15 Mid-August Economic Nuggets

It’s summertime and while the living may be easy, as the song lyric says, that doesn’t mean the news stream about the economy is stretched out in a hammock taking a nap. Rather, the data has kept flowing − fast and furious – as captured in the words of a certain popular movie series.


Thankfully, ongoing improvements in the U.S. labor market and in stock market indices have been walled off, to this point in time, from sputtering political momentum in Washington.

For Canada, with the International Monetary Fund (IMF) concurring, there are now expectations of much brighter prospects. Canadian output growth is leading G-7 nations.

Set against the foregoing backdrop, there are the following additional economic ‘nuggets’ to be gleaned from the latest government agency and private sector data releases.

U.S. Economy Performance

(1) The U.S. unemployment rate has been exceptionally low in the past three months: 4.3% in May; 4.4% in June; and back down to 4.3% in July. There has been a 16-year gap, dating back to May 2001, since the jobless figure was as tight. In the current century, the bottom or floor level for the out-of-work contingent in the labor force has been 3.8%, as recorded in April 2000.

(2) Monthly job creation in the U.S. so far in 2017 has averaged +184,000. While this year has been down a smidge from last year’s +196,000 for January through July, the +150,000 number used as a benchmark to denote good monthly employment gains is still being handily surpassed.

(3) U.S. total employment is presently +1.5% year over year. Major industrial sectors with hiring records exceeding the national annual gain have been: ‘professional and business services’ (+2.9%); ‘construction’ (+2.8%); ‘education and health’ (+2.2%); ‘leisure and hospitality’ (+2.2%); ‘transportation and warehousing’ (+1.8%); and ‘financial activities’ (+1.8%).

(4) On a further micro level, some sub-industries with outsized year-over-year payroll increases have been: ‘web-based shopping and electronic auctions’ (+10.9%); ‘temporary help services’ (+4.2%); ‘warehousing and storage’ (+3.7%); ‘architectural and engineering services’ (+3.6%); ‘home health care services’ (+3.6%); ‘elementary and secondary schools’ (+2.9%); ‘food services and drinking places’ (+2.7%); and ‘real estate’ (+2.6%). Two important categories of employment with disappointing results are ‘manufacturing’ (+0.5%) and ‘retail’ (0.0%).

(5) As for President Trump’s promise that he would restore opportunities for displaced American coal miners, a +3.9% year-over-year jobs blip has appeared in the latest statistics. The nominal level country-wide is still close to a rock-bottom 50,000. The peak for coal mining employment since the turn of the millennium was 90,000 in late 2011. Exports are receiving a boost from some foreign utilities lessening their resolve to shift out of coal-fired electric power generation.

(6) The U.S. economy received a nice bounce from retail and food services sales in July. In ‘current’ dollars (i.e., not deflated by a price index) and adjusted for both seasonality and what are termed number-of-trading-day differences (i.e., due to holidays), total shopkeeper and restaurant-and-bar-owner earnings were +0.6% month to month and +4.2% year over year. Of particular interest for the construction industry was the muscular +8.3% year-over-year change registered by ‘building material and garden equipment and supplies dealers’.

(7) Other hefty year-over-year cash register advances in the U.S. in the latest month were rung up by: ‘motor vehicle and parts dealers’ (+5.7%); ‘furniture and home furnishing stores’ (+5.6%); and non-store retailers (+11.5%). The latter focuses on the activity undertaken mainly by digital means. It is the portion of retail that is not grounded in ‘bricks and mortar’ locations.

(8) The recent uplift in spending by U.S. households reflects the buoyant optimism being shown in the most widely-followed measure of American confidence. The Conference Board’s Consumer Confidence Index in July rose to 121.1 from 117.3 in June. Its present lofty position is a 16-year high. (The index has a base of 1985 = 100.0. The survey’s managers have assessed that 1985 was a year when prevailing sentiment ran neither exceedingly heated nor distressingly frigid.) Furthermore, the Conference Board’s Present Situation Index moved upwards to 147.8 in July from 143.9 in June and its Expectation Index improved to 103.3 from 99.6.

(9) July’s Purchasing Managers’ Index (PMI) from the Institute for Supply Management (ISM) softened a tad to 56.3% from 57.8% the month before. Nevertheless, the PMI has been above 50.0% for 11 months in a row. A reading better than 50.0% is indicative of an overall economy and a sub-set manufacturing sector that are both expanding. When the PMI lies between 43.3% and 50.0%, the economy is growing, but manufacturing is retrenching. When the PMI is less than 43.3%, the temptation for many business people is to pull a blanket over their heads.

(10) An issue cited by some respondents to the latest PMI survey is a worrisome shortage of labor. On the upside, however, are refreshing successes in export markets, as the value of the U.S. dollar has lost ground compared with some other major currencies. A PMI value of 56.3%, if annualized, traditionally corresponds with a +4.1% year-over-year climb in ‘real’ (i.e., inflation-adjusted) gross domestic product (GDP). The Federal Reserve has calculated that the capacity utilization rate in U.S. manufacturing in June was 75.4%, not far removed from the 75.1% of 12 months previously. But 80%-plus is the benchmark usage-rate level that signals when there will be a take-off in investment plans to build new production facilities.

ConstructConnect Construction Starts Data

(11) Through July of this year, ConstructConnect’s total U.S. commercial construction starts were almost exactly level (+0.5%) with the same first seven months of 2016. By major types-of-structure, a significant gain in heavy engineering/civil starts (+19.9%) was counterbalanced by declines in institutional (-2.6%), commercial (-7.1%) and especially industrial (-27.2%).

(12) Within ConstructConnect’s year-to-date commercial building starts, strength is being exhibited in ‘hotel/motel’ (+53.7%), ‘warehouse’ (+32.2%), ‘sports stadium’ (+89.3%), ‘courthouse’ (+146.8%) and ‘prison’ (+35.0%) work. Notable weakness has occurred in ‘retail/shopping’ (-54.7%) and ‘hospitals/clinics’ (-21.3%). Within year-to-date heavy engineering/civil starts, ‘bridges’ (+40.9%) and ‘roads/highways’ (+17.3%) are positive standouts. Also worthy of note has been the upbeat percentage change for ‘airports’ (+117.8%).

Canadian Economy Performance

(13) The average monthly increase in total employment in Canada this year, to date, has been +28,000, a sizable step up from last year’s +5,000 for January-July. Regarding year-over-year percentage changes, Canada is +2.1% versus +1.5% for the U.S. in ‘total’ jobs; +2.2% versus +1.7% in ‘services’ jobs; and +3.2% versus +0.5% in ‘manufacturing’ jobs. The one major category where Canada is trailing, however, is in ‘construction’ jobs, +1.9% versus +2.8%.

(14) In Canada, sub-sectors with the speediest year-over-year employment increases in the latest available data have been: ‘electronic shopping’ (+13.6%); ‘ship and boat building’ (+10.5%); computer systems and design services (+9.1%); ‘movies, videos and music production’ (+9.0%); ‘temporary help wanted agencies’ (+8.1%); ‘community care for the elderly’ (+6.0%); and ‘call centers and telemarketing’ (+4.1%). Unfortunately, in some key resource sectors, the jobs slide has been continuing − ‘oil and gas extraction’ (-5.7%) and ‘forestry and logging’ (-3.3%).

(15) Once again, in July, Canadian housing starts recorded a seasonally adjusted and annualized (SAAR) level that blew past 200,000 units. Residential groundbreakings north of the border have exceeded the 200,000-unit signpost in six of the seven months of this year. July’s 222,000 units was second-highest in 2017. March was an extreme outlier at 252,000 units. Average monthly Canadian home starts so far this year have been +8.9% versus January-July of last year. For the six cities in Canada with more than one million residents each, Ottawa (+48%) has been the home-start percentage-change leader, followed by Calgary (+35%), Montreal (+31%) and Edmonton (+22%). Toronto (-2%) and Vancouver (-13%) have slipped into reverse.

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