U.S. Economic Snapshot

By Thomas Cooley and Peter Rupert

Fourth quarter real GDP increased 2.6% according to the advance estimate from the Bureau of Economic Analysis and 2017 finished up 2.3% overall. Personal consumption expenditures was the leading contributor, rising 3.8%, with durable goods purchases up 14.2%. Investment also came in strong, rising 3.6%, with residential fixed investment increasing 11.6% and non-residential equipment up 11.4% after being in negative territory for the past two quarters. On the negative side, inventories declined $29.3 billion and imports increased 13.9%, the latter being a subtraction in the GDP accounts.

The PCE chained price index increased 2.8%, the largest increase since 2011. It may signal an increase in pricing power in the economy. If so, it will give the Fed further justification for the ongoing increase in interest rates.

The dollar has been sliding and has recently been the talk of Treasury Secretary Mnuchin and President Trump from Davos. The Davos bump pushed the dollar to some of the lowest levels it has seen against the Euro.

The steady growth in the overall economy keeps the Fed in ready mode, although today’s strong, but not spectacular numbers, likely means no move at the upcoming meeting.

The U.S. is engaged in the sixth round of a scheduled seven rounds of negotiation of the NAFTA Treaty.  The U.S. is pressing for changes that would benefit U.S. manufacturing and transportation. The Countries seem far apart on the issues. The chart below makes it clear that the NAFTA has had a tremendous effect on trade between the three countries. Eliminating NAFTA would have severe consequences for all of the economies involved.

By Thomas Cooley and Peter Rupert

The BLS announced that December employment rose by 148,000. The gains were broad-based, the only declines were found in retail trade, -20.3, and utilities, -0.9. This is well off the trend rate of job growth of the last few months.  It is also significantly softer than the ADP estimate based on payroll data of 250,000 new private sector jobs. But employment growth has been volatile month-to-month and this softening is not statistically meaningful. The unemployment rate remained steady at 4.1% and other features of the labor market remained much the same.

Average hours of work remained at 34.5 and average hourly earnings ticked up 9 cents to $26.63.

Average hourly earnings increase was 0.3% which signals some upward pressure on wages but nothing like a the break through increases that observers have been looking for as evidence of a tight market.

The household survey shows that labor force participation and the employment population ratio remain largely unchanged at historically low levels. This represents a degree of slack in the labor market and it isn’t changing.

 

 

Weather and recurrent natural disasters have had a fairly steady damping effect on the aggregate labor market over the past 12 months.  Observers report emerging signs of tightness and rising wages in some regional markets that have not been so affected.  We should expect to see some significant strengthening of labor markets over the next 12 months that have nothing to do with changes to the tax law.  If that also turns out to have an impact on employment then we should begin to see that show up in wage growth and labor force participation.

 

 

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.