This Week In The Economy: U.S. Unemployment Falls, Difficult Period for U.S. Manufacturers, Falling UK Business Investment

U.S. Economy Adds More Jobs Than Expected, Unemployment Rate Falls

U.S. total non-farm payroll employment increased by 263,000 last month, and the unemployment rate declined to 3.6%, the U.S. Bureau of Labor
Statistics reported today.

The change in employment growth for February was revised up from +33,000 to +56,000, and the change for March was revised down from +196,000 to +189,000 — meaning the employment gains for both months combined were 16,000 more than previously reported.

There were notable job gains in professional and business services (+76,000), construction (+33,000), health care (+27,000), and social assistance (+26,000). Employment in the manufacturing sector saw little change for the third month in a row, adding only 4,000 jobs in April.

The labor pool is shrinking, however, as the labor force participation rate declined from 63% in March to 62.8% in April.

A Difficult Year For U.S. Manufacturers Drags On

The middling employment growth in the manufacturing sector should come as no surprise given other data released this week.

The Census Bureau reported that new orders for manufactured goods, excluding transportation (planes and the like), were up just 0.4% in March. As for last month, the Institute for Supply Management’s manufacturing index fell to a two-and-a-half-year low as the manufacturing sector continues to face a challenging global environment and somewhat softer domestic demand.

The index has been in a downward spiral since November 2018, and fell again to 52.8 from 55.3 in March, dragged down by a drop in both the employment (57.5 to 52.4) and new orders (57.4 to 51.7) categories. The ISM noted in particular that “exports orders contracted for the first time since February 2016,” with the index’s trade elements “in contraction territory.”

“ The manufacturing sector is expanding, but at recent historic lows.” — ISM

Federal Reserve Sees No Reason To Adjust Short-Term Interest Rates

The Federal Reserve’s policymaking group met this week and decided to leave the key short-term interest rate unchanged, although it did note concerns about the sluggish rate of inflation.

The FOMC noted that the pace of household spending and business fixed investment slowed down in the first quarter, while — compared to a year ago — prices overall (as well as the cost of items excluding food and energy) have declined and are running below the Fed’s 2% inflation target.

Nevertheless, the central bank’s current monetary policy stance is appropriate, Fed Chair Jerome Powell declared at a press conference following the meeting, adding that he and his colleagues on the Federal Open Market Committee do not see “a strong case for moving in either direction” i.e. hiking or lowering the federal funds rate.

U.S. Consumer Confidence Rebounds In April

Confidence among U.S. consumers climbed in April, boosted by positive expectations for the economy in the near term.

The Conference Board’s consumer confidence index rose in April after decreasing in March. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — increased, as did the Expectations Index — based on consumers’ short-term outlook for income, business and labor market conditions.

“ Overall, consumers expect the economy to continue growing at a solid pace into the summer months. These strong confidence levels should continue to support consumer spending in the near-term,” the Conference Board said.

U.S. Government Unveils Borrowing Needs For Second and Third Quarters

The U.S. Treasury this week announced how much money the government expects to borrow from investors in the second and third quarters of this year.

During the second quarter, Treasury expects to borrow $30 billion, the borrowing estimate is $53 billion lower than announced in January 2019 — due to changes in fiscal projections and the government’s cash balance. For Q3, Treasury expects to borrow $160 billion in privately-held net marketable debt, assuming an end-of-September cash balance of $85 billion.

Bank of England Leaves Interest Rates Unchanged, Warns of Falling Business Investment Due To Brexit

The Bank of England’s Monetary Policy Committee met this week, and unanimously decided to leave interest rates unchanged, citing ongoing domestic tensions related to the UK’s exit from the European Union.

The MPC predicted the pace UK economic growth will slow in Q2, with the uncertainty around Brexit, in particular, having a pronounced impact on business investment, which has been falling for a year.

In his opening remarks at the press conference following the meeting, Bank of England Governor Mark Carney noted that the latest business investment intentions surveys point to further declines over the next few quarters, which would be the longest run of falling investment in the post-war era.

“Falling investment is weighing on productivity growth, boosting unit labour costs, and supporting domestically generated inflation. Unable to plan for their long-term future, UK businesses have focused on short-term Brexit contingency plans,” he said.

Case in point, check out this list — released by the Department for International Trade — detailing the changes to exporting goods and services from the UK for EVERY country that businesses need to be aware of in the case of a hard Brexit.

Mixed News For The Euro Area Economy

After getting off to a sluggish start to begin 2019, this week saw inconclusive data on whether the eurozone economy might be turning a corner.

Euro Area GDP grew by 0.4% in the first quarter, up from +0.2% in the fourth quarter of 2018 and up from a +0.1% reading in Q3. Spain recorded a 0.7% expansion in the first quarter, and France had 0.3% growth, while Italy (whose economy experienced a recession at the end of 2018) posted 0.2% growth in Q1, exceeding expectations.

Meanwhile the jobs situation in the bloc also improved, with the unemployment rate dipping to 7.7% in March from 7.8% in February. This is the lowest rate since September 2008. Among the member countries, the lowest unemployment rates in March were recorded in Czechia (1.9%),
Germany (3.2%) and the Netherlands (3.3%). The highest unemployment rates were observed in Greece (18.5%), Spain (14.0%) and Italy (10.2%).

The youth unemployment rate is at 16%, however, with the highest in Greece (39.7%), Spain (33.7%) and Italy (30.2%).

Also, a survey released this week showed consumer confidence in the eurozone has decreased significantly. The European Commission said its Economic Sentiment Indicator fell due to lower confidence in industry, retail trade and, to a lesser extent, in construction and among consumers.

The ESI decreased in France (−1.0) and Italy (−1.0) and, more significantly so, in Germany (−1.5) and Spain (−2.6).

“ The decrease in consumer confidence (−0.7) reflected households’ more pessimistic expectations about their future financial situation and, in particular, the general economic situation.” — European Commission.



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Brai Odion-Esene

Brai Odion-Esene

Founder — SW4 Insights. Public policy junkie and Central Bank Watcher. Recovering journalist and former Senior Director at Hamilton Place Strategies