Employment and Paychecks Grew in August: September 3 – 7

Employers added workers again as wage inflation appears to be building a bit. Here are the five things we learned from U.S. economic data released during the week ending September 7.

#1The jobs market (and wages) heated up in August. Nonfarm employment grew by a seasonally adjusted 201,000 workers during the month, up from a 147,000 jobs gain in July, and the 95th straight month of expanding payrolls. The Bureau of Labor Statistics also indicates that private sector employers added 204,000 workers during the month, split between 26,000 in the goods-producing side of the economy and 178,000 in the service sector. Industries adding the most workers during the month included professional/business services (+53,000), health care/social assistance (+40,700), construction (+23,000), wholesale trade (+22,400), and transportation/warehousing (+20,200). The average number of hours worked held steady for the month at 34.5 hours (August 2017: 34.4 hours). Average weekly earnings grew by $3.45 to $937.02, up 3.2 percent from a year earlier, the 5th time the 12-month comparable was at or above 3.0 percent in 2018. For much of this economic recovery, the year-to-year percentage gains ranged between 1.5 and 2.5 percent.Wage Gains 2012-2018 090718

Based on a separate survey of households, the unemployment rate held steady at 3.9 percent, just above the current economic recovery low reading of 3.8 percent achieved in May. At the same time, the labor force contracted by 469,000, resulting in the labor force participation rate slipping by 2/10ths of a percentage point to 62.7 percent. The labor force participation rate for adults aged 25 to 54 was at 82.0 percent, down 1/10th of a point for the month. The typical length of unemployment shrank by 4/10ths of a week to 9.1 weeks (August 2018: 10.3 weeks) while the number of part-time workers seeking a full-time job shrank to another post-recession low at 4.379 million people (August 2017: 5.209 million). The broad measure of labor underutilization by the BLS (the U-6 series) also contracted to a post-recession low of 7.4 percent. A year earlier, the same measure was at 8.6 percent.

#2The trade deficit widened to its largest reading since February. The Census Bureau and Bureau of Economic Analysis tell us that exports dropped by $2.1 billion to $211.1 billion (+8.2 percent versus July 2017) while imports grew by $2.2 billion to $261.2 billion (+9.1 percent versus July 2017). The resulting trade deficit of $50.1 billion was up $4.3 billion for the month, a 13.3 percent increase from a year earlier, and the largest trade deficit in five months. The goods deficit surged by $4.2 billion to $73.1 billion (+11.8 percent versus July 2017) while the services surplus slipped by $0.1 billion to +$23.1 billion (+8.7 percent versus July 2017). The former fell in part because of lower exports of civilian aircraft and soybeans and increased imports of computers/accessories, fuel/crude oil and automotive vehicles. The U.S. had its largest goods deficits with China (-$34.1 billion), European Union (-$14.5 billion), and Mexico (-$6.4 billion).

#3Factory orders softened in July but remained well ahead of year-ago levels. The Census Bureau estimates new orders for manufactured goods dropped 0.8 percent during the month to a seasonally adjusted $497.8 billion (+9.0 percent versus July 2017). New orders for transportation goods slumped 5.2 percent, pulled down by declines for both civilian (-35.4 percent) and defense (-34.4 percent) aircraft. Net of transportation goods, orders inched up 0.2 percent to $414.7 billion (+8.4 percent versus July 2017). New orders for civilian capital goods net of aircraft (a measure of business investment) increased 1.6 percent. Shipments improved for the 14th time in 15 months, albeit with a gain of less than 0.1 percent to $501.7 billion (+8.1 percent versus July 2017). The value of unfilled orders of manufactured goods also grew by less than 0.1 percent to $1.165 trillion while inventories expanded by 0.8 percent to $675.8 billion (the 21st straight monthly gain).

#4Purchasing managers describe strengthening in both the manufacturing and service sectors. The Institute for Supply Management reports that the headline index from its Report on Business in manufacturing (PMI) jumped by 3.2 points during August to a seasonally adjusted 61.3. The measure has been above a reading of 50.0—indicative of an expanding manufacturing sector—for 24 straight months. All five components of the PMI improved during the month: new orders (+4.9 points), production (+4.8 points), supplier deliveries (+2.4 points), inventories (+2.1 points), and employment (+2.0 points). Sixteen of 18 tracked manufacturing industries reported growth, led by computers/electronics, apparel, and textile mills. The press release notes that manufacturers were “overwhelmingly concerned” about impacts of tariffs will have on their business.

The ISM’s measure of nonmanufacturing activity (NMI) added 2.8 points during August to a seasonally adjusted 58.5, the 103rd consecutive month above the expansion/contraction threshold of 50.0. All four NMI components grew from their July readings: business activity/production (+4.2 points), new orders (+3.4 points), supplier deliveries (+3.0 points), and employment (up 6/10ths of a point to 56.7). Sixteen of 18 nonmanufacturing industries gained during August, led by construction, transportation/warehousing, and retail. Per the press release, survey respondents “remain positive about business conditions and the economy” but also report that “logistics, tariffs and employment resources” having an impact on their business.

#5Vehicle sales held modest in August. Light vehicle retail sales were at a seasonally adjusted annualized rate (SAAR) of 16.72 million units during the month, according to individual automaker sales reports tabulated by Autodata. This was off 0.3 percent from July and up 0.8 percent from a year earlier (although it is worth noting that year ago sales were suppressed by Hurricane Harvey making the 12-month comparable even less impressive). The light truck/SUV sales story improved—growing 2.5 percent during the month to 9.37 million units SAAR (+9.2 percent versus August 2017). Weakness continued on the car side of the market as sales slumped 4.1 percent to 3.77 million units (-15.5 percent versus August 2017).

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 1, 2018, First-Time Claims, seasonally adjusted): 203,000 (-10,000 vs. previous week; -90,000 vs. the same week a year earlier). 4-week moving average: 209,500 (-16.5% vs. the same week a year earlier).
Construction Spending (July 2018, Value of Construction Put in Place, seasonally adjusted annualized rate: $1.315 trillion (+0.1% vs. June 2018, +5.8% vs. July 2017).
Productivity (2nd Quarter 2018-revised, Nonfarm Labor Productivity, seasonally adjusted annualized rate): +2.9% vs. 2018Q1, +1.3% vs. 2017Q2.

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

 

Home Sales and Durable Goods Orders Take Steps Backward: August 20 – 24

Home sales continued to mellow this summer. Here are the five things we learned from U.S. economic data released during the week ending August 24.

#1Existing home sales slipped for a fourth consecutive month in July. The National Association of Realtors reports that sales of previously owned homes inched down 0.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.34 million units, its slowest sales pace since February 2016. During the four-month losing streak, home sales have declined 4.6 percent. Sales dropped during July in three of four Census regions: Northeast (-8.3 percent), Midwest, (-1.6 percent), and South (-0.4 percent). Sales gained 4.4 percent in West. Sales were 1.5 percent below that of a year earlier, with negative 12-month comparables in all four Census regions. The number of homes available for sale held relatively stable versus both June and a year earlier at 1.92 million units, the equivalent to a tight 4.3 month supply. The median sales price of $269,600 represented a 4.5 percent increase from a year earlier. The press release stressed that the supply of homes is “still not at a healthy level, and new home construction is not keeping up to meet demand.”Existing and New Home Sales July 2018 082418

#2New homes slumped for a second straight month. The Census Bureau estimates new home sales were at a seasonally adjusted annualized rate (SAAR) of 627,000 units during July, down 1.7 percent from June but still 12.7 percent ahead of the July 2017 sales pace. New home sales improved in the West (+10.9 percent) and Midwest (+9.9 percent) but fell in the Northeast (-52.3 percent) and South (-3.3 percent). There were 309,000 new homes available for sale at the end of July (+2.0 percent versus June 2018 and +12.0 percent versus July 2017), the equivalent to a 5.9 month supply. The median sales price of $328,700 was up 1.8 percent from a year earlier.

#3Volatility in aircraft purchasing led to a slowdown in durable goods orders. New orders for durable manufactured goods slumped 1.7 percent to a seasonally adjusted $246.9 billion, per the Census Bureau. Transportation goods orders fell 5.3 percent thanks to huge drops in orders for both civilian (-35.4 percent) and defense (-34.6 percent) aircraft (orders of both tend to swing widely month-to-month). Motor vehicle orders gained 3.5 percent. Orders for durable goods other than transportation orders grew 0.2 percent, with increases for computers/electronics (+1.1 percent), machinery (+0.6 percent), and primary metals (+0.3 percent). Electrical equipment/appliances orders slipped 0.2 percent. New orders for civilian capital goods net of aircraft—a measure of business investment—jumped 1.4 percent. Durable goods shipments slipped 0.2 percent during the month to $250.8 billion, with the measure gaining 0.6 percent after removing the shipments of transportation goods.

#4Employers laid off relatively few workers during the late summer. There were 210,000 first-time claims made for unemployment insurance benefits during the week ending August 18, down 2,000 claims from the week earlier and 27,000 claims from the same week a year ago. Only twice has the Department of Labor’s estimate of initial jobless claims been this low since 1969—and both times have been within the past four months. The four-week moving average of first-time claims dropped to 213,750, down 10.8 percent from a year earlier and (also) just above its 49-year low. 1.704 million people (not seasonally adjusted) were receiving some form of unemployment insurance benefits during the week ending August 4, down 11.3 percent from a year earlier

#5House prices grew at a slower rate in June. The Federal Housing Finance Agency (FHFA) indicates that its purchase-only House Price Index (HPI) grew 0.2 percent on a seasonally adjusted basis during the month. (This measure tracks sales prices of homes purchased using mortgages that were sold to or guaranteed by Fannie Mae and Freddie Mac.) The HPI increased in seven of nine Census regions, led by a 0.7 percent gain in the Mountain region, a 0.6 percent rise in the East North Central region, and a 0.5 percent bump in the Middle Atlantic. Prices declined 0.4 percent in both New England and the South Atlantic. Home prices have risen 6.5 percent over the past year, with positive 12-month comparables in all nine Census regions. The largest year-to-year percentage price gains were in the Mountain (+9.6 percent), Pacific (+7.0 percent) and South Atlantic (+6.7 percent) regions.

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

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

GDP Bloomed During the Spring, Home Sales Sputtered: July 23 -27

GDP grew at its fastest pace in nearly four years this past spring. Here are the five things we learned from U.S. economic data released during the week ending July 27.

#1Q2 was a good quarter for economic growth. The Bureau of Economic Analysis’ first estimate of second quarter 2018 gross domestic product (GDP) shows 4.1 percent growth on a seasonally adjusted annualized basis. This was the best quarter for GDP since the third quarter of 2014 and up from a revised 2.2 percent annualized growth rate during Q1. Most GDP components made positive contributions during Q1, led by a surge in personal consumption expenditures (adding 269-basis points to GDP growth during the quarter), net exports (+106-basis points, although some of this is believed the result of exporters moving soybeans and other goods out of the U.S. before trade tariffs take effect), nonresidential fixed investment (+94-basis points), and government expenditures (+37-basis points). Drags on Q2 GDP included a contraction in private inventories (costing one full percentage point in GDP growth) and tepid growth in fixed residential investment (i.e., housing, costing four-basis points). The BEA will revise its estimate of Q2 GDP twice over the next two months.GDP Contributors 072718

#2Economic activity accelerated during June. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, surged by 88-basis points during the month to a reading of +0.43. The three-month moving average, which the Federal Reserve Bank of Chicago views as a “more consistent view of national economic growth,” added six basis points to a reading of +0.16. The CFNAI is indexed so that a 0.00 reading reflects economic growth at its historical average. Hence, a positive CFNAI indicates above average economic growth. Forty-five of the 85 economic indicators made positive contributions to the CFNAI during the month. Rebounding strongly from May were indicators related to production, the contribution from which surging from -0.56 to +0.36. Also showing improvement were the components tied to sales/orders/inventories, growing by three-basis points to +0.06. Slipping slightly were indicators linked to employment (off three-basis points to +0.08) and personal consumption/housing (down two-basis points to -0.06).

#3Home sales slowed in June. Sales of previously owned homes declined 0.6 percent during the month to a seasonally adjusted annualized rate of 5.38 million units. This was the third consecutive monthly decline for the National Association of Realtors’ data series, leaving existing home sales 2.2 percent under its year-ago reading. Sales slumped during the month in the West (-2.6 percent) and South (-2.2 percent) but improved in both the Northeast (+5.9 percent) and Midwest (+0.8 percent). Among the four Census regions, only in the South were existing home sales up over the past year. Inventories loosened a bit, growing 4.3 percent to a still tight 1.95 million units (the equivalent to a 4.3 month supply). The median sales price of $276,900 was up 5.2 percent from a year earlier. The press release blames softening sales on a lack of inventory of homes that is keeping home prices “elevated.”

New home sales fell 5.3 percent during June to a seasonally adjusted annualized rate of 631,000 units, per the Census Bureau. Even with the decline, new home sales have grown 2.4 percent over the past year. New home sales slowed in three of four Census regions during the month, with the Northeast being the exception. Homebuilders had 301,000 homes available for sale at the end of June, up 1.7 percent from May and 10.3 percent from a year earlier. This was the equivalent to a 5.7 month supply.

#4Durable goods orders rebounded during June. The Census Bureau estimates new orders for manufactured goods soared 1.0 percent during the month to a seasonally adjusted $251.9 billion. New orders for transportation goods jumped 2.2 percent, led by a 20.2 percent bounce in defense aircraft orders, a 4.3 percent gain in civilian aircraft orders, and a 4.4 percent increase in motor vehicle orders. Net of transportation goods, core durable goods orders grew 0.4 percent. Increasing during the month were new orders for electrical equipment/appliances (+1.5 percent), computers/electronics (+0.6 percent), machinery (+0.2 percent), and fabricated metal products (+0.1 percent). Meanwhile, new orders for primary metals slowed 0.4 percent. New orders for nondefense capital goods net of aircraft—a proxy for business investment—increased 0.6 percent during the month.

#5Consumer sentiment held steady in July. The University of Michigan reports that its Index of Consumer Sentiment slipped by 3/10ths of a point to a seasonally adjusted reading of 97.9 (1966Q1=100). Note that this was an 8/10ths of a point improvement from the preliminary July reading published a few weeks ago and a 4.5 point gain from the same month a year earlier. The current conditions index shed 2.1 points during the month to a reading of 114.4 (July 2017: 113.4) while the expectations index added 7/10ths of a point to 87.3 (July 2017: 80.5). The press release noted that Americans remained confident “due to favorable job and income prospects” even as they expect “higher inflation and higher interest rates.” A potential warning sign is the growing percentage of survey respondents expressing concerns about the impact trade tariffs may have on business conditions and their personal finances. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 21, 2018, First-Time Claims, seasonally adjusted): 217,000 (+9,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-10.7% vs. the same week a year earlier).
FHFA House Price Index (May 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. April 2018, +6.4% vs. May 2017.
Bankruptcy Filings (June 2018, 12-month Bankruptcy Filings): 775,578 (-2.6% vs. 12-month period ending June 30 2017).

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