Pollack: Some mixed signals in the economy




& Company

February 8th, 2016
The Monday Morning Quarterback
A quick analysis of important economic data released over the past week
Last week’s economic data was, at best, mixed.  Employment data were up, but, less than expected.  It also made the FED’s job a little tougher because, when combined with wage gains, it gave mixed signals as to the strength of the economy.  This could affect the timing of the next interest rate increase.
Productivity growth continues to be slow.  Manufacturers’ new orders continue to be weak and inventories are too high.  And the ISM’s manufacturing index continues to be below the level that suggests positive things for the manufacturing sector.
On the other hand, jobs did grow.  The unemployment rate fell below 5% for the first time since 2008.  Personal income (adjusted for inflation) was up.  Consumer credit was up as were motor vehicle sales.  And construction spending was healthy.  This is all in line with continued slow growth.
U.S. Snapshot:
  • Total nonfarm payroll employment rose by 151,000 in January.  This rate of growth was much slower than over the past few months and was below expectations. Employment gains were led by retail trade, food services and drinking places, health care, and manufacturing.
  • The unemployment rate declined to 4.9%, down from 5.0% last month.  This is the lowest level of unemployment since 2008.
  • Nonfarm business sector labor productivity decreased at a 3.0% annual rate during the 4th quarter of 2015. Unit labor costs rose 4.5% in the 4th quarter.  Unit labor costs increased by 2.8% over the last four quarters.  This will create upward wage pressures.
  • Personal income grew by 0.3% in December and was up 4.2% from a year ago.  Disposable personal income rose by 0.3% in December and is now 3.7% above a year ago.
  • The personal savings rate increased to 5.5% in December as consumers saved more of their income.
  • Consumers used their credit cards more as revolving credit rose at a 7.5% annual rate in December.  Revolving credit now stands 5.1% above a year ago.  Non-revolving credit (primarily auto and student loans) were up 7.1% at an annual rate in December and are 7.6% above a year ago.
  • Manufacturers’ new orders continue to decline.  Orders were down 2.9% from a month ago and are down 3.9% from a year ago.
  • The Institute for Supply Management manufacturing index was 48.2 in January.  Any reading below 50 suggests that the manufacturing sector is contracting.  This is the fourth month in a row with a reading below 50.  The nonmanufacturing index was 53.5.  This suggests continued expansion in the nonmanufacturing sector.  The number was 55.8 in December.
  • Total construction spending rose 0.1% in December and was 8.2% above year earlier levels.  Spending for new single family homes was 8.7% above a year ago. New multifamily spending was up 12% from a year ago.
Arizona Snapshot:
  • The Behavior Research Arizona confidence index was up slightly in January to 81.6. In October, it was 81.2.  There was more optimism in Maricopa County where the index rose in January to 90.8 from 88.5 in October.  There were also gains in Pima County where the index rose to 77.0, up from 72.3 in October. The reason for the index not moving up more robustly is that, although optimism about current business and employment conditions remain positive, consumers have grown more pessimistic about what employment markets may look like in the coming months.
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February 2016