The labor market continues to tighten.
The unemployment rate dropped more than expected in September, down 2 tenths to 3.7 percent, which is a 49-year low. The number of people who are actively looking for work is marching lower at 5.964 million in September. This is the lowest total since December 2000. In direct contrast to the declining labor pool, job openings forged higher, totaling 6.939 million in the latest release in July. While noting the two-month dispersion in the two data series, there are now 975,000 more job openings than people looking for work.
Even with strong demand for labor, wages are not showing much momentum.
Average hourly earnings for September grew at a year-on-year rate of 2.8 percent. Wages are not far above core consumer inflation, which increased 2.2 percent in September. Recent remarks by Fed Chair Powell indicate he believes that, despite the rise underway in job openings, there is no immediate threat that wages will move high enough to affect overall price inflation. Powell suspects that globalization and the advanced use of technology are helping employers manage labor costs and produce with greater efficiency.
The nation's trade deficit, after solid improvement earlier in the year, is deepening.
The deficit dropped to $53.2 billion in August after July weakened to $50.0 billion. This compares with a monthly average of $44.6 billion in the second quarter, which bodes poorly for the net exports component of third-quarter GDP.
Within the trade report, total exports fell 0.8 percent in August after a 1.0 percent drop in July. Export of services, which is a major strength of US trade, increased 0.3 percent in August. Exports of goods, in contrast, fell 1.4 percent following a 1.6 percent drop in July. The weakness in goods exports is centered in agricultural products and industrial supplies. Total imports added to the deepening deficit by rising 0.6 percent. The increase centered in vehicles and imported consumer goods.
The Institute for Supply Management's non-manufacturing survey jumped to 61.6 in September
The ISM non-manufacturing index set its strongest reading on record. The business activity index surged to 65.2 with new orders rising and delivery times lengthening. Employment reached a record high, increasing to 62.4.
Looking ahead, the ISM non-manufacturing index could get a lift from the new NAFTA trade agreement. The deal has reduced trade tensions and given exemptions to Mexico and Canada if the US decides to move forward with auto tariffs.
Regarding capacity constraints in the service sector, transportation is exhibiting extreme tightness. A big jump in transport service prices was seen in September’s PPI release. Transport prices surged 1.8 percent in the month with the yearly rate up 5.9 percent. Constraints in shipping are growing due to lack of trucks and especially lack of truck drivers.
The headline PPI was benign, with PPI for Final Demand rising an as-expected 0.2 percent in September with the yearly rate slipping 2 tenths to 2.6 percent.
Construction spending and payrolls are advancing on a year-over-year basis.
Construction spending managed only a small gain of 0.1 percent in August. This follows a 0.2 percent gain in July and a 0.7 percent decline in June. But year-on-year growth is up a very healthy 6.5 percent.
Construction payrolls advanced 4.5 percent on the year. Growth in payrolls is being limited by labor shortages in construction. This has been cited in the ISM non-manufacturing survey and in the Federal Reserve's Beige Book of economic conditions.
Within construction spending, the increase is being primarily driven by a 14.0 percent yearly rise in public spending. The increase is due to federal government projects and state-and-local government spending. Private construction grew by a smaller 4.4 percent yearly increase. It was split between a 4.8 percent rise for nonresidential and a 4.0 percent gain for residential.
Inside private residential, new single-family home spending is 4.2% higher than a year ago, while new multi-family homes are 0.6% lower. Housing in general, including home sales, have been flat this year. The recent sharp rise in interest rates will be a headwind for housing. In addition, weather is expected to impact construction data in the coming months as the effects of Hurricane Florence drag on construction spending in September and possibly October.
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