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.

GDP Jumped Again in Q3, New Home Sales Slowed in September: October 22 – 26

The U.S. economy chugged along during Q3, albeit at a slower pace than before.  Here are the five things we learned from U.S. economic data released during the week ending October 26.

#1GDP moderated during Q3, propped up in part by inventory gains. The Bureau of Economic Analysis’ first estimate of third-quarter 2018 Gross Domestic Product (GDP) finds the U.S. economy expanded 3.5 percent on a seasonally adjusted annualized basis between July and September. While down from Q2’s 4.2 percent increase, this was the second best quarter for GDP since Q2 2014. The biggest positive contributor to Q3 GDP growth was personal consumption, which added 269-basis points to the final figure. The second largest contributor was the $113.1 billion increase in private inventories, which swelled GDP by 207-basis points. (The large impact of the expansion in inventories may signal a slower GDP growth rate in Q4 as business burn through these stockpiles.) Rising government expenditures contributed 56-basis points to GDP growth while business investment (fixed nonresidential investment) added 12-basis points. Trade became a significant drag on economic growth as falling exports and rising imports led to net exports having a negative GDP contribution of -0.45. Housing also continued to flag with a third straight quarterly negative contribution (-0.16). The BEA will revise its Q3 GDP estimate twice over the next two months.GDP-2015-8 102618

#2Economic growth slowed specifically in September. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, lost ten basis points during the month to a reading of +0.17 (the fourth straight month in which the CFNAI came in with a positive reading). Even though the CFNAI’s three-month moving average slipped by six-basis points to +0.21, the moving average’s continued positive reading was indicative of economic growth above the historical average. Forty-six of the 85 tracked indicators made positive contributions to the CFNAI while 36 indicators advanced during the month. Three of four major categories of indicators made positive contributions to the CFNAI: production (+0.11), employment (+0.07), and sales/orders/inventories (+0.05). Indicators related to consumption/housing had a negative contribution of -0.05.

#3Durable goods flew in September because of defense aircraft orders. The Census Bureau estimates new orders for manufactured durable goods jumped 0.8 percent during the month to a seasonally adjusted $262.1 billion, its third gain in four months. Leading the way was a 1.9 percent gain in orders for transportation goods, boosted by a 119.1 percent surge in orders for defense aircraft and a 1.3 percent rise in orders for motor vehicles. Durable goods orders net of transportation equipment inched up by only 0.1 percent. Rising during the month were orders for machinery (+0.8 percent), and primary metals (+0.1 percent) while orders fell for fabricated metal products (-0.7 percent), electrical equipment/appliances (-0.5 percent), computers (-0.4 percent), and communications equipment (-0.1 percent). Also slumping was a proxy for business investment as non-aircraft civilian capital goods orders slipped 0.1 percent.

#4New home sales slumped again in September. Sales of single-family homes fell 5.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 553,000 units, per the Census Bureau. Sales declined in three of four Census regions: Northeast (-40.6 percent), West (-12.0 percent), and South (-1.5 percent). Transactions increased by 6.9 percent in the Midwest. Sales were off 13.2 percent from a year earlier, with deals down in the Northeast (-51.3 percent), West (-15.8 percent), and South (-11.4 percent). Again, the Midwest was the exception with a positive 12-month comparable of +4.1 percent. Inventories of new homes continued to grow, with a 2.8 percent increase to 327,000 units (+16.8 percent versus September 2017). This was the equivalent to a 7.1 month supply.

#5Consumer sentiment flagged ever so slightly in October. The University of Michigan’s Index of Consumer Sentiment pulled back by 1.5 points during the month to a seasonally adjusted 98.6 (1966Q1=100). While 4/10ths of a point of drop from the preliminary October reading reported a few weeks ago and 2.1 points below the year-ago reading, the sentiment measure remained near its post-recession highs. The current conditions index shed 2.1 points during the month to 113.1 (October 2017: 116.5) while the expectations index’s decline was smaller, losing 1.2 points to 89.3 (October 2017: 90.5). Partisanship continued to have a significant influence on one’s sentiment—the headline index for those identifying as Republican was 126.4, compared to 81.0 for those identifying as a Democrat and 96.2 for those who view themselves of politically independent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 20, 2018, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-11.7% vs. the same week a year earlier).
FHFA House Price Index (August 2018, Purchase-Only Index, seasonally adjusted): +03% vs. July 2018, +6.1% vs. August 2017.
Beige Book

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

A New Low for the Unemployment Rate: October 1 – 5

The unemployment rate dropped to a multi-decade low while the trade deficit widened to a six-month high. Here are the five things we learned from U.S. economic data released during the week ending October 5.  

#1The unemployment rate fell to a 49-year low during September. The Bureau of Labor Statistics reports that nonfarm payrolls grew by a seasonally adjusted 134,000 during the month, below the 165,000 and 270,000 jobs created during July and August. Some of the slowdown in job creation can be linked to the effects of Hurricane Florence, which weighed on the retail (-20,000 jobs) and leisure/hospitality (-17,000) sectors. Private sector employers added 121,000 jobs during September, less than half of the 254,000 private sector jobs added in August. Industries adding the most workers during September were professional/business services (+54,000), health care/social assistance (+29,800), transportation/warehousing (+23,800), and construction (+18,000). The average number of hours worked remained at 34.5 hours (September 2017: 34.3 hours) while average weekly earnings increased by $2.76 to $939.78 (+3.4 percent versus September 2017).

Based on a separate survey of households, the unemployment rate dropped to its lowest reading since December 1969 at 3.7 percent. This was down 2/10ths of a percentage point from August and a half percentage point from the same month a year earlier. 150,000 people entered the labor force during the month, but the labor force participation rate remained at 62.7 percent (September 2017: 63.0). The labor force participation rate for adults aged 25 to 54 shed 2/10ths of a percentage point to 81.8 percent, matching its year-ago reading. The median length of unemployment was 9.2 weeks, off 9/10ths of a week from September 2017 while the number of part-time workers seeking a full-time position has fallen 9.8 percent over the past year to 4.642 million people. Finally, the broadest measure of labor underutilization (the U-6 series) came in at 7.5 percent, just above its post-recession low (September 2017: 8.3 percent).

Unemployment Rate 1968=2018 100518

#2The trade deficit grew to a six-month high in August. Export activity slowed $1.7 billion during the month to a seasonally adjusted $209.4 billion (+7.1 percent versus August 2017) while imports grew by $1.5 billion to $262.7 billion (+9.6 percent versus August 2017), per the Census Bureau and the Bureau of Economic Analysis. The resulting trade deficit of -$52.2 billion represented a $3.2 billion increase for the month, a 20.5 percent jump from the same month a year earlier, and the largest trade deficit since February. The goods deficit blossomed by $3.6 billion to -$76.7 billion (+17.2 percent versus 2017) while the service surplus widened by $0.4 billion to +$23.5 billion (+10.2 percent versus August 2017). The former was hurt by declining exports of crude oil/petroleum products and soybeans and increased imports of automotive vehicles and cell phones. The U.S. had its largest goods deficits with China (-$34.4 billion), the European Union (-$14.9 billion), and Mexico (-$8.7 billion).

#3Aircraft orders fueled factory orders in August, but core capital orders struggled. The Census Bureau reports that new orders for manufactured goods jumped 2.3 percent during the month after falling 0.5 percent in July. The seasonally adjusted $510.5 billion estimate for new orders represented a robust 10.0 percent increase over the past year. As noted with the previous week’s durable goods report, much of the rise was the product of the 69.0 percent surge in civilian aircraft orders and the 17.0 percent bounce in orders for defense aircraft. Net of transportation goods, factory orders managed a mere 0.1 percent increase. Durable goods orders rose 4.4 percent to $259.6 billion while orders for nondurables gained 0.2 percent to $250.9 billion. Civilian capital goods orders net of aircraft—a proxy of business investment—slumped 0.9 percent. Shipments grew 0.5 percent during the month to $504.0 billion (+7.8 percent versus August 2017), with the gain shrinking to a 0.2 percent increase after removing transportation goods. Shipments of core capital goods contracted 0.2 percent during August.

#4Purchasing managers report business activity largely held firm in September. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, slid by 1.5 points to a reading of 59.8. Even with the decline, this was the 25th consecutive month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Only two of the five PMI components improved during the month:  production (+0.6) and employment (+0.3). Dropping were PMI components linked to supplier deliveries (-3.4), new orders (-3.3), and inventories (-2.1). Fifteen of 18 manufacturing industries expanded during September, led by textile mills, “miscellaneous” manufacturing, and plastics/rubber products. The press release noted that survey respondents remained “overwhelmingly concerned about tariff-related activity.”

The NMI, the headline index from the Nonmanufacturing Report on Business, jumped by 3.1 points to a reading of 61.6. This was the measure’s 104th straight month with a reading above 50.0. All four NMI components jumped during the month: employment (+5.7), business activity/production (+4.5), new orders (+1.2), and supplier deliveries (+1.0). Seventeen of 18 tracked nonmanufacturing industries grew during September, led by mining, real estate, and wholesale trade. The press release noted the survey respondents were “positive” about current market conditions but were concerned about “capacity, logistics and the uncertainty with global trade.”

#5Construction spending inched up in August. The Census Bureau estimates the value of construction put in place grew 0.1 percent during the month to a seasonally adjusted annualized rate of $1.319 trillion. This was 6.5 percent ahead of August 2017’s annualized rate. Private sector construction spending slowed 0.5 percent to $1.007 billion (+4.4 percent versus August 2017). Dropping during the month were expenditures on both private sector residential (-0.7 percent) and nonresidential (-0.2 percent) spending. Public sector spending rose 2.0 percent during August to an annualized $316.7 billion. Public sector construction spending has surged 14.0 percent over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 29, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -47,000 vs. the same week a year earlier). 4-week moving average: 207,000 (-24.9% vs. the same week a year earlier).
Consumer Credit (August 2018, Outstanding Non-Real Estate Backed Consumer Credit, seasonally adjusted): $3.935 trillion (+$20.1 billion vs. July 2018, +4.7% vs. August 2017).

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