Employers Expanded Payrolls During the Final Days of 2016: What We Learned During the Week of January 2 – 6

Repeating a monthly trend that had started back in October 2010, employers added workers in December. Survey data also indicated that both the manufacturing and service sectors grew at the end of 2016.  Here are the 5 things we learned from U.S. economic data released during the week ending January 6.

#12016 ended with the pace of job creation slowing slightly. Per the Bureau of Labor Statistics, nonfarm payrolls expanded by 156,000 jobs during December. This was below the 204,000 jobs created in November but represented the 75th straight month with job growth. Private sector employers added 144,000 jobs during the month, led by gains in health care/social assistance (+63,300), leisure/hospitality (+24,000), manufacturing (+17,000), professional/business services (+15,000), transportation/warehousing (+14,700), and government (+12,000). Average hourly wages hit $26.00, 2.9% above year ago hourly wages. The average number of hours worked held steady at 34.3 hours (December 2015: 34.5), so median weekly earnings were “only” up 2.3% from a year earlier to $891.90. payroll_wage_gains_010617

The separate survey of households indicates the unemployment rate edged up 1/10th of a point during December to 4.7% (December 2015: 5.0%).  184,000 people entered the labor market during the month, leading to a 1/10th of a point gain in the labor force participation rate to 62.7% (matching the year ago reading). The median length of unemployment inched up 1/10th of a week to 10.3 weeks (December 2015: 10.7 weeks) while the count of part-time workers seeking a full-time job slipped by 61,000 to 5.598 million (December 2015: 6.057 million). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) dropped to another post-recession low at 9.2% (December 2015: 9.9 weeks).

#2Purchasing managers indicate both the manufacturing and service sectors of the economy expanded during December. The Institute for Supply Management’s Purchasing Managers Index (PMI) added 1.5 points during the month to a seasonally adjusted reading of 54.7, its best reading for 2016. This was the 4th straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. 3 of 5 components of the PMI improved from their November marks: new orders (+7.2 points to 60.2), production (+4.3 points to 60.3), and employment (up 8/10ths of a point to 53.1). Declining were index components that track supplier deliveries (-2.8 points to 52.9) and inventories (-2.0 points to 47.0). 11 of 18 tracked manufacturing industries expanded during the month, led by petroleum/coal products and primary metals. The press release noted that “forward-looking comments from the panel [were] largely positive.”

Meanwhile, the headline index from the ISM’s Non-Manufacturing Report on Business was unchanged for the month as it remained its 2016 high of 57.2. This was the measure of service sector activity 89th straight month above a reading of 50.0. Of the measure’s 4 components, only that for new orders (+4.6 points to 61.6) improved during the month. The index for employment lost 4.4 points (to 53.8) while the measure of business activity/product slipped 3/10ths of a point to 61.4. The supplier deliveries measure remained at 52.0. 12 of 18 tracked nonmanufacturing industries expanded during the month, including mining, retail trade, and finance/insurance. The press release indicated that survey participants’ comments were “mostly positive about business conditions and the overall economy.”

#3A big drop in orders for civilian aircraft pulled down factory orders in November. The Census Bureau reports the value of new orders for manufactured goods fell 2.4% during the month to a seasonally adjusted $458.3 billion (-0.3% vs. November 2015). This was the first drop in new orders after 4 straight months of increases. The primary culprit for the decline was the 73.8% freefall in orders for civilian aircraft (note that aircraft sales tend to be very volatile month-to-month). Orders for all transportation goods fell 13.2% during the month, even as orders for motor vehicles gained 1.3%. Net of transportation goods, factory orders edged up 0.1% during November. This included month-to-month order gains for primary metals (+2.2%), machinery (+1.4%), computers/electronics (+0.5%), and furniture (+0.4%). Nondefense capital goods orders excluding aircraft—a proxy measure of business investment—grew 0.9% during the month.

#4Auto manufacturers ended a record year with strong sales in December. Sales of light vehicles rose 3.1% during the month to a seasonally adjusted annualized rate (SAAR) of 18.43 million units. This was 5.2% above the December 2015 sales pace. Consumers continued to show an increased preference for SUVs and trucks over automobiles. Sales of light trucks and SUVs grew 4.3% during the month to 11.17 million units (+11.4% vs. December 2015). Sales of automobiles increased a less robust 1.4% during the month to 7.26 million units. This was 3.2% below the December 2015 sales pace. Autodata Corporation’s analysis places vehicles sales at 17.550 million units for all of 2016, up 0.4% from what had previously been the all-time highest sales pace in 2015.

#5Construction spending enjoyed broad-based gains in November. The Census Bureau estimates the seasonally adjusted annualized value of construction put into place grew 0.9% during the month to $1.192 trillion. This was up 4.1% from a year earlier and was its highest point since April 2006. Private sector construction spending jumped 1.0% during November to a SAAR of $892.8 billion (+4.6% vs. November 2015). Residential construction gained 1.0% during the month while nonresidential spending increased 0.8%. (The 12-month comparables were +3.0% and +6.4%, respectively.) Public sector spending gained 0.8% during November to hit a SAAR of $282.5 billion (+2.6% vs. November 2015).

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 31, 2016, First-Time Claims, seasonally adjusted): 235,000 (-28,000 vs. previous week; -42,000 vs. the same week a year earlier). 4-week moving average: 256,750 (-7.1% vs. the same week a year earlier).
FOMC minutes

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.

Companies Seek More Workers, Service Sector Sputters: What We Learned During the Week of September 5 – 9

The number of job openings hit another post-recession high in July. Yet, the same month was not so hot for the service sector. Here are the 5 things we learned from U.S. economic data released during the week ending September 9.

#1Employers posted more job openings during July but expanded payrolls at a slower pace. The Bureau of Labor Statistics reports that there were a seasonally adjusted 5.871 million job openings at the end of the month, up 228,000 from June, 1.4% above year ago levels, and the most in the 16+ year history of the data series. This included 5.358 million private sector job openings (+2.2% vs. July 2015), with positive 12-month comparables in construction (+41.7%), professional/business services (+12.9%), transportation/warehousing (+7.2%), retail (+3.8%), and manufacturing (+3.6%). The number of job openings was below year ago levels in mining/logging (-43.5%), wholesale trade (-21.4%), financial activities (-12.3%), and the government (-6.0%). The number of people hired during the month expanded by “only” 97,000 jobs to 5.227 million hires, 2.8% above year ago levels. Private sector hiring totaled 4.861 million, a 3.2% gain from July 2015. Industries with the largest year-to-year percentage gains in hiring were professional/business services (+13.7%), construction (+11.0%), leisure/hospitality (+10.4%), and manufacturing (+3.8%). Job separations were 3.0% above year ago levels at 4.937 million, with voluntary quits (+9.4%) higher and layoffs (-5.1%) below their July 2015 readings.job-openings-and-hires-090916

#2Service sector growth appreciably slowed in August. The headline index from the Institute for Supply Management’s Report on Business shed 4.1 points to a seasonally adjusted 51.4. While this was the 79th straight month in which the measure was above the expansionary/contractionary threshold of 50.0, it was its lowest reading since February 2010. 3 of 4 headline index components declined during the month (business activity, new orders, and employment) while the measure for supplier deliveries improved from its July mark. 11 of 18 tracked service sector industries expanded during the month, led by utilities, real estate, accommodation/food services, and finance/insurance. The press release notes that a “majority” of companies participating in the survey had reported a “slowing in the level of business.”

#3Consumers continued to take on additional debt in July, but the growth in credit card balances decelerated. Consumers had non-real estate backed outstanding credit balances of $3.661 trillion, up $17.7 billion for the month. The 6.0% increase in the Federal Reserve measure over the past year reflected a slightly smaller 12-month comparable in comparison to what we have seen over the past few years. Outstanding nonrevolving credit balances (e.g., auto and college loans) expanded by $14.9 billion during the month to $2.692 trillion (+6.0% vs. July 2015). Outstanding revolving credit balances (i.e., credit cards) edged up by only $2.8 billion (following gains of $9.2 billion and $4.6 billion during the 2 previous months) to $969.0 billion. This also was 6.0% ahead of July 2015 outstanding balances. 

#4Consistent with the report above, layoff activity remained relatively light during the final days of summer. The Department of Labor reports that were 259,000 1st time claims made for unemployment insurance benefits on a seasonally adjusted basis during the week ending September 3rd. Weekly 1st time claims have been under 300,000 every week for more than year and a half. This was down 4,000 from the prior week and 16,000 below the count from the same week a year earlier. The 4-week moving average slipped by 1,750 to 261,250 claims (-5.5% below year ago levels). 2.055 million people were receiving some form of unemployment insurance benefits during the week ending August 20, a 4.6% drop from the year ago count.

#5The latest Beige Book once again finds a moderate pace of economic expansion. The latest edition of the Federal Reserve’s compilation of anecdotal information and insights as collected by the 12 district banks characterizes economic activity as expanding “at a modest pace” during all of July and the first half of August. Further, most of the business contacts interviewed for the report “expect moderate economic growth” into the fall. Consumer spending was “little changed,” although spending on automobiles had slowed. Nonfinancial services “gained further momentum” while manufacturing “rose slightly.” Residential real estate “grew at a moderate pace,” although tight inventories were constraining sales activity in some markets. Labor market conditions were described as “tight” with “moderate” payrolls growth (although there were some “upward wage pressures.”) Nevertheless, price gains had “remained slight overall.” Read more