Economic Watch: Unemployment Hits New Low; Manufacturing, Construction Up

The U.S. unemployment rate in May hit its lowest level since 2000, while other reports showed increased movement in the nation’s manufacturing sector and spending on construction hit a record high.

Employers added another 223,000 nonfarm jobs last month, according to the Labor Department – more than analysts were expecting. The department also revised upward jobs gains for April and March by a combined 15,000.

The result was the unemployment rate declined by 0.1 of a percentage point to 3.8%. The last time the rate was lower was in 1969.

The biggest job gains occurred in the retail trade, health care, construction, manufacturing, mining professional and technical services sectors.

Also, there were 19,000 job additions in the transportation and warehousing business, with most of these happening in the warehousing and storage and couriers and messengers categories. Trucking added 6,600 jobs during May.

The report also showed average hourly pay rose by 0.3% to $28.92 an hour in May, while the 12-month increase in wages rose to 2.7% after holding at 2.6% for three months in a row.

Analysts with TD Economics said this was an unambiguously strong report. “May's healthy hiring tally in part represents a catch up from some weather-related weakness in recent months.”

The noted over the past six months hiring has averaged 202,000 new jobs per month, similar to its 12-month average pace.

“We do expect monthly payroll tallies to slow in line with a maturing expansion, as the economy runs out of people to pull back into the labor force,” said TD Economics. “With wage pressures picking up and the unemployment rate falling again, May's employment report confirms that the Federal Reserve’s bias to raise [interest] rates on June 13. This type of payrolls report would normally lend fodder to the four [interest rate] hikes in 2018 camp if it were not for the trade war cloud that risks raining on the U.S. economy's parade.”

Manufacturing Activity Continues Growing

The U.S. manufacturing sector during May showed further improvements in business conditions.

The Institute for Supply Management’s (ISM) Purchasing Managers’ Index registered 58.7%, an increase of 1.4 percentage points from the April reading and better than Wall Street expectations.

A reading above 50% indicates activity in manufacturing is expanding, while below 50% signals contraction.

The New Orders Index registered 63.7%, an increase of 2.5 percentage points from the April reading, while the Production Index registered 61.5%, a 4.3 percentage point increase compared to the month before.

Of the 18 manufacturing industries surveyed, 16 of them reported growth in May.

“This indicates strong growth in manufacturing for the 21st consecutive month, led by continued expansion in new orders, production and employment. However, inventories are struggling to maintain expansion levels, and suppliers continue to deliver at essentially the same rate as the previous month, relative to production,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

A similar report on manufacturing from IHS Markit also showed a marked improvement in business conditions across the U.S. manufacturing sector in May.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index for May registered 56.4 in May, down fractionally from 56.5 in April. Like the ISM gauge, a reading above 50 indicates manufacturing is expanding.

The reading marked the second-strongest improvement in the health of the sector since September 2014. The upturn was largely driven by sharp increases in production and new business. The greatest lengthening in supplier delivery times since the series began in October 2009 also contributed to the headline figure.

Factory output continued to increase at a robust pace in May, despite the rate of growth softening slightly. More favorable demand conditions and greater client demand were widely cited as driving the expansion of production.

The upturn has stretched supply chains. May saw the greatest lengthening of delivery times in the near 10-year history of the survey, as producers are also finding it difficult to find suitable staff, according to Chris Williamson, chief business economist at IHS Markit.

“With sales growing faster than production, backlogs of work are accumulating at the fastest rate for nearly four years, which should support further production growth in coming months,” he said. “Business expectations regarding future production in fact picked up again to one of the highest levels seen over the past three years, adding to signs that strong growth will persist through the summer months.”

Construction Spending Spikes

Lastly a report from the Commerce Department on construction during April showed a healthy improvement in activity, hitting its highest level on record.

Construction spending during the month was estimated at a seasonally adjusted annual rate of $1.31 trillion, 1.8% above the revised March estimate, the biggest gain since January 2016, and exceeding analysts’ expectations.

The April figure is also 7.6% higher than compared to the same time in 2017.

A 2.8% gain in private construction spending during April compared to the month before helped push the overall figure higher and is the largest increase since January 2012. This was in large part due to a 4.5% rise in residential construction, the biggest percentage gain since November 1993.

In contrast, public construction spending declined 1.3% due to lower spending by both the federal government as well as state and local governments.

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