This was a week of not-so-great news for the economy:
- Inflation-adjusted construction spending down 9.0 % year-over-year.
- The ISM manufacturing survey is now in contraction
- Layoffs in August highest since 2009
- Poor jobs report
There was some good news also:
- Hurricane Dorian impact on the US is relatively small
- Trade data coming in stronger than expected
Construction spending was particularly interesting - as it has been easing slowly since 2015, from 15% annual growth to contraction this year. Yet the annual growth in the number of construction workers has been fairly constant in this same period.
Construction employment continues to grow year-over-year while the rate of construction growth is in contraction. Construction has one of the highest rates of employment using the contribution to GDP as the metric.
|Sector||Employment Per GDP $1 M|
|Transportation and warehousing||10.2|
|Finance, insurance, real estate, rental, and leasing||2.5|
|Professional and business services||9.0|
|Source: BEA, BLS, author calculations|
The table (and source data) above does not break out big construction projects and those of handymen and small construction companies. Generally the smaller the job, the more labor intensive it is. The takeaway here is that it is likely smaller projects (which have much less automation) are increasing whilst major projects have declined. Major construction projects relatively do not generate a lot of employment,
For those who think the poor BLS jobs report is an anomaly - our economic forecast for September only forecasts job growth between 100,000 to 120,000. Our six-month forecast is for a slowing of jobs growth.
The Econintersect Economic Index has a long-term decline which began in July 2018 - this month (September 2019) our forecast again marginally improved for the second month but continues to predict very little growth.
The fundamentals which lead jobs growth are now showing a significant slowing growth trend in the employment growth dynamics. We are currently predicting the jobs growth to be below the growth needed to maintain participation rates and the employment-population ratios at the current levels.
Economic Releases This Past Week
The following table summarizes the more significant economic releases this past week. For more detailed analysis - please visit our landing page which provides links to our complete analyses.
Overall this week:
- Trade is showing signs of life
- Transport continues to warn of soft growth
- Employment growth rate is trending down
- The PMI manufacturing survey is in contraction
|Release||Potential Economic Impact||Comment|
|July Construction Spending||will drag down GDP|| |
The headlines say construction improved month-over-month. Our analysis shows the rolling averages declined - and this sector is now deeper in contraction. The rolling averages declined. Also note that inflation is grabbing hold, and the inflation-adjusted numbers are deep in contraction.
|marginal improvement|| |
Trade data headlines show the trade balance declined - and imports declined whilst imports grew. The data in this series wobbles and the 3-month rolling averages are the best way to look at this series. The 3-month averages improved for exports and imports.
|August Beige Book||no change from modest growth|| |
The consolidated economic report from the 12 Federal Reserve Districts (Beige Book) stated: "the economy expanded at a modest pace through the end of August". The previous report stated: "Economic activity continued to expand at a modest pace overall from mid-May through early July, with little change from the prior reporting period".
This month the Beige Book narrative used the term "modest" to describe the growth in the previous and current periods. Therefore it suggests the rate of economic growth is little changed. Note the following statement from the Federal Reserve:
|August Challenger Job Cuts||layoffs increasing|| |
U.S.-based employers ramped up the pace of downsizing in August, as companies announced plans to cut 53,480 jobs from their payrolls. This is up 37.7% from July's total of 38,845.
August's total is the fourth-highest for job cuts this year and marks the eighth consecutive time job cuts were higher than the corresponding month one year earlier. Last month's total was the highest August total since 2009 when 76,456 cuts were recorded.
|August ADP Employment||employment is a lagging indicator|| |
ADP reported non-farm private jobs growth at 195,000 which was above expectations. A quote from the ADP authors:
This month the rate of ADPs private employment year-over-year growth is below the tight range seen over this year. The rolling average of the year-over-year rate of growth was the same as last month. Last month's employment numbers were revised down.
ADP employment has not been a good predictor of BLS non-farm private job growth.
|Final 2Q2019 Productivity and Costs||????|| |
A simple summary of the headlines for this release is that labor costs are growing faster than productivity.
The overall view this quarter is that productivity is up 1.8 % from the same quarter one year ago (last quarter productivity was up a revised 2.3 %), while unit costs are up 2.6 % (last quarter labor costs were up a revised 2.6 %).
Consider that GDP per capita is NOT growing year-over-year if one eliminates transfer payments. This down and dirty view suggest there is little productivity growth.
The only real change between the preliminary and this final is that labor cost rate of growth changed from 2.4% to 2.6%.
|July Manufacturing||points to soft growth but recovering|| |
US Census says manufacturing new orders improved month-over-month. Our analysis shows the rolling averages improved, and the rolling average growth is in contraction year-over-year.
According to the seasonally adjusted data, it was civilian aircraft which caused the improvement in the headline data. The data in this series is noisy so I would rely on the unadjusted 3 month rolling averages which improved but remains in contraction.
|July BLS Employment||poor jobs growth but jobs are a lagging indicator|| |
The headline seasonally adjusted BLS job growth was below expectations and rather weak. This was not a good report. The establishment and household surveys did not correlate. The trends clearly continue to show a slower growing employment picture.
Unadjusted Non-Farm Payrolls Year-over-Year Growth
Year-to-date unadjusted employment growth is 633,000 people below the pace of last year - and the worst year-to-date growth since 2010
|Surveys||manufacturing growth soft|| |
ISM and Markit Manufacturing Index - The ISM Manufacturing survey declined and is now in contraction for the first time in three years. The key internals were mixed. The Markit PMI manufacturing Index remained barely in positive territory and insignificantly declined.
ISM and Markit Service Index - The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but one index significantly increased whilst the other marginally declined. These surveys significantly disagree - there can be no takeaways this month.
|Rail Movements||Definitely not positive news|| |
Rail so far in 2019 has changed from a reflection of a strong economic engine to contraction. Currently, not only are the economic intuitive components of rail in contraction, but the year-to-date has slipped into contraction.
My usual weekly wrap is in my instablog.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.