EconoFACTS

July 06, 2023 | 10:35

Volume on Recession Murmurs Turned Down

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

Two takeaways:

Don't ever take one job indicator as the be-all and end-all (example: payrolls, household employment, claims, job openings, layoffs, ADP, ISM surveys). But if, collectively, they're all (or the bulk of them) pointing in the same direction, then that is something you cannot ignore. In this case, they still point to a tight labor market. Good for workers, bad for business and for the Federal Reserve.
Speaking of which, in case there were any doubters out there, the Fed is hiking on July 26. That's a blinding glimpse of the obvious. Not so obvious: how about the rest of the year?

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The job market is still tight.

Lots of pieces of information to glean from today and they all point to that same conclusion.

There are 9,824k job openings out there as of May, and while that is down from the upwardly revised 10,320k in April, and the record 12,027k back in March 2022, that translates to about 1.6 jobs for every unemployed American, but the ratio is narrowing. And that is also 26 months in a row that there have been over 9 mln job openings. Oh, and yes, that is still a very high level. More workers, perhaps emboldened by the tight market, quit their jobs in May (particularly in construction), for the first time in a few months and by the most in over a year.
The ADP private sector employment report took the prize for its ability to throw everyone off their chairs. A reported 497,000 new jobs were added in June (May's 278,000 increase was revised to 267,000). That's the biggest since February 2022 and is, quite frankly, a little unbelievable. Or is it? Small businesses accounted for over half of the hiring (+299,00). And, by industry, leisure & hospitality accounted for nearly half (+232,000), which is a little more believable.
Layoff announcements slowed to "just" 25.2% above year-ago levels in June, according to Challenger, Gray & Christmas, or the fewest in eight months.
The number of Americans filing for unemployment insurance for the first time rose 12k to 248k in the week of July 1, while those remaining on UI fell by 13k to 1,720k in the week of June 24, the lowest since mid-February.

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Manufacturing is struggling but the services sector is still busy.

The U.S. ISM services PMI grew an above-expected 3.6 pts in June (most in five months) to a 4-month high of 53.9 and the 36th month (out of 37) above 50. Three of the four equally-weighted components threw their support beneath the headline, something we haven't seen since January...... new orders (+2.6 pts to a 2-month high of 55.5); business activity (+7.7 pts to a 5-month high of 59.2); employment (+3.9 pts to a 4-month high of 53.1). Supplier delivery delays were little changed at 47.6 I(from 47.7 in the prior month), indicating that there were no delays... not a bad thing at all.

Of the 18 industries in the survey, 15 indicated that they were growing. The comments were generally positive, such as "We have been very busy" (Arts, Entertainment & Rec), and "... ramping up for a busy third quarter" (Finance & Insurance). But there were cautious commentstoo, thanks to inflation and the economy, and for retailers, business was good but "growth is at a slow pace".

Two that stood out..... the Construction sector mentioned "China's anti-espionage legislation" impacting operations, and Transportation & Warehousing said that labor conditions were still a "challenge even with more people looking to return to work... inflation is most likely a cause for this."

Interesting.

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Note that the U.S. goods & services trade deficit reversed some of the prior month's deterioration. The shortfall narrowed to $69.0 bln in May, in-line with consensus, from $74.4 bln in April. But, it didn't come about in an ideal fashion, as imports took a 2.3% dive (3rd drop in the past four months), with ex. auto consumer goods imports down a hefty 7.2%. Exports, meantime, slipped for the second straight month, albeit by a modest 0.8%. Note that the U.S. trade deficit with China ($25.2 bln) widened for the second month in a row, which may or may not come up during TS Yellen's visit in Beijing.

Bottom Line: Do I need to repeat what we're saying about the recession talk? Do I? Do I? I didn't think so.

Table 1 - United States — ISM Services PMI

(percent reporting)

Source: BMO Economics, Haver Analytics

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