Employers Resume Hiring: October 30 – November 3

Employers resumed adding workers in October while holds off another rate hike until (probably) December. Here are the five things we learned from U.S. economic data released during the week ending November 3.

#1Payrolls rebounded in October while the September jobs decline turned into a small gain. Per the Bureau of Labor Statistics, nonfarm payroll employment grew by a seasonally adjusted 261,000. This followed September’s hurricane caused weak payroll expansion of a mere 18,000 jobs. The latter represented an improvement from the previously reported estimate for September payrolls, which had shown a contraction of 33,000 jobs. Because of the revision to September’s payrolls data, employment has now grown for 85 consecutive months with nonfarm employers adding 162,000 workers on average over the past three months. The goods-producing side of the private sector economy added 33,000 workers while private service sector payrolls swelled by 219,000 workers. The most notable industry was leisure/hospitality, which added 106,000 jobs following a hit of 102,000 jobs during September. Other sectors adding significant numbers of workers were professional/business services (+50,000), health care/social assistance (+33,500), and manufacturing (+24,000). Wage growth remained weak: average weekly earnings were at $912.63, up 2.4 percent from the same month a year earlier.

A separate survey of households has the unemployment falling by 1/10th of a percentage point to 4.1 percent. This is down 7/10ths of a percentage point from a year earlier and its lowest point since December 2000. The unemployment rate was pulled down in part by the 765,000 people who had exited the labor force during the month. The resulting labor force participation rate of 62.7 percent was its lowest point since May and puts it near a 40+ year low. (Some of that reflects an aging population reaching retirement age—the labor force participation rate for adults aged 25 to 54 was at 81.6 percent, matching its year-ago rate). Falling to post-recession low is the count of part-time workers who are seeking a full-time opportunity. This count of “involuntary” part-time workers declined by 369,000 to 4.753 million (-18.8 percent versus October 2016). The typical length of unemployment decreased by 4/10ths of a week to 9.9 weeks (October 2016: 10.2 weeks). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) dropped 4/10ths of a percentage point to 7.9 percent. The last time the U-6 series was this low was back in December 2006 (which ended up being the lowest reading for the measure during the 2001-2007 economic recovery).Labor Force Participation Rate 2007-2017

#2The Federal Reserve leaves its short-term interest rate target alone, for now. Minutes released following this past week’s meeting of the Federal Open Market Committee (FOMC) meeting notes that both economic activity and the labor market had continued to improve “despite hurricane-related disruptions.” This included household spending continuing to expand “at a moderate rate” and business investment that “has picked up in recent quarters.” The committee believes the hurricanes are “unlikely” to have a significant impact on economic activity over the medium term, with further strengthening of the labor market expected to continue. In this environment, the FOMC voted unanimously to keep the fed funds target rate at a range between 1.00 and 1.25 percent. The policy statement, without being explicit, would seem to indicate that we should expect a quarter point target rate bump at the FOMC’s final 2017 meeting in December. (The other Fed news of the week was President Trump’s nomination of Fed governor Jerome Powell as the new chairman of the central bank.)

#3Personal spending surged in September. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.6 percent on a seasonally adjusted basis during the month. This was its largest monthly gain since March. Real spending on durable goods jumped 3.5 percent while that on both nondurables and services grew a more modest 0.3 percent during September. The surge in durable goods spending is partially the result of deferred and replacement purchases following the recent hurricanes. Over the past year, real PCE has grown 2.7 percent, which includes a 7.3 percent bump up in durable goods spending. Nominal spending, which is not adjusted for inflation, jumped 1.0 percent. Both nominal personal and nominal disposable incomes grew 0.4 percent during the month. After adjusting for price variation, real disposable income was unchanged during the month and has risen 1.2 percent over the past year. The savings rate dropped by a half percentage point during September to +3.1 percent, its lowest reading since early 2008.

#4The trade deficit widened slightly during September. Per the Census Bureau and the Bureau of Economic Analysis, exports increased $2.1 billion during the month to a seasonally adjusted $196.8 billion (+4.6 percent versus September 2016). At the same time, imports expanded by $2.8 billion to $240.3 billion (+6.1 percent versus September 2016). The resulting trade deficit of -$43.5 billion was up $0.7 billion from August but 13.1 percent greater than that of a year ago. The goods deficit grew by $0.6 billion during September to -$65.4 billion (+10.0 percent versus a year earlier) while the services surplus shrank by $0.2 billion to +$21.9 billion (+4.4 percent versus a year earlier). Industrial supplies exports (particularly crude oil) grew by $1.9 billion while pharmaceutical preparation exports fell by $1.0 billion. Capital goods imports jumped $1.5 billion while industrial supplies/materials increased by $1.1. billion. Passenger car imports declined $0.5 billion during September. The U.S. had its biggest goods trade deficits with China (-$29.9 billion), the European Union (-$14.6 billion), Germany (-$5.9 billion), and Japan (-$5.9 billion).

#5Purchasing managers describe robust business activity in October. The Purchasing Managers Index (PMI) from the Institute for Supply Management shed 2.1 points during the month to a seasonally adjusted reading of 58.7. Even with the drop, this was the 14th consecutive month in which the PMI –a measure of activity in the manufacturing sector of the U.S. economy—was above a reading of 50.0, the threshold between a growing and contracting manufacturing sector. All five components of the PMI declined from September: inventories (-4.5), supplier deliveries (-3.0), new orders (-1.2), production (-1.2), and employment (-0.5). Sixteen of 18 tracked manufacturing industries expanded during October, led by paper products, nonmetallic mineral products, and machinery. The press release noted survey respondents’ comments had reflected “expanding business conditions.”

The headline index from the ISM’s Report on Business for the nonmanufacturing sector of the economy inched up by 3/10ths of a point to 60.1, measure’s highest market in its nine-year history and the 94th straight month in which it was above 50.0. Two of the index’s four components grew during the month: business activity/production (up 9/10ths of a point to 62.2) and employment (up 7/10ths of a point to 57.5). The new order index slipped 2/10ths of a point to 62.8 while the supplier deliveries measure held steady at 58.0.  Sixteen of 18 tracked service sector industries reported growth during October, led by agriculture, construction, and transportation/warehousing. The press release indicated that survey respondents continued to have a “positive outlook for business conditions.”

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

Jobless Claims (week ending October 28, 2017, First-Time Claims, seasonally adjusted): 229,000 (-5,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 232,500 (-9.0% vs. the same week a year earlier).
Factory Orders (September 2017, New Orders for Manufactured Goods, seasonally adjusted): $478.5 billion (+1.4% vs. August 2017, +7.0% vs. September 2016).
Vehicle Sales (October 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 18.09 million units (-2.6% vs. September 2017, +1.2% vs. October 2016).
Conference Board Consumer Confidence (October 2017, Index (1985=100), seasonally adjusted): 125.9 (vs. September 2017: 120.6).
Case-Shiller Home Price Index (August 2017, 20-City Index, seasonally adjusted): +0.5% vs. July 2017, +5.9% vs. August 2016.
Agricultural Prices (September 2017, Prices Received by Farmers): 91.8 (-1.7% vs. August 2017, +6.3% vs. September 2016).

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

Economic Activity Eased During the End of Summer: September 25 – 29

Personal spending and overall economic activity both slowed in August. Here are the five things we learned from U.S. economic data released during the week ending September 29.

#1Personal spending paused in August. “Real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis during the month, the first monthly decline in the inflation-adjusted measure of consumer spending since January. Real spending on goods fell 0.5 percent (also its largest drop since January), as spending on durable goods dropped 1.0 percent while that on nondurables slowed 0.2 percent. Real spending on services edged up 0.1 percent. Over the past year, real PCE has grown 2.5 percent, with 12-month comparables of +3.1 percent and +2.2 percent for spending on goods and services, respectively. The same Bureau of Economic Analysis report finds nominal (not adjusted for inflation) personal income had increased 0.2 percent during August while nominal disposable income grew 0.1 percent and real disposable income slipped 0.1 percent. Real disposable income has risen 1.2 percent over the past year. The personal saving rate was at +3.6 percent, matching July’s rate. The report’s closely watched measure of inflation—the PCE deflator—grew 0.2 percent during the month and had increased 1.2 percent over the past year. Net of energy and food, the core PCE deflator inched up 0.1 percent during the month and had risen 1.3 percent since August 2016. Both 12-month comparables were well below the Federal Reserve’s two-percent interest rate target.Change in Personal Consumption Expenditures 2016-7 092917

#2There was another small upward revision to Q2 economic growth. The Bureau of Economic Analysis upgraded its estimate of second-quarter 2017 growth in the Gross Domestic Product (GDP) from a 3.0 percent seasonally adjusted annualized gain to a 3.1 percent increase (the original Q3 estimate had a 2.6 percent increase). The small upward revision was the result of higher than previously believed levels of private sector inventory accumulation. This was the fastest month of economic growth since the first quarter of 2015. Positive contributors to Q3 GDP growth were personal consumption expenditures (PCE, adding 224-basis points to GDP growth), nonresidential fixed investment (+54 basis points), exports (+21-basis points), federal government spending (+13-basis points), and the change in private inventories (+12-basis points). Dragging down GDP growth were fixed residential investment (housing, costing 30-basis points in GDP growth), imports (-22-basis points), and state/local government expenditures (-16-basis points). Corporate profits from current production edged up 0.7 percent during the quarter to a SAAR of $2.123 trillion.

#3However, economic data suggest economic growth slowed in August. The Chicago Fed National Activity Index (CFNAI) fell by 34-basis points to a reading of -0.31. The CFNAI is a weighted index of 85 economic measures indexed so that a reading of 0.00 would be indicative of economic growth at the historical average. Hence, August’s reading is consistent with below average economic activity. This was the CFNAI’s lowest reading since May 2016. Only 35 of the 85 index components made a positive contribution to the CFNAI, but 45 components improved from their July’s readings. Among the four broad categories of components, two made negative contributions to the CFNAI: those associated with production (-0.36 contribution) and personal consumption/housing (-0.06). Boosting the CFNAI were components tied to sales/orders/inventories (+0.06) and employment (+0.05). The CFNAI’s three-month moving average was negative for the first time since March as it shed four-basis points to a reading of -0.04.

#4Consumer sentiment chilled in the autumn air of September. The Conference Board Consumer Confidence Index inched back 6/10ths of a point to a seasonally adjusted reading of 119.8 (1985=100). The index of current conditions fell back by 2.3 points to 146.1 while the expectations index added a half point to 102.2. A slightly smaller percentage of survey respondents characterized current business conditions as being “good” (33.9 percent, off 6/10th of a percentage point) while a few more said that they were “bad” (up 6/10ths of a percentage point to 13.8 percent). Twice as many respondents expected business conditions would improve over the next six months than believe they will deteriorate (19.8 percent versus 9.9 percent). The press release noted that sentiment weakened in both hurricane impacted Texas and Florida, but also that the overall results indicate “the economy will continue expanding at its current pace.”

The Index of Consumer Sentiment from the University of Michigan lost 1.7 points to a seasonally adjusted reading of 95.1 (1966Q1=100). Whereas the measure remained 3.9 points above its September 2016 reading, it has stayed within a tight four-point range since February. The current conditions index added 8/10ths of a point to 111.7 (September 2016: 104.2) while the expectations index shed 3.3 points to 84.4 (September 2016: 82.7). The press release stated that confidence has remained resilient despite “a long list of issues that could have derailed the overall level of consumer confidence, including the unprecedented partisan divide, North Korea, Charlottesville, and the hurricanes.” The release also noted that the results were consistent with consumer spending growing “2.6% in 2017 and in the 1st half of 2018.”

#5Durable goods orders rebounded in August. The Census Bureau estimates new orders for manufactured durable goods grew 1.7 percent during the month to a seasonally adjusted $232.8 billion. Nearly every month, the headline number is heavily influenced by transportation goods orders (and, specifically, aircraft orders), which tend to be quite volatile month-to-month. New orders for civilian aircraft surged 44.8 percent, leading to a 4.9 percent overall gain in transportation goods (new orders for automobiles increased 1.5 percent). Net of transportation goods, new orders grew 0.2 percent during the month, which included gains for communications equipment (+4.0 percent), machinery (+0.3 percent), primary metals (+0.3 percent). On the flipside, orders fell for computers (-1.3 percent), fabricated metal products (-0.4 percent), and electrical equipment/appliances (-0.1 percent). New orders for non-defense durable goods gained 2.2 percent during August while those of non-defense, non-aircraft capital goods (a proxy for business investment) rose 0.4 percent. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 23, 2017, First-Time Claims, seasonally adjusted): 272,000 (+12,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 277,750 (+8.9% vs. the same week a year earlier).
New Home Sales (August 2017, New Residential Sales, seasonally adjusted annualized rate): 560,000 (-3.4% vs. July 2017, -1.2% vs. August 2016).
Pending Home Sales (August 2017, Index (2001=100), seasonally adjusted): 106.3 (-2.6% vs. July 2017, -2.6% vs. August 2016).
Agricultural Prices (August 2017, Prices Received by Farmers (Index: 2011=100)): 93.4 (-2.0% vs. July 2017, +4.1% vs. August 2016).

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

Job Creation and Wage Growth Slowed in August: August 28 – September 1

Manufacturing and construction sectors were responsible for more than a third of August’s net job creation. Here are the five things we learned from U.S. economic data released during the week ending September 1.  

#1Employers added fewer workers during August while wage growth momentum sputtered. Nonfarm payrolls expanded by 156,000 workers during the month following gains of 189,000 and 210,000 during July and June, respectively. The number of jobs created during August reported by the Bureau of Labor Statistics was below the average monthly job gains over the past year of 174,750. The private sector added 165,000 jobs during the month, split between 70,000 in the goods producing side of the economy and 95,000 in the service sector. Industries adding the most workers during the month were professional/business services (+40,000 jobs), manufacturing (+36,000, including 13,700 in motor vehicle manufacturing), construction (+28,000), and health care/social assistance (+16,600). The average work week totaled 34.4 hours, off 1/10th of an hour from July but 1/10th of an hour from a year earlier. Average hourly earnings grew by a mere three cents during the month to $26.39 (+2.5 percent versus August 2016). Average weekly earnings of $907.82 was off $1.60 from July but remained percent above a year ago levels.

A separate survey of households has the unemployment rate edging up 1/10th of a percentage point to a still low 4.4 percent. A year earlier, the unemployment rate was 4.9 percent. 77,000 people entered the labor force during the month, leaving the labor force participation rate at 62.9 percent (August 2016: 62.8 percent). The median length of unemployment slipped by 1/10th of a week to 10.5 weeks (August 2016: 10.9 weeks) while the count of “involuntary” part-time workers–these are part-timers seeking a full-time job–shrank by 27,000 to 5.255 million (August 2016: 6.027 million). Finally, the BLS’s broadest measure of labor underutilization (U-6 series) held firm during the month at 8.6 percent. A year earlier, the same measure was at 9.7 percent.Job Creation, Unemployment Rate 2011-2017-090117

#2The U.S. economy expanded more quickly than previously believed during Q2. The Bureau of Economic Analysis raised its estimate of second quarter 2017 annualized growth in the Gross Domestic Product (GDP) from a 2.7 percent gain, as reported a month ago, to a 3.0 percent increase. This represents the fastest pace of economic growth since Q2 2015. The upward revision was the product of higher than previously believed levels of consumption and nonresidential fixed investment (although government expenditures were lower than previously thought). By far the biggest contributor to Q2’s economic expansion was personal consumption expenditures, which added 228 basis points to the quarter’s GDP growth. Also adding to GDP growth were nonresidential fixed investment (adding 85 basis points), exports (adding 45 basis points), federal government spending (adding 13 basis points) and the change in private inventories (adding two basis points). Drags on Q2 economic growth were fixed residential investment (costing 26-basis points in growth), imports (costing 23 basis points), and state/local government spending (costing 18 basis points). Corporate profits (with inventory valuation and capital consumption adjustments) grew 1.3 percent during the quarter to a seasonally adjusted annualized rate of $2.136 trillion. This had followed a 2.1 percent drop during Q1 and was up 7.0 percent from the same quarter a year earlier.

#3Personal spending grew at a moderate pace in July. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.2 percent on a seasonally adjusted basis, matching June’s gain but slower than May’s 0.3 percent increase. Consumers increased their real spending on goods by 0.4 percent and that on services by 0.2 percent. The former was split by a 0.8 percent spending increase on durable goods and a 0.3 percent bump in nondurables spending. Over the past year, real PCE has increased 2.7 percent, split between gains for goods and services spending of 3.6 percent and 2.3 percent, respectively. Without adjustments for inflation, nominal PCE grew 0.3 percent, supported by a 0.4 percent increase in nominal personal income and a 0.3 percent gain in nominal disposable personal income. Real personal income increased 0.2 percent during July after having been unchanged in June. Real disposable income has grown by 1.3 percent over the past year. The savings rate slipped by 1/10th of a percentage point to +3.5 percent.

#4Purchasing managers report higher manufacturing sector activity in August. The PMI from the Institute for Supply Management increased by 2.5 points during the month to a seasonally adjusted reading of 58.8. This was the 12th straight month in which the measure was above a reading of 50.0 (indicative of an expanding manufacturing sector) and its highest reading since April 2011. Four of the five components of the PMI improved during the month: inventories (up 5.5 points to 55.5), employment (up 4.7 points to 59.9), supplier deliveries (up 1.7 points to 57.1), and production (up 4/10ths of a point to 61.0). The new orders index slipped by 1/10th of a point to 60.3. Fourteen of 18 tracked manufacturing industries expanded during the month, led by textiles, petroleum/coal products, and machinery. The press release said that survey respondents’ comments had reflected “expanding business conditions.”

#5Consumers grew more confident during August. The Conference Board’s Consumer Confidence Index added 2.9 points during the month to seasonally adjusted 122.9. This was the index’s second straight monthly increase and its best reading since March (which had been its 16-year high). Indices for present and expected business conditions both grew during the month: the former up 5.8 points to 151.2 and the latter increasing by a full point to 104.0. 34.5 percent of survey respondents described current economic conditions as “good” while 13.1 percent said that they were “bad.” Looking towards the future, 22.4 percent of consumer expect business conditions will improve over the next six months while 7.3 percent anticipate conditions will deteriorate. The press release said the data suggest consumers “do not anticipate an acceleration in the pace of economic activity in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan grew by 3.4 points during August to a seasonally adjusted 96.8. This placed the index seven full points above its year ago reading. The increase in the headline index resulted largely from the 7.2 point gain in the Index of Consumer Expectations (+9.0 points versus August 2016). The Current Economic Conditions index shed 2.5 points to 110.9 (+3.9 points versus August 2016). The press release notes that the headline index “has been higher during the first eight months of 2017 than in any year since 2000, which was the peak year of the longest expansion in U.S. history.” The press release also stated that current news events are not weighing significantly on sentiment as “surprisingly few consumers made any reference to Charlottesville, North Korea or Harvey—although the ultimate extent of the damage from Harvey was unknown at the time of the last interviews.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 26, 2017, First-Time Claims, seasonally adjusted): 236,000 (+1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 236,750 (-9.3% vs. the same week a year earlier).
Construction Spending (July 2017, Value of Construction Put into Place, seasonally adjusted annualized rate): $1.212 trillion, (-0.6% vs. June 2017, +1.8% vs. July 2016).
Vehicle Sales (August 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.14 million units (-3.7% vs. July 2017, -6.3% vs. August 2016).
Agricultural Prices (July 2017, Prices Received by Farmers (Index (2011=100)), seasonally adjusted): 95.3 (-2.9% vs. June 2017, +5.3% vs. July 2016).

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