The Unemployment Rate Falls to a 16-Year Low: May 29 – June 2

The last time the unemployment rate was this low, it was 2001. But the pace of job creation during May was relatively modest. Here are the 5 things we learned from U.S. economic data released during the week ending June 2.

#1The unemployment rate fell to a 16-year low, but employers slowed the pace of hiring. The Bureau of Labor Statistics reports that nonfarm employers added a seasonally adjusted 138,000 workers to their payrolls during the month, down from April’s job gain of 174,000 jobs but well above the 50,000 added workers during March. If the job openings and turnover data released in recent months are any indication, some of the weakness in this report may be due to employers being unable to find qualified candidates for their openings. Whatever the case, the private sector saw payrolls expand by 147,000 workers, with the gain split between 131,000 new jobs in the service sector and 16,000 new workers in the service sector. Industries most responsible for the month’s job creation were professional/business services (+38,000), health care/social assistance (+32,300), leisure/hospitality (+31,000), construction (+11,000), and financial activities (+11,000). The average workweek was at 34.4 hours, unchanged from both April 2017 and May 2016. Average weekly earnings grew by $1.38 during the month to $901.97 (+2.5 percent vs. May 2016).Unemployment Rate 1997-2017-060217

Based on a separate survey of households, the unemployment rate slipped 1/10th of a percentage point to 4.3 percent, its lowest point since May 2001. This was partially the result of 429,000 people leaving the labor force during the month to 159.784 million. The labor force participation rate declined by 2/10ths of a percentage point to 62.7 percent. This places the labor force participation rate closer to its multi-decade low, but that is explained partially by older Americans leaving the labor force due to retirement. Even though the typical length of unemployment edged up by 2/10ths of a week to 10.4 weeks, the measure has remained within a tight range between 10.0 and 10.4 weeks since last summer. The same survey also found that the count of “involuntary” part-time workers contracted by 53,000 to 5.219 million (May 2016: 6.409 million). Finally, the broadest definition of labor underutilization (the U-6 series) fell to its lowest reading since November 2007 with a 2/10ths decline to 8.4 percent.

#2Consumers were spending money during April. “Real” personal consumption expenditures (PCE) grew by 0.2 percent during the month, which had followed a 0.5 percent gain during March and a 0.1 decline in February. Per the Bureau of Economic Analysis, real spending on goods jumped 0.7 percent during April, split between a 1.1 percent surge in spending on durable goods and a 0.5 percent increase in spending of nondurables. Services spending was virtually unchanged for the month. Over the past year, real PCE has grown a moderate 2.6 percent, with spending on goods gaining 3.6 percent and spending services increasing 2.1 percent. Without adjusting for price variations, nominal PCE rose 0.4 percent, its biggest single-month increase since last December. Supporting the gain in spending was a 0.4 percent increase in both personal and disposable income. After adjusting for inflation, real disposable income increased 0.2 percent during April and has grown 1.9 percent over the past year. Meanwhile, the savings rate held steady at +5.3 percent for a third consecutive month.

#3The trade deficit widened to a four-month high during April. The Census Bureau and the Bureau of Economic Analysis estimates exports dropped by $0.5 billion during the month to a seasonally adjusted $191.0 billion (+5.0 percent vs. April 2016) while imports grew by $1.9 billion to $238.6 billion (+8.3 percent vs. April 2016). As a result, the seasonally adjusted trade deficit expanded by $2.3 billion to -$47.6 billion, which was 23.9 percent larger than the deficit of a year earlier. The goods deficit grew by $2.3 billion to $68.4 billion (+16.1 percent vs. April 2016) while the goods surplus held steady at +$20.8 billion (+1.4 percent vs. April 2016). The former increased as imported goods grew by $1.8 billion (thanks to greater imports of cell phones, art/collectibles, and capital goods) and exported goods slipped by $0.4 billion (thanks to smaller exports for consumer goods and automotive vehicles). The U.S. had its largest goods deficits with China (-$32.1 billion), the European Union (-$13.2 billion), Mexico (-$6.4 billion), and Germany (-$5.5 billion).

#4Purchasing managers indicate that manufacturing held steady during May. The Institute for Supply Management’s Purchasing Managers Index (PMI) inched up 1/10th of a point to a seasonally adjusted reading of 54.9. This was the ninth straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved during the month: new orders (up 2.0 points to 59.5), employment (up 1.5 points to 53.5), and inventories (up a half point to 51.5). Falling were measures of supplier deliveries (down 2.0 points to 53.1) and production (off 1.5 points to 57.1). Fifteen of 18 tracked manufacturing industries expanded during May, led by nonmetallic mineral products, furniture, and plastics/rubber products. The press release noted the purchasing managers’ comments generally reflected “stable to growing business conditions.”

#5Survey results suggest a slight cooling of consumer sentiment. The Conference Board’s Consumer Confident Index declined for a second straight month as it lost 1.5 points to a seasonally adjusted reading of 117.9 (1985=100). The measure has lost 7.7 points since March (when it had hit a 16-plus year high) but nevertheless remained at strong levels. The current conditions index added edged up by 4/10ths of a point to 140.7 while the expectations measure shed 2.8 points to 102.6. In all, 29.4 percent of survey respondents characterized current economic conditions as “good” (vs. 30.8 percent that said the same in April) while 13.7 percent stated that they were “bad” (unchanged from the percentage indicating the same in April). Slightly less hopeful was the short-term economic outlook: 21.3 percent of respondents expected business conditions would improve (April 2017: 25.1 percent) while 10.1 percent were expecting conditions to worsen (April 2017: 10.4 percent). The Conference Board in its press release said that even with the decline in overall sentiment, they expected “little change in overall economic conditions” as consumers “remain optimistic that the economy will continue expanding into the summer months.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 27, 2017, First-Time Claims, seasonally adjusted): 248,000 +13,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 238,000 (-13.4% vs. the same week a year earlier).
Vehicle Sales (May 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.66 million vehicles (-1.3% vs. April 2017, -3.0% vs. May 2016).
Pending Home Sales (April 2017, Index (2001=100), seasonally adjusted): 109.8 (-1.5 points vs. March 2017, -3.8 points vs. April 2016).
Construction Spending (April 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.219 trillion (-1.4% vs. March 2017, +6.7% vs. April 2016).
Agricultural Prices (April 2017, Prices Received by Farmers (Index: 2011=100, seasonally adjusted): 96.7 (+2.0% vs. March 2017, +4.4% vs. April 2016).
Case-Shiller Home Price Index (March 2017, 20-City Index, seasonally adjusted): +0.9% vs. February 2017, +5.9% vs. March 2016).
Beige Book

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

Hiring Rebounds in April, The Fed Stays Put for Now: May 1 – 5

After pausing in March, employers picked up the pace of hiring in April. Here are the 5 things we learned from U.S. economic data released during the week ending May 5.

#1The labor market regained its momentum in April. The Bureau of Labor Statistics estimates nonfarm payrolls expanded by a seasonally adjusted 211,000 during the month, sharply up from the 79,000 net hires in March and much closer to February’s 232,000 job gain. Private sector employers added 194,000 jobs during April, split between 173,000 net hires in the service sector and 21,000 in the goods-producing sector of the economy. Industries with the biggest payroll gains included leisure/hospitality (+55,000), professional/business services (+39,000), health care/social assistance (+36,800), and financial services (+19,000). Even the retail sector, which had been shedding workers in recent months, manage to add 6,300 jobs during March. The average number of hours worked edged up by 1/10th of an hour to 34.4 hours (April 2016: 34.4 hours) while average weekly earnings have grown 2.5 percent over the past year to $900.94.

A separate survey of household finds the unemployment rate dropping by 1/10th of a percentage point to 4.4 percent, off 6/10ths of a point from a year earlier and its lowest point in ten years. Only 12,000 people entered the labor force during the month while the labor force participation rate inched down by 1/10th of a percentage point to 62.9 percent. The typical length of unemployment slipped 1/10th of a week to 10.2 weeks (April 2016: 11.2 weeks). The count of part-time workers seeking a full-time job fell by 281,000 to another post-recession low of 5.272 million (April 2016: 5.970 million). Finally, the broadest measure of labor underutilization (the U-6 series) fell to post-recession low of 8.6 percent (down 3/10ths of a percentage point from March and 1.1 percentage points from a year earlier). The U-6 measure had peaked during the last recession at 17.1 recent back in April 2010.Unemployment Labor Underutilization 2000-2017-050517

#2The Federal Reserve holds its short-term interest target rate, as expected, but does not appear concerned about recent weak economic data. The policy statement released following the conclusion of this week’s Federal Open Market Committee notes that economic activity had “slowed,” but also highlights that the labor market “continued to strengthen” including a comment that job gains were “solid.” Further, while household spending increased “only modestly,” the statement noted that “the fundamentals underpinning the continued growth of consumption remained solid.” Also, inflation was closing in on the Fed’s two-percent target rate. Finally, the statement noted that near-term risks to economic growth were “roughly balanced.” As a result, the committee voted unanimously to keep the fed funds target at between 0.75 percent and 1.00 percent, a rate that statement characterizes as being “accommodative.” Despite some recent weak economic data (the employment data above notwithstanding), the statement was largely unchanged from that following the March FOMC meeting. This would seem to suggest that the committee members appear to be ready for another bump in short-term rates at its next meeting at June.

#3The trade deficit was virtually unchanged even as both exports and imports slowed during March. Per the Census Bureau and the Bureau of Economic Analysis, exports and imports each declined $1.7 billion during the month leaving the goods and services deficit at -$43.7 billion. The trade deficit for goods grew by $0.4 billion while the surplus in services grew by a matching $0.4 billion. Exports of goods contracted by $2.1 billion, pulled down by a $1.8 billion decline in exports of industrial supplies/materials and a $0.9 decrease in automotive vehicles. Imports of goods decreased by $1.7 billion resulting from falling imports of capital goods and industrial supplies/materials. The U.S. had its largest goods deficits with China (-$31.4 billion), the European Union (-$10.0 billion), Mexico (-$6.5 billion), Japan (-$6.5 billion), and Germany (-$5.0 billion).

#4Real personal spending grows for the first time in 2017 during March. The Bureau of Economic Analysis finds that “real” personal consumption expenditures (PCE) grew 0.3 percent during the month, following declines of 0.1 percent and 0.3 percent during February and January, respectively. Real spending on goods edged up 0.1 percent during the month as a 1.5 percent gain in spending of nondurable goods just outpaced the 2.5 percent drop in durables. Real spending on services grew 0.4 percent during March (although this partially reflects a weather-related increase in utility spending). Over the past year, real personal consumption expenditures have grown 1.8 percent, smaller than the +2.1 percent and +1.9 percent 12-month comparables reported for February and January, respectively. Without adjustments for inflation, nominal consumer spending was unchanged during March. Nominal personal income and disposable income both grew at a 0.2 percent rate during March (their smallest monthly gains since last November) while real disposable income jumped 0.5 percent. Real disposable income has grown 2.4 percent over the past year, its best 12-month comparable since last November. Meanwhile, the savings rate grew by 2/10ths of a percentage point to +5.9 percent, its highest point since last August.

#5Construction Spending, particularly that for nonresident structures and in the public sector, slowed during March. The Census Bureau reports that the seasonally adjusted annualized rate of construction put in place slipped 0.2 percent during the month to $1.218 trillion. This was up 3.6 percent from a year earlier. Private sector construction spending was unchanged from February at $940.2 billion (SAAR), which was nevertheless 7.0 percent above that of March 2016. Private sector residential construction spending jumped 1.2% during the month, with much of the gain coming from a 2.0 percent bump in spending of new multi-family properties. Private sector non-residential spending declined 1.3 percent during March, pulled down by lower construction spending for the commercial, office, educational, religious, amusement/recreation, transportation, and power properties. Public construction spending declined 0.9 percent to a SAAR of $278.1 billion. This was off 6.5 percent from the same point a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 29, 2017, First-Time Claims, seasonally adjusted): 238,000 (-19,000 vs. previous week; -38,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-7.6% vs. the same week a year earlier).
Factory Orders (March 2017, New Orders for Manufactured Goods, seasonally adjusted): $478.2 billion (+0.2% vs. February 2017, +5.8% vs. March 2016).
Vehicle Sales (April 2017, Vehicle Retail Sales, seasonally adjusted annualized rate): 16.88 million units (+1.6% vs. March 2017, -3.0% vs. April 2016.
Productivity (1st Quarter 2017-preliminary, Nonfarm Business Labor Productivity, seasonally adjusted): -0.6% vs. Q4 2016, +1.1% vs. Q1 2016.
ISM Manufacturing Report on Business (April 2017, Purchasing Managers Index (>50=Growth in Manufacturing, seasonally adjusted): 54.8 (vs. March 2017: 54.8).
ISM Nonmanufacturing Report on Business (April 2017, NMI (>50=Growth in Nonmanufacturing, seasonally adjusted): 57.5 (vs. March 2017: 55.2).
Consumer Credit (March 2017, Outstanding Non-Real Estate Back Consumer Loan Balances, seasonally adjusted):  $3.806 trillion (+$16.4 billion vs. February 2017, +6.0% vs. March 2016).

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

Q4 GDP Revised Upward, Consumer Confidence Further Firms. What We Learned During the Week of March 27 – 31

The U.S. economy ended 2016 a bit stronger than previously thought, while consumer sentiment continued to brighten for many Americans during March. Here are the 5 things we learned from U.S. economic data released during the week ending March 31.

#1The “final” revision to Q4 2016 GDP indicates a slightly healthier economy that previously believed. The Bureau of Economic Analysis now places the seasonally adjusted annualized growth rate of the Gross Domestic Product (GDP) at a solid, if not particularly great, +2.1 percent. This was an improvement from the 1.9 percent increase previously reported over the past two months, mainly the result of higher estimates for personal spending and private inventory accumulation. What did not change was that the GDP components that positively contributed to economic growth during the quarter were personal consumption expenditures (adding 240-basis points to GDP growth), the change in private inventories (+101-basis points), residential fixed investment (+35-basis points), nonresidential fixed investment (+11-basis points), and government expenditures (+3-basis points). Holding back GDP growth were a rise in imports (costing 127-basis points in GDP growth) and a decline in exports (costing 55-basis points in GDP growth). Meanwhile, corporate profits inched up 0.5 percent during Q4 to a seasonally adjusted annualized rate of $2.150 trillion (+9.3 percent vs. Q4 2015). We will get the first estimate of Q1 2017 GDP on April 28.

#2“Real” personal spending slipped for a second straight month. The Bureau of Economic Analysis reports that personal consumption expenditures (PCE) adjusted for inflation (using 2009 chained dollars) inched down 0.1 percent during February, leaving the measure of consumer spending 2.6 percent above that of a year earlier. Real spending on goods increased 0.1 percent during the month, with expenditures on durable goods off 0.1 percent and that on nondurables up 0.1 percent. Moderate winter weather lowered demand for utilities, which led to a 0.1 percent decline in spending on services. Over the past year, real spending on goods has grown 4.4 percent while that on services was up 1.8 percent. Without price adjustments, personal spending increased 0.1 percent during the month, funded by a 0.4 percent increase in nominal personal income. Disposable personal income grew 0.3 percent, with the gain shrinking to 0.2 percent after adjustments for inflation. Real disposable income was 2.3 percent above that of February 2016. The saving rate grew by 2/10ths of a percentage point to +5.6 percent. Finally, inflation moves ever slowly closer to the Federal Reserve’s two percent target rate. The PCE deflator, a measure of inflation, grew 0.1 percent during February and was up 2.1 percent from a year earlier. Net of energy and food, the PCE deflator increased 0.2 percent during February with a 12-month comparable of +1.8 percent.GDP-Growth-2013-2016-033117

#3Consumers grew more confident during March. The Conference Board’s Consumer Confidence Index surged 9.5 points during the month to a seasonally adjusted reading of 125.6 (1985 = 100). This was measure’s best reading in more than 16 years. Survey respondents’ views of both current and future business conditions improved significantly from February, with the present conditions index adding 9.7 points to 143.1 and the expectations index rising by 9.9 points to 143.1. A closer glance at the data finds 32.2 percent of respondents characterizing current business conditions as “good” (versus 12.9 percent saying they were “bad”) while 31.7 percent claimed that jobs were “plentiful” (versus 19.5 percent saying they were “hard to get”). The press release noted that “consumers feel current economic conditions have improved over the recent period, and their renewed optimism suggests the possibility of some upside to the prospects for economic growth in the coming months.”

While the University of Michigan’s Index of Consumer Sentiment added 6/10ths of a point to a seasonally adjusted reading of 96.9 (1966Q1 = 100), the press release noted a sharp partisan divide in views of economic conditions. “Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects and lower inflation.” Only a quarter of Democrats expect their personal finances will improve over the next five years, compared to 83 percent of Republicans who are anticipating the same. Two-thirds of Democrats expect “renewed economy-wide downturns” while only 13 percent of Republicans fear of the same. During the month, the current conditions index added 1.7 points to a reading of 113.2 (+7.2 percent versus March 2016) while the expectations index held steady at 86.5 (+6.1 percent versus March 2016).

#4Pending home sales sharply increased in February. The National Association of Realtors’ Pending Home Sales Index jumped 5.5 percent during the month to a reading of 112.3 (2001 = 100). This was up 2.6 percent from a year earlier and the second-highest reading since 2006 (the highest reading having occurred last April). The index, which measures the number of contracts signed to purchase a previously owned home, grew during the month in all four Census regions: Midwest (+11.4 percent), South (+4.3 percent), Northeast (+3.4 percent), and West (+3.1 percent). The press release links the rise in the index to “[t]he stock market’s continued rise and steady hiring in most markets,” along with moderate winter weather bringing homebuyers into the market.

#5Agricultural prices rose in February. The U.S. Department of Agriculture reports that its prices received by farmers index increased 6.1 percent during the month to a reading of 91.7 (2011 = 100). This was 0.9 percent below the February 2016 reading. Crop prices jumped 10.0 percent during the month, led by significant prices increases for vegetables/melons, fruit/tree nuts, and grains/oilseed. The measure has risen 3.5 percent over the past year. Prices for livestock production slipped 0.5 percent during February and was 3.2 percent below their year ago readings. Prices fell for poultry/eggs and dairy but increased for meat animals.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 25, 2017, First-Time Claims, seasonally adjusted): 258,000 (-3,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 254,250 (-5.1% vs. the same week a year earlier).

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