Month: August 2017

By Thomas Cooley and Peter Rupert

The BEA released the 2nd estimate for Q2 real GDP and hiked it from 2.6% in the “advance” estimate to 3.0%. Real GDP increased 1.2% in Q1. The 3.0% increase is the largest since Q1 of 2015. The boost from the advance to the 2nd estimate came largely from PCE (up 3.3%) and non-residential fixed investment (up 6.9%) being larger than previously estimated. Residential fixed investment, however, fell 6.5%.

The strong growth in consumption occurred despite continued slow growth in wages and incomes. The rise in equity prices and the strong labor market have increased optimism that fueled more consumption. In fact the Conference Board reported an increase in consumer confidence that is hovering around a 16 year high. Investment growth is driven by a period of strong corporate profits. The US dollar continues to decline against a broad set of currencies, down about 7% since the beginning of the year and the Euro has also gained strength this year, up about 12%, despite increases in interest rates. This may stimulate future export growth which would keep the economy going strong.

Hurricane Harvey creates a lot of uncertainty for the future. On the one hand it foretells a big short term hit to local GDP from lost economic activity and the hit to the oil and gas sector. This will be balanced against future stimulus from the massive recovery effort. Evidence from prior national disasters – specifically Hurricane Sandy disrupted New York and Hurricane Katrina that devastated New Orleans – showed big short term impacts on the local economies but not a noticeable impact on aggregate GDP.  It seems that it shouldn’t affect forecasts of Q3 and Q4 growth very much.

 

By Thomas Cooley and Peter Rupert

The establishment survey from the BLS showed payroll employment up 209,000 in July. The revised increase, up 9,000, in payroll employment in June was 231,000. Private sector employment was almost solely responsible for the increase as government employment was up only 4,000.  The labor market is continuing to add jobs at a healthy rate in spite of the length of the expansion.

 

As in previous months most of the job growth is occurring in the service sector with some minor added employment in mining and construction.

Average hours of work remained at 34.5 for the second month in a row.

Average hourly earnings increased 0.3% (9 cents) to $26.36 and have increased 2.5% year over year while the CPI has increased 1.6% year over year, leading to an increase in real hourly earnings. This is a good sign, but no evidence that the labor market is going to be putting upward pressure on inflation anytime soon.

The Beveridge Curve continues to show low unemployment and a high vacancy rate, sometimes the recipe for increased wage pressure. But, in this economy, the employment to population ratio and labor force participation are still notably below their recent peaks…meaning a lot of possible workers are on the sidelines. There are two accounts for why this is so. In one, people are staying on the sidelines because of the increased value of leisure. The other, that we have emphasized, is that there is a mismatch of skills slowing down the matching in the labor market.

The employment to population ratio showed a modest up-tick as did labor force participation, although the labor force participation remains at a relatively low level. Moreover, trends in labor force participation are now very flat for many different types of workers and have been over the last several years. The most remarkable is that of teens, now at the lowest level since the data was recorded back in 1947.