Economic Reports

Employment

We received several employment related reports in the first two weeks of the year. The rate of growth in employment has been slowing for some time – slowly – and these reports continue that trend. The JOLTS report showed a drop in job openings, hires and quits. The Fed has been talking about a tight labor market but this report peaked last July so that may not be as much a concern as they think. It certainly wouldn’t be the first time the Fed got behind the curve on something.

The employment report was, like the JOLTS report, less than expected but not all that bad. The economy added 148k jobs in December, well less than the 191k expected. But this report is subject to some pretty big revisions so take that with a grain of salt. Revisions to October and November were slightly negative. There were some standout areas such as construction and manufacturing but retail was down 20,000 jobs and other areas showed modest growth. Average hourly earnings were up 0.3%, in line with expectations but up just 2.5% year over year, barely enough to keep up with inflation.

Jobless claims were higher than expected in both the first two weekly reports of the year. I don’t comment much on claims because they don’t tell you much except at turning points. In this case, unfortunately, the reports require a quick comment. Claims in the second week of January were 6.5% higher than a year ago and that is a bit of a warning sign. A more important milestone will be when the 4 week moving average closes higher year over year. That could be soon with that change in the most recent report showing less than a 1% drop year over year.

Trade

The trade deficit expanded in the latest report with both imports and exports rising. Exports were up 2.3% on the month with exports of capital goods – and especially aircraft – very strong. Exports are up 8.3% year over year but are still less than the peak for this cycle in 2014. Imports were up 2.5% and while some of that was due to rising oil prices, the gains were pretty broad-based. Capital goods imports increased but consumer goods were the big winners, up $2.5 billion on the month. Imports are up 8.4% year over year and are at an all time high. Due to the quirks of GDP accounting the bigger deficit will actually reduce Q4 GDP but these are pretty good numbers.

Construction

Construction spending was up a better than expected 0.8% on the month and 2.4% year over year. Residential construction, not surprisingly considering the reports we discussed in the last update, led the way up 1% monthly. Single family homes were up 1.9% monthly and 8.9% year over year offsetting a decline in multi-family construction. Office construction was up a very strong 5.5% on the month. But overall, private non-residential contrasts sharply with residential, down 3.1% year over year.

Sales, Orders & Inventories

Retail sales were about as expected in December, up 0.4% on headline and ex-autos. Non-store retailers – e-tail – had a great holiday season with sales up 1.2% in December after a 4.2% surge in November. Of course, at least some of those sales were cannibalized from brick and mortar locations, notably department stores where sales were almost a mirror image, down 1.1%. There is still, no doubt, some hurricane effect in these numbers but it is starting to fade. How sales look after that spurt will tell us a lot about how things will go in 2018. Right now the year over year change at about 5.5% is consistent with what we saw coming out of the 2001 recession and just before the 2007-8 version.