Wednesday, September 30, 2015

ADP: 200,000 New Jobs in September

According to the ADP National Employment Report, the non-farm private sector added 200,000 jobs in September, up from 186,000 in August. The goods-producing sector saw slightly slower job growth for the month, while the service-providing sector posted stronger gains.

“The U.S. job machine continues to produce jobs at a strong and consistent pace,” said Mark Zandi, chief economist of Moody’s Analytics. “Despite job losses in the energy and manufacturing industries, the economy is close to creating close to 200,000 jobs per month. At this pace full employment is fast approaching.”

Small businesses, with less than 50 employees added 37,000 in September, down from 92,000 in August. Medium-sized businesses, with 50 to 499 employees added 56,000 jobs, down from 74,000 last month. Large businesses, with 500 or more employees added 106,000 jobs, up sharply from the 21,000 jobs added in August.

Goods-producing employment rose by 12,000 jobs, down from the 15,000 added last month. The manufacturing industry contracted in September, shedding 15,000 jobs. Construction jobs increased by 35,000, almost double August’s 18,000 gain.

Service-provider employment rose by 188,000, up from 172,000 in August. Professional and business services contributed the 29,000 jobs, about the same as last month’s increase, while the Trade/transportation/utilities sector expanded by 39,000 jobs, up from 25,000 in August.

Year to date, the private sector has added 1.76 million jobs – down from 2.08 million in the first 9 months of 2014.

Read the ADP release.

Tuesday, September 29, 2015

Confidence Rises, Present Situation Index Reaches 8-Year High

Consumer confidence increased in September, rising 1.7 percent to 103.0 points according to The Conference Board’s Consumer Confidence Index.

The Present Situation Index – a measure of respondents’ appraisal of current business and employment conditions, grew 5.3 points to 121.1, an eight year high, while the Expectations Index – a measure of business employment and total family income expectations in the next six months, fell 0.6 points to 91.0.

“Consumer confidence increased moderately in September, following August’s sharp rebound,” noted Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ expectations for the short-term outlook, however, remained relatively flat, although there was a modest improvement in income expectations. [Consumers] do not foresee growth accelerating in the months ahead.”

Outlook for the labor market was mixed in September, as respondents anticipating more jobs in the months ahead was largely unchanged at 15 percent, while those anticipating fewer jobs increased from 14.5 percent to 15.8 percent. Income expectations increased however, as 19.1 percent expected incomes to increase, up from 16.2 percent in August.

The outlook for business conditions improved in September, with the number of respondents saying business conditions are “good” increased from 23.7 percent to 28.0 percent, while the number saying conditions were “bad” fell 1.1 percent to 16.7 percent.

Read the release.

Home Prices Grew 5.0 Percent in July

The 20-City Case-Shiller Composite gained 5.0 percent year-over-year in July, consistent with June’s gain. The 10-City Composite gained 4.5 percent from the previous year, down from a 4.6 percent annual increase last month. The National Index posted a 4.7 percent year-over-year increase, compared to a 4.5 percent increase in June.

Fourteen cities in the 20-City Index reported greater annual price increases in July than in the previous month. San Francisco, Denver and Dallas reported the highest gains, with year-over-year increases of 10.4 percent, 10.3 percent and 8.7 percent.

On a monthly basis, both the 10 and 20-City Composites both reported gains of 0.6 percent, while the National Index posted a month-over-month gain of 0.7 percent.

“The economy grew at 3.9% real annual rate in the second quarter of 2015 with housing making a major contribution. Residential investment grew at annual real rates of 9-10% in the last three quarters, far faster than total GDP,” says David M. Blitzer of S&P Dow Jones Indices. “Other Positive indicators of current and expected future housing activity include gains in sales of new and existing housing and the National Association of Home Builders sentiment index. An interest rate increase by the Federal Reserve now expected in December by many analysts is not likely to derail the strong housing performance.”

Read the S&P/Case-Shiller release.

Monday, September 28, 2015

Income and Expenditures Increased in August

Personal income increased $52.5 billion, or 0.3 percent, in August, according to the Bureau of Economic Analysis, down from a 0.5 percent increase in July. Personal consumption expenditures (PCE) increased $54.9 billion, or 0.4 percent, the same pace as in July.

Disposable personal income – personal income less taxes – increased 0.4 percent after gaining 0.5 percent in July.

The personal savings rate – personal savings as a percentage of disposable income – was 4.6 percent, down from 4.7 percent last month.

Wages and salaries grew $35.6 billion in August, down from a $43.8 billion increase in July. The majority of wage and salary growth for the month was attributable to expansion in the service sector.

The price index for PCE increased less than 0.1 percent in August, compared to a 0.1 percent July increase. The index excluding food and energy increased 1.3 percent from a year ago, well below the Federal Reserve’s target of 2.0 percent.

Read the BEA release.

Friday, September 25, 2015

Yellen Still Expects Rate Hike This Year

Federal Reserve Chairman Janet Yellen said yesterday that she still expects economic conditions will warrant an interest rate hike “sometime later this year,” followed by a “a gradual pace” of increases.

Yellen noted that the Federal Open Market Committee will continue to monitor closely economic conditions and market responses to the Fed’s actions. “By itself, the precise timing of the first increase in our target for the federal funds rate should have only minor implications for financial conditions and the general economy,” she said. She also added that it is important to begin rate increases before too long because of the “substantial lag” with which monetary policy decisions affect economic activity and inflation.

“If the FOMC were to delay the start of the policy normalization process for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals,” she explained. “Such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession.”

Read the speech.

Consumer Sentiment at Lowest Level Since October

Consumer confidence fell to 87.2 in August, down 4.7 points from the previous month according to the University of Michigan Consumer Sentiment Index. Despite being at the lowest level in 11 months, August’s reading was still higher than in any month prior to May 2007.

“A raft of recent events have been viewed as negative economic indicators by many consumers, including falling commodity prices, weakened Chinese and other economies as well as continued stresses on European countries,” says Richard Curtin, Chief Economist for UM Surveys of Consumers. “Although most believe the domestic economy is largely insulated, they have lowered the pace of job and wage growth that they now anticipate.”

The Current Economic Conditions Index fell 3.9 points to 101.2, but was 2.3 percent higher than September of last year. The Index of Consumer Expectations fell 5.2 points to 78.2, but grew 3.7 percent year over year.

GDP Revised Up to 3.9 Percent for Second Quarter

Real GDP for the second quarter grew at an annual rate of 3.9 percent according to the Bureau of Economic Analysis’s third estimate. This is an upward revision from the second estimate of 3.7 percent growth from the quarter, and well above the first quarter’s rate of 0.6 percent. The quarter’s acceleration in growth reflected acceleration in personal consumption expenditures (PCE), as well as an increase in state and local government spending and net exports.

Consumption was the largest contributor to GDP, accounting for 2.4 percent of the 3.9 percent growth in the second quarter, up from 1.2 percent in the first quarter. The growth in consumption was driven by an increase in durable goods spending, which rose 8.0 percent in the second quarter.

Overall, net exports contributed 0.2 percent to GDP, compared to a 1.9 percent drag in the first quarter . Exports of goods and services, which were a 0.8 percent drag in the first quarter, contributed 0.6 percent in the second.

Government expenditures contributed 0.5 percent, after contributing 0.0 percent in the first quarter. The majority of the spending increase was from state and local governments, which increased spending by 4.3 percent.

Read the BEA release.

Thursday, September 24, 2015

New Home Sales Rose 5.7 Percent in August

Sales of new single-family homes rose in August to a seasonally adjusted annual rate of 552,000 according to the U.S. Census Bureau and Department of Housing and Urban Development. The August rate is 5.7 percent above the upwardly revised July rate of 522,000 and 21.6 percent above the year-ago rate of 454,000.

New home sales grew month-over-month in three of the four regions, rising 24.1 percent in the Northeast, 7.4 percent in the South, and 5.4 percent in the West, while sales fell 9.1 percent in the Midwest.

The median sales price of new houses sold in August was $292,700, up $1,600 from July and considerably higher than the median existing home price of $228,700. The average sales price for a new house was $353,400, up 2.5 percent on the month.

At the end of August, there was an estimated supply of 4.7 months at the current sales rate, virtually the same supply as existing homes.

Read the release.

Durable Goods Orders Fell 2 Percent in August

New orders for manufactured durable goods decreased 2.0 percent to $236.3 billion in August, according to the U.S. Census Bureau. The August decrease followed a 1.9 percent July increase. The majority of the decline can be attributed to a 5.8 percent drop in new orders for transportation equipment. Excluding transportation, new orders were virtually unchanged for the month.

New orders excluding defense fell 1.0 percent or $2.2 billion. Orders of non-defense capital goods declined 2.0 percent to $80.4 billion, and shipments grew 1.8 percent to $80.8 billion.

Shipments of manufactured durable goods was virtually unchanged, falling by less than $0.1 billion following a $2.4 billion increase in July.

Inventories of manufactured durable goods were also largely unchanged in August at $401.4 billion, following a 0.2 percent decrease in July.

Read the Census release.

Tuesday, September 22, 2015

House Prices Rose 0.6 Percent in July

House prices in the U.S. rose 0.6 percent in July on a seasonally adjusted basis according to the Federal Housing Finance Agency (FHFA) monthly House Price Index (HPI), up from a 0.2 percent monthly gain in June. The FHFA HPI is calculated using home sales information from mortgages sold to, or guaranteed by Fannie Mae and Freddie Mac. According to the Index, housing prices are up 5.8 percent from one year ago.

Prices rose in seven of the nine census divisions, with changes ranging from a 1.6 percent gain in the Mountain division, to declines of 1.2 percent in New England. On a yearly basis, all divisions posted gains. Prices in the Mountain division saw the most pronounced gains, rising 9.4 percent year-over-year, followed closely by the Pacific region at 8.1 percent. New England and the Middle Atlantic saw mild year over year gains, with house prices growing by 2.1 and 3.0 percent respectively.

House prices continue to rise even as sales have stalled in recent months, as high demand coupled with tight inventory appear to have deterred some buyers according to the National Association of Realtors (NAR). The NAR expects low inventory to continue to limit options for home buyers this fall.

Read the FHFA release.

Monday, September 21, 2015

Existing Home Sales Stall Unexpectedly

Existing home sales fell 4.8 percent in August to a seasonally adjusted annual rate of 5.31 million, according to the National Association of Realtors (NAR), from a downwardly revised 5.58 million in July. August’s decline followed three consecutive months of gains. Despite the monthly decline, existing home sales have risen year-over-year for the last 11 months.

Total housing inventory rose 1.3 percent to 2.29 million existing homes available for sale, but fell 1.7 percent from a year ago. There was a 5.2 months supply of unsold inventory in August, up from 4.9 months in July.

“Sales activity was down in many parts of the country last month – especially in the South and West – as the persistent summer theme of tight inventory levels likely deterred some buyers,” said NAR Chief Economist Lawrence Yun. “With sales and overall demand higher than a year ago and supply mostly unchanged, low inventories will likely continue to limit options for those looking to buy this fall.”

The percent share of first time home buyers rose to 32 percent, matching May’s figure for the highest share of the year. The share of first time buyers was 29 percent a year ago.

Existing home sales declined in three of the four regions, declining 1.5 percent in the Midwest, 6.6 percent in the South, and 7.8 percent in the West. The rate of sales was unchanged in the Northeast at an annual rate of 700,000.

Distressed sales remained at 7 percent for the second month, the lowest rate since October 2008. Foreclosures comprised 5 percent of distressed sales, while 2 percent were short sales.

Read the NAR release.

Friday, September 18, 2015

Household Net Worth Rises, Savings Rate Falls

Household net worth increased $694.8 billion during the second quarter of 2015 to $85.7 trillion, a 0.8 percent increase from the first quarter, and a 4.6 percent increase from a year ago.

Households’ holdings of nonfinancial assets increased during the second quarter, growing 1.9 percent. The majority of this increase came from real estate holdings, which increased by $498.7 billion. Growth in wealth derived from consumer durable goods nearly doubled from last quarter’s increase, adding $70.2 billion.

Household financial assets increased 0.4 percent from the previous quarter, and 3.4 percent from the previous year. The quarterly growth was driven mostly by increases in deposits, debt securities, loans and mutual fund shares. Household holdings of corporate equities declined.

Household nonfinancial debt increased at an annual rate of 3.9 percent in the second quarter, as consumer credit grew 8.1 percent. Mortgage debt grew at a 2.2 percent annual rate.

The household savings rate fell to 4.8 percent in the second quarter, down from 5.2 percent in the first quarter, but unchanged from 12 months ago.

Nonfinancial business debt rose at an annual rate of 8.3 percent, a larger increase than last quarter’s 7.2 percent increase. The majority of nonfinancial business debt was concentrated in corporate bonds.

Federal government nonfinancial debt increased at rate of 2.4 percent, after decreasing at a 1.1 percent rate last quarter. State and local government nonfinancial debt increased at an annual rate of 1.0 percent, down from a 4.3 percent rate in the first quarter.

Read the Federal Reserve release.

Thursday, September 17, 2015

No September Rate Increase

The Federal Reserve Open Market Committee elected not to raise the federal funds rate in September. In a statement released post-meeting, the Fed once again stated that the U.S. economy showed signs of moderate expansion and labor market improvement. However inflation has continued to run below long-run objectives – in some part due to declines in energy prices and non-energy imports.

Despite low inflation, the FOMC continues to see the outlook for economic activity and the labor market as “nearly balanced,” and expects inflation to rise gradually toward 2 percent over the medium term.

During the post statement press-conference, Federal Reserve Chair Janet Yellen stated that the possibility of raising rates today was discussed, but ultimately it was decided that now was not the appropriate time. Chair Yellen continues to expect it will be appropriate to increase the federal funds rate later this year. Of the voting members of the Committee, all but Richmond Federal Reserve President Jeffrey Lacker voted to hold the target rate between 0 and 25 basis points.

Thirteen members in total believed that it would be appropriate to raise rates before the end of the year, down from fifteen during the June meeting. The Committee’s median projections for rates moved down 2 basis points, falling to an expectation of a 1.4 percent interest rate at the end of 2016.

The Committee’s long-term unemployment rate moved from down 0.1 percentage point from 5.0 percent in the June meeting to 4.9 percent. The long-term median for long-term PCE inflation, as well as change in real GDP, remained at 2 percent.

Read the Federal Reserve statement.

Housing Starts Fall, Permits Rise

Housing starts fell to a seasonally adjusted annual rate of 1.126 million, 3.0 percent below the revised July estimate of 1.161 million, but 16.6 percent higher than the August 2014 rate.

Housing activity fell in three of the four regions, with starts falling 33.7 percent in the Northeast, 9.8 percent in the Midwest, and 1.1 percent in the West. Starts rose 7.1 percent in the South.

New building permits rose in August to 1.170 million, up 3.5 percent from July’s estimate and 12.5 percent above August 2014’s estimate. Permits issued in the Northeast fell for the third consecutive month, falling to a rate of 109,000.

Housing completions in August were at a seasonally adjusted annual rate of 935,000, down 6.1 percent below July’s estimate, but up 3.3 percent from a year ago.

Read the Census release.

Wednesday, September 16, 2015

Home Builder Confidence Continued to Rise in September

The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) reached a level of 62 in September, the highest reading since October 2005.

Two of the three index components posted gains on the month. Current sales conditions rose 1 point to 67, and the index measuring buyer traffic rose to 47, up 2 points from July. The index measuring expectations in the next six months declined 2 points to 68.

The three-month moving averages increased for three of the four regions. The Midwest rose one point to 59, and the South and West each rose one point to 64. The Northeast fell one point to 46.

“The HMI shows that single-family housing is making solid progress,” said Tom Woods, NAHB chair Tom Woods. “However, our members continue to tell us that they are concerned about the availability of lots and labor.”

NAHB Chief Economist David Crowe was upbeat regarding future housing prospects. “Today’s report is consistent with our forecast, and barring any unexpected jolts, we expect housing to keep moving forward at a steady, modest rate through the end of the year.”

Read the NAHB release.

CPI Fell in August as Energy Prices Decline

The Consumer Price Index decreased 0.1 percent in August. The decline was largely due to a sharp decline in the gasoline index. The index rose 0.2 percent over the last 12 months.

The energy index declined 2.0 percent in August after posting gains for three consecutive months. Both the fuel oil and gasoline indices declined sharply, falling by 8.1 and 4.1 percent respectively, while the electricity index posted a 0.3 percent gain. On the year, energy prices have fallen 15.0 percent.

Prices for non-food and energy items increased 0.1 percent, the same rate as in July. The increase was tied to a 0.2 percent gain in the price of shelter, as rent prices rose by 0.3 percent. The indices for apparel and medical care also rose 0.3 percent each. Several indices posted declines for the month. Airline fares fell 3.1 percent after falling 5.6 percent in July, and the index for used cars and trucks decreased by 0.4 percent.

Food prices increased 0.2 percent, as the index for food at home and away from home advanced 0.3 and 0.2 percent. The index for eggs continued to rise in August, growing by 7.7 percent, even as the index for dairy and related products posted a decline. Over the course of the year, the eggs index increased by 35.3 percent.

Read the BLS release.

Tuesday, September 15, 2015

Industrial Production Declined 0.4% in August

Industrial production decreased 0.4 percent in August, after increasing 0.9 percent in July. Total industrial production is at 107.1 percent of its 2012 level and 0.9 percent above its year-earlier level.

Manufacturing output fell 0.5 percent in August primarily due to a large drop in motor vehicle parts. Mining, fell 0.6 percent on the month, while utilities rose 0.6 percent.

Capacity utilization fell 0.4 percentage point in August to 77.6 percent, 2.5 percentage points below its long-run (1972-2014) average.

Production of final products decreased 0.4 percent, as both consumer goods and business equipment fell.

Read the Federal Reserve release.
Visit the new Banks and the Economy.

Retail Sales Edged Up in August

There were $447.7 billion of retail and food services sales in August (after adjustment for seasonal variation and holiday and trading-day differences but not for price changes), an increase of 0.2 percent, according to the U.S. Census Bureau. Retail sales increased 2.2 percent from August 2014.

Core retail sales – excluding automobiles and parts – increased 0.1 percent from the previous month, and 1.3 percent from the previous year.

Retail trade sales were generally flat, increasing just 0.1 percent from July, but rising 1.4 percent from August 2014. Sales at food services and drinking places increased 8.2 percent and nonstore retailers were up 6.9 percent from last year.

Motor vehicle parts and dealers’ sales increased by 0.7 percent on the month, and 5.7 percent on the year. Conversely, sales at gasoline stations declined 17.2 percent from last year.

Read the Census release.
Visit the new Banks and the Economy.

Monday, September 14, 2015

NY Fed: Inflation Expectations Decline, Earnings Expectations Flat

Inflation expectations decreased slightly at both the one year ahead and three year ahead levels, while earnings growth expectations were flat according to the New York Fed’s September Survey of Consumer Expectations (SCE).

Median one-year ahead inflation expectations dropped 17 basis points to 2.79 percent in August, the second lowest reading of the year. The median three-year ahead inflation expectations fell 9 basis points to 2.87 percent.

Consumer expectations for changes in home prices fell also in August, with consumers expecting prices to rise 3.03 percent over the next year, a 12 basis point decrease from July’s reading, and down from 3.46 percent a year ago.

One year earnings growth expectations were virtually unchanged from July, increasing by 2 basis points to 2.45 percent, while median uncertainty regarding earnings growth fell 15 basis points to 1.85 percent.

Consumers were less optimistic in their expectations for credit availability a year from now, as 25.55 percent of consumers surveyed expect credit to be somewhat harder to obtain a year from now, a 1.56 percent increase from last month. However, the share of consumers that believe it will be much harder to obtain credit one year from now declined from 8.05 percent in July to 6.54 percent in August.

Read the NY Fed release.
Visit the new Banks and the Economy.

Friday, September 11, 2015

Producer Prices Unchanged in August

Producer prices were unchanged in August after rising 0.2 percent, seasonally adjusted, in July according to the U.S. Bureau of Labor Statistics. August’s price stagnation in prices was attributable to an increase in prices for final demand services, offset by a decrease in prices for final demand goods.

The index for final demand services increased by 0.4 percent. Nearly half of the increase could be traced to margins for apparel, footwear, and accessories retailing, which grew by 7.0 percent on the month. Indexes for automotive fuels and lubricants, as well as securities brokerage, dealing, investment advice and related services also moved higher.

Final demand goods fell 0.6 percent, largely due to a 3.3 percent decrease in prices for final demand energy. The index for final demand goods less food and energy declined by 0.2 percent, while the prices for final demand foods rose 0.3 percent.

Read the BLS release.

Tuesday, September 8, 2015

Consumer Credit Grew 6.7% (SAAR) in July

Consumer credit increased in July at a seasonally adjusted annual rate of 6.7 percent, rising to $3.45 trillion. Revolving credit rose at an annual rate of 5.7 percent to $915 billion, and non-revolving credit increased at an annual rate of 7.0 percent to $2.54 trillion.

Total outstanding consumer credit increased by $19.1 billion, down from last month’s $27.0 billion increase. Total outstanding non-revolving credit increased $14.8 billion, down from a $19.5 billion increase in June. Outstanding revolving credit increased by $4.3 billion – less than June’s $7.5 billion increase.

Federal Government holdings of student loans continue to be the largest portion of non-revolving credit, comprising 36 percent of outstanding credit. Finance companies and depository institutions are the secondary holders of non-revolving credit, each holding approximately 25 percent. Depository institutions continue to be the primary holder of revolving credit, holding 82 percent.

Read the Federal Reserve release.

Small Business Optimism Increased in August

The NFIB Small Business Optimism Index reached 95.9 points in August, up 0.5 points from July’s reading. Five of the ten components posted gains on the month, while three fell.

Business owners reported increased job growth in August as owners added a net 0.13 workers per firm in recent months, up from 0.05 reported in July. Fifty-six percent of owners reported hiring or trying to hire, but 48 percent of owners reported few or no qualified applicants for the positions they were trying to fill.

Capital spending declined in August, with 58 percent of businesses reporting capital outlays – down 3 points from July. Only 24 percent of owners are planning capital outlays in the next 3 to 6 months, unchanged from July’s reading, as owners expect a continuation of economic “under-performance.”

The earnings trends index improved 4 points in July, as the net portion of owners reporting higher earnings improved to a negative 15 percent. Reports of increased labor compensation remained at a net 23 percent of owners. Credit conditions were satisfactory for small business owners. Three percent of owners reported that their borrowing needs were not met, down one percent from the previous month. Just one percent of owners cited financing as their top business problem compared to 5 percent during the great recession.

While business owners are not having problems accessing credit, a working paper from the Federal Reserve Bank of Philadelphia suggests that student loan debt is inhibiting the formation of small businesses, as enterprising graduates burdened with student loans are reluctant to take out additional debt to finance a business. Given that 6 in 10 new jobs are created by small businesses, this could have a major effect on the U.S economy.

Read the NFIB release.

Friday, September 4, 2015

173,000 Jobs Added in August, Unemployment Falls to 5.1%

Total nonfarm payroll employment rose by 173,000 in August according to the Bureau of Labor Statistics, down from last month’s upwardly revised 245,000. The unemployment rate dropped to 5.1 percent. The Federal Reserve has placed its full employment estimate between 5.0 and 5.2 percent.

Education and health services posted strong gains, with healthcare and social assistance adding 56,400 jobs. Professional and business services added 33,000 jobs, down from 39,000 in July. The leisure and hospitality sector also added 33,000 jobs, an increase of 3,000 from the previous month.

Goods-producing industries struggled in August, losing a total of 24,000 jobs. The mining and logging sector shed 10,000 jobs, while manufacturing lost 17,000. The motor vehicles and parts sector was a bright spot with manufacturing, adding jobs for the second month in a row. Motor vehicles and parts added 7,300 jobs over the past 2 months.

The civilian labor force participation rate was unchanged for the third consecutive month at 62.6 percent.

The number of long-term unemployed, those jobless for 27 weeks or more was 2.2 million, down 779,000 from August of 2014. This group accounts for 27.7 percent of the unemployed. The number of discouraged workers, those not looking for work because they believe no jobs are available, was 624,000, down 151,000 from a year ago.

Average hourly earnings rose 8 cents to $25.09 – a 2.2 percent increase year over year. A recent report from the Federal Reserve Bank of New York suggests that slow wage growth may have to do with lower job-to-job transition rates, as workers who transition to new jobs without gaps in employment tend to receive higher rates of pay.

Read the BLS release.

Thursday, September 3, 2015

ISM: Non-Manufacturing Growth Continues

The Non-Manufacturing ISM Report on Business Index fell to 59.0 in August, down 1.3 points from July’s record high reading of 60.3, but still positive, as readings above 50 indicate growth in the sector. Fifteen non-manufacturing industries reported growth in August, while one – the mining industry – reported contraction.

The Business Activity Index registered 63.9, down 1 point from July’s reading. Respondents noted that new acquisitions and continued market growth were strengthening business activity.

Non-manufacturing employment continued to grow according to the index, registering a reading of 56.0 points. Although August’s reading was 3.6 points lower than July’s, a reading of 56.0 is still indicates significant growth. Twelve industries reported growth in employment, while three industries – Mining; Arts Entertainment & Recreation; and Professional, Scientific & Technical Services – reported contraction.

The New Orders index fell 0.4 points on the month to 63.4, but still grew overall for the 73rd consecutive month. Respondents indicated that new customers and network upgrades were contributing to growth in orders. Growth in new orders was reported by 13 industries, including Construction; Transportation and Warehousing; and Finance & Insurance.

Supplier deliveries slowed as the index fell 0.5 points to 52.5 points. Readings above 50 indicate slower deliveries. Ten industries, including Real Estate and Educational Services, reported slower deliveries in August, while three – Mining; Finance & Insurance; and Transportation and Warehousing, reported faster deliveries.

Read the ISM report.

U.S. Foreign Trade Deficit Contracted in July

The U.S International trade deficit narrowed in July to $41.9 billion, down $3.3 billion from June. The decline in the deficit reflected an increase in exports, and a decrease in imports. July exports were $188.5 billion, up $0.8 billion from June. Imports were $230.4 billion, $2.5 billion less than in June.

The goods deficit fell $3.4 billion to $61.4 billion, while the surplus in services decreased less than $0.1 billion to $19.6 billion.

Exports of goods increased $0.6 billion to $128.2 billion, driven by increased exports of automotive vehicles, parts and engines and industrial supplies. Exports of services increased $0.2 billion to $60.3 billion, driven by a $0.1 billion increased in financial services.

Imports of goods fell $2.7 billion to $189.6 billion, largely due to a $1.5 billion decrease in pharmaceutical preparations and a $1.3 billion decrease in cell phones and other household goods. Imports of services increased $0.2 billion to $40.8 billion, mostly due to travel and freight services.

Read the Census/BEA release.

August Job Cuts Fall After Record July

Employers announced plans to cut 41,186 jobs from their payrolls in August, according to a report issued by Challenger, Gray & Christmas. August’s announced cuts were more modest than the 105,696 announced in July. Last month’s announced cuts, due to planned reductions in military staffing, marked the highest monthly total since 2011.

August’s job cuts were 2.9 percent higher than the planned layoffs announced in August 2014. In the first 8 months of 2015, employers have announced 434,554 layoffs – 31 percent more than the number of cuts announced in the first 8 months of last year.

The retail sector was the hardest hit in August, with 9,601 planned layoffs for the month. Grocery store chain A&P was the largest contributor, announcing that it will terminate 8,500 employees by Thanksgiving due to bankruptcy. Year to date, the retail sector has announced 57,363 jobs, up 90 percent from last year. Many of these cuts were from long-time retailers which have not been able to keep up with consumer trends.

The report noted that market volatility may begin to affect the retail environment. “Overall, we have not seen any job cuts attributed to the stock market’s swoon,” said John A. Challenger, CEO of Challenger, Gray & Christmas. “We are more likely to see cuts resulting from the underlying cause of the volatility, which is the weakening economy in China and other developing nations.

Industrial goods also saw an increase in planned layoffs, with 7,949 announced. Twenty-two percent of the industrial goods cuts were related to falling oil prices. Year-to-date, the Challenger report attributed 82,268 layoffs to the fall in oil prices, most of which were in the energy sector.

“It’s too soon to say if we have seen the last of the big oil cuts,” said Challenger. “The problems that China is facing could send shockwaves throughout the global economy, including the United States.”

Read the release.

Wednesday, September 2, 2015

Beige Book: Manufacturing Expands, Consumer Spending Mixed

Economic activity expanded across most of the twelve Federal Reserve Districts from July to mid-August. Six districts cited moderate growth, while four others cited modest increases. The Cleveland District reported only slight growth since the July release.

Manufacturing reports were positive, with ten of the twelve districts reporting stable or positive growth, while only New York and Kansas City registered declines. Cleveland, Richmond and Chicago reported strong growth in auto-related manufacturing, and Aerospace manufacturing contributed to growth in the Dallas, San Francisco and Chicago Districts. Manufacturers in the Midwest reported that cheap steel imports were depressing demand and leading to low capacity utilization. These cheap imports were attributed to the strong dollar and slow growth in Asia. Three District reports specifically mentioned the Chinese slowdown as a factor, with San Francisco noting reduced demand for wood products, Boston noting reduced demand for chemicals and Dallas noting reduced demand for high-tech goods.

Banking conditions were generally positive as loan demand increased across most reporting Districts. Demand for credit increased in most Districts, and credit conditions remained stable or improved. Credit standards were generally unchanged, and contacts in Boston, Atlanta and Chicago reported increased competition among lenders for loans. Some bankers in the Atlanta region reported a slowdown in lending due to weak energy prices, while bankers in New York, Cleveland and San Francisco reported narrow net interest margins.

Consumer spending reports were mixed across Districts, with some sources in the same Districts reporting sales growth, while others reporting flat or slowing sales. Contacts in regions near the Mexican and Canadian border noted that strong dollar values were negatively affecting sales. Auto sales were a bright spot, with many districts reporting continuing strength in the sector. Expectations are optimistic that auto sales will improve or continue to be strong through the end of the year.

Employment increased at a slight or modest pace, with some Districts reporting labor shortages for IT and technical positions. Wages were stable in most Districts, but several reported upward pressure on wages due to tight labor supply. In Kansas City however, wage growth slowed despite labor shortages.

Read the Fed release.

ABA Statement on FDIC’s Second Quarter Bank Earnings Report

“Strong loan growth, diversified revenue streams and a continued improvement in asset quality were the hallmarks of a very strong second quarter for America’s banking industry. The tremendous across-the-board increase in lending was the single biggest driver of higher bank earnings. Steadily improving asset quality and consistently higher capital paint a picture of a fundamentally strong banking sector that’s meeting the diverse needs of both consumers and businesses. U.S. banks are well positioned to continue making the loans that propel our nation’s economic growth.”

Second Quarter Marked by Strong Loan Growth

“Lending grew strongly in nearly every category, with a total increase exceeding $430 billion over the last year. Business loans were up more than $137 billion year over year and real estate lending has picked up steam. With the economy growing stronger and higher interest rates on the horizon, many businesses have determined that there’s no time like the present to borrow and kick expansion plans into high gear. Even with Fed action, interest rates will remain incredibly low by historic standards. We expect borrowing to remain elevated in the third quarter amid low interest rates, improving confidence and a stable economy.”

Increased Loan Demand Drives Higher Earnings

“Strong loan growth and diversification of non-interest income have served as a catalyst for higher earnings. The real revenue driver is a renewed demand for the industry’s bread and butter product – loans – as consumers and businesses grow more confident in a better economic environment. Banks continue to make loans to more people, which fuels economic growth. Demand for credit from small businesses has been particularly strong, which bodes well for job creation and an improving economy.”

Banks Prepared for Higher Interest Rates

“Banks continue to balance customer demand for long-term loans at low rates with the need to properly manage interest-rate risk. Institutions are actively engaged and continue to prepare for the return to a more normal rate environment.”

Banks Remain Highly Capitalized as Lending Takes Center Stage

“Banks remain highly capitalized at levels far exceeding the most stringent regulatory standards. The U.S. financial system is strong and well-positioned to withstand even the most vigorous economic shocks. With capital at such high levels, the focus has shifted toward putting it to work in the community through a greater number of loans to both consumers and businesses. With nearly $2 trillion in capital and reserves, banks are well protected from any economic circumstance that could arise.”

Bank Portfolios Continue to Steadily Improve

“We’ve seen a steady improvement in loan quality over the last five years and that trend should continue. Delinquent loans and charge-offs are down across the board due to prudent underwriting by banks and determined efforts by both businesses and individuals to keep debt at manageable levels. Problem loans are back to levels we saw eight years ago and losses have fallen to pre-crisis levels. Non-performing loans are one-third of what they were in 2010.”

Manufactured Goods Orders Grew in July

New orders for manufactured goods increased for the second consecutive month, rising 0.4 percent to $482.0 billion, following a 2.2 percent increase in July.

New orders for manufactured durable goods grew 2.2 percent to $241.7 billion. New orders for transportation equipment led the increase, growing 5.5 percent to $84.0 billion, as orders for ships and boats, as well as motor vehicle bodies, parts and trailers increased 19.5 percent and 4.0 percent respectively.

Shipments decreased 0.2 percent to $483.6 billion, down from a 0.6 percent increase in June. Inventories declined by 0.1 percent to $651.2 billion, following a 0.3 percent gain in June. Unfilled orders increased for the second month in a row, rising 0.2 percent to $1,198.0 billion. Unfilled orders rose at a rate just above 0.0 percent in June.

Read the Census release.

ADP: 190,000 New Private Sector Jobs in August

According to the ADP National Employment Report, the non-farm private sector added 190,000 jobs in August, up from 177,000 in July. Both the goods- and service-providing sectors saw stronger job growth last month.
Mark Zandi, chief economist of Moody’s Analytics, said, “Recent global financial market turmoil has not slowed the U.S. job market, at least not yet. Job growth remains strong and broad-based, except in the energy industry, which continues to shed jobs. Large companies also remain more cautious in their hiring than smaller ones.”

Small businesses, with less than 50 employees, added 85,000 jobs in August, up from 63,000 in July. Medium-sized businesses, with 50 to 499 employees, added 66,000 jobs, up from 61,000 last month. Large businesses, with 500 or more employees added 40,000 employees, down from 53,000 in July.

Goods-producer employment rose by 17,000 jobs, more than doubling July’s increase. Manufacturing experienced significant growth during the month, adding 7,000 jobs to payroll after gaining only 1,000 in July. This is encouraging news, after a report yesterday from the Institute for Supply Management that growth of in manufacturing has slowed.

Service-provider employment rose by 173,000, up slightly from 170,000 jobs added in July. Professional and business services were the largest contributor, adding 29,000 jobs, while trade, transportation and utilities added 28,000.

Year to date, the private sector as a whole added 1.57 million jobs – down from the 1.83 million in the first 8 months of 2014.

Read the ADP release.

Tuesday, September 1, 2015

Manufacturing Growth Slowed in August

The ISM Manufacturing Index fell to 51.1 points in August – down 1.6 from July’s reading. The manufacturing sector is still growing, as readings above 50 indicate expansion. Of the 18 component industries, 10 reported growth in August, down from 11 in July. Respondents noted modest-to-strong growth due to lower prices for raw materials, but also expressed concern over weakening export growth.

The employment index declined 1.5 points to 51.2 – still growing, albeit at a slower pace than in July. Six of the manufacturing industries reported growth in employment (down from 10 last month), while eight industries (led by Petroleum and Coal, and Apparel) reported a decrease in August employment.

The index for new orders fell 4.8 points, to 51.7, growing at a slower pace than the previous month.

Export orders registered 46.5 points in August, down from 48.0 in July. August marked the third consecutive month of decreases in export orders. Five industries – Nonmetallic Mineral Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Computer & Electronic Products; and Paper Products – reported growth in exports, while 7 Industries, including Primary Metals and Furniture, reported declines. The imports index registered 51.0 points, down 0.5 from July.

The inventories index fell one point to 48.5, indicating that raw materials inventories contracted for the second consecutive month.

The prices index fell 5 points to 39.0 percent, indicating that raw materials prices have decreased for the 10th consecutive month.

Read the ISM release.

Private Construction Spending Grew but Public Spending fell in July

Construction spending grew 0.7 percent in July to $1,083.4 billion (SAAR). June spending was revised up from $1,064.6 to $1,075.9 billion, meaning 0.7 percent growth in June as well. Construction spending during the first 7 months of 2015 amounted to $583.2 billion, 9.3 percent higher than in the first 7 months of 2014.

Total private construction spending rose to $787.8 billion (SAAR), 1.3 percent above June’s revised estimate of $777.4 billion.

Private residential construction spending rose to $380.8 billion (SAAR), 1.1 percent above June’s revised estimate, as construction of single family homes increased by 2.1 percent.

Private non-residential construction spending rose to $407.0 billion (SAAR), up 1.5 percent from June’s estimate, as construction related to manufacturing, power, and communications showed positive increases during the month.

Public construction spending fell 1.0 percent to $295.6 billion (SAAR). Though public construction spending fell across the board, the most notable declines were in the educational and amusement and recreation construction sectors.

Read the Census release.