Industrial Production and Retail Sales Take a Pause: September 11 – 15

Even though the storm hit Texas during the final days of August, the impact of Hurricane Harvey was already showing up in economic data. Here are the five things we learned from U.S. economic data released during the week ending September 15.

#1Hurricane Harvey slowed industrial production at the end of August. The Federal Reserve indicates that industrial production fell for the first time in seven months with a 0.9 percent decline. Manufacturing output dropped 0.3 percent after holding steady in July. The Fed estimates both measures dropped by 3/4ths of a percentage point due to storm-related effects. Durable goods output grew 0.3 percent during the month while that of nondurables fell 0.9 percent. Automobile and aerospace production boosted the former while drops in the output of chemicals and petroleum/coal products pulled down the latter. Also falling were outputs at utilities (-5.5 percent) and in mining (-0.8 percent), with the latter the result of large declines in oil and gas well drilling and servicing. Capacity utilization also fell, shedding 8/10ths of a percentage point to 76.1 percent (its lowest reading since March). Manufacturing sector capacity utilization dropped by 3/10ths of a percentage point to 75.3 percent.Industrial Production Aug17-091517.png

#2Retail sales slipped in August, although it is unclear how much of that drop was due to Harvey. The Census Bureau estimates U.S. retail and food services sales were at a seasonally adjusted $474.8 billion, off 0.2 percent from the previous month. Hurting the headline number was softer sales at auto dealers (and parts stores), which saw sales drop 1.6 percent. Net of auto dealers/parts stores, retail sales grew 0.2 percent—although this figure is pulled up by a 2.5 percent rise in gas station sales (largely due to higher gasoline prices). Sales also grew at furniture retailers (+0.4 percent), restaurants/bars (+0.3 percent), grocery stores (+0.3 percent), and general merchandisers (+0.2 percent). August was not a particularly good month for apparel retailers (-1.0 percent), electronics/appliance stores (-0.7 percent), building materials retailers (-0.5 percent), and department stores (-0.1 percent). The Census Bureau statement included comments about possible retail sales impacts resulting from Hurricane Harvey, noting that they received “indications from the companies that the hurricane had both positive and negative effects on their sales data while others indicated they were not impacted at all.”

#3Higher gasoline prices led to firmer consumer and wholesale prices in August. The Consumer Price Index (CPI) jumped 0.4 percent on a seasonally adjusted basis during the month, the largest single-month increase in the Bureau of Labor Statistics measure in seven months. Energy and shelter were responsible for much of the gain in consumer prices. Energy CPI jumped 2.8 percent, pulled up by a 6.3 percent gain in gasoline prices and a 2.9 percent increase in fuel oil. (Note that these figures largely do not reflect the impact of the sharp rise in gas prices caused refineries temporary closing along the Gulf Coast following Hurricane Harvey.) Food CPI inched up 0.1 percent. Net of energy and food, core CPI increased 0.2 percent, its largest single-month gain since February. Growing were prices for shelter (+0.5 percent), transportation services (+0.4 percent), medical care services (+0.2 percent), and apparel (+0.1 percent). Prices fell for used cars (-0.2 percent) and medical care commodities (-0.1 percent) while new car prices did not change from July. Over the past year, CPI has grown 1.9 percent while the core CPI measure has increased 1.7 percent.

The final demand Producer Price Index (PPI) grew 0.2 percent during August following a 0.1 percent decline in July. Net of food, energy, and trade services, core final demand PPI increased 0.2 percent during August after holding firm in July. The former has jumped 2.4 percent over the past year while the 12-month comparable for the core index was at +1.9 percent. Wholesale prices for final demand goods leaped 0.5 percent (its biggest month-to-month since April), led by a 3.3 percent jump in PPI for final demand energy goods (gasoline PPI surged 9.5 percent). Food PPI fell 1.3 percent, pulled down by lower meat prices. Net of energy and food, wholesale prices for core goods increased 0.2 percent (its biggest gain since April). Final demand services PPI eked out a 0.1 percent gain.

#4The number of job openings and people hired both edged up during July. Per the Bureau of Labor Statistics, there were a seasonally adjusted 6.170 million job openings at the end of the July, up 54,000 from a month earlier and up 3.3 percent from a year earlier, and its highest reading in the 17-year history of the data series. Private sector employers had 5.657 million job openings at the end of the month, up 4.4 percent from the July 2016 count. Among the industries with large year-to-year percentage gains in job opening were mining/logging (+130.8 percent), wholesale trade (+20.2 percent), leisure/hospitality (+12.9 percent), and financial activities (+9.9 percent). Employers hired 5.501 million people during July, up 69,000 from June and 3.2 percent from a year earlier. Private sector employers hired 5.164 million people, up 4.4 percent from a year earlier. The largest percentage year-to-year increases in hiring occurred in mining/logging (+47.8 percent), manufacturing (+20.1 percent), financial activities (+10.4 percent), and construction (+9.3 percent). 5.332 million people left their jobs during July, up 23,000 for the month and 6.6 percent from July 2016. 3.164 million people voluntarily quit their jobs during the month (+4.4 percent versus July 2016) while layoffs totaled 1.783 million (+10.8 percent versus July 2016).

#5Employers expect to continue hiring during the final months of 2017. Twenty-one percent of the 11,500 companies surveyed by Manpower indicated plans to hire more workers during the third quarter of 2017 while six percent expect to shed workers. The resulting difference—the Net Employment Outlook—of +15 increases to +17 after seasonal adjustments. This matched the Net Employment Outlook reading from three months earlier but slipped a point from a year earlier. The measure was positive for all 13-tracked industries, with the highest readings for leisure/hospitality (+28), professional/business services (+22), and transportation/utilities (+20). Similarly, there were positive seasonally adjusted Net Employment Outlooks in all four Census regions: Northeast (+18), Midwest (+16), South (+18), and West (+18).

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 9, 2017, First-Time Claims, seasonally adjusted): 284,000 (-14,000 vs. previous week; +26,000 vs. the same week a year earlier). 4-week moving average: 263,250 (+1.7% vs. the same week a year earlier).
Small Business Optimism Index (August 2017, Index (1986=100), seasonally adjusted): 105.3 (vs. July 2017: 105.2; August 2016: 94.4).
University of Michigan Index of Consumer Sentiment (September 2017-preliminary, Index (1966Q1=100), seasonally adjusted):  95.3 (vs. August 2017: 96.8; September 2016: 91.2).
Manufacturers’ and Trade Inventories (July 2017, Business Inventories, seasonally adjusted): $1.874 trillion (+0.2% vs. June 2017, +3.0% vs. July 2016).
Regional and State Employment (August 2017, Nonfarm Payrolls, seasonally adjusted): vs. July 2017: payrolls grew significantly in 6 states and declined significantly in 3 states; vs. August 2016: payrolls increased significantly in 29 states and in the District of Columbia. No state suffered a significant year-to-year decline.
Federal Government Treasury Statement (August 2017, Surplus/Deficit): -$107.7 billion (vs. July 2017: -$42.9 billion; vs. August 2016: -$107.1 billion).

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

Job Creation and Wage Growth Slowed in August: August 28 – September 1

Manufacturing and construction sectors were responsible for more than a third of August’s net job creation. Here are the five things we learned from U.S. economic data released during the week ending September 1.  

#1Employers added fewer workers during August while wage growth momentum sputtered. Nonfarm payrolls expanded by 156,000 workers during the month following gains of 189,000 and 210,000 during July and June, respectively. The number of jobs created during August reported by the Bureau of Labor Statistics was below the average monthly job gains over the past year of 174,750. The private sector added 165,000 jobs during the month, split between 70,000 in the goods producing side of the economy and 95,000 in the service sector. Industries adding the most workers during the month were professional/business services (+40,000 jobs), manufacturing (+36,000, including 13,700 in motor vehicle manufacturing), construction (+28,000), and health care/social assistance (+16,600). The average work week totaled 34.4 hours, off 1/10th of an hour from July but 1/10th of an hour from a year earlier. Average hourly earnings grew by a mere three cents during the month to $26.39 (+2.5 percent versus August 2016). Average weekly earnings of $907.82 was off $1.60 from July but remained percent above a year ago levels.

A separate survey of households has the unemployment rate edging up 1/10th of a percentage point to a still low 4.4 percent. A year earlier, the unemployment rate was 4.9 percent. 77,000 people entered the labor force during the month, leaving the labor force participation rate at 62.9 percent (August 2016: 62.8 percent). The median length of unemployment slipped by 1/10th of a week to 10.5 weeks (August 2016: 10.9 weeks) while the count of “involuntary” part-time workers–these are part-timers seeking a full-time job–shrank by 27,000 to 5.255 million (August 2016: 6.027 million). Finally, the BLS’s broadest measure of labor underutilization (U-6 series) held firm during the month at 8.6 percent. A year earlier, the same measure was at 9.7 percent.Job Creation, Unemployment Rate 2011-2017-090117

#2The U.S. economy expanded more quickly than previously believed during Q2. The Bureau of Economic Analysis raised its estimate of second quarter 2017 annualized growth in the Gross Domestic Product (GDP) from a 2.7 percent gain, as reported a month ago, to a 3.0 percent increase. This represents the fastest pace of economic growth since Q2 2015. The upward revision was the product of higher than previously believed levels of consumption and nonresidential fixed investment (although government expenditures were lower than previously thought). By far the biggest contributor to Q2’s economic expansion was personal consumption expenditures, which added 228 basis points to the quarter’s GDP growth. Also adding to GDP growth were nonresidential fixed investment (adding 85 basis points), exports (adding 45 basis points), federal government spending (adding 13 basis points) and the change in private inventories (adding two basis points). Drags on Q2 economic growth were fixed residential investment (costing 26-basis points in growth), imports (costing 23 basis points), and state/local government spending (costing 18 basis points). Corporate profits (with inventory valuation and capital consumption adjustments) grew 1.3 percent during the quarter to a seasonally adjusted annualized rate of $2.136 trillion. This had followed a 2.1 percent drop during Q1 and was up 7.0 percent from the same quarter a year earlier.

#3Personal spending grew at a moderate pace in July. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.2 percent on a seasonally adjusted basis, matching June’s gain but slower than May’s 0.3 percent increase. Consumers increased their real spending on goods by 0.4 percent and that on services by 0.2 percent. The former was split by a 0.8 percent spending increase on durable goods and a 0.3 percent bump in nondurables spending. Over the past year, real PCE has increased 2.7 percent, split between gains for goods and services spending of 3.6 percent and 2.3 percent, respectively. Without adjustments for inflation, nominal PCE grew 0.3 percent, supported by a 0.4 percent increase in nominal personal income and a 0.3 percent gain in nominal disposable personal income. Real personal income increased 0.2 percent during July after having been unchanged in June. Real disposable income has grown by 1.3 percent over the past year. The savings rate slipped by 1/10th of a percentage point to +3.5 percent.

#4Purchasing managers report higher manufacturing sector activity in August. The PMI from the Institute for Supply Management increased by 2.5 points during the month to a seasonally adjusted reading of 58.8. This was the 12th straight month in which the measure was above a reading of 50.0 (indicative of an expanding manufacturing sector) and its highest reading since April 2011. Four of the five components of the PMI improved during the month: inventories (up 5.5 points to 55.5), employment (up 4.7 points to 59.9), supplier deliveries (up 1.7 points to 57.1), and production (up 4/10ths of a point to 61.0). The new orders index slipped by 1/10th of a point to 60.3. Fourteen of 18 tracked manufacturing industries expanded during the month, led by textiles, petroleum/coal products, and machinery. The press release said that survey respondents’ comments had reflected “expanding business conditions.”

#5Consumers grew more confident during August. The Conference Board’s Consumer Confidence Index added 2.9 points during the month to seasonally adjusted 122.9. This was the index’s second straight monthly increase and its best reading since March (which had been its 16-year high). Indices for present and expected business conditions both grew during the month: the former up 5.8 points to 151.2 and the latter increasing by a full point to 104.0. 34.5 percent of survey respondents described current economic conditions as “good” while 13.1 percent said that they were “bad.” Looking towards the future, 22.4 percent of consumer expect business conditions will improve over the next six months while 7.3 percent anticipate conditions will deteriorate. The press release said the data suggest consumers “do not anticipate an acceleration in the pace of economic activity in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan grew by 3.4 points during August to a seasonally adjusted 96.8. This placed the index seven full points above its year ago reading. The increase in the headline index resulted largely from the 7.2 point gain in the Index of Consumer Expectations (+9.0 points versus August 2016). The Current Economic Conditions index shed 2.5 points to 110.9 (+3.9 points versus August 2016). The press release notes that the headline index “has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history.” The press release also stated that current news events are not weighing significantly on sentiment as “surprisingly few consumers made any reference to Charlottesville, North Korea or Harvey—although the ultimate extent of the damage from Harvey was unknown at the time of the last interviews.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 26, 2017, First-Time Claims, seasonally adjusted): 236,000 (+1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 236,750 (-9.3% vs. the same week a year earlier).
Construction Spending (July 2017, Value of Construction Put into Place, seasonally adjusted annualized rate): $1.212 trillion, (-0.6% vs. June 2017, +1.8% vs. July 2016).
Vehicle Sales (August 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.14 million units (-3.7% vs. July 2017, -6.3% vs. August 2016).
Agricultural Prices (July 2017, Prices Received by Farmers (Index (2011=100)), seasonally adjusted): 95.3 (-2.9% vs. June 2017, +5.3% vs. July 2016).

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

Job Openings Hit a New Record: August 7 – 11.

Employers have many unfilled jobs while inflation remains subdued. Here are the five things we learned from U.S. economic data released during the week ending August 11.

#1Even with a record level of job openings, the pace of hiring sputtered in June as employers are unable to fill Thomas roles. There were a seasonally adjusted 6.163 million job openings on the final day of June, up 461,000 from May, 11.3 percent from a year earlier, and the most reported in the 17-year history of the Bureau of Labor Statistics data series. This included 5.588 million private sector job openings, which represented a 12.0 percent increase from June 2016. Industries reporting the largest percentage gains in job openings over the past year include construction (+31.6 percent), wholesale trade (+28.5 percent), financial activities (+22.6 percent), professional/business services (+16.0 percent), and accommodation/food services (+11.9 percent). Yet, employers were struggling to fill those positions. Hiring declined by 103,000 during the month to 5.356 million. This was up 3.5 percent from the number of people hired during June 2016. Private sector employers hired 5.026 million people during the month, up 4.3 percent from a year earlier. The industries with the largest year-to-year percentage increases in hiring included manufacturing (+25.2 percent), construction (+15.0 percent), and professional/business services (+14.6 percent). 5.224 million people left their job during June, off by 21,000 for the month, but 5.7 percent the year ago count. 3.314 million people voluntarily quit their jobs (+5.2 percent versus June 2016) while the 1.701 million people laid off was up 5.7 percent from the same month a year earlier.Nonfarm Job Openings 2007-2017 081117

#2Consumer prices eke out a small gain during July. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) increased 0.1 percent during the month, after having been unchanged during June. Energy CPI declined for the fifth time in six months, albeit with a small 0.1 percent drop. Gasoline prices were unchanged during July while electricity prices grew 0.4 percent. Food prices gained 0.2 percent during July, the fifth time over the past six months with a monthly increase of at least 0.2 percent. Net of energy and food, core CPI gained 0.1 percent for a fourth consecutive month. Growing were prices for medical care commodities (+1.0 percent), medical care services (+0.3 percent), apparel (+0.3 percent), and transportation services (+0.2 percent). Meanwhile, prices for both new and used cars/trucks dropped 0.5 percent. Both headline and core CPI have grown 1.7 percent over the past year, each under the Federal Reserve’s two-percent target rate for inflation.

#3Wholesale prices declined during July. The final demand Producer Price Index (PPI) slipped 0.1 percent during the month, following a 0.1 percent increase in June. The core measure, which nets out energy, food, and trade services, held steady during the month. PPI for final demand goods edged down 0.1 percent. The measure for wholesale energy goods decreased 0.3 percent (wholesale gasoline prices fell 1.3 percent) while that for food was unchanged during July. Meanwhile, final demand PPI for services dropped 0.2 percent, pulled down by declines for transportation/warehousing (-0.8 percent) and trade (i.e., retailer and wholesaler margins, -0.5 percent). Over the past year, both the headline and core measure of final demand PPI has grown just under the Federal Reserve’s target with a 1.9 percent increase.

#4Productivity growth was soft during Q2, which was an improvement over Q1’s stagnation. The Bureau of Labor Statistics finds nonbusiness labor productivity edged up 0.9 percent on a seasonally adjusted annualized basis during April, May, and June, a gain from the productivity being unchanged during the first quarter. Output grew 3.4 percent during the quarter while hours worked gained 2.5 percent. Unit labor costs edged up 0.6 percent during the quarter. Over the past year, nonfarm productivity grew by a tepid 1.2 percent. The manufacturing sector presented a bright picture with a 2.5 percent productivity gain, led by a sharp 3.8 percent surge in durable goods manufacturing productivity. Productivity of nondurable manufacturing slipped 0.1 percent during Q2.

#5Small Business Owner Sentiment Rebounded During July. The Small Business Optimism Index from the National Federation of Independent Business improved for the first time in six months with a 1.6 point increase to a seasonally adjusted 105.2 (1986 = 100). This was the measure’s best reading since February and up 10.6 points from a year earlier. Seven of the index’s ten components improved from their June readings, led by measures for current job openings (up five points), expected real sales (up five points), plans to increase employment (up four points), and expected future economic conditions (up four points). Only two of the index components declined during the month: plans to make capital outlays (down two points) and expected credit conditions (off a point). The press release noted that “Main Street was buoyed by stronger customer demand despite the dysfunction in Washington, D.C.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 5, 2017, First-Time Claims, seasonally adjusted): 244,000 (+3,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 241,000 (-8.2% vs. the same week a year earlier).
Consumer Credit (June 2017, Outstanding Consumer Credit Balances (net of mortgages and other real-estate backed debt, seasonally adjusted): $3.856 trillion (+$12.4 billion vs. May 2017, +5.7% vs. June 2016).
Federal Government Treasury Budget (June 2017, Surplus/Deficit): -$42.9 billion (vs. June 2016: -$90.2 billion, July 2017 -$112.8 billion). 1st ten months of FY2017: -$566.0 billion (vs. 1st ten months of FY2016: -$512.0 billion).
Wholesale Inventories (June 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $599.4 billion (+0.7% vs. May 2017, +2.8% vs. June 2016).

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