There were lots of important reports on the U.S. economy released this morning. First, data from Challenger, Gray & Christmas showed that the total number of announced corporate layoffs in America fell by 29 percent in August to 32,188. That is the first month-over-month decrease since May and the second lowest reading of 2016-to-date. Compared to August of 2015, the number of job cuts announced last month are down 22 percent, and total corporate layoffs during the first eight months of 2016 are tracking 10 percent below the 2015 pace. Despite the improvements, one area of the economy that is definitely not helping reduce the number of job cuts announced this year is energy. Indeed, this sector has announced 97,366 layoffs 2016-to-date, a 36 percent increase compared to this same period last year. Interestingly, though, the energy sector layoffs in August occurred mainly at solar firms, whereas job cuts earlier this year were dominated by oil-focused firms. The tech sector has also seen an uptick in announced layoffs in 2016, especially computer firms which have announced 55,567 job cuts this year. John A. Challenger, chief executive officer of Challenger, Gray & Christmas, added that “Since January of last year, there has been a string of large scale job cuts from major players in the technology sector, including Hewlett-Packard, Intel, Dell, Microsoft and, now, Cisco. The surge in cuts does not necessarily signal weakness in the sector, but it certainly signals a shift. In most cases, we are seeing these firms move from making hardware to providing services.”
Next, a report from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity (employee output per hour) decreased at an annual rate of 0.6 percent during the second quarter of 2016, as hours worked increased faster than output. This is a downward-revision from July’s initial estimate of a 0.5 percent decline, and therefore signals no improvement from the 0.6 percent decline seen in Q1. Productivity has now declined for three quarters in a row, the first time that has occurred since 1979 and the largest such decrease since 1993. Moreover, productivity fell by 0.4 percent over the past twelve months, the first annual decline recorded in three years, and since the recession ended in 2009, productivity has grown at the slowest annualized pace for any business cycle. Weak business investment has been a big factor behind softer productivity growth. Evidence of this can be found in fixed nonresidential investment, which has declined for three consecutive quarters, and disappointing core capital expenditures. Altogether, this was a discouraging report, especially for Federal Reserve Chair Janet Yellen who earlier last year described productivity growth as the “most important factor determining continued advances in living standards.”
Elsewhere, the manufacturing purchasing managers' index (PMI) from IHS Markit ended August at 52.0, a slight pullback from the 9-month high hit in July. Under the hood, new orders and employment expanded at a weaker pace, and inventory volumes declined for the third month running. Moreover, a number of surveyed managers noted that “post-production inventories were depleted in response to softer new business growth and caution regarding the demand outlook.” A lot less encouraging was the Institute for Supply Management (ISM) manufacturing index, also released this morning, which plunged to 49.4 in August. That is significantly worse than expected and the first negative (contractionary) reading in half a year. Measures of new orders, production, employment, inventories, and imports all deteriorated markedly last month but comments from surveyed managers were generally positive. Markit’s chief economist Chris Williamson, added that “Weak domestic demand remains a drag on order books. Concerns about the outlook have also resulted in a marked reduction in the rate of job creation. There’s anecdotal evidence to suggest that this at least in part reflects a slowing in the economy in the lead up to the presidential election, meaning there’s scope for growth to revive later in the year. In the meantime, the overall sluggish pace of expansion signaled by the survey, and the slacking of inflationary pressures, provides support to those arguing that interest rates should remain on hold.”
Finally, data from the U.S. Census Bureau showed that construction spending in America grew at an adjusted annual rate of $1,153.2 billion in July (lagged release). This is unchanged from June and therefore much worse than the 0.6 percent gain economists had anticipated. However, the expectations miss was due largely to a significant upward revision to the June print (-0.6 percent to +0.9 percent), which could also help lead to an improvement in the final estimate of second quarter U.S. gross domestic product (GDP) growth when released later this month. On a year-over-year basis, construction spending expanded by 1.3 percent in July, an increase from the prior month but still one of the slowest paces of annual growth since 2011. Such weakness can be seen in both public and private construction spending, with the former actually turning negative in April. Uncertainty about the U.S. economy and the upcoming election could be partially to blame for the recent softness but some construction spending arenas remain quite strong.
Sources: Econoday, Twitter, Bloomberg, ZH, Challenger, Gray & Christmas, U.S. DoL, IHS Markit, ISM, U.S. Census Bureau, FRBSLPost author: Charles Couch