Hiring and Consumer Spending Bloomed This Spring: April 29 – May 3

The labor market continued to create jobs in April. Here are the five things we learned from U.S. economic data released during the week ending May 3.

#1Hiring accelerated while the unemployment rate fell to a 50-year low in April. The Bureau of Labor Statistics estimates nonfarm employers added a seasonally adjusted 263,000 workers during the month. This was the most jobs added since January and was above the average 213,000 monthly gain over the past year. Private employer payrolls expanded by 236,000, split by 202,000 jobs in the service sector and 34,000 in the goods-producing side of the economy. Industries with sizable payroll gains included professional/business services (+76,000), health care/social assistance (+52,600), leisure/hospitality (+34,000), and construction (+33,000). Hourly earnings averaged $27.77 (+3.2 percent versus April 2018) while mean weekly earnings have risen 2.9 percent over the past year to $955.29.

The separate household survey finds the unemployment falling to its lowest point since December 1969 at 3.6 percent. Some of the drop in the unemployment rate reflects the impact of the labor force shrinking by 490,000 people. The typical length of unemployment narrowed by 2/10ths of a week to 9.4 weeks (April 2018: 9.8 weeks) while the count of “involuntary” part-time workers grew by 155,000 to 4.654 million (April 2018: 4.952 million). Finally, the broadest measure of labor underutilization—the U-6 series—remained at its post-recession low of 7.3 percent.

#2Personal spending enjoyed a spurt in March. Real personal consumption expenditures (PCE) rose 0.9 percent during the month, following smaller 0.3 percent and 0.1 percent increases in January and February, respectively. The Bureau of Economic Analysis indicates spending on goods jumped 1.4 percent, led by strong gains for both durable (+2.9 percent) and nondurable (+0.8 percent) goods, while services spending had a more modest 0.3 percent bump. Without controlling for prices, nominal PCE swelled 0.9 percent. The higher expenditures occurred despite a modest increase in nominal personal income (+0.1 percent). Nominal disposable income was unchanged for the month while, after adjusted for price variations, real disposable income contracted 0.2 percent. As a result, the savings rate narrowed by 8/10ths of a percentage point to +6.5 percent. Over the past year, real personal spending has risen 2.9 percent while real disposable income has grown 2.3 percent. The PCE deflator (a measure of inflation) had grown 2.0 percent over the past year, while the core measure (which nets out energy and food) had increased 1.8 percent. The latter was below the Federal Reserve’s two-percent interest rate target. 

#3With inflation tracking below the target, the Fed held firm (as expected). The policy statement released following the week’s Federal Open Market Committee (FOMC) noted the U.S. economy “rose at a solid rate” and that the labor market “remains strong.” But it also warned that core inflation had “declined and [was] running below two percent.” As a result, the FOMC voting members voted unanimously to keep the fed funds target at a range between 2.25 and 2.50 percent. The statement also emphasized that it would “patient” before it makes a move to raise or lower the short-term interest rate target in the future.

#4Purchasing managers signal a slightly slower growth rate in economic activity in April. The Institute for Supply Management’s PMI, the headline index from its Manufacturing Report on Business, lost 2.5 points during the month to a reading of 52.8. Even though this was the PMI’s lowest reading since October 2016, this was the 32nd straight month in which the measure indicated an expanding manufacturing sector. Three of the five PMI lost ground from their March readings: new orders, employment, and production. Showing improvements were indicators measuring inventories and supplier deliveries. Thirteen of 18 manufacturing industries expanded during the month, led by textiles and electrical equipment/appliances.

The ISM’s measure for activity in the nonmanufacturing side of the economy pulled back by 6/10ths of a point to 55.5, the NMI’s lowest reading since August 2017 but its 111th month above a reading of 50.0. Just a single component of the NMI improved from its March reading—business activity/production—while the other three declined in April: employment, supplier deliveries, and new orders. Fifteen of 18 tracked nonmanufacturing industries grew during April, led by transportation/warehousing, professional/scientific/technical services, and construction. The press release noted that survey respondents were “still mostly optimistic about overall business conditions, but concerns remain about employment resources.”

#5Meanwhile, factory orders rebounded in March. The Census Bureau reports that new orders for manufactured goods jumped 1.9 percent during the month to a seasonally adjusted $508.2 billion, following a 0.3 percent drop in February and holding steady in January. Orders for transportation goods rose 7.0 percent, boosted by gains for civilian aircraft (+31.0 percent), defense aircraft (+17.7 percent), and motor vehicles (+1.5 percent). Net of transportation goods, new factory orders increased a still-robust 0.8 percent, following a 0.3 percent gain in February. Durable goods orders jumped 2.6 percent while nondurable goods rose 1.1 percent. Less favorable was data on new orders for nondefense, non-aircraft capital goods—a proxy for business investment—which held steady in March after gains of 1.0 percent and 0.3 percent in January and February, respectively.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 27, 2019, First-Time Claims, seasonally adjusted): 230,000 Unchanged vs. previous week; +17,000 vs. the same week a year earlier). 4-week moving average: 212,500 (-3.1% vs. the same week a year earlier).
Conference Board Consumer Confidence (April 2019, Index (1985=100), seasonally adjusted): 129.2 (vs. March 2019: 124.2.
Construction Spending (March 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.282 trillion (-0.9% vs. vs. February 2019, -0.8% vs. March 2018).
Pending Home Sales (March 2019, Index (2001=100), seasonally adjusted): 105.8 (+3.8% vs. February 2019, -1.2% vs. March 2018).
Case-Shiller Home Price Index (February 2019, 20-City Index, seasonally adjusted): +0.2% vs. January 2019, +3.0% vs. February 2018.
Productivity (2019Q1, Labor Productivity, seasonally adjusted): +3.6% vs. 2018Q4, +2.4% vs. 2018Q1.
Agricultural Prices (March 2019, Prices Received by Farmer): +2.8% vs. February 2019, -3.4% vs. March 2018 

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

A Dovish Fed: March 18 – 22

The Fed signals that it will not hike short-term interest rates this year. Here are the five things we learned from U.S. economic data released during the week ending March 22.

#1The Fed’s campaign of raising short-term interest rates is over (for now). The policy statement published after the past week’s Federal Open Market Committee (FOMC) noted that economic activity growth had “slowed from its solid rate” but that the labor market “remains strong.” Also decelerating were growth rates of both household spending and business investment. Inflation fell below the Fed’s two-percent target rate—largely due to lower energy prices—with core inflation closer to the target. As a result, the FOMC voted unanimously to keep the fed funds target rate at a range between 2.25 and 2.50 percent and (perhaps more notably) stated that it would be “patient” as to if/when it would again raise rates. The Fed bases its patience on “global economic and financial developments and muted inflation pressures.” Written another way, the Fed no longer expects to raise its interest rate target in 2019—not long ago up to three rate increases had been the consensus expectation for this year.

#2Forward-looking measures suggest economic activity was picking back up in early 2019. The Conference Board’s Leading Economic Index (LEI) added 2/10ths of a point during February to a reading of 111.5 (2016=100), its best reading since last September. This measure had sputtered along since last October—trading within a 2/10ths of a point range—but has risen 3.0 percent over the past year. Six of ten LEI components grew in February, with the most significant positive contributor being rising stock prices. The coincident index also added 2/10ths of a point to 105.9 (+2.5 percent versus February 2018) as all four index components making positive contributions. The lagging index held firm at 107.0 during February, growing by a modest 0.8 percent over the past year. The press release notes that the results—particularly, the recent sluggishness in the leading index—suggest economic growth “could decelerate by year end.” 

#3Existing home sales bounced back big in February. The National Association of Realtors reports that sales of previously owned homes surged 11.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.51 million units. This was the best month for existing home sales since last March but still left sales 1.8 percent behind the year-ago sales pace. Sales expanded in three of four Census regions in February: West (+16.0 percent), South (+14.9 percent), and Midwest (+9.5 percent). Meanwhile, sales in Northeast matched January’s pace. There were 1.63 million homes available for purchase at the end of February, up 2.5 percent from January and 3.2 percent from a year earlier. Nonetheless, inventories represented a very tight 3.5 month supply. The median sales price of $249,500 was up 3.6 percent from a year earlier. NAR’s press release tie February’s strong housing report to “a powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence.”

#4Homebuilders sentiment was stable in March. The National Association of Homebuilders’ Housing Market Index (HMI) remained at a seasonally adjusted reading of 62. This was the 57th consecutive month the HMI was above a reading of 50, indicative of a higher percentage of survey respondents viewing the housing market as “good” as opposed to being “poor.” The HMI improved in three of four Census regions, with only the Midwest seeing a decline in the sentiment measure. Improving during the month with indices measuring present sales of single-family homes (up two points to 68) and expected home sales (up three points to 71, while the measure tracking the traffic of prospective buyers lost four points to 44. The press release noted that homebuilders are challenged by a “skilled worker shortage, lack of buildable lots and stiff zoning restrictions in many major metro markets.”

#5Factory orders grew slightly in January. The Census Bureau reports that new orders for manufactured goods increased for a second straight month, albeit at a modest 0.1 percent to a seasonally adjusted $500.5 billion. Net of transportation goods, factory orders slowed 0.2 percent while core capital goods orders (which are nondefense capital goods net of aircraft) jumped 0.8 percent. Durable goods orders gained 0.3 percent those of nondurables pulled back 0.2 percent. Shipments dropped for the fourth straight month with a 0.4 percent decline to $503.1 billion while nontransportation goods shipments slowed by a more modest 0.2 percent. Unfilled orders swelled for the first time in four months with a 0.1 percent bump to $1.182 trillion while inventories grew 0.5 percent to $685.7 billion (its 26th gain in 27 months).

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 16, 2019, First-Time Claims, seasonally adjusted): 221,000 (-9,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 225,000 (Unchanged vs. the same week a year earlier).
State Employment (February 2019, Nonfarm Payrolls, seasonally adjusted): Vs. January 2019: Increased in 2 states and was essentially unchanged in 48 states and the District of Columbia. Vs. February 2018: Grew in 22 states and was essentially unchanged in 28 states and the District of Columbia.
Wholesale Trade (January 2019, Merchant Wholesalers’ Inventories, seasonally adjusted): $669.9 billion (+1.2% vs. December 2018, +7.7% vs. January 2018). 

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

The Fed Is ‘Patient,’ Employers Speed Hiring: January 28 – February 1

The Fed hits the breaks while the job creation motors on. Here are the five things we learned from U.S. economic data released during the week ending February 2.

Note that the partial shutdown of the federal government delayed the release of certain economic data reports.

#1The FOMC leaves its short-term interest rate target unchanged and suggests that they may stay put for a while. The statement released following the past week’s meeting of the Federal Open Market Committee noted that “the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” As a result, the committee decided to keep the fed funds target rate at a range between 2.25 and 2.50 percent. The statement also said that it is the “most likely” outcome that “sustained” economic growth will continue with inflation remaining near the Fed’s two-percent target. But at the same time, the FOMC “will be patient” as to if/when it decides to change the fed funds target rate, noting “global economic and financial developments.” Written another way, it appears the Fed’s campaign to hike its short-term interest rate target may be taking an extended hiatus.

#2U.S. payrolls expanded for a 100th consecutive month in January. Nonfarm payrolls expanded by 304,000 on a seasonally basis during the month, the largest single-month gain in employment since last February. The Bureau of Labor Statistics’ revisions to November and December knocked payrolls estimates for the two months by a net 70,000 jobs. Private sector employers added 296,000 workers in December, split between 72,000 on the goods-producing side of the economy and 224,000 in the service sector. Among the industries added the most jobs in January were leisure/hospitality (+74,000), construction (+52,000), health care/social assistance (+45,400), professional/business services (+30,000), and transportation/warehousing (+26,600). Average hourly earnings inched up by three cents during the month to $27.56 (+3.2 percent versus January 2018) while average weekly earnings grew by $1.03 to $950.82 (+3.5 percent versus Januar 2018).

Based on a separate survey of households, the unemployment rate inched up by 1/10th of a point to 4.0 percent (just under January 2018’s 4.1 percent unemployment rate). The labor force participation rate also added 1/10th of a point to 63.2 percent. The same measure for adults aged 25-54 added 1/10th of a point 82.4 percent. The median length of unemployment decreased by 2/10ths of a week to 8.9 weeks (January 2018: 9.4 weeks) while the count of part-time workers seeking a full-time opportunity blossomed by 490,000 to 5.147 million (the increase reflecting private sector contractors losing work from the partial federal government shutdown). Also reflecting the impact from the shutdown was the broadest measure of the labor underutilization (the U-6 series), which swelled by a half point to 8.1 percent. 

#3Economic activity picked up slightly in December. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, added six-basis points during the month to a reading of +0.27. This was the measure’s best reading since last August. Forty-six of the economic indicators made positive contributions to the CFNAI during the month while the other 35 made negative contributions. Of the four major categories of economic indicators, two made larger positive contributions during December: production-related contributions (a positive 22-basis point contribution, up from a two-basis point contribution in November) and employment (a basis point increase to a +0.11 contribution). Smaller contributions came from indicators tied to sales/orders/inventories (a neutral contribution versus a +0.12 contribution in November) and personal consumption/housing (a negative six-basis point contribution versus -0.03 in November). The CFNAI’s three-month moving average grew by four-basis points to +0.16, indicative of above-average economic growth.

#4January was a harsh month for consumer sentiment. The Conference Board’s Consumer Confidence Index shed 6.4 points during the month to a seasonally adjusted reading of 120.2 (1985=100), its lowest reading since July 2017. A weaker outlook for the future was the cause of most of the decline in the headline index—the expectations index fell 10.4 points to 87.3. The present conditions index had a far more modest decline as it decreased by 3/10ths of a point to 169.6. The press release linked the depressed headline and expectation indices on “financial market volatility and the government shutdown.” 37.4 percent of survey respondents described current business conditions as “good” versus 11.1 percent said that they were “bad.” Similarly, 46.6 percent of consumers reported that jobs were “plentiful” versus a mere 12.9 percent saying that were “hard to find.”

Also falling was the University of Michigan’s Index of Consumer Sentiment, which declined by 7.1 points to a seasonally adjusted 91.2 (1966Q1=100). The measure was 4.5 points below its January 2018 mark as it fell to its lowest reading since the 2016 election. The current conditions index lost 7.3 points to a reading of 108.8 (January 2018: 110.5) while the expectations index declined 7.1 points to 79.9 (January 2018: 86.3).  The press release warned that it the continuing budget “standoff” continues, it could result in sustained declines in consumer sentiment and spending that “could push the economy into a recessionary downturn.”

#5Manufacturing activity picked up in January. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business—added 2.3 points during January to a reading of 56.6. “This represented a partial rebound from December’s 4.5 point drop and was the 29th straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved from their December marks: new orders (up 6.9 points), production (up 6.4 points), and inventories (up 1.6 points). Components for supplier deliveries (-2.8 points) and employment (-0.5 points) dropped versus December. Fourteen of 18 tracked manufacturing industries expanded during December, led by textiles, computer/electronics, and plastic/rubber products. The press release noted while the sector “continues to expand, reversing December’s weak expansion, but inputs and prices indicate fundamental changes in supply chain constraints.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 26, 2019, First-Time Claims, seasonally adjusted): 253,000 (+53,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 220,250 (-5.9% vs. the same week a year earlier).
Pending Home Sales (December 2018, Index (2001=100), seasonally adjusted): 99.0 (-2.2% vs. November 2018, -9.8% vs. December 2017).
New Home Sales (November 2018, New Homes Sold, seasonally adjusted annualized rate): 657,000 (+16.9% vs. October 2018, -7.7% vs. November 2017).
Construction Spending (November 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.300 (+0.8% vs. October 2018, +3.4% vs. November 2017).
Bankruptcy Filings (12-month period ending December 31, 2018, Business and Nonbusiness Filings): 773,418 (-2.0% vs. 12-month period ending December 31, 2017).
Agricultural Prices (November 2018, Prices Received by Farmers): +3.5% vs. October 2018, -3.6% vs. November 2017. 

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