280,000 was the number of net new payroll jobs created in the U.S. in May. Robust payroll job growth in May, following a solid April, put to rest fears of a jobs slowdown that appeared after a weak March jobs report that was matched by an unexpected decline in first quarter GDP. The May unemployment rate ticked up inconsequentially to 5.5 percent from 5.4 percent in April, as the labor force rebounded from earlier declines. The workweek was stable at 34.5 hours and earnings increased by 0.3 percent for the month.
Initial claims for unemployment insurance fell by 8,000 for the week ending May 30 to a very low 276,000.
Q1 productivity declined at a 3.1 percent annual rate. Measurement error in Q1 GDP could be a factor.
May auto sales zoomed ahead to a 17.8 million unit rate. Unit sales near the 18 million unit mark are probably not sustainable, but strong May sales suggest that the U.S. consumer is willing to spend again after weaker-than-expected retail sales and consumer spending reports since late last year. We expect June sales to settle back to a 16.5-17.0 million unit rate.
Personal income increased by 0.4 percent in April, but total consumer spending was flat.
The ISM Manufacturing Index for May increased to 52.8 percent as both new orders and the backlog of orders improved. A strong dollar and decreased oil drilling activity are drags for U.S. manufacturing, but a strong U.S. consumer sector (auto sales) is a plus. Also, supply chain problems stemming from the California port strike are resolving.
The ISM-Nonmanufacturing index for May eased to a still-positive 55.7 percent. There does not appear to be an overall theme to the slight loss of momentum in non-manufacturing industries.
The U.S. international trade gap narrowed significantly in April after widening in March. Labor issues at California ports have been blamed for some of the erratic behavior. Goods imports have been unpredictable, dipping in January and February, and then surging in March. April goods imports eased, but look like an undershot, so we may see another gain in May, widening the trade gap yet again. We expect trade to be positive for GDP in Q2 after subtracting almost 2 percent from Q1 real GDP growth.
Construction spending increased by 2.2 percent in April.
Yesterday, the IMF weighed in with its comment that the Fed should wait until 2016 to raise the near-zero fed funds rate. We believe that better recent U.S. data trumps the IMF’s concerns.
Fed Governor Stanley Fischer recently used the word “crawl” to describe the expected trajectory of the fed funds rate, eschewing the words “lift-off.” Today’s strong jobs data reinforces our expectation that September remains a reasonable expectation for the first step in the fed funds rate “crawl” toward normalcy.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 06-05-15.