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Economic Week in Review: Employment picture stays bright

June 06, 2014

Much of the data released this week was positive. Although the labor market didn't generate as many jobs in May as the previous month, the numbers were still encouraging. Also on the positive front, expansion continued in the manufacturing and service sectors. Although productivity declined in the first quarter according to the Labor Department, the Federal Reserve, in its Beige Book report, said the economy continued to expand at the beginning of the second quarter.

For the week ended June 6, 2014, the S&P 500 Index was up 1.3% to 1,949 (for a year-to-date total return—including price change plus dividends—of about 6.4%). The yield on the 10-year U.S. Treasury note rose 12 basis points for the week to 2.60% for a year-to-date decrease of 44 basis points).

Further improvement for labor market

After more than six years, the U.S. labor market has now recovered 8.7 million lost jobs and returned to pre-recession levels. Employers added 217,000 jobs in May, about what economists anticipated, although the Department of Labor revised its April figures downward from 288,000 to 282,000. The unemployment rate remained 6.3% after dropping 0.4% in April, and the number of unemployed was also unchanged at 9.8 million. Compared with a year ago, the unemployment rate was 1.2 percentage points lower and the number of unemployed fell by 1.9 million.

Among the sectors seeing the largest increases in employment last month were business and professional services (55,000 jobs) and health care and social assistance (also 55,000). The labor force participation rate held steady at 62.8%, a low figure historically. Average hourly earnings climbed 0.2% to $24.38 in May and are 2.1% higher than a year ago.

"Friday's numbers pulled average job growth in 2014 to slightly more than 210,000 per month," said Vanguard economic analyst Andrew Patterson. "It is an encouraging sign, but the Fed and others continue to focus on a number of additional metrics in assessing labor market conditions, including wage growth, long-term and short-term unemployment, and part-time versus full-time workers."
U.S. unemployment

Mixed signs for construction spending

Total construction spending grew 0.2% in April, below economists' expectations, although March's figures were revised upward to 0.6%. Most of the rise came from public construction spending; private residential construction edged higher but private nonresidential spending declined slightly.

Construction spending advanced for the third straight month and is 8.6% ahead of a year ago, but is still considerably below its pre-recession peak.

Positive reading for manufacturing

The ISM Manufacturing Index increased in May to 55.4 from 54.9 a month earlier, a shade better than economists' expectations. New orders and production contributed the most to the index's growth, while supplier deliveries decelerated.

The index serves as a measure of manufacturing activity, and any reading over 50 indicates more companies are expanding than contracting. All but one of 18 manufacturing industries showed growth in May.

Factory orders continue ascent

New orders for manufactured goods climbed 0.7% in April, their third straight monthly gain and above economists' expectations. Also, March's figure was revised upward to 1.5%. Durable goods rose 0.6% on the strength of transportation equipment and nondurable goods grew 0.7% on contributions from coal and petroleum products.

Shipments, which were up 0.3%, also rose for the third month in a row, while unfilled orders advanced 0.9%. Inventories increased 0.4% and the inventory-to-shipment ratio remained at 1.30 for the fourth straight month. The factory orders report, which indicates industrial-product demand, provides a comprehensive look at the manufacturing sector's health.

Weather triggers productivity drop

Nonfarm business productivity decreased 3.2% in the first quarter, worse than economists forecast. These data measure labor efficiency growth in producing the economy's goods and services. Harsh weather in the first two months of the year was responsible for much of the decline, the largest decrease in productivity since a 3.9% drop in the first quarter of 2008. Compared with a year ago, productivity is up 1%.

As output fell 1.1%, hours increased 2.2%. Unit labor costs in nonfarm businesses rose 5.7% in the first quarter, a bit below economists' expectations, as productivity dropped and hourly compensation increased 2.3%. Over the past year, unit labor costs are 1.2% higher. Labor costs are considered an indicator of future inflationary trends.

U.S. trade deficit expands

The U.S. trade deficit widened to $47.2 billion in April from $44.2 billion in March, beyond economists' projections and its largest margin since July 2012. Exports slid 0.2% while imports increased 1.2%. A month earlier, exports and imports were up 3.0% and 3.1%, respectively. The goods deficit grew to $65.8 billion from $62.5 billion in March, while the services surplus rose to $18.6 billion from $18.3 billion.

While the decrease in exports could be a concern, the healthy import number signals progress for the U.S. economy. Foreign trade is a key part of total economic activity.

Nonmanufacturing orders rise again

The ISM Non-Manufacturing Index, an indicator of overall service-sector trends, increased to 56.3 in April from 55.2 a month earlier. It was the fourth straight monthly gain for the index, which is now at its highest point since August 2013. Readings above 50 signal expansion. ISM indexes measuring business activity, new orders, and employment also saw modest gains, while the index for supplier deliveries was down slightly.

Both the business activity and new orders indexes reached their highest levels since 2011. Strength was widespread as 17 nonmanufacturing industries showed growth. Only the mining industry contracted.

Recent pickup in economic activity

The economy displayed moderate to modest growth over the period from April through mid-May, the Federal Reserve said. In its Beige Book report, the central bank noted economic expansion in all 12 of its regional districts. Compared with the previous report, the pace of growth increased in two districts—Cleveland and St. Louis—and slowed slightly in the Kansas City District.

Strong growth in vehicle sales helped consumer spending, which was up in most districts. Tourism, manufacturing activity, and energy production also increased as the economy moved past the severe winter. The Beige Book report provides anecdotal information on various aspects of economic activity and is a resource for the Fed at Federal Open Market Committee meetings as it sets interest rate policy.

The economic week ahead

Next week's economic reports include retail sales and business inventories on Thursday and the Producer Price Index on Friday.

Summary of major economic reports
Date Report Actual
expected value
10-year note yield S&P 500 Index
June 2 Construction Spending (April)
Source: Commerce Department
+0.2% +0.6% +6 bp +0.1%
  ISM Index (May)
Source: Institute for Supply Management
55.4 55.2    
June 3 Factory Orders (April)
Source: Commerce Department
+0.7% +0.2% +6 bp 0.0%
June 4 Nonfarm Productivity (1Q annual rate)
Source: Labor Department 
–3.2% –1.0% +1 bp +0.2%
  Unit Labor Costs (1Q annual rate)
Source: Labor Department
+5.7% +5.2%    
  U.S. Trade Balance (April)
Source: Commerce Department
–$47.2 billion –$40.1 billion    
  ISM Non-Manufacturing Index (May)
Source: Institute for Supply Management
56.3 55.5    
  Beige Book (May)
Source: Federal Reserve Board
June 5 Initial Jobless Claims (week ended May 31)
Source: Labor Department
312,000 318,000 –2 bp +0.7%
June 6 Unemployment Rate (May)
Source: Labor Department
6.3% 6.4% +1 bp +0.5%
  Nonfarm Payrolls (May)
Source: Labor Department
217,000 215,000    
  Consumer Credit (April)
Source: Federal Reserve Board
$26.9 billion $16.2 billion    
      Weekly change +12 bp +1.3%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5.0% to 5.5%, the increase is 50 basis points.


  • The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read our Guide to major U.S. economic reports.
  • All investing is subject to risk, including the possible loss of the money you invest.
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