Job Creation and Wage Growth Slowed in August: August 28 – September 1

Manufacturing and construction sectors were responsible for more than a third of August’s net job creation. Here are the five things we learned from U.S. economic data released during the week ending September 1.  

#1Employers added fewer workers during August while wage growth momentum sputtered. Nonfarm payrolls expanded by 156,000 workers during the month following gains of 189,000 and 210,000 during July and June, respectively. The number of jobs created during August reported by the Bureau of Labor Statistics was below the average monthly job gains over the past year of 174,750. The private sector added 165,000 jobs during the month, split between 70,000 in the goods producing side of the economy and 95,000 in the service sector. Industries adding the most workers during the month were professional/business services (+40,000 jobs), manufacturing (+36,000, including 13,700 in motor vehicle manufacturing), construction (+28,000), and health care/social assistance (+16,600). The average work week totaled 34.4 hours, off 1/10th of an hour from July but 1/10th of an hour from a year earlier. Average hourly earnings grew by a mere three cents during the month to $26.39 (+2.5 percent versus August 2016). Average weekly earnings of $907.82 was off $1.60 from July but remained percent above a year ago levels.

A separate survey of households has the unemployment rate edging up 1/10th of a percentage point to a still low 4.4 percent. A year earlier, the unemployment rate was 4.9 percent. 77,000 people entered the labor force during the month, leaving the labor force participation rate at 62.9 percent (August 2016: 62.8 percent). The median length of unemployment slipped by 1/10th of a week to 10.5 weeks (August 2016: 10.9 weeks) while the count of “involuntary” part-time workers–these are part-timers seeking a full-time job–shrank by 27,000 to 5.255 million (August 2016: 6.027 million). Finally, the BLS’s broadest measure of labor underutilization (U-6 series) held firm during the month at 8.6 percent. A year earlier, the same measure was at 9.7 percent.Job Creation, Unemployment Rate 2011-2017-090117

#2The U.S. economy expanded more quickly than previously believed during Q2. The Bureau of Economic Analysis raised its estimate of second quarter 2017 annualized growth in the Gross Domestic Product (GDP) from a 2.7 percent gain, as reported a month ago, to a 3.0 percent increase. This represents the fastest pace of economic growth since Q2 2015. The upward revision was the product of higher than previously believed levels of consumption and nonresidential fixed investment (although government expenditures were lower than previously thought). By far the biggest contributor to Q2’s economic expansion was personal consumption expenditures, which added 228 basis points to the quarter’s GDP growth. Also adding to GDP growth were nonresidential fixed investment (adding 85 basis points), exports (adding 45 basis points), federal government spending (adding 13 basis points) and the change in private inventories (adding two basis points). Drags on Q2 economic growth were fixed residential investment (costing 26-basis points in growth), imports (costing 23 basis points), and state/local government spending (costing 18 basis points). Corporate profits (with inventory valuation and capital consumption adjustments) grew 1.3 percent during the quarter to a seasonally adjusted annualized rate of $2.136 trillion. This had followed a 2.1 percent drop during Q1 and was up 7.0 percent from the same quarter a year earlier.

#3Personal spending grew at a moderate pace in July. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.2 percent on a seasonally adjusted basis, matching June’s gain but slower than May’s 0.3 percent increase. Consumers increased their real spending on goods by 0.4 percent and that on services by 0.2 percent. The former was split by a 0.8 percent spending increase on durable goods and a 0.3 percent bump in nondurables spending. Over the past year, real PCE has increased 2.7 percent, split between gains for goods and services spending of 3.6 percent and 2.3 percent, respectively. Without adjustments for inflation, nominal PCE grew 0.3 percent, supported by a 0.4 percent increase in nominal personal income and a 0.3 percent gain in nominal disposable personal income. Real personal income increased 0.2 percent during July after having been unchanged in June. Real disposable income has grown by 1.3 percent over the past year. The savings rate slipped by 1/10th of a percentage point to +3.5 percent.

#4Purchasing managers report higher manufacturing sector activity in August. The PMI from the Institute for Supply Management increased by 2.5 points during the month to a seasonally adjusted reading of 58.8. This was the 12th straight month in which the measure was above a reading of 50.0 (indicative of an expanding manufacturing sector) and its highest reading since April 2011. Four of the five components of the PMI improved during the month: inventories (up 5.5 points to 55.5), employment (up 4.7 points to 59.9), supplier deliveries (up 1.7 points to 57.1), and production (up 4/10ths of a point to 61.0). The new orders index slipped by 1/10th of a point to 60.3. Fourteen of 18 tracked manufacturing industries expanded during the month, led by textiles, petroleum/coal products, and machinery. The press release said that survey respondents’ comments had reflected “expanding business conditions.”

#5Consumers grew more confident during August. The Conference Board’s Consumer Confidence Index added 2.9 points during the month to seasonally adjusted 122.9. This was the index’s second straight monthly increase and its best reading since March (which had been its 16-year high). Indices for present and expected business conditions both grew during the month: the former up 5.8 points to 151.2 and the latter increasing by a full point to 104.0. 34.5 percent of survey respondents described current economic conditions as “good” while 13.1 percent said that they were “bad.” Looking towards the future, 22.4 percent of consumer expect business conditions will improve over the next six months while 7.3 percent anticipate conditions will deteriorate. The press release said the data suggest consumers “do not anticipate an acceleration in the pace of economic activity in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan grew by 3.4 points during August to a seasonally adjusted 96.8. This placed the index seven full points above its year ago reading. The increase in the headline index resulted largely from the 7.2 point gain in the Index of Consumer Expectations (+9.0 points versus August 2016). The Current Economic Conditions index shed 2.5 points to 110.9 (+3.9 points versus August 2016). The press release notes that the headline index “has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history.” The press release also stated that current news events are not weighing significantly on sentiment as “surprisingly few consumers made any reference to Charlottesville, North Korea or Harvey—although the ultimate extent of the damage from Harvey was unknown at the time of the last interviews.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 26, 2017, First-Time Claims, seasonally adjusted): 236,000 (+1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 236,750 (-9.3% vs. the same week a year earlier).
Construction Spending (July 2017, Value of Construction Put into Place, seasonally adjusted annualized rate): $1.212 trillion, (-0.6% vs. June 2017, +1.8% vs. July 2016).
Vehicle Sales (August 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.14 million units (-3.7% vs. July 2017, -6.3% vs. August 2016).
Agricultural Prices (July 2017, Prices Received by Farmers (Index (2011=100)), seasonally adjusted): 95.3 (-2.9% vs. June 2017, +5.3% 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.

Consumer Spending Pauses, Expectations Ease: June 26 – 30.

Growth in consumer spending moderated during May as had consumer sentiment in June. Here are the 5 things we learned from U.S. economic data released during the week ending June 30.

#1Personal spending grew at a sluggish pace during May. The Bureau of Economic Analysis estimates real consumer personal expenditures (PCE) grew 0.1 percent during the month following two back-to-back months of 0.4 percent gains. Real spending swelled for both nondurable goods (+0.2 percent) and services (+0.1 percent) but slipped for durable goods (-0.1 percent). Real PCE has increased 2.7 percent over the past year, including a strong +7.0 percent year-to-year gain in durable goods spending. Removing the adjustments for price variability, nominal consumer spending also increased 0.1 percent during the month to $13.214 trillion on a seasonally adjusted annualized basis. Growing at a faster rate were personal income (+0.4 percent), nominal disposable income (+0.5 percent), and real disposable income (+0.6 percent). The latter was the largest single-month gain in real disposable income since April 2015. As a result, the savings rate rose to its highest mark since last September with a 4/10ths of a percentage point increase to +5.5 percent. Finally, the PCE deflator, a closely watched measure of inflation, has grown +1.4 percent over the past year, as did the core PCE deflator (which removes both energy and food from the analysis). Both remained below the Federal Reserve’s 2.0 percent inflation target.Real Disposable Income and PCE-063017

#2One possible reason: Consumers appear a bit less confident about the future. The Conference Board’s Consumer Confidence Index added 1.3 points during June to a seasonally adjusted 118.9 (1985=100), marked by Americans feeling better about current business conditions but less so about conditions in the coming months. The present conditions index surged 5.7 points to 146.3 (approaching the measure’s best reading since 2001) while the expectations index shed 1.7 points to 100.6. 30.8 percent of surveyed consumers felt current business conditions were “good,” compared to 12.7 percent who saw them as being “poor.” Survey respondents also were more positive about labor market conditions as 32.8 percent of consumers said jobs were “plentiful” while only 18.0 percent felt that they were “hard to get.” The press release noted that “[c]onsumers anticipate the economy will continue expanding in the months ahead, but they do not foresee the pace of growth accelerating.”

On the other hand, the University of Michigan’s Index of Consumer Sentiment lost two full points during June to drop to a seasonally adjusted 95.1 (1966Q1=100). This was the measure’s lowest reading since last fall’s election and was the resulting a deteriorating outlook for the future. The expectations index fell by 3.8 points to 83.9 while the current conditions index edged up by 8/10ths of a point to 112.5. As has been the trend with this survey since last November, Republicans were far more positive about current and future business conditions than were Democrats. The press release indicates that the index readings suggest personal spending will grow by 2.3 percent during 2017.

#3Even with another upward revision, Q1 GDP growth was soft. The Bureau of Economic Analysis now estimates Gross Domestic Product grew at a seasonally adjusted annualized rate (SAAR) of +1.4 percent, an improvement from the 1.2 percent gain reported a month earlier and the initial estimate of a 0.7 percent advance. Q1 economic growth was slower than the 2.1 percent and 3.5 percent during the two previous quarters. The most recent upward revision was the product of higher than previously believed levels of personal consumption expenditures (PCE) and exports. The biggest contributors to Q1 GDP growth were nonresidential fixed investment (+123 basis point contribution to GDP growth), exports (+82-basis points), personal consumption expenditures (+75-basis points), and residential fixed investment (+48-basis points). Notable is that the contribution from consumption was down sharply from the previous quarter when PCE added 240-basis points of GDP growth. Also holding back Q1 GDP growth were the negative contributions from private inventory accumulation (-111-basis points), imports (-59-basis points), and government expenditures (-16-basis points). Corporate profits from current production slumped 2.3 percent during Q1 to $2.102 trillion (SAAR). Even with the decline, corporate profits were up 3.3 percent from a year earlier.

#4Economic growth has appeared to have downshifted during May. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, plummeted by 83-basis points during the month to a seasonally adjusted -0.26. Only 32 of the 85 economic indicators made a positive contribution to the CFNAI. Among the four major categories of indicators, production-related indicators deteriorated by far the most, with its contribution to the headline index falling from +0.53 to -0.16. Also softening from their April contributions were indicators related to employment (down 14-basis points to -0.02) and consumption/housing (off two-basis points to -0.09). The contribution from sales/orders/inventories indicators improved by 3-basis points to +0.02. The three-month moving average for the CFNAI, which smooths some of the month-to-month variability and therefore may be a better indicator of business trends, fell by 17-basis points to +0.04. Nevertheless, the reading above 0.00 suggests that slightly above average economic growth over the past three months (even if the pace of expansion slowed sharply during May).

#5Durable goods orders fell for second consecutive month in May. Per the Census Bureau, new orders for durable goods dropped 1.1 percent to a seasonally adjusted $228.2 billion. This followed a 0.9 percent decline in April. Pulling down the headline measure were large declines in orders for civilian and defense aircraft (-11.7 percent and -30.8 percent, respectively). This resulted in a 3.4 percent decrease in overall transportation goods, even as new orders for vehicles gained 1.2 percent during May. Net of transportation goods, durable goods orders edged up 0.1 percent, its third increase in four months. Orders increased for electrical equipment/appliances (+1.0 percent), machinery (+0.6 percent), and primary metals (+0.3 percent), but fell for computers (-3.2 percent), communications equipment (-3.1 percent), and fabricated metal products (-0.2 percent). A proxy for business investment—civilian capital goods orders net of aircraft—cooled 0.2 percent during May. Durable goods shipments improved for the first time in three months (+0.8 percent). Unfilled orders shrank 0.2 percent while inventories expanded 0.2 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 24, 2017, First-Time Claims, seasonally adjusted): 244,000 +2,000 vs. previous week; -23,000 vs. the same week a year earlier). 4-week moving average: 242,250 (-9.2% vs. the same week a year earlier).
Pending Home Sales (May 2017, Index (2001=100), seasonally adjusted):  108.5 (vs. April 2017: 109.4, vs. May 2017: 110.4)
Case-Shiller Home Price Index (April 2017, 20-City Home Price Index, seasonally adjusted): +0.3% vs. March 2017, +5.7% vs. April 2016).
Agricultural Prices (May 2017, Prices Received by Farmers, seasonally adjusted): +2.1% vs. April 2017, +4.8% vs. May 2016).

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