April 2015 Employment Report

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According to the Bureau of Labor Statistics’ (BLS) establishment survey, non-farm payroll employment increased by 223,000 jobs in April -- in line with expectations of 220,000. However, combined February and March employment gains were revised downward by 39,000 (March was cut from +126,000 to +85,000). Meanwhile, the unemployment rate (based upon the BLS’s household survey) ticked down to 5.4% -- more a result of workers finding jobs (192,000) than individuals dropping out of the workforce (19,000). 

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Observations from the employment report include:

The disparity in jobs gains between the establishment (+233,000) and household (+192,000) surveys was less pronounced in April.

The downturn in oil-sector (part of the Mining & Logging category) employment continued in this report, although the BLS said employment in oil and gas extraction fell by 3,000. Challenger, Gray & Christmas reported that nearly 21,000 oil-sector job cuts were announced in April, although it is doubtful all of those workers were actually terminated in April.

Nearly 66% (140,000) of private-sector job growth occurred in the three super-sectors typically associated with the lowest-paid jobs: Profession & Business Services; Education & Health Services, and Leisure & Hospitality.

The ongoing narrowing in the number of Manufacturing versus Food Service & Drinking Places (FS&DP) jobs continued in March. Interestingly, in January 2000, there were 9.168 million more U.S. manufacturing jobs than FS&DP jobs. As of April 2015, the gap has shrunk to 1.301 million. Although the number of manufacturing jobs was 180,000 higher than April 2014, the concurrent growth rate in FS&DP jobs was more than double that (+387,000). 

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The employment-population ratio was stable at 59.3% for a fourth month, but the number of employment-age persons not in the labor force rose by 19,000 to a new record near 93.2 million. 

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The labor force participation rate ticked higher by 0.1 percentage point, to 62.8%; the LFPR has been tightly range-bound around an average of 62.8% since April 2014. Average hourly earnings of all private employees rose up by $0.03, resulting in a 2.2% year-over-year increase. For all production and nonsupervisory employees (pictured above), hourly wages rose $0.02 (+1.9% YoY). With the CPI running at an official rate of -0.1% (YoY), wages are technically rising in real (inflation-adjusted) terms. The amount of time people worked each week, meanwhile, remained at 34.5 hours. 

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Finally, full-time jobs decreased (-252,000) while part-time jobs jumped (+437,000). Full-time jobs have been trending higher since December 2009, but are still 1.1 million short of the pre-recession high. Part-time jobs, by contrast, have been stuck in a channel between roughly 27 and 28 million.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

April 2015 ISM and Markit Reports

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The Institute for Supply Management’s (ISM) monthly opinion survey showed that growth of economic activity in the U.S. manufacturing sector was unchanged in April. The PMI registered 51.5%, the same reading as in March -- its lowest reading since May 2013. (50% is the breakpoint between contraction and expansion.) ISM’s manufacturing survey represents under 10% of U.S. employment and about 20% of the overall economy. The most apparent changes included increases in the new orders, exports and imports sub-indexes, and contraction in employment. 

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Wood Products expanded in April, thanks entirely to new and backlogged orders. Paper Products also expanded, with support among new and backlogged orders, production, and exports.

The pace of growth in the non-manufacturing sector -- which accounts for 80% of the economy and 90% of employment -- quickened in April. The NMI registered 57.8%, 1.3 percentage points above the March reading 56.5%. The business activity sub-index rose noticeably, and new orders slightly less so. However, exports contracted (collapsing from 59 to 48.5) and import growth markedly slowed. “The majority of respondents indicate that there has been an uptick in business activity due to the improved economic climate and prevailing stability in business conditions.” said Anthony Nieves, chair of ISM’s Non-Manufacturing Business Survey Committee. 

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All three service industries we track reported expansion in April. The new orders sub-index was once again the most consistent source of strength.

The only relevant commodity up in price was paper. Oil was down in price. Some reported fuel (both gasoline and diesel) as cheaper, others as more expensive. No relevant commodities were in short supply.

ISM’s and Markit’s surveys exhibited some divergence in April. Both Markit’s Manufacturing and Services PMIs reflected some moderation in the rate of growth.

Comments from Chris Williamson, Markit’s chief economist, are presented below:

Manufacturing -- “With manufacturing output growth slowing to the weakest seen so far this year and exports falling for the first time since November, the survey results raise worries that the dollar’s appreciation is hurting the economy.

“The slowing in the economy is accompanied by a renewed weakening of price pressures, linked to the exchange rate bringing down the cost of imports. Input prices showed one of the steepest falls seen since the recession, a cost-saving which producers often passed on to customers. Prices charged rose at the slowest rate seen for almost three years.

“The weakening growth trend and fall in price pressures add to a growing clutch of disappointing numbers which suggest the Fed will err on the side of caution and hold off from rate hikes until a clearer picture emerges of the economy’s health. Any policy tightening therefore looks likely to be deferred until at least September, but the fact that both manufacturing and services continue to grow at reasonably robust rates at the start of the second quarter suggest that rate hikes towards the end of the year should not be ruled out.”

Services -- “Robust service sector growth adds to evidence that the economy is far from stalling, as indicated by the GDP numbers seen at the start of the year, supporting the Fed’s view of the economy growing at a ‘moderate’ rate.

“Together with the expansion signaled by the manufacturing survey, the service sector PMI so far points to the economy growing at an annualized rate of 3% in the second quarter, representing a nice rebound from the first quarter’s soft-patch.

“Hiring has also remained resilient, boding well for monthly non-farm payroll growth to return above 200,000.

“Price pressures have also ticked higher, suggesting we may see some further upwards pressure on core inflation in coming months.

“The robust growth and hiring, as well as the upturn in prices, keeps alive the possibility of the Fed hiking rates later this year, perhaps as early as September if the data flow impresses in coming months.”

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

April 2015 Monthly Average Crude Oil Price

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The monthly average U.S.-dollar price of West Texas Intermediate (WTI) crude oil edged up off its lowest price in six years, rising $5.97 to $53.79 per barrel in April. The price bump coincided with a weakening U.S. dollar, the lagged impacts of a 147,000 barrel-per-day (BPD) increase in the amount of oil supplied/demanded in February (to 19.4 million BPD), and a seemingly unstoppable accumulation of crude oil stocks (to the highest levels in about 80 years). The monthly average price spread between Brent crude (the predominant grade used in Europe) and WTI narrowed by $3.00 in April, to $5.07 per barrel. 

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With futures prices in “contango” (i.e., near-term contracts are priced lower than later-term contracts), we do not expect significant additional fallout in spot oil prices. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

April 2015 Currency Exchange Rates

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In April the monthly average value of the U.S. dollar depreciated against two of the three major currencies we track: -2.2% against Canada’s loonie and -0.7% against the yen. The greenback was stable relative to the euro. On a trade-weighted index basis, the dollar weakened by 1.0% against a basket of 26 currencies. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

March 2015 Manufacturers’ Shipments, Inventories, and New & Unfilled Orders

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According to the U.S. Census Bureau, the value of manufactured-goods shipments increased $2.3 billion or 0.5% to $482.2 billion in March. Shipments of durable goods increased $2.9 billion or 1.2% to $246.9 billion, led by transportation equipment. Meanwhile, nondurable goods shipments decreased $0.6 billion or 0.3% to $235.3 billion, led by petroleum and coal products. Wood shipments fell by 2.0% while Paper rose 0.2%. 

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Inventories decreased $1.1 billion or 0.2% to $649.1 billion. The inventories-to-shipments ratio was 1.35, unchanged from February.

Inventories of durable goods increased $0.3 billion or 0.1% to $413.1 billion (the highest level since the series was first published on a NAICS basis in 1992), led by computers and electronic products. Nondurable goods inventories decreased $1.5 billion or 0.6% to $236.1 billion, led by petroleum and coal products. Inventories of Wood edged up by 0.1% while Paper contracted 0.3%. 

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New orders increased $9.6 billion or 2.1% to $476.5 billion (in line with expectations). Excluding transportation, new orders increased 0.3%. Durable goods orders increased $10.2 billion or 4.4% to $241.2 billion, led by transportation equipment. New orders for nondurable goods decreased $0.6 billion or 0.3% to $235.3 billion.

Prior to July 2014, as can be seen in the graph above, real (inflation-adjusted) new orders had been essentially flat since early 2012, recouping roughly 75% of the losses incurred since the beginning of the Great Recession. With July’s transportation-led spike now in the rearview mirror, new orders are back to around 61% of their December 2007 high. 

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Unfilled durable-goods orders $1.0 billion or 0.1% to $1,157.3 billion, led by transportation equipment. The unfilled orders-to-shipments ratio was 6.67, down from 6.70 in February. Real unfilled orders, which had been a good litmus test for sector growth, show a much different picture; in real terms, unfilled orders in June 2014 were back to just 79% of their December 2008 peak. Real unfilled orders jumped to 102% of the prior peak in July, thanks to the largest-ever batch of aircraft orders, hence, this metric is likely to remain elevated for several years.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

March 2015 Construction Spending

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Overall construction spending in the United States fell 0.6% during March (+0.4% expected), to a seasonally adjusted and annualized rate (SAAR) of $966.6 billion. Private construction spending dropped by 0.3%. Outlays on residential projects shrank by 1.6% while non-residential expanded by 1.0%. Spending on public construction projects decreased 1.5%. 

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Click here for a discussion of March’s new residential permits, starts and completions. Click here for a discussion of new and existing home sales, inventories and prices.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.

1Q2015 Gross Domestic Product: First (Advance) Estimate

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According to the “advance” estimate by the Bureau of Economic Analysis (BEA), 1Q2015 growth in real U.S. gross domestic product (GDP) was pegged at a seasonally adjusted and annualized rate of 0.2% -- down roughly 2.0 percentage points from the 4Q2014’s final 2.2% estimate. Analysts had expected 1.0% (ranging from +0.2 to 2.4%). Personal consumption expenditures (PCE) and private domestic investment (PDI) contributed to 1Q growth, while net exports (NetX) and government consumption expenditures (GCE) subtracted from it.

Negatives:

* Consumer spending for goods grew at a 0.05% annualized rate, down from 4Q’s +1.07%.

* Consumer spending for services grew at 1.26% (the majority in non-discretionary healthcare, housing and utilities), down from 4Q’s +1.91%.

* Fixed investment contracted (-0.40%), down from 4Q’s +0.72%.

* Exports shrank at a -0.96% annualized rate, down from 4Q’s +0.59%, thanks in large part to a strong dollar.

Positives:

* Inventory growth contributed +0.74% to the headline number, up from 4Q’s -0.10%.

* Imports subtracted less from the headline number (-0.29%, compared with 4Q’s -1.62%).

* Government spending contracted at a slower (-0.15%) annualized rate, thereby boosting the headline number by +0.20%. 

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Perhaps the item most worthy of note is that without the record buildup of inventories (+$121.9 billion in nominal dollars), 1Q GDP would have been -2.6% instead of the reported 0.2%.

The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.