More Signs of Slow Growth

 Financial FAQs

“The manufacturing economy continues to struggle,” Susan Spence of ISM said. “It will continue to struggle” due to all the trade uncertainty.

“The administration’s tariffs alone have created supply chain disruptions rivaling that of Covid-19,” an executive at an electronics company told ISM.

FREDmanufacturingemployment

The only number in the Institute of Supply Management’s (ISM) manufacturing survey that rose were prices due to a shortage of commodities—i.e., supply. Every other component of the supply managers’ survey was contracting—such as new orders, production, and employment.

Manufacturing employment had been declining since 1980; from 19,000,000 jobs to 12,765,000 jobs in April per the FRED graph out of a total 159 million jobs.

It’s the first sector of the U.S. economy that is showing stagflation—prices are up while production is stagnating. Hence the above remarks from supply managers and Susan Spence, Chair of the ISM Survey.

The services index of the Institute for Supply Management also contracted for the first time in a year. It fell to 49.9% in May from 51.6% in April, the ISM said Wednesday. Any number below 50% signals contraction.

Economic activity in the services sector contracted in May, the first time since June 2024, say the nation's purchasing and supply executives in the latest Services ISM^® Report On Business^®. The Services PMI^® indicated slight contraction at 49.9 percent, below the 50-percent breakeven point for only the fourth time in 60 months since recovery from the coronavirus pandemic-induced recession began in June 2020.

The Labor Department’s JOLTS report shows that the service sector is still adding jobs. Job openings rose in April for white-collar, retail, healthcare, and entertainment and recreation roles. But job listings fell at hotels and restaurants, whose business has been hurt by a decline in tourism. Some foreign visitors have put off trips to the U.S. because of the trade wars and other White House policies.

Another disheartening jobs report came out today. ADP, a private payroll processor, reported that privately run businesses created just 37,000 new jobs in May — the smallest increase in more than two years — as the most damaging global trade wars since the Great Depression spurred many firms to put a pause on hiring.

The real problem is that employers won’t begin to hire again until the trade wars are resolved, and President Trump says he isn’t letting up on the tariff wars because it will create more manufacturing jobs. But that will take years, and automation has replaced most of the manufacturing jobs (which no longer pay as well) before we see any signs of a manufacturing resurgence.

Economists such as Paul Krugman, who won a Nobel Prize for his pioneering research in foreign trade, remarking on the sudden 50 percent increase in steel tariffs, believes the damage  to the U.S. Economy from such draconian tariff rates (i.e., import taxes) is already done.

So steel tariffs don’t make any policy sense. But then neither does anything else in Trump’s trade war — and the nonsensical nature of the whole enterprise is why I don’t think he’ll find an off-ramp. After all, it’s obvious that the increased steel tariff wasn’t a considered policy, it was a temper tantrum after the Court of International Trade ruled against his other tariffs.

Is the contraction of both the service and manufacturing sectors the first sign that the U.S. economy is already in recession? This Friday’s ‘official’ U.S. Labor Department unemployment report will tell us more.

Harlan Green © 2025

Follow Harlan on Twitter: https://twitter.com/HarlanGreen

How Much Has US Economy Slowed?

Financial FAQs

Calculated Risk

It’s a difficult question to answer. The ISM’s non-manufacturing Indexes still show growth, which is two-thirds of economic activity, but we are close to that edge of no growth at all.

“The NMI® registered 52.6 percent, which is 3.8 percentage points below the August reading of 56.4 percent,” reports Anthony Nieves, Chair of the Institute for Supply Management. “This represents continued growth in the non-manufacturing sector, at a slower rate. The Non-Manufacturing Business Activity Index decreased to 55.2 percent, 6.3 percentage points lower than the August reading of 61.5 percent, reflecting growth for the 122nd consecutive month. The New Orders Index registered 53.7 percent; 6.6 percentage points lower than the reading of 60.3 percent in August. The Employment Index decreased 2.7 percentage points in September to 50.4 percent from the August reading of 53.1 percent. The respondents are mostly concerned about tariffs, labor resources and the direction of the economy,” said Nieves.

 We know the US economy is slowing, and the manufacturing activity is already contracting—the first of the four indicators that are used to call a recession—per the ISM’s Manufacturing Diffusion Index.

ADP.com

And last week’s Associated Data Processing survey came in at 135,000 jobs created, which is a slight downward trend. Just 8,000 jobs were added to the goods-producing sector, whereas 127,000 jobs were added to the service-providing sector, according to ADP.

ADP private payroll survey is usually within 50,000 of the US Bureau of Labor Statistics monthly survey coming out tomorrow, which isn’t much help in predicting the BLS unemployment report.
So there you have it. Employment growth has leveled off. i.e., is no longer increasing. Tomorrow’s report may also show more weakness in job creation.

The 10-year Treasury yield also slipped back into the 1.5 percent range, a sign that there is little demand for credit. Interest rates this low are also a sign of pessimism about future growth, which can be self-fulfilling.

I believe our economy will continue to barely grow, and so avoid an outright recession; at least until next year’s presidential election, when the trade wars might or might not be finally resolved. That seems to be the consensus.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Higher Home Sales Mean What?

The Mortgage Corner

FRED

"Sales of new single‐family houses in August 2019 were at a seasonally adjusted annual rate of 713,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.1 percent above the revised July rate of 666,000 and is 18.0 percent above the August 2018 estimate of 604,000. "

A robust housing market could mitigate what is increasingly looking like a looming manufacturing recession due to the ongoing and increasingly contentious trade wars.

Another housing market indicator was also positive, per the National Association of Realtors (NAR). 

The Pending Home Sales Index, www.nar.realtor/pending-home-sales, a forward-looking indicator based on contract signings, climbed 1.6 percent to 107.3 in August, reversing the prior month’s decrease. Year-over-year contract signings jumped 2.5 percent. An index of 100 is equal to the average level of contract activity.

“It is very encouraging that buyers are responding to exceptionally low interest rates,” said Lawrence Yun, NAR chief economist. “The notable sales slump in the West region over recent years appears to be over. Rising demand will re-accelerate home price appreciation in the absence of more supply.”

This is while the Institute for Supply Management’s manufacturing index fell to 47.8 percent last month from 49.1 percent, marking the lowest level since June 2009, when the Great Recession ended.

“Comments from the panel reflect a continuing decrease in business confidence,” said the report, “…The New Export Orders Index continued to contract strongly, a negative impact on the New Orders Index. Consumption (measured by the Production and Employment indexes) contracted at faster rates, again primarily driven by a lack of demand, contributing negative numbers (a combined 3.3-percentage point decrease) to the PMI^® calculation.”

The decline in exports was due to a overall decline in foreign trade. A most recent example of the hurt from that decline was the closing of a Louisiana steel mill because it couldn’t pay for the rising costs of imported scrap steel that it made into finished steel projects, due to the 25 percent tariff (tax) on imported steel.

It remains to be seen whether other business sectors are beginning to contract, as well. Consumer spending, for example, is on the downward trend, rising just 0.1 percent in August, and 2.3 percent annually, approximately one-half of its 4.8 percent growth rate through the first two quarters, according to the last Q2 GDP estimate. It was the lowest spending in six months, and doesn’t augur well for the rest of the year.

And the latest U-turns in Chinese trade negotiations are coming from Trump’s proposal to limit Chinese company listings on U.S. stock exchanges, which is just one more reason for the increasing uncertainties about future growth.

So I keep wondering how much longer can a healthy housing market and low interest rates keep consumers happily consuming?

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Can U.S. Economy Weather Trade Wars?

Financial FAQs

Econoday.com

Why is manufacturing doing so well in the face of rising tariffs—in January when mid-winter business activity tends to slow? Consumers flush with cash from rising wages and full employment are powering higher domestic demand. Exports, on the other hand, have declined because of the rising costs of materials and parts, causing buyers to switch to exports from other countries that aren’t affected by the trade wars. Manufacturing exports had the slowest growth in two years.

The Institute of Supply Management reported that its January manufacturing index “registered 56.6 percent, an increase of 2.3 percentage points from the December reading of 54.3 percent. The New Orders Index registered 58.2 percent, an increase of 6.9 percentage points from the December reading of 51.3 percent. The Production Index registered 60.5 percent, 6.4-percentage point increase compared to the December reading of 54.1 percent. The Employment Index registered 55.5 percent, a decrease of 0.5 percentage point from the December reading of 56 percent.”

Any number over 50 indicates that a majority of managers are reporting expanding business in the various sectors that the ISM Indexes measure. The question then is how long can consumers keep this up, while foreign demand for U.S. goods continues to decline? There is very little optimism that the tariff wars will subside soon, given that the revamped NAFTA Treaty has yet to pass Congress, and Democrats in particular not happy with Trump’s cosmetic tweaks that do little to change it.
Brookings’ analysis was that “After a year and a half of negotiations, the three parties are going to end up with a new trade deal that looks remarkably similar to the old NAFTA.”

The ISM’s Non-manufacturing Index for the service sector is also growing robustly, which means that most of the U.S. economy will continue steady growth; at least for the first half of this year and maybe longer if interest rates remain at their current lows.

Econoday.com

“The NMI^® registered 56.7 percent, which is 1.3 percentage points lower than the December reading of 58 percent. This represents continued growth in the non-manufacturing sector, at a slower rate. The Non-Manufacturing Business Activity Index decreased to 59.7 percent, 1.5 percentage points lower than the December reading of 61.2 percent, reflecting growth for the 114th consecutive month, at a slower rate in January. The New Orders Index registered 57.7 percent, 5 percentage points lower than the reading of 62.7 percent in December. The Employment Index increased 1.2 percentage points in January to 57.8 percent from the December reading of 56.6 percent.”

The problem with the Trump administration’s bargaining style in levying punitive tariffs on exports from friend and foe, on top of the fact that appearances seem to be more important than substance, is that such bully tactics turn off foreign countries who have lots of choices doing business elsewhere than with the U.S.

This is already showing signs of affecting U.S. growth, since consumers cannot maintain their higher consumption (largely fueled by borrowing) forever. The BEA’s Q3 2018 GDP final growth estimate was 3.4 percent, down from Q2’s 4.2 percent. Fourth quarter’s initial GDP estimate has been held up by the government shutdown.

Why the slowdown? “The deceleration in real GDP growth in the third quarter primarily reflected a downturn in exports and decelerations in nonresidential fixed investment and in Personal Consumption Expenditures (i.e., consumer spending),” said the BEA. “Imports increased in the third quarter after decreasing in the second.”

A continuation of this picture could be a sign of further growth problems, if the trade wars aren’t resolved soon.

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

How Important is Tomorrow's Employment Report?

Financial FAQs

Graph: Econoday

Tomorrow’s U.S. unemployment report is predicted to drop the unemployment rate to 3.8 percent, according to MarketWatch. But that may be misleading, as almost one million job openings remain unfilled, which could boost the payroll jobs total much higher. Even though just 157,000 payroll jobs were created in July, it may have been because so many work seekers were in vacation, and didn’t choose to take up a new job.

Tomorrow is important because it could foretell whether economic growth is slowing due to the trade war uncertainties. The just revised Q2 GDP growth estimate was left unchanged at 4.2 percent, a good showing.

Meanwhile, initial weekly jobless claims have fallen to 203,000, the lowest since 1969, which is another sign fewer workers are being laid off. Today’s August ADP private payrolls survey reported 163,000 jobs created. It is sometimes a predictor of the U.S. jobs report, as the above graph shows, but usually underestimates the U.S. Labor Department report.

Graph: Econoday

Another sign of economic strength is the just released August ISM non-manufacturing survey of Supply Managers. ISM's non-manufacturing sample reports sharp acceleration in overall growth during August, at an index of 58.5 vs July's 55. Strength is centered in orders with both new orders, at 60.4, and backlog orders, at 56.5, posting strong monthly gains. And new export orders are up 2.5 points to 60.5, a special plus and one that underscores the importance of service exports for the U.S. economy, says Econoday.

“Export orders expanded at stable levels,” commented Timothy R. Fiore, Chair of the Institute for Supply Management^® (ISM^®) Manufacturing Business Survey Committee. “Prices pressure continues, but the index softened for the third straight month and remains above 70. Demand is still robust, but the nation’s employment resources and supply chains continue to struggle. Respondents are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations. Panelists are actively evaluating how to respond to these business changes, given the uncertainty.”

Prices are rising for parts as well as finished products, in other words. But companies are not yet passing said costs on to consumers; maybe because of the recent tax cuts. That is, except for the two industries reporting contraction in August: Wood Products and Primary Metals, which are already subject to higher tariffs.

Corporate profits are surging almost 8 percent at present because of the tax cuts. But corporations are not yet boosting employees’ wages and salaries above the inflation rate. How is that possible in such a tight labor market? This may be clearer with tomorrow’s unemployment report.

A recent National Bureau of Economic Research Working Paper that surveyed union historical records showed during maximum membership years from 1940-70 unions offered a larger wage premium to less-skilled workers, so that unions have had an important equalizing effect on income distribution to the extent that they are successful in organizing the less-skilled.

But that effect has diminished as union membership shrank and fewer numbers of low-skilled workers have joined unions since then, which is also keeping wages from rising faster. Still, union membership has historically offered greater benefits to union workers than non-union workers.

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

A Poor Employment Report?

Popular Economics Weekly

What does it mean when 33,000 nonfarm payroll jobs were lost in September? Not much, when many of the losses came from the hurricanes that threw 1.5 million out of work, according to Marketwatch’s Jeff Bartash, and the rest of our economy is doing very well.

Wages jumped, also good news, but it was mainly because many of those lost jobs were in retail and restaurants which tend to pay the lowest incomes, hence the upward trend may be temporary.

Graph: Marketwatch.com

The number of employed jumped by a huge 906,000 in the smaller household survey that determines the unemployment rate—in spite of the storms—while the number of job losses was smaller; at 331,000, hence the lower unemployment rate. So the rest of the U.S. is doing well.

And we now have a fast growing manufacturing sector that will grow even faster with the cleanup and rebuild from those disasters. Its growth is also helped by the cheaper dollar, which is boosting exports.

Econoday reports ISM's manufacturing index, already running well beyond strength in factory data out of Washington, is accelerating even further, to an index of 60.8 in September which is a 13-year best. Part of the gain in the index is tied to hurricanes and specifically deliveries times where slowing is translated as strength, as we said.

But it's more than that—maybe those higher exports are boosting GDP growth as well? Factory new orders rose 4.3 points in the month to 64.6 which is a 4-year high. And the hurricanes didn't slow down production which is at a very strong 62.2. Employment is a big standout in today's report, posting the first 60 score at 60.3 in 6-1/2 years.

Graph: Econoday

The ‘other’ non-manufacturing service sector part of the economy is also growing robustly. The headline ISM non-manufacturing survey index jumped to 59.8 for the highest score in more than 3 years. New orders, that include strength for exports, jumped nearly 5 points to a robust 61.3 level that was last exceeded in April this year. Backlog orders jumped 2.5 points to 56.0 which helped employment rise 6 tenths to 56.8 with both these readings the strongest since May this year.

So the U.S. economy is firing on all cylinders, which is why the Fed is making louder noises re a December rate hike, in spite of nonexistent inflation. Why do so? Because it wants to gradually sell off its $4.5 billion hoard of government securities, which reverses the various QE programs that injected that much cash to boost growth.

So with less cash in circulation, money is no longer so cheap and market interest rates tend to rise. The Fed wants to be able to anticipate this trend.

But shouldn’t we be seeing more indications of higher growth than just one quarter of 3.1 percent GDP growth? That may happen if more federal funding than a measly $14.6 billion is available for Hurricane Harvey alone, when cleanup may cost $200 billion

Government-is-the-problem Texas Gov. Greg Abbott has changed his tune now that Texas is in need of federal funding. He said he thinks the state will need "far in excess" of $125 billion in federal relief dollars. Houston Rep. Sheila Jackson Lee called for a record-breaking $150 billion aid package on CNN recently.

Really, and who knows what Florida and Puerto Rico’s cleanup will cost? In fact, it will take such large amounts of federal spending to even sustain last quarter’s 3.1 percent growth rate, in my opinion.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

2017 Manufacturing Off To Good Start

Popular Economics Weekly

What is happening with manufacturing? The ISM manufacturing index jumped 1.7 points in February to a 57.7 level that beats the consensus by 1.3 points. This is the strongest rate of monthly growth in composite activity since August 2014. So does it mean Trump can keep his promise of bringing back those blue collar jobs lost to the likes of China?

It’s in spite of higher dollar exchange rates that have boosted consumer spending because of cheaper import prices, which dropped GDP growth in Q4 and the year, to 1.9 percent. (Import sales subtract from GDP growth.) So what gives? Is it the Trump euphoria over his promise to cut taxes and regulations?

Graph: Econoday

The report in fact is filled with superlatives led by a 4.7 point jump in new orders to 65.1. This rate of monthly growth was last matched in December 2013 and last exceeded in August 2009. Backlog orders jumped 7.5 points to 57.5 in a reading last exceeded in March 2014. Production is also very strong, up 1.5 points to a 62.9 level that is the best since March 2011.This is while consumer confidence index continues to make new post-election highs and new cycle highs at a 114.8 February level, which beats consensus estimates and makes for a strong 3.2 point gain from January.

But beware, says Econoday, “This report perhaps is the greatest expression yet of post-election strength in anecdotal surveys, strength that has yet however to find its way to actual government data on the factory sector which have been consistently soft.”

The data includes just released auto sales, softer at 17.5 million units. Wrightson ICAP had estimated a seasonally adjusted annualized sales pace of 17.7 million.  That would still be a little below the December/January average of 17.9 million, but would represent an increase of roughly 1 percent in both month-to-month and YOY terms.  And it would be about 1.4 percent above the actual 2016 total of 17.46 million, which was a record high.

Graph: Econoday

Then there is the January durable goods report for items that last 3 or more years. It shows the usual volatility behind which are sagging numbers for key readings, said Econoday. Aircraft, both domestic and defense, skewed durable goods orders sharply higher in January, up 1.8 percent to hit the consensus. Not hitting the consensus, however, are orders that exclude aircraft as well as all other transportation equipment. This reading fell 0.2 percent to come in well below Econoday's low estimate for a 0.2 percent gain.

The worst news in the report is a 0.4 percent decline in orders for core capital goods (nondefense ex-aircraft). This ends 3 months of strength for this reading and pulls the rug out from expectations for a first-quarter business investment boom as indicated by business confidence readings.

And longer term investments happen when core capital expenditures are on the increase. So will the manufacturing boom continue?

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Are Consumers Happier?

Financial FAQs

Why are consumers much happier during these holidays? The University of Michigan's consumer sentiment index for November jumped 6.6 points to a six-month high while the Conference Board's consumer confidence index jumped 6.3 points to 107.1 for its best reading of the cycle, since July 2007.

 Graph: Econoday

It has to be in part the record-low November unemployment rate of 4.6 percent for starters, and rising wages now that minimum wages are rising in major metropolitan areas, as well as whole states like California and Washington. Econoday says the second Q3 GDP growth estimate included a sizable upgrade for consumer spending, up 7 tenths to an annualized and inflation-adjusted 2.8 percent. This is down from the second-quarter's 4.3 percent rate but the average of these two is the best in nearly two years.

It’s in the service sector that employment is growing fastest. In another sign of strength for the economy, the ISM non-manufacturing index jumped 2.4 points in November to a 57.2 reading that tops most forecasts.

Employment for the ISM survey, where growth was soft in October, shot more than 5 points higher to an outsized 58.2. Averaging recent scores for this reading puts the trend at a softer but still very respectable mid-50s rate. New orders are very strong, at 57.0, with export orders also at 57.0 in a reminder of the importance of foreign demand for the nation's service sector. Business activity is a highlight of November's report at 6l.7.

This is one reason boosting minimum wages is so important. Most jobs are being created in the lower-paying service sector, which now employs some 80 percent of workers, and has been a major reason for the tepid 2 percent growth rate average of the economy since the end of the Great Recession.

Manufacturing has been hit hardest, and there is some doubt that Prez-elect Trump will be able to fulfill his promise to bring manufacturing jobs back that were lost. So we will have to rely on the non-manufacturing industries listed below for future growth in jobs and wages.

“The 14 non-manufacturing industries reporting growth in November in the survey said Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. — listed in order — are: Agriculture, Forestry, Fishing & Hunting; Retail Trade; Arts, Entertainment & Recreation; Transportation & Warehousing; Other Services; Management of Companies & Support Services; Construction; Finance & Insurance; Professional, Scientific & Technical Services; Accommodation & Food Services; Information; Health Care & Social Assistance; Wholesale Trade; and Mining. The two industries reporting contraction in November are: Real Estate, Rental & Leasing; and Public Administration.”

That’s why economists and the Fed believe it is more important to look at the personal income and consumption expenditure figures in such as the Econoday graph above to know where future growth in incomes (and higher demand) will come from.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Big Surge In Vehicle Sales, Service Sector, ADP Employment

Popular Economics Weekly

Why start with motor vehicle sales? “Consumers weren't holding back in May when it came to buying cars and trucks which sold at a 17.8 million annual rate for a whopping 7.9 percent gain from April,” said Econoday re Tuesday’s motor vehicle report. Because it’s a sign consumers are more confident, ergo they must be feeling better about their jobs, ergo tomorrow’s U.S. Labor Department employment report should be very strong.

It’s the strongest vehicle sales since July 2005, believe it or not. And not due just to incentives and 100 percent financing offers, which have been available really since the end of the Great Recession. Until now consumers haven’t been spending what they are earning. April retail sales were punk. But the huge jump in vehicle sales should mean the start of the buying season for consumers, at last. Vehicle sales had declined four times over the past 6 months, as have sales in almost every economic sector.

Another hint at stronger employment growth ahead is the monthly ADP private sector employment report out yesterday. Automatic Data Processing estimates that private payrolls rose a moderate 201,000 in May. For comparison, the consensus for private payroll growth in Friday's BLS employment report is a bit higher, at 215,000 with the low estimate at 185,000. It is another sign of employment growth that anticipates Friday’s more ‘official’ Labor Department unemployment report, in other words, which includes government as well as private sector jobs.

Graph: Econoday

And perhaps the best indicator of future growth is the ISM non-manufacturing, or service sector index, which came in at 55.7, down from last month’s 57.8 percent, but showed improvement in exports and future hiring. New orders at 57.9 and business activity at 59.5 were particularly strong. Employment also slowed, down 1.4 points to 55.3 but it still points to employment growth.

Exports were up 6.5 points to 55.0 in a reading that highlights yesterday’s big service-sector surplus in the April trade report. Second-quarter GDP looks to be getting a lift by a decline in imports, which are a negative number in the GDP report since they are subtracted from exports. Exports are a positive measure that indicates how much is domestically produced. Imports fell 3.3 percent in April to $230.8 billion at the same time that exports were up 1.0 percent to $189.9 billion.

Note there was special strength for arts/entertainment/recreation and management & support services in the ISM report said Econoday, the latter one of the strongest export industries for the nation. And, both real estate and construction show strength. The only one of 18 industries to contract in the month was, once again, mining which is being hurt by low commodity prices (meaning cheaper gas and oil).

Another indicator of improved hiring was in the government sector, often overlooked. Gallup's U.S. Job Creation Index reached a new high of plus 32 in May, up from plus 31 in April. And “perceived” job creation in the government sector was at a new high, when government job creation has been the lagging indicator holding back overall employment. Within the government sector, the Job Creation Index score reached plus 25 in May. This is up from plus 22 in April and the previous high of plus 23 in August 2014.

Graph: Calculated Risk

This is extremely important, because the Obama administration has the worst record in recent history of government job creation (blue line in graph).  The loss of some 800,000 government jobs is the major reason employment has grown so slowly post-Great Recession (though Obama is now second-best in overall private sector job creation, according to Calculated Risk).

The public sector grew during Mr. Carter's term (up 1,304,000), during Mr. Reagan's terms (up 1,414,000), during Mr. G.H.W. Bush's term (up 1,127,000), during Mr. Clinton's terms (up 1,934,000), and during Mr. G.W. Bush's terms (up 1,744,000 jobs).

However the public sector has declined significantly since Mr. Obama took office (down 688,000 jobs). These job losses have mostly been at the state and local level, but more recently at the Federal level.  This has been a significant drag on overall employment, as we said.

Lastly, Jobless claims continue to run very low, down 8,000 in the May 30 week to 276,000 which is right at the Econoday consensus. The 4-week average is up slightly to 274,750 and is running about 5,000 lower than the month-ago comparison.

All these readings are at or near 15-year lows and indicate that the unemployment side of the labor market is very favorable.  So look for a gangbusters employment report tomorrow, dare we say?

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Who Will Have Jobs This Year?

Popular Economic Weekly

Today’s ADP monthly private payroll report hints at what will happen with Friday’s ‘official’ nonfarm Labor Department unemployment report. ADP sees a slowing in job growth for January, to a lower-than-expected 213,000 for private payrolls and against ADP's upwardly revised 253,000 for December (initial estimate 241,000). Turning to government Labor Dept. data, the corresponding Econoday consensus for Friday's jobs report is 229,000 vs December's 240,000.

Graph: Econoday

Some drop in midwinter payrolls is expected, but where are the strengths and weaknesses? Companies in the U.S. service sector grew slightly faster in January, but they also cut back on the number of people they hired, according to survey of senior executives. A similar ISM gauge for manufacturing sector employment also declined in January, slipping to 54.1 percent from 56 percent.

The two ISM employment indexes are generally a good indicator of trends in the U.S. labor market. Even though both were positive in January, they point to somewhat slower job growth in the first month of 2015.

Among the goods-producing sector, there were 48,000 new construction jobs in December’s payroll report, with Health care and social assistance the second-highest job total. Construction payrolls are up 677,000 from their lows in 2010, but still 1.62 million below its 2006 high during the housing bubble.

So if interest rates remain at their record lows, real estate construction jobs may continue to expand.  Some 215,000 construction jobs were added in 2014, but total is still 1.6m below 2005 levels at height of the housing bubble. 

The apparent slowdown in hiring among service and manufacturing companies at the start of a new year could be a hint that the U.S. job creation in January will fall short of December’s 252,000 mark, as we said. The Institute for Supply Management said its nonmanufacturing index edged up to 56.7 percent in January from 56.5 percent in December. Readings over 50 percent signal that more businesses are expanding instead of contracting.

The good news is that new orders remained very healthy. The index measuring fresh demand rose to 59.5 percent and remained close to a post-recession high. On the downside, the employment gauge fell 4.1 points to 51.6 percent, marking the lowest level in 11 months. It was also the second worst reading in 20 months.

The 213,000 increase for January ADP payrolls is the lowest since September which was also 213,000. Increases in ADP's data from October to December averaged 257,000. By industries, ADP reports the largest percentage gain for January comes from construction, up 0.3 percent or 18,000 jobs (vs. 48,000 in BLS Dec. report), and the lowest from manufacturing, up 0.1 percent or 14,000 jobs, and financial activities, also up 0.1 percent or 10,000 jobs.

So continued health of the housing sector will be key to higher economic growth in 2015.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Are Consumers Losing Confidence in Housing??

The Mortgage Corner

The unanswered question to date is how the debt ceiling impasse and government shutdown has affected economic activity.  Both the industrial and service sectors have shown stronger growth, according to the Institute of Supply Management (ISM).  But real estate is another story.  Pending home sales in the NAR’s Pending Home Sale Index doesn’t look good. The index that measures home sales under contract, but not closed, has been declining for 4 months, a sure sign that housing sales, at least, are faltering.

This is in part because consumer confidence is faltering, as consumers lose confidence in government’s ability to function.  The shutdown endangered much more than 800,000 furloughed defense workers.  Combined with huge cuts in food stamps, no farm aid bill, and a not yet functioning Affordable Care Act, the shutdown and debt ceiling impasse has spooked consumers big time.

Graph: Econoday

Year-on-year, the index is down 1.2 percent for the first negative reading in nearly 2-1/2 years. The National Association of Realtors (NAR), which compiles the report, cites as a major factor the government shutdown which it says pushed government workers and contractors to the sidelines of the housing market.

NAR chief economist Lawrence Yun wasn’t optimistic about the near future, either. “Declining housing affordability conditions are likely responsible for the bulk of reduced contract activity’” he said. (But) “In addition, government and contract workers were on the sidelines with growing insecurity over lawmakers’ inability to agree on a budget. A broader hit on consumer confidence from general uncertainty also curbs major expenditures such as home purchases.”

The government shutdown really weighed on confidence indexes.  The Conference Board’s confidence index fell to 71.2 from a revised 80.2. With an 11 point drop, the dip is the largest since 12 points in January, a month that was also hit by a fiscal standoff in Washington.

Graph: Econoday

But the drop was mainly in expectations, which could reverse if some agreement is reached on a new federal budget by the December 15 deadline.  The component for present situations continued to show much less volatility, at 70.7 versus 73.5 for what is a 4th straight reading over 70—“a trend that is consistent with steady and soft month-on-month growth for the economy,” said Econoday. 

A negative on the present situation side was a sharp 2.2 percentage point rise to 35.8 percent for those that said jobs fewer jobs were available. This suggests another month of weakness for monthly payroll growth.

Consumer confidence powers much more than home sales, of course.  Retail sales are also growing just 4 percent per annum with the holiday season approaching, when 6 to 8 percent is the normal sales’ rate if consumers feel more confident.  Retail sales don’t adjust for inflation, so ‘real’ retail sales after inflation are rising just over 2 percent. This has to mean government dysfunction is definitely affecting consumer spending overall that powers some 70 percent of economic activity.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Expanding Service Sector Will Boost Growth

Financial FAQs

Why are stock indexes breaking records? Part of it is because of record corporate profits (which affects price-to-earnings ratios), up 20 annually since the end of 2008, as well as good job news that is boosting investor optimism. The bulk of the nation's economy is growing strongly and looks to continue to grow strongly in 2013. The ISM's non-manufacturing (service sector) index rose nearly one point to a higher-than-expected level of 56.0. It means 56 percent of respondents reported a stronger pace of overall growth relative to what was already a strong rate in January.

Graph: Econoday

New orders are up a very sharp 3.8 points to 58.2 with backlogs posting a 5.5 point jump to a very strong 55.0. New orders coming in and old orders piling up is a good mix for the employment outlook. And non-manufacturers are already hiring, at 57.2 which may be down three tenths from January but is still an exceptionally strong rate of monthly employment growth.

Add to that the Labor Department’s 236,000 increase in payrolls and drop to 7.7 percent unemployment rate, and we see a more certain business environment, now that most of the budget battles have been resolved. It didn’t seem to matter who won, in other words. And 179,000 of the added jobs were in the service sector, vs. 67,000 in the goods-producing sector, which highlights why the service sector is the main engine of growth.

The ISM's manufacturing report also had very good news with accelerating monthly growth for general activity, reflected in a 1.1 point gain for the headline index to 54.2, and acceleration in new orders which jumped 4.5 points to a very strong 57.8. A plus in this report is strength in new orders for exports are also accelerating, to 53.5 for a 3-1/2 point gain. Total backlogs are especially strong in the ISM report, at 55.0 for a big 7-1/2 point gain, which means exports will be picking up again.

Graph: Econoday

The only question mark is the consumer sector, which powers 70 percent of activity. The consumer continues to take on new debt at a steady and strong clip but whether it points to rising consumer demand is uncertain. Consumer credit rose $14.6 billion in December vs. a revised $15.9 billion in November, and $14.0 billion in October. But the revolving, credit-card side hasn’t been adding to the total. Revolving credit has been very flat, up a little bit one month and then down a little bit the next and is down $3.6 billion in the latest data. This could limit spending.

The service sector and manufacturing indexes are the best measure of overall economic activity, and so point to much better growth in 2013.

Harlan Green © 2013

Follow Harlan Green on Twitter: www.twitter.com/HarlanGreen

Fourth Quarter Economic Growth Higher

Popular Economics Weekly

We are seeing a boost in Q4 economic growth, in spite of “fiscal cliff” worries. Service sector growth has increased significantly, job formation is accelerating, and real estate is coming back to life, thanks mostly to more jobs.

The service sector is our largest business sector and its ISM's non-manufacturing index rose five tenths to 54.7 with business activity over 60 for the first time since February. New orders are near 60 at 58.1 for a more than three point gain and the best reading since March. But employment is barely over 50, at 50.3 for a nearly five point monthly dip for the worst reading since July. Businesses are doing more with less as seen in this morning's productivity report and in the details of this report. But still, the gain in activity and orders is good news and other indicators show jobs increasing.

Graph: Econoday

The Non-Manufacturing Business Activity Index registered 61.2 percent, which is 5.8 percentage points higher than the 55.4 percent reported in October, reflecting growth for the 40th consecutive month. The New Orders Index increased by 3.3 percentage points to 58.1 percent. And overall growth is accelerating.

Graph: Econoday

Even more important was the upward revision in Q3 Gross Domestic Product growth to 2.7 percent, which will boost fourth quarter growth as well. Real GDP growth for the third quarter was revised up significantly because of a large inventory buildup, rather than increased sales.  But the Commerce Department raised the second estimate to 2.7 percent annualized, from the advance estimate of 2.0 and second quarter rate of 1.3 percent.

And we know that real estate activity has picked up, because housing prices are rising. The Case-Shiller Index has been rising since January. Improvement was really evident in the year-on-year rate which is up to plus 3.0 percent from plus 2.2 and plus 1.1 percent in the prior two months. Gains were in nearly all 20 cities, with Phoenix and San Diego prices rising the most.

Graph: Econoday

And the Conference Board’s consumer confidence index in November was steady and firm with buying plans for homes a special positive. The consumer confidence index rose to a new recovery high of 73.7 in November from an upwardly revised 73.1 in October. Strength was centered in the expectations component which is up 1.1 points to 85.1.

Graph: Econoday

Lastly, the most positive indicator of future sales is pending home sales up a very strong 5.2 percent even with the impact of Hurricane Sandy.  This is based on only a fractional decline in the Northeast, at least in the October report. The Midwest showed a very strong gain as did the South. The NAR’s October pending home sales index is at a five-year high.

Graph: Econoday

Real estate has seen falling foreclosure inventories, as well. And Hurricane Sandy will give a big boost to reconstruction of much of the Atlantic seacoast, boosting construction employment. So 2013 could be a very good year for economic growth, if as I believe any fiscal cliff issues will be resolved sometime early next year.

Harlan Green © 2012

August Jobs Report—Manufacturing Slowdown

Popular Economics Weekly

The headlines said a “weak” job report on Friday. But it had nothing to do with politics or economic policy, at least directly. The jobs drop was all in manufacturing due to problems in Europe and China. So it’s really up to consumers to continue to open their pocketbooks over the holidays to keep this economy going, and that is happening to some extent.

But indirectly, government payrolls are still shrinking. And government investment as well as consumer spending are the twin engines of economic growth these days, which is the major reason we have 2 percent, instead of 3 percent GDP growth at this stage of the recovery.

There were just 96,000 payroll jobs added in August, with 103,000 private sector jobs added, and 7,000 government jobs lost. A meager total much below the first part of the year. The unemployment rate decreased to 8.1 percent (from the household survey), and the participation rate declined to 63.5 percent, mostly from the decline in manufacturing employment, which depends on exports which have flagged of late.

Graph: Calculated Risk

This can be traced to both the European recession, since 25 percent of U.S. exports go to Europe, and China’s growth slowdown. Manufacturing had been leading the recovery until now. But the service sector has taken over, with 119,000 service sector payroll jobs added and 15,000 manufacturing jobs lost in August; half of which were auto manufacturing that will spring back in the fall. And since the service sector accounts for 70 percent of total nonfarm payrolls, this means consumers are spending again, which is enough to keep us out of another recession.

So the economy has added 1.11 million jobs over the first eight months of the year (1.21 million private sector jobs), according to the Bureau of Labor Statistics. At this pace, the economy would add around 1.8 million private sector jobs in 2012; less than the 2.1 million added in 2011. Also, at this pace of payroll job growth, the unemployment rate will probably still be above 8 percent at the end of the year, says Calculated Risk.

The August ISM Non-manufacturing index for the service sector was at 53.7 percent, up from 52.6 percent in July. The employment index increased in August to 53.8 percent, up from 49.3 percent in July. Note: Above 50 indicates expansion, below 50 contraction.

Graph: Calculated Risk

Meanwhile, manufacturing has been slowing and until it picks up again the service sector will be the main engine of growth. The outlook for the nation's manufacturing sector is increasingly going into reverse based on the ISM's report where new orders, at a sub-50 level of 47.1 in August, show their third straight monthly contraction and at the deepest rate since April 2009. New export orders are definitely part of the problem, at 47.0 for what is also the third straight month of contraction. Manufacturers, as they wait for new orders to return, are increasingly drawing down their backlogs which are at 42.5 for the fifth straight month of contraction.

Graph: Econoday

This is no coincidence, as the EU economy is back in recession, having contracted in the second quarter—April to June. And with the German and Nordic countries insisting on more austerity for Spain and Italy, it’s third and fourth largest economies, economic contraction will continue, putting more downward pressure on manufacturing. The two bright spots are in transportation—domestic aircraft and vehicle manufacturing—which are surging.

So the economic news is mixed, with consumers continuing to spend, retail sales up, but exports down. This will boost certain sectors, mainly the consumer sectors in the service industries. But given that employment in private service-producing industries is currently 93,496,000 vs. just 18,744,000 in private goods-producing sector (i.e., manufacturing) when seasonally adjusted, the hurt in Europe in particular won’t cramp overall growth.

However, the bottom line is that we need more stimulus spending, in part to help states rebalance their budgets. The debt problem will take care of itself, because any job creation programs at all will increase the demand for goods and services, which in turn increases tax revenues. Austerity is not the answer with U.S. or in Europe when the unemployment rates are so high. The consensus among economists is that our unemployment rate has to drop below 6 percent to come anywhere near the 3.25 percent ‘trend’ growth of recent years that would bring back prosperity. But without a Congress willing to act on job creation, this won’t happen.

Harlan Green © 2012

What Do June Jobs Numbers Mean?

Financial FAQs

Is history repeating itself? Once more the June jobs numbers don’t look so good, but once more they will probably be misleading. Because, once more, it looks like the so-called seasonal adjustments (SA) are overestimating the summer jobs totals that would be normal with a robust economy, but not this one.

The June employment numbers weren’t much better than May, which was “horrible," according to Ian Shepherdson, chief economist at High Frequency Economics, if you remember. The unemployment rate held at 8.2 percent, with just 80,000 payroll jobs created, vs. the 77,000 created in May, revised up from an initial 69,000 May payrolls increase.

But once again, we may see more upward revisions to job creation in coming months. Why? Because the ‘seasonal adjustments’ seem way out of wack. For instance, June nonfarm payrolls actually rose 391,000 before their seasonal adjustment. And the actual adjustment was a subtraction of 1,028,000 from actual jobs created, the estimate of ‘normal’ increases from summer employment of students and the like. In other words, the SA only counts the number above what should be normal job formation for June.

The Household Survey that includes self-employed fared no better with the seasonal adjustment. Actually 475,000 more jobs were created in June than May before the adjustment, and just 128,000 was the net increase afterward. The total seasonal adjustment was a subtraction of 787,000 jobs, meaning 787,000 jobs were subtracted from the actual job total for June.

Graph: Calculated Risk

We have been here before, as I’ve said. Last summer’s scare came when the Bureau of Labor Management had to revise from 0 to 57,000 jobs created in August, and added an additional 42,000 payroll jobs in July when revised. This was because the so-called seasonal adjustments were overestimated then, also. This recovery has been tepid at best. There was another first quarter spurt in hiring as last year, then not much job creation in summer. So once again, the seasonal adjustment seems excessive, and will surely be scaled back as with last year, adding more jobs after the fact.

One concrete reason I believe jobs numbers will be revised upward is June average hourly earnings improved to a 0.3 percent boost from 0.2 percent in May, in the Establishment Survey.  And two leading indicators for hiring were up.  First, the average workweek edged up to 34.5 hours from 34.4 in May.  Second, temp workers were up 25,000 after a 19,000 boost in May.

Meanwhile, both the industrial and service sectors were basically unchanged. The ISM non-manufacturing composite headline index slipped to 52.1 versus 53.7 in May but it's still safely above the 50 level under which monthly contraction is indicated. The new orders index is the most important component and it posted at 53.3, compared to 55.5 the prior month, probably because May had a large surge in new orders. Export orders fell in the month which is no surprise given troubles in Europe and China, as did total backlog orders, said Econoday.

Graph: Econoday

However, the ISM's manufacturing index showed contraction in June for the first time since July 2009, declining to 49.9 (breakeven at 50) from 53.5 in May. Forward momentum hit the wall at the new orders index, at 47.8 in June versus a huge 60.1 the month before. It showed contraction for the first time since April 2009 and the degree of the decline was the steepest since October 2001, but the large drop is suspicious, as the factory orders component rose more than expected.  For what it’s worth, said Econoday, the October 2001 drop in orders was followed by an almost equal rebound the next month and was above the pre-drop level the second month afterwards.

Graph: Econoday

What to make of all this? Consumer Credit jumped 8 percent in May, the largest rise in borrowing since 2007 and the boom years, according to the Federal Reserve.  So consumer spending will rise in coming months, the main engine of growth in our economy. That may be why construction spending is surging, another indicator that real estate is finally on the recovery.

Graph: Econoday

Construction spending jumped 0.9 percent in May, following a 0.6 percent gain in April. The increase in May was led by private residential outlays which increased 3.0 percent after a 1.7 percent boost in April.  The new multifamily subcomponent showed the greatest strength but the new single-family subcomponent also was notably positive.  On a year-ago basis, overall construction stood at up 7.0 percent in May.

So because the seasonally adjusted numbers are notoriously inexact, we cannot be sure that an economic slowdown is even happening. It could be the seasonal fluctuations that are normal for any business cycle, as we said last month.  I would venture that we might see upward revisions of some 50,000 per month in nonfarm payrolls, if precedent holds and history repeats itself.

Harlan Green © 2012

2012 Economic Growth Accelerating

Popular Economics Weekly

Economic growth is finally accelerating. Consumer demand plus manufacturing are continuing to increase, and even the fourth quarter was a little stronger as Q4 GDP growth broke the psychological 3 percent boundary. The Commerce Department revised fourth quarter GDP growth up to 3.0 percent from the initial estimate of 2.8 percent.  The latest figure compares to a modest 1.8 percent rise in the third quarter.

Graph: Econoday

The major reason was increased consumer spending. Consumer spending in January improved to a 0.2 percent gain from no change in December.   The goods components were stronger as durables gained 0.9 percent after a 0.5 percent increase in December.

Graph: Econoday

This mainly due to the increase in household debt, as banks are easing their credit for consumers. For the first time since the Great Recession, household debt saw a quarterly gain, according to Federal Reserve data released Thursday that shows American deleveraging has at the very least paused. Household debt edged up 0.3 percent in the fourth quarter, the Fed reported in its flow-of-funds report, as consumer credit surged an annualized 7 percent. Household debt had declined for 13 consecutive periods before the slender fourth-quarter advance.

Spending has been increasing from 4 to 5 percent per year for the past 2 years, mainly from automobile sales. Total unit sales jumped 6.5 percent in the month to an annual rate of 15.1 million. The gain was centered in cars, especially imports. But this aside, gains in February data were strong and do include trucks. January sales actually squeaked higher than the cash-for-clunkers surge in August 2009 and February notably topped that month’s 14.2 million unit sales pace, said Econoday.

Graph: Econoday

And as a prelude to Friday’s unemployment report, Automatic Data Processing, or ADP, a payroll servicing company, estimates that February private payrolls in Friday's employment report will rise by 216,000, up solidly from January's revised rise of 173,000.

Graph: Econoday

Even better news was that service sector activity, which is some 80 percent of U.S. business, continues to expand. Rising orders headline a very positive non-manufacturing report from the ISM where the headline composite index is up five tenths to a better-than-expected level of 57.3. But the composite may understate underlying strength in the bulk of the nation's economy where order levels are building with new orders up nearly two points to a very strong 61.2 vs January's already very strong 59.4. Strength in new orders is feeding a build in backlog orders which rose 3.5 points to 53.0 which is a strong level for this reading.

Graph: Econoday

All-in-all we are seeing a very good start for 2012, which is also a presidential election year, don’t forget. And that means the Obama Administration (and Federal Reserve) will be doing all government can do to boost growth.

Harlan Green © 2012