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:
Unemployment Rate Report
Like the first Friday of every month, the big news this week was the January payroll report. The Labor Department reported that 227,000 payroll jobs were created in January, which was higher the economists’ consensus estimate of 197,000. The bigger news was that the payroll reports in the past two months were revised down by a combined 39,000. The unemployment rate rose to 4.8% in January, up from 4.7% in December. Average hourly wages rose by $0.03, or by 0.1%, to $26 per hour, but annual wage growth in the past 12 months decelerated to a 2.5% annual rate in January, down from a 2.8% annual rate in December.
On Thursday, the Fed announced that productivity slowed dramatically from a 3.5% annual pace in the third quarter to only a 1.3% annual pace in the fourth quarter. According to the Fed, labor costs rose at a 1.7% annual pace in the fourth quarter, up from a 1.5% annual pace in the third quarter. For all of 2016, productivity rose only at a 0.2% annual pace. Since rising productivity often helps to boost wages, any deceleration in productivity is a concern for the Fed, because it means that wage growth many also slow. Overall, the deceleration in productivity is clearly one reason why the FOMC did not want to raise key interest rates on Wednesday.
ISM Manufacturing Index
On Wednesday, the Institute of Supply Management (ISM) reported that its manufacturing index rose to 56 in January, up from 54.5 in December. This was significantly higher than economists’ consensus estimate of 55 and represents the fifth straight monthly rise. The ISM manufacturing index is now at the highest level since November 2014, so the manufacturing sector is still growing despite the headwinds of a strong U.S. dollar.
On Tuesday, the Conference Board announced that its consumer confidence index slipped to 111.8 in January, down from 113.3 in December (which was a 15-year high). Economists were expecting the consumer confidence index to slip to 112.9 in January, so the dip was larger-than-expected. The primary reason for this decline was that the expectations component plunged to 99.8 in January, down from 106.4 in December. However, the present situations component surged to 129.7 in January, up from 123.5 in December. So overall, consumers are doing better, but they’re just not quite as optimistic.
That’s all I have for you this week; I’ll be in touch again next week with the latest ratings updates out of Portfolio Grader.
Have a great weekend,