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TLV Economy: September 6, 2017 | Summer Doldrums?

“In three words, I can sum up everything I’ve learned about life: it goes on.”
- Robert Frost


“The truth is what you want to believe.” That’s what we wrote about the economy in March. Donald Trump had recently started his term as president. Many in the private sector had great optimism that a Washington outsider would shift economic policy to inspire greater economic, job and wage growth. 
We’re now seven months into a Trump presidency, and it appears very little has changed. Although last quarter GDP growth has been revised up to 3%, several economic indicators suggest we still have a struggling economy. We’re back to employment growth falling short of expectations. The BLS’ reported 156K job gains for August is masked by a decrease in the average workweek from 34.5 to 34.4 hours. If you calculated the job loses from the average workweek loss, we mathematically lost a total of 200K jobs in August. Less work…fewer jobs. 

On the bright side we did create more highly valuable jobs in manufacturing, construction, technical services and mining. Lower-pay service job growth did not dominate, as has been the case for many months over the last several years. Maybe we’re finally turning the corner here. (More on that in a new “Where Are the Jobs?” section below.)
The Trump presidency started with extremely high sentiment from the nation’s small business owners, investors and manufacturers. Reality is setting in that there are factors holding back American economic potential.
Demographics are one of the most powerful economic influencers. Today, an aging population is putting wind in our face and will continue to do so for some time. At least the U.S. doesn’t have declining populations like Japan and some European countries do. But even an aging population challenges any economy. The older people get, the less they need to consume—not helpful to a U.S. economy that is supposedly about 70% driven by consumption.
Better tax policy is now on the table for Trump and the Republicans. But after multiple failed attempts to improve health care policy, it’s hard to be optimistic about any major policy changes getting through this Congress. Democrats stand firmly against everything but bigger and more powerful government, while Republicans may not be the conservatively fiscal representatives they sold to their constituent voters. 
Hurricane Harvey will likely prove to be an economic stimulus for the rest of the year. Some economic drag surely occurred during the event, but now there’s a lot of “broken windows” that need fixing and replacing after Harvey’s wrath. That could provide a spark to economy for the next few quarters. If any worthwhile policy actually does emerge from Washington, then maybe the new administration can find growth that trumps the 2% we keep struggling to achieve on a sustainable basis. 

The Bureau of Labor Statistics (BLS) allows a researcher to aggregate all private sector jobs into two categories: Goods Producing and Service Providing. The following graph shows the growth of Service Providing over Goods Producing jobs since 1990.
Common sense would tell us that pay for Service Providing jobs ultimately comes from a Goods Producing economy. An economy as large as the U.S.’s can’t be built on service providing service that provides service to more service. Although there are some very well paying Service Providing jobs in industries like investment banking, according to the BLS, on average, Goods Producing jobs pay more than Service Providing jobs. This is likely one reason we’ve seen wage stagnation in the U.S., as the ratio of service to production employment has grown measurably larger.

A log of recent releases of data impacting our world

Bureau of Labor Statistics on Employment

Job growth below expectations, but some important sectors grew
(September 1, 2017) Total nonfarm payroll employment increased by 156,000 in August, and the unemployment rate was little changed at 4.4%. Job gains occurred in manufacturing, construction, professional and technical services, health care and mining.
Conference Board Help Wanted Online Index
Online-posted jobs declining
(August 30, 2017) Online advertised vacancies decreased by 125,900 to 4,479,800 in August. The July Supply/Demand rate stands at 1.52 unemployed for each advertised vacancy, with a total of 2.4 million more unemployed workers than the number of advertised vacancies. The number of unemployed was approximately 7 million in July.

The Professional occupational category saw losses in Education (-13.9) and Computer and Math (-11.3). The Services/Production occupational category saw losses in Sales (-33.7), Office and Administrative Support (-29.3) and Installation (-11.5).

Commerce Department on Construction
Overall construction healthy
(September 1, 2017) Construction spending during July 2017 was estimated at a seasonably adjusted annual rate of $1,211.5B, 0.6% below the revised estimate for June 2017. The July figure is 1.8% above the July 2016 estimate. During the first 7 months of this year, construction spending amounted to $691.2B, a 4.7% increase for the same period in 2016.
JD Power Auto Sales Report
Fifth straight month of auto sales decline
(August 24, 2017) Despite fat discounts to clear out last year’s models and an extra selling day, August new-vehicle sales are set to fall 2.9% (selling-day adjusted) from year-ago totals. August will be the fifth month of lower retail new-vehicle demand, consistent with a slowdown observed this year.
HUD/Census Bureau on New Home Sales
Sluggish new home sales
(August 23, 2017) Sales of new single-family houses in July 2017 were at a seasonally adjusted annual rate of 571,000. This is 9.4% below the revised June rate of 630,000 and is 8.9% below the July 2016 estimate of 627,000. The seasonally adjusted estimate of new houses for sale at the end of July was 276,000. This represents a supply of 5.8 months at the current sales rate.
U.S. Census Bureau on Durable Goods
Manufactured durable goods down
(August 25, 2017) New orders for manufactured durable goods in July decreased $16.7B or 6.8% to $229.2B. This decrease, down three of the last four months, followed a 6.4% June increase. Excluding transportation, new orders increased 0.5%. Excluding defense, new orders decreased 7.8%. Transportation equipment, also down three of the last four months, drove the overall decrease, $17.4B or 19%.
Personal Income and Outlays from the BEA
Disposable personal income less than personal consumption expenditures
(August 31, 2017) Personal income increased $65.6 billion (0.4%) in July according to estimates released today. Disposable personal income (DPI) increased $39.6 billion (0.3%), and personal consumption expenditures (PCE) increased $44.7 billion (0.3%).

Consumer Debt from the Federal Reserve
Consumer debt still growing faster than inflation
(August 7, 2017) Consumer credit increased at a seasonally adjusted annual rate of 4.5% during the second quarter. Both revolving and non-revolving credit increased at similar annual rates. In June, consumer credit increased at an annual rate of 4%.
St. Louis Fed on Savings
Savings rate declining towards 2007 low
(August 31, 2017) The personal savings rate for July 2017 declined to 3.5% of disposable income. The savings rate has been in general decline since the last peak in February of 2015 at 6.3%. The more recent bottom of 2.6% occurred in August 2007. Personal savings rates averaged above 10% between 1960 and 1980. The personal savings rate was at 12.7% of disposable income in November 1981. Since then, ever-cheaper credit, extremely low interest rates and wages growing slower than inflation have been a deterrent to savings.
NIFB Small Business Sentiment
Optimism grows slightly
(August 8, 2017) The Index of Small Business Optimism rose 1.6 points to 105.2, preserving the surge in optimism that started the day after the election. Seven of the 10 Index components posted a gain, two declined and one was unchanged. Since the 2008 recession, the Index peaked at 105.9 in January, just 0.7 points above the July reading. Job openings and plans to create new jobs drove sentiment higher. Small businesses are anxious for improved health care and tax policy.
Institute for Supply Management PMI
PMI sentiment is good, but new orders decreased slightly
(September 1, 2017) The August PMI registered 58.8%, an increase of 2.5 percentage points from the July reading of 56.3%. The New Orders Index registered 60.3%, a decrease of 0.1 percentage point from the July reading of 60.4%. The Production Index registered 61%, a 0.4 percentage point increase compared to the July reading of 60.6%. The Employment Index registered 59.9%, an increase of 4.7 percentage points from the July reading of 55.2%. Follow the link to read comments from survey participants.
Conference Board Leading Economic Index
Increasing confidence for second half of the year
(August 17, 2017) The Conference Board Leading Economic Index (LEI) for the U.S. increased 0.3% in July to 128.3 (2010 = 100) following a 0.6% increase in June and a 0.3% increase in May.

“The U.S. LEI improved in July, suggesting the U.S. economy may experience further improvements in economic activity in the second half of the year,” said Ataman Ozyildirim, Director of Business Cycles and Growth Research at The Conference Board. “The large negative contribution from housing permits, a reversal from June, was more than offset by gains in the financial indicators, new orders and sentiment.”

Conference Board on Consumer Confidence
Consumer Confidence grows slightly
(August 29, 2017) The Conference Board Consumer Confidence Index, which had increased in July, improved further in August. The Index now stands at 122.9 (1985=100), up from 120.0 in July. The Present Situation Index increased from 145.4 to 151.2, while the Expectations Index rose marginally from 103.0 last month to 104.0.
“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high (July 2001, 151.3). Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”
Institute for Supply Management Non-Manufacturing Survey
Continuing overall growth but summer seasonal weakness
(August3, 2017) The NMI registered 53.9%, which is 3.5% lower than the June reading of 57.4%. This represents continued growth in the non-manufacturing sector at a slower rate. The Non-Manufacturing Business Activity Index decreased to 55.9%, 4.9% lower than the June reading of 60.8%, reflecting growth for the 96th consecutive month, at a slower rate in July. The New Orders Index registered 55.1%, 5.4% lower than the reading of 60.5% in June. The Employment Index decreased 2.2% in July to 53.6% from the June reading of 55.8%. The Prices Index increased 3.6% from the June reading of 52.1% to 55.7%, indicating prices increased in July for the second consecutive month. Follow the link for quotes from survey participants on various impressions of their industry’s activity.
GDP from the BEA
Second quarter GDP adjusted up to 3%
(August 30, 2017) Real gross domestic product (GDP) increased at an annual rate of 3% in the second quarter of 2017, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2%.

BLS on Consumer Prices
Almost stagnant inflation but for health care
(August 11, 2017) The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.1% in July on a seasonally adjusted basis. Over the last 12 months, the all items index rose 1.7%. The highest inflation over the last twelve months has come from medical care at 3.7%.

Monetary Policy from the Federal Reserve
Yellen avoids interest rates at Jackson Hole
(August 24, 2017) Rather than comment on interest rates, Fed Chairman Janet Yellen focuses on financial stability and bank regulation in defense of stronger oversight of the financial system. Follow the link to read her speech.
Infographic: Economic fallout of hurricanes
How will Harvey compare to the most expensive worldwide hurricanes of the last five years?
America, home of the transactional marriage
While general marriage rates have been declining for decades, they’ve held relatively steady for a certain demographic: Americans without college degrees. That is until now. Decades of declining employment opportunities for non-college educated men are now making them unattractive partners to more women. 
Lifting spirits: Woman breaks into gospel performance inside Hurricane Harvey shelter
Or rather, for inspiration and comfort as Texans calmly and courageously forge ahead, as they always do.
TLV Careers: August 25, 2017
Make 'em laugh
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Headlines from corporate & investment finance

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