Tag Archives: Payrolls

U.S. services sector growth accelerates despite supply constraints

By Lucia Mutikani

WASHINGTON (Reuters) – A measure of U.S. services industry activity jumped to a record high in July, boosted by the shift in spending to services from goods, but businesses continued to pay higher prices for inputs because of supply constraints.

The Institute for Supply Management survey on Wednesday also showed a rebound in a gauge of services industry employment last month. That eased worries of a sharp slowdown in job growth, which had been stoked by the ADP Employment Report showing the smallest gain in private payrolls in five months in July.

The bounce back in the ISM services employment index followed a similar reading for the manufacturing sector. The economy is pushing ahead after fully recovering in the second quarter the sharp loss in output suffered during the very brief COVID-19 pandemic recession.

“For months, employers have struggled to find labor and employment numbers have been held down from the worker side rather than a lack of demand from companies,” said Chris Low, chief economist at FHN Financial in New York. “These increases bode well for Friday’s employment report. ADP has not been very useful this year.”

The Institute for Supply Management said its non-manufacturing activity index raced to 64.1 last month, the highest reading since the series started in 2008, from 60.1 in June. A reading above 50 indicates growth in the services sector, which accounts for more than two-thirds of U.S. economic activity. Economists polled by Reuters had forecast the index climbing to 60.5.

All services industries reported growth, with anecdotes of pent-up demand as “companies begin to fully reopen and remote workers return to offices.”

Demand is rotating back to services as nearly half of the population has been fully vaccinated against COVID-19, allowing people to travel, frequent restaurants, visit casinos and attend sporting events among services-related activities that were curbed early in the pandemic in favor of goods.

Government data last week showed spending on services accelerated sharply in the second quarter, helping to lift the level of gross domestic product above its peak in the fourth quarter of 2019.

The ISM survey’s measure of new orders received by services businesses increased to a reading of 63.7 from 62.1 in June. Further gains are likely in the months ahead, with inventories lean and inventory sentiment among customers poor. Businesses depleted inventories at a rapid clip in the second quarter. Stocks at retailers are well below normal levels.

U.S. stocks were trading lower after a record close for the S&P 500 index. The dollar rose against a basket of currencies. U.S. Treasury prices were mixed.

PORTS CONGESTION

The strong demand is continuing to strain supply chains. The survey’s measure of supplier deliveries rose to 72.0 from a reading of 68.5 in June. A reading above 50 indicates slower deliveries. Some businesses complained about the scarcity of appliances, laptops as well as rental cars. Others said heating, ventilation and air conditioning repairs also were impacted by longer than normal lead times for replacement units.

Wholesalers said congestion at the ports of Long Beach/Los Angeles and Seattle had increased lead time by 15 days. They were also facing additional delays at the Chicago rail yard.

With bottlenecks in the supply chain persisting, a measure of prices paid by services industries surged to 82.3, the highest reading in nearly 16 years, from 79.5 in June.

Fed Chair Jerome Powell has repeatedly stated that inflation will moderate as supply constraints abate.

Services industries hired more workers in July, though labor shortages lingered, especially in the accommodation and food services sector. A measure of services industry employment rebounded to a reading of 53.8 from 49.3 in June.

That offset the ADP report showing private payrolls rose by 330,000 jobs last month, less than half of the 695,000 that had been anticipated by a Reuters survey of economists.

The slowdown in hiring last month was across all business sizes and industries. Leisure and hospitality payrolls increased by 139,000 jobs, below the 330,000 average in the second quarter. Economists said this suggested the early terminations of benefits in at least 20 states led by Republican governors was not forcing low-wage earners to return to work.

Factories added only 8,000 jobs in July. A global shortage of semiconductors is hampering production in the automobile sector. Hiring at construction sites stalled as expensive lumber and scarce building materials constrain homebuilding.

The ADP report, which is jointly developed with Moody’s Analytics, was published ahead of the government’s more comprehensive, and closely watched employment report for July on Friday. It, however, has a poor record predicting the private payrolls count in the Bureau of Labor Statistics (BLS) employment report because of methodology differences.

According to a Reuters survey of economists, private payrolls likely increased by 750,000 jobs in July after rising 662,000 in June. With government employment expected to have increased by about 130,000, thanks to education-related hiring, that would lead to overall payrolls advancing by 880,000 jobs in July. The economy created 850,000 jobs in June.

July’s nonfarm payrolls estimate is highly uncertain, with labor market indicators mixed. Data from Homebase, a payroll scheduling and tracking company, showed its employees working index rising moderately in July compared to June.

The Conference Board’s labor market differential, derived from data on consumers’ views on whether jobs are plentiful or hard to get, in July hit its highest level since 2000.

Education payrolls typically fall by at least 1 million in July, before adjusting for seasonal fluctuations, as schools and universities close for summer.

This year, however, many students are in summer school catching up after disruptions caused by the pandemic. Economists anticipate a small decline in education employment, which would boost the seasonally adjusted payrolls for the sector.

“We are maintaining our forecast for the BLS report to show 900,000 jobs added in July, with 550,000 coming from the private sector,” said Daniel Silver, an economist at JPMorgan in New York.

(Reporting By Lucia Mutikani; Editing by Andrea Ricci)

U.S. job growth surges, unemployment rate falls to 3.8 percent

FILE PHOTO: Job seekers line up to apply during "Amazon Jobs Day," a job fair being held at 10 fulfillment centers across the United States aimed at filling more than 50,000 jobs, at the Amazon.com Fulfillment Center in Fall River, Massachusetts, U.S., August 2, 2017. REUTERS/Brian Snyder/File Photo

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. job growth accelerated in May and the unemployment rate dropped to an 18-year low of 3.8 percent, pointing to rapidly tightening labor market conditions, which could stir concerns about inflation.

The closely watched employment report released by the Labor Department on Friday also showed wages rising solidly, cementing expectations that the Federal Reserve will raise interest rates this month. The bullish report also raises the possibility that the economy could overheat.

Overall, the U.S. economy looks strong,” said Paul Ashworth, chief economist at Capital Economics in Toronto. “In that environment, we still expect the Fed to hike interest rates an additional three times this year.”

Nonfarm payrolls increased by 223,000 jobs last month as warm weather boosted hiring at construction sites. There were also big gains in retail and leisure and hospitality payrolls. The economy created 15,000 more jobs than previously reported in March and April.

Last month’s one-tenth of a percentage point drop in the unemployment rate pushed it to a level last seen in April 2000. The jobless rate is now at a level that the Fed forecast it would be at by the end of this year.

Average hourly earnings rose eight cents, or 0.3 percent last month after edging up 0.1 percent in April. That lifted the annual increase in average hourly earnings to 2.7 percent from 2.6 percent in April.

The strong employment report added to a string of upbeat economic data, including consumer spending, industrial production and construction spending, that have suggested economic growth was regaining speed early in the second quarter after slowing at the beginning of the year.

The strength comes even as the stimulus from a $1.5 trillion income tax cut package and increased government spending is yet to filter through the economy. Renewed fears of a trade war after the Trump administration imposed tariffs on steel and aluminum imports from Canada, Mexico and the European Union, however, cast a dark cloud over the economic outlook.

Inflation is running just below the Fed’s 2.0 percent target. The U.S. central bank increased borrowing costs in March and forecast at least two more rate hikes for this year.

After the employment report, traders increased bets that the Fed would raise interest rates four times this year. U.S. Treasury yields rose and the dollar gained versus a basket of currencies. Stocks on Wall Street were trading higher.

BROAD JOB GAINS

Economists polled by Reuters had forecast nonfarm payrolls increasing by 188,000 jobs last month and the unemployment rate steady at 3.9 percent.

Monthly job gains have averaged about 179,000 over the last three months, more than the roughly 120,000 needed to keep up with growth in the working-age population. Though the labor market is viewed as being close to or at full employment, there is still some slack remaining.

The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one, fell to 62.7 percent last month from 62.8 percent in April. It has declined for three straight months.

Still, the labor market is getting tighter. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, fell to 7.6 percent last month, the lowest since May 2001, from 7.8 percent in April.

With job growth expected to slow as employers struggle to find qualified workers, economists expected wage growth will pick up significantly.

The Fed’s latest Beige Book report of anecdotal information on business activity collected from contacts nationwide showed labor market conditions remained tight across the country in late April and early May. The Fed said contacts continued to report difficulty filling positions across skill levels.

There were notable shortages of truck drivers, sales personnel, carpenters, electricians, painters, and information technology professionals, the central bank said in its report published on Wednesday.

Job gains in May were across all sectors. Construction payrolls increased by 25,000 after rising by 21,000 jobs in April. Construction employment fell in March for the first time in eight months.

Manufacturers added another 18,000 jobs last month on top of the 25,000 created in April. Further gains are likely, with a survey from the Institute for Supply Management on Friday showing a pickup in factory activity in May. But some manufacturers said the steel tariffs were pushing up prices.

Government payrolls increased by 5,000, reversing April’s 3,000 drop. Retailers boosted employment by 31,100 jobs last month. Employment in the leisure and hospitality sector increased by 21,000 jobs.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)

Hurricanes Harvey, Irma sink U.S. payrolls in September

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. employment fell in September for the first time in seven years as Hurricanes Harvey and Irma left displaced workers temporarily unemployed and delayed hiring, the latest indication that the storms undercut economic activity in the third quarter.

The Labor Department said on Friday nonfarm payrolls decreased by 33,000 jobs last month amid a record drop in employment in the leisure and hospitality sector.

The decline in payrolls was the first since September 2010. The Department said its analysis suggested that the net effect of Harvey and Irma, which wreaked havoc in Texas and Florida in late August and early September, was to “reduce the estimate of total nonfarm payroll employment for September.”

Economists had forecast payrolls increasing by 90,000 jobs last month. Payrolls are calculated from a survey of employers, which treats any worker who was not paid for any part of the pay period that includes the 12th of the month as unemployed.

Many of the dislocated people will probably return to work. That, together with rebuilding and clean-up is expected to boost job growth in the coming months. Leisure and hospitality payrolls dived 111,000, the most since records started in 1939, after being unchanged in August.

There were also decreases in retail and manufacturing employment last month. Stripping out the effects of the hurricanes, the labor market remains strong. The government revised data for August to show 169,000 jobs created that month instead of the previously reported 156,000.

Harvey and Irma did not have an impact on the unemployment rate, which fell two-tenths of a percentage point to 4.2 percent, the lowest since February 2001. The smaller survey of households from which the jobless rate is derived treats a person as employed regardless of whether they missed work during the reference week and were unpaid as result.

The decrease in the unemployment rate reflected an increase in household employment. It also came despite more people entering the labor force.

The dollar rose against a basket of currencies after the data, while prices for U.S. Treasuries fell. U.S. stock index futures were trading lower.

DISRUPTIONS BOOST WAGES

Underscoring the disruptive impact of the hurricanes, the household survey showed 1.5 million people stayed at home in September because of the bad weather, the most since January 1996. About 2.9 million people worked part-time, the largest number since February 2014.

The length of the average workweek was unchanged at 34.4 hours. With the hurricane-driven temporary unemployment concentrated in low-paying industries like retail and leisure and hospitality, average hourly earnings increased 12 cents or 0.5 percent in September after rising 0.2 percent in August.

That pushed the annual increase in wages to 2.9 percent, the largest gain since December 2016, from 2.7 percent in August. Annual wage growth of at least 3.0 percent is need to raise inflation to the Fed’s 2 percent target, analysts say

The mixed employment report should not change views the Federal Reserve will raise interest rates in December. Fed Chair Janet Yellen cautioned last month that the hurricanes could “substantially” weigh on September job growth, but expected the effects would “unwind relatively quickly.”

The U.S. central bank said last month it expected “labor market conditions will strengthen somewhat further.” The Fed left interest rates unchanged in September, but signaled it expected one more hike by the end of the year. It has increased borrowing costs twice this year.

The employment report added to August consumer spending, industrial production, homebuilding and home sales data in suggesting that the hurricanes will dent economic growth in the third quarter.

Economists estimate that the back-to-back storms, including Hurricane Maria which destroyed infrastructure in Puerto Rico last month, could shave at least six-tenths of a percentage point from third-quarter gross domestic product.

Growth estimates for the July-September period are as low as a 1.8 percent annualized rate. The economy grew at a 3.1 percent rate in the second quarter.

Private payrolls fell by 40,000 jobs, the biggest drop since February 2010. Manufacturing employment slipped by 1,000 jobs pulled down by declines at motor vehicle assembly and chemical plants as well as textile mills.

Retail employment fell by 2,900 jobs as food stores payrolls tumbled 6,900. There were also declines in employment at department stores. Construction payrolls rose 8,000 in September as a 3,900 drop in jobs at homebuilding sites was offset by increases elsewhere.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)