Job Creation Solid, If Slower: December 3 – 7

Job creation mellowed a bit in November while the trade deficit widened again in October. Here are the five things we learned from U.S. economic data released during the week ending December 7.

#1Job creation slowed in November, but wage growth held firm. The Bureau of Labor Statistics estimates nonfarm employers added a seasonally adjusted 155,000 workers during the month, down from the 237,000 added in October and below the 211,000 average of the past 12 months. The private sector added 161,000 workers during the month while government employment contracted by 6,000. Industries expanding their payrolls the most include health care/social assistance (+40,100), professional/business services (+32,000), manufacturing (+27,000), transportation/warehousing (+25,400), retail (+18,200), and leisure/hospitality (+15,000). Average hourly wages have grown 3.1 percent over the past year to $27.35 with average weekly earnings increased a more modest 2.8 percent because the average workweek slipped by 1/10th of an hour to 34.4 hours.

Based on a separate survey of households, the unemployment rate held steady at its post-recession low of 3.7 percent. 133,000 people entered the labor force during the month, but the labor force participation rate remained at 62.9 percent. The labor force participation rate for adults aged 25 to 54 edged down by 1/10th of a percentage point to 82.4 percent. While just off its post-recession high, this measure remained its peak during the previous business cycle (October 2000: 83.4 percent). The median length of unemployment dropped by a half week to a post-recession low of 8.9 weeks while the count of part-time workers seeking a full-time job (“involuntary part-time workers”) grew by 181,000 to 4.802 million.  The broadest measure of labor underutilization by the BLS (the U-6 series) inched up 2/10ths of a percentage point to 7.6 percent.Unemployment Rate 2008-2018 120718

#2The U.S. trade deficit widened once again in October. The Census Bureau and Bureau of Economic Analysis report that exports slowed $0.3 billion during the month to a seasonally adjusted $211.0 billion (+6.3 percent versus a year earlier) while imports grew by $0.6 billion to $266.5 billion (+8.5 percent versus a year earlier). As a result, the U.S. goods and services deficit expanded by $0.9 billion to -$54.6 billion. The deficit was 18.1 percent larger than that of the year earlier and was its largest reading since October 2008. The goods deficit expanded by $0.9 billion to -$78.1 billion while the surplus on services shrank a modest $0.1 billion to +$22.6 billion. The former was hurt by a decline in exports of soybeans and civilian aircraft/engines and increased imports of pharmaceutical preparations and automotive vehicles/engines. The U.S. had its biggest trade deficits in goods with China (-$38.2 billion), the European Union (-$15.1 billion), and Mexico (-$6.4 billion).

#3October factory orders were soft. The Census Bureau indicates new orders for manufactured goods dropped by $10.5 billion during the month to a seasonally adjusted $502.7 billion. New orders for transportation goods fell 12.0 percent, pulled down by massive declines in orders for defense (-59.3 percent) and civilian (-22.2 percent) aircraft (both of which tend to be volatile month-to-month). Net of transportation goods, new orders increased 0.3 percent. Durable goods orders slumped 4.3 percent while nondurable orders gained 0.3 percent. Unchanged were orders for civilian capital goods net of aircraft (a proxy of business investment). Shipments slipped 0.1 percent to $508.4 billion, its first drop after 15 consecutive monthly increases, with unfilled orders also contracting by 0.1 percent to $1.184 trillion. Inventories expanded for the 24th straight month with a $0.9 billion gain to $681.7 billion.

#4Purchasing managers say business activity accelerated in November. The headline index from the Institute for Supply Management’s Manufacturing Report on Business, the PMI, added 1.6 points during the month to a seasonally adjusted 59.3. This was the PMI’s 27th consecutive month above a reading of 50.0, indicative of an expanding manufacturing sector. Four of five PMI components improved from their October readings: new orders (up 4.7 points), inventories (up 2.2 points), employment (1.6 points) and production (up 7/10ths of a point). The measure tracking supplier deliveries lost 1.3 points. Thirteen of 18 tracked manufacturing industries reported growth during the month, led by computers/electronics, plastics/rubber product, and paper products. Survey respondents’ comments stated that “[d]emand remains strong” but noted many detrimental impacts of tariffs (both current and pending).

The NMI, the headline index from ISM’s Non-Manufacturing Report on Business, has been above a reading of 50.0 for 106 straight months. In November, the NMI edged up by 4/10ths of a point to 60.7. Only two of the NMI’s four components improved during the month:  business activity/production (up 2.7 points) and new orders (up a full point). Slipping were components tracking employment (off 1.3 points) and supplier deliveries (down a full point). Seventeen of 18 tracked nonmanufacturing industries expanded during the month, led by education services, professional/scientific/technical services, and health care/social assistance. The press release stated that survey respondents “remain positive about current business conditions and the direction of the economy.”

#5Construction spending sputtered again in October. The Census Bureau estimates the value of construction put in place edged down 0.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of $1.309 trillion, its third monthly decline. Construction spending has grown 4.9 percent over the past 12 months. Private sector spending decreased 0.4 percent to $998.7 billion (SAAR), up 3.9 percent from October 2017. Residential private sector spending dropped 0.5 percent while the nonresidential private sector measure shrank more slowly (-0.3 percent). Public sector construction gained 0.8 percent to an annualized $304.2 billion, up 8.8 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 1, 2018, First-Time Claims, seasonally adjusted): 231,000 (-3,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 228,000 (-5.3% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (December 2018-preliminary, Index of Consumer Sentiment, seasonally adjusted): 97.5 (vs. November 2018: 97.5; vs. December 2017: 95.9).
Productivity (2018 Q3-revision, Nonfarm Labor Productivity, seasonally adjusted annual rate): +2.3% vs. 2018 Q2, +1.3% vs. 2017 Q3.
Beige Book

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

Home Sales & Starts Inched Up: November 19 – 23

Home sales and starts grew in October, but builder confidence stumbled nonetheless.  Here are the five things we learned from U.S. economic data released during the week ending November 23.

#1Existing home sales grew for the first time in seven months in October. Sales of previously owned homes increased 1.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.22 million units, its first increase since March. The National Association of Realtors tells us that sales grew in the three of four Census regions: West (+2.8 percent), South (+1.9 percent), and Northeast (+1.4 percent). Sales slipped 0.8 percent in the Midwest. Existing home sales have fallen a sharp 5.1 percent over the past year, with negative 12-month comparables in all four Census regions: West (-11.2 percent), Northeast (-6.8 percent), Midwest (-3.1 percent), and South (-2.3 percent). Inventories of homes available for sale remained very tight as there were 1.85 million homes on the market at the end of October, down 1.6 percent for the month and the equivalent to a 4.3 month supply. The median sales price of homes sold was $255,400, up 3.8 percent from that of a year earlier. This slower growth rate in home prices allowed, according to the press release, “for much more manageable, less frenzied buying conditions.”Existing Home Sales 112318

#2Housing starts grew, but homebuilders were less confident about the market. The Census Bureau reports that housing starts increased 1.5 percent to a seasonally adjusted annualized rate (SAAR) of 1.228 million units. Even with the increase, starts were 2.9 percent behind the year-ago pace. October’s gain was solely on the multi-unit side—starts of five or more unit housing increased 6.2 percent during the month. Meanwhile, single-family home starts slowed 1.8 percent. Looking towards the future, the number of issues building permits slipped 0.6 percent to a SAAR of 1.27 million units (-6.0 percent versus October 2017). Fewer homes were finished as the new home housing completed fell 3.3 percent during the month to 1.111 million units (SAAR).

The Housing Market Index (HMI), the National Association of Home Builder’s measure of builders’ sentiment, plummeted by eight points to a seasonally adjusted 60. While this was the 53rd consecutive month in which the HMI was above a reading of 50—meaning more homebuilders see the housing market as “good” rather than “bad”—it was the index’s lowest mark since August 2016. The HMI fell sharply in all four Census regions: Northeast (down nine points to 52), West (down nine points to 65), Midwest (down six points to 54), and South (down five points to 65). Also losing ground were indices for single-family home sales (down seven points to 67), expected sales (down ten points to 65), and traffic of prospective buyers (down eight points to 45). The press release notes survey respondents had stated consumers were “taking a pause due to concerns over rising interest rates and home prices.”

#3Forward-looking economic indicators suggest moderating growth over the near-term. The Conference Board’s Leading Economic Index (LEI) grew by only 1/10th of a point in October to a seasonally adjusted 112.1, its smallest increase since May and representing a still robust 5.9 percent gain over the past year. Five of the LEI’s ten components made positive contributions during the month, led by consumers’ economic expectations and the interest rate spread. The coincident index added 2/10ths of a point to a reading of 104.7, up 2.2 over the prior 12 months. All four coincident index components made positive contributions, including nonfarm payrolls and personal income net of transfer payments. The lagging index increased by 4/10ths of a point to 105.5 (+2.5 percent versus October 2017), with four of seven components making positive contributions. The press release stressed that the reading still suggests “robust economic growth in early 2019,” but also that rate of economic growth “may already have peaked.”

#4Durable goods orders slumped in October. The Census Bureau estimates new orders for manufactured durable goods plummeted 4.4 percent to a seasonally adjusted $248.5 billion, its third decrease over the past four months. Aircraft orders can be volatile month-to-month and tend to be a primary driver for the headline estimate of durable goods orders, and October was no exception. Civilian aircraft orders fell 21.3 percent and defense aircraft orders slumped 59.3 percent. As a result, overall transportation goods order declined 12.2 percent (motor vehicle orders inched up 0.2 percent). Net of transportation goods, durable goods orders eked out a 0,1 percent gain. Falling during the month were orders for primary metals (-2.3 percent) and machinery (-0.5 percent) while orders rose for electrical equipment/appliances (+2.9 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). Weakness continued for core capital goods (i.e., civilian capital goods net of aircraft—a proxy for business investment), which were unchanged in October after having declined in both August and September.

#5Consumer sentiment edged down in November. The Index of Consumer Sentiment from the University of Michigan lost 1.1 points during the month to a seasonally adjusted reading of 97.5 (1966Q1=100). This reading was 8/10ths of a point below the preliminary November reading reported a few weeks ago and one full point under the November 2017 mark. The index has been within a relatively tight 5.7 point range over the past 12 months. The current conditions index shed 8/10ths of a point during the month to a reading of 112.3 (November 2017: 113.5) while the expectations index fell by 1.2 points to 88.1 (November 2017: 88.9). The press release noted that sentiment among lower-income survey respondents had improved during the month while that of higher income respondents had slumped.

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

Jobless Claims (week ending November 17, 2018, First-Time Claims, seasonally adjusted): 224,000 (+3,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 218,500 (-9.0% vs. the same week a year earlier).

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

Hiring and Wages Both Rise in October: October 29 – November 2

Hiring resumed in October while consumer spending remained solid. Here are the five things we learned from U.S. economic data released during the week ending November 2.

#1Job creation rebounded in October. The Bureau of Labor Statistics reports nonfarm payrolls grew by a seasonally adjusted 250,000 during the month, up from the 118,000 job gain in September (which appeared to have been suppressed by the landfall of Hurricane Florence). Private sector employers added 246,000 workers during the month, split between 67,000 among goods-producing employers and 179,000 in the service sector. Industries adding the most workers during the month were health care/social assistance (+46,700), leisure/hospitality (+42,000), professional/business services (+35,000), manufacturing (+32,000), and construction (+30,000). The average workweek grew by 1/10th of an hour to 34.5 hours (October 2017: 34.4 hours) while average weekly earnings expanded by $4.45 to $941.85 (+3.4 percent versus a year earlier).

A separate household survey kept the unemployment rate at its post-recession low of 3.7 percent. 711,000 people entered the labor force during the month, putting the labor force participation rate of 62.9 percent. The labor force participation rate for adults aged 25 to 54 rose to 82.3, its highest point since the May 2010. The median length of unemployment inched up 2/10ths of a week to 9.4 weeks (October 2017: 9.8 weeks) while the number of part-time workers seeking a full-time opportunity held relatively stable during the month at 4.621 million (October 2017: 4.880 million). The broadest measure of labor underutilization (the “U-6” series) tied that from August with its lowest mark since before the recession at 7.4 percent.

#2Consumers continued spending in September. Real personal spending (adjusted for inflation) grew 0.3 percent during the month, slower than August’s 0.4 percent increase but matching the gains for every preceding month since April. The Census Bureau finds that spending on goods rose 0.7 percent, split between gains for durable and nondurable goods of 1.8 percent and 0.2 percent, respectively. Spending on services was flat during the month. Nominal consumer spending grew at a faster pace than had personal income (+0.3 percent versus +0.2 percent). Nominal personal income gained 0.2 percent while real personal income inched up 0.1 percent. As a result, the real savings rate shed 2/10ths of a percentage point to +6.2 percent. Over the past year, real personal consumption expenditures have grown 3.0 percent, just ahead of the 12-month comparable for real disposable personal income (+2.9 percent).

#3The trade deficit expanded further in September. The Census Bureau and Bureau of Economic Analysis estimates exports grew 1.5 percent during the month to a seasonally adjusted $212.6 billion (+7.2 percent versus September 2017) while imports also increased 1.5 percent to $266.6 billion (+9.8 percent versus September 2017). As a result, the U.S. trade deficit widened by 1.5 percent during the month to -$54.0 billion, 21.6 percent larger than the deficit during the same month a year earlier. The trade deficit for the first nine months of 2018 (-$445.2 billion) was 10.1 percent larger than that of the first nine months of 2017. The goods deficit expanded by $0.6 billion during September to -$77.2 billion while the services surplus shrank by $0.1 billion to +$23.2 billion. The U.S. had its largest goods deficit with China (-$37.4 billion), the European Union (-$14.2 billion), and Mexico (-$7.5 billion).

#4Manufacturing grew in October at its slowest pace since the spring. The headline index from the Institute for Supply Management’s Manufacturing Report on Business (PMI) shed 2.1 points during the month to a reading of 57.7, its lowest reading since April. Four of the PMI’s five components pulled back from their September marks: new orders, production, employment, and inventories. The measure of supplier deliveries was the sole PMI component to improve during the month. Thirteen of 18 manufacturing industries expanded during the month, led by textiles, electrical equipment/appliances, and apparel. The press release noted that comments received from survey respondents “reflect continued expanding business strength” but also that the “expansion of new exports orders softened.”

#5Factory orders grew in September, pulled up by the defense sector. The Census Bureau reports new orders for manufactured goods totaled a seasonally adjusted $515.3 billion, up 0.7 percent for the month (its fourth gain over the past five months). Driving the increase was defense aircraft orders more than doubling (+118.7 percent). Net of all defense goods, new factory orders were flat. Durable goods orders rose 0.7 percent while orders of nondurables gained 0.6 percent. Factory orders over the first nine months of 2018 have totaled $4.495 trillion, up 8.4 percent over the same nine months in 2017. Shipments increased for the 16th time in 17 months, growing 0.9 percent to $509.8 billion. Unfilled orders gained 0.8 percent to $1.187 trillion (its tenth increase in 11 months) while inventories expanded for the 23rd consecutive month with a 0.5 percent bounce.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 27, 2018, First-Time Claims, seasonally adjusted): 214,000 (-2,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-8.9% vs. the same week a year earlier).
Productivity (2018Q3, Nonfarm Labor Productivity, seasonally adjusted annualized rate): +2.2% vs. 2018Q2, +1.3% vs. 2017Q3.
Conference Board Consumer Sentiment (October 2018, Index (1985=100), seasonally adjusted): 137.9 (vs. September 2018: 135.3, vs. October 2017: 126.2).
Case-Shiller Home Price Index (August 2018, 20-City Index, seasonally adjusted): +0.1% vs. July 2018, +5.5% vs. August 2017).
Construction Spending (September 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.329 trillion (Unchanged vs. August 2018, +7.2% vs. September 2017).
Bankruptcy Filings (12-month period ending September 30, 2018, Business and Non-Business Filings): 773,375 (-2.2% vs. 12-month period ending September 30, 2017).
Agricultural Prices (September 2018, Prices Received by Farmers): -1.5% vs. August 2018, -4.6% vs. September 2017.

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