January 6, 2016

AP Highlights Wednesday’s One Piece of Good Economic News, Buries Three Weaker Items

Today was a fairly brisk day for economic data, as four noteworthy reports were released. One of them contained good news, but with a heavy asterisk. The other three were either not good, period, or came in below expectations.

Readers here probably know which one the Associated Press was still carrying at its Top Business Stories page as of 2:39 p.m. Of course, as seen here (saved at my web host for future reference, fair use and discussion purposes), it was the one with good news.


December ISM Non-Manufacturing: 55.3 Pct., Down From 55.9 Pct. in Nov.

Filed under: Economy — Tom @ 11:21 am

From the Institute for Supply Management (bolds are mine; most paragraph breaks added by me):

Economic activity in the non-manufacturing sector grew in December for the 71st consecutive month, say the nation’s purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The NMI® registered 55.3 percent in December, 0.6 percentage point lower than the November reading of 55.9 percent. This represents continued growth in the non-manufacturing sector at a slightly slower rate.

The Non-Manufacturing Business Activity Index increased to 58.7 percent, which is 0.5 percentage point higher than the November reading of 58.2 percent, reflecting growth for the 77th consecutive month at a slightly faster rate. The New Orders Index registered 58.2 percent, 0.7 percentage point higher than the reading of 57.5 percent in November.

The Employment Index increased 0.7 percentage point to 55.7 percent from the November reading of 55 percent and indicates growth for the 22nd consecutive month. The Prices Index decreased 0.6 percentage point from the November reading of 50.3 percent to 49.7 percent, indicating prices decreased in December for the third time in the last four months.

According to the NMI®, 11 non-manufacturing industries reported growth in December. Faster deliveries in December contributed to the overall slight slowing in the rate of growth according to the NMI® composite index. All of the other component indexes increased in the month of December. The majority of respondents’ comments remain positive about business conditions and the overall economy.”


The 11 non-manufacturing industries reporting growth in December — listed in order — are: Accommodation & Food Services; Management of Companies & Support Services; Health Care & Social Assistance; Information; Retail Trade; Real Estate, Rental & Leasing; Arts, Entertainment & Recreation; Finance & Insurance; Construction; Professional, Scientific & Technical Services; and Utilities. The five industries reporting contraction in December are: Other Services; Educational Services; Wholesale Trade; Public Administration; and Transportation & Warehousing.

Expectations were for a slight improvement to between 56.0 percent and 56.4 percent, but today’s figure still is solidly in expansion. That said, the combined and weighted Manufacturing and Non-Manufactruing indices turned in their worst performance since last winter.

The 11-5-2 expanding-contracting-flat industory lineup compares to 12-6-0 in November. So there’s less good news, but also less bad news.

But while we’re here, I’m not sure why “Inventory Sentiment” (not included in the ISM’s narrative), which is at a stratospheric 64.5 percent, with inventories described as “too high,” is considered a good thing. Clearly that high number is heavily influencing the overall result, and perhaps artificially, because inventory-to-sale ratios have been running unacceptably high, and inventories need to come down — a condition which would negatively affect reported economic growth.

Despicable New York Daily News Headline Screams: GOP Is the ‘Party of Pro-Death’

In November and December, the New York Daily News characterized the NRA and its CEO Wayne LaPierre as a jihadists and terrorists. Now it has set its sights on Republican Party presidential candidates and leaders who are defending the plain, Supreme Court-upheld wording of the Constitution’s Second Amendment and Congress’s power to make laws over lawless presidential actions.

Wednesday’s NYDN headline: “GOP: The Party of Pro-Death”:


November Trade Balance: -42.4 Billion, Down from October, But Both Exports and Imports Fell

Filed under: Economy,Taxes & Government — Tom @ 9:09 am

Predictions were for -$44.7 billion to $45.2 billion. The more negative the number, the higher the potential negative impact on fourth-quarter economic growth, which is already tracking below an annualized 1 percent, according to several observers.

From the report (data is seasonally adjusted):

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $42.4 billion in November, down $2.2 billion from $44.6 billion in October, revised. November exports were $182.2 billion, $1.6 billion less than October exports. November imports were $224.6 billion, $3.8 billion less than October imports.

So while the deficit narrowed, it’s because exports fell by less than imports. Sadly, unless there’s substantially more trade within our borders, and there’s little sign of that, that’s a telltale sign of a potentially contracting economy.

December ADP Private-Sector Employment: +257K Jobs Added, Topping Expectations Substantially (Also See Conference Call Notes)

Filed under: Economy,Taxes & Government — Tom @ 8:39 am

UPDATE, 9:15 A.M.: Good question at Zero Hedge:

Our question is simple – with ISM Manufacturing Employment at post-recession lows and US Manufacturing PMIs at post-recesssion lows, and inventories-to-sales ratios at post-recession highs, why are goods-producers (according to ADP) hiring at such a frantic pace?

Zandi’s response, based on the conference call notes below, would be that he thinks the government is underestimating productivity growth. (Perhaps it’s conceit, but we believe that Zandi is looking at yours truly’s monthly ADP posts, because he was careful not to go into his weak “well, computers are so much more powerful and do so many more neat things now, and social media ‘output’ is understated, and the government’s statisticians aren’t catching that” shtick he tried last month.)

However, since Zandi mentioned the uncertainty involved in ADP’s year-end payroll “purge” during the conference call — the purge hasn’t happened yet, because W-2s aren’t out and other year-end payroll items are clearly not done), we need to be on the lookout for a significant revision to today’s number, and it would appear that the risk of a big revision next month would be to the downside.


From ADP:

Private-sector employment increased by 257,000 from November to December, on a seasonally adjusted basis.

Expectations were 190K-200K.

From the press release:

Mark Zandi, chief economist of Moody’s Analytics, said, “Strong job growth shows no signs of abating. The only industry shedding jobs is energy. If this pace of job growth is sustained, which seems likely, the economy will be back to full employment by mid-year. This is a significant achievement, given that the last time the economy was at full employment was nearly a decade ago.”

Prior months (going backwards) are now 211K, 173K, and 199K. In November’s report, Nov. and Oct. were 217K and 190K, so this month’s report had 23K in downward revisions.


Mark Zandi, Moody’s — Breadth of job growth is encouraging. Wage growth is picking up. Expects to see another jump im Friday’s jobs report. ADP data is also showing similar increases, both for movers and current holders staying put. Labor market is tightening.

Energy sector drag will continue into first half of 2016, if oil stays at around $40. From about +200K/yr to -150K/yr.

Trade-sensitive manufacturing is struggling, but there aren’t a lot of jobs there to lose. From +25K/yr to -25K/yr in past two years. Weakness will continue, given ongoing trouble in emerging markets.

Three key links to U.S for international events: Trade (negative), financial markets (negative — most potent and uncertain link, negative wealth effect could affect consumer spending), and capital flows (positive, coming into United States b/c of “flight to quality”). International events aren’t an existential threat to US equity markets.

Fair to say today’s number is good, see no signs of slowing. Hard not to be optimistic for econ’s coming prospects.


Chris Rugaber of AP (How are employers able to add all these jobs, given other negative news we’ve seen) — American consumer is still powering growth, spending decently if not strongly. 3 percent YOY pace, about as good as it gets. (historically WRONG — Ed.)

Housing sector is fine. We are seeing continued steady improvement in construction. Vacancy rates continue to decline.

Weakness is almost entirely related to trade and manufacturing. $100 billion more in 2015 than in 2014 (0.6 pct. of GDP). But impact on jobs is relatively modest. Productivity growth has been weak because of widening trade gap (cyclical and not secular force). This will continue during 2016. But there is plenty of juice and momentum and good stuff to continue growth.

Michaal ___ of Accounting Today (about professional business services sector). ADP has a “purge” that takes place at end of the year, which is the result of many month of released employees during previous months, so there is some noise in the December estimate. Prof services probably has the most noise and might be overstated. But there is underlying strength that is broad-based in PBS.

Me (about 4Q GDP, currently 1.7 percent at Moody’s, and 10-year construction revisions) — will settle at about 1.5 percent after today’s trade and other news. Thinks it will be 1.5-2.0% by the time all is said and done.

GDP numbers are understating growth and we will see that eventually (maybe 5 years from now) consistent with job growth. Thinks productivity growth is understated.

10-year revisions to Census data were in home improvement which is tied to retail sales. BEA doesn’t use that data, so no effect on GDP.

Wednesday Off-Topic (Moderated) Open Thread (010616)

Filed under: Lucid Links — Tom @ 6:00 am

This open thread is meant for commenters to post on items either briefly noted below (if any) or otherwise not covered at this blog. Rules are here.

Positivity: On the Feast of the Epiphany: ‘The People Who in Darkness Sat’

Filed under: Positivity — Tom @ 5:55 am


About the Epiphany, the 12th day of Christmas:

Epiphany is a Christian holiday celebrated globally on January 6 each year. It commemorates two events recorded in the Bible: the three wise men’s visit to baby Jesus; and Jesus’ baptism.