Economy, Small Business

Economic Data Roundup (08/03/2016)

8/3/16 12:00 PM

iStock_000009946822_Small.jpgThere were a few important reports on the U.S. economy released this morning. First, data from ADP showed that business hiring firmed last month, with 179K private-sector payrolls being added to the economy in July, well above economists’ expectations. The smoother (less volatile) 3-month average of ADP’s hiring estimates as a result rose to 178K in July, the highest reading since April and a signal that the overall pace of job creation remains healthy. Essentially all of the private-sector jobs added last month were in the services sector (+185K), which included large gains in the "professional and business" and “transportation and utilities” arenas, while payrolls in the goods-producing sector fell by 6K in July. Elsewhere in the report, small businesses were again found to be one of the main drivers of private-sector job growth in America, as firms with 1-49 employees added 61K workers in July. However, the pace of job creation at smaller businesses has declined for three months in a row, and the July reading was the weakest sequential gain since September of last year. Subsequent reports will reveal whether this slowdown is simply a seasonal setback or the start of a new trend. Mark Zandi, chief economist of Moody’s Analytics, added that “as the labor market continues to tighten, small businesses may increasingly face challenges when it comes to offering wages that can compete with larger businesses.”

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Elsewhere the services sector purchasing managers' index (PMI) from IHS Markit ended July at 51.4, unchanged from June and therefore still near the low end of the range for the past few years. While any print above 50 implies activity expansion in the services sector (which accounts for a larger portion of the U.S. economy than manufacturing), this latest reading signaled only a very modest expansion that was softer than the recovery average. On the bright side, new work grew in July at the fastest pace of 2016, job creation climbed to a 3-month high, and business confidence rebounded from June’s record low. Surveyed managers also noted that “gradually improving economic conditions and competitive pricing strategies resulted in increased client spending at the start of the third quarter.” Slightly less encouraging, though, is the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, which fell to 55.5 in July. That is worse than economists expected but still one of the best readings of the past year. ISM’s gauges of non-manufacturing production, employment, inventories, and imports all deteriorated last month but new orders, backlogs, and exports firmed. Comments submitted by surveyed managers last month were largely mixed, and Markit's chief economist Chris Williamson added “Those looking for signs of the U.S. economy moving up a gear in the third quarter will be disappointed by the PMI readings for July.”

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Sources: Econoday, ZH, ADP, IHS Markit, ISM, FRBSL

Post author: Charles Couch