Jobs, New Orders, Wages Are Bright
The U.S. employment situation is as good as it's been since the peak of the last economic expansion in 2007. New orders of manufactured and non-manufactured goods are surging, wages are rising, and inflation is dormant, according to the latest data released by the government. It's a Goldilocks economy!
Start the list of good economic news emerging in the first week of October with the survey of purchasing managers in the non-manufacturing sector that surged to 57.1.
The Institute of Supply Management, a trade association for purchasing managers at large U.S. companies, has tracked manufacturing orders for decades. In 2008, ISM started reporting data monthly on a new survey of its members in the non-manufacturing segment of the U.S. economy, which represents about 86% of U.S. gross domestic product. The non-manufacturing survey data more accurately reflects activity in the today's U.S. economy.
The spike last month to 57.1 casts the index in a very favorable light. In its short history, according to data compiled by independent economist Fritz Meyer, whose research we are licensed to share with you, the current reading of 57.1 is strong. However, the non-manufacturing survey index offers a scant eight years of historic data. Still, the index is structured to behave the same way as its predecessor, the reliable old manufacturing survey conducted by ISM. A reading above 50 in either of the indexes indicates that the economy is expanding and a sub-50 reading persistently indicates an oncoming recession. At 57.1, a recession is nowhere in sight.
The index of the non-manufacturing purchasing managers survey is comprised of multiple sub-indexes, and the most important of them tracks new orders. Since lots of new orders are about to be filled, this sub-index provides insight into what's about happen in the economy in the next two or three months. At 60, the new order sub-index for September is also good news.
ISM, incidentally, highlights the great strength of institutions spawned by American capitalism, with a private trade group taking responsibility to gather, calculate and report crucial data measuring the economy's performance, rather than the government.
The other important statistic released this past week: 156,000 new jobs were created in September, which is in line with the seven-year post-recession trend.
Contrary to the media's portrayal of an anemic jobs recovery, new job formation has been typical of past economic expansions.
Since October 2009, the unemployment rate has dropped from 10% immediately after The Great Recession, settling for the past year at about 5%. The unemployment rate's downtrend has stalled because many unemployed workers — who left the labor force and were no longer being counted among the unemployed — are returning to the ranks of the unemployed and looking for work once again. This too is good news.
As the unemployment rate sinks further, however, it will be difficult for new job formation to maintain its current pace, and companies will find it increasingly difficult to fill vacant slots.
Another important sign of strength came from the weekly unemployment claims, which hit a new low.
The unemployment rate is now well below its previous low in the last economic expansion.
September also brought a nice pick up in average hourly earnings. AHE growth has been accelerating. The 2.6% growth rate compares favorably with its post-recession trend rate of growth of 2.1%.
Finally, adjusted for inflation, real average hourly earnings — Americans' real purchasing power — recently topped its all-time high.
While the news is filled with talk of "wage stagnation" and assertions that the average American has not had a pay hike in 15 years, it is simply fiction. Look at that surge!
Now that you're giddy from all this good economic news, it's wise to be mindful that stock prices are near an all-time high. Stocks are fairly valued by historical standards, and an emotional shift in sentiment or an unexpected event could cause a pullback at any time.
Also, despite all the bright news on the economy, the stock market dropped for the week ended October 7, 2016. The Standard & Poor's 500 index closed Friday at 2,153.74, a loss of 0.67% for the week. It was the first weekly drop in a month. But one week's activity is not very important in the broad picture.
What's important is that this economy is neither too hot nor too cold, but chugging along.
For now, it's a Goldilocks economy, with the American consumer leading the way.
This article was written by a veteran financial journalist using data compiled by Fritz Meyer, an independent economist. While these are sources we believe to be reliable, this information is not intended to be used as financial advice without consulting a professional about your personal situation. Indices are unmanaged and not available for direct investment. Investments with higher return potential carry greater risk for loss.
The Bureau of Labor Statistics publishes two employment surveys each month, the Current Population Survey (CPS; household survey) and the Current Employment Statistics survey (CES; establishment survey). The household survey is a sample survey of about 60,000 eligible households conducted by the U.S. Census Bureau for the U.S. Bureau of Labor Statistics (BLS). The establishment survey collects data each month from the payroll records of a sample of about 144,000 businesses and government agencies, representing approximately 554,000 individual worksites, in order to provide detailed industry data on employment, hours, and earnings of workers on nonfarm payrolls. The active sample includes approximately one-third of all nonfarm payroll employees. The household survey sample is selected to reflect the entire civilian noninstitutional population. Based on responses to a series of questions on work and job search activities, each person 16 years and over in a sample household is classified as employed, unemployed, or not in the labor force. The establishment survey sample is drawn from private nonfarm businesses such as factories, offices, and stores, as well as from federal, state, and local government entities. Employees on nonfarm payrolls are those who received pay for any part of the reference pay period, including persons on paid leave. Persons are counted in each job they hold. The household survey includes agricultural workers, self-employed workers whose businesses are unincorporated, unpaid family workers, and private household workers among the employed. These groups are excluded from the establishment survey.
The Current Employment Statistics (CES) program produces nonfarm employment series for all employees (AE), production and nonsupervisory employees (PE), and women employees (WE). For AE and PE, CES also produces average hourly earnings (AHE), average weekly hours (AWH), and, in manufacturing industries only, average weekly overtime hours (AWOH).
Concurrent with the release of January 2010 data, the CES program began publishing all employee hours and earnings as official BLS series. These series were developed to measure the AHE and AWH of all nonfarm private sector employees and the AWOH of all manufacturing employees. AE hours and earnings were first released as experimental series in April 2007, and included national level estimates at a total private sector level and limited industry detail.
Historically, the CES program has published average hours and earnings series for production employees in the goods-producing industries and for non-supervisory employees in the service-providing industries. These employees account for about 82 percent of total private nonfarm employment. The AE hours and earnings series are more comprehensive in coverage, covering 100 percent of all paid employees in the private sector, thereby providing improved information for analyzing economic trends and for constructing other major economic indicators, including nonfarm productivity and personal income.
AE average hours and earnings data are derived from reports of hours and payrolls for all employees. PE average hours and earnings data are derived from reports of production and related employees in manufacturing and mining and logging, construction employees in construction, and nonsupervisory employees in private service-providing industries.
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