U.S. Data Improves, Consistent with 2015 GDP Ramp-Up After Dismal Q1
- Private-Sector Employment increased by 201,000 jobs in May, according to ADP.
- Light Vehicle Sales zoomed to a 17.8 million unit annual rate in May.
- The ISM Manufacturing Index for May increased to 52.8 percent as new orders firmed up.
- The ISM Non-Manufacturing Index for May eased to a still-positive 55.7 percent.
- The U.S. International Trade Gap narrowed significantly in May to -$40.9 billion.
- Personal Income gained 0.4 percent in April. Spending was flat.
- April Construction Spending gained 2.2 percent with increased spending on public projects.
The bulk of U.S. data from early June point to improved real GDP growth in the current second quarter, after the dismal -0.7 percent real GDP growth rate of Q1. Ahead of this Friday’s official Bureau of Labor Statistics employment report for May, the ADP jobs report showed a solid gain of 201,000 jobs for the month. Small businesses (0-49 employees) accounting for over 60 percent of the hiring in May. If we add an estimated 10,000 government jobs to the private-sector total from ADP, that puts us at a forecast of 211,000 in May for the official non-farm count. That would be a healthy gain, but probably not enough to change the 5.4 percent unemployment rate from April. Consistent moderate-to-strong job growth in April and May would give us more confidence in saying that the weak March jobs data (+85,000), was an aberration, and not due to an enduring downshift in hiring. However, a downside miss on Friday’s jobs report for May would provoke speculation about a weaker U.S. economy.
Auto sales for May were even better than the strong whisper numbers. Sales zoomed ahead to a 17.8 million unit rate for the month, supportive of Q2 GDP. Auto 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.
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. Goods exports have been steadier. 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, supportive of Q2 GDP. Total public construction gained 3.3 percent. Private-nonresidential was also strong, up by 3.1 percent in April. Private residential construction spending increased by a more moderate 0.6 percent, but we expect to see gains there in the months ahead.
Better recent U.S. data also clears the path for the Federal Reserve to begin to increase the fed funds rate this year. We still look for a September 17 announcement from the FOMC signaling the beginning of the “crawl” to higher short-term interest rates.
Market Reaction: U.S. equity prices are up. The 10-year Treasury bond yield is up to 2.34 percent. NYMEX crude oil is up to $60.39/barrel. Natural gas futures are down to $2.65/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Int Trade 06-03-15.