U.S. Weekly Economic Roundup: Despite The Icy Footing
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Economic Research:
U.S. Weekly Economic Roundup:
Despite The Icy Footing
Credit Market Services:
Beth Ann Bovino, U.S. Chief Economist, New York (1) 212-438-1652;
bethann.bovino@standardandpoors.com
Satyam Panday, U.S. Economist, New York (212) 438-6009; satyam.panday@standardandpoors.com
Research Contributor:
Kaustubh Pandey, CRISIL Global Analytical Center, an S&P affiliate, Mumbai
Table Of Contents
Even-Steven
Exports Are Keeping Pace With Imports
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1271333 | 301601251Economic Research:
U.S. Weekly Economic Roundup: Despite The Icy
Footing
About 601,000 workers said they couldn't make it to work because of the weather in February, which was almost twice
the historical average for the month. Although many workers got stuck in the snow, the Bureau of Labor Statistics
(BLS) reported that 175,000 jobs were created in February. That's much better than consensus expectation of 140,000
job gains and likely enough for the Federal Reserve to stay on its tapering course of a $10 billion reduction in asset
purchases at its March meeting.
The economic releases this week include:
• Nonfarm payroll employment rose by 175,000 jobs in February, much stronger than the 145,000 consensus
expected.
• The private sector added 139,000 jobs in February following a downwardly revised job gain of 127,000 (was
175,000) in January.
• The U.S. trade deficit widened to $39.1 billion in January from a revised $39.0 billion (was $38.7 billion) in
December.
• Factory orders fell 0.7% in January following a downwardly revised 2.0% decline (was down 1.5%) in December.
• Productivity increased by 1.8% in the fourth quarter following a gain of 3.2%. Unit labor costs edged down by just
0.1% in the fourth quarter, up from the previously reported 1.6% drop.
• Personal income rose by 0.3% in January after edging down by less than 0.1% in December, and consumer
spending increased by 0.4% in January following a downwardly revised 0.1% increase in December.
• Construction spending edged up 0.1% to an annual rate of $943.1 billion in January, from the revised December
estimate of $941.9 billion.
• The Institute for Supply Management (ISM) manufacturing purchasing managers' index (PMI) rose to 53.2 in
February from 51.3 in January.
• The ISM nonmanufacturing PMI fell to 51.6 in February from 54 in January.
• Initial jobless claims for March 1 edged down to 323,000 from 349,000. Continuing claims fell 8,000 to 2.907 million
in the week ended Feb. 22.
Even-Steven
Heading into today's February employment announcement, expectations for job gains were not high because of
atypically severe winter weather during the survey reference week of February (and the entire month, in general). With
other economic data from February--such as unemployment benefit claims, producer sentiments, and the ADP figure
(139,000)--also being disappointing and distorted by weather, the consensus was bracing for a 145,000 monthly jobs
gain (we expected 160,000), which is nowhere close to the 190,000 plus monthly average of 2013.
To our pleasant surprise, and a change from past couple of months, the employment report showed a little more
strength on the payroll jobs and more people joining the labor force to look for jobs. While not outstanding, the report
certainly alleviates some fears for the economy that has shown weakness of late.
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The BLS reported that 175,000 nonfarm payroll jobs were added in February, following a revised increase of 129,000
for January (was 113,000) and after a revised gain of 84,000 for December (was 75,000). The net revisions for
December and January were up 25,000. Private payrolls gained 162,000 after a 145,000 increase in January, and
average hourly earnings for all employees on private payrolls rose by 9 cents to $24.31. The overall jobs growth has
averaged 106,000 per month over the past two winter months, and the latest jobs gain is especially encouraging for the
economy.
The BLS did note that atypically severe winter weather occurred during the payroll reference period. The implication
of this is that the labor market is somewhat stronger than the official payroll number for February. According to the
BLS, 601,000 in nonagricultural jobs were unable to work in February because of weather, versus 262,000 in January,
273,000 in December, and 37,000 in November. The historical average for February is 316,800.
In February, job gains occurred in professional and business services (+79,000) and in wholesale trade (+15,000), while
information lost jobs (-16,000). Most of the decline in the information industry occurred in the volatile sector of motion
picture and sound recording (-14,000). Accounting and bookkeeping services added 16,000 jobs and employment
continued to increase in temporary help services (+24,000) and in services to buildings and dwellings (+11,000). Most
other sectors changed little (+/- 10,000).
The latest employment report almost certainly gives no reason for the Fed to deviate from its course of slowing asset
purchases by $10 billion after each Federal Open Market Committee (FOMC) meeting this year into fall. Despite the
softening in most U.S. economic data since the late January FOMC meeting, the Fed will likely resist either a faster or
slower taper unless there is a material change in the growth outlook it adopted back in December, which has yet to
occur.
The unemployment rate, according to the household survey data, edged up to 6.7% in February from 6.6% in January
because more people joined the labor force (264,000), offsetting the 42,000 who got jobs. The big labor force gain
defied concern that the loss of extended benefits would prompt a drop in labor force participation as households have
less incentive to exaggerate efforts to find jobs. On the contrary, it may be that people are encouraged by the
prospects of the improving labor market and have decided to look for jobs. The labor participation rate stayed intact at
63.0% in February and the employment-to-population ratio also remained unchanged at 58.8%.
While the headline unemployment rate ticked up in February on higher participation, the broadest measure of
underemployment hit a new cycle low. The Fed has given labor market indicators of labor underutilization prominence
in its talks recently because the unemployment rate is near the Fed's threshold of 6.5%. Some of the slack in the labor
market was cut as the labor underutilization rate (U-6 rate)--the broadest measure of unemployment, which includes
several groups of workers including the officially unemployed, the marginally attached, and part-time workers who
would rather be in a full-time position--dipped down to 12.6% with higher participation after falling four percentage
points to 12.7% in January (again with higher participation). This is good news.
That said, the Fed reiterated in its last FOMC statement that it'll probably hold the target interest rate near zero "well
past the time" the unemployment falls below 6.5%, particularly if inflation projections remain below its longer-run goal
of 2%. (Indeed, inflation has been subdued.) The long-term unemployed (those unemployed for 27 or more weeks)
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increased by 203,000 in February to 3.85 million, and these individuals accounted for 37% of unemployed. The
number of persons employed part time for economic reasons was little changed at a still relatively high 7.2 million in
February. More needs to improve on the labor front for the Fed to even start considering tightening monetary policy.
Exports Are Keeping Pace With Imports
The trade deficit changed little in January as both global demand for American-made goods and services and demand
at home for foreign goods grew in tandem.
The January trade deficit was a seasonally adjusted $39.1 billion, following a $39.0 billion deficit in December and a
four-year low of a $35.2 billion deficit in November. The January gap came in as we expected ($39 billion) and a bit
wider than consensus expectation ($38.5 billion). Imports rose by $1.3 billion over December to $231.6 billion in
January, helped by a bounce in oil imports. Exports rebounded by $1.2 billion to $192.5 billion (+0.6%) in January, the
third-highest on record (November and October had higher exports), following a 1.7% drop in December. The trade
deficit was down by $3.0 billion year over year on the strength of a higher rise in exports than the rise in imports. The
three-month moving average of trade deficit fell to $37.7 billion, the lowest since August.
Industrial supplies drove the increases on both imports and exports. Increases in capital goods were also on both sides
of the ledger. The petroleum deficit widened to $19.3 billion from $15.5 billion while the nonpetroleum goods gap
narrowed to $39.2 billion from $41.9 billion (led by a 5.4% drop in auto imports). The services surplus rose to $20.2
billion from $19.7 billion on the strength of royalties and license fees together with private services such as business,
professional, technical, insurance, and financial services.
We like to look at the real goods balance to see how it affects GDP growth. The real trade deficit narrowed to $48.5
billion in January from $49.2 billion in December. That indicates that the overall change in trade shows a different
picture once the effects of prices are taken out. Real imports, in fact, increased less than real exports month over
month in January--with real imports increasing by 0.12% and real exports increasing by 0.79%.
The revised trade deficit for December was minimal, and hence, we do not expect any revisions to fourth-quarter GDP
growth from 2.4%. In 2014, we expect imports to pick up as U.S. growth increases and exports to continue rising as the
global economy keeps slowly recovering.
Economic Release Calendar
Date Time Release For Forecast Consensus Previous
10-Mar No scheduled releases
11-Mar 10:00 Wholesale sales (%) Jan 0.3 0.2 0.5
12-Mar 14:00 Treasury budget (bil. $) Feb (218) (215) (10.4)
13-Mar 8:30 Retail sales (%) Feb 0.2 0.2 (0.4)
Retail sales (excluding auto) (%) Feb 0.2 0.1 0
Export Price Index (%) Feb 0.2 0.2 0.2
Import Price Index (%) Feb 0.3 0.5 0.1
Initial claims (000) 8-Mar-2014 325 330 323
10:00 Business inventories (%) Jan 0.3 0.4 0.5
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Economic Release Calendar (cont.)
14-Mar 8:30 PPI (%) Feb 0.3 0.2 0.2
(excluding food and energy) (%) Feb 0.2 0.1 0.2
10:00 University of Michigan consumer sentiment Mar 81.5 81.8 81.6
17-Mar 8:30 Empire State Index Mar 7 6 4.5
9:15 Industrial production (%) Feb 0.1 0.2 (0.3)
Capacity utilization (%) Feb 78.7 78.5 78.5
18-Mar 8:30 CPI (%) Feb 0.2 0.2 0.1
(excluding food and energy) (%) Feb 0.1 0.1 0.1
Housing starts (mil.) Feb 0.89 0.902 0.88
19-Mar 8:30 Current account (bil. $) Q4 (88) (87.5) (94.8)
20-Mar 10:00 Philly Fed Index Mar 2.5 3.5 (6.3)
Leading indicators (%) Feb 0.4 0.3 0.3
Existing home sales (mil.) Feb 4.5 4.62 4.62
21-Mar No scheduled releases
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