Trade Data Holds Steady in July: September 4 – 8

The trade picture barely changed during July, but the service sector perked up in August. Here are the five things we learned from U.S. economic data released during the week ending September 8.

#1The trade deficit held steady during July. The Census Bureau and Bureau of Economic Analysis tell us that exports slowed $0.6 billion to a seasonally adjusted $194.4 billion (+4.9 percent versus July 2016) and that import activity slipped by $0.4 billion to $238.4 billion (+5.1 percent versus 2016). The resulting trade deficit of $43.7 billion was up a mere $0.1 billion from June but was up 5.8 percent from a year earlier. The goods deficit was essentially unchanged at -$65.3 billion while the services surplus shrank by $0.2 billion to +$21.6 billion. While civilian aircraft exports grew by $1.1 billion, exports slowed for consumer goods and automotive vehicles. Capital goods imports increased $1.3 billion (largely of computers and associated accessories) while imports of crude oil and passenger cars both declined. The United States had its largest goods trade deficits in July with China, the European Union, Japan, and Mexico.trade deficit 2013-2017-090817

#2A slowdown in transportation goods pulled down factory orders during July. Per the Census Bureau, new orders for manufactured goods fell 3.3 percent during the month to a seasonally adjusted $466.4 billion. Transportation goods orders plummeted 19.2 percent, thanks to a 70.8 percent drop in orders for manufactured goods and a 0.9 percent decline in orders for automobiles. Net of transportation goods, core factory orders gained 0.5 percent during July to a seasonally adjusted $392.2 billion. Growing during the month were new orders for electrical equipment/appliances (+2.6 percent), computers/electronics (+2.1 percent), furniture (+1.9 percent), fabricated metal products (+0.5 percent), nondurable goods (+0.4 percent), and primary metals (+0.2 percent). Shipments grew 0.3 percent during July, with shipments of non-transportation goods increasing 0.4 percent. Unfilled orders contracted 0.3 percent while inventories expanded 0.2 percent.

#3Business activity in the service sector picked up during August. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business grew by 1.4 points during to a seasonally adjusted reading of 55.3, regaining some of the measure’s losses from July. The NMI has been above a reading of 50.0—indicative of an expanding service sector—for 92 straight months. Three of the NMI’s four components improved during the month: business activity, new orders, and employment. The component for supplier deliveries declined during the month. Fifteen of 18 tracked service sector industries reported growth during the month, led by retail, information, and management of companies/support services. The press released noted that a “majority of respondents are optimistic about business conditions going forward.”

#4Q2 productivity growth was a bit better than previously believed. The Bureau of Labor Statistics upwardly revised its estimate of nonfarm business sector productivity growth from the 0.9 percent gain reported a month ago to a 1.5 percent increase, with output growing 4.0 percent and the number of hours worked rising 2.5 percent. Productivity gains have varied greatly quarter-to-quarter and, as a result, output per hour worked has increased by only 1.3 percent over the past year. Manufacturing sector productivity rose 2.9 percent during the quarter (up from the 2.5 percent previously reported), led by a 3.8 percent bump in output per hour for durable goods (this was unchanged from the initial estimate released a month ago). Nondurable goods production increased 0.5 percent during Q2, an improvement from the original estimate of a 0.1 percent contraction.

#5Hurricane Harvey led to a surge in jobless claims during the final days of August. The Department of Labor estimates that there were a seasonally adjusted 298,000 first time claims made for unemployment insurance benefits during the week ending September 2. This was up 62,000 from the previous week and 41,000 claims from the same week a year earlier. The state of Texas—site of Harvey’s prolonged landfall—suffered from 63,742 first time claims, up a sharp 51,637 claims from the previous week. The state with the second largest biggest week-to-week increase in first-time claims was Michigan, which saw its first-time claims count grow by a mere 3,283. The boost in unemployment resulting from Harvey is expected to be fleeting, but of course, Hurricane Irma will have similar (if also likely temporary) negative impact on the labor market over the coming weeks. Even with the surge in first-time claims, the four-week moving average of first-time claims of 250,250 was still down 3.6 percent from the moving average of the same week a year earlier.

Other U.S. economic data released over the past week:
Consumer Credit (July 2017, Outstanding Consumer Credit Balances-net of real-estate backed loans, seasonally adjusted): $3.754 trillion (+$18.5 billion vs. June 2017, +5.9% vs. July 2016).
Wholesale Inventories (July 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $602.4 billion (+0.6% vs. June 2017, +3.3% vs. July 2016).
Beige Book

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

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.

#1The 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.Monthly Job Creation 2011-2017-080417

Based on a separate survey of households, the unemployment rate slipped back down to its post-recession low of 4.3 percent. (-1/10th of a percentage point from June and -6/10ths 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 1/10th 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.

#2Exports 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).

#3Personal 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 1/10th 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.

#4Factory 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.

#5Both 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 91st 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.

Hiring Picks Up, Trade Deficit Narrows: July 3 – 7

The labor market rebounded in June with accelerated hiring in health/social assistance and leisure/hospitality. Here are the five things we learned from U.S. economic data released during the week ending July 7.

#1Employers picked up hiring activity during June. The Bureau of Labor Statistics indicates nonfarm payrolls expanded during June by a seasonally adjusted 222,000, the best month for job creation since February. Further, the BLS upwardly revised its April and May employment estimates by a combined 47,000 jobs to +207,000 and +152,000, respectively. Private sector payrolls grew during June by 187,000 while government employers added 35,000 jobs. Private sector industries enjoying the largest payroll gains during the month were health care/social assistance (+59,100), leisure/hospitality (+36,000), professional/business services (+35,000), financial activities (+17,000), and construction (+16,000). Retailers added 8,100 workers following declines in April and May. The average work week grew by 1/10th of an hour to 34.5 hours (June 2016: 34.4 hours) with average weekly earnings up 2.8 percent from a year earlier to $905.63.

Based on a separate survey of households, the unemployment rate edged up by 1/10th of a percentage point to 4.4 percent. This was a half point below the year ago unemployment rate of 4.9 percent, leaving it near its post-recession low point. 361,000 people entered the labor force during the month, resulting in a 1/10th of a percentage point gain in the labor force participation rate to 62.8 percent. The median length of unemployment fell by 8/10ths of a week to 9.6 weeks (June 2016: 10.2 weeks). While the number of part-time workers seeking a full-time opportunity (“involuntary” part-time workers) increased by 107,000 during June, it was still 8.5 percent below the count of a year earlier. Finally, the broadest measure of labor underutilization (the “U6” series) increased 2/10ths of a percentage point to 8.6 percent, a full percentage point below the measure’s year-ago reading.Unemployment Rate Trend 2006 2017-070717

#2The trade deficit narrowed during May. The Census Bureau and Bureau of Economic Analysis report exports grew by $0.9 billion during the month to $192.0 billion (+5.4 percent vs. May 2016) while imports narrowed by $0.2 billion to $238.5 billion (+6.6 percent vs. May 2016). This left the trade deficit at $46.5 billion, $1.1 billion smaller than that of April but up 12.0 percent over the past year. The goods deficit contracted by $0.9 billion to -$67.5 billion while the goods surplus widened by $0.2 billion to +$21.0 billion. Exports grew during the month for automotive vehicles (+$0.6 billion) and cell phones/other household goods (+$0.5 billion) but slowed for soybeans (-$0.6 billion). Imports fell for consumer goods (-$1.5 billion, including -$0.9 billion for cell phones), automotive vehicles (-$0.7 billion), but grew by $1.3 billion for capital goods. The trade deficit for the first five months of 2017 was 13.1 percent larger than that of 2016, the result of exports growing 6.0 percent and imports expanding 7.3 percent.

#3The decline in new factory orders accelerated in May. The Census Bureau reports that new orders for manufactured goods fell 0.8 percent during the month following a 0.3 percent drop in April. The resulting seasonally adjusted value of new orders of $464.9 billion was up 4.2 percent from a year earlier. Both durable and nondurable goods orders slowed by a similar 0.8 percent rate while those of nondefense, nonaircraft capital goods (a measure of business investment) edged up 0.2 percent. Shipments grew for the fifth time in six months with a 0.1 percent increase to $471.5 billion. Durable goods shipments rose 1.0 percent while nondurable goods shipments slowed 0.8 percent. Unfilled order shrank 0.2 percent to $1.120 trillion while inventories contracted 0.1 percent to $648.9 billion.

#4Purchasing managers report that both manufacturing and service sector business activity grew during June. The Purchasing Managers Index (PMI) from the Institute for Supply Management gained 2.9 points during June to a seasonally adjusted 57.8. This was the 10th straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Four of five PMI components improved during the month: production (up 5.3 points to 62.4), new orders (up 4.0 points to 63.5), supplier deliveries (up 3.7 points to 57.2), and employment (up 3.7 points to 57.2). The index tracking inventories shed 2.5 points to a contractionary reading of 49.0. Fifteen of 18 tracked manufacturing industry segments expanded during the month, led by furniture, nonmetallic mineral productions, and paper products. The press release indicated that survey respondent comments noted “expanding business” but that “supplier deliveries and inventories [were] struggling to keep up with the production pace.”

The ISM’s measure of nonmanufacturing economic activity added a half point during June to 57.4, the 90th consecutive month in which the NMI was above a reading of 50.0. Three of four index components improved from their June marks: new orders (up 2.8 points to 60.5), supplier deliveries (up a full point to 52.5), and business activity/production (up 1/10th of a point to 60.8). The employment index shed two full points to 57.8. Sixteen of 18 tracked service sector industries expanded during June, led by agriculture, wholesale trade, management of companies/support. The press release said that the “majority of respondents’ comments are positive about business conditions and the overall economy.”

#5Vehicle sales continued to slacken in June. Per automaker sales data compiled by Autodata, the seasonally adjusted annualized rate of vehicle sales was below 17 million units for a fourth straight month. The annualized sales rate of 16.50 million vehicles was down 1.0 percent from May and 1.8 percent from a year earlier. Car sales continued to slump, dropping 4.7 percent during the month and 13.2 percent from June 2016 to an annualized rate of 5.91 million vehicles. Light truck/SUV sales inched up 1.3 percent during June to an annualized rate of 10.60 million vehicles. This was 5.8 percent above light truck/SUV sales of a year earlier

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 1, 2017, First-Time Claims, seasonally adjusted): 248,000 +4,000 vs. previous week; -11,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-8.4% vs. the same week a year earlier).
Construction Spending (May 2017, Value of Construction Put in Place, seasonally adjusted annual rate): $1.230 trillion (unchanged vs. April 2017, +4.5% vs. May 2016).
FOMC minutes

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