The Unemployment Rate Drops Below 4%: April 30 – May 4

Employers continued to add workers while the unemployment rate fell to its lowest point since 2000. Here are the five things we learned from U.S. economic data released during the week ending May 4.  

#1The unemployment rate dropped to a 17.5 year low, but job creation lags a bit. The Bureau of Labor Statistics has nonfarm payrolls growing by a good, but not great 164,000 during April (seasonally adjusted), following increases of 135,000 and 324,000 in March and February. Private sector employers added 168,000 workers during the month, split by 49,000 jobs in the goods-producing side of the economy and 119,000 in the service sector. Industries adding the most workers to their payrolls during April were professionals/business services (+54,000), health care/social assistance (+29,300), manufacturing (+24,000), leisure/hospitality (+18,000), and construction (+17,000). The average workweek remained at 34.5 hours while average hourly earnings added four cents to $26.84. As a result, average weekly earnings grew by $1.38 to $925.98 (+2.8 percent versus April 2018).

Based on a separate household survey, the unemployment slipped by 2/10ths of a percentage point to 3.9 percent, its lowest point since December 2000. Taking some of the steam from this news was that 239,000 people left the labor force during the month, resulting in the labor force participation rate slipping by 1/10th of a percentage point to 62.8 percent. Falling by the same amount was the labor force participation rate for adults aged 25-54 (to 82.0 percent). The median length of unemployment jumped by 7/10ths of a week to 9.8 weeks (April 2017: 10.3 weeks). The BLS’s broadest measure of labor underutilization (the U-6 series) hit another post-recession low with a 2/10ths of a percentage point decline to 7.8 percent.Unemployment Rate 1998-2018 050418

#2The Fed stays put in May, likely to act in June. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as “moderate” and job gains as “strong.” Further, while household spending had “moderated,” business investment continued to grow “strongly.” Finally, core inflation measures continued to approach the Fed’s two-percent target. The FOMC voting members voted unanimously to keep the fed funds target rate between 1.5 and 1.75 percent, a rate the committee considers to be “accommodative.” The statement notes that conditions likely will “warrant further gradual increases” in its short-term interest rate target. The general consensus has the next rate hike at its June 12-13 meeting.

#3Personal spending rebounds in March. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) rose 0.4 percent on a seasonally adjusted basis during the month following declines in both January and February. Real spending on durable goods jumped 1.1 percent while expenditures for nondurables and services each gained 0.3 percent. As prices were flat during the month, nominal PCE also grew 0.4 percent during the month. The increased spending was prompted a 0.3 percent gain in both nominal personal income and disposable income. After adjusting for inflation, real disposable income grew by 0.2 percent. Funding the difference was the 2/10ths of a percentage point drop in the savings rate to +3.1 percent. Over the past year, real PCE has increased 2.4 percent while disposable income has gained 1.7 percent.

#4Aircraft exports prompt a sharp narrowing of the trade deficit in March. Per the Census Bureau and Bureau of Economic Analysis, exports increased by $4.2 billion during the month to $208.5 billion (+8.8 percent versus March 2017) while imports slowed by $4.6 billion to $257.5 billion (+8.9 percent versus March 2017). As a result, the trade deficit contracted by 15.2 percent during the month to -$49.0 billion, which was still 9.5 percent larger than that of a year earlier. The goods deficit shrank by $7.5 billion to -$69.5 billion while the services surplus expanded by $1.3 billion to +$20.5 billion. The former was boosted by increased exports of civilian aircraft (+1.9 billion), foods/feeds (+$1.0 billion), and industrial supplies/materials (+$0.9 billion) and decreased imports of capital goods (-$3.6 billion), consumer goods (-$0.9 billion), and crude oil (-$0.5 billion). The U.S. had its biggest goods deficits with China (-$35.4 billion), the European Union (-$12.4 billion), and Mexico (-$7.0 billion).

#5Factory orders grew for the seventh time in eight months during March. The Census Bureau estimates new orders for manufactured goods increased 1.6 percent during the month to a seasonally adjusted $507.7 billion (+8.1 percent versus March 2017). Transportation goods—and, in particular, civilian aircraft—were a major reason for the increase. Net of transportation goods, factory orders increased 0.3 percent during the month and was 6.6 percent ahead of its year-ago pace. Durable goods orders jumped 2.5 percent during March while those for nondurables gained 0.5 percent. Shipments increased for the 15th time in 16 months with 0.4 percent growth to $502.8 billion. Non-transportation goods shipments gained 0.2 percent. The value of manufacturers’ unfilled orders gained 0.8 percent to $1.154 trillion (its sixth increase in seven months) while inventories expanded 0.3 percent to $677.3 billion (its 16th increase over the past 17 months). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 28, 2018, First-Time Claims, seasonally adjusted): 211,000 (+2,000 vs. previous week; -31,000 vs. the same week a year earlier). 4-week moving average: 221,500 (-9.3% vs. the same week a year earlier).
Productivity (Q1 2018-preliminary, Nonfarm Labor Productivity, seasonally adjusted): +0.7% vs. Q3 2017, +1.3% vs. Q1 2017).
ISM Report on Business-Manufacturing (April 2018, PMI (Index (>50=expanding manufacturing sector)), seasonally adjusted): 57.3 (-2.0 points vs. March 2018).
ISM Report on Business-Nonmanufacturing (April 2018, NMI (Index (>50=expanding service sector)), seasonally adjusted): 56.8 (-2.0 points vs. March 2018).
Construction Spending (March 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.285 trillion (-1.7% vs. February 2018, +3.6% vs. March 2017).
Vehicle Sales (April 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.17 million units (-1.8% vs. March 2018, +0.8% vs. April 2017).
Pending Home Sales (March 2018, Index (2001=100), seasonally adjusted): 107.6 (+0.4% vs. February 2018, -3.0% vs. March 2017).

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

Job Growth Slows, Trade Deficit Grows: April 2 – 6

Payroll growth slowed down while the trade deficit widened (again). Here are the five things we learned from U.S. economic data released during the week ending April 6.

#1Employers added fewer workers in March. Nonfarm payrolls expanded by a seasonally adjusted 103,000 during the month, per the Bureau of Labor Statistics. Even though this was the fewest jobs added in a single month since last September and less than one-third of February’s job gain (+326,000), this represented the 90th consecutive month of job creation. Private sector employers added 102,000 jobs in March versus a mere 1,000 new government jobs. The former was split between 15,000 jobs in the goods-producing side of the economy and 87,000 in the service sector. The industries adding the most jobs during the month were: health care/social assistance (+33,800), professional/business services (+33,000), manufacturing (+22,000), and wholesale trade (+11,400). Shedding workers (at least on a seasonal basis) were the construction sector (-15,000) and retailers (-4,400). The average workweek remained at 34.5 hours (March 2017: 34.4 hours) while average weekly earnings grew by $2.76 during the month to $925.29 (+3.3 percent versus March 2017).

Based on a separate survey of households, the unemployment rate remained at its post-recession low of 4.1 percent for a sixth straight month. The labor force contracted by 158,000 to 161.7 million people, resulting in the labor force participation rate slipping by 1/10th of a percentage point to 62.9 percent. The labor force participation rate for adults aged 25-54 held steady for the month at 82.2 percent. The median length of someone being out of work shrank by 2/10ths of a week to 9.1 weeks (matching the post-recession low hit back last December) while the count of part-time workers seeing a full-time opportunity contracted by 141,000 to 5.019 million (March 2017: 5.500 million). The broadest measure of labor underutilization (the “U-6” series) declined by 2/10ths of a percentage point to 8.0 percent, matching last November as its post-recession low reading.labor force participation 2001-2017 040618

#2The trade deficit widened to a nearly decade-long high in February. The Census Bureau and the Bureau of Economic Analysis report that exports increased $3.5 billion to $204.4 billion (+6.6 percent) while imports swelled by $4.4 billion to $262.0 billion (+10.9 percent). As a result, the U.S. trade deficit expanded by $0.9 billion to -$57.6 billion. The deficit was 29.6 percent larger than it was during the same month a year earlier and its widest since October 2008. The goods deficit grew by $0.4 billion to -$77.0 billion (+17.9 percent versus February 2017) while the services surplus narrowed by $0.7 billion to +$19.4 billion. Highlights of the former included a $3.1 billion gain in exported goods (thanks to higher exports of industrial supplies/materials, automobiles, and capital goods) and a $3.3 billion increase in imported goods (including capital goods, crude oil, and food/feed/beverages). The U.S. had its largest goods deficits with China (-$34.7 billion), the European Union (-$15.3 billion), Germany (-$6.7 billion), Mexico (-$6.6 billion), and Japan (-$6.0 billion). The goods deficit with Canada was a far more modest -$0.4 billion.

#3Transportation goods drove up factory orders during February. The Census Bureau estimates new orders for manufactured goods increased 1.2 percent to a seasonally adjusted $498.0 billion (+7.1 percent versus February 2017). As noted with the prior week’s durable goods report, transportation goods orders jumped 7.0 percent, with large gains for defense aircraft (+34.8 percent), ships (+30.6 percent), civilian aircraft (+26.2 percent), and motor vehicles (+1.5 percent). Net of transportation goods, new orders edged up 0.1 percent during the month and were 6.4 percent ahead of February 2017 levels. Growing during the month were orders for electrical equipment/appliances (+3.4 percent), primary metals (+2.8 percent), and machinery (+1.2 percent). Losing ground during the month were orders for nondurable goods (-0.5 percent) and computers/electronics (-0.1 percent). Shipments grew for the 14th time in 15 months, increasing 0.9 percent to $249.8 billion. Unfilled orders grew for the fourth time in five months (+0.2 percent to $1.143 trillion) while inventories expanded for the 15th time in 16 months (+0.3 percent to $675.2 billion).

#4Purchasing managers report slightly slower growth in business activity during March. The Institute for Supply Management’s Purchasing Managers Index (PMI) lost 1.5 points to a reading of 59.3. Even with the drop, this was the 19th straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. All five PMI components declined from their February readings (in order from largest to smallest decline): employment, new orders, inventories, production, and supplier deliveries. Seventeen of 18 tracked manufacturing sectors expanded during March, led by fabricated metal products, plastics/rubber products, and computers/electronics.

The ISM’s measure of service sector activity (NMI) dropped by 7/10ths of a point to 58.8. This was the measure’s 98th straight month being above the 50.0 expansion/contraction threshold. Two of four NMI components improved from the February readings—supplier deliveries and employment—while two others (new orders and business activity/production) contracted. Respondents from 15 of 18 tracked service sector industries reported growth during the month, led by mining, transportation/warehousing, and agriculture. The press release noted that a “majority of respondents remain positive about business conditions.”

#5Construction spending remained in neutral for a third month. The Census Bureau places the value of construction put in place during February at a seasonally adjusted annualized rate (SAAR) of $1.273 trillion. This was up a mere 0.1 percent from January and 3.0 percent ahead of the February 2017 rate. Private sector construction spending jumped 0.7 percent during the month to a SAAR of $982.0 billion (+3.4 percent versus February 2017). Private sector residential construction spending edged up 0.1 percent while nonresidential spending gained 1.5 percent. The story was less favorable for the public sector, where construction spending slumped 2.1 percent to an annualized rate of $291.1 billion. Public sector construction spending has risen by a more modest 1.6 percent over the past year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 31, 2018, First-Time Claims, seasonally adjusted): 242,000 (+27,000 vs. previous week; +1,000 vs. the same week a year earlier). 4-week moving average: 228,250 (-8.7% vs. the same week a year earlier).
Vehicle Sales (March 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.48 million units (+2.3% vs. February 2018, +3.9% vs. March 2017.
Consumer Credit (February 2018, Outstanding Credit Balances (non-real estate), seasonally adjusted): $3.868 trillion (+$10.6 billion vs. January 2018, +5.1% vs. February 2017).

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

Job Creation and the Trade Deficit Both Grow: March 5 – 9

Payroll growth surprised to the upside while the trade deficit widened once again. Here are the five things we learned from U.S. economic data released during the week ending March 9.

#1Employers accelerated their pace of hiring during February. Nonfarm payrolls grew by a seasonally adjusted 313,000 workers during the month, the most jobs added since June 2016. Further, the Bureau of Labor Statistics upwardly revised its estimates of December and January job gains by a combined 54,000. Nonfarm employers have added 2.281 million people to their payrolls over the past year, for a monthly average of 190,083 jobs. Private sector employers added 287,000 jobs to their payrolls in February, split between 100,000 in the goods-producing side of the economy and 187,000 in the service sector. The industries adding the most workers during the month included construction (+61,000), retail (+50,300), professional/business services (+50,000), manufacturing (+32,000), health care/social assistance (+29,100), and financial activities (+28,000). The average workweek inched up by 1/10th of an hour to 34.5 hours (February 2017: 34.4) while average weekly earnings grew by $4.06 to $922.88 (up 2.9 percent over the past year).Growth in Employment-030918

Based on a separate survey of households, the employment rate remained at its post-recession low of 4.1 percent for a third consecutive month. An impressive 806,000 people entered the labor force, leading to a 3/10ths of a percentage point increase in the labor force participation rate to 63.0 percent, its highest point since last September. The labor force participation rate for adults aged 25 to 54—arguably a better measure of the number of adults in their prime working years—rose by half of a percentage point to a post-recession high of 82.2 percent. The typical length of unemployment slipped by 1/10th of a week to 9.3 weeks (February 2017: 10.1 weeks). 5.160 million people held a part-time job but were seeking a full-time opportunity, down from the 5.670 million at the same time a year earlier. The broadest measure of labor underutilization published by the BLS—the U-6 series—held firm at 8.2 percent (February 2017: 9.2 percent).

#2The U.S. trade deficit widened for a fifth consecutive month. The Census Bureau and the Bureau of Economic Analysis reports that exports declined 1.3 percent to a seasonally adjusted $200.9 billion while imports shrank by less than 0.1 percent to $257.5 billion. The resulting trade deficit expanded by 5.0 percent to -$56.6 billion. The trade deficit has grown by 16.2 percent over the past year. The goods deficit jumped by $2.8 billion to -$76.5 billion while the services surplus eked out a $0.1 billion increase to +$19.9 billion. The former resulted from a $3.3 billion decrease in exported goods (thanks to a decline in exports of both civilian aircraft and industrial supplies/materials). The U.S. had its largest goods deficits with China (-$35.5 billion), the European Union (-$15.0 billion), Germany (-$6.3 billion), Mexico (-$5.6 billion), and Japan (-$5.6 billion).

#3The service sector continued growing at a solid if slightly slower rate in February. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business shed 4/10ths of a point to a reading of 59.5. This was the 97th straight month in which the NMI was above a reading of 50.0, indicative of an expanding service sector. The NMI slipped because of a sharp 6.6 point drop in the index component associated with employment (to a still expanding reading of 55.0). Two other index components grew during February (business activity/production (up 3.0 points) and new orders (up 2.1 points)) while that for supplier deliveries held firm. Sixteen of 18 tracked nonmanufacturing industries expanded during the month, led by education services, transportation/warehousing, and utilities. The press release noted that a “majority of respondents continue to be positive about business conditions and the economy.”

#4Even with a small upward revision for Q4, productivity gains continued to disappoint. The Bureau of Economic Analysis raised its estimate of nonfarm labor productivity during the final three months of 2017from a 0.1 percent decrease to being unchanged on a seasonally adjusted basis. This was the outcome of output growing 3.2 percent and the number of worked gaining 3.3 percent. Manufacturing sector productivity surged 6.0 percent during Q4, thanks to a 6.6 percent increase in output resulting from a mere 0.5 percent increase in the number of hours worked. Durable goods manufacturing productivity jumped 8.1 percent while that for nondurable goods manufacturing increased 3.4 percent. For all of 2017, nonfarm business productivity gained by a feeble 1.2 percent, which was nevertheless an improvement from being unchanged for all of 2016. Manufacturing sector productivity inched up 0.6 percent during 2017 after having gained by only 0.4 percent and 0.3 percent in 2016 and 2015, respectively.

#5Consumers took on credit card debt at a slower rate in January. The Federal Reserve indicates that outstanding consumer credit balances (net of any real estate related loans—e.g., mortgages, home equity loans) totaled a seasonally adjusted $3.855 trillion at the end of the month, up $13.9 billion from December and 5.3 percent from a year earlier. Balances of nonrevolving credit (e.g., student loans, college loans) jumped by $12.8 billion during the month to $2.825 trillion (+5.0 percent versus January 2017). Not rising as much were outstanding revolving credit balances (e.g., credit cards), which inched up by $0.7 billion to $1.030 trillion (+6.1 percent versus January 2017). Revolving balances had risen by $6.1 billion and $11.3 billion during December and November, respectively.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 3, 2018, First-Time Claims, seasonally adjusted): 231,000 (+21,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 222,500 (-8.6% vs. the same week a year earlier).
Factory Orders (January 2018, New Orders for Manufactured Goods, seasonally adjusted):$491.7 billion (-1.4% vs. December 2017, -6.6% vs. January 2017).
Wholesale Trade (January 2018, Inventories of Merchant Wholesalers, seasonally adjusted): $619.1 billion (+0.8% vs. December 2017, +4.8% vs. January 2017).
Beige Book

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