Month: October 2016

By Thomas Cooley, Ben Griffy and Peter Rupert

The Bureau of Economic Analysis release of the first estimate of Q3 GDP showed the economy expanded at a 2.9% clip at an annualized rate, the largest growth rate in two years. The 2.9% rate was more than double the 2nd quarter rate of 1.4%.  The solid GDP report, combined with a labor market that continues to provide new jobs, will give the Fed all the leeway it needs to increase rates in December.

It seems important to point out that in spite of the good report, growth coming out of the recession still pales relative to growth coming out of previous recessions. That has been the story for seven years even though we have seen some robust quarters.

Personal consumption expenditures showed a somewhat muted 2.1% rise.

Residential investment has shown weakness over the past two quarters, -7.7% in Q2 and -6.2% in Q3, after two years of positive growth. Non-residential fixed investment has also been quite weak over the past year or so. In general, investment continues to be a disappointing feature of the data.

 

Some of the strength in GDP came from a rise in net exports.  Exports rose in spite of a stronger dollar and imports stayed flat.

It remains to be seen if the improved growth can be sustained.  There are many uncertainties – the election, the path of Brexit, the future of trade deals, and so on.  These are weighing on expectations and may be reflected in Q4 GDP growth.

By Thomas Cooley, Ben Griffy and Peter Rupert

The BLS announced this morning that the establishment survey data revealed only a modest increase in employment of 156,000 for September. In addition, the July number was revised down from 275,000 to 252,000 but August was revised up from 151,000 to 167,000, so overall pretty much a wash as to the overall state of employment.

The labor market has averaged around 200,000 per month over the previous year. It appears clear from this report that it provides little help in assessing the next FOMC move.

Private sector employment was up 167,000 and government employment fell 11,000. This was consistent with the GDP report for Q2, which reported that state and local government spending had fallen. The mining and logging sector (oil sector is included) showed no decline in employment, the first non-negative number in two years.

Employment in the manufacturing sector shrank for the second consecutive month, down 16,000 in August and 13,000 this month. The services sector gained 157,000 jobs.

Average weekly hours rose slightly from 34.3 to 34.4.

The household survey showed a somewhat more robust looking labor market. The number of employed according that survey increased 354,000, with the labor force increasing 444,000. The overall impact drove the labor force participation rate up from 62.8 to 62.9.

The increase in the labor force moved the unemployment rate up slightly from 4.92% to 4.96%, so does not look quite as drastic as going from 4.9% to 5.0% as reported.

Looking at the composition of the unemployed since 2007 shows that job losers as a fraction of the unemployed are even lower than they were in 2007 and reentrants are a higher fraction of the unemployed.  Job losers at the nadir of the recession accounted for about 65% of the unemployed but only about 50% today. On the other hand new entrants accounted for about 6.5% of the unemployed at the nadir and now account for over 10%. The graph below shows how each of those changed since 2007.

The number of persons unemployed 27 weeks and longer fell slightly but is moving quite sluggishly and as a fraction of the unemployed remains at about a quarter, still higher than any time since 1948.

Once again the employment report does not help much in assessing what the FOMC will do at the next meeting. While the report showed continuing strength in the labor market and according to some beat expectations…still nothing to write home about.