Spending on construction fell 0.6 percent in June vs. the expectations for a 0.6 percent gain. Revisions are mixed with May revised upward from a 0.8 percent drop to a drop of only 0.1 percent, April was revised from 2.0 percent to a greater drop of 2.9 percent. Spending on single family construction fell 0.4 percent in June to extend a negative streak that can be traced back to March. Yearly construction spending on single family homes is up only 4.8 percent vs. a 16.4 gain for multi-family units where the monthly data for June saw contraction at minus 1.52 percent. A positive for housing data in this report is the strength in home improvements as residential spending excluding new homes rose 1.2 percent in the month. Non-housing is also soft in the report, down 1.3 percent for private non-residential spending which is up only 2.5 percent on a yearly basis. Manufacturing is showing the most weakness down 4.5 percent in the month with a yearly gain down 10.4 percent. Public spending is also soft with education down 0.5 percent and highways & streets down 1.4 percent. Overall construction spending is up only 0.3 percent on a yearly basis deepening what is a declining trend. These results will affect the expectations sector in the first revision to second quarter GDP. GDP came in at a very soft plus 1.2 percent in last week’s initial estimate for the second quarter. There is upward pressure building in other housing data reports, pressure that points to eventual strength in construction spending.
Personal Income and Outlays
The consumer continues to spend even though income isn’t that strong. Personal income, for the second month in a row inched0.2 percent higher in June, in contrast to spending which also for a second month in a row, rose 0.4 percent. The gain in spending was in part funded by savings as the savings rate is down 2 tenths to 5.3 percent. Inflation data with both the overall PCE index and the core index is up only 0.1 percent. Yearly there is no improvement with the overall rate unchanged at plus 0.9 percent and unchanged at plus 1.6 percent for the core. Wages salary did improve a bit, up 1 tenth to a plus 0.3 percent gain. Details on spending show an outsized 0.7 percent increase in nondurables in a gain. Service spending rose a solid 0.5 percent for the second straight month while durable goods fell 0.3 percent in June following a 0.4 percent decrease in May, both of which reflect weak vehicle sales. This report is moderate with strength in the spending sector that needs to continue for the economy, but spending needs to be supported by a pickup in income.
Gallup US ECI
The Gallup Economic Confidence index is a broad indicator of Americans’ confidence in national economic conditions. For the month of July, the average score was minus 15, the lowest reading for any month in the past year. This is on par with the minus 14 average of the second quarter recorded in April, May, and June.
Purchase applications for home mortgages were down 2 percent in the week of July 29th. The purchase index posted its third straight weekly decline; it fell to its lowest point since February. Despite a drop in interest rates, refinancing applications decreased 4 percent after falling a sharp 15 percent in the previous week. Yearly the purchase index is showing a 6 percent gain, far below the plus 30 readings seen earlier in the year around March.
ADP Employment Report
Growth in the labor market held firm and steady in July based on ADP’s 179,000 estimate for private payrolls in the upcoming employment report. The result is near the top end of economists’ forecasted range and is slightly higher than ADP’s estimate for June.
Gallup US Job Creation Index
U.S. workers report hiring activity at their place of employment in July remained at a record high for the third month in a row. The index reached this record high of plus 33 in its eight year trend in May. The index has ranged from plus 29 to plus 33 since February of 2015. In July, 44 percent of workers reported their companies were hiring, while 11 percent reported their companies were laying people off, resulting in the July Job Creation Index score of plus 33. These numbers are unchanged from May and June. Government hiring increased for the third month in a row in July to plus 31, the highest score for this sector in Gallup’s trend. This increase had little effect on the overall job Creation Index because most of the US population is employed by nongovernment employers.
ISM Non-Mfg Index
Conditions for orders remain very strong for the ISM’s non-manufacturing sample. The reports composite index did slip 1.0 point to a level of 55.5 which is slightly below expectations, new orders however did rise in the month. They were up 4 tenths to a level of 60.3 for the best showing since October of last year. The bulk of the decline in the composite reading is mostly due to a 3 point drop in delivery times. Another negative factor for the composite reading is a noticeable dip in employment, down 1.3 points to a very soft reading of 51.4. This indication, in contrast to other indications, is not pointing to much strength for the upcoming employment report. But, other readings remain positive including business activity, export orders, and backlog orders.
Initial jobless claims edged higher the last two weeks of July but still remain near record lows. Claims, after rising 14,000 the prior week, rose 3,000 to 269,000, lifting the four week average by nearly 4,000 to 260,250, reaming little changed from last month. Continuing claims are also little changed, down 6,000 in lagging data for the week of Julye 23rd to 2.138 million. The unemployment rate for insured workers is unchanged at a very low 1.6 percent. This report won’t affect the expectations aspect for the upcoming employment report but does underscore continued strength in the labor market.
Gallup Good Jobs Rate
July good jobs rate improved to 47.1 percent from June’s rate of 46.0 percent. The current rate is also at 1.6 percentage points higher than in July 2015, this suggests an underlying increase in full time work beyond seasonal changes in employment. The unemployment rate was 5.1 percent in July, down fro m June’s 5.3 percent. July’s employment estimate is the lowest for any month since Gallup began tracking the measure back in 2010.The measure of underemployment in July was 12.7 percent, form 13.6 percent in June and also the lowest Gallup has recorded since 2010. July’s rate also marks the fifth straight month of declining underemployment from February’s rate of 14.7