Does Robust Job Creation Set Up a Fed Funds Rate Hike This Week? What We Learned During the Week of March 6 – 10

Hiring remained solid in February, but the trade deficit widened to a nearly 5-year high in January. And now we wait for the Fed to act. Here are the 5 things we learned from U.S. economic data released during the week ending March 10.

#1Job creation continued to chug along in February. Per the Bureau of Labor Statistics, nonfarm payrolls expanded by a seasonally adjusted 235,000 during the month, nearly matching the 238,000 added jobs in January and last December’s 155,000 payroll gain. Private sector employers added 227,000 workers during the month, split by 132,000 in the service sector (vs. 167,000 in January) and 95,000 jobs in the goods-producing side of the economy (vs. 54,000 in January). Industries that added the most workers during February were construction (+58,000), health care/social assistance (+32,500), manufacturing (+28,000), and leisure/hospitality (+26,000). The retail sector shed 26,000 workers during the month. The average number of hours worked during the week held steady at 34.4 hours while average weekly earnings grew by $2.07 to $897.50 (+2.5% vs. February 2016).Job-Creation-2010-2017-031017

Based on a separate household survey, the unemployment rate slipped by 1/10th of a percentage point to a seasonally adjusted 4.7% (vs. 4.9% in February 2016). 340,000 people entered the labor market during the month, while the labor force participation rate inched up by 1/10th of a percentage point to 63.0% (its best reading since last March, but still not far off from its recently achieved multi-decade low). The typical length of unemployment dropped to another post-recession low, shedding 2/10ths of a week to 10.0 weeks (February 2016: 11.3 weeks). The seasonally count of part-time workers who were seeking a full-time opportunity dropped by 136,000 to 5.704 million (February 2016: 6.019 million). The broadest measure of labor underutilization matched the post-recession low hit last December at 9.4% (February 2016: 9.8%). In all, the stability of the labor market would seem to give the Federal Reserve the final piece to the puzzle in deciding to bump up its short-term interest rate target at next week’s Federal Open Market Committee meeting.

#2January’s trade deficit was the largest in nearly five years. The Census Bureau and the Bureau of Economic Analysis estimate that exports totaled $192.1 billion during the month (+$1.1 billion vs. December 2016) while imports jumped $5.3 billion to $240.6 billion. The resulting deficit of -$48.5 billion was $4.2 billion larger than that of the prior month, up 9.7% than that of January 2016, and the largest single-month trade deficit since March 2012. The goods deficit expanded by $4.0 billion during the month to -$69.7 billion while the services surplus shrank by $0.3 billion to +$21.2 billion. Exports of supplies/materials (crude oil and petroleum products) and automotive vehicles grew during the month while capital goods exports slowed. Growing import goods categories included consumer goods (including cellular phones), industrial supplies/materials (including crude oil), and automotive vehicles. The U.S. had its largest goods deficits with China (-$30.2 billion), the European Union (-$13.4 billion), Germany (-$5.7 billion), Mexico (-$5.5 billion), and Japan (-$5.5 billion) during the month.

#3Factory orders increased during January. New orders for manufactured goods grew 1.2% during the month to a seasonally adjusted $470.2 billion, according to the Census Bureau. This was up 3.8% from a year earlier. Orders for durable goods rose 6.2%, thanks to big gains in orders for civilian aircraft (+69.8%), defense aircraft (+62.2%), and automobiles (+0.8%). Net of transportation goods, new orders for core manufactured goods increased 0.3% during January to $393.7 billion (+6.0% vs. January 2016). Orders for nondefense, non-aircraft capital goods orders (a proxy for business investment) slipped 0.1% during the month and was only 0.5% above its year ago reading. Shipments increased for the 10th time in 11 months with a 0.2% gain to $478.3 billion. Unfilled orders contracted for the 7th time in 8 months with a 4.0% decline to $1.114 trillion. Inventories expanded for the 6th time in 7 months (+0.2% to $627.9 billion). 

#4Productivity barely grew during 2016. The Bureau of Labor Statistics estimates nonfarm business labor productivity grew at a seasonally adjusted annualized rate of 1.3% during Q4, matching the BLS’s previous Q4 productivity estimate that it reported a month earlier but below the 3.3% gain reported for Q3. Manufacturing sector productivity grew 2.0% during Q4, with increases of 1.5% and 2.7% for durable and nondurable manufacturing, respectively. For all of 2016, labor productivity grew by only 0.2%, making last year the worst year for productivity gains since 2011. This is a particularly dubious achievement in that productivity growth has been weak throughout the current economic recovery.

#5Prices for both imports and exports increased during February. The Bureau of Labor Statistics reports that import prices grew 0.2% during the month, following gains of 0.6% and 0.4% during January and last December. The increase occurred despite a 0.7% decline in the price of imported fuels (prices for imported petroleum and natural gas fell 0.7% and 1.3%, respectively. Nonfuel import prices grew at their fastest rate since last May with a 0.3% gain, pulled up by rising prices for nonfuel industrial supplies/materials, consumer goods, and foods/feeds/beverages. Import prices have risen 4.6% over the past year while the 12-month comparable for nonfuel imports was up a much more modest 0.5%. Meanwhile, export prices grew 0.3% during the month and have risen 3.1% since February 2016. Rising during the month were prices for agricultural exports (+1.4%, including a 24.3% surge in vegetable export prices), nonagricultural industrial supplies, and capital goods.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 4, 2017, First-Time Claims, seasonally adjusted): 243,000 (+20,000 vs. previous week; -10,000 vs. the same week a year earlier). 4-week moving average: 236,500 (-9.0% vs. the same week a year earlier).
Consumer Credit (January 2017, Outstanding Non-Real Estate Backed Consumer Loan Balances, Seasonally Adjusted): $3.774 trillion (+$8.8 billion vs. December 2016, +6.3% vs. January 2016)
Monthly Treasury Statement(February 2017, Federal Government Budget Surplus/Deficit): -$192.0 billion (vs. January 2017: +$51.3 billion, February 2016: -$192.6 billion).
Wholesale Trade (January 2017, Wholesale Inventories, seasonally adjusted): $600.0 billion (-0.2% vs. December 2016, +2.2% vs. January 2016).

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

A Wider Trade Deficit, Fewer Job Openings: What We Learned During the Week of December 6 – 10

The trade deficit widened and there were fewer job openings in October. On the other hand, new orders for factory orders grew in October while the service sector blossomed in November. Here are the 5 things we learned from U.S. economic data released during the week ending December 9.

#1A drop in exports leads to an expansion in the trade deficit during October. The Census Bureau and the Bureau of Economic Analysis data indicate that exports declined by $3.4 billion on a seasonally adjusted basis during the month while imports increased by $3.0 billion to $229.0 billion. The resulting trade deficit of -$42.6 billion was $6.4 billion larger than that from September and was at its widest point since June. The goods deficit widened by $6.3 billion to -$63.4 billion while the services surplus narrowed by $0.1 billion to +$20.8 billion. The decline in goods exports was the product of a $1.4 billion drop in exported food/feeds/beverages (including those for soybeans and corn), a $0.9 billion decrease in consumer goods exports, a $2.4 billion increase in consumer goods imports, and a $1.1 billion gain in imports of capital goods. The U.S. had its largest goods trade deficits during October with China (-$28.9 billion), the European Union (-$12.9 billion), Mexico (-$5.8 billion), Japan (-$5.8 billion), and Germany (-$4.7 billion).trade-deficit-121016

#2The count of job openings and the number of people hired both declined in October. The Bureau of Labor Statistics estimates there were a seasonally adjusted 5.534 million job openings at the end of October. This was down 97,000 openings from the end of September but still up 2.1% from October 2015. The private sector had 5.022 million job openings at the end of October, 1.7% above year ago levels. Industries with the largest positive 12-month comparables included construction (+58.9%), retail (+20.2%), health care/social assistance (+17.7%), and financial activities (+13.0%). 5.099 million people were hired during October, off 22,000 from September and down 2.2% from the same month a year earlier. The same comparables for the private sector were -5,000 and -2.1%, respectively.

#3Factory orders jumped in October. The Census Bureau estimates new orders for manufactured goods jumped 2.7% during the month to a seasonally adjusted $469.4 billion. This was up 1.3% from a year earlier. Much—but not all—of the gain came in the form of new orders for aircraft. Civilian aircraft orders surged 93.8% while defense aircraft orders gained 32.5%. Those figures combined with a 0.7% decline in new orders for automobiles resulted in a 12.0% increase in transportation orders during October. Net of transportation goods, new orders for manufactured goods gained 0.8% during the month but were only 0.5% above October 2015 levels. Growing during the month were orders for fabricated metals (+1.8%), electrical equipment/appliances (+1.6%), and computer/electronic products (+0.8%). Orders for furniture fell 1.0% during October. Meanwhile, shipments of manufactured goods increased for the 7th time over the past 8 months with a 0.4% gain. Unfilled orders grew for the 1st time in 5 months with a 0.7% increase while inventories expanded for the 3rd time in 4 months, albeit with an increase that was smaller than 0.1%.

#4The service sector sharply strengthened during November. The headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business added 2.4 points during November to a seasonally adjusted reading of 57.2. This was the highest reading for the measure of service sector activity since October 2015 and was the 82nd straight month in which it was above a reading of 50.0 (indicative of the nonmanufacturing side of the U.S. economy to be expanding). 3 of 4 index components improved during the month: employment (up 5.1 points to 58.2), business activity/production (up 4.0 points to 61.7), and supplier deliveries (up 1.5 points to 52.0). The new orders slipped 7/10ths of a point to 57.0. 14 of 18 tracked service sector industries grew during November, led by agriculture, retail, arts/entertainment/recreation, and transportation/warehousing. The press release noted that survey respondents expressed “positive” comments “about business conditions and the direction of the overall economy.”

#5Productivity grew during Q3 at its fastest pace since late 2011. The Bureau of Labor Statistics reports nonfarm business sector labor productivity grew 3.1% on a seasonally adjusted annualized rate during the quarter. This was unchanged from the BLS’s previous estimate of Q3 productivity reported a month earlier. This followed 3 consecutive quarters of declining productivity and represented the biggest gain in productivity since Q4 2011. Even with the bump during Q3, productivity gains have been scarce during the economic recovery with labor productivity unchanged from a year earlier. For the quarter, the manufacturing sector grew a measly 0.4%, as a 3.0% gain in durable manufacturing productivity was nearly counterbalanced by a 3.0% contraction in the productivity of nondurable manufactured goods manufacturing. Real hourly compensation grew 2.2% (SAAR) during the quarter and was 1.8% above year ago levels.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending December 3, 2016, First-Time Claims, seasonally adjusted): 258,000 (-10,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 252,500 (-7.5% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (December 2016-preliminary, Index (1966Q1=100, seasonally adjusted): 98.0 (+4.2 vs. November 2016, +5.4 vs. December 2015)
Wholesale Inventories (October 2016, Inventories of Wholesale Merchants, seasonally adjusted): $587.7 billion (-0.4% vs. September 2016, -0.4% vs. October 2015).
Consumer Credit (October 2016, Outstanding Non-Real Estate Backed Credit Balances, seasonally adjusted): $3.727 trillion (+$16.0 billion vs. September 2016, +6.1% vs. October 2015).

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

Retail Sales Pause, Productivity Declines Again: What We Learned During the Week of August 8 – 12

Retail sales took a summer break during July while productivity’s losing streak stretched into a 3rd straight quarter. Here are the 5 things we learned from U.S. economic data released during the week ending August 12.

#1Retail sales stayed cool in the summer heat during July. The Census Bureau places its estimate of retail/food sales at a seasonally adjusted $457.7 billion, essentially matching June’s levels and up a moderate 2.3% over the past year. Some of the stagnation reflected lower gasoline prices that led to a 2.7% drop in sales at gas stations (the retail sales measure is not adjusted for price variations). Removing sales at gas stations and at auto dealers and parts stores (which enjoyed a 1.1% sales gain), core retail sales dropped 0.1% during the month but were up 3.8% from a year earlier. Sales fell across most retail sectors; including, sporting goods/hobby stores (-2.2%), grocery stores (-0.9%), building materials retailers (-0.5%), department stores (-0.5%), and restaurant/bars (-0.2%). Furniture retailers and health/personal care stores eked out gains of 0.2% and 0.1%, respectively. Finally, sales at “nonstore” retailers (e.g., internet retailers) jumped 1.2% for the month and were 14.1% above  year ago levels. 081216

#2The count of job openings and the pace of hiring rebounded in June. The Bureau of Statistics estimates there were a seasonally adjusted 5.624 million job openings at the end of the month, up 110,000 from May and 8.8% above year ago levels. Industries with the largest year-to-year percentage gains in job openings were construction (+33.3%), manufacturing (+32.7%), finance/insurance (+25.5%), government (+15.1%), leisure/hospitality (+11.4%), and health care/social assistance (+10.5%). Hiring increased by 84,000 jobs to 5.131 million. This was down 0.3% from a year earlier. While there were healthy year-to-year percentage hiring gains in leisure/hospitality (+9.7%), the government (+9.6%), health care/social assistance (+8.5%), and manufacturing (+5.6%), hiring declined in construction (-12.4%), wholesale trade (-10.9%), retail (-8.7%), and professional/business services (-4.9%). Americans were still voluntarily quitting jobs at a faster rate than that of a year earlier (2.909 million, +5.9% vs. June 2015) while layoffs were 7.9% below year ago levels at 1.643 million.

#3Food and energy goods pulled down July wholesale prices. The Bureau of Labor Statistics’ Producer Price Index (PPI) for final demand dropped 0.4% during the month, its 1st decline since March. Net of food, energy, and trade services, core final demand PPI was flat during the month. Prices for final demand goods decreased 0.4%, led by falling wholesale prices for energy and food. The former declined because of lower gasoline prices. The latter reflected the 9.8% drop in prices for beef/veal, along with lower prices for corn and oil seeds. PPI for final demand trade dropped 0.3% as trade PPI (essentially margins for wholesalers and retailers) slumped 1.3%, including a sharp 6.0% fall for the apparel/jewelry retail sector. Over the past year, final demand PPI has fallen 0.2%, with the core final demand index up a still weak 0.8% since July 2015.

#4Productivity declined for a 3rd consecutive quarter. The Bureau of Labor Statistics reports that nonfarm business output per hour declined 0.5% on a seasonally adjusted annualized basis during the 2nd quarter, following contractions of 0.6% and 2.4% during the 2 preceding quarters. The Q2 drop in productivity was the product of an annualized 1.8% gain the number of hours worked leading to only a 1.2% increase in output. Productivity slowed 0.4% over the past year with gains in hours worked and output of 1.5% and 1.1%, respectively. Weak productivity has been a hallmark of the current economic recovery, with frail productivity gains of 0.3%, 0.8%, and 0.9% during 2013, 2014, 2015, respectively. Manufacturing sector productivity slowed 0.2% during Q2, as a 4.1% contraction in nondurable manufacturing outpaced the 2.6% gain in durable manufacturing.

#5Confidence among small business owners held steady in July. The Index of Small Business Optimism from the National Federation of Independent Business. inched up by 1/10th of a point to a seasonally adjusted reading of 94.6 (1986 = 100). While the index has been above a reading of 90.0 for 42 consecutive months, it has remained within a tight range near the mid-90s for virtually all of those months. Only 4 of the index’s 10 components improved during the month, including that for expected business conditions and on plans to increase inventories. 4 other index components declined during the month, including those for the current number of job openings, earnings trends, plans to make capital outlays, and expected gains in real sales. The press release said that “there is little hope for a surge in the small business sector anytime soon,” as it noted there was “high” uncertainty, “low” expectations for the future, and “weak” future business investments.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 6, 2016, First-Time Claims, seasonally adjusted): 266,000 (-1,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 262,750 (-2.6% vs. the same week a year earlier).
Import Prices (July 2016, not seasonally adjusted): +0.1% vs. June 2016, -3.7% vs. July 2015. Nonfuel imports: +0.3% vs. June 2016, -1.2% vs. July 2015.
Export Prices (July 2015, not seasonally adjusted): +0.2% vs. June 2016, -2.6% vs. July 2015.
University of Michigan Index of Consumer Sentiment (August 2016-preliminary, Index (1966 Q1 = 100, seasonally adjusted): 90.4 (July 2016: 90.0, August 2015: 91.9).
Federal Budget (July 2016, surplus/deficit): -$112.8 billion (vs. June 2016: +$6.5 billion, vs. July 2015: -$149.2 billion).
Manufacturing & Trade Inventories (June 2016, seasonally adjusted): $1.814 trillion (+0.2% vs May 2016, +0.5% vs, June 2015).
Mortgage Delinquencies (2nd Quarter 2016, Delinquency Rates for 1-4 Unit Residential Properties, seasonally adjusted): 4.66% (vs. Q1 2016: 4.77%, vs. Q2 2015: 5.30%).

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