U.S. Economic Snapshot

By Thomas Cooley and Peter Rupert

Payroll employment rose 228,000 for November as reported by the BLS, with the private sector gaining 221,000. The increases were widespread, with only Utilities down slightly and Information employment down 4,000. The Goods producing sector was up 62,000: Mining and Logging 7,000, Construction 24,000 and Manufacturing 31,000. Government employment was up 7,000 after declining for the past few months. Revisions nearly offset, with September up 20,000 and October down 17,000.

Average weekly hours rose to 34.5 and average hourly earnings up from $26.50 to $26.55.

From the household data there is little to report. basically no change in the unemployment rate, from 4.06 % to 4.12%, or the participation rate. However, long term unemployment remains remarkably elevated.

The overall strength of the labor market and the previous GDP report make a December rate hike pretty much a done deal.

 

 

 

By Thomas Cooley and Peter Rupert

The BEA announced a small upward revision to Q3 GDP, from 3.0% in the preliminary estimate to 3.3% in the second estimate. Year-over-year growth continues its upward trajectory. Consumption growth was revised down slightly to 2.3%.

The upward revision to fixed investment was large, increasing almost a full percentage point, from 1.5% to 2.4%. The big gainers in the investment sector were equipment, from 8.6% to 10.4%, and intellectual property, from 4.3% to 5.8%. Non-residential structures were bumped down, from -5.2% to -6.8%. Residential investment, however, was revised up, from -6.0% to -5.1%, respectively.

Corporate profits increased 4.3% from Q2 to Q3 and are up 5.4% compared to Q3 2016.

This revision does little to change the overall outlook of the US economy…meaning that the Fed is likely still on for a December rate hike.

 

By Thomas Cooley and Peter Rupert

The BLS announced an increase in payroll employment of 261,000 in October and revised September’s preliminary estimate of a decline of -33,000 to an increase of 18,000 and August revised up by 39,000. The increase was widespread across goods producing (33,000), service producing (219,000) and government (9,000).

Average hours remained at 34.4 and average hourly earnings were essentially flat. The labor market continues to plod along, not seeing particular strength or weakness.

The household survey revealed a sharp decline in the labor force, -765,000, and a decline in the number unemployed, -281,000, that lead to a decline in the unemployment rate from 4.220% to 4.065%. Employment declined, -484,000, as did the participation rate from 63.1 to 62.7. The employment to population ratio from 60.4 to 60.2. So while the establishment data looked strong, the household survey had little going for it except the drop in the unemployment rate.

Job openings from JOLTS reveals the number of openings remaining at or near the highest level ever. However, the number of hires per opening has fallen since the end of the Great Recession to its lowest number.

Although natural disasters have somewhat muddied the waters, there is little in this report that would change the likelihood of a December federal funds increase.

By Thomas Cooley and Peter Rupert

The BEA announced that GDP grew 3.0% the advance estimate for Q3 following a 3.1% rise in Q2. This was the strongest two-quarter increase since Q2-Q3 in 2014. The economy is rolling along despite the disruption from hurricanes and the uncertainty about future policies. Consumption expenditures remain strong, increasing 2.4% and durable goods increasing 8.3%. Investment in structures, both residential and non-residential, however, was quite weak, falling -6.0% and -5.2%, respectively. On the other hand equipment investment grew at 8.6% and intellectual property products at 4.3%.

As the affected areas rebuild from the hurricanes and wildfires the prospects are that economic activity will remain strong in the fourth quarter.  The only worries are longer term concerns about the impact of policies originating in the Whitehouse. Bu they remain very uncertain as of now.

By Thomas Cooley and Peter Rupert

The BLS announced a 33,000 decline in in payroll employment. Employment in the food services and drinking places sector fell by 104,000. Several disruptions occurred during the past month, including hurricane Irma that occurred at the beginning of the BLS survey week. This is the first decline in employment since September, 2010 as the economy was recovering from the Great Recession. The drop in employment in food services and drinking places was the largest since the series started. This decline was largely responsible for the overall decline in payroll employment. 

Average hours worked remained at 34.4 for the third straight month. Average hourly earnings rose 0.5% over the month and are up 2.9% year over year. Given the changes in the CPI and PCE, real earnings have grown between .5% and 1%, respectively.

The decline in payroll employment seems to be a little misleading due to the disruptions from the hurricanes. The household survey looks much more positive. The labor force participation rate was up from 62.9 to 63.1. The employment to population ratio was also up, from 60.1 to 60.4. The number of unemployed fell by 331,000 and the unemployment rate fell from 4.44% to 4.22%.

While the “headline” employment decline shows up first in most reports, a deeper look shows continued strength in the labor market. The coming months are likely to show a bounce back from the hurricane’s effects and a stimulus as rebuilding gets underway.

 

 

By Thomas Cooley and Peter Rupert

The BEA released the 3rd estimate for Q2 real GDP and hiked it from 3% in the 2nd estimate to 3.1% in the third. Real GDP increased 1.2% in Q1, unchanged from the previous estimate. The 3.1% increase is the largest since Q1 of 2015.

 

 

Non-residential fixed investment remained strong for the second quarter in a row, 7.2% in Q1 and 6.7% Q2. These back-to-back increases were the largest over the past three years. Residential investment, on the other hand, dropped 7.3%, the largest decline since 2011.

 

Hurricane Harvey created 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. Hurricanes Irma and Maria will not show up strongly in GDP except insofar as they affected Florida and the U.S. mainland. This is because the GDP from Puerto Rico and the U.S. Virgin Islands does not enter into calculations of U.S. Domestic GDP. Government expenditures on relief will show up.

 

By Thomas Cooley and Peter Rupert

The Bureau of Labor Statistics reports employment increased 156,000 in August along with 41,000 in downward revisions over the past two months. The overall picture, highlighted by the continued use of “little changed” by the BLS:

“and the unemployment rate was little changed at 4.4 percent”,

“Among the major worker groups, the unemployment rates for adult men (4.1 percent), adult women (4.0 percent), teenagers (13.6 percent), Whites (3.9 percent), Blacks (7.7 percent), Asians (4.0 percent), and Hispanics (5.2 percent) showed little or no change in August. (See tables A-1, A-2, and A-3.)”

“The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged in August at 1.7 million and accounted for 24.7 percent of the unemployed. (See table A-12.)”

“The labor force participation rate, at 62.9 percent, was unchanged in August and has shown little movement on net over the past year. The employment-population ratio, at 60.1 percent, was little changed over the month and thus far this year. (See
table A-1.)”

Declines in employment were seen in information services and government. Average hours of work fell slightly from 35.4 to 34.4.

The employment to population ratio has been inching up since 2014 while he labor force participation rate has hovered around 62.9.

 

 

The matching of workers to vacancies, as indicated by the Beveridge Curve, after moving counter-clockwise over the cycle shows a slightly elevated vacancy rate as compared to unemployment.

The weakness from this August report likely gives some pause for the policy moving forward. Nevertheless, it is still a strong labor market with low unemployment rates and  healthy vacancies. The same puzzles that presented themselves in prior months persist – low participation rates and low wage growth. Healthy GDP growth has not translated into gains for most workers.

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.

 

 

By Thomas Cooley and Peter Rupert

The advance estimate for Q2 shows a 2.6% annualized growth rate for real GDP. The largest contributor to that increase was consumption, real PCE increased 2.8% on an annualized basis. 

Several other sectors showed large increases, equipment up 8.2%, the largest increase since Q3 of 2015. Durable goods up 6.3%. Nonresidential fixed investment rose 5.2% following a 7.2% increase in Q1, the two highest growth rates since 2014 Q3. Residential fixed investment, however, declined 6.8%.

July is typically the month the BEA does annual updates. The timespan of the revisions is the first quarter of 2014 through the first quarter of 2017. Q1 of 2017 was revised down to 1.2% from 1.4%. The PCE price index was also revised down in Q1, from 2.4% to 2.2%. Overall, from 2013 to 2016 average annual growth was revised up slightly, to 2.3% from 2.2%.

Q2 was expected to come in stronger than Q1 and it was expected that consumers would drag the numbers up. Still, the picture is of modest, unspectacular growth.  This is now a very mature expansion and it could turn down at any time.  What has been missing throughout is the stimulus that would come from increased investment.  A big infrastructure program could turn that around but it does not seem to be likely in the near future. The current recovery, compared to earlier recoveries, has been remarkably weak for investment. It took about six years to get back to the pre-recession investment levels.