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Economy

U.S. Unemployment Rate Falls to the Lowest Level Since April 2000

A recruiter talks with a job seeker at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. (Photo: Reuters)

A recruiter talks with a job seeker at the Construction Careers Now! hiring event in Denver, Colorado U.S. August 2, 2017. (Photo: Reuters)

The U.S. Bureau of Labor Statistics (BLS) said U.S. economy added a stronger than expected 223,000 in May and the unemployment rate ticked down to 3.8%, the lowest level since April 2000. It’s also a match for the lowest rate in half a century.

Worth noting, the unemployment rate for Hispanics and African Americans are both just 0.1% off their all-time lows.

The labor force participation rate, at 62.7%, and the less-cited but arguably more important employment-population ratio, at 60.4%, was largely unchanged in May. The U-6, which includes all persons marginally attached to the labor force plus total employed part time for economic reasons, has fallen from 8.4% since May 2017.

“The U-6 rate continues to gradually ratchet lower coming in at 7.6% versus 7.8% in April,” TJM Investments analyst Tim Anderson said. “The report shows strong job growth with only moderate wage inflation, so far.”

Employment continued to trend up in several industries that trended down under the previous administration including construction (+25,000), manufacturing (+18,000) and mining (+6,000). The higher-paying jobs are continuing to put pressure on wages.

Construction has added a whopping 286,000 jobs over the past 12 months. Manufacturing has added 259,000 jobs over the year, a complete reversal from a negative trend. Mining has added 91,000 jobs over the year, also a complete reversal from the all-time low in October 2016.

Retail trade added 31,000 jobs, with gains occurring in general merchandise stores (+13,000) and in building material and garden supply stores (+6,000). Over the past 12 months, retail trade has added 125,000 jobs.

Wages rose by an amount that fell at the higher end of the forecast range, both on a monthly and an annual basis.

In May, average hourly earnings for all employees on private nonfarm payrolls rose by 8 cents to $26.92. Over the year, average hourly earnings have increased by a more solid 71 cents, or 2.7%. Average hourly earnings of private-sector production and nonsupervisory employees increased by 7 cents to $22.59 in May.

Also This Week: Personal Income and Outlays: Wages, Consumer Spending Gain

The strength in the report also signals to analysts that the Federal Reserve is almost certain to continue to raise rates this year.

“This report is very consistent with what we have been seeing from the FED minutes and Beige book on regional economic activity,” Mr. Anderson said. “It’s now a lock that we will have a 25 basis point hike in June and at least 1 more hike some time in the second half of 2018, possibly 2.”

The BLS jobs report, or Employment Situation, follows the ADP National Employment Report released Wednesday, which showed the U.S. private sector added 178,000 jobs in May. ADP,  which is derived from actual payroll data, measures the change in total non-farm private sector employment each month on a seasonally-adjusted basis.

The Labor Department (DOL) via the BLS tallies both the private and public sectors.

The change in total nonfarm payroll employment for March was revised up from +135,000 to +155,000, and the change for April was revised down from +164,000 to +159,000. With these revisions, employment gains in March and April combined were 15,000 more than previously reported.

“Job gains averaged 180,000 a month over the last 3 months, and that includes the disappointing report from March,” Mr. Anderson added. “That month was just revised higher by 20,000.”

The U.S. economy added a stronger than

Economy

A single family home is shown with a sale pending in Encinitas, California May 22, 2013. (Photo: Reuters)

A single family home is shown with a sale pending in Encinitas, California May 22, 2013. (Photo: Reuters)

Rising mortgage rates and scarce inventory are starting to really put pressure on the Pending Home Sales Index (PHSI), which fell 1.3% in April to 106.4. That’s down from an upwardly revised 107.8 in March. With last month’s decrease, the index is down on an annualized basis (2.1%) for the fourth straight month.

“Pending sales slipped in April and continued to stay within the same narrow range with little signs of breaking out,” Lawrence Yun, NAR chief economist said. “Feedback from Realtors, as well as the underlying sales data, reveal that the demand for buying a home is very robust.”

“Listings are typically going under contract in under a month, and instances of multiple offers are increasingly common and pushing prices higher.”

Mr. Yun still forecasts existing-home sales in 2018 to gain 0.5% to 5.54 million – up from 5.51 million in 2017. The national median existing-home price is forecast to gain 5.1%. In 2017, existing sales rose 1.1% and prices rose 5.7%.

The PHSI in the Northeast was unchanged at 90.6 in April and is 2.1% below a year ago. In the Midwest, the index fell 3.2% to 98.5 and is now 5.1% lower than April 2017.

Pending home sales in the South fell slightly by 1.0% to 127.3, but are still 2.7% higher than last April. The index in the West inched backward 0.4% in April to 94.4 and is 4.6% below a year ago.

Rising mortgage rates and scarce inventory are

Economy

SUV parts are fabricated in the stamping facility at the General Motors Assembly Plant on June 9, 2015. (Photo: Reuters)

SUV parts are fabricated in the stamping facility at the General Motors Assembly Plant on June 9, 2015. (Photo: Reuters)

The MNI Chicago Business Barometer rose 5.1 points to 62.7 in May, the highest level since January and up from 57.6 in April. New orders rebounded and all 5 Barometer components rose during the month.

“It had been a somewhat sluggish start to the year, perhaps unsurprising after the stellar end to 2017, but the MNI Chicago Business Barometer found a higher gear in May,” Jamie Satchi, Economist at MNI Indicators said. “Although broad based, the rise was largely thanks to a rebound in demand and back-to-back growth in output.”

“The result was, however, assisted by the intensification of supply side constraints, with order backlogs surging and lead times on key materials up sharply.”

Two special questions were posed to firms this month.

The first question asked firms whether supply-side issues were negatively affecting their business. A clear majority, at 63.0%, said yes. That’s not surprising given the survey’s associated indicators sitting at elevated levels.

The second asked firms to assess the impact of another interest rate hike in the next 3 months. Just under two thirds saw it having no impact on their operations, while 22.9% saw it having a negative impact.

Only 2.1% who saw it assisting their business and the rest were unsure.

The MNI Chicago Business Barometer rose 5.1

Economy

People count money at Macy's Herald Square store during the early opening of the Black Friday sales in the Manhattan borough of New York, November 26, 2015. (Photo: Reuters)

People count money at Macy’s Herald Square store during the early opening of the Black Friday sales in the Manhattan borough of New York, November 26, 2015. (Photo: Reuters)

The Bureau of Economic Analysis (BEA) Personal Income and Outlays report estimates income rose by $49.5 billion, or 0.3% in April. Disposable personal income (DPI) increased $60.9 billion (0.4%).

Consumer spending will be the first estimated component for gross domestic product (GDP) in the second quarter for 2018, and it was only expected to rise by 0.4%.

However, personal consumption expenditures (PCE) gained $79.8 billion (0.6%). That $42.8 billion gain in real PCE in April reflected an increase of $15.4 billion in spending for goods and a $27.5 billion increase in spending for services.

Real DPI increased 0.2% in April and Real PCE increased 0.4%. The PCE price index increased 0.2%. Excluding food and energy, the PCE price index increased 0.2%.

The Bureau of Economic Analysis (BEA) Personal

Economy

U.S. jobless claims graph on a tablet screen.

U.S. jobless claims graph on a tablet screen.

The Labor Department said first-time jobless claims fell 13,000 to a seasonally adjusted 221,000 for the week ending May 26, beating the 224,000 forecast. The 4-week moving average came in at 222,250, a gain of 2,500 from the previous week’s unrevised average of 219,750.

That 4-week average is just off a nearly 50-year low, which both have hit in recent weeks.

Claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal. Extended benefits were payable in the Virgin Islands during the week ending May 12.

Lagging Data

The advance seasonally adjusted insured unemployment rate was unchanged at 1.2% for the week ending May 19. The advance number for seasonally adjusted insured unemployment during the week ending May 19 fell 16,000 to 1,726,000.

The previous week’s level was revised up 1,000 to 1,742,000, while the 4-week moving average fell 8,500 to 1,743,500. This is the lowest level for this average since December 15, 1973 when it was 1,735,750. The previous week’s average was revised up by 250 from 1,751,750 to 1,752,000.

The highest insured unemployment rates in the week ending May 12 were in the Virgin Islands (3.5), Alaska (2.8), California (2.0), New Jersey (2.0), Connecticut (1.9), Puerto Rico (1.9), Pennsylvania (1.7), Illinois (1.6), Rhode Island (1.5), Nevada (1.4), and Washington (1.4).

The largest increases in initial claims for the week ending May 19 were in Pennsylvania (+2,219), California (+2,162), Michigan (+1,695), Kentucky (+1,660), and New Jersey (+1,126), while the largest decreases were in Missouri (-2,648), Washington (-305), Minnesota (-269), Wisconsin (-161), and Florida (-137).

The Labor Department said first-time jobless claims

Politics

U.S. Secretary of State Mike Pompeo, left, also the former Director of CIA, and Kim Yong Chol, right center, North Korea's infamous spy chief and vice chairman of the ruling Workers’ Party. (Photos: Reuters)

U.S. Secretary of State Mike Pompeo, left, also the former Director of CIA, and Kim Yong Chol, right center, North Korea’s infamous spy chief and vice chairman of the ruling Workers’ Party.

The State Department said Secretary Mike Pompeo is meeting Kim Tong Chol to discuss “preparations for President Trump’s expected summit with Chairman Kim Jong Un in Singapore.”

“Secretary Pompeo will travel to New York City, May 30-31, to meet with DPRK Vice-Chairman of the Central Committee Kim Yong Chol,” State Department spokesperson Heather Nauert said in a statement. “The Secretary and Vice-Chairman Kim will discuss preparations for President Trump’s expected summit with Chairman Kim Jong Un in Singapore.”

The comment from the State Department underscores just how optimistic the Trump Administration remains about the viability of the summit. Last week, President Trump pulled out of the summit, which was initially scheduled for June 12, sending a bold letter to Chairman Kim that left the door open to future talks.

The decision came after North Korea destroyed a nuclear site but also as Chairman Kim’s behavior was clearly influenced by his neighbor to the North. Speaking directly and through diplomatic channels to Chairman Kim, President Trump has repeatedly guaranteed his personal and national safety, as well as regime credibility.

Within hours of the letter being sent, the North Koreans reached out to Secretary Pompeo. The president confirmed the visit on Twitter, which is the first to the U.S. by a high-ranking North Korean official in 18 years.

“We have put a great team together for our talks with North Korea,” President Trump tweeted. “Meetings are currently taking place concerning Summit, and more. Kim Young Chol, the Vice Chairman of North Korea, heading now to New York. Solid response to my letter, thank you!”

If it takes place, the nuclear summit would be the first-ever between the U.S. and North Korea after more than six decades of hostility.

Chairman Kim announced that he suspended Pyongyang’s nuclear testing program in anticipation of the summit, which included a freeze on intercontinental ballistic missile tests and the closing of a nuclear site.

The development came after North Korea announced they dropped demands for a freeze to U.S.-South Korea joint military exercises and the withdrawal of U.S. troops as preconditions for talks.

Secretary of State Mike Pompeo is meeting

Economy

Cargo containers sit idle at the Port of Los Angeles as a back-log of over 30 container ships sit anchored outside the Port in Los Angeles, California, February 18, 2015. (Photo: Reuters)

Cargo containers sit idle at the Port of Los Angeles as a back-log of over 30 container ships sit anchored outside the Port in Los Angeles, California, February 18, 2015. (Photo: Reuters)

The U.S. trade deficit unexpectedly narrowed to$68.2 billion in April, a decrease of $0.4 billion from $68.6 billion in March. The politically-sensitive trade deficit was expected to widen to a consensus $71.0 billion.

But a $0.7 billion decline in exports to $139.6 billion was outweighed by a larger $1.1 billion decline in imports to$207.8 billion.

Advance Wholesale Inventories

Wholesale inventories for April, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $629.4 billion, virtually unchanged (±0.2%) from March 2018, and were up 5.6% (±3.9%) from April 2017. The February 2018 to March 2018 percentage change was revised from up 0.4% (±0.2%) to up 0.2% (±0.2%)*.

Advance Retail Inventories

Retail inventories for April, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $633.5 billion, up 0.6% (±0.2%) from March 2018, and were up 2.5% (±1.6%) from April 2017. The February 2018 to March 2018 percentage change was revised from down 0.4% (±0.2%) to down 0.7% (±0.2%).

The U.S. trade deficit unexpectedly narrowed to$68.2

Economy

Cargo containers sit idle at the Port of Los Angeles as a back-log of over 30 container ships sit anchored outside the Port in Los Angeles, California, February 18, 2015. (Photo: Reuters)

Cargo containers sit idle at the Port of Los Angeles as a back-log of over 30 container ships sit anchored outside the Port in Los Angeles, California, February 18, 2015. (Photo: Reuters)

The Bureau of Economic Analysis (BEA) said the second estimate for first quarter (1Q) gross domestic product (GDP) matched the forecast at 2.2%.

Real gross domestic income (GDI) increased 2.8% in the 1Q 2018, compared with an increase of 1.0% (revised) in the 4Q. The average of real GDP and real GDI, a supplemental measure of U.S. economic activity that equally weights GDP and GDI, increased 2.5% in the 1Q, compared with an increase of 2.0% in the 4Q.

The price index for gross domestic purchases advanced 2.7% in the 1Q juxtaposed to an increase of 2.5% in the 4Q. The PCE price index increased 2.6%, compared with an increase of 2.7%.

Excluding food and energy prices, the PCE price index increased 2.3%, compared with an increase of 1.9%.

The Bureau of Economic Analysis (BEA) said

Economy

People browse booths at a military veterans' job fair in Carson, California October 3, 2014. (Photo: Reuters)

People browse booths at a military veterans’ job fair in Carson, California October 3, 2014. (Photo: Reuters)

The ADP National Employment Report finds the U.S. private sector added 178,000 jobs in May, but businesses are struggling to fill a record number of open positions. The headline number is slightly lower than the 187,000 forecast, but labor demand is pushing wages higher.

“The hot job market has cooled slightly as the labor market continues to tighten,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Healthcare and professional services remain a model of consistency and continue to serve as the main drivers of growth in the services sector and the broader labor market as well.”

The gain this month follows a larger number (204,000) of private sector jobs created in April. That compared to the 168,000 in the government’s data for total non-farm payrolls. ADP has been running far stronger than the government data.

The higher-paying Goods-producing sector added a solid 64,000 private sector jobs in May. With 39,000 new jobs, construction led the way followed by manufacturing (+14,000) and natural resources and mining (+11,000).

“Job growth is strong, but slowing, as businesses are unable to fill a record number of open positions,” Mark Zandi, chief economist of Moody’s Analytics, said. “Wage growth is accelerating in response, most notably for young, new entrants and those changing jobs. Finding workers is increasingly becoming businesses number one problem.”

The service-providing sector added 114,000 jobs in May, led by professional/business services at 61,000.

Small business with up to 49 employees added 38,000 jobs; medium-sized businesses with 50 to 499 employees added 84,000; and, large businesses with 500+ employees added 59,000.

The ADP National Employment report, which is derived from actual payroll data, measures the change in total non-farm private sector employment each month on a seasonally-adjusted basis. It precedes the government jobs report known as the Employment Situation.

Conducted by the Labor Department (DOL) via the Bureau of Labor Statistics (BLS), the monthly jobs report tallies both the private and public sectors.

However, it is derived from responses collected in a household survey, not hard data. The median economic forecast is also calling for 190,000 jobs.

The ADP National Employment Report finds the

Economy

A International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) worker gestures at the General Motors Assembly Plant in Arlington, Texas June 9, 2015. (Photo: Reuters)

A International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW) worker gestures at the General Motors Assembly Plant in Arlington, Texas June 9, 2015. (Photo: Reuters)

The Texas Manufacturing Outlook Survey (TMOS) surged in May to 26.8, easily beating the 23.2 consensus forecast amid sharp regional factory activity growth. The company outlook index gained 4 points to 28.0, with both readings far above their respective averages.

The production index, a key measure of statewide manufacturing conditions, rose 10 points to a 12-year high of 35.2, signaling further acceleration in output growth.

The capacity utilization index soared from 18.7 to 32.2, and the shipments index shot up by 20 points to 39.5. The growth rate fueled by demand of the orders index rose 8 points to 26.5.

While the new orders index held steady at 27.7, all three aforementioned measures reached their highest readings since 2006.

Labor market data indicate stronger-than-expected growth in employment and longer work hours in May.

The employment index rose 6 points to 23.4, its highest reading in 6 years. Twenty-nine percent (29%) of firms reported net hiring juxtaposed to 5% that cited net layoffs. The hours worked index gained 9 points to 23.2, a significant gain for this subindex.

Upward pressures on prices and wages remained strong in May.

The raw materials prices index and wages and benefits index ticked down to 44.0 and 24.3, respectively—still well above their average readings. The finished goods prices index rose to 20.5, with a quarter of firms reporting increased prices this month.

Expectations regarding future business conditions remained optimistic in May.

The indexes of future general business activity and future company outlook were largely unchanged at 30.0 and 35.2, respectively, with both readings significantly above their respective averages.

Next release: Monday, June 25

The Texas Manufacturing Outlook Survey (TMOS) surged

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