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 31 percent in October to 30,740. That was the 2nd-best monthly reading of 2016 to date, 39 percent lower compared to this same period last year, and the smallest number of announced job cuts in an October since 1999. Moreover, there have been 466,352 corporate layoffs so far in 2016, 14 percent lower compared to the first ten months of 2015 and likely a reflection of the continued improvement in both the labor market and the overall U.S. economy. Further, most of the job cuts announced this year have been concentrated in a few sectors, particularly energy and technology. Some economists believe that job cuts are trending lower recently due to the uncertainty surrounding the upcoming Presidential election, which could be causing employers to hold off on major workforce decisions. However, John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said that “We did not see similar declines in other election years. Of course, October 2008 marked the start of the Great Recession, with job cuts soaring to nearly 113,000. This low monthly total is most likely due to the fact the economy is relatively healthy and that most employers don’t see those conditions changing in the next three to six months.”
Next, a report from the Bureau of Labor Statistics (BLS) showed that nonfarm business sector labor productivity (employee output per hour) rose at an annual rate of 3.1 percent during the third quarter of 2016, as output increased much faster than hours worked. This was the first quarterly productivity improvement in a year, the largest gain since 2014, and the Q2 figure was revised much higher. The sharp rebound in productivity is a welcome change of pace following three straight quarters of declines, especially since Federal Reserve Chair Janet Yellen earlier last year described productivity growth as the “most important factor determining continued advances in living standards.” However, it is still way too early to tell whether the long-term down trend in productivity growth has ended because output per hour is essentially flat over the past twelve months, and since the recession ended in 2009 has grown at the slowest annualized pace for any economic cycle. Disappointing business investment also remains a drag on productivity growth, exacerbated by weak core capital expenditures and muted fixed nonresidential investment.
Elsewhere the services sector purchasing managers' index (PMI) from IHS Markit ended October at 54.8, a significant improvement from September and the best reading in roughly a year. Under the hood, new orders expanded at the fastest pace since late-2015, which surveyed managers attributed to “improved confidence among clients” and “new product launches and successful marketing initiatives.” The sharp rise in incoming new work has put a greater strain on operating capacity but job creation picked up only modestly in October following the nearly 4-year low hit it September. Surveyed managers reported a marked uptick in input costs (inflation) but looking ahead respondents have become quite upbeat about their growth prospects for the next twelve months. Markit's chief economist Chris Williamson added that “There’s nothing in this month’s PMI reports to deter the Fed from raising interest rates again, with a move likely to be seen in December.” Less encouraging was the Institute for Supply Management’s (ISM’s) non-manufacturing index, also released this morning, which fell to 54.8 in October. That was much worse than economists expected and due to weakness in production, new orders, exports, and employment, as well as a spike in inflation. Surveyed managers’ comments were generally mixed.
Finally, a report from the Department of Labor showed that the number of Americans making first-time claims for unemployment benefits totaled 265K in the week ending October 29th. That was an increase of 7K from the prior week’s figure, worse than anticipated, and the highest headline reading since August. Initial claims have now increased for three of the past four weeks, which some economists believe could mean that tomorrow’s release of the October job report from the Bureau of Labor Statistics (BLS) will disappoint estimates. Regardless, jobless claims have been remarkably stable this year, implying that any recent slowdown in the pace of nonfarm payrolls growth has been due more to a decline in hiring than an increase in firing. Further, this was the 87th weekly print below 300K in a row, one of the longest such streaks on record and a pattern believed to be consistent with an overall healthy labor market. Continuing claims have also fallen to a new cycle low recently but some analysts caution that this is near the levels seen during the late ‘80s and ‘90s prior to the start of recessions.
Sources: Econoday, Twitter, Bloomberg, ZH, Challenger, Gray & Christmas, U.S. DoL, BLS, IHS Markit, ISM, FRBSLPost author: Charles Couch