Ten Mid-July Economic Nuggets

Sure, there’s the surprising result from the U.K.’s Brexit vote to process and the mommy-and-daddy-please-don’t-fight anxiety arising from Hillary and The Donald going at it tooth and claw every day, but how seriously can one worry about the U.S. economy when the initial jobless claims figure has been below 300,000 for 70 weeks in a row, June’s month-to-month total jobs jump was a stunning +287,000−although May’s rise was revised down to next to nothing−and both the Dow Jones and Standard & Poor’s stock market indices have set new all-time highs?

2016-07-14-Nuggets-Labor-GraphicJust the same, there are a few pivotal U.S. sectors where the good times apparently have stopped rolling along with the same high spirits as in the fairly recent past. Employment levels have been topping off, plateauing and, in some cases, initiating descents in temporary help services, truck transportation, aerospace manufacturing and the accommodation industry. Whether or not these prove to be permanent or temporary aberrations remains to be determined. Interpreting the signs and reading between the lines is a game of vigilance played with varying degrees of enthusiasm by each and every one of us. Best to approach it with a flexible mind. And stamina.

Against this backdrop, there are the following additional ‘nuggets’ to be gleaned from the latest government agency and private sector data releases. The ‘soil’ is rich and the ‘crop’ abundant.

(1) A key determinant of national output or gross domestic product (GDP) growth is the change in employment. For the economy’s engine to be running smoothly at a good cruising speed, the year-over-year increase in the total number of jobs should be at least in a range of +2.0% to +2.5%. June’s total number of jobs increase in the U.S. was a little slower, at +1.7%. The best gain so far this year was recorded in March, at +2.0%. The monthly average throughout last year was +2.1%. ‘Real’ (i.e., inflation-adjusted) GDP growth in 2015 was +2.4%, the same as in 2014. The month-to-month annualized real GDP growth rate in 2016’s first quarter was +1.1%.

(2) The services-providing segment of the U.S. economy is continuing to carry its weight and then some. Its year-over-year jobs performance in June was +2.3%. Several of the individual sub-sectors that raced ahead even faster are situated in the medical field: home health care services, +5.5%; hospitals, +3.9%; and assisted living facilities for the elderly, +2.8%. Building material and garden supply stores (+3.8%) and restaurants and drinking establishments (+2.8%) also made significant additions to payrolls. Staffing at computer system design services firms was +4.3%. Companies engaged primarily in selling over the Internet hired at a +7.9% y/y rate.

(3) One set of numbers I particularly like to keep an eye on is hiring by the gaming industry versus the motor vehicle and parts sector. They would seem to represent opposite ends of a spectrum: services versus goods; the frivolous versus the serious; and new wave versus old wave. ‘Amusements, gambling and recreation’ and ‘motor vehicles and parts manufacturing’ employed about the same number of workers in 2000, 1.3 million. The former now boasts 1.6 million workers, while the tally at the latter has dropped to 900,000. The year-over-year jobs change at casinos, etc. was always better than on car assembly lines from 2000 to 2009. From 2010 until the beginning of this year, however, the jobs growth rate flipped over in favor of the manufacturing champion. Alas, most recently there has been slippage again in cars and parts employment. At +1.9% year-over-year, it is no longer keeping up with gambling’s +3.2%.

(4) There are a couple of key takeaways from ConstructConnect’s latest report on starts statistics.  June’s volume of non-residential groundbreakings was +4.2% versus May, which was almost exactly in line with the usual degree of improvement (+4.5%) at the beginning of summer. Seasonality makes a positive contribution to the monthly performance of starts from March through July. In August through February, on account of colder weather, it carries the statistics in the other direction, i.e., downwards. May’s +9.5% had also been close to a traditional +8.0%

(5) Also encouraging has been the year-to-date performance of starts in 2016, +11.2% compared with January to June of 2015. All three major type-of-structure categories have registered advances. Institutional work (+22.5%) has been in the forefront, with commercial (+15.4%) giving chase and heavy engineering (a.k.a., civil) not as buoyant, but striving to catch up (+6.5%). The previously rising slopes of the trend lines for some commercial- and engineering-related type-of-structure sub-categories, including retail work and roads, have moderated of late.

(6) In Canada, the drop in value of the Canadian dollar relative to the greenback is supposed to be inspiring a wave of prosperity among the nation’s manufacturing firms. There have been some notable successes. For example, employment in Canadian motor vehicle manufacturing is +10.2% year over year and in auto parts manufacturing, +2.9%. But jobs in aerospace and related parts manufacturing are -6.6% and in ship and boat building, -2.2%. As for the total number of manufacturing jobs in Canada, in June it was -1.8% y/y. That’s no cause for popping a champagne cork. The comparable U.S. figure was also down, but not to the same degree, -0.2%.

(7) U.S. existing home sales in the latest month, May, were at their highest level in almost a decade, dating back to February 2007, according to the National Association of Realtors (NAR). At 5.53 million units annualized for the total of singles, townhouses, condos and co-ops, they were +4.5% compared with the same month of last year. Builders of new homes can take away a loud and clear message of heightened demand. In Canada, new home starts in June, at 218,000 units annualized, shot up to their best level since September of last year (233,000 units). Record low mortgage rates are spurring demand and effervescent price increases are acting as an incentive to construct additional supply. Vancouver, where the average year-over-year increase in price of a resale home, according to the Canadian Real Estate Association (CREA) is +17%, has seen a 59% rise in multi-family starts so far in 2016. Toronto (-2%), though, has been flat.

(8) The U.S. Conference Boards’ Consumer Confidence Index leapt significantly upward in June to 98.0 from 92.4 in May. The index is grounded in the reasonably decent year of 1985 being set equal to 100.0. A reading above 90.0 is indicative of an economy that is chugging along with good prospects. The Purchasing Managers’ Index (PMI) of the Institute for Supply Management (ISM) improved to 53.2% in June from 51.3% in May. A measure above 43.2% corresponds with an overall economy that is expanding, but manufacturers won’t be swept along in the faster current until the PMI climbs to 50.0% and higher. The average monthly PMI value of 50.8% through 2016’s first half has traditionally gone in tandem with a real GDP annualized change of +2.4%. June’s standalone PMI reading of 53.2% ties to a real GDP gain, annualized, of +3.2%.

(9) There’s plenty going on in the rest of the world as well. Prime Minister Shinzo Abe’s ruling coalition has won a decisive victory in Japan’s upper house of parliament. This may lead to a constitutional revision allowing the nation to put more muscle into its military. It will also guarantee the continuance of an economic stance by Tokyo that embraces loose monetary policy and stimulus infrastructure spending. China continues to grapple with rapidly rising debt loads (i.e., 150% of GDP at the public level) and enormous excess capacity in some industries (e.g., steel). It has also been told by an international court located in The Hague, Netherlands that it does not have a legal claim to a vast expanse of the South China Sea that laps up on shores closer to Vietnam and the Philippines. Discussion concerning the enormous artificial islands that Beijing has been building offshore, with clearly strategic intent, will become even more contentious.

(10) Britain has discovered that it can replace a Prime Minister faster than it thought it could. The expectation immediately after the Brexit vote was that David Cameron would linger on as caretaker P.M. into the fall while a rather stodgy leadership campaign would be conducted to designate his replacement. Two of the leading supporters of the Brexit movement within the Conservative Party, Boris Johnson and Michael Gove, quickly fell by the wayside, however, and Theresa May, former Home Secretary, has won acclamation to the top post. One of her first acts has been to appoint replacements for key cabinet positions, including the choice of Boris Johnson, one-time Mayor of London, as Foreign Secretary. As a point of interest, the fictional secret service agent, James Bond, works for the puppet-master ‘M’ at MI-6, who in his or her turn reports to the U.K.’s Foreign Secretary. Here’s hoping the world will still be in good hands.

One thought on “Ten Mid-July Economic Nuggets

  1. These are pathetic unemployment numbers and you try con everybody into thinking they are good. Riddle me this if there are 260,000,000 eligible adults for employment and you have 94,000,000 without a job it seems to me the true unemployment rate is more like 35%. You do know you are no longer in the government stats for unemployment once your unemployment benefits end and still out of a job. I haven’t even said anything on GDP which is just as horrible compared to prior President averages.

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