Hiring Rebounds in April, The Fed Stays Put for Now: May 1 – 5

After pausing in March, employers picked up the pace of hiring in April. Here are the 5 things we learned from U.S. economic data released during the week ending May 5.

#1The labor market regained its momentum in April. The Bureau of Labor Statistics estimates nonfarm payrolls expanded by a seasonally adjusted 211,000 during the month, sharply up from the 79,000 net hires in March and much closer to February’s 232,000 job gain. Private sector employers added 194,000 jobs during April, split between 173,000 net hires in the service sector and 21,000 in the goods-producing sector of the economy. Industries with the biggest payroll gains included leisure/hospitality (+55,000), professional/business services (+39,000), health care/social assistance (+36,800), and financial services (+19,000). Even the retail sector, which had been shedding workers in recent months, manage to add 6,300 jobs during March. The average number of hours worked edged up by 1/10th of an hour to 34.4 hours (April 2016: 34.4 hours) while average weekly earnings have grown 2.5 percent over the past year to $900.94.

A separate survey of household finds the unemployment rate dropping by 1/10th of a percentage point to 4.4 percent, off 6/10ths of a point from a year earlier and its lowest point in ten years. Only 12,000 people entered the labor force during the month while the labor force participation rate inched down by 1/10th of a percentage point to 62.9 percent. The typical length of unemployment slipped 1/10th of a week to 10.2 weeks (April 2016: 11.2 weeks). The count of part-time workers seeking a full-time job fell by 281,000 to another post-recession low of 5.272 million (April 2016: 5.970 million). Finally, the broadest measure of labor underutilization (the U-6 series) fell to post-recession low of 8.6 percent (down 3/10ths of a percentage point from March and 1.1 percentage points from a year earlier). The U-6 measure had peaked during the last recession at 17.1 recent back in April 2010.Unemployment Labor Underutilization 2000-2017-050517

#2The Federal Reserve holds its short-term interest target rate, as expected, but does not appear concerned about recent weak economic data. The policy statement released following the conclusion of this week’s Federal Open Market Committee notes that economic activity had “slowed,” but also highlights that the labor market “continued to strengthen” including a comment that job gains were “solid.” Further, while household spending increased “only modestly,” the statement noted that “the fundamentals underpinning the continued growth of consumption remained solid.” Also, inflation was closing in on the Fed’s two-percent target rate. Finally, the statement noted that near-term risks to economic growth were “roughly balanced.” As a result, the committee voted unanimously to keep the fed funds target at between 0.75 percent and 1.00 percent, a rate that statement characterizes as being “accommodative.” Despite some recent weak economic data (the employment data above notwithstanding), the statement was largely unchanged from that following the March FOMC meeting. This would seem to suggest that the committee members appear to be ready for another bump in short-term rates at its next meeting at June.

#3The trade deficit was virtually unchanged even as both exports and imports slowed during March. Per the Census Bureau and the Bureau of Economic Analysis, exports and imports each declined $1.7 billion during the month leaving the goods and services deficit at -$43.7 billion. The trade deficit for goods grew by $0.4 billion while the surplus in services grew by a matching $0.4 billion. Exports of goods contracted by $2.1 billion, pulled down by a $1.8 billion decline in exports of industrial supplies/materials and a $0.9 decrease in automotive vehicles. Imports of goods decreased by $1.7 billion resulting from falling imports of capital goods and industrial supplies/materials. The U.S. had its largest goods deficits with China (-$31.4 billion), the European Union (-$10.0 billion), Mexico (-$6.5 billion), Japan (-$6.5 billion), and Germany (-$5.0 billion).

#4Real personal spending grows for the first time in 2017 during March. The Bureau of Economic Analysis finds that “real” personal consumption expenditures (PCE) grew 0.3 percent during the month, following declines of 0.1 percent and 0.3 percent during February and January, respectively. Real spending on goods edged up 0.1 percent during the month as a 1.5 percent gain in spending of nondurable goods just outpaced the 2.5 percent drop in durables. Real spending on services grew 0.4 percent during March (although this partially reflects a weather-related increase in utility spending). Over the past year, real personal consumption expenditures have grown 1.8 percent, smaller than the +2.1 percent and +1.9 percent 12-month comparables reported for February and January, respectively. Without adjustments for inflation, nominal consumer spending was unchanged during March. Nominal personal income and disposable income both grew at a 0.2 percent rate during March (their smallest monthly gains since last November) while real disposable income jumped 0.5 percent. Real disposable income has grown 2.4 percent over the past year, its best 12-month comparable since last November. Meanwhile, the savings rate grew by 2/10ths of a percentage point to +5.9 percent, its highest point since last August.

#5Construction Spending, particularly that for nonresident structures and in the public sector, slowed during March. The Census Bureau reports that the seasonally adjusted annualized rate of construction put in place slipped 0.2 percent during the month to $1.218 trillion. This was up 3.6 percent from a year earlier. Private sector construction spending was unchanged from February at $940.2 billion (SAAR), which was nevertheless 7.0 percent above that of March 2016. Private sector residential construction spending jumped 1.2% during the month, with much of the gain coming from a 2.0 percent bump in spending of new multi-family properties. Private sector non-residential spending declined 1.3 percent during March, pulled down by lower construction spending for the commercial, office, educational, religious, amusement/recreation, transportation, and power properties. Public construction spending declined 0.9 percent to a SAAR of $278.1 billion. This was off 6.5 percent from the same point a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 29, 2017, First-Time Claims, seasonally adjusted): 238,000 (-19,000 vs. previous week; -38,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-7.6% vs. the same week a year earlier).
Factory Orders (March 2017, New Orders for Manufactured Goods, seasonally adjusted): $478.2 billion (+0.2% vs. February 2017, +5.8% vs. March 2016).
Vehicle Sales (April 2017, Vehicle Retail Sales, seasonally adjusted annualized rate): 16.88 million units (+1.6% vs. March 2017, -3.0% vs. April 2016.
Productivity (1st Quarter 2017-preliminary, Nonfarm Business Labor Productivity, seasonally adjusted): -0.6% vs. Q4 2016, +1.1% vs. Q1 2016.
ISM Manufacturing Report on Business (April 2017, Purchasing Managers Index (>50=Growth in Manufacturing, seasonally adjusted): 54.8 (vs. March 2017: 54.8).
ISM Nonmanufacturing Report on Business (April 2017, NMI (>50=Growth in Nonmanufacturing, seasonally adjusted): 57.5 (vs. March 2017: 55.2).
Consumer Credit (March 2017, Outstanding Non-Real Estate Back Consumer Loan Balances, seasonally adjusted):  $3.806 trillion (+$16.4 billion vs. February 2017, +6.0% vs. March 2016).

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

Hiring Came in Like a Lamb During March. What We Learned During the Week of April 3 – 7

Employers hired fewer workers during March and the trade deficit contracted in February. Here are the 5 things we learned from U.S. economic data released during the week ending April 7.

#1The pace of hiring slowed sharply in March. The Bureau of Labor Statistics reports that nonfarm payrolls grew by a seasonally adjusted 98,000 during the month, the fewest number of jobs created in a single month since last May. Some of the slowdown could be linked to this year’s moderate winter weather, which prompted some employers to take on workers earlier than usual. But it is also worth noting that January and February job gains were revised downward by a combined 38,000 jobs. Private sector payrolls grew by 89,000 during the month (down from a 221,000 increase in February), with the gain split between 61,000 jobs in the service sector and 28,000 jobs in the goods-producing side of the economy. Industries with the greatest number of new jobs were professional/business services (+56,000), health care/social assistance (+16,700), manufacturing (+11,000), and mining/logging (+11,000). Meanwhile, retailers shed 29,700 jobs from their payrolls during March. The average workweek held steady during the month at 34.3 hours (March 2016: 34.4 hours). Average weekly earnings grew by $1.71 during March to $896.60 (+2.4 percent versus March 2016).

A separate survey of households painted a somewhat more robust picture of the labor market, including showing the unemployment rate had dropped by 2/10ths of a percentage point to 4.5 percent (its lowest reading in nearly ten years). While 145,000 people entered the labor force during the month (to 160.2 million), the labor force participation rate held firm at 63.0 percent. The median length of unemployment grew by 3/10ths of a week to 10.3 weeks (March 2016: 11.4 weeks) while the count of “involuntary” part-time workers declined by 151,000 to 5.553 million (March 2016: 6.120 million). Finally, the broadest measure of labor underutilization dropped to another post-recession low of 8.9 percent, down 3/10ths of a percentage point from February 2017 and 9/10ths of a percentage point from March 2016. This same measure peaked during the last recession back in April 2010 at 17.1 percent.Labor-Underutilization-2005-2007-040717

#2The trade deficit reversed the previous month’s sharp increase in February. The Census Bureau and Bureau of Economic Analysis reports that exports edged up $0.4 billion to $192.9 billion (+6.7 percent versus February 2016) while imports slowed by $4.3 billion to $236.4 billion (+4.5 percent versus February 2016). As a result, the trade deficit contracted by $4.6 billion to -$43.6 billion. The goods deficit shrank by $4.6 billion to -$65.0 billion (-1.0 percent versus February 2016) while the services surplus edged up by less than $0.1 billion to +$21.4 billion (+6.9 percent vs. February 2016). The former declined in part because of a sharp $3.1 billion drop in imports of imported consumer goods (including cell phones and automobiles). The U.S. had its largest goods deficits with China (-$31.4 billion), the European Union (-$12.0 billion), and Mexico (-$6.2 billion).

#3New factory orders increased for the seventh time in eight months. Per the Census Bureau, new orders for manufactured goods grew 1.0 percent during February to a seasonally adjusted $476.5 billion. This was up 7.3 percent from a year earlier. Like we saw with the preliminary data released a week earlier, much of the increase in new orders was because of a sharp increase in orders for civilian aircraft (+47.5 percent) resulted in a 4.4 percent increase in transportation equipment orders. Net of transportation goods, new orders were up 0.4 percent for the month and 7.5 percent from their February 2016 pace. Durable goods orders expanded 1.8 percent during the month while those of nondurables advanced 0.2 percent. The 12-month comparables for the two were +5.3 percent and +9.2 percent, respectively. Shipments grew for the 11th time in 12 months, with a 0.3 percent increase to $480.0 billion. Unfilled orders just barely ended their three-month losing streak with less than 0.1 percent increase to $1.115 trillion. Inventories expanded for the seventh time in eight months with a 0.3 percent gain to $630.0 billion.

#4Purchasing managers indicate slightly slower economic growth in March. The Purchasing Managers Index (PMI) from the Institute for Supply Management declined by a half point to a seasonally adjusted 57.2. This was the seventh straight month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector (although the decline from February suggests slower growth). Three of the five PMI components fell during the month: production (down 5.3 points to 57.6), inventories (down 2.5 points to 49.0), and new orders (down 6/10ths of a point 64.5). Rising were components measuring employment (up 4.7 points to 58.9) and supplier deliveries (up 1.1 points to 55.9). Seventeen of the 18 tracked manufacturing industry sectors reported growth during the month, led by electrical equipment/appliances, printing, and furniture. The press release noted that respondents from all 18-tracked industries reported an increase in new orders.

The headline measure from the ISM’s Report on Business-Nonmanufacturing (NMI) shed 2.4 points during March to a seasonally adjusted reading of 55.2. While this was the NMI’s lowest reading since last October, this was the 87th straight month in which the measure remained above a reading of 50.0. Only one of the NMI’s four components grew during the month:  supplier deliveries (up a full point to 51.5). Declining were components associated with business activity/production (down 4.7 points to 58.9) employment (down 3.6 points to 51.6), and new orders (down 2.3 points to 58.9). Fifteen of 18 tracked industry expanded during the month, led by the management of companies, utilities, and wholesale trade. The press release noted that a “majority of respondents’ comments indicate a positive outlook on business conditions and the overall economy,” but that there also were “several comments about the uncertainty of future government policies on health care, trade and immigration, and the potential impact on business.”

#5Strength in the housing sector pulled up construction spending during February. The Census Bureau reports that the value of construction put in place grew 0.8 percent during February to a seasonally adjusted annualized rate (SAAR) of $1.193 trillion. This was 3.0 percent above the annualized value of construction put into place a year earlier. Private sector spending also expanded at a 0.8 percent rate to $917.3 billion (+6.9 percent versus February 2016), as a 1.8 percent jump in private sector residential spending more than counterbalancing a 0.3 percent drop in nonresidential construction spending. The former included gains in new single-family and multifamily construction spending of 1.2 percent and 1.8 percent, respectively. Public sector construction spending increased 0.6 percent during February to an annualized $275.5 billion. Despite the gain, public sector spending was off 8.0 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 1, 2017, First-Time Claims, seasonally adjusted): 234,000 (-25,000 vs. previous week; -37,000 vs. the same week a year earlier). 4-week moving average: 250,000 (-7.5% vs. the same week a year earlier).
Vehicle Sales (March 2017, Total Light Vehicle Sales, seasonally adjusted annualized rate): 16.62 million vehicles (-5.5% vs. February 2017, -0.3% vs. March 2016).
Consumer Credit (February 2017, Outstanding Consumer Credit Balances-net of real estate, seasonally adjusted): $3.792 trillion (+$15.2 billion vs. January 2017, +6.3% vs. February 2016).
Wholesale Trade (February 2017, Wholesale Inventories, seasonally adjusted): $594.2 billion (+0.4% vs. January 2017, +3.2% vs. February 2016).
FOMC minutes

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

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.