Job Creation and Economic Expansion Trudge Along: October 28 – November 1

October employment and Q3 GDP data show growth, albeit at a tempered rate. Here are the five things we learned from U.S. economic data released during the week ending November 1.

#1Job creation slowed in October, hurt by a now-settled strike. The Bureau of Labor Statistics estimates nonfarm payrolls grew by a seasonally adjusted 128,000 during the month, down from the 180,000 created jobs in September. This report also includes substantial upward revisions to August and September payrolls totaling a combined 95,000 jobs. Weighing on the headline October number was the 41,600 decline in motor vehicle manufacturing jobs resulting from the now-settled General Motors strike. Private-sector employers added 131,000 workers, split between 157,000 added in the service sector and a drop in 26,000 jobs in the goods-producing side of the economy. Among the industries adding the most positions during the month were leisure/hospitality (+61,000), health care/social assistance (+34,200), and professional/business services (+22,000). Average weekly earnings of $969.39 represented a 2.7 percent gain over the past year.

A separate survey of households places the unemployment rate of 3.6 percent, up 1/10th of a point from September but still near a 50-year low. 325,000 people entered the labor force, leading to the labor force participation rate edging up 1/10th of a point to 63.3 percent. The same measure for adults aged 25 to 54 added 2/10ths of a point to 82.8 percent, its highest reading since August 2009. The median length of unemployment slipped 1/10th of a week to 9.3 weeks (October 2018: 9.4 weeks), but the count of part-time workers seeking a full-time job grew by 88,000 to 4.438 million (October 2018: 4.630 million). The U-6 series—the broadest measure of labor underutilization—inched up by 1/10th of a percentage point to 7.0 percent (October 2018: 7.5 percent).Unemployment Rate 2004-2019 110119

#2Economic growth slowed slightly during the summer. The Bureau of Economic Analysis’ first estimate of Gross Domestic Product (GDP) says the U.S. economy expanded at a seasonally adjusted annualized rate of 1.9 percent, just below Q2’s 2.0 percent growth rate. Pulling down Q3 economic activity were smaller increases in personal spending, government expenditures, and business investment. Contributing to Q3 GDP growth were, in declining order, personal spending (adding 193 basis points to GDP growth), government spending (+35 basis points), and residential fixed investment (+18 basis points). Dragging down economic activity, however, were business investment (costing 22 basis points in GDP growth), net exports (-8 basis points), and the change in private inventories (-5 basis points). The BEA will revise its Q3 GDP estimate twice over the next two months. 

#3A third (and probably final) rate cut by the Fed in 2019. The policy statement released following the past week’s Federal Open Market Committee meeting continued to characterize economic activity growing “at a moderate rate” and that the labor market “remains strong.” It also retained the observation that consumer spending was growing “at a strong pace” but also noted that exports and business investment were “weak.” As a result, a divided FOMC voted to cut the fed funds target rate by a quarter-point to a range between 1.5 and 1.75 percent. But it appears that the committee believes this is the final rate cut for now. Why? The statement no longer includes the line that the Fed would “act as appropriate to sustain” the economic expansion. Instead, it now says the FOMC would “continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

#4Personal spending grew moderately in September. The Bureau of Economic Analysis indicates that real personal consumption expenditures (PCE) increased 0.2 percent on a seasonally adjusted basis during the month, matching August’s gain. Spending on goods grew 0.4 percent, split between a 0.6 percent rise for durable goods and a 0.3 percent bounce for nondurables. Spending on services edged up 0.1 percent. Nominal PCE also grew 0.2 during September, funded by 0.3 percent increases for nominal personal income and both nominal and real disposable income. The savings rate rose by 2/10ths of a percentage point to +8.3 percent. Over the past year, real PCE has risen 2.6 percent, funded by 3.5 percent growth in real disposable income.

#5Manufacturing activity slowed in October. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, added a half-point during the month to a reading of 48.3. This was the third straight month in which the PMI was below 50.0, indicating a contraction in manufacturing sector economic activity. Three of five PMI components improved during the month: inventories (up 2.0 points), new orders (up 1.8 points), and employment (up 1.4 points). Losing ground were components tied to supplier deliveries (off 1.6 points) and production (off 1.1 points). Only five of 18-tracked manufacturing industries expanded in October, led by furniture, printing, and food/beverage/tobacco. The press release noted that “global trade remains the most significant cross-industry issue.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 26, 2019, First-Time Claims, seasonally adjusted): 218,000 (-5,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 214,750 (-0.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (September 2019, Index (0.00=Historical Economic Growth), seasonally adjusted): -0.45 (vs. August 2019: +0.15; September 2018: +0.06).
Conference Board Consumer Confidence (October 2019, Index (1985=100), seasonally adjusted): 125.9 (vs. September 2019: 126.3).
Construction Spending (September 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.294 trillion (+0.5% vs. August 2019, -2.0% vs. September 2018.
Bankruptcies (12-month Period Ending September 30, 2019, Number of Business and Nonbusiness Filings): 776,674 (+0.4% vs. 12-month period ending September 30, 2018).
Case-Shiller Home Price Index (August 2019, 20-City Index, seasonally adjusted): Unchanged vs. July 2019, +2.0% vs. August 2018.
Agricultural Prices (September 2019, Prices Received by Farmers, not seasonally adjusted): -3.9% vs. August 2019, -1.6% vs. September 2018.

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

Fed Cuts Again, Unclear on Next Steps: September 16 – 20

The Federal Reserve cuts its short-term interest rate target and sent a mixed message on what may be next. Here are the five things we learned from U.S. economic data released during the week ending September 20.

#1A divided Fed lowered its short-term interest rate target. In the statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was “rising at a moderate rate,” the “labor market remains strong,” and household spending was robust. But the statement also indicated that both business investment and exports “have weakened” and inflation remains below the Fed’s two-percent target. As a result, the FOMC voted to cut the fed funds target rate by a quarter-percent point to a range of 1.75 percent and 2.00 percent because “of the implications of global developments for the economic outlook as well as muted inflation pressures.” The decision was not unanimous: two voting members wanted to leave the fed funds target rate unchanged while one member sought a half-point rate cut.

Looking at economic forecasts by FOMC members released in conjunction with the policy statement, it is clear that there is even more disagreement on what is next. Seven voting members anticipate at least one more rate cut before the end of 2019, while five members expect this past week’s rate cut would be the final cut of the year and five had not expected even this rate cut. The same forecasts have the U.S. economy expanding at 2.0 percent next year with an unemployment rate of 3.7 percent and inflation just below the Fed’s target at 1.9 percent.FOMC Fed Funds Forecast 092019

#2Forward-looking economic measures suggest slowing growth. The Conference Board’s Leading Economic Index (LEI) held steady in August at a reading of 112.1, following a 4/10ths of a point increase during the prior month. The LEI has grown a modest 1.1 percent over the past year. Five of the ten LEI components made positive contributions, led by housing building permits. The coincident index added 3/10ths of a point to 106.4 (+1.6 percent versus August 2018). All four components of the coincident index made positive contributions, led by industrial production. The lagging index shed 3/10ths of a point to 108.2 (+3.0 percent versus August 2018) as only three of seven components made a positive contribution. The press release said that the leading index was “consistent with a slow but still expanding economy, which has been primarily driven by strong consumer spending and robust job growth.”

#3Manufacturing production rebounded in August. The Federal Reserve tells us that manufacturing output grew a seasonally adjusted 0.5 percent during the month following a 0.4 percent pullback in July. Output for durable and nondurable goods each rose 0.5 percent, with the former boosted by higher than one-percent gains for machinery, primary metals, and nonmetallic mineral goods. Plastics/rubber products and chemicals lifted the nondurables figure. Overall industrial production grew 0.6 percent in August after having had slipped 0.1 percent during the prior month. Mining output jumped 1.4 percent following a 1.5 percent decline in July (caused by a temporary slowdown in oil extraction resulting from Hurricane Barry). Production at utilities grew 0.6 percent in August. Even with its expansion in August, manufacturing output was 0.4 percent smaller than that of a year earlier while the 12-month comparable for overall industrial production was a modest +0.4 percent.

#4Existing home sales edged up in August. Sales of previously owned homes gained 1.3 percent in August to a seasonally adjusted annualized rate (SAAR) of 5.49 million units (up 2.6 percent from August 2018). The National Association of Realtors’ measure grew in three of four Census regions—Northeast (+7.6 percent), Midwest (+3.1 percent), and South (+0.9 percent)—but fell 3.4 percent in the West. Home sales in four Census regions had positive 12-month comparables. Inventories of unsold homes remained tight, falling 2.1 percent during the month to 1.86 million houses (-2.6 percent versus August 2018). This was the equivalent to a 4.1 month supply. The median sales price has grown 4.7 percent over the past year to $278,200. The press release credits the recent drop in mortgage interest rates for the rise in home sales.

#5Housing starts bloomed in August. The Census Bureau reports that housing starts rose 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.215 million units. This left the measure 6.6 percent ahead of its year-ago mark. Single-family home starts increased 4.4 percent while those of multi-family units surged 30.9 percent. Leading towards the future, the number of issued housing permits gained 7.7 percent in August to an annualized 1.419 million permits (+12.0 percent versus August 2018). The annualized count of permits for single-family homes grew 4.5 percent during the month while that for homes with five or more units jumped 14.9 percent. Housing completions gained 2.4 percent in August to an annualized 1.294 million homes, up 5.0 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 14, 2019, First-Time Claims, seasonally adjusted): 208,000 (+6,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 212,250 (+0.5% vs. the same week a year earlier).
Housing Market Index (September 2019, Index (>50 = ”Good” housing market), seasonally adjusted): 68 (vs. August 2019: 67, vs. September 2018: 67).
State Employment (August 2019, Nonfarm Payrolls, seasonally adjusted):  vs. July 2019: Grew in 5 states, Decreased in 1 state, and Unchanged in 44 states and the District of Columbia.  Vs. August 2018: Grew in 26 states and Unchanged in 34 states and the District of Columbia.
Treasury International Capital (July 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$72.3 billion (vs. June 2019: +$65.3 billion, vs. July 2018: +$34.5 billion).

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

Hiring Held Steady, The FOMC Did Not: July 29 – August 2

The Fed lowered its interest rate target even as the labor market continued to create jobs. Here are the five things we learned from U.S. economic data released during the week ending August 2.

#1Job creation continued in July. The Bureau of Labor Statistics indicates that nonfarm payrolls expanded by a seasonally adjusted 164,000 jobs during the month. While off from June’s downwardly revised 193,000 job gain, this was 106th straight month of payroll expansion. Private-sector employers added 148,000 workers during the month, split between 15,000 in the goods-producing sector and 133,000 in the service sector. Industries adding the most workers in July were health care/social assistance (+50,400), professional/business services (+38,000), financial activities (+18,000), and manufacturing (+16,000). Average hourly earnings have risen 3.2 percent over the past year to $27.98.

A separate household survey kept the unemployment rate of 3.7, which was just above its multi-decade low of 3.6 achieved back in May. 370,000 people entered the labor market, pushing the labor force participation rate up a 1/10th of a percentage point to 63.0 percent. The same measure for adults aged 25 to 54 fell by 2/10ths of a percentage point to 82.0 percent. Falling to post-recession lows were the median length of unemployment (8.9 weeks, matching the business cycle low hit in January), the count of part-time workers seeking a full-time job (3.984 million), and the broadest measure of labor underutilization, the “U-6” series (7.0 percent).

#2The Fed cuts its short-term interest rate target. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted continued strength in the labor market and household spending. Yet the FOMC remained concerned about “soft” business investment and inflation compensation that had “remain[ed] low.” Due to “implications of global developments for the economic outlook as well as muted inflation pressures,” the FOMC voted to cut the fed funds target rate by 25-basis points to a range between 2.00 and 2.25 percent. Two FOMC voting members (George and Rosengren) both opposed the target rate cut. The dissents and the somewhat muted statement about how it will “act as appropriate” in the future leaves up in the air expectations on potential additional rate cuts.

#3Growth in personal spending slowed in June. The Bureau of Economic Analysis reports real personal consumption expenditures (PCE) rose a seasonally adjusted 0.2 percent. While this was the fourth consecutive monthly increase, it was its smallest gain of the four. Consumer spending on goods jumped 0.4 percent as expenditures on nondurable goods rose 0.7 percent and that on durables slipped 0.1 percent. Services spending on edged up 0.1 percent. Funding the increased spending was a 0.3 percent gain in real disposable income. The savings rate edged up 1/10th of a percentage point to +8.1 percent. Over the past year, real consumer spending has risen 2.5 percent, boosted by a 3.3 percent jump in real disposable income.

#4The trade deficit held steady in June. Per the Census Bureau and the Bureau of Economic Analysis, exports dropped by $4.4 billion to $206.3 billion (-2.2 percent versus June 2018) while imports fell by $4.6 billion to $261.5 billion (+1.2 percent versus June 2018). The resulting trade deficit of -$55.2 billion was $0.2 smaller than that of May but 16.3 percent greater than that of a year earlier. The goods deficit narrowed by $0.8 billion to -$75.1 billion (+8.2 percent versus June 2018) while services surplus shrank by $0.6 billion to +$20.0 billion (-9.3 percent versus June 2018). The former was the product a $3.9 billion drop in exported goods (including for consumer goods, capital goods, and automobiles) and a $4.7 billion slowdown in imported goods (including for crude oil, petroleum products, and consumer goods).

#5One measure of consumer sentiment rebounded in July, another was steady. The Conference Board’s Consumer Confidence Index jumped by 11.4 points during the month to a seasonally adjusted reading of 135.7 (1985=100), reversing a sharp drop in June and hitting a 2019 high point. The current conditions index added 7.6 points to a reading of 170.9 while the expectations index rose by 14.6 points to 112.2. 40.1 percent of survey respondents characterized current business conditions as good versus 11.2 percent that saw them as being “poor.” Similarly, 46.2 percent of consumers report that jobs were “plentiful” versus just 8.7 percent that felt jobs were “hard to get.” The press release said the results suggest “robust spending in the near-term despite slower growth in GDP.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment came in at a seasonally adjusted 98.4. This matched the preliminary July reading reported a few weeks ago and represented a mere 2/10ths of a point gain from June and a half point increase from a year earlier. The present conditions index shed 1.2 points during the month to a reading of 110.7 (July 2018: 114.4) while the expectations index added 1.2 points to 90.4 (July 2018: 87.3). While noting that sentiment had remained “remarkably stable” over the past few years, the press release wonders whether the recently announced expansion in tariffs on Chinese imports may lessen “overall consumer confidence.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 27, 2019, First-Time Claims, seasonally adjusted): 215,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 211,500 (-1.7% vs. the same week a year earlier).
Factory Orders (June 2019, New Orders, seasonally adjusted): $493.8 billion (+0.6% vs. May 2019, -1.2% vs. June 2018.
ISM Manufacturing Report on Business (July 2019, PMI (Index>50 = expanding manufacturing sector): 51.2 (vs. June 2019: 51.7).
Construction Spending (June 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.287 trillion (-1.3% vs. May 2019, -2.1% vs. June 2018).
Pending Home Sales (June 2019, Index (2001=100), seasonally adjusted): 108.3 (vs. May 2019: +2.8%, vs. June 2018: +1.6%).

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