U.S. economic indicators from this week were consistent with ongoing moderate-to-strong economic growth in the third quarter. Labor market indicators showed good and improving conditions for workers.
August payroll employment increased by a solid 201,000 jobs. Negative revisions totaling 50,000 for June and July bought some of that back, but labor market conditions still look good. Average hourly earnings increased by 10 cents, or 0.4 percent, to hit $27.16, up 2.9 percent over the previous 12 months. That is the strongest year-over-year gain in average hourly earnings this side of the Great Recession. The average workweek was unchanged at 34.5 hours.
The ISM Non-Manufacturing Index increased in August to 58.5. The production, employment and new orders sub-indexes all improved in August. Fourteen out of 16 industries reported expansion for the month, only mining and forestry reported contraction. Anecdotal comments were positive, but show that some businesses (construction, information and mining) are very concerned about the impact of tariffs on prices.
The ISM Manufacturing Index jumped in August, gaining 3.2 percentage points to hit 61.3, its highest level since may 2004. Seven out of 10 sub-indexes improved in August, including new orders, production and employment. The Prices Index eased to a still-hot 72.1, suggesting that inflationary pressure is persistent among manufacturers. Of the 18 reporting industries, 16 reported growth in August. Wood products and primary metals reported contraction. Anecdotal comments were very positive about demand. However, there is still concern about pricing (both upstream and downstream) and about the impact of tariffs.
Initial claims for unemployment insurance dropped by another 10,000, to hit 203,000 for the week ending September 1. This is the lowest level for initial claims since December 6, 1969. A downside breakout of UI claims from the already-very-low levels from mid-year is truly exceptional. Continuing claims dipped by 3,000 for the week ending August 25, to hit 1,707,000.
Total construction spending for July edged up by just 0.1 percent. The U.S. international trade gap widened in July to -$50.1 billion, from -$45.7 billion in June. Exports dropped by $2.1 billion in June, while imports increased by $2.2 billion. It is early in the quarter, but so far, trade looks like it will be a small drag on Q3 GDP.
Unit auto sales eased to a 16.7 million unit rate in August, from a 16.8 million unit rate in July according to Autodata. The overall trend in auto sales since late 2015 looks flat to down slightly.
Total mortgage applications eased by 0.1 percent for the week ending August 31 as purchase apps gained 0.6 percent and refi apps lost 1.4 percent. Purchase apps are up just 0.4 percent over a year ago on a four-week moving average basis. According to the Mortgage Bankers Association, the rate for a 30-year fixed-rate mortgage notched up to 4.80 percent.
The positive ISM data from this week, along with the jobs report showing stronger average hourly earnings numbers, will keep the Federal Reserve on track to increase the fed funds rate by 25 basis points, to a range of 2.00-2.25 percent, when the FOMC next meets over September 25/26. The implied odds of a September 26 rate hike are near 100 percent according to the CME Group.
For a PDF version of this report, click here: Comerica Economic Weekly September 7, 2018
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