Another Solid Labor Market Indicator
• The July ADP Employment Report shows an increase of 219,000 private sector jobs.
• The ISM Manufacturing Index for July eased to 58.1, still indicating improving conditions.
• Mortgage Applications fell by 2.6 percent for the week ending July 27.
• Construction Spending dipped by 1.1 percent in June.
Job growth was solid again in July according to the ADP National Employment Report. According to ADP, 219,000 private-sector jobs were added in July. Small businesses (less than 50 employees) hired a net of 52,000 employees. Medium-sized businesses (50-499 employees) increased payrolls by 119,000. Large businesses gained 48,000 for the month. Service industries added 177,000 workers. Manufacturing employment was up by a strong 23,000. Construction employment increased by 17,000. Natural resources/mining added 3,000 workers on net. This was another good jobs report with no signs of weakness. We have seen numerous recent anecdotal reports saying that trade tariffs are weighing on hiring in some businesses, but that effect is not showing up in the ADP numbers. Today’s ADP report for July reinforces expectations of another good payroll number in the official Bureau of Labor Statistics data for July that will be published Friday morning. We have bumped our estimate of July payroll gains up to 200,000 for the month, with an unemployment rate back down to 3.8 percent.
The ISM Manufacturing Index dropped just over two points in July, from a robust 60.2, back to a still-strong 58.1, indicating ongoing expansive conditions for U.S. manufacturers. The new orders, production and employment sub-indexes were all firmly in expansion territory. The inventories sub-index increased to 53.3, consistent with our expectation that inventory growth will be a positive for Q3 GDP. Most commodities were reported to be up in price, including aluminum and steel. Only copper was reported to be cheaper in July. Seventeen out of eighteen industries reported growth in July. Primary metals reported contraction. Anecdotal comments focused on higher prices and the potential for weaker demand due to tariffs. Of note was one comment focusing on capacity constraints. We have previously reported that overall capacity utilization is approaching a cyclical high.
Total mortgage applications declined by 2.6 percent for the week ending July 27. The purchase apps data is not showing a clear trend in either direction, but that is consistent with home sales data, which is also not showing a clear trend. Purchase apps fell by 3.2 percent, their third consecutive weekly decline. Refi apps lost 1.7 percent after gaining slightly in the previous week. On a four-week moving average basis, purchase apps are still up by 3.0 percent over their year-ago level. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage increased to 4.84 percent.
Construction spending eased by 1.1 percent in June. Private residential construction spending was off by 0.5 percent. Private nonresidential eased by 0.3 percent. Public spending fell 3.5 percent as spending on education-related projects cooled.
Market Reaction: U.S. equity markets opened with gains. The yield on 10-Year T-bonds is up to 3.00 percent. NYMEX crude oil is down to $67.67/barrel. Natural gas futures are down to $2.76/mmbtu.
For a PDF version of this report, click here: July 2018 ADP Jobs, ISM MF Index, Mortgage Apps, June Construction Spending
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