More Records Fall: May 4 – 8

The employment report highlighted a week full of dismal economic data. Here are the five things we learned from U.S. economic data released during the week ending May 8.

#1All the job gains since the Great Recession are gone. Nonfarm employment shrank by a startling 20.500 million (seasonally adjusted) in April, by far the steepest decline in payrolls ever for the Bureau of Labor Statistics data series going back to 1939. The estimate of 131.405 million employed people was at its lowest point since January 2011. Private-sector payrolls dropped 19.520 million workers, split between 2.355 million in the goods-producing side of the economy and 17.165 million in the service sector. Job losses cut across every sector of the economy with the most significant hits in leisure/hospitality (-7.653 million), retail (-2.107 million), professional/business services (-2.128 million), health care/social assistance (-2.087 million), manufacturing (-1.330 million), construction (-975,000), and local government (-801,000).

A separate survey of households puts the unemployment rate at 14.7 percent, compared to 3.5 percent just two months earlier. Even worse, the BLS acknowledges that this figure likely understates actual unemployment as there was a surge in the count of workers “classified as employed but absent from work.” As it suspects that most of these people are genuinely unemployed, the real unemployment rate is likely five percentage points higher than reported above. Further, 6.432 million people left the labor market, putting the labor force participation rate at a 48-year low of 60.2 percent (its lowest point since 1973). The same measure for adults aged 25 to 54 fell by 2.7 percent points to 79.8 percent (its lowest reading since April 1983). If a worker has not lost their job, they may be working fewer hours—the count of part-time workers desiring full-time work surged 88.8 percent in April to 10.741 million. The broadest measure of labor underutilization—the U-6 series—hit 22.8 percent in April, compared to 8.7 percent during the previous month and 6.7 percent as recently as December.

U.S. Unemployment Rate Data: April 2020
U.S. Unemployment Rate Data: April 2020

#2The service sector also broke its winning streak in April. The NMI, the headline index of the Institute for Supply Management’s Nonmanufacturing Report on Business, tumbled by 10.7 points to a reading of 41.8. The NMI had not been below a reading of 50.0—the threshold between an expanding and contracting service sector—since December 2009. All four major components of the NMI—business activity, new orders, employment, and supplier deliveries—pointed towards a shrinking service sector. Sixteen of 18-tracked service sector industries contracted in April, led by declines for arts/entertainment/recreation, agriculture, and retail. The press release noted purchasing managers’ concerns “about the continuing coronavirus impacts on the supply chain, operational capacity, human resources, and finances, as well as the uncertain timelines for the resumption of business and a return to normality.”

#3Factory orders sank in March. New factory orders hemorrhaged 10.3 percent during the month to a seasonally adjusted $445.8 billion, the largest single-month decline in the 28-year history of the Census Bureau measure. Transportation goods orders decreased 41.3 percent, hurt by massive cancelations for civilian aircraft and a drop for automobiles. Net of transportation, core factory orders dropped 3.7 percent, with declines for nondurable goods, primary metals, fabricated metal products, and machinery countering increased orders for electrical equipment/appliances. Shipments fell for a third consecutive month, shedding 5.2 percent to $473.6 billion (non-transportation goods shipments dropped 3.6 percent). 

#4International trade decelerated in March. The Census Bureau and Bureau of Economic Analysis report that exports plunged by $20.0 billion to a seasonally adjusted $187.7 billion (-10.9 percent vs. March 2019). Meanwhile, imports dove $15.4 billion to $232.2 billion (-11.9 percent versus March 2019). The resulting -$44.4 billion deficit was up $4.6 billion from February but off 15.7 percent from a year earlier. The goods deficit widened by $4.6 billion to -$65.6 billion while the services surplus shrank by less than $0.1 billion to +$21.2 billion. Exports fell for industrial supplies/materials (including crude oil and other petroleum products), automotive vehicles, and other capital goods. Imports declined for consumer goods (cell phones and gem diamonds) and automotive vehicles.

#5Consumer credit contracted in March. Consumers held $4.209 trillion in outstanding non-real estate-backed credit balances at the end of March, per the Federal Reserve. This was down $12.1 billion from the prior month but still up 3.7 percent from the same month a year earlier. Revolving (credit card) balances shrank by their fastest pace since 1989, -$28.2 billion, to $1.066 trillion. Nonrevolving credit balances (i.e., auto and college loans) grew by $16.1 billion to $3.143 trillion. Revolving credit balances were up a mere 0.5 percent from a year earlier, while nonrevolving credit balances advanced 4.9 percent.

Other U.S. economic data released over the past week:
Jobless Claims (Week ending May 2, First-Time Claims, seasonally adjusted): 3,169,000 (-677,000 vs. the previous week, +2,944,000 vs. the same week a year earlier). 4-week moving average: 4,173,500 (+1,788.5% vs. the same week a year earlier).
Productivity (Q1 2020, Nonfarm Business Labor Productivity, seasonally adjusted annualized rate): -2.5% vs. Q4 2019, +0.3% vs. Q1 2019.
Wholesale Trade (March 2020, Inventories of Merchant Wholesalers, seasonally adjusted): -0.8% vs. February 2020, -2.0% vs. March 2019.
Bankruptcies (12-month Period Ending March 31, 2020, Bankruptcy Filings): 764,282 (-1.1% vs. 12-month period ending March 31, 2019).
Senior Loan Officer Opinion Survey (April 2020): Lenders “tightened their standards and terms significantly on commercial and industrial (C&I) loans to firms of all sizes.”

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

The Almost Decade Long Winning Streak Is Over: March 30 – April 3

Employment data, combined with consumer sentiment and purchasing managers’ reports, paint an ugly picture. Here are the five things we learned from U.S. economic data released during the week ending April 3.

#1The number of jobless claims doubled at the end of March. A seasonally adjusted 6.648 million people made first-time claims for unemployment insurance benefits during the week ending March 28. This was up 3.341 million from the prior week and a whopping 3,150 percent increase from the same week a year earlier. The Department of Labor press release noted that the service industry, and namely accommodation/food services, led the surge in jobless claims. Other industries listed by states as contributing to layoffs were health care/social assistance, manufacturing, retail, wholesale trade, and construction. One note of caution with this data is that reported issues in filing for jobless benefits suggest these numbers underestimate the true count of people losing their jobs in recent weeks.

#2Even before the vast shutdown mid-month, payrolls were contracting aggressively. The Bureau of Labor Statistics had closed its March surveys before “many coronavirus-related business and school closures that occurred in the second half of the month.” Even still, the report was horrible. Nonfarm payrolls contracted by a seasonally adjusted 701,000 during the month, the most since March 2009 and breaking a nearly decade-long streak of job additions. Next month’s number will be orders of magnitude larger. The cuts were widespread with drops for the service and goods-producing side of the private sector economy of -659,000 and -54,000, respectively. Leisure/hospitality payrolls contracted by 459,000, by far the most of any industry and followed by health care/social services (-61,200), professional/business services (-52,000), retail (-46,200), construction (-29,000), and manufacturing (-18,000). Average weekly earnings held up for now, with the $28.62 median hourly wage up 3.1 percent from a year earlier.

The separate survey of households (also closed by mid-month) has the unemployment rate growing to 4.4 percent—next month’s reading will be much larger. 1.633 million people left the labor market as the labor force participation rate slumping 7/10ths of a month to 62.7 percent. The 25-54 labor force participation rate shed 4/10ths of a point to 82.6 percent. Demonstrating the massive increase in the number of unemployed adults is the median length of unemployment, which fell by 2.1 weeks to 7.0 weeks. Blooming was the count of involuntary part-time workers, which grew by 1.447 million to 5.765 million (the most since October 2016). The broadest measure of labor underutilization, the U-6 series, surged by 1.7 percentage points to 8.7 percent (its highest reading in four years). 

#3So, it is not surprising that consumer confidence plummeted in March. The Conference Board’s Consumer Confidence Index fell by 12.6 points to a seasonally adjusted 120.0 (1985=100). The overwhelming majority of the decline resulted from deteriorating views of the future—the expectations index shed 19.9 points to a reading of 88.2 while the current conditions measure lost “only” 1.6 points. The latter’s small decline was, per the press release, “reflective of an economy that was on solid footing” before the surge in layoffs and furloughs. The press release also said that sentiment was “more in line with a severe contraction – rather than a temporary shock – and further declines are sure to follow.” 

#4Manufacturing contracted in March. The PMI, the Institute for Supply Management’s measure for manufacturing activity lost a full point to a reading of 49.1. This was the sixth time over the past eight months in which the PMI was below 50.0, indicating a contracting manufacturing sector. Measures for new orders, production, and employment all fell sharply. Ten of 18 tracked industries reported growing during March, led by printing, food/beverage, and apparel. The press release stated that the pandemic and “shocks in global energy markets have impacted all manufacturing sectors” and warned that respondents’ near-term growth sentiment was “strongly negative, by a 2-to-1 ratio.”

#5The service sector held out for one more month in March. The headline index from the ISM’s Nonmanufacturing Report on Business shed 4.8 points in March to a reading of 52.5. This was the 122nd straight month in which the NMI pointed towards an expanding service sector (presumably for the last time for a while). Indicators for business activity, new orders, employment, and inventories all declined. Nine of 18 tracked service sector industries expanded, led by health care/social assistance, real estate, and public administration. The press release noted that companies “are concerned about the coronavirus impact on the supply chain, operational capacity, human resources and finances, as well as the ramifications for the overall economy.” 

Other U.S. economic data released over the past week:
International Trade (February 2020, Goods and Services Surplus/Deficit, seasonally adjusted): -$39.9 billion (-12.2% vs. January 2020, -22.1% vs. February 2010). Exports: $137.2 billion (-0.4% vs. January 2020, -1.5% vs. February 2019). Imports: $247.5 billion (-2.5% vs. January 2020, -4.7% vs. February 2019).
Factory Orders (February 2020, New Orders, seasonally adjusted): $497.4 billion (Unchanged vs. January 2020, +0.1% vs. February 2019).
Construction Spending (February 2020, Value of Construction Put in Place, seasonally adjusted): $1.367 billion (-1.3% vs January 2020, +6.0% vs. February 2019).
Pending Home Sales (February 2020, Index (2001=100), seasonally adjusted): 111.5 (vs. January 2020: 108.9, February 2019: 101.9).
Case-Shiller Home Price Index (January 2020, 20-City Index, seasonally adjusted): +0.3% vs. December 2019, +3.1% vs. January 2019.
Agricultural Prices (February 2020, Prices Received by Farmers): +1.8% vs. January 2020, +0.1% vs. February 2019.

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

Employers Hire, The Fed Cuts: March 2 – 6

While not impacting the labor market yet, the coronavirus pushed the Fed to take action and weighed on purchasing managers’ business outlook. Here are the five things we learned from U.S. economic data released during the week ending March 6.

#1Hiring activity surged in February. Nonfarm payrolls rose by a seasonally adjusted 273,000 during the month, matching January’s gain as the most since early 2018. The same Bureau of Labor Statistics’ report also presented upward revisions for January and December payrolls that reflected the addition of 85,000 more workers that previously reported. (One caution to the February figures is that the BLS collected most of its February data by mid-month and may not reflect a possible hiring slowdown as the impact of coronavirus was spreading across the nation and world.) The goods-producing side of the economy added 61,000 jobs while service sector employment swelled by 167,000 workers. Industries experiencing the biggest payrolls gains included health care/social assistance (+56,500), leisure/hospitality (+51,000), government (+45,000), construction (+42,000), and professional/business services (+41,000). Average hourly wages of $981.09 were up 3.0 percent from a year earlier.

Based on a separate households survey, the unemployment rate slipped 1/10th of a point to 3.5 percent (a multi-decade low hit several times over the past year). Contracting was the labor force, shedding 60,000 people. The labor force participation rate held steady at 63.4 percent while the same measure for adults aged 25 to 54 backed off by 1/10th of a point to 83.0 percent. The median length of unemployment dropped by 2/10ths of a week to 9.1 weeks, while the number of part-time workers seeking a full-time job grew 136,000 to 4.318 million.

#2The Federal Reserve cut its short-term interest rate target to offset economic impacts from the coronavirus. The statement released from this past week’s emergency meeting of the Federal Open Market Committee stressed that “[t]he fundamentals of the U.S. economy remain strong. But due to “evolving risks to economic activity” from COVID-19, the committee unanimously voted to cut the fed funds target rate by a half-point to a range of 1.00 and 1.50 percent. The statement also stressed that the FOMC was “closely monitoring” the situation and “will use its tools and act as appropriate to support the economy.”

#3Trade activity slowed in January. The Census Bureau and Bureau of Economic Analysis report that exports declined $0.8 billion to $208.6 billion (up 1.1 percent from January 2019) while imports dropped $4.2 billion to $253.9 billion (down 2.4 percent from January 2019). The resulting trade deficit of -$45.3 billion was $3.3 billion smaller than that of January and 15.8 percent from a year earlier. The goods deficit narrowed by $2.6 billion to -$67.0 billion while the services surplus expanded by $0.6 billion to +$21.7 billion. Weighing on January export activity were declines for civilian aircraft and crude oil. The U.S. had its biggest goods deficits with China, the European Union, and Mexico.

#4Supply managers report a flat manufacturing sector and growth in services during February. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, shed 8/10th of a point to 50.1. This was the second month in which the PMI was above the critical growth/contraction threshold of 50.0. The most notable among the PMI components was the measure of supplier deliveries, adding 7/10ths of a point to 51.7. Readings above 50.0 for this measure are indicative of slowing deliveries with some comments from survey respondents reporting delayed shipments from “coronavirus-impacted countries.” Fourteen of 18-tracked manufacturing industries expanded in January, led by wood products, furniture, and plastic/rubber products. The press release stated that despite the current challenges, respondents’ comments were “marginally positive regarding near-term growth.”

The ISM’s service sector measure of business activity, the NMI, added 1.8 points to a reading of 57.3. This was the 121 consecutive month in which the service sector had expanded. Three of our NMI components—new orders, employment, and supplier deliveries—grew during the month, while the mark for business activity fell. Sixteen of 18 service sector industries reported growth in February, led by accommodation/food services and management of companies/support services. The press release indicated the survey respondents were “concerned about the coronavirus and its supply chain impact.”

#5Factory orders slowed in January. The Census Bureau estimates new orders for manufactured goods declined 0.5 percent to a seasonally adjusted $497.9 billion. Transportation goods orders slipped as a slowdown in orders for defense aircraft and ships/boats counterbalanced a jump for civilian aircraft and motor vehicles. Net of transportation goods, core factory orders slowed 0.1 percent. Rising were orders for primary metals (+2.1 percent), and machinery (+2.1 percent), and fabricated metal products (+1.1 percent). Falling were orders for electrical equipment/appliances (-1.1 percent), nondurable goods (-0.8 percent), and computers/electronics (-0.2 percent). A proxy for business investment (orders for civilian nonaircraft capital goods) grew 1.1 percent. Shipments fell for the third straight month, losing 0.5 percent to $501.8 billion, while inventories contracted 0.1 percent to $703.4 billion. Unfilled orders essentially held steady at $1.157 trillion.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 29, 2020, First-Time Claims, seasonally adjusted): 216,000 (-3,000 vs. previous week; -2,000 vs. the same week a year earlier). 4-week moving average: 213,000, -3.8% vs. the same week a year earlier).
Productivity (2019 Q4, Nonfarm Business Labor Productivity, seasonally adjusted annualized rate): +1.2% vs. 2019 Q3, +1.8% vs. 2018 Q4.
Construction Spending (January 2020, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.369 trillion (+1.8% vs. December 2019, +6.8% vs. January 2019).
Wholesale Inventories (January 2020, Total Inventories of Merchant Wholesalers, seasonally adjusted): $671.6 billion (-0.4% vs. December 2019, +0.4% vs. January 2019.
Consumer Credit (January 2020, Outstanding Non-Real Estate-Back Consumer Loan Balances seasonally adjusted): $4.203 trillion (+12.0 billion vs. December 2019, +4.4% vs. January 2019).
Beige Book

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