Employers Slammed on the Brakes: March 4 – 8

The U.S. economy had its worst month for job creation in a year and a half in February. Here are the five things we learned from U.S. economic data released during the week ending March 8.

#1Job creation slowed to a crawl in February. The Bureau of Labor Statistics reports that nonfarm employers added a mere 20,000 workers to their payrolls in February, the fewest jobs added in a single month since September 2017 (then caused by hurricanes disrupting economic activity). Over the past three months, payroll gains have averaged 186,000. Private sector employers added 25,000 workers, split between a 57,000 increase in the service sector and a 32,000 job loss in the goods-producing side of the U.S. economy. Among the industries reporting job gains were professional/business services (+42,000), health/social assistance (+22,500), and wholesale trade (+10,900). Dragging down the payrolls report was the 31,000 jobs lost in construction (following a 53,000 gain in January) and an unchanged count of workers in leisure/hospitality following January’s 89,000 gain. The same report finds average hourly wages growing by 11 cents to $27.66 (up 3.4 percent over the past year) and average weekly earnings increasing by $1.02 to $951.50 (up 3.1 percent over the past year).

A separate survey of households paints a better employment picture, including showing that the unemployment rate declined by 2/10ths of a percentage point to 3.8 percent—the measure has stayed within a tight band between 3.7 percent and 4.0 percent over the past year. While 45,000 people left the labor market during the month, the labor force participation rate remained at 63.2 percent. Labor force participation among adults aged 25 to 54 lost a tenth of a percentage point to 82.5 percent, just off from its highest point since April 2010. The count of part-time workers seeking a full-time opportunity dropped to a post-recession low at 4.310 million while the broadest measure of labor underutilization (the “U-6” series) declined to its lowest point since 2001 at 7.3 percent.labor force participation 2008-18 030819

#2The trade deficit widened in 2018. The Census Bureau and the Bureau of Economic Analysis report that export activity slowed by $3.9 billion in December to $264.9 billion (virtually unchanged from December 2017) while imports accelerated by $5.5 billion to $264.9 billion (+3.1 percent versus December 2017). This left the goods and services trade deficit at -$59.8 billion, its largest since 2008. The goods deficit grew by $9.0 billion to -$81.5 billion while the services surplus shrank by $0.5 billion to +$21.8 billion. The trade deficit for all of 2018 totaled -$621.0 billion, up 12.5 percent from 2017 and the equivalent to 3.0 percent of the U.S. gross domestic product (GDP). The 2017 trade deficit of -$552.3 billion was the equivalent to 2.8 percent of that year’s GDP. Export activity grew $118.5 billion in 2018 to $1.672 trillion while imports were $2.563 trillion (up $292.2 billion from their 2017 total). 

#3The service sector expanded more robustly in February. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business, jumped three full points to a reading of 59.7. This was the NMI’s 109th straight month with a reading above 50.0, the threshold between an expanding and contracting service sector. Three of the NMI’s four components improved during the month: new orders (up 7.5 points), business activity/production (up 5.0 points), and supplier deliveries (+2.0 points). The component tracking employment shed 2.6 points during the month. All 18 nonmanufacturing sectors expanded during February, led by transportation/warehousing, management of companies/support services, and wholesale trade. While staying “most optimistic,” survey respondents were “concerned about the uncertainty of tariffs, capacity constraints and employment resources.”

#4Construction spending slowed in December. The Census Bureau places the seasonally adjusted annualized value of construction put into place at $1.293 trillion, representing a 0.6 percent drop from November but still a 1.6 percent advance from a year earlier. Private sector construction spending also slowed 0.6 percent in December to an annualized rate of $991.2 billion (+0.8 percent versus December 2018). Private residential construction spending slumped 1.4 percent while nonresidential spending edged up 0.4 percent. Public sector construction spending suffered a matching 0.6 percent drop during the month to an annualized $296.0 billion (+4.8 percent December 2017).

#5New home sales rebounded in December. The partial federal government shutdown delayed report on December new home sales found the annualized count of transactions grew 3.7 percent during the month to 621,000 units. While this was the best month for the Census Bureau data series since last May, new home sales remained 2.4 percent below the year-ago pace. Sales grew during the month in three of four Census regions during December, with the Midwest being the negative outlier. There were 344,000 new homes available for purchase at the end of December, up 3.0 percent for the month and 17.0 percent from December 2017 and the equivalent to a 6.6 month supply. The former was dragged down by declines in exports of petroleum/crude oil and aircraft while the latter blossomed because of increased imports of computers/accessories and consumer goods.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 2, 2019, First-Time Claims, seasonally adjusted): 223,000 (-3,000 vs. previous week; -7,000 vs. the same week a year earlier). 4-week moving average: 226,250 (+0.7% vs. the same week a year earlier).
Monthly Treasury Statement (January 2019, Federal Government Budget Surplus/Deficit): +$8.7 billion. First 4 months of FY19: -$310.3 billion (76.6% larger than the deficit from the first 4 months of FY18).- New Home Starts (January 2019, Privately-Owned Housing Starts, seasonally adjusted annualized rate): 1.230 million (+18.6% vs. December 2018, -7.8% vs. January 2018).
Productivity (Q4 2018, Nonfarm Labor Productivity, seasonally adjusted annualized rate): +1.9% vs. Q3 2018, +1.8% vs. Q4 2017.
Consumer Credit (January 2019, Outstanding Non-Real Estate Backed Debt, seasonally adjusted): $4.035 trillion (+$17.0 billion vs. December 2018, +5.0% vs. January 2018).
Beige Book

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The Trade Deficit Narrowed in November as Exports and Imports Both Fell: Week of February 4 – 8

The trade deficit shrank in November, as had factory orders. Here are the five things we learned from U.S. economic data released during the week ending February 8.  

#1The trade deficit narrowed in November. The Census Bureau and the Bureau of Economic Analysis estimates export activity slowed $1.3 billion to $209.9 billion (+3.7 percent versus November 2017) while imports fell by $7.7 billion to $259.2 billion (+3.2 percent). The resulting trade deficit of -$49.3 billion was down $6.4 billion from October but 0.7 percent larger than that of a year earlier. The goods deficit contracted by $6.7 billion to -$71.6 billion while the services surplus shrank by $0.3 billion to +$22.3 billion. The former was the result a $7.9 billion drop in imported goods, including steep declines for consumer goods (including cell phones) and industrial supplies/oil. The U.S. had its biggest goods deficits in November with China (-$35.4 billion, down $2.8 billion from October), the European Union (-$13.8 billion), Mexico (-$6.8 billion), and Japan (-$5.7 billion).

#2Factory orders slowed for a second consecutive month in November. The Census Bureau estimates new orders for manufactured goods declined by $3.1 billion during the month to a seasonally adjusted $499.2 billion. This was 4.1 percent greater than the value of November 2017 factory orders. Transportation goods orders grew 3.0 percent, boosted by strong gains for ships/boats (+72.6 percent), defense aircraft (+31.2 percent), and civilian aircraft (+6.9 percent). Net of transportation goods, core factory orders dropped 1.3 percent following a 0.2 percent gain in October. While orders grew for fabricated and primary metals (+0.9 percent and +0.8 percent, respectively), they slowed for nondurable goods (-1.9 percent), machinery (-1.7 percent), electrical equipment/appliances (-1.1 percent), and computers/electronics (-0.3 percent). New orders for civilian capital goods orders net of aircraft (a proxy for business investment) slumped 0 6 percent in November. 

#3Service sector activity remained strong, but softened, in January. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business slipped by 1.3 points during the month to a reading of 56.7. Even with the pullback, the NMI has been above a reading of 50.0 for 108 consecutive months, indicative of an expanding service sector. Only one of the NMI’s four components grew during the month, with employment adding 1.2 points to 57.8. Shedding points from December were components for new orders (down 5.0 points to 57.7) and business activity/production (down 1.5 points to 59.7. Holding firm was the measure for supplier deliveries at a reading of 51.5. Only 11 of 18 tracked nonmanufacturing industries expanded during the month, however, with the most robust expansion reported in transportation/warehousing, health care/social assistance, and mining. The press released noted continued optimism but also stated that “[r]espondents are concerned about the impacts of the government shutdown.

#4Manufacturing sector productivity edged up during Q4 2018. The Bureau of Labor Statistics tells us that manufacturing productivity grew 1.3 percent on a seasonally adjusted annualized basis during the final three months of 2018, an improvement from Q3’s 1.1 percent gain. Manufacturing output had expanded 2.3 percent, supported by a 1.0 percent advance in hours worked. The productivity gain for the past year was much softer, with a 0.7 percent increase. During Q4, durable manufacturing productivity increased 2.6 percent while the productivity improvement for nondurable manufactured goods was 1.2 percent. (The BLS was unable to report on overall productivity for the U.S. economy due to the partial government shutdown.)

#5Consumers took on credit at a marginally slower pace in December. American households had $4.010 trillion in outstanding consumer debt (not including mortgages and other real estate-backed loans) in December, according to the Federal Reserve. This was up $16.5 billion from November (smaller than the prior month’s $22.4 billion gain) and a 12-month increase of 4.7 percent. Consumers had $1.045 trillion in outstanding revolving credit balances at the end of December, up $1.7 billion for the month and 2.0 percent from a year earlier. Nonrevolving credit balances expanded $14.9 billion to $2.966 trillion (+5.6 percent versus December 2017).

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 2, 2019, First-Time Claims, seasonally adjusted): 234,000 (-19,000 vs. previous week; +11,000 vs. the same week a year earlier). 4-week moving average: 224,750 (-1.4% vs. the same week a year earlier).
Senior Loan Officers Survey (January 2019)

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

Gas Prices Dropped as 2018 Ended: January 7 – 11

Core consumer prices grew at a steady, moderate pace in December. Here are the five things we learned from U.S. economic data released during the week ending January 11.  

Note that the partial shutdown of the federal government has and will delay the release of certain economic data reports.

#1Consumer prices fell in December, but core prices inched up. The Consumer Price Index (CPI) declined 0.1 percent on a seasonally adjusted basis during the month, per the Bureau of Labor Statistics. This was the first drop in consumer prices since last March, with gasoline prices being the main culprit. Energy CPI slumped by 3.5 percent (its third decline in four months) with gasoline prices plummeting 7.5 percent. Prices for both electricity (+1.8 percent) and utility delivered natural gas (+0.7 percent) both rose. Also rising were food prices (+0.4 percent—its biggest single-month gain since May 2014), pulled up by increased costs for fruit and vegetables. Net of energy and food, core CPI gained 0.2 percent. Rising were prices for medical care services (+0.4 percent) and shelter (+0.3 percent) while prices fell 0.2 percent for transportation services, used cars/trucks, and medical care commodities. Over the past year, CPI has increased by 1.9 percent while core consumer prices have risen 2.2 percent.CPI December 2018 111119.png

#2Even with a decline in November, there were more job openings than the number of unemployed people. The Bureau of Labor Statistics reports that there were 6.888 million open jobs on the final day of November, down 243,000 from October but 16.1 percent ahead of the November 2017 count. This was greater than the BLS’s estimate of 6.018 million unemployed people during the month. Private sector employers had 6.266 million open jobs in November, up 15.5 percent from a year earlier. Most industries reported double-digit percentage increases in job openings, with notable exceptions being retail (-6.2 percent), wholesale trade (+5.4 percent), and financial activities (+8.9 percent). Also dropping during the month was the number of people hired, declining by 218,000 to 5.710 million people (+3.7 percent versus November 2017). Industries reporting particularly large year-to-year percentage increases in hiring included wholesale trade (+31.7 percent), transportation/warehousing (+16.1 percent) health care/social assistance (+14.0 percent), financial activities (+10.9 percent), and manufacturing (+9.9 percent). 

#3Service sector activity chilled a bit as 2018 wrapped up. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business, shed 3.1 points to a reading of 57.5. This was the measure’s lowest reading since July but also represented the 107th consecutive month in which it was higher than 50.0 (indicative of an expanding service sector). Three of the NMI’s four components lost ground relative to November: business activity/production (down 5.3 points), supplier deliveries (down 5.0 points), and employment (off 2.1 points). Eking a small gain was the component tied to new orders, which added 2/10ths of a point. Sixteen of 18 tracked nonmanufacturing industries reported growth during December, led by arts/entertainment/recreation, transportation/warehousing, and health care/social assistance. Whereas the comments from survey respondents were “mostly optimistic about overall business conditions,” highlighted comments noted potential adverse effects resulting from the tariffs.

#4Small business owner optimism slipped again in December but remained near post-recession highs. The Small Business Optimism Index shed 4/10ths of a point during the month to a seasonally adjusted 104.4 (1986=100). Even though this was the fourth straight monthly decline, the National Federation of Independent Business’s measure has been above a reading of 100.0 for 25 consecutive months. Four of the index’s ten components improved from their November readings: plans to increase inventories (up six points), current job openings (up five points), current inventories (up four points), and plans to increase employment (up a point). Of the six declining components, the largest decreases were for expected economic conditions (off six points), whether it is a good time to expand (off five points), and plans to make capital outlays (down four points). The press release emphasized that small businesses “need workers to generate more sales, provide services, and complete projects.”

#5Consumer borrowing rose in November. The Federal Reserve estimates consumers held a seasonally adjusted $3.979 trillion in outstanding non-real estate related debt (e.g., mortgages) at the end of November. This represented an increase of $22.2 billion from October and a 4.3 percent gain over the past year. Revolving credit (e.g., credit card) expanded by $4.8 billion to $1.042 trillion (+2.2 percent versus November 2017). Nonrevolving credit balances rose by $17.3 billion in November to $2.937 trillion. Nonrevolving consumer credit balances, which includes both college and auto loans, have increased by 5.1 percent over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 5, 2019, First-Time Claims, seasonally adjusted): 216,000 (-17,000 vs. previous week; -31,000 vs. the same week a year earlier). 4-week moving average: 221,750 (-9.4% vs. the same week a year earlier).
FOMC Minutes

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