 83,000 gain in May), split between 154,000 in the service sector and 37,000 in the goods-producing sector. Industries adding the most jobs in June included professional/business services (+51,000), health care/social assistance (+50,500), transportation/warehousing (+23,900), and construction (+21,000). Average weekly private sector earnings of $959.76 represented a 2.8 percent increase over the past year.Yearly Wage Increases 070519

A separate survey of households has the unemployment rate inching up 1/10th of a percentage point to 3.7 percent (just above its multi-decade low) as 335,000 people entered the labor force during the month. The labor force participation rate grew by 1/10th of a percentage point to 62.9 percent—the same measure for adults aged 25 to 54 also added 1/10th of a percentage point to 82.2 percent. The median length of unemployment grew by a half week to 9.6 weeks while the number of part-time workers seeking a full-time opportunity essentially held steady at 4.347 million. The U-6 series, the broadest measure of labor underutilization published by BLS, eked out a 1/10th of a percentage point increase to 7.2 percent (just above its almost 19-year low achieved last month).

#2The U.S. trade deficit hit a 2019 high in May. The Census Bureau and the Bureau of Economic Analysis report that while exports grew by $4.2 billion to a seasonally adjusted $210.6 billion (-1.3 percent versus May 2018), imports surged by $8.5 billion to $266.2 billion (+3.3 percent versus May 2018). The resulting trade deficit of -$55.5 billion was up $4.3 billion from April and was a five-month high. The goods deficit blossomed by $4.4 billion to -$76.1 billion while the services surplus widened slightly (+$0.1 billion) to +$20.6 billion. The former resulted from imports of goods swelling $8.1 billion (including from imported automobiles, crude oil, capital goods, and semiconductors), overwhelming the $4.0 billion increase in exported goods (including capital goods, consumer goods, soybeans, and automobiles). The U.S. had its largest goods deficits with China, the European Union, Mexico, and Japan.

#3Factory orders dropped in May. New orders for manufactured goods decreased for the third time in four months with a 0.7 percent decline to a seasonally adjusted $493.6 billion, per the Census Bureau. Transportation goods orders shrank 4.6 percent, hurt by contracting orders for civilian (-28.2 percent) and defense (-15.5 percent) aircraft. Net of transportation orders inched up 0.1 percent, with increased orders for furniture (+3.3 percent), electrical equipment/appliances (+1.0 percent), machinery (+0.8 percent), computers/electronics (+0.7 percent), and primary metals (+0.1 percent). Declining were orders for fabricated metal products (-0.3 percent) and nondurables (-0.2 percent). Meanwhile, shipments grew 0.1 percent to $504.3 billion (its third gain in four months), with shipments unchanged for the month net of transportation goods. Unfilled orders declined 0.5 percent to $1.171 trillion (its third drop in four months) while inventories expanded for the eighth time in nine months with a 0.2 percent increase to $694.1 billion.

#4Purchasing managers suggest a slower pace of economic growth in June. The Institute for Supply Management’s PMI (the headline index from its Manufacturing Report on Business) slipped by 4/10ths of a point to 51.7. While this was the PMI’s lowest reading since October 2016, it also was the measure’s 34th straight month above a reading of 50.0 (the threshold between an expanding and contracting manufacturing sector). Three of five PMI components took a step back in June—new orders, inventories, and supplier deliveries—while the other two—production and employment— both advanced. Twelve of 18 tracked manufacturing industries reported growth, led by furniture, printing, and textiles. The press release noted that survey respondents “expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy.”

The NMI, the headline index from ISM’s Nonmanufacturing Report on Business, declined by 1.8 points in June to a reading of 55.1. The NMI has been above the critical 50.0 threshold for an impressive 113 months, but this is the measure’s lowest reading since July 2017. Only one NMI component (supplier deliveries) grew during the month, while the other three declined (employment, business activity/production, and new orders). Sixteen of 18 tracked nonmanufacturing industries reported growth, led by real estate. The press release characterized survey respondents’ sentiment as “mixed,” as a “degree of uncertainty exists due to trade and tariffs.”

#5Construction spending decelerated in May. The Census Bureau places the seasonally adjusted annualized rate of construction put in place at $1.294 trillion, down 0.8 percent from April and 2.3 percent below the year-ago pace. Residential construction spending dropped 0.7 percent to an annualized $953.2 billion, 6.3 percent less than that of a year ago and its lowest reading since January 2017. Falling were spending on both private sector nonresidential (-0.9 percent) and residential (-0.6 percent) spending. Reversing recent trends, public sector construction spending also slowed, slumping 0.9 percent to an annualized $340.6 billion. Despite May’s decline, public construction spending remained 10.8 percent ahead of its year-ago pace.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 29, 2019, First-Time Claims, seasonally adjusted): 221,000 (-8,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 222,250 (-0.1% vs. the same week a year earlier)

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