Job Creation Underwhelmed in August: September 2 – 6

Job creation slowed in August while one measure of manufacturing activity turned negative. Here are the five things we learned from U.S. economic data released during the week ending September 6.

#1Private-sector payrolls growth decelerated in August. The Bureau of Labor Statistics tells us that nonfarm payrolls grew by a seasonally adjusted 130,000 during the month, off from the downwardly revised gains in June and July of 178,000 and 159,000, respectively. The expansion in payrolls also is a bit misleading as 25,000 of net gain is the result of temporary federal government hires to support the 2020 Census. The private sector added 96,000 workers, down from July’s 131,000 net gain and the fewest since May. The industries adding the most jobs in August were professional/business services (+37,000), health care/social assistance (+36,800), financial activities (+15,000), construction (+14,000), and leisure/hospitality (+12,000). Average weekly earnings of $966.98 represented a 2.9 percent increase from a year earlier.private and government payrolls 2017-9 090619.png

A separate survey of households keeps the unemployment rate at 3.7 percent for a third consecutive month. The labor force expanded by a robust 590,000 people, translating into a labor force participation rate of 63.2 percent. The same measure for adults aged 25-54 jumped by 6/10ths of a percentage point to 82.6 percent (tying the post-recession high achieved back in January). The median length of unemployment held steady at 8.9 weeks (August 2018: 9.4 weeks) while the count of part-time workers seeking a full-time job grew by 397,000 to 4.381 million (August 2018: 4.368 million). Finally, the broadest measure of labor underutilization from the BLS (the “U-6” series) increased by 2/10ths of a point to 7.2 percent (August 2018: 7.4 percent).

#2The trade picture improved slightly in July. The Census Bureau and the Bureau of Economic Analysis estimate exports increased by $1.2 billion to a seasonally adjusted $207.5 billion (-0.6 percent versus July 2018) while imports slowed by $0.4 billion to $261.4 billion (virtually unchanged from a year earlier). The resulting deficit of -$54.0 billion was $1.5 billion smaller than that of June but also was 2.9 percent greater than that of a year earlier. Over the first seven months of 2019, the trade deficit has totaled -$373.8 billion, 8.2 percent greater than the gap from the first seven months of 2018. The goods deficit fell by $1.6 billion to -$73.6 billion while the services surplus shrank by $0.1 billion to +$19.7 billion. The U.S. had its largest goods deficits with China, the European Union, and Mexico.

#3Purchasing managers tell us manufacturing slowed in August. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, shed 2.1 points during the month to a reading of 49.1. This was the first time in nearly three years in which the PMI fell below a reading of 50.0, indicative of contracting manufacturing sector. Four of five PMI components fell during the month: employment (down 4.3 points), new orders (down 3.6 points), supplier deliveries (down 1.9 points), and production (down 1.3 points). The component for inventories eked out a small gain. Only nine of 18-tracked manufacturing industries reported growth, led by textiles, furniture, and food/beverage/tobacco. The press release noted survey respondents’ comments indicating that “trade remains the most significant issue,” reflected by declining export orders and negative supply chain impacts.

#4…But they also report that service sector activity picked up over the same time. The NMI, the headline index for the Non-Manufacturing Report on Business, ticked up 2.7 points to a reading of 56.4. This was the NMI’s 115th consecutive month with a reading above 50.0 and its best reading since May. Only two of four NMI components increased in August—business activity and new orders—while measures for employment and supplier deliveries each slumped. Sixteen of 18-tracked industries expanded during the month, led by real estate, accommodation/food services, and public administration. The press release noted continued concerns “about tariffs and geopolitical uncertainty,” but also that survey respondents were “mostly positive about business conditions.”

#5Even with the news from above, new factory orders grew in July. The Census Bureau reports that new orders for manufactured goods increased 1.4 percent to a seasonally adjusted $500.3 billion. Even though this was the second consecutive monthly increase, factory orders over the first seven months of the year were tracking only 0.4 percent ahead of that from the same months a year earlier. As we learned last week, transportation orders were a significant driver of the increased orders, jumping 7.0 percent thanks to surges for both civilian (+47.8 percent) and defense (+34.3 percent) aircraft. Durable goods orders jumped 2.0 percent while those of nondurables gained 0.8 percent. Orders of civilian non-aircraft capital goods—a proxy for business investment—increased 0.2 percent in July. Shipments fell for the first time in three months with a 0.2 percent decline to $504.0 billion while unfilled orders mostly held steady after three monthly declines at $1.162 trillion. Inventories expanded for the 11th time over the past 12 months by growing 0.2 percent to $696.5 billion.

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 31, 2019, First-Time Claims, seasonally adjusted): 217,000 (+1,000 vs. previous week; +7,000 vs. the same week a year earlier). 4-week moving average: 216.250 (+1.3% vs. the same week a year earlier).
Productivity (2019Q2, Nonfarm Business Labor Productivity, seasonally adjusted annualized rate): +2.3% vs. 2019Q1, +1.8% vs. 2018Q2.
Construction Spending (July 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.289 trillion (+0.1% vs. June 2019, -2.7% vs. July 2018).
Beige Book

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

Hiring Held Steady, The FOMC Did Not: July 29 – August 2

The Fed lowered its interest rate target even as the labor market continued to create jobs. Here are the five things we learned from U.S. economic data released during the week ending August 2.

#1Job creation continued in July. The Bureau of Labor Statistics indicates that nonfarm payrolls expanded by a seasonally adjusted 164,000 jobs during the month. While off from June’s downwardly revised 193,000 job gain, this was 106th straight month of payroll expansion. Private-sector employers added 148,000 workers during the month, split between 15,000 in the goods-producing sector and 133,000 in the service sector. Industries adding the most workers in July were health care/social assistance (+50,400), professional/business services (+38,000), financial activities (+18,000), and manufacturing (+16,000). Average hourly earnings have risen 3.2 percent over the past year to $27.98.

A separate household survey kept the unemployment rate of 3.7, which was just above its multi-decade low of 3.6 achieved back in May. 370,000 people entered the labor market, pushing the labor force participation rate up a 1/10th of a percentage point to 63.0 percent. The same measure for adults aged 25 to 54 fell by 2/10ths of a percentage point to 82.0 percent. Falling to post-recession lows were the median length of unemployment (8.9 weeks, matching the business cycle low hit in January), the count of part-time workers seeking a full-time job (3.984 million), and the broadest measure of labor underutilization, the “U-6” series (7.0 percent).

#2The Fed cuts its short-term interest rate target. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted continued strength in the labor market and household spending. Yet the FOMC remained concerned about “soft” business investment and inflation compensation that had “remain[ed] low.” Due to “implications of global developments for the economic outlook as well as muted inflation pressures,” the FOMC voted to cut the fed funds target rate by 25-basis points to a range between 2.00 and 2.25 percent. Two FOMC voting members (George and Rosengren) both opposed the target rate cut. The dissents and the somewhat muted statement about how it will “act as appropriate” in the future leaves up in the air expectations on potential additional rate cuts.

#3Growth in personal spending slowed in June. The Bureau of Economic Analysis reports real personal consumption expenditures (PCE) rose a seasonally adjusted 0.2 percent. While this was the fourth consecutive monthly increase, it was its smallest gain of the four. Consumer spending on goods jumped 0.4 percent as expenditures on nondurable goods rose 0.7 percent and that on durables slipped 0.1 percent. Services spending on edged up 0.1 percent. Funding the increased spending was a 0.3 percent gain in real disposable income. The savings rate edged up 1/10th of a percentage point to +8.1 percent. Over the past year, real consumer spending has risen 2.5 percent, boosted by a 3.3 percent jump in real disposable income.

#4The trade deficit held steady in June. Per the Census Bureau and the Bureau of Economic Analysis, exports dropped by $4.4 billion to $206.3 billion (-2.2 percent versus June 2018) while imports fell by $4.6 billion to $261.5 billion (+1.2 percent versus June 2018). The resulting trade deficit of -$55.2 billion was $0.2 smaller than that of May but 16.3 percent greater than that of a year earlier. The goods deficit narrowed by $0.8 billion to -$75.1 billion (+8.2 percent versus June 2018) while services surplus shrank by $0.6 billion to +$20.0 billion (-9.3 percent versus June 2018). The former was the product a $3.9 billion drop in exported goods (including for consumer goods, capital goods, and automobiles) and a $4.7 billion slowdown in imported goods (including for crude oil, petroleum products, and consumer goods).

#5One measure of consumer sentiment rebounded in July, another was steady. The Conference Board’s Consumer Confidence Index jumped by 11.4 points during the month to a seasonally adjusted reading of 135.7 (1985=100), reversing a sharp drop in June and hitting a 2019 high point. The current conditions index added 7.6 points to a reading of 170.9 while the expectations index rose by 14.6 points to 112.2. 40.1 percent of survey respondents characterized current business conditions as good versus 11.2 percent that saw them as being “poor.” Similarly, 46.2 percent of consumers report that jobs were “plentiful” versus just 8.7 percent that felt jobs were “hard to get.” The press release said the results suggest “robust spending in the near-term despite slower growth in GDP.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment came in at a seasonally adjusted 98.4. This matched the preliminary July reading reported a few weeks ago and represented a mere 2/10ths of a point gain from June and a half point increase from a year earlier. The present conditions index shed 1.2 points during the month to a reading of 110.7 (July 2018: 114.4) while the expectations index added 1.2 points to 90.4 (July 2018: 87.3). While noting that sentiment had remained “remarkably stable” over the past few years, the press release wonders whether the recently announced expansion in tariffs on Chinese imports may lessen “overall consumer confidence.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 27, 2019, First-Time Claims, seasonally adjusted): 215,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 211,500 (-1.7% vs. the same week a year earlier).
Factory Orders (June 2019, New Orders, seasonally adjusted): $493.8 billion (+0.6% vs. May 2019, -1.2% vs. June 2018.
ISM Manufacturing Report on Business (July 2019, PMI (Index>50 = expanding manufacturing sector): 51.2 (vs. June 2019: 51.7).
Construction Spending (June 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.287 trillion (-1.3% vs. May 2019, -2.1% vs. June 2018).
Pending Home Sales (June 2019, Index (2001=100), seasonally adjusted): 108.3 (vs. May 2019: +2.8%, vs. June 2018: +1.6%).

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

Hiring Bounced Back: July 1 – 5

The labor market rebounded in June. Here are the five things we learned from U.S. economic data released during the week ending July 5.  

#1Job creation recovered in June. The Bureau of Labor Statistics tells us that nonfarm payrolls expanded by a seasonally adjusted 224,000 during the month, a sharp surge versus May’s 72,000 created jobs and just above April’s 216,000 payrolls jump. Private sector employers added 191,000 workers (up from an 83,000 gain in May), split between 154,000 in the service sector and 37,000 in the goods-producing sector. Industries adding the most jobs in June included professional/business services (+51,000), health care/social assistance (+50,500), transportation/warehousing (+23,900), and construction (+21,000). Average weekly private sector earnings of $959.76 represented a 2.8 percent increase over the past year.Yearly Wage Increases 070519

A separate survey of households has the unemployment rate inching up 1/10th of a percentage point to 3.7 percent (just above its multi-decade low) as 335,000 people entered the labor force during the month. The labor force participation rate grew by 1/10th of a percentage point to 62.9 percent—the same measure for adults aged 25 to 54 also added 1/10th of a percentage point to 82.2 percent. The median length of unemployment grew by a half week to 9.6 weeks while the number of part-time workers seeking a full-time opportunity essentially held steady at 4.347 million. The U-6 series, the broadest measure of labor underutilization published by BLS, eked out a 1/10th of a percentage point increase to 7.2 percent (just above its almost 19-year low achieved last month).

#2The U.S. trade deficit hit a 2019 high in May. The Census Bureau and the Bureau of Economic Analysis report that while exports grew by $4.2 billion to a seasonally adjusted $210.6 billion (-1.3 percent versus May 2018), imports surged by $8.5 billion to $266.2 billion (+3.3 percent versus May 2018). The resulting trade deficit of -$55.5 billion was up $4.3 billion from April and was a five-month high. The goods deficit blossomed by $4.4 billion to -$76.1 billion while the services surplus widened slightly (+$0.1 billion) to +$20.6 billion. The former resulted from imports of goods swelling $8.1 billion (including from imported automobiles, crude oil, capital goods, and semiconductors), overwhelming the $4.0 billion increase in exported goods (including capital goods, consumer goods, soybeans, and automobiles). The U.S. had its largest goods deficits with China, the European Union, Mexico, and Japan.

#3Factory orders dropped in May. New orders for manufactured goods decreased for the third time in four months with a 0.7 percent decline to a seasonally adjusted $493.6 billion, per the Census Bureau. Transportation goods orders shrank 4.6 percent, hurt by contracting orders for civilian (-28.2 percent) and defense (-15.5 percent) aircraft. Net of transportation orders inched up 0.1 percent, with increased orders for furniture (+3.3 percent), electrical equipment/appliances (+1.0 percent), machinery (+0.8 percent), computers/electronics (+0.7 percent), and primary metals (+0.1 percent). Declining were orders for fabricated metal products (-0.3 percent) and nondurables (-0.2 percent). Meanwhile, shipments grew 0.1 percent to $504.3 billion (its third gain in four months), with shipments unchanged for the month net of transportation goods. Unfilled orders declined 0.5 percent to $1.171 trillion (its third drop in four months) while inventories expanded for the eighth time in nine months with a 0.2 percent increase to $694.1 billion.

#4Purchasing managers suggest a slower pace of economic growth in June. The Institute for Supply Management’s PMI (the headline index from its Manufacturing Report on Business) slipped by 4/10ths of a point to 51.7. While this was the PMI’s lowest reading since October 2016, it also was the measure’s 34th straight month above a reading of 50.0 (the threshold between an expanding and contracting manufacturing sector). Three of five PMI components took a step back in June—new orders, inventories, and supplier deliveries—while the other two—production and employment— both advanced. Twelve of 18 tracked manufacturing industries reported growth, led by furniture, printing, and textiles. The press release noted that survey respondents “expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy.”

The NMI, the headline index from ISM’s Nonmanufacturing Report on Business, declined by 1.8 points in June to a reading of 55.1. The NMI has been above the critical 50.0 threshold for an impressive 113 months, but this is the measure’s lowest reading since July 2017. Only one NMI component (supplier deliveries) grew during the month, while the other three declined (employment, business activity/production, and new orders). Sixteen of 18 tracked nonmanufacturing industries reported growth, led by real estate. The press release characterized survey respondents’ sentiment as “mixed,” as a “degree of uncertainty exists due to trade and tariffs.”

#5Construction spending decelerated in May. The Census Bureau places the seasonally adjusted annualized rate of construction put in place at $1.294 trillion, down 0.8 percent from April and 2.3 percent below the year-ago pace. Residential construction spending dropped 0.7 percent to an annualized $953.2 billion, 6.3 percent less than that of a year ago and its lowest reading since January 2017. Falling were spending on both private sector nonresidential (-0.9 percent) and residential (-0.6 percent) spending. Reversing recent trends, public sector construction spending also slowed, slumping 0.9 percent to an annualized $340.6 billion. Despite May’s decline, public construction spending remained 10.8 percent ahead of its year-ago pace.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 29, 2019, First-Time Claims, seasonally adjusted): 221,000 (-8,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 222,250 (-0.1% vs. the same week a year earlier)

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