Quirky August labor data should not prevent the Federal Open Market Committee from voting to dial down QE3 on September 18. Fed officials remain noncommittal, so a September 18th announcement of the beginning of the end of QE3 is still likely, but is by no means assured.
August payroll employment increased by a less-than-expected 169,000 jobs. July payroll gains were revised down to a weak 104,000 and June was revised down to 172,000. Together, the three months averaged a gain of 148,000 jobs per month, a step below the previous three-month average of 172,000. An outsized decline in the labor force brought the unemployment rate down to 7.3 percent for the month. It also brought the labor force participation rate down to 63.2 percent, the lowest it has been since August 1978.
The U.S. international trade gap remains on a narrowing trend. However, it widened in July after closing significantly in June. The July trade gap pushed out to -$39.1 billion as total imports increased by $3.5 billion while total exports decreased by $1.1 billion. The widening of the trade gap at the start of the third quarter suggests that trade will not provide a big push to current quarter GDP. Petroleum exports increased in July to $12.5 billion. This was the fourth consecutive monthly increase in petroleum exports, reflecting rapidly growing energy supplies in the U.S. due to shale-based production.
Total construction spending for July increased by 0.6 percent as nonresidential private construction expanded. Private nonres gained 1.3 percent for the month, pushed by growth in lodging, manufacturing and education. Private residential construction spending was also up by 0.6 percent in July, and up 17.2 percent over the previous 12 months. Public construction continued to be a drag, declining by 0.3 percent in July. Total public construction was down 3.7 percent over the previous 12 months, reflecting the wind down of fiscal stimulus spending, and the tightening federal budget.
The ISM Manufacturing Index for August improved to 55.7 percent, comfortably above the break-even 50 mark. Most major categories were positive. The ISM Non-Manufacturing Index for August increased to 58.6 percent.
The best economic news of the week came from August auto sales, which hit a 16.1 million unit annual rate. This was the strongest sales rate since October 2007. Automakers will increase production this fall to keep up with strong demand.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly090613.