The Fed Holds Still…For Now: What We Learned During the Week of November 5 – 9

The Federal Reserve finds the U.S. economy continuing to strengthen.  Here are the five things we learned from U.S. economic data released during the week ending November 9.

#1The Fed paused last week but appears primed to move again next month. The statement released following this week’s meeting of the Federal Open Market Committee (FOMC) followed that of prior statements in noting the “the labor market has continued to strengthen and that economic activity has been rising at a strong rate.” Also “strong” was consumer spending but the statement indicates that business fixed investment had “moderated.” The committee expects these vibrant business conditions will remain over the “medium term.” So, while the FOMC voted unanimously to keep the fed funds target rate in a range between 2.0 and 2.25 percent, the statement reaffirmed expectations for “further gradual” rate increases. In fact, the general expectation is for a quarter-point rate boost at the final 2018 FOMC meeting next month.

#2The number of available jobs slipped in September but remained near record levels. The Bureau of Labor Statistics estimates that there were 7.009 million job openings (seasonally adjusted) on the final day of September. Even though this represented a drop of 284,000 from the prior month, the count of job openings has grown 12.5 percent over the past year. By comparison, 5.964 million people were unemployed in September. Private sector job openings totaled 6.407 million, up 11.9 percent from September 2017. The biggest year-to-year percentage gains in job openings were seen in construction (+55.3 percent), accommodation/food services (+38.3 percent), health care/social assistance (+17.9 percent), and wholesale trade (+17.3 percent). Hiring also slowed in September, dropping by 162,000 to 5.744 million. Despite September’s decline, hiring remained 6.9 percent ahead of the year-ago pace. Private sector employers hired 5.393 million workers (+7.2 percent), with large 12-month comparables in health care/social assistance (+16.0 percent), retail (+15.1 percent), and financial activities (+14.7 percent). 5.667 million people left their jobs during September, up 6.0 percent from a year earlier. This included 3.648 million people leaving their jobs voluntarily (+10.6 percent versus September 2017) and 1.700 million layoffs (-3.6 percent versus September 2017).

#3Wholesale prices for energy, food, and services rose in October. Final demand Producer Price Index (PPI) jumped 0.6 percent on a seasonally adjusted basis during the month, its largest single-month gain for the Bureau of Labor Statistics measure since late 2012. More than 60 percent of the surge in wholesale prices can be linked to the 1.6 percent jump in PPI for trade services—i.e., retailer and wholesaler margins—that itself appears to be linked to retailers rising prices just prior to the holiday sales season. Also gaining were wholesale prices for energy (+2.7 percent) and food (+1.0 percent). Gasoline PPI rose 7.6 percent, with higher prices also seen for diesel fuel, vegetables, and beef. Net of energy, food, and trade services, core final demand PPI increased 0.2 percent during October, half of the previous month’s gain. Over the past year, final demand PPI has risen 2.9 percent, while the core measure has a 12-month comparable of +2.8 percent.

#4The service sector expanded at a slightly slower rate in October. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business—the NMI—shed 1.3 points during the month to a reading of 60.3. Despite the decline, this was the NMI’s second best reading of 2018 and was the 105th time the measure was above a reading of 50.0 (indicative of an expanding service sector). Three of four NMI component declined during the month: business activity (down 2.7 points), employment (down 2.7 points), and new orders (off 1/10th of a point). The supplier deliveries measure added a half point. Seventeen of 18 tracked industries expanded during the month, led by real estate, information, and transportation/warehousing. While most survey respondents’ comments were “positive,” the press release noted “continued concerns about capacity, logistics, and tariffs.”

#5Wholesale inventories expanded again in September. The Census Bureau estimates inventories of merchant wholesalers widened 0.4 percent during the month to a seasonally adjusted $644.6 billion. This matched August’s 0.4 percent gain and left wholesale inventories up 5.2 percent from a year earlier. Wholesale durable goods inventories grew 0.8 percent during the month to a seasonally adjusted $393.4 billion (+6.8 percent versus September 2017) while inventories of nondurables contracted 0.4 percent to $251.2 billion (+2.8 percent versus September 2017). Inventories grew for every major category of durable goods while the nondurables figure was pulled down by shrinking inventories of farm goods, drugs, and paper. The inventory-to-sales ratio for wholesalers held firm during September at 1.26, although this represented a three-basis point decline from a year earlier. Rising a basis point was the I/S ratio for durable goods (1.59) while shedding a basis point was the I/S ratio for nondurables (0.95).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 3, 2018, First-Time Claims, seasonally adjusted): 214,000 (-1,000 vs. previous week; -23,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-8.6% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (November 2018-preliminary, Index of Consumer Sentiment (1966Q1=100, seasonally adjusted): 98.3 (vs. October 2018: 98.6; vs. November 2017: 98.5).
Consumer Credit (September 2018, Outstanding Consumer Credit Balances (net of real estate-backed loans), seasonally adjusted): $3.950 trillion (+$11.0 billion vs. August 2018, +4.8% vs. September 2017).

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

Hiring and Wages Both Rise in October: October 29 – November 2

Hiring resumed in October while consumer spending remained solid. Here are the five things we learned from U.S. economic data released during the week ending November 2.

#1Job creation rebounded in October. The Bureau of Labor Statistics reports nonfarm payrolls grew by a seasonally adjusted 250,000 during the month, up from the 118,000 job gain in September (which appeared to have been suppressed by the landfall of Hurricane Florence). Private sector employers added 246,000 workers during the month, split between 67,000 among goods-producing employers and 179,000 in the service sector. Industries adding the most workers during the month were health care/social assistance (+46,700), leisure/hospitality (+42,000), professional/business services (+35,000), manufacturing (+32,000), and construction (+30,000). The average workweek grew by 1/10th of an hour to 34.5 hours (October 2017: 34.4 hours) while average weekly earnings expanded by $4.45 to $941.85 (+3.4 percent versus a year earlier).

A separate household survey kept the unemployment rate at its post-recession low of 3.7 percent. 711,000 people entered the labor force during the month, putting the labor force participation rate of 62.9 percent. The labor force participation rate for adults aged 25 to 54 rose to 82.3, its highest point since the May 2010. The median length of unemployment inched up 2/10ths of a week to 9.4 weeks (October 2017: 9.8 weeks) while the number of part-time workers seeking a full-time opportunity held relatively stable during the month at 4.621 million (October 2017: 4.880 million). The broadest measure of labor underutilization (the “U-6” series) tied that from August with its lowest mark since before the recession at 7.4 percent.

#2Consumers continued spending in September. Real personal spending (adjusted for inflation) grew 0.3 percent during the month, slower than August’s 0.4 percent increase but matching the gains for every preceding month since April. The Census Bureau finds that spending on goods rose 0.7 percent, split between gains for durable and nondurable goods of 1.8 percent and 0.2 percent, respectively. Spending on services was flat during the month. Nominal consumer spending grew at a faster pace than had personal income (+0.3 percent versus +0.2 percent). Nominal personal income gained 0.2 percent while real personal income inched up 0.1 percent. As a result, the real savings rate shed 2/10ths of a percentage point to +6.2 percent. Over the past year, real personal consumption expenditures have grown 3.0 percent, just ahead of the 12-month comparable for real disposable personal income (+2.9 percent).

#3The trade deficit expanded further in September. The Census Bureau and Bureau of Economic Analysis estimates exports grew 1.5 percent during the month to a seasonally adjusted $212.6 billion (+7.2 percent versus September 2017) while imports also increased 1.5 percent to $266.6 billion (+9.8 percent versus September 2017). As a result, the U.S. trade deficit widened by 1.5 percent during the month to -$54.0 billion, 21.6 percent larger than the deficit during the same month a year earlier. The trade deficit for the first nine months of 2018 (-$445.2 billion) was 10.1 percent larger than that of the first nine months of 2017. The goods deficit expanded by $0.6 billion during September to -$77.2 billion while the services surplus shrank by $0.1 billion to +$23.2 billion. The U.S. had its largest goods deficit with China (-$37.4 billion), the European Union (-$14.2 billion), and Mexico (-$7.5 billion).

#4Manufacturing grew in October at its slowest pace since the spring. The headline index from the Institute for Supply Management’s Manufacturing Report on Business (PMI) shed 2.1 points during the month to a reading of 57.7, its lowest reading since April. Four of the PMI’s five components pulled back from their September marks: new orders, production, employment, and inventories. The measure of supplier deliveries was the sole PMI component to improve during the month. Thirteen of 18 manufacturing industries expanded during the month, led by textiles, electrical equipment/appliances, and apparel. The press release noted that comments received from survey respondents “reflect continued expanding business strength” but also that the “expansion of new exports orders softened.”

#5Factory orders grew in September, pulled up by the defense sector. The Census Bureau reports new orders for manufactured goods totaled a seasonally adjusted $515.3 billion, up 0.7 percent for the month (its fourth gain over the past five months). Driving the increase was defense aircraft orders more than doubling (+118.7 percent). Net of all defense goods, new factory orders were flat. Durable goods orders rose 0.7 percent while orders of nondurables gained 0.6 percent. Factory orders over the first nine months of 2018 have totaled $4.495 trillion, up 8.4 percent over the same nine months in 2017. Shipments increased for the 16th time in 17 months, growing 0.9 percent to $509.8 billion. Unfilled orders gained 0.8 percent to $1.187 trillion (its tenth increase in 11 months) while inventories expanded for the 23rd consecutive month with a 0.5 percent bounce.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 27, 2018, First-Time Claims, seasonally adjusted): 214,000 (-2,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-8.9% vs. the same week a year earlier).
Productivity (2018Q3, Nonfarm Labor Productivity, seasonally adjusted annualized rate): +2.2% vs. 2018Q2, +1.3% vs. 2017Q3.
Conference Board Consumer Sentiment (October 2018, Index (1985=100), seasonally adjusted): 137.9 (vs. September 2018: 135.3, vs. October 2017: 126.2).
Case-Shiller Home Price Index (August 2018, 20-City Index, seasonally adjusted): +0.1% vs. July 2018, +5.5% vs. August 2017).
Construction Spending (September 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.329 trillion (Unchanged vs. August 2018, +7.2% vs. September 2017).
Bankruptcy Filings (12-month period ending September 30, 2018, Business and Non-Business Filings): 773,375 (-2.2% vs. 12-month period ending September 30, 2017).
Agricultural Prices (September 2018, Prices Received by Farmers): -1.5% vs. August 2018, -4.6% vs. September 2017.

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

A Record Number of Job Openings: October 15 – 19

Employers continued to have difficulty filling job openings in August. Here are the five things we learned from U.S. economic data released during the week ending October 19.

#1The number of job openings jumped to another record high in August. Nonfarm employers had a seasonally adjusted 7.136 million job openings on the final day of August, up 59,000 for the month and 18.1 percent from a year earlier. (By comparison, there were 6.234 million people unemployed during the same month.) Among the industries that the Bureau of Labor Statistics reported having the biggest year-to-year percentage gains in job openings were construction (+38.6 percent), financial activities (+28.7 percent), wholesale trade (+19.6 percent), accommodation/food services (+19.4 percent), retail (+18.0 percent), and manufacturing (+17.3 percent). Employers continued to struggle in filling these jobs as 5.784 million people were hired during August. While lagging the number of job openings, the number of people hired was up 71,000 for the month and 5.0 percent from August 2017. Industries with the greatest year-to-year percentage increases in hiring were retail (+18.6 percent), wholesale trade (+10.9 percent), and accommodation/food services (+6.2 percent). 5.706 million people left their jobs during August, up 110,000 for the month and 6.8 percent from a year earlier. 3.577 million workers voluntarily departed their jobs during the month, 12.7 percent ahead of a year-ago and indicative of workers confident about their job marketplace. Layoffs affected 1.622 million people, down 10.1 percent from the count of 12 months earlier.JOLTS August 18 101918

#2Manufacturing output grew modestly in September. The Federal Reserve reports that manufacturing output grew 0.2 percent on a seasonally adjusted basis during the month, following matching 0.3 percent gains in both July and August. Manufacturing output has increased 3.5 percent over the past 12 months. Durable goods manufacturing jumped 0.6 percent (led by motor vehicles, wood products, primary metals, and aerospace). Nondurable goods output slipped 0.1 percent, pulled down by textiles and apparel. Overall industrial production gained 0.3 percent in September and has risen 5.1 percent over the past year. Mining output jumped 0.5 percent for the month and 13.4 percent since September 2017, boosted by continued strength in both oil and gas extraction. Output at utilities was unchanged during September but has a 12-month comparable of +5.4 percent over the past year.

#3September was a weak month for retail sales. The Census Bureau estimates U.S. retail and food services sales inched up 0.1 percent during the month to a seasonally adjusted $509.0 billion. Even with the modest increase during September, sales have grown 4.7 percent over the past year. Sales at auto dealers/parts stores jumped 0.8 percent while gas station sales slowed 0.8 percent. Net of both, core retail sales were unchanged during September but have expanded 5.0 percent over the past 12 months. Sales improved during the month at retailers focused on furniture (+1.1 percent), electronics/appliances (+0.9 percent), sporting goods/hobbies (+0.7 percent), apparel (+0.5 percent), and building materials (+0.1 percent). Sales slumped, however, at restaurants/bars (-1.8 percent), department stores (-0.8 percent), and grocery stores (-0.1 percent).

#4Existing home sales sputtered again in September. The National Association of Realtors reports that sales of previously owned homes fell 3.4 percent during the month to a seasonally adjusted annualized rate of 5.15 million homes. This was not only a 4.1 percent drop from the same month a year earlier, it also was the measure’s seventh consecutive decline and the slowest pace of existing home sales in nearly three years. Sales failed to increase in all four Census regions, although transaction volume managed to hold even with August levels in the Midwest. All four Census regions had negative 12-month comparables: West (-12.2 percent), Northeast (-5.6 percent), Midwest (-1.5 percent), and the South (0.5 percent). A part of the problem remained a lack of homes on the market—there were 1.88 million homes available for sale at the end of September, down 1.6 percent from August but up 1.1 percent from a year earlier. This was the equivalent to a paltry 4.4 month supply of homes. The resulting median sales price has risen 4.2 percent over the past year to $258,100. NAR’s press release also ties recent sales weakness to “a decade’s high mortgage rates” that it says were “preventing consumers from making quick decisions on home purchases.”

#5The U.S. budget deficit surged 17.0 percent during the just-completed fiscal year. The U.S. Treasury Department reports that the federal government collected $3.329 trillion in receipts during the just completed FY2018, up 0.4 percent from FY2018. Outlays, however, jumped 3.2 percent during the same 12 months to $4.108 trillion. The resulting budget deficit of -$778.996 billion represented a 17.0 percent jump from FY2017. A closer look at receipts finds individual tax collections surged 6.1 percent during FY2018 while corporate tax receipts plummeted 31.1 percent. The U.S. government had accumulated a total debt of $21.460 trillion by September 30, 2018.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 13, 2018, First-Time Claims, seasonally adjusted): 210,000 (-5,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-13.9% vs. the same week a year earlier).
Housing Market Index (October 2018, Index (>50= Greater Percentage of Homebuilders Viewing Housing Market as “Good,” seasonally adjusted): 68 (vs. September 2018: 67, vs. October 2017: 68).
Housing Starts (September 2018, Starts, seasonally adjusted annualized rate): 1.201 million units (-5.3% vs. August 2018, +3.7% vs. September 2017).
State Employment (September 2018, Nonfarm Payrolls, seasonally adjusted): Payrolls declined significantly vs. July 2018 in 3 states and were essentially unchanged in 47 states and the District of Columbia. Payrolls grew significantly vs. August 2017 in 37 states.
Treasury International Capital Flows (August 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$77.1 billion (vs. July 2018: +$32.4 billion, vs. August 2017: +$40.6 billion).
FOMC minutes

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