United States – Non farm payrolls rose 215K in July a touch lower than consensus which was expecting a 225K increase. There were, however, upward revisions to the prior months to reflect more complete data, which added 14K jobs. The private sector added 210K thanks to gains in the goods (+17K) and services (+193K). Goods sector employment creation was driven manufacturing (+15K) and construction (+6K) which offset declines in mining. The private services sector job gains were driven by retailing, business services, health care and education. Government created just 5K net new jobs. Average hourly earnings were up 0.2%. The employment diffusion index in the private sector surged to 64.4, the highest this year.
Released at the same time, the household survey (similar in methodology to Canada's LFS) showed a gain of 101K jobs in July. That, coupled with an unchanged participation rate at 62.6% allowed the jobless rate to remain at 5.3%. Full-time employment was up a massive 536K to 121.59 million, just 300K below the all-time high reached back in November 2007. All told, the July gains clearly extend the series of “solid” job gains as described the Fed recently. Odds of a September Fed hike should rise with those employment reports.
The ADP employment report showed a 185K increase in July. The prior month was revised down to 229K (from 237K). The ADP’s job gains in July were mostly in large firms (500+ employees) which added 64K to payrolls, while medium sized firms increased headcount by 62K. Small firms i.e. those employing less than 50 employees, added just 59K.The weekly jobless claims report showed initial claims rising slightly to 270K in the week of August 1st. The more reliable 4- week moving average fell to 268K. Continuing claims for the prior week fell 14K to 2.26 million.
The ISM manufacturing index fell unexpectedly to 52.7 in July. However, all of the major sub-indices remained well in expansion territory, i.e. above 50. The employment sub-index fell a bit, but production and new orders sub-indices were both on the rise.
The ISM non-manufacturing index surged to 60.3 in July, the highest since August 2005. The business activity index jumped to 64.9, the highest since 2004, while the employment subindex reached a 10-year high. The new orders sub-index also rose sharply.
Construction spending rose just 0.1% in June after an upwardly revised 1.8% increase in the prior month (which was previously reported as +0.8%). The increase was driven entirely by the residential sector (+0.4%) while non-res construction was flat. Overall the construction data for the second quarter was much better than what the BEA had assumed in its “advance” GDP report. So, assuming nothing else changes, Q2 US GDP growth, initially reported at 2.3%, should be revised upwards.
The trade deficit widened to US$43.8 bn in June from US$40.9 bn in the prior month. The deterioration was due to falling exports (-0.1%) and rising imports (+1.2%) in nominal terms. In real terms, exports were flat, while imports increased 1%.
Factory orders jumped 1.8% in June erasing declines in the prior two months. Durable goods orders soared 3.4% driven by the transportation component. Excluding transportation, factory orders were up 0.5% thanks to both durables (+0.6%) and nondurable goods (+0.4%). Factory shipments were up 0.5%, more than erasing the prior month’s decline.
Personal income rose 0.4% for a second consecutive month in June while personal spending growth moderated to +0.2% after a 0.7% increase in the prior month. With income rising faster than spending, the savings rate rose two ticks from 4.6% to 4.8%. In real terms, disposable income was up 0.2% while spending was flat after three increases in a row. The PCE deflator was up 0.2% in June, allowing the year-on-year rate to rise one tick to 0.3%. The core PCE deflator edged up 0.1%, leaving the annual core rate unchanged at 1.3%.
In the U.S., we’ll get important information about economic activity at the start of Q3. July data should show a rebound in retail sales thanks to a solid labour market which supported incomes in the month. Auto sales again topped 17 million units annualized and that probably helped lift total retail spending by around 0.6%. Inflationary pressures will be assessed with the release of the producer price index for the month of July. The headline measure likely
remained mild thanks to soft energy prices. The annual PPI inflation rate may have sunk further to about -0.9% on the headline and 0.4% on the core measure. Industrial production may have registered a second consecutive increase in July. The manufacturing sector seems to have grown again based on the earlier-released ISM and Markit’s PMI. We’ll also get very first clues about August with the preliminary release of the Michigan consumer sentiment.