The Unemployment Rate Drops Below 4%: April 30 – May 4

Employers continued to add workers while the unemployment rate fell to its lowest point since 2000. Here are the five things we learned from U.S. economic data released during the week ending May 4.  

#1The unemployment rate dropped to a 17.5 year low, but job creation lags a bit. The Bureau of Labor Statistics has nonfarm payrolls growing by a good, but not great 164,000 during April (seasonally adjusted), following increases of 135,000 and 324,000 in March and February. Private sector employers added 168,000 workers during the month, split by 49,000 jobs in the goods-producing side of the economy and 119,000 in the service sector. Industries adding the most workers to their payrolls during April were professionals/business services (+54,000), health care/social assistance (+29,300), manufacturing (+24,000), leisure/hospitality (+18,000), and construction (+17,000). The average workweek remained at 34.5 hours while average hourly earnings added four cents to $26.84. As a result, average weekly earnings grew by $1.38 to $925.98 (+2.8 percent versus April 2018).

Based on a separate household survey, the unemployment slipped by 2/10ths of a percentage point to 3.9 percent, its lowest point since December 2000. Taking some of the steam from this news was that 239,000 people left the labor force during the month, resulting in the labor force participation rate slipping by 1/10th of a percentage point to 62.8 percent. Falling by the same amount was the labor force participation rate for adults aged 25-54 (to 82.0 percent). The median length of unemployment jumped by 7/10ths of a week to 9.8 weeks (April 2017: 10.3 weeks). The BLS’s broadest measure of labor underutilization (the U-6 series) hit another post-recession low with a 2/10ths of a percentage point decline to 7.8 percent.Unemployment Rate 1998-2018 050418

#2The Fed stays put in May, likely to act in June. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as “moderate” and job gains as “strong.” Further, while household spending had “moderated,” business investment continued to grow “strongly.” Finally, core inflation measures continued to approach the Fed’s two-percent target. The FOMC voting members voted unanimously to keep the fed funds target rate between 1.5 and 1.75 percent, a rate the committee considers to be “accommodative.” The statement notes that conditions likely will “warrant further gradual increases” in its short-term interest rate target. The general consensus has the next rate hike at its June 12-13 meeting.

#3Personal spending rebounds in March. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) rose 0.4 percent on a seasonally adjusted basis during the month following declines in both January and February. Real spending on durable goods jumped 1.1 percent while expenditures for nondurables and services each gained 0.3 percent. As prices were flat during the month, nominal PCE also grew 0.4 percent during the month. The increased spending was prompted a 0.3 percent gain in both nominal personal income and disposable income. After adjusting for inflation, real disposable income grew by 0.2 percent. Funding the difference was the 2/10ths of a percentage point drop in the savings rate to +3.1 percent. Over the past year, real PCE has increased 2.4 percent while disposable income has gained 1.7 percent.

#4Aircraft exports prompt a sharp narrowing of the trade deficit in March. Per the Census Bureau and Bureau of Economic Analysis, exports increased by $4.2 billion during the month to $208.5 billion (+8.8 percent versus March 2017) while imports slowed by $4.6 billion to $257.5 billion (+8.9 percent versus March 2017). As a result, the trade deficit contracted by 15.2 percent during the month to -$49.0 billion, which was still 9.5 percent larger than that of a year earlier. The goods deficit shrank by $7.5 billion to -$69.5 billion while the services surplus expanded by $1.3 billion to +$20.5 billion. The former was boosted by increased exports of civilian aircraft (+1.9 billion), foods/feeds (+$1.0 billion), and industrial supplies/materials (+$0.9 billion) and decreased imports of capital goods (-$3.6 billion), consumer goods (-$0.9 billion), and crude oil (-$0.5 billion). The U.S. had its biggest goods deficits with China (-$35.4 billion), the European Union (-$12.4 billion), and Mexico (-$7.0 billion).

#5Factory orders grew for the seventh time in eight months during March. The Census Bureau estimates new orders for manufactured goods increased 1.6 percent during the month to a seasonally adjusted $507.7 billion (+8.1 percent versus March 2017). Transportation goods—and, in particular, civilian aircraft—were a major reason for the increase. Net of transportation goods, factory orders increased 0.3 percent during the month and was 6.6 percent ahead of its year-ago pace. Durable goods orders jumped 2.5 percent during March while those for nondurables gained 0.5 percent. Shipments increased for the 15th time in 16 months with 0.4 percent growth to $502.8 billion. Non-transportation goods shipments gained 0.2 percent. The value of manufacturers’ unfilled orders gained 0.8 percent to $1.154 trillion (its sixth increase in seven months) while inventories expanded 0.3 percent to $677.3 billion (its 16th increase over the past 17 months). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 28, 2018, First-Time Claims, seasonally adjusted): 211,000 (+2,000 vs. previous week; -31,000 vs. the same week a year earlier). 4-week moving average: 221,500 (-9.3% vs. the same week a year earlier).
Productivity (Q1 2018-preliminary, Nonfarm Labor Productivity, seasonally adjusted): +0.7% vs. Q3 2017, +1.3% vs. Q1 2017).
ISM Report on Business-Manufacturing (April 2018, PMI (Index (>50=expanding manufacturing sector)), seasonally adjusted): 57.3 (-2.0 points vs. March 2018).
ISM Report on Business-Nonmanufacturing (April 2018, NMI (Index (>50=expanding service sector)), seasonally adjusted): 56.8 (-2.0 points vs. March 2018).
Construction Spending (March 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.285 trillion (-1.7% vs. February 2018, +3.6% vs. March 2017).
Vehicle Sales (April 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.17 million units (-1.8% vs. March 2018, +0.8% vs. April 2017).
Pending Home Sales (March 2018, Index (2001=100), seasonally adjusted): 107.6 (+0.4% vs. February 2018, -3.0% vs. March 2017).

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

The FOMC Makes Another Move, Will (Likely) Do So Twice More This Year: March 19 – 23

The Federal Reserve raised its short-term interest rate target and signals its intention to do so several more times this year. Here are the five things we learned from U.S. economic data released during the week ending March 23.

#1The Fed bumps up its short-term interest rate target…and its economic forecast. The policy statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the economy was growing “at a moderate rate” and the labor market had “continued to strengthen,” featuring “strong” job gains. Nonetheless, core inflation remained under its two-percent target. As a result, the committee voted without dissent to raise the fed funds target rate by 25-basis points to a range between 1.50 and 1.75 percent. The statement continued to note that economic conditions are likely to “warrant” further hikes, but that interest rates would likely remain accommodative “for some time.”

The expectation of what “some time” may mean is presented with the updated economic forecasts of the FOMC meeting participants published in conjunction with the above policy statement. The median fed funds target rate forecast remains at 2.1 percent at the end of 2018, suggesting two more 25-basis points hikes this year. The consensus forecast places the expected fed funds target at 2.9 percent (i.e., three rate hikes) for 2019 and 3.4 percent (i.e., two rate hikes) for 2020. The same forecast has the U.S. economy growing 2.7 percent for all of 2018 (up from the prior forecast of a 2.5 percent gain) and 2.4 percent in 2019 (up from the previous forecast of 2.1 percent).Fed Funds Target Rate Forecasts 032318

#2Existing homes sales grew for the first time in three months in February. The National Association of Realtors reports that sales of previously owned homes grew 3.0 percent during the month to a seasonally adjusted annualized rate of 5.540 million units. This was 1.1 percent ahead of the year-ago sales pace. During the month, existing home sales surged 11.4 percent in the West and 6.6 percent in the South but slowed 12.3 percent in the Northeast and 2.4 percent in the Midwest. Only two regions—the South (+3.4 percent) and West (+2.4 percent)—reported positive 12-month sales comparables. While inventories of unsold homes grew 4.6 percent during February to 1.590 million units, this was the equivalent to a very tight 3.4 month supply. As a result, the median sales price of existing homes has grown 5.9 percent over the past year to $241,700. The press release noted that “the very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018,” but also that “affordability continues to be a pressing issue” because of a lack of homes available on the market.

#3…But new home sales slipped again. Sales of new single-family homes inched down 0.6 percent in February to a seasonally adjusted annualized rate (SAAR) of 618,000 units. Even with the decline, the annualized rate of the Census Bureau data series was 0.5 percent above that of a year earlier. Sales during the month in the Northeast (+19.4 percent) and South (+9.0 percent) but dropped in the West (-17.6 percent) and Midwest (-3.7 percent). In comparison to February 2017, sales grew in three regions—Northeast (+8.8 percent), West (+3.1 percent), and South (+0.6 percent)—but declined 8.1 percent in the Midwest. Inventories of new homes continued their gradual expansion—the 305,000 new homes available for sale at the end of February was up 2.0 percent for the month, a 16.0 percent advance from February 2017, and represented a still relatively tight 5.9 month supply. The median sales price of new homes of $326,800 was a 9.7 percent increase from a year earlier.

#4Durable goods orders surged during February. The Census Bureau estimates the value of new durable goods orders was at a seasonally adjusted $247.7 billion. This was the third increase over the past four months and a healthy rebound from January’s 3.5 percent drop. Transportation goods orders surged 7.1 percent, in part due to a jump in increased orders for both civilian (+25.5 percent) and defense aircraft (+37.7 percent) in addition to a 1.8 percent bounce in orders for motor vehicles. Net of transportation orders, new durable goods gained 1.2 percent after pulling backing 0.2 percent in January. New orders grew for primary metals (+2.7 percent), electrical equipment/appliances (+2.6 percent), machinery (+1.6 percent), and fabricated metal products (+0.8 percent). New orders for nondefense capital goods minus aircraft (a proxy for business investment) grew 1.8 percent during February after having pulled back 0.4 percent during the prior month.

#5Forward-looking economic indicators continue to suggest solid growth in 2018. The Conference Board’s Leading Economic Index (LEI) grew by 7/10ths of a point during February to a seasonally adjusted 108.8 (2016=100). The LEI has increased for five straight months, rising 6.5 percent over the past year. Eight of the ten components to the LEI made positive contributions to the index, led by average weekly manufacturing hours, new orders for manufactured goods (per ISM), and jobless claims. The coincident economic index added 3/10ths of a point during the month to a reading of 103.3 (+2.3 percent versus February 2017), with all four components on that index making positive contributions (led by industrial production and nonfarm payrolls). The lagging economic index picked up 4/10ths of a point to 104.3 (+2.6 percent versus February 2017) as four of seven index components making positive contributions (led by the average length of unemployment). The press release notes that the six-month growth rate for the leading index had not been this high since the first quarter of 2011.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 17, 2018, First-Time Claims, seasonally adjusted): 229,000 (+3,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 223,750 (-9.2% vs. the same week a year earlier).
State Employment (February 2018, Nonfarm Employment, seasonally adjusted): Vs. January 2018: 11 states had significant payroll increases. Vs. February 2017: 24 states had significant payroll increases.
FHFA House Price Index (January 2018, Purchase-Only Index, seasonally adjusted): +0.8% vs. December 2017, +7.3% vs. January 2017. 

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

Employers Continue to Hire, Consumers Continue to Spend: January 29 – February 2

Employers started the year by adding more workers to their payrolls. Here are the five things we learned from U.S. economic data released during the week ending February 2.

#1Employers picked up their pace hiring in January, and some wage growth followed. Nonfarm employers added a seasonally adjusted 200,000 workers during the month, making it the 88th consecutive month in which payrolls had expanded. The Bureau of Labor Statistics also downwardly revised (by 36,000) its estimate for November to new 216,000 jobs while adding 12,000 jobs to its December payroll estimate (to +160,000). The private sector expanded payrolls by 196,000 workers in January, with construction (+36,000), leisure/hospitality (+35,000), health care/social assistance (+25,800), and professional/business services (+23,000) adding the most jobs. While the average workweek shrank by 2/10th of an hour to 34.3 hours, hourly wages grew by nine cents to $26.74 (+2.9 percent vs. January 2017, its best since June 2009). Average weekly earnings of $917.18 represented a 2.6 percent increase from a year earlier. wage growth 2007-2018-020218

Based on a separate survey of households, the unemployment remained at its post-recession low of 4.1 percent for a fourth consecutive month. The unemployment rate was at 4.8 percent a year earlier. The labor force grew by 185,000 people while the labor force participation rate held firm at 62.7 percent. The labor force participation rate for adults 25-54 slipped by a tenth of a percentage point to 81.7 percent, which was up 3/10ths of a percentage point from a year earlier but still below the 83.2 percent reading from the start of the last recession (December 2007). While the typical length of unemployment crept up by 3/10ths of a week to 9.4 weeks, this was still below the 10.3 week median of January 2017. Finally, the broadest measure of labor underutilization from the BLS—the U-6 series—added 1/10th of a percentage point to 8.2 percent. A year earlier, the same measure was at 9.4 percent.

#2Consumer spending was resilient in December. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.3 percent during the final month of 2017 on a seasonally adjusted basis. While still strong, this was down from the 0.5 percent gain in November. Nonetheless, real spending has grown 2.8 percent over the past year. Real spending on both goods and services each increased 0.3 percent during the month, with the former split between a 0.8 percent gain for durable goods while nondurable goods spending held firm. Without adjustments for inflation, nominal PCE gained 0.4 percent in December, funded by a matching 0.4 percent increase in personal income. Disposable income grew at a slower pace: 0.3 percent on a nominal basis and 0.2 percent after adjustments for inflation. Real disposable income has swelled 2.1 percent over the past year. Americans were putting less money away for a rainy day as the savings rate fell to +2.4 percent (a 12-year low).

#3The FOMC did not make a move at its first 2018 meeting. The policy statement released following this past week’s Federal Open Market Committee (FOMC) meeting noted that the U.S. economy was growing at a “solid rate” and the labor market had “continued to strengthen.” The word “solid” also was used to describe improvements in “household spending, and business fixed investment.” On the other hand, the statement notes the inflation remained under the Federal Reserve’s two-percent target rate (but that FOMC members believe inflation will “move up” this year to the target rate). As a result, the committee unanimously voted to maintain the fed funds target rate at a range between 1.25 and 1.50 percent, which it sees as being “accommodative.” The consensus thinking is that the FOMC will bump up the fed funds target rate by 25-basis points at its March meeting.

#4One measure of consumer sentiment gained in January while another essentially matched its previous month’s mark. The Conference Board’s Consumer Confidence Index rebounded in January following slumping at the end of December, adding 2.3 points to a seasonally adjusted reading of 125.4 (1985=100). A year earlier, the index was at a reading of 111.6. The current conditions index slipped by 1.2 points to 155.3 while the expectations index gained 4.7 points to 105.5. 34.9 percent of survey respondents agreed that current business conditions were “good” versus 12.7 percent saw them as “bad.” Similarly, 37.9 percent of Americans felt that jobs were “plentiful” while only 16.4 percent were reporting that jobs were “hard to get.” The press release noted that perceptions about current economic conditions were “at historically strong levels,” but consumers were “somewhat ambivalent about their income prospects over the coming months.”

The University of Michigan’s Index of Consumer Sentiment lost 2/10ths of a point in January to a seasonally adjusted 95.7 (1966Q1=100). This was 2.8 points below its year-ago reading. The current conditions index dropped 3.3 points to 110.5 (January 2017: 111.3) while the expectations index gained two full points to 86.3 (January 2017: 90.3). The 2017 average for the Index of Consumer Sentiment was 96.8, its best average sine 2000. The press release indicates that stock market advances and the recently passed tax bill “were mentioned by all-time record numbers of consumers.” Further, the group sees real consumer spending growing 2.8 percent based on the survey data. 

#5Manufacturing activity remained strong in January. The Purchasing Managers Index (PMI) edged down by 2/10th of a point to 59.1, according to the Institute for Supply Management. This was the 17th consecutive month in which the PMI was above a reading of 50, indicative of an expanding manufacturing sector. Two of the five PMI components improved from their December 2017 readings: inventories (up 3.8 points to 52.3) and supplier deliveries (up 1.9 points to 59.1). Falling were indices for employment (down 3.9 points to 54.2), new orders (down 2.0 points to 65.4), and production (down 7/10ths of a point to 64.5). Respondents from 14 of 18 manufacturing industries indicated expanding during the month, led by textile mills, fabricated metal products, and plastics/rubber products.

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 27, 2018, First-Time Claims, seasonally adjusted): 230,000 (-1,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 234,500 (-5.1% vs. the same week a year earlier).
Factory Orders (December 2017, New Orders for Manufactured Goods, seasonally adjusted): $498.2 billion (+1.7% vs. November 2017, +8.3% vs. December 2016).
Construction Spending (December 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.253 trillion (+0.7% vs. November 2017, +2.6% vs. December 2016).
Pending Home Sales (December 2017, Index (2001=100), seasonally adjusted): 110.1 (+0.5% vs. November 2017, +0.5% vs. December 2016).
Vehicle Sales (January 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.16 million vehicles (-3.9% vs. December 2017, -1.6% vs. January 2017).
Productivity (4th Quarter 2017, Nonfarm Output Per Hour, seasonally adjusted): -0.1% vs. Q3 2017, +1.1% vs. Q4 2016.
Case-Shiller Home Price Index (November 2017, 20-City Index, seasonally adjusted): +0.7% vs. October 2017, +6.4% vs. November 2016).
Agricultural Prices (December 2017, Prices Received by Farmers (Index: 2011=100)): 91.7 (vs. November 2017: 91.0, vs. December 2016: 87.8).

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