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.

A Signal Change: June 17 – 21

The Fed sees increased business conditions uncertainty. Here are the five things we learned from U.S. economic data released during the week ending June 21.

#1The Fed held still but sent a more dovish signal. The statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was growing at a “moderate rate,” the labor market was “strong,” and that consumer spending had “picked up.” But the committee also saw business investment as being “soft” and that core inflation was remaining below its two-percent target rate. As a result, the FOMC voted to maintain the fed funds target rate at a range between 2.25 and 2.50 percent (one voting member desired a rate cut). Further, the statement turned dovish with language saying that uncertainties “have increased. Nevertheless, the committee believed “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” Notable in the economic projections released in conjunction with the policy statement was that eight of the 17 FOMC participants expects one or two quarter-point rate cuts before 2019 ends. Only one participant anticipates a rate bump in 2019. Further, seven FOMC participants have the fed funds target rate below the current range into 2021.FOMC Projections June 2019 062119

#2Forward-looking economic indicators suggest business activity mellowed in May. The Conference Board’s Leading Economic Index (LEI) held steady at 118.1 for the month and has risen by only a half point since last December. Just five of the LEI’s ten components made a positive contribution to the measure, led by consumers’ expectations for business conditions. The coincident index added 2/10ths of a point to 105.9, up a mere 3/10ths of a point since last December. All four coincident index components made positive contributions to the measure. The lagging index pulled back by 2/10ths of a point to 107.0 (up 7/10ths of a point to 106.3), with only one of seven components improving during May (the ratio of consumer installment credit outstanding to personal income). The press release noted that the LEI’s reading “clearly points to a moderation in growth towards 2 percent by year end.”

#3Existing home sales grew for the first time in three months in May. Sales of previously owned homes increased 2.5 percent during the month to a seasonally adjusted annualized rate of 5.34 million units. Even with the gain, the National Association of Realtors’ measure of existing home sales was 1.1 percent under its year-ago pace. Sales increased in all four Census regions, led by increases of 4.7 percent and 3.4 percent in the Northeast and Midwest, respectively. The only region with a favorable 12-month comparable, however, was the South with a 1.3 percent gain. Inventories of unsold homes expanded to their largest level since last July to 1.92 million units (+4.9 percent versus April 2019 and +2.7 percent versus May 2018) but remained at a tight 4.3 month supply. The press release stated that “[t]he purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

#4Starts of single-family homes slowed in May. The Census Bureau tells us housing starts slipped 0.9 percent during the month to a seasonally adjusted 1.269 million units, representing a 4.7 percent drop from a year earlier. While starts of multi-family units (e.g., condos) jumped 13.8 percent on both a month-to-month and year-to-year basis, they dropped for single-family homes 6.4 percent versus April 2019 and 12.5 percent versus May 2018. Looking towards future activity, permitting activity inched up during May as the annualized count of issued building permits grew 0.5 percent to 1.294 million permits (-1.5 percent versus May 2018). Permits for single-family homes rose 3.7 percent but fell a matching 3.7 percent for permits of homes with five or more units. Housing completions slumped 9.5 percent during the month to an annualized 1.213 million units, a 2.8 percent decline from a year earlier

#5Only one state enjoyed significant jobs growth in May. The Bureau of Labor Statistics reports that nonfarm payrolls grew at a statistically significant rate in only Washington state during the month while remaining “essentially” unchanged in the other 49 states and the District of Columbia. (Note a few weeks earlier, the BLS reported that nonfarm payrolls grew by a relatively modest 75,000 jobs on a seasonally adjusted basis during May.) Over the past year, nonfarm payrolls have increased in 24 states, led by Texas (+286,300), California (+282,700), and Florida (+214,500).

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 15, 2019, First-Time Claims, seasonally adjusted): 216,000 (-6,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 218,750 (-0.5% vs. the same week a year earlier).
Housing Market Index (June 2019, Index (>50=More Homebuilders View Housing Market as “Good” than “Bad,” seasonally adjusted): 64 (May 2019: 66, June 2018: 68).
Treasury International Capital Flows (April 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$36.4 billion (March 2019: -$27.8 billion, April 2018: +$22.6 billion).

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

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.