Despite the miss on the April payroll jobs numbers, U.S. economic data this week remained consistent with our expectation for a modest-to-moderate pick up in second quarter GDP growth after a weak first quarter.
April’s net payroll job gains of 160,000 was less than expected. The good news is that more people were employed, they worked longer hours and got paid more for it. The unemployment rate stayed even at 5.0 percent. We expect to see a stronger number when the May data is released on June 3rd.
Nonfarm business productivity decreased at a –1.0 percent annual rate for the first quarter. Over the last year productivity is up just 0.6 percent. Weak productivity growth is still a conundrum. Also, it is disconcerting because the flip side of weak productivity growth is high unit labor cost growth. In the first quarter ULC increased at a strong 4.1 percent annual rate, which will squeeze corporate profits.
Initial claims for unemployment insurance increased by 17,000 for the week ending April 30th, to 274,000, still a good number. Continuing claims declined by 8,000 for the week ending April 23, to hit 2,121,000.
The ISM Manufacturing Index for April improved to 50.8 percent, the second consecutive above-50 reading after five months in contraction territory. We will buy some of that back by saying that the gain in the index in April was supported by stronger prices. The price component was influenced by higher oil prices, making the improvement in the headline number less than meets the eye.
Likewise, the ISM Non-Manufacturing Index for April improved to 55.7 percent, with help from stronger prices. The employment sub-index for the non-mf survey improved to 53.0 percent, indicating ongoing hiring.
The value of construction put in place in March increased by 0.3 percent. Private residential construction was up 1.6 percent. Private nonresidential gained 0.7 percent and public projects declined by 1.9 percent on weaker power plant construction.
The U.S. international trade gap narrowed in March to $40.4 billion. This is not expected to cause a significant revision to the first estimate of Q1 real GDP growth, which was weak at 0.5 percent annualized. The improvement in the trade gap came for the wrong reasons as imports declined by $8 billion for the month.
Auto sales rebounded to a 17.4 million unit rate in April after dipping to 16.6 in March. The next couple of months of auto sales will be interesting. We do not expect sales to exceed the robust 18 million unit sales rate from last fall on a consistent basis. For the year, we expect to see about 17.2 million units sold.
Today’s jobs data reinforces the already low odds of a fed funds rate hike at the upcoming FOMC meeting over June 14/15. According to the fed funds futures market the odds of a fed funds rate hike at the FOMC meeting is a low 5.6 percent. The implied probability of at least one fed funds rate hike by December of this year now stands at 56 percent. Stronger oil prices would lift those odds.
For a PDF version of the Comerica Economic Weekly, including forecast tables and the variables calendar, click here: CMAEconWeekly 05-06-2016.