Saturday, September 3, 2016

A Half-Full Jobs Report

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Nonfarm payrolls rose a lower-than-expected 151,000 in August with revisions to July and June at a net minus 1,000, reported the Bureau of Labor Statistics. I would call this a half-full employment report in an economy that is not too hot, or too cold. The unemployment rate held at 4.9 percent with modest increases on both the employment and unemployment.

Earnings are very soft in this report, up only 0.1 percent in the month for a year-on-year plus 2.4 percent which is down a sizable 3 tenths from July and isn't pointing to any wage-hike flashpoint. And the workweek is down, at 34.3 hours with July revised 1 tenth lower to 34.4.

Earnings were at the bottom end of wage growth, because bars and restaurants added 34,000 new employees to lead the way in hiring. And the number of social workers also rose by 22,000, an unusually large increase, both low-paying service sector jobs. Retail also added 15,100 jobs in a sign that consumer spending is holding up.

Consumer spending last month was lifted by a 1.6 percent surge in purchases of long-lasting manufactured goods such as automobiles. Spending on services rose 0.4 percent, but outlays on non-durable goods slipped 0.5 percent (such as food and clothing).

The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) was little changed at 6.1 million in August. These individuals, who would have preferred full-time employment, were working part time because their hours had been cut back or because they were unable to find a full-time job.

And the manufacturing sector is showing signs of growth in Q3, even though the ISM’s manufacturing index fell below 50 percent in August for its first contractionary sub-50 reading since February, at 49.4 a more than 3 point decline.

Manufacturing, which accounts for about 12 percent of the economy, remains constrained by the lingering effects of a strong dollar and weak global demand, which have crimped exports of factory goods. A collapse in oil drilling activity following a plunge in oil prices has also squeezed manufacturing by undermining business spending, leading to weak demand for heavy machinery. In addition, a U.S. inventory correction has resulted in factories receiving fewer orders.

This may be temporary, however, as factory orders surged 1.9 percent in July for the best gain since October last year, after monthly declines of 1.2 and 1.8 percent in May and June. Orders for core capital goods (nondefense ex-aircraft) were especially strong in July, up 1.5 percent following June's 0.5 percent gain in readings that upgrade what has been a very soft outlook for business investment. Aircraft, which is always volatile in this report, is July's biggest plus, surging 90 percent in the month. But vehicles are a negative in the report, down 0.5 percent.

We therefore see mixed results for Q3, as businesses seem to be waiting for the various elections in November that will determine Congress, as well as the President. Business shouldn’t wait, however, as the US is in the best position to profit from uncertainty in the EU and elsewhere, regardless of who wins.

And there are still 7.8 million unemployed workers and 6.1 million part timers that would prefer to work fulltime, which means a half-full economy that still has room to grow.

Harlan Green © 2016

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