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Data Release: July NFIB Small Business Index

by Sergio Mariaca on Aug 9, 2016 11:12:33 AM |Share:

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Data Release: Small business optimism continuing to recover gradually in July

  • The NFIB's small business optimism index rose 0.1 points to 94.6 – slightly above the consensus view which called for a flat reading. Although this marked the fourth consecutive monthly gain, the index level remains some five points below the pre-recession average.
  • Looking under the hood the details of the report were mixed. Four of the ten subcomponents rose on the month, four fell and two remained unchanged.
  • The biggest gains were recorded in the share of firms expecting the economy to improve (up 4 points to -5%) and those planning to add inventories (up 3 points to 0%). Although both are very encouraging developments, the current readings remain well below healthy levels. In reality, they suggest no serious plans to add to inventories and that more firms (on the net) still expect the economy to weaken than strengthen.
  • Employment sub-indicators were slightly mixed but continued to point to tightness in the labor market. Job openings lost some steam (-3 points) with 26% of firms reporting "positions not able to fill". Despite this, on a 3-month trend basis, job openings remain at the highest level since 2000. Additionally, plans to increase employment and raise worker compensation improved by one point each to 12% and 15% respectively. Even more encouraging is that both remain near post-recession highs.
  • Sales expectations and capital expenditure plans deteriorated one point apiece, while the share of owners stating "now is a good time to expand" remained unchanged. All three sub-indicators remain near levels observed over the last few months.

Key Implications

  • Small business optimism recorded its fourth consecutive monthly gain, making up some of the lost ground earlier in the year. The continued gains are encouraging, but their pace is somewhat muted with the headline print continuing to underwhelm.
  • Recent data releases, particularly on the labor market side, have corroborated the notion of modest economic growth with the domestic side of the economy remaining on a solid footing despite elevated global and political uncertainty. Today's NFIB report echoes this same message to some degree. Small business owners remain skeptical about the future and seem reluctant to invest with their appetite to do so likely further tempered further by political uncertainty during an election year.
  • On the other hand, businesses remain keen to continue hiring with labor market tightness and quality of labor issues increasingly reported. As such, plans to boost worker compensation and attract the appropriate employees remain well supported. Continued income and job gains, along with the windfall from still low energy prices, will continue to support consumer spending and help shore up business confidence and the rest of the economy over the medium-term.

Admir Kolaj, Economic AnalystTD-1.jpg

 


DISCLAIMER

This report is provided by TD Economics.  It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes.  The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.  The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs.  The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete.  This report contains economic analysis and views, including about future economic and financial markets performance.  These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties.  The actual outcome may be materially different.  The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

Data Release: July Employment Report

by Sergio Mariaca on Aug 5, 2016 11:11:58 AM |Share:

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Data Release: U.S. job market fires on all cylinders in July with 255k jobs added to payrolls

  • Payrolls expanded by 255k in July, grossly exceeding expectations for 180k. Revisions added an additional 18k to the tally with June up 292k (from 287k) and May up 24k (from 11k).
  • By sector, private goods-producing services rose 16k, with gains in construction (+14k) and manufacturing (+16k), offsetting ongoing losses in mining and logging (-8k). Private services industries also grew a healthy 201k, while government payrolls added an additional 38k.
  • The unemployment rate remained steady at 4.9%. Household survey employment rose 420k, but a was met with an equally strong 407k rise in the civilian labor force, as the participation rate ticked up to 62.8% from 62.7%.
  • Average hourly wages rose a robust 0.3% on the month, and remained unchanged at 2.6% on a year-on-year basis.

Key Implications

  • Even as economic growth has been lackluster, the job market has remained sparkling bright. Job growth of 255k is more than double the level necessary to keep downward pressure on unemployment.
  • A weak economy and strong labor market presents something of a challenge for the Federal Reserve. The combination suggests at least some of the factors behind slow economic growth are structural and won't be overcome by additional monetary stimulus. This adds to the conundrum for the Federal Reserve facing continued healthy household demand and a risk-filled global environment and lofty dollar.
  • With some stability in the dollar, strong household demand should help to raise the prospects for profit growth, incenting businesses to invest in further capacity, especially in an environment of accelerating wage growth. At a minimum this implies that market expectations, which are currently not pricing in another rate hike until 2017 will have to move forward. The Fed will be patient, but will not ignore signs of progress in the labor market. The case for continued gradual increases in interest rates is stronger after today's report.

 

James Marple, Senior EconomistTD-1.jpg

 


DISCLAIMER

This report is provided by TD Economics.  It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes.  The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.  The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs.  The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete.  This report contains economic analysis and views, including about future economic and financial markets performance.  These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties.  The actual outcome may be materially different.  The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.

Data Release: U.S. labor market right as rain, as job growth rebounds in June

by Sergio Mariaca on Jul 8, 2016 10:56:05 AM |Share:

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  • Non-farm payrolls increased by 287k in June, or over one-hundred thousand above the expected gain, offsetting fully the slowdown in the previous month which was revised down to just 11k – albeit April's gain was nudged up a bit.
  • Private payrolls rose by a slightly higher 265k, also way above consensus, led by health care & education (+59k) and leisure & hospitality (+59k) and business services (+38k). Information also had a spectacular month (+44k) as previously striking workers came back to work. Goods-producing industries had a weak month as gains in manufacturing (+14k) were unable to offset the flat construction (+0k) print and continued declines in mining employment (-5k). Government, on the other month, had a solid month (+22k).
  • The unemployment rate ticked up by 0.2pp to 4.9%, as a rebound in the labor force overwhelmed the employment gains. The rise in the labor force nudged the participation rate 0.1pp higher to a still-low 62.7%.
  • Average hourly earnings rose by just 0.1% during the month, shy of expectations, but the year-over-year rate nonetheless accelerated to 2.6% in June from 2.5% in the previous month.
  • Average weekly hours were unchanged at 34.4.

Key Implications

  • This morning's report should assuage fears that the progress in the U.S. labor market has stalled. The headline delivered more than a convincing salvo that hiring remains intact and that the previous month's result was largely a construct of statistical quirks and one-off work disruptions. On the whole, the three-month moving average of nearly 150k is a respectable pace of growth, with the broadening of gains across industries offering further encouragement on the resilience of the recovery.
  • While we're happy that that the labor force rebounded strongly, leading to an uptick in labor force participation, the household employment gain was soft. As such, the jobless rate nudged up more than expected, (albeit the broader underemployment measure did manage to improve 9.7% to 9.6% on the month). Also disappointing was the soft wage gain, which registered a mere 0.1% uptick – or about half of the expected gain. Still, the annual pace accelerated, suggesting that wage pressures are indeed building gradually.

  • The bottom line is that seeing through the month-to-month volatility, the U.S. job market is healthy and job growth – at nearly 150k – is right as rain at this point in the economic cycle. The makeup and breadth of the gains offers further confirmation of the strength of the labor market recovery. And while there were a couple of blemishes on the report, these do not appear overly concerning. Ultimately, we believe the report nudges up the chances of a rate hike later this year, however our base case view is for the Committee to remain on hold until mid-2017.

 

Michael Dolega, Senior EconomistTD-1.jpg

 


DISCLAIMER

This report is provided by TD Economics.  It is for informational and educational purposes only as of the date of writing, and may not be appropriate for other purposes.  The views and opinions expressed may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.  The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs.  The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete.  This report contains economic analysis and views, including about future economic and financial markets performance.  These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties.  The actual outcome may be materially different.  The Toronto-Dominion Bank and its affiliates and related entities that comprise the TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.
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