Industry Crib Sheet: Healthy Job Growth Again in May

June 9, 2014

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U.S. employers added 217,000 jobs in May, beating economist forecasts and fueling the best four-month stretch of job gains since the turn of the millennium. In another milestone, U.S. employment, at 138.5 million, has gotten over a level last seen before the recession, in January 2008. About 8.7 million jobs were lost between then and February 2010.

"This is the fourth consecutive month that non-farm payrolls increased more than 200,000. That is the first time... since October of 1999," said Ron Sanchez, executive VP and chief investment officer at Fiduciary Trust, in Forbes, adding the recent job numbers are stable, if not robust, and in a "well-entrenched trend."

The Labor Department report, meanwhile, downwardly revised April's payroll additions from 288,000 to 282,000, but that still marked the best monthly gain in more than two years. The unemployment rate remain unchanged in May, at 6.3 percent.

Economists are hoping that the labor market feeds on itself while injecting confidence into other drivers of the economy, such as consumer and business spending. "More jobs means more paychecks, lifting sentiment and resulting in still more consumer buying," Bart van Ark, executive VP and chief economist for the Conference Board, told Forbes.

Analysts are also expecting wages to increase as a result of the continued job rises, after years of suppression. The increase in average hourly wages is barely ahead of inflation.

"We haven't seen an improvement percentage-wise of more than 1 percent over past five years," said Omar Aguilar, chief information officer of equities for Charles Schwab, also in Forbes. Paul Ballew, chief economist of Dun & Bradstreet, said in USA Today, "Clearly the labor market is picking up some momentum. At some point, that's going to translate into wage increases."

However, even as the nation has made up the number of jobs lost from the recession, the Wall Street Journal remarked of a shift in the country's post-recession employment makeup, noting that manufacturing, construction, and government payrolls have fallen. Similarly, USA Today cites Ballew as saying the jobs recovery is "uneven," with manufacturing and construction "recouping only a fraction of the positions lost in the recession."

Manufacturing added 10,000 jobs in May and has gained by 105,000 jobs over the past year, but that is dwarfed by the 311,000 food and drink service jobs added in the same period, for instance.

Last month, the healthcare industry added 34,000 positions, leisure and hospitality added 39,000, transportation and warehousing added 16,000, and retail added 12,500. Construction payrolls expanded by 6,000.

The labor force participation rate was unchanged in May, at 62.8 percent, as was the total number of people counted as unemployed in the country, at 9.8 million. The number of long-term unemployed also remained the same, at 3.4 million people. The Labor Department counted 2.1 million individuals who were not part of the labor force last month but were ready to work; this number of "marginally attached" was essentially the same as in April.

April Factory Orders Grow at Slower Pace

U.S. factory orders in April expanded by 0.7 percent, marking the third straight month of gains for the manufacturing sector according to the latest Commerce Department report. However, April growth was not as robust as the expansion in March, which was revised from 1.1. percent to 1.5 percent, and it was well off the pace of the 1.7 percent gain in February. Still, with the latest jobs report and consumer confidence remaining strong, demand for manufactured goods is expected to improve with better consumer and business spending in the second quarter.

April bookings for manufactured goods nearly hit the $500 billion mark and was the highest level since the Commerce Department changed its method of tracking in 1992. Consumer goods demand rebounded by 0.7 percent after a 0.4 percent decline in March. However, demand for core capital goods, a key proxy for business investment, fell by 1.2 percent, though this followed a March swell that was upwardly revised from 3.5 percent to a huge 4.7 percent.

Despite the growth slowdown in April orders and a worsening trade gap (see article below), economists are interpreting the factory orders report along with latest jobs report as mostly positive. Following a 1 percent contraction in GDP growth for the first-quarter, economists are forecasting second-quarter GDP growth of at least 3 percent.

Analysts are pointing to sustained factory orders and jobs data, the latter of which is expected to pump up consumer confidence and spending. According to a Reuters report, automakers saw vehicle sales surged to an annual 16.77 million unit rate in May, with GM and Chrysler having their best Mays in seven years. Nissan had its best May ever in sales, while Hyundai had its best monthly sales ever.

"These are stunning numbers," Anthony Karydakis, chief economic strategist at Miller Tabak, told Reuters. "We would view this as a strong sign of a consumer sector emerging more confident with pivotal positive implications for spending and growth later in the year."

"This is consistent with other data showing growth bouncing back in the second quarter," said Gus Faucher, senior economist at PNC Financial Services Group. "Everything looks set for solid growth in the second half of the year."

April was a big month for defense spending, as defense capital goods orders surged 39.3 percent. Bookings for communications equipment by the defense sector exploded 77.4 percent after an 18.7 percent contraction in March.

In other key categories, orders for automobiles fell 1.1 percent, bookings for computers rose 4.7 percent, and orders for household appliances grew 1.9 percent. The marine transportation sector continued to ride the wave of huge orders for ships and boats, still growing 56.8 percent after a 105.9 percent spike in March.

On the business side, machinery orders declined 2.8 percent, dragged down by construction (-7.2 percent), power transmission equipment (-11.7 percent), metalworking (-0.5 percent), and material-handling equipment (-6.9 percent). Commercial aviation orders dropped 7.9 percent.

Manufacturers continued to have difficulty in April in keeping up with orders, as unfilled orders reached yet another new record, rising 0.9 percent after an upwardly revised 0.8 percent in March. Unfilled transportation equipment orders led that increase with a 1 percent increase. However, manufacturers continued to move goods at a faster pace, with shipments rising 0.3 percent. But inventories still increased by 0.4 percent.

Record Imports Split Open U.S. Trade Gap 

The U.S. monthly trade gap widened in April to its biggest chasm in two years, expanding by 6.9 percent on weakened exports and a record high in imports. Exports fell 0.2 percent to $193.3 billion while imports grew 1.2 percent to $240.6 billion, resulting in an imbalance of $47.2 billion -- the biggest margin since April 2012.

The greater imports were led by increases in foreign cars, consumer goods like cellphones, and capital goods like business equipment and manufacturing and production machinery. U.S. exports of capital goods and consumer goods both fell slightly.

The widening surprised economists by a large margin, as their consensus ranged from a deficit between $38 billion and $42.2 billion. "The U.S. economy is expanding and so we're pulling in imports from abroad," David Berson, chief economist at Nationwide Insurance, told Bloomberg."What was unexpected is that exports really didn't move at all. This is a sign of relative weakness abroad, particularly in Europe, and also China has clearly slowed."

Exports have fallen in four out of the last five months. Moreover, March's trade gap was revised from an initial $40.4 billion to $44.2 billion, reversing what was thought to be a tightening of the deficit that month. The trade deficit has worsened every month so far in 2014, as a result, and for the fifth consecutive month going back to December.

Last year, the nation's trade deficit improved by 11.4 percent to $476.4 billion. So far this year, the trade deficit is running $6.8 billion ahead of last year's pace. It negatively impacted the nation's first-quarter GDP by 0.95 percentage points, according to the Commerce Department, as American spending on foreign goods and lower earnings overseas by U.S. businesses undercut growth. First-quarter GDP contracted by 1 percent.

Since mid-2013 monthly exports have generally trended higher, but the big slowdown in their pace has tempered economic expectations for the second quarter. Analysts had forecast GDP growth from April through June to be as high as 4 percent; now the estimate is around 3 percent among most of them. "We're not going to get the quarter we thought we would," Michael Moran, chief economist at Daiwa Capital Markets America, told Wall Street Journal.

The U.S. goods trade deficit with China ballooned by 33.7 percent to $27.3 billion. The nation's shortfalls with many other major trade partners also widened, such as the European Union (-$14 billion), OPEC (-$6.7 billion), Germany (-$7 billion), and Japan (-$6 billion).

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