Payrolls Expand, Unemployment Falls: July 30 – August 3

The frantic pace of hiring cooled a bit while the Fed takes a break. Here are the five things we learned from U.S. economic data released during the week ending August 3.  

#1Employers added fewer jobs while the unemployment rate fell during July. The Bureau of Labor Statistics reports nonfarm employers added a seasonally adjusted 157,000 workers during the month. This was down from the sharply upward estimates of May and June job creation of 268,000 and 248,000, respectively, but also represented the 94th straight month of payroll expansion. The private sector added 170,000 jobs during July while the public sector shed 13,000 workers. The former was split between 52,000 new jobs in the goods-producing sector and 118,000 added workers in the service sector. Industries adding the most workers were professional/business services (+51,000), leisure/hospitality (+40,000), manufacturing (+37,000), and health care/social assistance (+33,500). The average hour week slowed by 1/10th of an hour to 34.5 hours (July 2017: 34.4 hours) while mean hourly wages grew by seven cents to 27.05 (July 2017: 26.34). The resulting average weekly earnings of $933.23 was up 3.0 percent from a year earlier.

The unemployment rate slipped by 1/10th of a percentage point to 3.9 percent, just above the 3.8 percent post-recession low achieved in May (July 2017: 4.3 percent). 105,000 people entered the labor market during the July, which kept the labor force participation rate at 62.9 percent. The labor participation rate for adults aged 25-54 eked out a 1/10th of a point increase to 82.1 percent. The median length of unemployment jumped to 9.5 weeks (up 6/10ths of a week from June but still under July 2017’s median of 10.4 weeks). The count of “involuntary” part-time workers—part-time workers who seek a full-time opportunity—dropped by 172,000 to 4.567 million people (July 2017: 3.233 million). Finally, the broadest measure of labor underutilization by the BLS (the “U-6” series) fell to a post-recession low of 7.5 percent, down 3/10ths of a point from June and a full percentage point of July 2017.labor underutilization 080318

#2The Fed does not surprise (i.e., does nothing). The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as being “at a strong rate” and the labor market as having “continued to strengthen.” Further, it sees core inflation being near its two-percent target rate while consumer and business investment spending having “grown strongly.” Looking towards the future, the Fed sees risks to be “roughly balanced” between those on the upside and downside. As a result, the FOMC voted unanimously to maintain the fed funds target rate at a range between 1.75 and 2.00 percent, a policy that the statement called “accommodative.” The general consensus has the FOMC going for a quarter-point rate hike at its next meeting in September. 

#3The trade deficit grew for the first time in four months during June. The Census Bureau and Bureau of Economic Analysis estimates exports slowed by $1.5 billion to $213.8 billion (+9.8 percent versus June 2017) while imports increased by $1.6 billion to $260.2 billion (+8.6 percent versus June 2017). The resulting trade deficit of -$46.3 billion was up $3.6 billion from May and 3.4 percent larger than June 2017’s deficit. The trade deficit for the first six months of 2018 totaled -$291.2 billion, up 7.2 percent from the same six months in 2017 and 17.7 percent from the first six months in 2016. The goods deficit grew by $3.1 billion during June to -$68.8 billion while the services surplus was virtually unchanged at +$22.5 billion. In the case of the former, exports of goods dropped by $1.7 billion (including declines in exports of pharmaceutical preparations, jewelry, automobiles, and civilian aircraft (and engines)). Imports of goods grew by $1.4 billion, led by increases for pharmaceutical preparations and crude oil. The U.S. had its largest goods deficits with China (-32.5 billion), the European Union (-$12.8 billion), and Mexico (-$6.7 billion).

#4Consumer spending held firm during the last days of spring. Real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during June, according to the Bureau of Economic Analysis. Spending on durable goods and services each increased 0.4 percent while that on nondurable goods slipped 0.1 percent. Without adjustments for inflation, nominal PCE grew 0.4 percent, matching the change in nominal personal income and nominal disposable income. After adjusting for price variation, real disposable personal income gained 0.3 percent during June. The savings rate remained steady at +6.8 percent (note that both the savings rate and income data series were revised upward with the publication of this report). Over the past year, real spending has grown 2.8 percent (its best 12-month comparable since last November) while real disposable has increased 3.1 percent (its best 12-month comparable since October 2015).

#5Businesses appear concerned about the possible effects of tariffs. The Institute for Supply Management’s Purchasing Managers Index (PMI) shed 2.1 points during the month to a reading of 58.1. This was the 23rd straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of the five PMI components declined during July: supplier deliveries (-6.1 points to 62.1), production (-3.8 points to 62.3), and new orders (-3.3 points to 60.2). Rising were measures for inventories (+2.5 points to 53.3) and employment (up a half point to 56.5). Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, electrical equipment/appliances, and apparel. The press release notes that survey respondents were “overwhelmingly concerned about how tariff-related activity” will impact their business.

The ISM’s measure for business activity in the service sector also slumped as the NMI dropped by 3.4 points to 55.7. Even if this is the lowest reading for the NMI since last August, it represented the 102nd consecutive month with the index indicating an expansion of the service sector. Three of four NMI components fell from the June readings: business activity/production (down 7.4 points to 56.5), new orders (down 6.2 points to 57.0), and supplier deliveries (off 2.5 points to 53.0).  Improving was the measure tracking employment (up 2.5 points to 56.1). Sixteen of 18 tracked nonmanufacturing industries grew during July, led by mining, public administration, and agriculture/forestry/fishing/hunting. The press release blames the “cooling off” of the service sector on concerns about “tariffs and deliveries.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 28, 2018, First-Time Claims, seasonally adjusted): 218,000 (+1,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 214,500 (-11.4% vs. the same week a year earlier).
Factory Orders (June 2018, New Orders for Manufactured Goods, seasonally adjusted): $501.7 billion (+0.7% vs. May 2018, +6.1% vs. June 2017).
Pending Home Sales (June 2018, Index (2001=100), seasonally adjusted): 106.9 (+0.9% vs. May 2018, -2.5%
Vehicle Sales (July 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (-2.7% vs. June 2018, -0.1% vs. July 2017).
Construction Spending (June 2018, Value of Construction Put in Place): $1.317 trillion (-1.1% vs. May 2018, +6.1% vs. June 2017).
Conference Board Consumer Confidence (July 2018, Index (1985=100), seasonally adjusted): 127.4 (May 2018: 127.1).
Case-Shiller Home Price Index (May 2018, 20-City Index, seasonally adjusted): +0.2% vs. April 2018, +6.5% vs. May 2017). 

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

The Fed Moves, Likely to Repeat Twice More in 2018: June 11 – 15

The Fed raises its target for short-term interest rates as inflation moves ever so closer to targeted levels. Here are the five things we learned from U.S. economic data released during the week ending June 15.  

#1The Fed boosts short-term interest rates and appears ready to do so twice more again this year. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) characterized economic activity as “rising at a solid rate” and that the labor market “continued to strengthen” with core inflation moving closer to the Fed’s two-percent target rate. The statement also noted that risks to future economic activity as being ”roughly balanced.” As a result, the committee voted unanimously to boost the fed funds rate by 25-basis points to a range between 1.75 and 2.00 percent. This was the FOMC’s second rate hike of 2018 but keeps the short-term interest target in a range the committee views as “accommodative.”

Accompanying the policy statement were the updated economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, which highlight a more optimistic view of near-term conditions. For example, the median forecast for 2018 economic growth increased by 1/10th of a percentage point to +2.8 percent and the expected unemployed rate dropped by 2/10ths of a percentage point to 3.6 percent. The forecasters also see a greater firming of inflation with the core PCE deflator (the Fed’s preferred measure of inflation) at +2.1 percent, up from the prior forecast of +1.9 percent. As a result, the median forecast for the fed funds target rate suggests two more quarter-point rate hikes this year (up from a single additional rate bump previously anticipated). Further, the median forecast points to three quarter-point hikes in 2019 and one rate hike in 2020.FOMC Fed Funds Forecast--2018-2020

#2Inflation continued to build steadily in May. The Consumer Price Index (CPI) grew 0.2 percent on a seasonally adjusted basis for the third time in four months, per the Bureau of Labor Statistics. Energy prices jumped 0.9 percent, as gasoline prices gained 1.7 percent. Food CPI held steady during the month. Net of energy and food, core CPI increased 0.2 percent and has grown 2.2 percent over the past year. (The 12-month comparable for the headline index was +2.8 percent). Jumping during the month were prices for medical commodities (+1.3 percent), new vehicles (+0.3 percent), and shelter (+0.3 percent) while prices declined during the month for used cars/trucks (-0.9 percent) and medical care services (-0.1 percent).

Meanwhile, the Producer Price Index (PPI) for final demand soared 0.5 percent (seasonally adjusted), its fastest rate of growth since January. The core measure, which nets out energy, food, and trade services, grew at a more modest 0.1 percent for a second consecutive month. Wholesale prices for final demand goods swelled 1.0 percent, led by the 4.6 percent surge in wholesale energy prices (PPI for gasoline: +9.8 percent). Final demand food PPI eked out a 0.1 percent increase.  Net of energy and food, core final demand goods PPI gained 0.3 percent. PPI for final demand services increased 0.3 percent for the fourth time in five months, which included the impact of a 0.9 percent advance in prices for trade services (reflecting larger retailer and wholesaler margins). Over the past year, final demand PPI has jumped 3.1 percent during which the core wholesale price measure (net of energy, food, and trade services) has risen 2.6 percent.

#3Retail sales surged in May. The Census Bureau estimates retail and food sales were at a seasonally adjusted $502.0 billion, up 0.8 percent from April and 5.9 percent from a year earlier. Motor vehicle sales jumped 0.5 percent while higher prices at the pump resulted in a 2.0 percent rise in gas station sales. Net of sales at auto dealers/parts stores and gas stations, core retail sales rose 0.8 percent to $443.1 billion (+5.1 percent versus April 2017). May was a good month for building material/garden supplies stores (+2.4 percent), department stores (+1.5 percent), apparel retailers (+1.3 percent), restaurants/bars (+1.3 percent), and health/personal care retailers (+0.5 percent). Sales slowed during the month at furniture stores (-2.4 percent) and sporting goods/hobby retailers (-1.1 percent).

#4Manufacturing decelerated in May. Per the Federal Reserve’s Industrial Production report, manufacturing output slumped 0.7 percent on a seasonally adjusted basis, leaving it 1.7 percent ahead of its year-ago pace. The report links much of the decline to a “major fire at a parts supplier” that had disrupted truck assemblies. Net of vehicle production, manufacturing slowed by a more modest 0.2 percent. Output of durables fell 1.2 percent (motor vehicles production plummeted 6.5 percent) while that of nondurable slipped 0.1 percent. Overall industrial production decreased 0.1 percent during the month but was up 3.5 percent over the past 12 months. Mining output grew for the fourth straight month (+1.8 percent versus April 2018 and +12.6 percent versus May 2017), led by increased oil and gas extraction. Higher demand for electricity led to a 1.0 percent increase in output at utilities.

#5Small business owners’ optimism blossomed during the spring. The National Federation of Independent Business’ Index of Small Business Optimism jumped by 3.0 points to a seasonally adjusted reading of 107.8. Not only was this a post-recession high for the sentiment measure, it also was its second-best reading in the index’s second-best reading ever (a 45-year history). Eight of the index’s ten components improved from their April readings, led by expected real sales (+10 points), expectations for the economy (+7 points), on whether it is a good time to expand (+7 points), and earning trends (+4 points). While noting difficult in their ability to find qualified workers to hire, the press release stated employers “now have more resources to commit to attracting candidates.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 9, 2018, First-Time Claims, seasonally adjusted): 218,000 (-4,000 vs. previous week; -22,000 vs. the same week a year earlier). 4-week moving average: 224,250 (-8.1% vs. the same week a year earlier).
Import Prices (May 2018, All Imports, not seasonally adjusted): +0.6% vs. April 2018, +4.3% vs. May 2017. Nonfuel imports: +0.2% vs. April 2018, +1.9% vs. May 2017.
Export Prices (May 2018, All Exports, not seasonally adjusted): +0.6% vs. April 2018, +4.9% vs. April 2018, Nonagricultural Exports: +0.5% vs. April 2018, +4.9% vs. May 2017.
University of Michigan Consumer Sentiment (June 2018-preliminary, Index of Consumer Sentiment, seasonally adjusted): 99.3 (vs. May 2018: 98.0, June 2017: 95.0).
Business Inventories (April 2018, Manufacturing and Trade Inventories, seasonally adjusted): $1.930 trillion (+0.3% vs. March 2018, +4.4% vs. April 2017).
Monthly Budget Statement (May 2018, U.S. Budget Surplus/Deficit): -$146.8 billion (vs. May 2017: -$88.4 billion). Deficit over first 8 months of FY 2019: -$532.2 billion (vs. +23.0% vs. first 8 months of FY 2018).

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

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.