The Bureau of Economic Analysis announced that real GDP grew at a 6.5% annual rate in Q2. Q1 was revised down to 6.3% from 6.4% and Q4 was revised up to 4.5% from 4.3%. Moreover, real GDP has now surpassed the highest pre-pandemic level, $19.2 trillion, and is now $19.36 trillion. Personal Consumption Expenditures rose 11.8%. The big downside is with investment that declined for the second straight quarter. The report was pretty much in line with expectations, a bit lower, but we are still in unchartered waters so pretty hard for people to be making predictions.
Initial Claims
Initial claims fell 24,000 to a still worrisome 400,000 and averaged 395,000 in the month of July after averaging 394,000 in June. Continuing claims rose 7,000 and remain elevated.
Personal income rose 0.1% between May and June with personal consumption expenditures rising 1.0%.
Overall, the economy is growing but with the new Delta variant there are some risks over the next few months. In addition, inflation has become the talk-of-the-town and it will be of interest to see how the Fed responds.
The BLS announced establishment employment increased 850,000 in June, beating estimates by a fairly large margin. Private employment was up by 662,000. The service sector was up 642,000 with leisure and hospitality the bulk of that increase, rising 343,000. So the leisure and hospitality sector has been steadily improving month by month as hotels and restaurants continue to open. Although there has been a lot of chatter about how difficult it is to fill open jobs. The latest data show that the number of job openings is at an all time high and about equal to the number of people unemployed.
Ok, so why do we have a question mark in the title? After all employment growth in June is the highest since last August. While the employment growth numbers are certainly robust, the report also said that average weekly hours fell from 34.8 to 34.7. That seems small, no? Well, actually no. Why? So last month in May employment was 144,909,000 and average hours of work was 34.8. Total hours of work then is 144,909,000 x 34.8 = 5,042,833,200. In June there were 145,759,000 employees who worked an average of 34.7 hours per week, giving 5,057,837,300. That’s an additional 15,004,100 from May to June. If the average workweek is, say 34.7 hours per worker, then we can translate that increase into an employment gain by dividing the increased hours by 34.7: 15,004,100/34.7 = 432,395 additional employees. The point is that there was an addition of 850,000 employees but they worked fewer hours on average. While current employment trends are, of course encouraging, a truer comparison of these employment reports suggests that 432,395 net “employees” were added from an aggregate GDP perspective. That is, the contribution to output is less than one would expect merely looking at the 850,000 employment gain.
Average hourly earnings have more than rebounded in the hard hit sectors like leisure and hospitality and retail. For June, year-over-year earnings growth in leisure and hospitality was 7.11% and retail 6.26% while total nonfarm growth was just 3.58%. Note, however, that the recent surge in inflation has damped real earnings growth substantially.
Household Survey
The household survey showed that employment fell by 18,000. The labor force increased 151,000 and both the employment to population rate and labor force participation rate were unchanged. The number of unemployed persons rose 168,000 and the unemployment rate ticked up from 5.79% to 5.89.
Initial Claims
Initial claims for unemployment insurance fell substantially, down 51,000 to a new low since the pandemic began, 363,000, although a still-elevated number. On the other hand, continued claims rose 56,000, continuing to be stubborn. The insured unemployment rate remained at 2.5% for the fourth consecutive week. Moreover, those unemployed 27 weeks or longer increased 233,000.
