I’m a numbers guy, so I get a real kick out of reviewing the latest economic data and identifying which pockets of the economy are heating up and which are slowing down. However, with breaking economic news coming out nearly every day, I understand that it can be a hassle keeping up with each and every report. So every Friday in this blog I hit the past week’s highlights and provide my take on the latest economic trends. Let’s take a look at this week’s big headlines:
#1—Despite Public Sector Drag, Construction Spending Climbs
In April, construction spending climbed 0.4%, largely matching economists’ estimates. Notably, spending on nonresidential projects jumped 2.2% while private residential construction slipped 0.1% on reduced renovation activity. However, spending on new single-family homes and multi-family residences increased. Meanwhile, March construction spending was revised higher to reflect a 0.8% decline—from its previous reading of 1.7% drop. Thanks to the public sector slowdown, construction spending figures have been volatile of late. Spending on construction projects fell a record 4% in January, rose in February then fell again in March. Despite the headline bumpiness, residential construction remains robust.
#2—Trade Deficit Widens, Economists Eye Q2 GDP
In April, the trade deficit widened 8.5% to $40.3 billion. Even so, economists had expected a larger deficit of $41 billion. Imports jumped 2.4% to $227.7 billion while exports rose just 1.2% to $187.4 billion. Meanwhile, petroleum imports declined for the third month in a row—it is now at the lowest level since November 2010. The strong U.S. dollar is weighing on exports, but the primary reason that the deficit widened is that imports from China are surging. While the domestic energy boom has helped to reduce the need for imported oil, the larger trade deficit will likely be a drag on second-quarter GDP.
#3—Factory Goods: Headline Underperforms While Future Demand Looks Promising
In April, factory goods orders rose 1%, below the consensus estimate of a 1.5% rise. This represents a reversal from the revised 4.7% decline seen in March. Thanks to higher demand for cars and aircraft, transportation equipment orders surged 8.4%. Orders for computers, appliances and primary metals also rose. While factory orders rose less than expected, the silver lining is that durable goods order surged 3.5%. I’m also encouraged that orders for non-defense capital goods—a good gauge for business spending plans—climbed 1.2% in April.
#4—The Jobs Picture Brightens With Unemployment Report and Jobless Claims
In May, the unemployment rate inched up to 7.6%—up from 7.5% in April. At the same time, 175,000 new payroll jobs were created—above economists’ consensus estimate of 170,000 payroll jobs. Professional services, food services and retailers all reported increased hiring. Hourly earnings and the average workweek remained flat, however. Overall, this was a decent report. It was certainly stronger than last Wednesday’s ADP payroll report, which reported that private payrolls rose just 135,000 in May. Even so, we need to see workforce participation increase, as well as the average workweek. There are still 780,000 “discouraged workers”—those who have stopped looking for work—who aren’t counted as unemployed, so there’s still plenty of room for improvement.
Last week, jobless claims fell 11,000 to an annual rate of 346,000. Given that economists had forecast a rate of 350,000, this was a larger-than-expected drop. Meanwhile, the four-week moving average rose by 4,500 to a rate of 352,500. Jobless claims have fallen 7% in the past six months. This is great news because this metric is an indicator of layoffs. While jobless claims tend to be a bit volatile this time of year, I’ll continue to monitor the more reliable four-week moving average.
Have a nice weekend,