Total nonfarm payroll employment rose by 255,000 in July, and the unemployment rate was unchanged at 4.9 percent, said the U.S. Bureau of Labor Statistics today. This confirms earlier reports from the manufacturing and service sectors that economic activity is strong.
It was a big surprise, as the change in total nonfarm payroll employment for May was revised from +11,000 to +24,000, and the change for June was revised from +287,000 to +292,000. Over the past 3 months, job gains have now averaged 190,000 per month.
So the US economy is much stronger than previously thought, in spite of the Brexit vote and European disunity over immigration. More than 400,000 additional workers entered the workforce, which kept the unemployment rate at 4.9 percent. Even governments added 38,000, in a sign that government spending is healthy again.
Job gains also occurred in professional and business services, health care, and financial activities. Energy was the only sector where employment continued to decline. For instance, professional and business services added 70,000 jobs in July and has added 550,000 jobs over the past 12 months, said the report.
This is while the just reported ISM’s non-manufacturing (i.e., service sector) composite index did slip 1.0 point to 55.5 but new orders rose in July, up 4 tenths to 60.3 for the best showing since October last year.
The ISM’s Manufacturing survey was also strong, though employment fell slightly as did delays in delivery times (which means less congestion, hence traffic). The July ISM index dropped to 52.6 vs June’s 53.2. But the important news is once again, the new orders index, at 56.9 and pointing to future strength for employment.
Both reports showed continued growth, especially in new orders. So why the just reported weak GDP growth estimate in the second quarter of 1.2 percent, after even weaker 0.9 and 0.8 percent upticks in the last 2 quarters?
JP Morgan Chase President Jamie Dimon points to lack of public works spending, and timid private sector investing. “Dimon said the U.S. needs to focus more on long-term economic prospects, namely in the areas of immigration reform; proper infrastructure spending on roads, schools, and airports; and focusing on corporate tax reform as well as expanding the earned-income tax credit,” in a recent CNBC interview.
In fact, he believes GDP growth could increase to 4 percent, if such projects were funded. The energy slump is also a major reason, with oil prices back down to $40 per barrel. But this has boosted consumer spending and kept inflation low, as consumers account for some 70 percent of economic activity.
Factory orders aren’t yet reflecting this surge in new orders, as orders fell a sizable 1.5 percent in June following a downward revised 1.2 percent decline in May. Core capital goods (nondefense ex-aircraft) have been especially weak though orders did rise 0.4 percent in June. Shipments for this category, however, slipped 0.2 percent following a downward revised 0.7 percent decline in June in readings that will not boost revision estimates for second-quarter GDP.
So these results point to stronger GDP growth in the fall, and maybe into next year and a new President. Let us hope so, as both candidates have promised more public works projects, which should push the private sector to spend some of their huge and unspent profits for productive purposes, as well.
Harlan Green © 2016
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