Job Creation and Economic Expansion Trudge Along: October 28 – November 1

October employment and Q3 GDP data show growth, albeit at a tempered rate. Here are the five things we learned from U.S. economic data released during the week ending November 1.

#1Job creation slowed in October, hurt by a now-settled strike. The Bureau of Labor Statistics estimates nonfarm payrolls grew by a seasonally adjusted 128,000 during the month, down from the 180,000 created jobs in September. This report also includes substantial upward revisions to August and September payrolls totaling a combined 95,000 jobs. Weighing on the headline October number was the 41,600 decline in motor vehicle manufacturing jobs resulting from the now-settled General Motors strike. Private-sector employers added 131,000 workers, split between 157,000 added in the service sector and a drop in 26,000 jobs in the goods-producing side of the economy. Among the industries adding the most positions during the month were leisure/hospitality (+61,000), health care/social assistance (+34,200), and professional/business services (+22,000). Average weekly earnings of $969.39 represented a 2.7 percent gain over the past year.

A separate survey of households places the unemployment rate of 3.6 percent, up 1/10th of a point from September but still near a 50-year low. 325,000 people entered the labor force, leading to the labor force participation rate edging up 1/10th of a point to 63.3 percent. The same measure for adults aged 25 to 54 added 2/10ths of a point to 82.8 percent, its highest reading since August 2009. The median length of unemployment slipped 1/10th of a week to 9.3 weeks (October 2018: 9.4 weeks), but the count of part-time workers seeking a full-time job grew by 88,000 to 4.438 million (October 2018: 4.630 million). The U-6 series—the broadest measure of labor underutilization—inched up by 1/10th of a percentage point to 7.0 percent (October 2018: 7.5 percent).Unemployment Rate 2004-2019 110119

#2Economic growth slowed slightly during the summer. The Bureau of Economic Analysis’ first estimate of Gross Domestic Product (GDP) says the U.S. economy expanded at a seasonally adjusted annualized rate of 1.9 percent, just below Q2’s 2.0 percent growth rate. Pulling down Q3 economic activity were smaller increases in personal spending, government expenditures, and business investment. Contributing to Q3 GDP growth were, in declining order, personal spending (adding 193 basis points to GDP growth), government spending (+35 basis points), and residential fixed investment (+18 basis points). Dragging down economic activity, however, were business investment (costing 22 basis points in GDP growth), net exports (-8 basis points), and the change in private inventories (-5 basis points). The BEA will revise its Q3 GDP estimate twice over the next two months. 

#3A third (and probably final) rate cut by the Fed in 2019. The policy statement released following the past week’s Federal Open Market Committee meeting continued to characterize economic activity growing “at a moderate rate” and that the labor market “remains strong.” It also retained the observation that consumer spending was growing “at a strong pace” but also noted that exports and business investment were “weak.” As a result, a divided FOMC voted to cut the fed funds target rate by a quarter-point to a range between 1.5 and 1.75 percent. But it appears that the committee believes this is the final rate cut for now. Why? The statement no longer includes the line that the Fed would “act as appropriate to sustain” the economic expansion. Instead, it now says the FOMC would “continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.”

#4Personal spending grew moderately in September. The Bureau of Economic Analysis indicates that real personal consumption expenditures (PCE) increased 0.2 percent on a seasonally adjusted basis during the month, matching August’s gain. Spending on goods grew 0.4 percent, split between a 0.6 percent rise for durable goods and a 0.3 percent bounce for nondurables. Spending on services edged up 0.1 percent. Nominal PCE also grew 0.2 during September, funded by 0.3 percent increases for nominal personal income and both nominal and real disposable income. The savings rate rose by 2/10ths of a percentage point to +8.3 percent. Over the past year, real PCE has risen 2.6 percent, funded by 3.5 percent growth in real disposable income.

#5Manufacturing activity slowed in October. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, added a half-point during the month to a reading of 48.3. This was the third straight month in which the PMI was below 50.0, indicating a contraction in manufacturing sector economic activity. Three of five PMI components improved during the month: inventories (up 2.0 points), new orders (up 1.8 points), and employment (up 1.4 points). Losing ground were components tied to supplier deliveries (off 1.6 points) and production (off 1.1 points). Only five of 18-tracked manufacturing industries expanded in October, led by furniture, printing, and food/beverage/tobacco. The press release noted that “global trade remains the most significant cross-industry issue.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 26, 2019, First-Time Claims, seasonally adjusted): 218,000 (-5,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 214,750 (-0.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (September 2019, Index (0.00=Historical Economic Growth), seasonally adjusted): -0.45 (vs. August 2019: +0.15; September 2018: +0.06).
Conference Board Consumer Confidence (October 2019, Index (1985=100), seasonally adjusted): 125.9 (vs. September 2019: 126.3).
Construction Spending (September 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.294 trillion (+0.5% vs. August 2019, -2.0% vs. September 2018.
Bankruptcies (12-month Period Ending September 30, 2019, Number of Business and Nonbusiness Filings): 776,674 (+0.4% vs. 12-month period ending September 30, 2018).
Case-Shiller Home Price Index (August 2019, 20-City Index, seasonally adjusted): Unchanged vs. July 2019, +2.0% vs. August 2018.
Agricultural Prices (September 2019, Prices Received by Farmers, not seasonally adjusted): -3.9% vs. August 2019, -1.6% vs. September 2018.

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

Consumer Spending & Sentiment Signal Uncertainty: September 23 – 27

Consumer spending, a critical contributor to GDP growth, wobbled in August. Here are the five things we learned from U.S. economic data released during the week ending September 27.

#1Personal spending growth weakened in August. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) increased by only 0.1 percent (seasonally adjusted) during the month, its slowest growth rate since a decline in February. Spending on goods rose 0.3 percent, split between a 0.9 percent bounce for durable products and nondurable goods eking out a 0.1 percent increase. Spending on services held steady during the month. Nominal (not adjusted for inflation) consumer spending also grew 0.1 percent, funded by a 0.4 percent increase in nominal personal income and sharp gains for both nominal (+0.5 percent) and real (+0.4 percent) disposable income. The savings rate edged up by 3/10ths of a percentage point to +8.1 percent. Real personal spending has risen 2.3 percent over the past year, while real disposable income has grown 3.0 percent.Real Personal Consumption Expenditures data August 2018 - August 2019

#2The third estimate of Q2 GDP continued to indicate modest growth earlier this year, held up by consumer spending. The Bureau of Economic Analysis’ third estimate of gross domestic product (GDP) has the U.S. economy expanding 2.0 percent on a seasonally adjusted annualized rate (SAAR) of +2.0 percent. This matched the second estimate reported a month earlier and was slower than the 3.1 percent annualized growth estimate for the first three months of 2019. Consumers and government spending drove Q2’s economic expansion—the former contributed 303-basis points to GDP growth while government expenditures (both federal and state/local) added 82-basis points. Dragging down economic activity were net exports (shedding 98-basis points to GDP growth), changes in private inventories (-91-basis points), fixed business investment (-25-basis points), and fixed residential investment (-11-basis points). The same report finds corporate profits rose 3.8 percent during Q2, although they were up by a more moderate 1.3 percent compared to the same quarter a year earlier. We will see the first estimate of Q3 GDP on October 30. 

#3A snapshot of economic measures suggests business activity picked up in August. A weighted index of 85 economic measures, the Chicago Fed National Activity Index (CFNAI), jumped by 51-basis points during the month to a reading of +0.10. Since a 0.00 reading for the CFNAI suggests the U.S. economy is expanding at its historical rate, the positive mark here indicates above-average economic growth during August. The CFNAI’s three-month moving average crept up by eight-basis points to -0.06 (its best reading since January). Forty-four of the 85 indicators made positive contributions to the headline index. All four major categories of indicators improved during the month: production (up 42-basis points to +0.16), sales/orders/inventories (up five-basis points to -0.02), employment (up three-basis points to -0.02), and personal consumption/housing (up a basis point to -0.02).

#4Consumer sentiment measures in September reflected uncertainty. The Conference Board’s Consumer Confidence Index shed 9.2 points during the month to a seasonally adjusted reading of 125.1 (1985=100). Both the current and expected conditions indices fell—the former lost 7.0 points to 169.0 while the latter slumped by 10.6 points to 95.8. While 37.3 percent of survey respondents view current economic conditions as “good” (versus 12.7 percent seeing them as “bad), only 19.0 percent expect conditions will be “better” six months from now (versus 14.3 percent expecting them to “worsen”). The press release said that the “escalation in trade and tariff tensions in late August appears to have rattled consumers,” leading to a “plateauing” of consumer confidence.

Meanwhile, the University of Michigan’s Index of Consumer Sentiment added 3.4 points in August to a seasonally adjusted 93.2 (1966Q1=100). Even with gain over the past month, the measure was 6.9 percent below that of a year earlier, reflecting a “slow erosion” in sentiment. Both the current and expected conditions indices advanced during the month (although each had negative 12-month comparables): current conditions (up 3.2 points to 108.5—September 2018: 115.2) and anticipated conditions (up 3.5 points to 83.4—September 2018: 90.5). The press release noted “rising levels” of uncertainty—some “rooted in partisanship” and some based on trade tensions.

#5Durable goods gained thanks to defense aircraft orders. The Census Bureau estimates new orders for durable manufactured goods increased 0.2 percent in August to a seasonally adjusted $250.7 billion. Even as orders for defense aircraft surged 30.3 percent, transportation goods orders fell 0.4 percent (hurt by a 17.1 percent drop for civilian aircraft and a 0.8 percent decline for motor vehicles). Net of transportation goods, core orders increased 0.5 percent—but the data shows mixed results. New orders rose for primary metals (+1.5 percent), fabricated metals (+1.3 percent), and machinery (+0.6 percent) but fell for electrical equipment/appliances (-1.3 percent) and computers/electronics (-0.3 percent). Also giving pause is the 0.2 percent slip in orders for civilian non-aircraft capital goods, a proxy for business investment.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 21, 2019, First-Time Claims, seasonally adjusted): 213,000 (+3,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 212,000 (+0.7% vs. the same week a year earlier).
New Home Sales (August 2019, New Single-Family Home Sales, seasonally adjusted annualized rate): 713,000 (+7.1% vs. July 2019, +18.0% vs. August 2018).
Pending Home Sales (August 2019, Index (2001=100), seasonally adjusted): 107.3 (vs. July 2019: 105.6, vs. August 2018: 104.7).
Agricultural Prices (August 2019, Prices Received by Farmers (Index: 2011=100)): +0.8% vs. July 2019, +0.9% vs. August 2018.

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

Consumer Spending Rises, Q2 GDP Growth Narrows: August 26 – 30

Consumers have been a bright spot for the U.S. economy, but their outlook may be tenuous. Here are the five things we learned from U.S. economic data released during the week ending August 30.

#1Consumers’ spending spree continued in July. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis during the month, up from June’s 0.2 percent advance and matching the increases for both April and May. Spending rose for goods by 0.8 percent, with solid gains for both durable (+1.1 percent) and nondurable goods (+0.6 percent). Services spending grew 0.3 percent. Without adjustments for inflation, nominal PCE rose 0.6 percent. The increased spending outpaced gains in nominal personal income (+0.1 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.1 percent). As a result, the savings rate narrowed by 3/10ths of a percentage point to +7.7 percent. Over the past year, personal spending has risen 2.7 percent as real disposable income advanced 3.0 percent.

#2Q2 GDP growth was smaller than previously believed. The Bureau of Economic Analysis‘ second estimate of Q2 2019 Gross Domestic Product (GDP) has the U.S. economy growing at a seasonally adjusted annualized rate (SAAR) of +2.0 percent, down from 2.1 percent gain reported a month ago. The downward revision was the product of lower than previously estimated levels of state/local government spending, exports, private inventory accumulation, and fixed residential investment. Counterbalancing those revisions was a higher than previously reported estimate for consumer spending. In fact, consumers were by far the most significant positive contributor to Q2 GDP growth. The same report finds corporate profits rose 5.3 percent during the quarter to an annualized $2.113 trillion. The BEA will revise its Q2 estimates of both GDP and corporate profits again in late September.

#3Economic growth also was modest in July. The Chicago Fed National Activity Index (CFNAI) plummeted by 39-basis points during the month to a reading of -0.36. Only 26 of the weighted index’s 85 components made a positive contribution to the CFNAI as only 30 improved from their June marks. All four major categories of index components made negative contributions: production (-25 basis points), personal consumption/housing (-6 basis points), sales/orders/inventories (-5 basis points), employment (-1 basis point). A bright spot is the 16-basis point improvement for the CFNAI’s three-moving average, growing June’s -0.30 reading to -0.16 in July. The moving average’s reading, however, is indicative of below-average economic growth.

#4Aircraft orders boosted durable goods orders in July. The Census Bureau estimates new orders for manufactured goods jumped 2.1 percent during the month to a seasonally adjusted $250.4 billion, following a 1.8 percent gain in June. Much of the increase came from the 7.0 percent surge in orders for transportation goods, with substantial monthly gains in orders for civilian aircraft (+47.8 percent), defense aircraft (+34.4 percent), and motor vehicles (+0.5 percent). Net of transportation goods, durable goods fell 0.4 percent in July, reversing a 0.8 percent increase during the prior month. Rising were new orders for electrical equipment/appliances (+1.1 percent) and computers/electronics (+0.2 percent). Orders fell for primary metals (-1.0 percent), fabricated metals (-0.9 percent), and machinery (-0.6 percent).

#5Consumer sentiment waned in August. The University of Michigan’s Index of Consumer Sentiment suffered its largest single-month drop in nearly seven years with an 8.6 point decline to a seasonally adjusted 89.8 (1966Q1=100). Whereas the measure tracking current sentiment decreased by 5.4 points to 105.3, it was the huge drop in longer-term optimism that pulled down the headline index. The expectations index plummeted by 10.6 points to 79.9. The press release notes that trade tariffs were the chief cause of weakening confidence, with one in three survey respondents “spontaneously” noting the issue in their comments. Those concerned about tariffs were more likely to “voice higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes.”

The Consumer Confidence from the Conference Board slipped by a more modest 7/10ths of a point to a seasonally adjusted 135.1 (1985=100). The present conditions rose to a nearly 19-year high at 177.2 (up 6.3 points versus July 2019) while the expectations index shed 5.4 points to 107.0. A robust 42.0 percent of survey respondents described current business conditions as “good,” while 51.2 percent said that jobs were “plentiful.” The press release did warn that “if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 24, 2019, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; Unchanged vs. the same week a year earlier). 4-week moving average: 214,500 (-0.1% vs. the same week a year earlier).
Pending Home Sales (July 2019, Index (2001=100), seasonally adjusted): 105.6 (-2.5% vs. June 2019, -0.3% vs. July 2018).
FHFA House Price Index (June 2019, Purchase-Only Index, seasonally adjusted): +0.2% vs. May 2019, +4.8%. vs. June 2018.
Case-Shiller Home Price Index (June 2019, 20-City Index, seasonally adjusted): Unchanged vs. May 2019, +2.1% vs. June 2018.

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