It’s Friday and that means it’s time to review the latest economic data and identify which pockets of the economy are heating up and which are slowing down. Don’t worry about catching every headline and every report throughout the week—I recap all of the most important news impacting your wealth right here every Friday. Let’s take a look at this week’s big headlines:
Construction Spending Jumps
In January, spending on construction projects jumped 1.5%. This was much better than expected; economists were looking for just a 0.5% increase. The bulk of the increase actually came from government spending, which jumped 4.5%. Private sector spending, meanwhile, climbed 0.5%. At $1.14 trillion,U.S. construction spending is now at the highest level in over eight years. Given the severe winter weather that affected parts of the country in January, it’s encouraging that construction activity is still going strong.
Initial Claims for Unemployment Increase
For the week ending on February 27, initial jobless claims ticked up to 278,000, compared with 272,000 the previous week. This was a larger jump than expected, as economists were predicting an annual rate of 270,000. Meanwhile, the four-week moving average declined from last week’s reading of 272,000 to 270,050. The key takeaway from this report is that the four-week moving average has fallen for the past four weeks, and that it’s at the lowest level in four months. Initial jobless claims remain a bright spot in the economic recovery.
Factory Goods Orders Climb
In January, orders for factory goods climbed 1.6%. This was below economists’ expectations of a 2.0% increase. Breaking it down, durable goods orders jumped 4.7% on surging transportation equipment and machine orders. At the same time, non-durable goods orders fell 1.4%. While the uptick was smaller than expected, it still represented the first increase following monthly declines in November and December. Overall, this is good news for first-quarter GDP growth.
Unemployment Rate Stays Consistent
In February, the unemployment rate remained unchanged at 4.9%. Better yet, 242,000 payroll jobs were created last month, which was substantially higher than economists’ estimates of 198,000. The other good news is that December and January payrolls were revised higher by a combined 30,000. Meanwhile, the labor force participation rate rose to 62.9%. Unfortunately, hourly wages fell by $0.03 to $25.35 per hour, and the average workweek fell by 0.2 hours to 34.4 hours. Overall, the February payroll report was mixed, due to lower wages and a shorter workweek. The fact is that productivity declined in the fourth quarter, and many economists have commented that this may weigh on wage growth. Because Fed chair Janet Yellen is a labor economist, I suspect that she won’t like the details in the February payroll report. My hunch is that the Fed will not raise key interest rates at its upcoming FOMC meeting.
Balance of Trade Widens
In January, the trade gap widened to $45.7 billion, compared with a revised deficit of $44.7 billion in December. Economists had expected a trade deficit of $44.0 billion. Breaking it down, exports declined 2.1% to $176.5 billion, while imports declined 1.3% to $222.1 billion. The larger the trade deficit, the bigger drag it is on overall GDP growth. Since U.S. exports are now at the lowest level since mid-2011, this reaffirms my suspicion that the Fed will not raise rates anytime soon.
Have a great weekend,