The U.S. economy produced a strong 288,000 jobs in June while the unemployment rate fell 0.2 points to 6.1 percent, its lowest level since September 2008.
The growth paced well ahead of the 215,000 new positions that economists expected for the month, and the Labor Department upwardly revised May’s job gains by 7,000 to 224,000 and April’s growth by 22,000 to 304,000. The labor market has gained at least 200,000 jobs in each of the last five months — the first such streak this millennium.
“The latest five monthly jobs reports are consistent with the view that, in spite of a horrendous first-quarter GDP result that was the victim of a ‘perfect storm’ of negative circumstances, the economy is well underpinned,” Joshua Shapiro, chief U.S. economist at MFR Inc., remarked to Wall Street Journal. The U.S. economy shrank an annualized 2.9 percent for the first three months of the year, but economists are predicting a second-quarter rebound to come out of the winter-induced slowdown.
Along with monthly employment gains eclipsing the 300,000 mark for the first time in more than two years, the five-month string from February to June was also the best stretch of job creation since early 2006. Job growth averaged 272,000 per month in the second quarter, and in a milestone last month, the economy gained back the number of jobs lost to the 2008-09 recession.
Many analysts noted that, at 6.1 percent, the national unemployment rate is already near where the Federal Reserve expected it to be at the end of 2014. But much of the job growth is coming from lower-wage sectors and industries, such as retail, which added 40,200 positions in June, and leisure and hospitality, which added 39,000. Wages are only 2 percent higher year-over-year, just in line with inflation. Average hourly wages rose 6 cents last month, or 0.2 percent.
The number of marginally attached workers in June — those who were not counted as unemployed because they were not actively looking for work but were ready and available — was basically unchanged at 2 million. The labor force participation rate stayed at 62.8 percent for the third straight month, which is near a 30-year low. The number of long-term unemployed fell by 293,000 to 3.1 million.
In June, the manufacturing sector added 16,000 to payrolls, while construction added 6,000 and mining 4,000. The number of supply-chain-related jobs continued to expand at a healthy clip, growing by 16,600 in the month. Bob Baur, chief global economist of Principal Global Investors, said to USA Today that the average work week in manufacturing is at a record-high 41.1 hours — compared to the national average of 34.5 hours — which will force manufacturers to add workers.
Factory Orders Stumble in May, but Backlogs Aplenty
U.S. factory orders slipped 0.5 percent in May, ending a three-month streak of gains, but a key indicator of business investment rebounded from April.
The latest Commerce Department report also upwardly revised April’s orders expansion to 0.8 percent from its 0.7 percent advanced reading. Deep drops in defense and transportation equipment spending dragged down May orders, though total bookings among all manufacturing industries have slowed considerably since February.
Factory orders in May actually rose 0.2 percent excluding military hardware and only declined 0.1 percent excluding transportation equipment. Meanwhile, bookings for core capital goods rose 0.7 percent in May after falling 1.1 percent the previous month. Durable goods industries fell 0.9 percent as a whole, but consumer durable goods saw a 2.5 percent gain and total consumer goods orders increased 0.3 percent.
Even though the pace of orders has fallen, manufacturers remained busy and will continue to be. Factory shipments once again rose in May, for a fourth straight month and to a new monthly record of $498.3 billion. But unfilled orders, up 13 of the last 14 months, increased 0.6 percent, after a 0.9 percent rise in April, continuing to outpace shipments. Inventories, up 18 of the last 19 months, grew 0.8 percent to a new record level and also rose faster than shipments.
In May, orders for automobiles rebounded with a 2 percent gain after a 0.6 percent decrease in April. Bookings for computers, another major category, accelerated from April’s 5.1 percent expansion to 11.6 percent in May. But orders for home appliances shrank 3.3 percent.
Although orders for capital goods rose, machinery orders declined 0.3 percent, pulled down by a 9.6 percent contraction in mining and oil-and-gas equipment. Both metalworking machinery and HVAC equipment orders fell 1.8 percent.
Manufacturing Remains Steady in June, Says ISM
The manufacturing sector grew for the 13th consecutive month in June, according to the Institute for Supply Management’s (ISM) purchasing managers index of 55.3, a 0.1 point decrease from May’s reading of 55.4.
The latest PMI indicates essentially steady growth by the nation’s manufacturers from May, after accelerating from April’s 54.9 rating. Last month, ISM made a correction to the May PMI to 55.4 after an error was noticed in its calculations, which resulted in an incorrect reading of 53.2, as ThomasNet News reported last month.
The orders pace gained in June. The new orders index registered 58.9 percent, an increase of 2 points from the corrected 56.9 reading in May, indicating growth in new orders for the 13th consecutive month. With the correction, new orders in May also accelerated significantly from April’s 55.1 reading. However, the pace of new bookings from overseas slowed for the second straight month, as the new export orders sub-index fell a full 2 points to 54.4 in June.
The pace of manufacturing production growth ticked down 1 point to a sub-index of 60 from May, following a sharp 5.3 percent acceleration from April. However, manufacturers were able to shrink their order backlogs by a significant margin last month, as the sub-index fell from 52.5 to 48. It was the first contraction in order backlogs in five months.
After ISM’s May correction, employment growth in May didn’t slow down as much as originally reported. The employment sub-index registered 52.8 in May, compared to April’s 54.7. In June, registering 52.8 again, manufacturing employment was steady and grew for the 12th consecutive month.
Manufacturers continued to wait longer for their material inputs in June, as the deliveries sub-index indicated that suppliers slowed down their shipments yet another month. However, the 51.9 rating for June represented an improvement versus May’s 53.2 reading. A reading below 50 indicates faster deliveries and vice versa.
Manufacturers also received a bit of relief in input prices, which, while still continuing to increase, softened in pace at a sub-index of 58 versus 60 in May. Inventories of raw materials remained at 53 percent, the same reading as reported in both May and April. The price of raw materials grew at a slower rate in June, registering 58 percent, down 2 percentage points from May.
Record Exports Tighten Nation’s Trade Deficit
The U.S. trade gap shrank by 5.6 percent in May on record exports after the nation’s goods and services imbalance had reached its widest level in two years the previous month. The country’s $195.5 billion in overseas shipments, combined with a 0.3 percent decline in imports, helped close the trade gap by exactly $3 billion from April to $44.4 billion.
The rebound in exports was good news for the economy, as overseas business growth had been generally sputtering in 2014. Slumping exports were a contributing factor in the nation’s first-quarter economic contraction, as a widening trade gap shaved 1.53 points from the GDP. Although imports slowed down in May to $239.8 billion, they have increased significantly since last year to a record high, especially when petroleum imports are factored out.
“Domestic spending on imported goods and services was more than we thought,” Ben Herzon, senior economist at Macroeconomic Advisers, told Wall Street Journal. Unless exports can offset strong demand for foreign goods, a stubborn trade gap will continue to drag down GDP in the second quarter, various reports note.
Exports in May grew 1 percent on rising foreign demand for motor vehicles; consumer goods like cell phones and televisions; capital goods like metalworking machinery; civilian aircraft engines, drilling and oilfield equipment; and petroleum products, which hit the highest level for the year. On the other hand, imports of autos, industrial supplies, and capital goods like industrial machinery, computer accessories, drilling and oilfield equipment, and health care equipment all rose. Domestic demand for consumer goods such as cell phones, appliances, and apparel fell.
Meanwhile, sales to both China and the European Union were up 4 percent and 2 percent, respectively. But the U.S. trade gap with China increased $1.5 billion to $28.8 billion. The nation’s lower dependence on foreign energy further reduced its trade deficit with OPEC nations.