For the first time in nearly 20 years of existing records, the number of job openings, at 6.698 million in April, is exceeding the number of unemployed actively looking for work, at 6.346 million in April (subsequently falling in last week’s employment report to 6.065 million in May).
And though 5.578 million were hired in April, the gap between openings and hires in today’s JOLTS report, at 1.120 million, is the second largest on record next only to March’s 1.147 million. This gap suggests that employers are having a hard time finding people to fill the jobs.
Today’s report is a standout milestone of full employment that will capture the attention of monetary hawks whose focus is the risk of wage inflation.
GDP Quarter 1
A lot of jostling in the components isn’t apparent in the headline which, at 2.2 percent annualized growth, hits Econoday’s second-estimate consensus for first quarter GDP. Nonresidential investment gets a 3.1 percentage point upgrade to a 9.2 percent annualized rate while investment on the residential side gets a 2 point downgrade to a minus 2.0 percent rate.
Inventories increased by $20.2 billion in the quarter, down from $33.1 billion in the first estimate, while net exports totaled minus $650.9 billion vs an initial $645.9 billion. The revisions trim the contribution from inventories to plus 0.13 from an initial plus 0.43 with net exports trimmed to plus 0.08 from plus 0.20.
Consumer spending was downgraded only by 1 tenth, rising at a 1.0 percent rate and reflecting a 3 tenths downward revision to service spending which is at plus 1.8 percent in the second estimate. Government purchases are also downgraded by 1 tenth to plus 1.1 percent.
The upgrade for nonresidential investment reflects greater gains for structures and intellectual property along with equipment which however is lagging the other components. The decline for residential investment underscores what has been and continues to be uneven results for building and home sales.
All in all, it was a strong quarter for business, with investment perhaps getting a boost from this year’s corporate tax cut, and a soft one for the consumer as spending sputtered and residential investment went into reverse. But the early outlook for the second quarter is positive with most forecasts calling for a return to the 3 percent area.
Import and Export Prices
With the strengthening of the dollar, we have seen a very minimal increase in the average cost of imported goods. With the increases “hovering near zero on a month to month basis and barely over zero on a yearly basis. Much of this minimal increase can be seen as a result of the current monthly increase to the price of imported iron and steel mill products right around 4%.
This near zero increase in import prices comes in stark contrast to the increases to the US’s export prices. Even with extremely sluggish prices of agricultural goods, year on year overall export prices are up 3.8%. These increases in export prices in comparison to imports are a good indicator of an overall increase in wealth in the hands of Americans as a whole.
Consensus data predicts for imports to rise 0.5% in cost in the month of April, while export prices rising at 0.3%.
Jobless Claims May 2018
Initial jobless claims came in at 211,000 in the April 28 week, only 2,000 higher from the prior week’s 209,000 which remains a 49-year low. The latest 4-week average, down a very sizable 7,750 to 221,500, is a 45-year low. Continuing claims fell 77,000 in lagging data for the April 21 week to 1.756 million which, for this reading, is also a 45-year low. And the unemployment rate for insured employees is down another notch, 1 tenth lower to only 1.2 percent.
Trends for this series are once again moving lower, consistent with strong demand for labor in results that will firm expectations for strength in tomorrow’s employment report for April.
Industrial production rose a very solid 0.5 percent in March for a 4.3 percent year-on-year rate with mining once again leading the report, jumping 1.0 percent on top of February’s 2.9 percent surge to lift year-on-year volumes to a 10.8 percent gain. Utilities also had a good March, with output up 3.0 percent in the month following a 5.0 percent weather-related decline in February. Year-on-year, utility output is up 5.3 percent.
Now the not-so-impressive news. Manufacturing production managed only a 0.1 percent gain which is just short of Econoday’s already modest consensus. Year-on-year, production volumes are up only 3.0 percent though there are positive details in the March report. Business equipment output is solid and up 4.4 percent on the year with the selected hi-tech component showing plenty of strength, up 1.2 percent on the month and 8.9 percent on the year. Vehicle production is another positive, up 2.7 in March for an 8.2 percent year-on-year rate that, however, looks aggressive given what have been mostly moderate results for vehicle sales.
Tariffs imposed on steel and aluminum during the month don’t appear to have had any measurable effect in this report though they probably didn’t help construction supplies where output fell a monthly 0.3 percent. Turning to capacity rates, overall utilization climbed 3 tenths to 78.0 percent but is still short of the nearly 80 percent trend several years ago. But clear stress is evident in mining where capacity is at 90.1 percent. In sum, there are plenty of positives with details helping to offset the headline disappointment for manufacturing production while mining remains one of the economy’s top drivers.
Note that traditional non-NAICS numbers for industrial production may differ marginally from NAICS basis figures.
A drop in gas prices pulled down consumer prices in March which came in at Econoday’s low estimate for a 0.1 percent decline. But the core rate, which excludes energy, did hit expectations at a modest 0.2 percent monthly gain with the year-on-year rate rising 3 tenths to 2.1 percent which also hits expectations.
But the gain in the yearly rate shouldn’t raise any eyebrows since it reflects an easy comparison with March last year when wireless service prices started to plunge. The balance of core items in today’s report is showing only limited pressure with downward pull coming from apparel, at minus 0.6 percent, and education & communications, at minus 0.2 percent.
Energy was the weakest factor in the month, down 2.8 percent with gasoline down 4.9 percent. Food is not a factor in the month, rising only 0.1 percent.
But there are some items that are showing a little pressure, at least in March. Medical care rose 0.4 percent following February’s 0.1 percent decline with dental services jumping 1.2 percent. Housing is also showing pressure, though moderate, at a second straight 0.3 percent monthly gain with the closely watched owners’ equivalent rent also up 0.3 percent.
This report is roughly in line with the Federal Reserve’s expectations: modest pressure that is slowly building. Note that the Fed’s 2 percent inflation goal is tied to its PCE index not the CPI which runs a bit hotter. But both move in the same direction which on trend continues to be very slightly higher.
Durable Good Orders
Significant strength is the verdict for February’s durable goods orders and with it, significant strength is now the tangible outlook for this year’s factory sector. Durable goods orders jumped 3.1 percent in February to just top Econoday’s high estimate with ex-transportation orders, at a gain of 1.2 percent, very near the high estimate. The most convincing strength in the report comes from core capital goods (nondefense ex-aircraft) where orders surged 1.8 percent, which is well beyond the high estimate, with related shipments jumping 1.4 percent in what will give a major boost to business investment in the first-quarter GDP report.
Total shipments rose a very sharp 0.9 percent with ex-transportation shipments up 1.0 percent. Unfilled orders, which have been weak, showed improvement with a 0.2 percent gain. Turning to inventories, they rose a healthy 0.4 percent but, relative to shipments, need to be refilled as the inventory-to-shipments ratio fell one notch to 1.64. The dip in this reading points to the need for restocking which will be a special plus for factory payrolls.
Looking at product groups, orders for primary metals, which are now in special focus given the prospect of trade tariffs, surged 2.7 percent in the month in a gain that may reflect, based on anecdotal reports, rising prices for steel and aluminum. Fabrication orders rose 0.8 percent in the month with machinery, which is at the heart of the capital-goods group, rising 1.6 percent. Civilian aircraft orders, which are typically volatile month-to-month, supported February’s results, up 25.5 percent, with motor vehicles also showing unusual strength at 1.6 percent.
Year-on-year rates of growth are moving from the mid-single digits to the high single digits led by 8.9 percent overall with ex-transportation up 8.1 percent and capital goods up 8.0 percent. Today’s report helps confirm the enormous strength that has been posted over the last year by regional and private factory surveys and points to a sector that will increasingly contribute to employment growth and to GDP growth.
Despite another uptick in mortgage rates, purchase applications for home mortgages rose a seasonally adjusted 3 percent in the March 9 week, raising the year-on-year gain in the unadjusted Purchase Index by 2 percentage points from the prior week back up to 3 percent. But the more interest-rate sensitive applications for refinancing fell 2 percent in the week, taking the refinance share of mortgage activity down 1.7 percentage points to 40.1 percent, its lowest level since September 2008. The average interest rate on 30-year fixed rate conforming mortgages ($453,100 or less) rose 4 basis points from the prior week to 4.69 percent, the highest level since January 2014.
There’s very little change between the second and first estimates for fourth-quarter GDP, revised 1 tenth lower to an as-expected 2.5 percent annualized rate. Consumer spending is unchanged at a very strong 3.8 percent as downward revisions to spending on durables (down 4 tenths to a 13.8 percent rate) and nondurables (down 9 tenths to 4.3 percent) are offset by an upward revision to the largest category of service spending (up 3 tenths at 2.1 percent).
Residential investment gets a noticeable upgrade to a 13.1 percent rate from 11.6 percent in the first estimate while nonresidential investment is lowered by 2 tenths to 6.6 percent. These are both very solid and, like consumer spending, point to fundamental economic demand. Net exports are virtually unchanged in today’s revisions, at a very sizable $652.2 billion and pulling down the quarter’s headline GDP rate by 1.1 percentage points. Inventories are also a negative, slowing in the quarter to an $8.0 billion build from $38.5 billion in the third quarter and pulling down the headline by 0.7 points.
Another one of the positives in the quarter is government purchases which are revised marginally lower to 2.9 percent. This rate may become a positive wildcard in future quarters given the outlook for increased deficit spending. Another possible positive is inventory growth which is off to a fast start so far this quarter as businesses scramble to restock shelves amid strong demand.
Strength is definitely the message of this report, masked by the nation’s trade imbalance and the quarter’s inventory change excluding which GDP rose 4.3 percent, a reading that is unchanged from the first estimate. On the inflation front, the GDP price index rose 2 tenths in the quarter to a 2.3 percent rate which is down 1 tenth from the first estimate though the core, however, is revised 1 tenth higher to 2.2 percent which, in a hint of building pressures, marks a 6 tenths acceleration from the third quarter.
Claims remain near historic lows consistent with strong demand for labor. Initial claims came in at 230,000 for the February 10 week with the 4-week average at 228,500. These levels are roughly 15,000 lower than they were at this time last month in a comparison that points to strength for the February employment report.
Continuing claims, in lagging data for the February 3 week, rose 15,000 to a still very low 1.942 million. This 4-week average is down 6,000 to 1.941 million with the unemployment rate for insured workers holding at only 1.4 percent. There are no special factors in today’s report.”