Personal Spending – What We Learned About the U.S. Economy Last Week

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

September 2, 2017September 2, 2017Kevin Roth

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.

Employers 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 1/10^th of an hour from July but 1/10^th 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 1/10^th 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 1/10^th 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.

The 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.

Personal 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 1/10^th of a percentage point to +3.5 percent.

Purchasing 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 12^th 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 4/10^ths of a point to 61.0). The new orders index slipped by 1/10^th 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.”

Consumers 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.

Companies Continue to Hire, But Wage Growth Lags: July 31 – August 4

August 5, 2017August 5, 2017Kevin Roth

Employers continued to expand their payrolls during July, but they were stingier with pay hikes. Here are the five things we learned from U.S. economic data released during the week ending August 4.

The pace of job creation remained solid in July, pay raises were not. The Bureau of Labor Statistics tells us that nonfarm payrolls grew by a seasonally adjusted 209,000 during the month. While off from the 231,000 jobs added during June, it still beat the average monthly job gain of 179,833 over the past 12 months. Private sector employers added 205,000 workers during the past month, split between 183,000 new jobs in the service sector and 22,000 in the goods producing side of the economy. Industries adding the most workers during the month were leisure/hospitality (+62,000), professional/business services (+49,000), health care/social assistance (+45,000), and manufacturing (+16,000). Less positive was the slow growth in hourly earnings, which grew by only nine cents during July to $26.36. While the average number of hours worked per week held steady during the month at 34.5 hours (July 2016: 34.4), average weekly earnings have grown a good but not great 2.8 percent over the past year to $909.42.

Based on a separate survey of households, the unemployment rate slipped back down to its post-recession low of 4.3 percent. (-1/10^th of a percentage point from June and -6/10^ths of a percentage point from July 2016). 349,000 people entered the labor force during the month, leading to the labor force participation rate to increase by 1/10^th of a percentage point to 62.9 percent (July 2016: 62.8 percent). While the typical length of unemployment grew by a full week during July to 10.6 weeks, this was down from 11.5 weeks during July 2016. The number of part-time workers seeking a full-time opportunity declined by 42,000 to 5.282 million (-11.0 percent versus July 2016). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) was at 8.6 percent for the third time over the past four months. A year earlier, the same measure was at 9.7 percent.

Exports increased during June, leading to a narrowing of the trade deficit. The Census Bureau and Bureau of Economic Analysis report that exports grew by $2.4 billion during the month to a seasonally adjusted $194.4 billion (+5.8 percent versus June 2016) while imports shrank by $0.4 billion to $230.0 billion (+4.6 percent vs. June 2016). This left the trade deficit at -$43.6 billion, $2.7 billion smaller than that of May and off 0.4 percent from a year earlier. The goods deficit contracted by $2.1 billion to -$65.2 billion (June 2016: +$65.2 billion) while the goods surplus expanded by $0.6 billion to +$21.6 billion (June 2016: +21.4 billion). Exports of goods grew by $1.7 billion, including gains by capital goods (+$0.8 billion) and soybeans (+$0.6 billion). Goods imports slowed by $0.4 billion, pulled down by declines of both crude oil (-$1.4 billion) and consumer goods (-$0.9 billion). The United States had its largest goods trade deficits with China (-$31.3 billion), the European Union (-$12.5 billion), and Germany (-$12.5 billion).

Personal spending sputtered in June while it turns out that Americans were not saving as much as previously believed. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) were unchanged during the month, leaving them up 2.4 percent from a year earlier (the softest 12-month comparable in 2017). Real spending on goods fell 0.2 percent, with decreases of 0.1 percent and 0.2 percent for durable and nondurable goods, respectively. Spending on services inched up 0.1 percent. Nominal (not adjusted for inflation) PCE was at $13.818 trillion on a seasonally adjusted annualized basis, up 0.1 percent for the month. Both personal and disposable income held steady during June, with real disposable income down 0.1 percent. The savings rate slipped by 1/10^th of a percentage point to +3.8 percent. This data reflected the annual revision to the entire data series, which resulted in a lower savings rate than previously reported. Finally, the PCE deflator, a measure of inflation, was unchanged for the month with the core measure (net of energy and food) up a mere 0.1 percent. The year-to-year comparables for both price measures were below the Federal Reserve target of two percent at +1.4 percent and 1.5 percent, respectively.

Factory orders soared in June, in large part due to civilian aircraft orders. New orders for manufactured goods jumped 3.0 percent during the month to a seasonally adjusted $481.1 billion, per the Census Bureau. This was 9.8 percent greater the value of new factory orders from the same month a year earlier. Like with the prior week’s report on durable goods orders, the highlight was the 131.1 percent surge in orders for civilian aircraft. Combining that with a 0.3 percent slip in defense aircraft orders and a 0.1 percent bump in vehicle orders, new orders for transportation goods gained 19.0 percent during June. But net of transportation goods, new orders fell 0.2 percent to $389.4 billion, which was 5.0 percent ahead of the value during June 2016. Durable goods orders increased 6.4 percent (again, think civilian aircraft) while orders for nondurable slowed 0.3 percent. Shipments declined 0.2 percent to $471.5 billion (non-transportation goods shipments edged down 0.1 percent). Unfilled orders grew for the third time in four months with a 1.3 percent increase while inventories swelled for the seventh time in eight months with a 0.2 percent gain.

Both the manufacturing and service sectors grew at a slightly slower pace during July. The Institute for Supply Managements’ Purchasing Managers Index (PMI) shed 1.5 points during the month to a reading of 56.3. Even with the decline, the PMI has been above a reading of 50.0—consistent with an expanding manufacturing sector—for 11 consecutive months. Four of five components of PMI declined during the month: new orders (off 3.1 points to 60.4), employment (off 2.0 points to 55.2), production (off 1.8 points to 60.6), and supplier deliveries (off 1.6 points to 55.4). The inventories index, however, added a point during the month to a reading of 50.0. Fifteen of 18 tracked manufacturing industries expanded during the month, led by plastic/rubber products, electrical equipment/appliances, and wood products. The press release characterized purchasing managers’ comments as “reflect[ing] expanding business conditions.”

Meanwhile, the ISM’s measure of activity in the non-manufacturing side of the U.S. economy—the NMI—fell by 3.5 points to a reading of 53.9. While this was the NMI’s lowest reading since last August, represented the measure of service sector activity’s 91^st straight month above the expansionary/contractionary threshold of 50.0. All four index components fell during the month: business activity/production (down 4.9 points to 55.9), new orders (down 5.4 points to 55.1), employment (down 2.2 points to 53.6), and supplier deliveries (down 1.5 points to 51.0). Fifteen of 18 tracked non-manufacturing industries expanded during the month; including, accommodation/food services, information, and education services. The press release stressed that “[t]he majority of respondents’ comments were mostly positive about business conditions and the state of the economy.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending July 29, 2017, First-Time Claims, seasonally adjusted): 240,000 (-5,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 241,750 (-7.1% vs. the same week a year earlier).
– Construction Spending (June 2017, Value of Construction Put in Place, seasonally adjusted): $1.206 trillion (-1.3% vs. May 2017, +1.6% vs. June 2016).
– Vehicle Sales (July 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (0.4% vs. June 2017, -5.9% vs. July 2017).
– Agricultural Prices (June 2017, Prices Received by Farmers (Index: 2011=100): 98.1 (-0.1% vs. May 2017, +4.6% vs. June 2016).

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

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

June 2, 2017June 2, 2017Kevin Roth

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.

The 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).

Based on a separate survey of households, the unemployment rate slipped 1/10^th 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 2/10^ths 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 2/10^ths 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 2/10^ths decline to 8.4 percent.

Consumers 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.

The 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).

Purchasing managers indicate that manufacturing held steady during May. The Institute for Supply Management’s Purchasing Managers Index (PMI) inched up 1/10^th 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.”

Survey 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 4/10^ths 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.

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