Payrolls Expand Again, But at a Slower Rate: January 1 – 5

Payroll growth slowed in December, but purchasing managers indicate robust economic activity. Here are the five things we learned from U.S. economic data released during the week ending January 5.

#1Employers added fewer workers during December, but the unemployment rate remained at a 17-year low. Nonfarm payrolls expanded by a seasonally adjusted 148,000 during the month, the slowest pace of job creation since hurricanes dragged down hiring back in September. Bureau of Labor Statistics data finds that nonfarm employment grew by 2.055 million for all of 2017, the fewer number of jobs added in a year since 2010. Private sector employers added 146,000 workers during the month, split between 55,000 new goods-producing jobs and 91,000 new service sector workers. Industries adding the most workers during the month were construction (+30,000), health care/social assistance (+29,200), leisure/hospitality (+29,000), manufacturing (+25,000), and professional/business services (+19,000). Retail was a big drag as the industry shed 20,300 workers during December. The average workweek held firm at 34.5 hours (December 2016: 34.4 hours). Average weekly earnings grew by $3.11 during December to $918.74, up 2.8 percent from a year earlier.Job Creation 2005-2017--010518

Based on a separate survey of households, the unemployment rate was unchanged at 4.1 percent, where it has been for the past three months. Before that, the unemployment rate had not been this low since December 2000. 64,000 people entered the labor force during the month, but the labor force participation rate remained stuck at 62.7 percent. The median length of unemployment fell by 4/10ths of a month to 9.1 weeks (December 2016: 10.8 weeks). 4.915 million people were “involuntary” part-time workers (i.e., had a part-time position but were seeking a full-time opportunity), down from 5.514 million a year earlier. The broadest measure of labor underutilization from BLS (the “U-6” series) inched up by 1/10th of a percentage point to 8.1 percent. This same measure was at 9.1 percent a year earlier and was dramatically below its recession peak of 17.1 percent during both March and April 2010.

#2Both exports and imports grew during November as the trade deficit expanded. The Census Bureau and the Bureau of Economic Analysis report that exports increased by $4.4 billion during the month to a seasonally adjusted $200.2 billion (+8.3 percent versus November 2016) while imports surged $6.0 billion to $250.7 billion (+8.4 percent versus November 2016). The resulting trade deficit of -$50.5 billion was an increase of $1.6 billion from October, up 8.9 percent from a year earlier, and the largest trade deficit since January 2012. The goods deficit expanded by $1.7 billion to -$70.9 billion while the services surplus widened by $0.1 billion to +$20.4 billion. A closer look at the former finds exports of goods grew by $4.3 billion, led by a $2.5 billion increase in capital goods exports (including civilian aircraft), a $1.0 billion increase in automotive vehicles/parts/engines exports, and a $0.7 billion gain in consumer goods exports. Imports of goods grew by $6.0 billion, reflecting a $2.4 billion jump in consumer goods exports, a $2.2 billion hike in industrial supplies and materials exports (including crude oil), and a $1.6 billion increase in capital goods orders. The U.S. had its biggest goods trade deficits with China (-$33.5 billion), European Union (-$13.5 billion), Mexico (-$5.8 billion), and Japan (-$5.8 billion).

#3Purchasing managers report business activity growth continued during December. The Institute for Supply Management’s Purchasing Managers Index (PMI) increased by 1.5 points during the month to a seasonally adjusted 59.7. This was the 16th straight month in which the PMI was above a reading of 50.0—indicative of an expanding manufacturing sector—and its best reading since September. Four of the PMI’s five components improved during the month: new orders (up 5.4 points to 69.4), production (up 1.9 to 65.8), inventories (up 1.5 points to 48.5), and supplier deliveries (up 1.4 points to 57.9). The index tied to employment shed 2.7 points to a reading of 57.0. Sixteen of the 18 tracked manufacturing sectors expanded during December, led by machinery, computer/electronic products, and paper products. The press release noted that survey respondents’ comments “reflect[ed] expanding business conditions.”

The ISM’s measure for the service sector shed 1.5 points to a reading of 55.9. Even with the decline to its lowest point since August, the NMI has remained above a reading of 50.0 for 96 consecutive months. Only two of the NMI’s four components showed growth during November:  supplier deliveries (up 1.5 points to 55.5) and employment (up a full point to 56.3). Losing ground were index components for new orders (off 4.4 points to 54.3) and business activity/production (off 4.1 points to 57.3). Fourteen of 18 tracked service sector industries expanded during the month, led by retail, utilities, and entertainment/recreation. The press release noted commenters reported they had “finished the year on a positive note” and were optimistic about “business conditions and the economic outlook going forward.”

#4Factory orders gained during November. New orders for manufactured goods jumped 1.3 percent during the month to a seasonally adjusted $488.1 billion, per the Census Bureau This was the fifth increase in factory orders over the past six months, placing the measure 8.0 percent above its year-ago mark. Transportation goods orders increased 4.1 percent, reflecting gains for civilian and defense aircraft of 14.7 percent and 12.4 percent, respectively, and a 1.1 percent bounce in orders for motor vehicles. Net of transportation goods, factory orders rose 0.8 percent during the month and has gained 7.6 percent over the past year. Rising during the month were orders for furniture (+1.6 percent), primary metals (+0.9 percent) and electrical equipment/appliances (+0.6 percent) while new orders dropped for machinery (-1.0 percent), computer/electronics (-0.5 percent), and fabricated metal products (-0.2 percent). Shipments gained for the 11th time in 12 months, with a 1.2 percent increase to $491.2 billion. Unfilled orders rose eked out a 0.1 percent increase (its third consecutive advance) while inventories expanded 0.4 percent (its 12th gain over the past 13 months). 

#5Construction spending rose during November. The Census Bureau estimates the seasonally adjusted annualized value of construction put into place grew 0.8 percent during the month to $1.257 trillion. This represented a 2.4 percent increase from the same month a year earlier. Private sector construction spending jumped 1.0 percent to an annualized $964.3 billion (+2.6 percent versus November 2016). Residential expenditures also gained 1.0 percent to $530.8 billion (+7.9 percent versus November 2016) while nonresidential spending increased 0.9 percent to $433.5 billion (which was nevertheless off 3.1 percent from a year earlier). Public sector construction spending edged up 0.2 percent in November to an annualized $292.7 billion. This was up 1.8 percent over the previous year. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 30, 2017, First-Time Claims, seasonally adjusted): 250,000 (+3,000 vs. previous week; +9,000 vs. the same week a year earlier). 4-week moving average: 241,750 (-4.7% vs. the same week a year earlier).
Vehicle Sales (December 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.85 million (+1.8% vs. November 2017, -1.7% vs. December 2016).
FOMC minutes

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

Another Fed Rate Bump to End 2017: December 11 – 15

Just in time for the holidays, the Federal Reserve bumps up its short-term interest rate target. Meanwhile, retailers start the holiday season with signs of strength. Here are the five things we learned from U.S. economic data released during the week ending December 15.

#1One last hike in the short-term interest rate target for2017. As widely anticipated, the Federal Open Market Committee (FOMC) raised its fed funds target rate by a quarter percentage point to a range between 1.25 and 1.50 percent. Even though this was the target rate’s highest point in nine years, the Fed sees current rates as being “accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.” The FOMC policy statement noted that the U.S. economy “has been rising at a solid rate” and that “labor market continued to strengthen.” Nevertheless, concerns remained about low inflation as it remained below the Fed’s two-percent target. Two FOMC members opposed the rate hike: Charles Evans and Neel Kashkari. Looking towards the future, FOMC members forecast three more quarter-point rate hikes next year and either two or three more in 2019.FOMC Fed funds target projections 121517

#2Manufacturing output edged up in November. The Federal Reserve reports that manufacturing production increased 0.2 percent on a seasonally adjusted basis during the month following an upwardly revised estimate of a 1.2 percent gain in October. Durable goods production expanded 0.4 percent, with gains across most product sectors (including a 1.7 percent bump for primary metals and 0.7 percent increases for both fabricated metals and machinery). Nondurables output held steady for the month, with a 1.7 percent increase in plastics/rubber products being the largest gainer and a 1.0 percent drop in apparel production the biggest decliner. Overall industrial production inched up 0.2 percent during November following a 0.2 percent gain in October. Mining output jumped 2.0 percent as oil and gas extraction rebounded following hurricane caused slowdowns during the prior month. Utility output fell 1.9 percent in October. Manufacturing output has risen 2.4 percent over the past year while the 12-month comparable for all industrial production was +3.4 percent.

#3Retailers enjoyed a good start to the holiday shopping season in November. The Census Bureau estimates retail and food services sales gained 0.8 percent during the month to a seasonally adjusted $492.7 billion. This was an improvement from the upwardly revised 0.5 percent sales gain during October and left sales 5.8 percent ahead of the year-ago sales pace. Sales at auto dealers/parts stores cooled 0.2 percent while those at gas stations rose 2.8 percent (as gasoline prices increased). Net of both auto dealers and gas stations, retail sales gained 0.8 percent during November following a 0.4 percent increase in October. Sales swelled 2.1 percent at electronics/appliance stores, 1.2 percent at both furniture stores and building material retailers, 0.9 percent at sporting goods/hobby retailers, and 0.7 percent at both apparel retailers and restaurants/bars. The ongoing shift away from brick and mortar retailers continued as nonstore retailers enjoyed a 2.5 percent month-to-month gain in sales, with activity up a sharp 10.4 percent from a year earlier.

#4Higher gasoline prices pulled up consumer prices during November. The Consumer Price Index (CPI) rose a seasonally adjusted 0.4 percent during the month following a much more modest 0.1 percent increase during October, per the Bureau of Labor Statistics. Energy CPI gained 3.9 percent, resulting from a 7.1 percent bump in gasoline prices. Food CPI held steady. Net of energy and food, core CPI increased 0.1 percent during November following a 0.1 percent gain in October. Rising during the month were prices for used cars/trucks (+1.0 percent), medical care commodities (+0.6 percent), new vehicles (+0.3 percent), shelter (+0.2 percent), and transportation services (+0.1 percent). Prices for apparel (-1.3 percent) and medical care services (-0.1 percent) dropped during the month. CPI has risen 2.2 percent over the past year while core CPI has a 12-month comparable of +1.7 percent.

Meanwhile, wholesale prices continued to firm during the same month. The Producer Price Index (PPI) for final demand increased 0.4 percent on a seasonally adjusted basis for the third consecutive month and has risen 3.1 percent over the past 12 months. The core final demand wholesale price measure, which nets out the impacts of food, energy and trade services, also gained 0.4 percent for the month and has a 12-month comparable of +2.4 percent. Prices for final demand goods jumped 1.0 percent, led by increases for wholesale energy and food of +4.6 percent and +0.3 percent, respectively. The former included the impact of the 15.8 percent surge in gasoline prices. Net of energy and food, PPI for final demand goods grew 0.3 percent. PPI for final demand services increased 0.2 percent despite a 0.3 percent drop in the measure for trade services prices (reflecting tighter margins for wholesalers and retailers).   

#5Employers expect to add more workers in early 2018. Twenty-one percent of the more than 11,500 employers responding to a survey by Manpower anticipate increasing staff levels during Q1 2018 while five percent expect to contract payrolls. The difference of +16 translates into a Net Employment Outlook of +19 after seasonal adjustments, which was its best reading in more than a decade. The Net Employment Outlook was positive all 13-tracked industries, led by led by leisure/hospitality (+28), transportation/utilities (+26), professional/business services +23), and wholesale/retail trade (+23). Net Employment Outlook readings improved in the Northeast (+17) and South (+18) but softened in the Midwest (+20) and West (+19). The press release noted seeing “a renaissance in industries like construction and manufacturing,” but also employers are “struggling” to find “people with the right skills” to fill open positions.

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

Jobless Claims (week ending December 9, 2017, First-Time Claims, seasonally adjusted): 225,000 (-11,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 234,750 (-7.2% vs. the same week a year earlier).
Job Openings and Labor Turnover (October 2017, Number of Job Openings, seasonally adjusted): 5.996 million (-204,000 vs. September 2017, +7.3% vs. October 2016). Hiring: 5.552 million (+232,000 vs. September 2017, +6.8% vs. October 2016).
Import Prices (November 2017, All Imports, not seasonally adjusted): +0.7% vs. October 2017, +3.1% vs. November 2016. Nonfuel Imports: Unchanged vs. October 2017, +1.4% vs. November 2016.
Export Prices (November 2017, All Exports, not seasonally adjusted): +0.5% vs. October 2017, +3.1% vs. November 2016. Nonagricultural Exports: +0.6% vs. October 2017, +3.1% vs. November 2016).
Small Business Optimism (November 2017, Index (1986=100), seasonally adjusted): 107.5 (34-year high, vs. October 2017=103.8, November 2016: 98.4).
Monthly Treasury Statement (November 2017, Federal Government Surplus/Deficit): -$138.6 billion (vs. November 2016: -$136.7 billion). First 2 months of FY2018: -$201.8 billion (vs. first 2 months of FY2017: -$182.5 billion).
Business Inventories (October 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.886 trillion (-0.1% vs. September 2017, +3.5% vs. October 2016).
Treasury International Flows (October 2017, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$7.5 billion (vs. September 2017: +$60.8 Billion, vs. October 2016: -$10.0 billion).

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

Payrolls Expand for the 86th Straight Month: December 4 – 8

Employers continued to expand their payrolls this fall. Here are the five things we learned from U.S. economic data released during the week ending December 8.

#1Hiring remained solid in November. The Bureau of Labor Statistics estimates nonfarm payrolls grew by a seasonally adjusted 228,000 during the month, following a gain of 244,000 during October. In all, payrolls have expanded by 2.071 million over the past year and have increased in each of the past 86 months. The goods-producing side of the economy added 62,000 jobs during November, led by manufacturing (+31,000) and construction (+24,000). The private service sector added 159,000 workers, with large increases seen in professional/business services (+46,000), health care/social assistance (+40,500), retail (+18,700), and leisure/hospitality (+14,000). The average workweek length increased by 1/10th of an hour to 34.5 hours (November 2016: 34.3 hours) while average weekly earnings grew by $4.38 to $915.98 (+3.1 percent versus November 2016).Payroll Gains 2011-2017 120817

Meanwhile, a separate household survey finds the unemployment rate held steady at its 17-year low of 4.1 percent (seasonally adjusted) The civilian labor force grew by 148,000, but the labor force participation rate remained at 62.7 percent. The labor force participation rate for adults aged 25 to 54 increased by 2/10ths of a percentage point to 81.8 percent (matching September as its highest point in nearly seven years). The median length of unemployment fell by 3/10ths of a week to 9.6 weeks (November 2016: 10.2 weeks) while the count of part-time workers seeking a full-time job grew slightly by 48,000 to 4.801 million (November 2016; 5.659 million). Finally, the broadest measure of labor underutilization (the U-6 series) inched up by 1/10th of a percentage point to 8.0 percent, just above its post-recession low.

#2Rising imports in October led to the largest trade deficit since January. Exports essentially held steady during the month at $195.9 billion (+5.6 percent versus October 2016) while imports jumped by $3.8 billion to $244.6 billion (+7.0 percent versus October 2016). As a result, the trade deficit expanded by $3.8 billion to -$48.7 billion according to the Census Bureau and Bureau of Economic Analysis. The goods deficit also grew by $3.8 billion to -$69.1 billion (+9.0 percent versus October 2016) while the services surplus held firm at +$20.3 billion (also virtually unchanged from a year earlier). In the case of the former, imports grew for crude oil (+$1.5 billion) and consumer goods (+$0.8 billion). Meanwhile, a $2.6 billion rise in industrial supplies/materials exports was counterbalanced by declining exports of soybeans (-$1.4 billion) and civilian aircraft (-$1.1 billion). The U.S. has its largest goods deficits with China (-$31.9 billion), the European Union (-$12.0 billion), Mexico (-$6.0 billion), and Japan (-$5.3 billion).

#3The service industry grew at a slower pace during November. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business slumped 2.7 points during the month to a reading of 57.4. Despite the decline, this was the 95th straight month in which the NMI was above a reading of 50.0 (indicative of a growing service sector). All four components of the measure fell during the month: new orders (-4.1 points), supplier deliveries (-4.0 points), employment (-2.2 points), and business activity/production (8/10ths of a point). Sixteen of 18 tracked service sector industries expanded during November, led by retail, wholesale trade, and utilities. The press release noted that survey respondents’ comments “indicate that the economy and sector will continue to grow for the remainder of the year.”

#4Factory orders sputtered in October. The Census Bureau reports that new orders for manufactured goods slipped 0.1 percent during the month to a seasonally adjusted $479.6 billion. Even with the decline, this represented a 3.7 percent increase from the same month a year earlier. Transportation orders fell 4.2 percent as orders for civilian and defense aircraft slumped 18.5 percent and 7.6 percent, respectively. Net of transportation goods, orders jumped 0.8 percent for the month and was 6.8 percent ahead of year-ago levels. Growing for the month were new orders for machinery (+1.9 percent), electrical equipment/appliances (+0.8 percent), computers/electronics (+0.7 percent), and nondurable goods (+0.7 percent). New orders for nondefense capital goods net of aircraft (a proxy for business investment) gained 0.3 percent during October and has risen 9.6 percent over the past year. Shipments grew for the tenth time in 11 months with a 0.6 percent increase to $484.2 billion. Unfilled orders were essentially unchanged for the month at $1.135 trillion while inventories grew for the 11th time in 12 months with a 0.2 percent increase at $661.6 billion.

#5Q3 productivity growth remained solid after a revision The Bureau of Labor Statistics indicates nonfarm business sector productivity grew 3.0 percent during the quarter, matching the previous estimate of Q3 productivity reported a month earlier and the most significant gain in productivity since Q3 2014. This was the result of a 4.1 percent rise in output generated by a 1.1 percent gain in the number of hours worked during the quarter. Even with the bounce during the quarter, productivity has grown by a mere 1.5 percent over the past year. Manufacturing sector production fell 4.4 percent during the quarter, split by falls of -4.7 percent and -4.4 percent for durable and nondurable manufacturing, respectively. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 2, 2017, First-Time Claims, seasonally adjusted): 236,000 (-2,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 241,500 (-3.4% vs. the same week a year earlier).
Consumer Credit (October 2017, Outstanding Consumer Credit Balances (net of mortgages and other real estate-backed loans), seasonally adjusted): $3.802 trillion (+$20.5 billion vs. September 2017 +5.4% vs. October 2016).
University of Michigan Consumer Sentiment (December 2017-preliminary, Index (1966Q1=100), seasonally adjusted): 96.8 (vs. November 2017: 98.5; vs. December 2016: 98.2).
Wholesale Inventories (October 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $605.3 billion (-0.5% vs. September 2017, +3.9% vs. October 2016).

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