September 1, 2017 Reading Time: 3 minutes

The early read on economic data for August indicates the economy is maintaining positive momentum. The employment report for August from the Bureau of Labor Statistics shows payrolls rose by 156,000. That is a solid gain, though it is below the average monthly gain of 175,000 over the past year. The government sector lost 9,000 jobs in August while private-sector employers added 165,000. Within the private sector, goods-producing-industry payrolls added 70,000 new workers, the largest monthly gain since February and double the average monthly gain of 34,000 over the past year. Gains were particularly strong for construction and durable-goods manufacturing.

Private-service-producing payrolls added 95,000 jobs in August. While that is a decent gain, it is below the 140,000 average gain over the past year. The disappointing areas within services were health care, which added 17,000 new workers compared to the average monthly gain of 33,000, and leisure and hospitality, which added just 4,000 employees compared to an average of 27,000. Professional and business services added 40,000 new workers, though none were in the temporary-help subcategory. Over the past year, professional and business services have added an average of 50,000, helped by an average gain of 11,000 in the temporary-help category.

Average hourly earnings rose by just 0.1 percent in August, and are up 2.5 percent from a year ago, about the same pace as the past four months. When combined with a 0.1 percent drop in the length of the average workweek (to 34.4 hours), the aggregate payroll index, a proxy for take-home pay, fell 0.1 percent in August but is up 4.6 percent from a year ago. Relatively steady gains above 4 percent in the aggregate payroll index should provide solid support for future gains in consumer spending.

Other notable results from the August employment report include a slight rise in the unemployment rate to 4.4 percent from 4.3 percent in July. That rise was partially due to a 77,000-person increase in the labor force. The overall labor force participation rate held at 69.9 percent.

Confirming the generally solid results from the August employment report were data from the Institute for Supply Management that showed continued strong results from the survey of manufacturers. The Purchasing Managers Index came in at 58.8, up from 56.3 in July. The PMI has been above the neutral 50 level for 12 consecutive months. Among the key components, the new-orders index ticked down slightly to 60.3 from 60.4 in July but marks the third month in a row and the seventh month in the past nine above 60, a very good performance. The production index rose 0.4 points to 61.0 from 60.6 and has also been above 60 for three consecutive months. These results suggest continued growth in manufacturing.

Finally, the University of Michigan survey of consumers had a final August index of 96.8, up from 93.4 in July. For the two sub-indexes, the index for current economic conditions pulled back to 110.9 from 113.4 in July while the index of consumer expectations jumped to 87.7 from 80.5 in July. The forward-looking index of consumer expectations is one of the AIER leading indicators.

Overall, today’s data suggest the U.S. economy continues to expand, with notable strength in the construction and manufacturing sectors. The data also suggest that ongoing gains in the labor market are helping support consumer sentiment and should provide a solid base for future gains in consumer spending. A note of caution, however: most measures of economic activity are likely to weaken in coming months as the impacts of Hurricane Harvey weigh in. However, the cleanup and rebuilding should provide an extra boost later in 2017 and in 2018.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.

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