Hiring Picks Up, Trade Deficit Narrows: July 3 – 7

The labor market rebounded in June with accelerated hiring in health/social assistance and leisure/hospitality. Here are the five things we learned from U.S. economic data released during the week ending July 7.

#1Employers picked up hiring activity during June. The Bureau of Labor Statistics indicates nonfarm payrolls expanded during June by a seasonally adjusted 222,000, the best month for job creation since February. Further, the BLS upwardly revised its April and May employment estimates by a combined 47,000 jobs to +207,000 and +152,000, respectively. Private sector payrolls grew during June by 187,000 while government employers added 35,000 jobs. Private sector industries enjoying the largest payroll gains during the month were health care/social assistance (+59,100), leisure/hospitality (+36,000), professional/business services (+35,000), financial activities (+17,000), and construction (+16,000). Retailers added 8,100 workers following declines in April and May. The average work week grew by 1/10th of an hour to 34.5 hours (June 2016: 34.4 hours) with average weekly earnings up 2.8 percent from a year earlier to $905.63.

Based on a separate survey of households, the unemployment rate edged up by 1/10th of a percentage point to 4.4 percent. This was a half point below the year ago unemployment rate of 4.9 percent, leaving it near its post-recession low point. 361,000 people entered the labor force during the month, resulting in a 1/10th of a percentage point gain in the labor force participation rate to 62.8 percent. The median length of unemployment fell by 8/10ths of a week to 9.6 weeks (June 2016: 10.2 weeks). While the number of part-time workers seeking a full-time opportunity (“involuntary” part-time workers) increased by 107,000 during June, it was still 8.5 percent below the count of a year earlier. Finally, the broadest measure of labor underutilization (the “U6” series) increased 2/10ths of a percentage point to 8.6 percent, a full percentage point below the measure’s year-ago reading.Unemployment Rate Trend 2006 2017-070717

#2The trade deficit narrowed during May. The Census Bureau and Bureau of Economic Analysis report exports grew by $0.9 billion during the month to $192.0 billion (+5.4 percent vs. May 2016) while imports narrowed by $0.2 billion to $238.5 billion (+6.6 percent vs. May 2016). This left the trade deficit at $46.5 billion, $1.1 billion smaller than that of April but up 12.0 percent over the past year. The goods deficit contracted by $0.9 billion to -$67.5 billion while the goods surplus widened by $0.2 billion to +$21.0 billion. Exports grew during the month for automotive vehicles (+$0.6 billion) and cell phones/other household goods (+$0.5 billion) but slowed for soybeans (-$0.6 billion). Imports fell for consumer goods (-$1.5 billion, including -$0.9 billion for cell phones), automotive vehicles (-$0.7 billion), but grew by $1.3 billion for capital goods. The trade deficit for the first five months of 2017 was 13.1 percent larger than that of 2016, the result of exports growing 6.0 percent and imports expanding 7.3 percent.

#3The decline in new factory orders accelerated in May. The Census Bureau reports that new orders for manufactured goods fell 0.8 percent during the month following a 0.3 percent drop in April. The resulting seasonally adjusted value of new orders of $464.9 billion was up 4.2 percent from a year earlier. Both durable and nondurable goods orders slowed by a similar 0.8 percent rate while those of nondefense, nonaircraft capital goods (a measure of business investment) edged up 0.2 percent. Shipments grew for the fifth time in six months with a 0.1 percent increase to $471.5 billion. Durable goods shipments rose 1.0 percent while nondurable goods shipments slowed 0.8 percent. Unfilled order shrank 0.2 percent to $1.120 trillion while inventories contracted 0.1 percent to $648.9 billion.

#4Purchasing managers report that both manufacturing and service sector business activity grew during June. The Purchasing Managers Index (PMI) from the Institute for Supply Management gained 2.9 points during June to a seasonally adjusted 57.8. This was the 10th straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Four of five PMI components improved during the month: production (up 5.3 points to 62.4), new orders (up 4.0 points to 63.5), supplier deliveries (up 3.7 points to 57.2), and employment (up 3.7 points to 57.2). The index tracking inventories shed 2.5 points to a contractionary reading of 49.0. Fifteen of 18 tracked manufacturing industry segments expanded during the month, led by furniture, nonmetallic mineral productions, and paper products. The press release indicated that survey respondent comments noted “expanding business” but that “supplier deliveries and inventories [were] struggling to keep up with the production pace.”

The ISM’s measure of nonmanufacturing economic activity added a half point during June to 57.4, the 90th consecutive month in which the NMI was above a reading of 50.0. Three of four index components improved from their June marks: new orders (up 2.8 points to 60.5), supplier deliveries (up a full point to 52.5), and business activity/production (up 1/10th of a point to 60.8). The employment index shed two full points to 57.8. Sixteen of 18 tracked service sector industries expanded during June, led by agriculture, wholesale trade, management of companies/support. The press release said that the “majority of respondents’ comments are positive about business conditions and the overall economy.”

#5Vehicle sales continued to slacken in June. Per automaker sales data compiled by Autodata, the seasonally adjusted annualized rate of vehicle sales was below 17 million units for a fourth straight month. The annualized sales rate of 16.50 million vehicles was down 1.0 percent from May and 1.8 percent from a year earlier. Car sales continued to slump, dropping 4.7 percent during the month and 13.2 percent from June 2016 to an annualized rate of 5.91 million vehicles. Light truck/SUV sales inched up 1.3 percent during June to an annualized rate of 10.60 million vehicles. This was 5.8 percent above light truck/SUV sales of a year earlier

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 1, 2017, First-Time Claims, seasonally adjusted): 248,000 +4,000 vs. previous week; -11,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-8.4% vs. the same week a year earlier).
Construction Spending (May 2017, Value of Construction Put in Place, seasonally adjusted annual rate): $1.230 trillion (unchanged vs. April 2017, +4.5% vs. May 2016).
FOMC minutes

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.

Employers’ Inability to Find Qualified Candidates Slows Hiring: June 5 – 9.

A lack of qualified candidates weighed on hiring during April. Here are the 5 things we learned from U.S. economic data released during the week ending June 9.

#1Even with a record number of job openings, hiring slowed in April. The Bureau of Labor Statistics estimates there were a seasonally adjusted 6.044 million job openings at the end of the month, up 259,000 for the month, 7.1 percent from a year earlier, and the highest count ever recorded in the 16+ year history of the data series. The private sector had 5.464 million jobs available, up 240,000 from March and 6.7 percent from April 2016. Among the industries reporting significant year-to-year percentage gains in job openings were professional/business services (+15.0 percent), accommodations/food services (+13.3 percent), financial activities (+11.0 percent), leisure/hospitality (+10.6 percent), and construction (+10.3 percent). Employers continued to experience significant difficulty in filling these jobs. Employers hired 5.051 million people during April, down 253,000 from March and up a measly 0.3 percent from a year earlier. Private sector companies brought 4.718 million people onto their payrolls during the month, up 0.7 percent from a year earlier. Also slowing during the month were the number of job separations with 4.973 million people leaving their jobs during the month, a 225,000 decline from March. This included voluntary quits sinking by 109,000 to 3.027 million (+4.3 percent vs. April 2016). Layoffs decreased by 71,000 to 1.590 million, 4.7 percent below the year ago levels.

job openings and hiring 2011-2017-060917

#2New factory orders contracted during April for the first time in 2017. Census Bureau data indicate that new orders for manufactured goods declined 0.2 percent during the month to a seasonally adjusted $469.0 billion. This was up 3.8 percent from a year earlier. April’s decline following month-to-month increases of 0.8 percent and 1.0 percent in February and March, respectively. Transportation goods orders fell 1.4 percent as a 9.1 percent drop civilian aircraft orders outweighed a 0.6 percent gain in orders of automobiles. Net of transportation goods, new orders edged up 0.1 percent during April to $390.6 billion (+6.0 percent vs. April 2016). Orders for computers/electronic products jumped 1.6 percent during the month while falling were orders of electrical equipment/appliances (-2.0 percent), fabricated metals (-1.0 percent), primary metals (-0.7 percent), machinery (-0.7 percent), and furniture (-0.2 percent). Orders of civilian nonaircraft capital goods (a proxy for business investment) inched up 0.1 percent during the month and was 3.0 percent above year earlier levels.

#3The service sector hummed along at a slightly slower growth rate in May. The headline index from the Institute for Supply Management’s Report on Business for the nonmanufacturing sector of the economy decreased by 6/10ths of a point to 56.9. The NMI has been above a reading of 50.0—indicative of an expanding service sector—for 89 consecutive months. Three of the four index components declined during the month: new orders (down 5.5 points to 57.7), business activity (down 1.7 points to 60.7), and supplier deliveries (down 1.5 points to 51.5). On the flipside, the employment index surged 6.4 points to 57.8. Seventeen of the 18 tracked nonmanufacturing sectors expanded during the month, led by real estate, construction, and accommodation/food services. The press release noted that survey respondents were “continu[ing] to indicate optimism about business conditions and the overall economy.”

#4Productivity gains were nonexistent during Q1, but that is an improvement from a previous estimate. The Bureau of Labor Statistics raised its previously published estimate of labor productivity from saying it had shrunk 0.6 percent on a seasonally adjusted annualized rate (SAAR) to now reporting it had held steady during the quarter. This was the result of output and the number of hours worked both having grown at an annualized rate of 1.7 percent during the quarter. Over the past year, labor productivity increased an anemic 1.2 percent with output expanding 2.5 percent and hours worked growing 1.3 percent. Also increasing was productivity in the manufacturing sector, with the previously reported 0.4 percent bump raised to a 0.5 percent increase during Q1. Productivity gained 2.7 percent for nondurable goods manufacturing but contracted 0.7 percent for durable goods manufacturing.

#5Consumer debt levels grew at a slower pace during April. Per the Federal Reserve, outstanding consumer debt balances (net of mortgages and other real estate-backed debt) totaled $3.821 trillion at the end of April, up $8.2 billion for the month and 5.8% from a year earlier. This was the smallest single-month gain in credit balances since December 2015. Nonrevolving credit balances grew by $6.7 billion to $2.810 trillion. While this also was their smallest single-month increase since late 2015, nonrevolving credit balances (e.g., college loans, car loans) have expanded 5.7 percent over the past year. Revolving credit balances (e.g., credit cards) grew at its slowest pace in three months (+$1.5 billion) to $1.010 trillion (+5.7 percent vs. April 2016).

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 3, 2017, First-Time Claims, seasonally adjusted): 245,000, -10,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 242,000 (-10.2 percent vs. the same week a year earlier).
Wholesale Trade (April 2017, Wholesale Inventories, seasonally adjusted): $591.0 billion (-0.5% vs. March 2017, +1.6% vs. April 2016).

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