Employers Resume Hiring: October 30 – November 3

Employers resumed adding workers in October while holds off another rate hike until (probably) December. Here are the five things we learned from U.S. economic data released during the week ending November 3.

#1Payrolls rebounded in October while the September jobs decline turned into a small gain. Per the Bureau of Labor Statistics, nonfarm payroll employment grew by a seasonally adjusted 261,000. This followed September’s hurricane caused weak payroll expansion of a mere 18,000 jobs. The latter represented an improvement from the previously reported estimate for September payrolls, which had shown a contraction of 33,000 jobs. Because of the revision to September’s payrolls data, employment has now grown for 85 consecutive months with nonfarm employers adding 162,000 workers on average over the past three months. The goods-producing side of the private sector economy added 33,000 workers while private service sector payrolls swelled by 219,000 workers. The most notable industry was leisure/hospitality, which added 106,000 jobs following a hit of 102,000 jobs during September. Other sectors adding significant numbers of workers were professional/business services (+50,000), health care/social assistance (+33,500), and manufacturing (+24,000). Wage growth remained weak: average weekly earnings were at $912.63, up 2.4 percent from the same month a year earlier.

A separate survey of households has the unemployment falling by 1/10th of a percentage point to 4.1 percent. This is down 7/10ths of a percentage point from a year earlier and its lowest point since December 2000. The unemployment rate was pulled down in part by the 765,000 people who had exited the labor force during the month. The resulting labor force participation rate of 62.7 percent was its lowest point since May and puts it near a 40+ year low. (Some of that reflects an aging population reaching retirement age—the labor force participation rate for adults aged 25 to 54 was at 81.6 percent, matching its year-ago rate). Falling to post-recession low is the count of part-time workers who are seeking a full-time opportunity. This count of “involuntary” part-time workers declined by 369,000 to 4.753 million (-18.8 percent versus October 2016). The typical length of unemployment decreased by 4/10ths of a week to 9.9 weeks (October 2016: 10.2 weeks). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) dropped 4/10ths of a percentage point to 7.9 percent. The last time the U-6 series was this low was back in December 2006 (which ended up being the lowest reading for the measure during the 2001-2007 economic recovery).Labor Force Participation Rate 2007-2017

#2The Federal Reserve leaves its short-term interest rate target alone, for now. Minutes released following this past week’s meeting of the Federal Open Market Committee (FOMC) meeting notes that both economic activity and the labor market had continued to improve “despite hurricane-related disruptions.” This included household spending continuing to expand “at a moderate rate” and business investment that “has picked up in recent quarters.” The committee believes the hurricanes are “unlikely” to have a significant impact on economic activity over the medium term, with further strengthening of the labor market expected to continue. In this environment, the FOMC voted unanimously to keep the fed funds target rate at a range between 1.00 and 1.25 percent. The policy statement, without being explicit, would seem to indicate that we should expect a quarter point target rate bump at the FOMC’s final 2017 meeting in December. (The other Fed news of the week was President Trump’s nomination of Fed governor Jerome Powell as the new chairman of the central bank.)

#3Personal spending surged in September. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.6 percent on a seasonally adjusted basis during the month. This was its largest monthly gain since March. Real spending on durable goods jumped 3.5 percent while that on both nondurables and services grew a more modest 0.3 percent during September. The surge in durable goods spending is partially the result of deferred and replacement purchases following the recent hurricanes. Over the past year, real PCE has grown 2.7 percent, which includes a 7.3 percent bump up in durable goods spending. Nominal spending, which is not adjusted for inflation, jumped 1.0 percent. Both nominal personal and nominal disposable incomes grew 0.4 percent during the month. After adjusting for price variation, real disposable income was unchanged during the month and has risen 1.2 percent over the past year. The savings rate dropped by a half percentage point during September to +3.1 percent, its lowest reading since early 2008.

#4The trade deficit widened slightly during September. Per the Census Bureau and the Bureau of Economic Analysis, exports increased $2.1 billion during the month to a seasonally adjusted $196.8 billion (+4.6 percent versus September 2016). At the same time, imports expanded by $2.8 billion to $240.3 billion (+6.1 percent versus September 2016). The resulting trade deficit of -$43.5 billion was up $0.7 billion from August but 13.1 percent greater than that of a year ago. The goods deficit grew by $0.6 billion during September to -$65.4 billion (+10.0 percent versus a year earlier) while the services surplus shrank by $0.2 billion to +$21.9 billion (+4.4 percent versus a year earlier). Industrial supplies exports (particularly crude oil) grew by $1.9 billion while pharmaceutical preparation exports fell by $1.0 billion. Capital goods imports jumped $1.5 billion while industrial supplies/materials increased by $1.1. billion. Passenger car imports declined $0.5 billion during September. The U.S. had its biggest goods trade deficits with China (-$29.9 billion), the European Union (-$14.6 billion), Germany (-$5.9 billion), and Japan (-$5.9 billion).

#5Purchasing managers describe robust business activity in October. The Purchasing Managers Index (PMI) from the Institute for Supply Management shed 2.1 points during the month to a seasonally adjusted reading of 58.7. Even with the drop, this was the 14th consecutive month in which the PMI –a measure of activity in the manufacturing sector of the U.S. economy—was above a reading of 50.0, the threshold between a growing and contracting manufacturing sector. All five components of the PMI declined from September: inventories (-4.5), supplier deliveries (-3.0), new orders (-1.2), production (-1.2), and employment (-0.5). Sixteen of 18 tracked manufacturing industries expanded during October, led by paper products, nonmetallic mineral products, and machinery. The press release noted survey respondents’ comments had reflected “expanding business conditions.”

The headline index from the ISM’s Report on Business for the nonmanufacturing sector of the economy inched up by 3/10ths of a point to 60.1, measure’s highest market in its nine-year history and the 94th straight month in which it was above 50.0. Two of the index’s four components grew during the month: business activity/production (up 9/10ths of a point to 62.2) and employment (up 7/10ths of a point to 57.5). The new order index slipped 2/10ths of a point to 62.8 while the supplier deliveries measure held steady at 58.0.  Sixteen of 18 tracked service sector industries reported growth during October, led by agriculture, construction, and transportation/warehousing. The press release indicated that survey respondents continued to have a “positive outlook for business conditions.”

Other U.S. economic data released over the past week:

Jobless Claims (week ending October 28, 2017, First-Time Claims, seasonally adjusted): 229,000 (-5,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 232,500 (-9.0% vs. the same week a year earlier).
Factory Orders (September 2017, New Orders for Manufactured Goods, seasonally adjusted): $478.5 billion (+1.4% vs. August 2017, +7.0% vs. September 2016).
Vehicle Sales (October 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 18.09 million units (-2.6% vs. September 2017, +1.2% vs. October 2016).
Conference Board Consumer Confidence (October 2017, Index (1985=100), seasonally adjusted): 125.9 (vs. September 2017: 120.6).
Case-Shiller Home Price Index (August 2017, 20-City Index, seasonally adjusted): +0.5% vs. July 2017, +5.9% vs. August 2016.
Agricultural Prices (September 2017, Prices Received by Farmers): 91.8 (-1.7% vs. August 2017, +6.3% vs. September 2016).

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

The Fed Is About to Normalize…Very Slowly: September 18 – 22

The Federal Reserve takes a small step forward while the housing market takes a small step backward. Here are the five things we learned from U.S. economic data released during the week ending September 22.

#1The Fed will begin the next stage of tightening next month. The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) noted that labor market “has continued to strengthen” and that “economic activity has been rising moderately so far this year.” At the same time, inflation remained below the Federal Reserve’s two-percent target and wage pressures remained weak. The statement also noted that Hurricanes Harvey and Irma may lead to some short-term economic disruptions but “past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.” With all of that in mind, the voting FOMC members voted to keep the fed funds target rate at a range between 1.00 and 1.25 percent. But the news from the policy statement was that the Fed would begin to normalize its balance sheet starting in October by shedding $10 billion of its holdings during the month. This is a small first move—the Fed’s balance sheet was at nearly 4.46 trillion in mid-September.

The other headline in the release comes from the updated economic forecasts from the FOMC members. The median forecast suggests that there will be one more quarter-point hike in the fed funds target rate this year (presumably at the December meeting). While was surprising to some analysts, this would be consistent with the comment above that the voting members do not believe the recent hurricanes will have a lasting detrimental impact on economic growth. In fact, the median Gross Domestic Product (GDP) forecast for 2017 increased from +2.2 percent (as reported in the previously released forecast this summer) to +2.4 percent. Holding firm was the forecasted 2017 unemployment  (4.3 percent) and inflation (+1.6 percent) rate. Looking forward, the FOMC members currently anticipate there being three rate hikes (a quarter point each) in 2018.FOMC Economic Forecast 092217

#2Existing home sales slipped for a third straight month. The National Association of Realtors reports that sales of previously owned homes decreased 1.7 percent during August to a seasonally adjusted annualized rate (SAAR) of 5.35 million units. This was the third straight monthly decline and the measure’s lowest reading in a year. The sales decline was isolated to both the South (-5.7 percent) and West (-4.8 percent) as sales grew in both the Northeast (+10.8 percent) and Midwest (+2.4 percent). The press release lays blame on “inadequate levels of available inventory and the upward pressure” and on rising home prices. There were 1.88 million homes available for sale at the end of August, down 2.1 percent from July, 6.5 percent from a year earlier, and the lowest inventory reading since March. The median sales price of homes sold has grown 5.6 percent over the past year to $253,500.

#3Housing starts also slowed a bit during August. Per the Census Bureau, housing starts slipped 0.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.180 million units (+1.4. percent versus August 2016). Single-family unit starts grew 1.6 percent during August. Starts increased in both the Midwest (+22.0 percent) and West (+4.0 percent) but lost ground in both the South (-7.9 percent) and Northeast (-5.8 percent). Looking towards the future, the SAAR of issued building permits jumped 5.7 percent during August to 1.300 million permits, although the rate of issued permits for single-family homes cooled 1.5 percent. The annualized rate of housing completions fell 10.2 percent during the month to 1.040 million units. This was 3.4 percent above the year-ago rate.

#4Homebuilder confidence remains firm if slightly nicked due to recent hurricanes. The National Association of Home Builders’ Housing Market Index shed three points during September to a seasonally adjusted reading of 64. This was the 39th straight month in which the index was above a reading of 50, indicating that a greater percentage of homebuilders see the housing market as being “good” rather than being “poor.” The index dropped by six points in the Midwest (59) and four points in the South (59) but increased in both the West (up two points to 79) and Northeast (up a point to 50). Losing four points each were measures of both current sales (70) and expected sales (73) of single-family homes. The index of traffic of prospective buyers lost one point to 47. While describing homebuilders’ confidence as being “on very firm ground,” the press release noted that Hurricanes Harvey and Irma “have intensified [builders’] concerns about the availability of labor and the cost of building materials.”

#5Forward-looking economic indicators suggest continued economic growth for the rest of the year. The Conference Board’s Leading Economic Indicators had a half point during August to a reading of 128.8 (2010=100). This was up 4.4 percent from its year-ago reading. Seven of the ten components to the leading indicators made positive contributions, led by housing building permits, the interest rate spread, and consumers’ expectations for business conditions. The coincident index was unchanged in August but was 1.9 percent above its August 2016 reading. A drop industrial production matched the positive impact of the coincident index’s three other components (nonfarm payrolls, personal income net of transfer payments, and manufacturing/trade sales). The lagging index added 4/10ths of a point to 125.2 (+2.5 percent versus August 2016). The press release noted that the data do not reflect the impact of recent hurricanes on the economy but also stated that “the underlying trends suggest that the current solid pace of growth should continue in the near term.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 16, 2017, First-Time Claims, seasonally adjusted): 259,000 (-23,000 vs. previous week; +7,000 vs. the same week a year earlier). 4-week moving average: 268,750 (+4.7% vs. the same week a year earlier).
Import Prices (August 2017, All Imports, not seasonally adjusted): +0.6% vs. July 2017, +2.1% vs. August 2016. Nonfuel Imports: +0.3% vs. July 2017, +1.0% vs. August 2016.
Export Prices (August 2017, All Exports, not seasonally adjusted): +0.6% vs. July 2017, +2.3% vs. August 2016. Nonagricultural exports: +0.7% vs. July 2017, +2.4% vs. August 2016.
Treasury International Capital (July 2017, Net Domestic Securities Purchased by Foreigners, not seasonally adjusted): vs. June 2017: +$5.1 billion, vs. July 2016: +64.9 billion.
FHFA House Price Index (July 2017, Purchase-Only Index, seasonally adjusted): +0.2% vs. June 2017, +6.3% vs. July 2016.

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

Economic Activity Gained During Q2, The Fed Holds Firm: July 24 – 28

Q2 had more than twice the rate of GDP growth than there was during the first three months of 2017. Here are the five things we learned from U.S. economic data released during the week ending July 28.

#1Economic growth picked up during Q2. The Bureau of Economic Analysis indicates that Gross Domestic Product (GDP) grew 2.6 percent on a seasonally adjusted annualized rate (SAAR), up from a 1.2 percent annualized growth rate during Q1. This was the fastest pace of economic growth since the third quarter of last year and the second-best growth rate in two years. By far the biggest contributor to Q2 economic growth was consumer expenditures. The 2.8 percent annualized gain in personal consumption expenditures was responsible for 193-basis points in economic growth. Smaller contributions to economic expansion came from nonresidential fixed investment, net exports, and government expenditures. Dragging down GDP growth were residential fixed investment (housing) and the change in private business inventories. The same report contained the annual revisions to previously reported GDP growth rates, with the U.S. economy now believed to have grown 2.6 percent, 2.9 percent, and 1.9 percent in 2014, 2015, and 2016, respectively. This represented an upward revision for 2014 and 2015, but a downgrade for 2016. BEA will update its Q2 GDP estimate twice over the next two months.GDP Growth 2012-2017-0722817

#2The Fed leaves its short-term interest rate target alone. The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) notes that the “labor market has continued to strengthen and that economic activity has been rising moderately so far this year.” Further, while spending at households and business was growing, inflationary pressures had cooled below its two-percent target rate. As a result, the FOMC members voted unanimously to keep the fed funds target rate at a range between 1.00 and 1.25 percent following the quarter point hike at the previous meeting. The statement also said that the Federal Reserve would continue its policy to reinvest principal payments made on its agency debt and mortgage-back securities holdings “for the time being.” The words in the quotes are read by some to suggest that the policy will be rolled back as soon as the next FOMC meeting in September.

#3Existing home sales cooled slightly in June while those of new homes crept up. The National Association of Realtors tells us that sales of previously owned homes decreased 1.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.52 million units. The SAAR has been within a tight range of 5.3 and 5.7 million units over the past year. Sales slowed during June in three of four Census regions: South (-4.7 percent), Northeast (-2.6 percent), and West (-0.8 percent). Existing home sales grew 3.1 percent during the month in the Midwest. Even with the decline, existing home sales were up 0.7 percent over the past year, although only two regions (West and Northeast) have positive 12-month comparables. Inventories remained very tight: the 1.96 million homes available for sale at the end of June was off 0.5 percent from May, 7.1 percent below the year ago count, and was the equivalent of a mere 4.3 month supply. As a result tight supply of homes for sale, the median sales price of $263,800 was 6.5 percent above that of a year earlier.

Per the Census Bureau, new home sales edged up 0.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 610,000 units, up 9.1 percent from a year earlier. New home sales gained in both the West (+12.5 percent) and Midwest (+10.0 percent), fell in the South (-6.1 percent), and held steady in the Northeast. Three of four Census regions have positive 12-month sales comparables: Northeast, West, and South. The count of new homes available for sale increased 1.1 percent to 272,000. Even though this was 11.9 percent above the number of homes on the market back in June 2016, it reflected a still tight 5.4 month supply.

#4Durable goods orders rose in June as aircraft orders surged. The Census Bureau reports that new orders for durable manufactured goods totaled $245.6 billion, up 6.5 percent from May after two monthly declines. Orders for transportation goods jumped 19.0 percent as civilian aircraft orders blossomed by 131.2 percent (aircraft orders tend to be volatile month-to-month). Motor vehicle orders slipped 0.2 percent during June. Net of transportation goods, durable goods orders grew 0.2 percent during the month. Increasing during the month were new orders for communications equipment (+1.6 percent), fabricated metal products (+0.7 percent), machinery (+0.2 percent), and primary metals (+0.1 percent). Falling were new orders for electrical equipment/appliances (-1.7 percent), computers (-0.2 percent), and non-aircraft civilian capital goods (-0.1 percent).

#5Two surveys show consumers are more confident about current business conditions than they have been in more than a decade. The Conference Board Consumer Confidence Index added 3.8 points in July to a seasonally adjusted reading of 121.1 (1985 = 100), its first increase in four months. Views improved for both current and expectation business conditions. The present situation index grew by 3.9 points to 147.8 (a 16-year high) while the expectations index added 3.7 points to 103.3. A third of survey respondents characterized current business conditions as “good” while only 13.5 percent saw them as “bad.” Similarly, 34.1 percent said that jobs were “plentiful” while 18.0 percent stated that they were “hard to get.” The press release noted that “consumers foresee the current economic expansion continuing well into the second half of this year.”

The Index of Consumer Sentiment from the University of Michigan declined 1.7 points in July to a seasonally adjusted reading of 93.4 (1966Q1 = 100). The same measure was at 90.0 a year earlier, but the index has lost 5.1 points since its postrecession peak in January. The index for current business conditions added 9/10ths of a point to 113.4, its highest reading since July 2005 (July 206: 109.0). The expectations index shed 3.4 points during the month to 80.5 (July 2016: 77.8). There were great differences in expectations by survey respondents’ political views: the expectations index for Republicans was 108.7 while that for Democrats was at 63.7. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 22, 2017, First-Time Claims, seasonally adjusted): 244,000 (+10,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 244,000 (-5.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (June 2017, Index (0.00=U.S. Economy Growing at its Historical Average, not seasonally adjusted): +0.13 (vs. May 2017: -0.30; vs. June 2016: +0.03).
Case-Shiller Home Price Index (May 2017, 20-City Index, seasonally adjusted): +0.1 vs. April 2017, +5.7% vs. May 2016.
FHFA House Price Index (May 2017, Purchase-Only Index, seasonally adjusted): +0.4% vs. April 2017, +6.9% vs. May 2016.

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