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US Economy Experiencing Slow Growth Confirmed by Non-farm Payroll, Manufacturing, and Retail Sales Data

By Glenford S Robinson

Nonfarm payrolls in the U.S. increased by 136,000 in September 2019 missing expectations of 140,000, coming well below the previous mark of 168 thousand set in August.

The Nonfarm Payrolls report measure changes in the number of people employed during the previous month, excluding those who work in the farming industry, in unincorporated self-employment, in private households, at nonprofit organizations, those who work in the military, at intelligence agencies, and those who are proprietors.

The creation of jobs increases consumer spending; the more people with jobs increase, the more money will be present in the economy, thereby increasing personal income rates and overall economic activity. The Bureau of Labor Statistics releases the Nonfarm Payroll report at 8:30 am on the first Friday of every month for the previous month.

The Nonfarm Payroll Report falls into the category of a Coincident Economic Indicator because the report tells us what took place economically in the recent past of a month ago. So, the Report gives us a synapsis of the current health or state of the economy, in regards to cash flow flowing from the pockets of employed consumers into the economy.

In regards to the U.S. economy, the Nonfarm Payroll number came in 4,000 payrolls below the consensus estimate of 140 thousand and well below the previous mark of 168 thousand payrolls. So, what are these numbers telling us? These numbers tell us that the current report barely missed the projected mark. So, the fact that the close-miss was to the downside, so caution should be exercised when embarking on any investments.

Time horizon should therefore be taken into account. Are you planning on retiring in six months to a year’s time? Or are you planning on retiring 10 years from now? If you are planning on retiring six months from now, then you should get on the phone with your professional investment advisor and make sure that your retirement portfolio is safely allocated in order to withstand any short-term economic downturn, which will subsequently cause equity markets to slow down.

A longer time horizon retirement portfolio will be less susceptible to short-term economic slowdowns because a longer time horizon retirement portfolio will be able to ride out a short-term market downturn without long-lasting negative effects.

A higher than expected Nonfarm Payroll Report reading should be perceived as a positive for the United States economy and bullish for the US dollar, while a lower than expected reading should be taken as a negative for the U.S. economy and bearish for the USD.

Foreign currency traders and equities traders look to the Nonfarm Payroll Report as a market movement catalyst because on the date and time of the Nonfarm Payroll Report release, the Forex market increases in volatility. The largest market movement occurs when the current reading misses forecast by a large margin, while the smallest or least amount of market volatility occurs when the current reading comes in at the forecasted reading value otherwise known as “priced-in.”

A close margin between the forecasted 140 thousand payrolls and the actual reading of 136 thousand payrolls is not very large. Therefore, we should’ve expected that the Forex and Equities markets would’ve reacted accordingly by not exhibiting too much volatility, and for the most part, that was what happened especially in the Forex market on the date and time of the Nonfarm Payroll Report release.

In addition, statistics data from the Nonfarm Payroll show sectors that have generated the most employment additions, in regards to large gains and losses. The report list sectors such as professional and business services, health care financial activities, mining, construction, manufacturing, wholesale trade, retail trade, transportation, warehousing, information, government, leisure and hospitality. Financial analysts following the stock market use this breakdown to predict which stock and sectors will have the strongest earnings reports.

According to our current September Nonfarm Payroll Report, the professional and business services sector mainly transportation as well as the healthcare sector added more jobs. Employment in professional and business services continued to rise in September thereby adding 34,000 jobs; the industry added an average of 35,000 jobs per month thus far in 2019, compared with 47,000 jobs per month in 2018, while healthcare added 39,000 jobs, in line with its average monthly gain over the last 12 months. Ambulatory health care services added 29,000 jobs and hospitals added 8,000 jobs over the past month.

Oct 4,
2019
8:30 am
US Unemployment Rate(Sep) 3.5% 3.7% 3.7%

The economy is still Treading water. As depicted in the Employment Situation Summary from the U.S. Department of Labor Statistics the unemployment rate declined only by 0.2% from 3.7% to 3.5% in September. This kind of weak improvement, change should not be looked at as too promising, and should therefore be treated as cautiously as possible because things could easily slip the other way. “Have you ever heard the saying: ‘too close for comfort?’” Well, this is just too close; a 0.2% improvement over a very low-ball forecast of 3.7% coupled with a previous reading of 3.7% is an abomination. So, if the forecast was also 3.7%, that tells us that the forecasters did not expect much of an improvement from the previous month.

 

Even though the Unemployment Rate reading came in below forecast, which could be looked at arbitrarily in a positive light, it really didn’t impress. In fact, the last time the rate was this low was in December of 1969, when it also was 3.5 percent. In the past month, the number of unemployment persons decreased by 275,000 to 5.8 million, according to the Employment Situation Summary.

Oct 3,
2019
10 am
US ISM Non-Manufacturing
PMI (Sep)
52.6 55.0 56.4

A very good predictor of GDP growth and subsequent economic growth happens to be the ISM Non-Manufacturing PMI. The Institute of Supply Management (ISM) Non-Manufacturing Purchasing Managers’ Index (PMI) also known as the ISM Services PMI, provides in-depth reporting on business. The Non-Manufacturing Index (NMI) function as a composite index, based on the diffusion indexes for four of the indicators with equal weights. The four indicators happen to be seasonally adjusted, and they are business activity, New Orders, Employment, and supplier Deliveries.

An ISM Non-Manufacturing Purchasing Managers’ PMI reading above 50 indicates, expansion in the sector, while a reading below 50 indicates, contraction in the sector. In our current ISM Non-Manufacturing PMI report, we see that the actual reading of 52.6 missed forecast of 55.0 and came in well below a previous reading of 56.4. So, that is telling us that even though the actual result missed forecast by 2.4 points a reading of 52.6 comes in above the target of 50, which could be interpreted as some degree of growth or expansion in the Non-Manufacturing PMI sector and thus in the U.S. economy; however, this degree of growth is very, very slow or small, not large enough to show any significant improvements in the last few GDP numbers. Now, we will talk about the ISM Manufacturing Purchasing Managers’ Index (PMI) Report on Business.

Tues,
Oct1,
2019
10:00 am
USISM Manufacturing PMI
(Sep)
47.8 50.4 49.1

The Institute of Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) Report on Business, reflects compiled data derived, from monthly replies to questions asked, of purchasing and supply executives, in over 400 industrial companies. The indicators measured, includes New Orders, Backlog of Orders, New Export Orders, Imports, Production, Supplier Deliveries, Inventories, Customers Inventories, Employment, and Prices. The report depicts the percentage of respondents, the net difference between the number of positive responses, and negative responses in regards, to the direction of the economy, and the diffusion index. The collected responses are compiled raw data, that will never be changed.

The diffusion index includes the percent of positive responses plus one-half of those responding the same, which is considered positive. The single index number that results is then seasonally adjusted to allow for the effects of repetitive intra-year variations, resulting primarily from normal differences in weather conditions, various institutional arrangements, and differences attributable to non-moveable holidays. The U.S. Department of Commerce supplies all seasonal adjustment factors, which are subjected annually to relatively minor changes when conditions warrant them.

The PMI functions as a composite index based on the seasonally adjusted diffusion indices for five of the indicators with varying weights. The indicators are New Orders –30%, Production –25%, Employment –20%, Supplier Deliveries –15%, and Inventories — 10%.

A higher than expected reading should be perceived as positive for the US economy or bullish for the USD, while a lower than expected reading should be perceived as negative for the US economy or bearish for the USD. In regards to the Forex Market, when the U.S. dollar assumes a bullish trend or an upward direction, other currencies assume a bearish or downward direction. This is because the U.S. economy happens to be the strongest economy in the world. A good example would be the EUR/USD currency pair. In this pair, when the USD exhibits a bullish trend, the Euro on the other hand will assume a bearish trend.

Based on the October 1st ISM Manufacturing Report, the actual reading of 47.8 came in well below forecast of 50.4 and also below the previous readings of 49.1. There we go again, yet another economic indicator showing negative or slow economic growth. We can look at these negative numbers as the normal ebb and flow of the U.S. economy, but that wouldn’t be totally correct because in an ebb and flow situation, we would normally see an up and down–progression and regression of growth in the economy, but what we are seeing is a constant ebbing or slowing of growth in the economy.

The next economic indicator we will look at is Retail Sales. Retail Sales go hand in hand with manufacturing activities and inventory levels. Strong retail sales directly increase GDP and economic growth, which also strengthens the home currency. Companies can hire more employees when sales improve, thereby putting more money in consumers’ pockets. The hiring of more employees gives companies the ability to produce more products thus increasing the level of manufacturing activities in the economy, the tell-tell sign of a growing economy.

Let’s see how well the most recent US Retail Sales Report did. In fact, before going any further, we can predict with a certain degree of accuracy based on what we saw in the ISM Non-Manufacturing PMI and the ISM Manufacturing PMI that the Retail Sales Report will come up short and not meet expectations. Ok, now, drum Roll!

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Sept.1,
2019
08:30
 US Core Retail Sales (MoM)
Aug
0.0% 0.1% 1.0%

The Core Retail Sales Report measures changes in the total value of sales at the retail level in the U.S., excluding automobiles. The report shows the rate of consumer spending. It functions as a pace indicator for the U.S. economy, how fast or how slow the growth of the economy is currently progressing. As we can see in the report, the previous reading was 1.0%, the forecasted reading 0.1%, and the actual reading came in at 0.0%. So, this is confirming that U.S. economic growth has slowed down dramatically or is slowly growing. 

Sept 13,
2019
08:30 am
US Retail Sales (MoM) (Aug) 0.4% 0.2% 0.8%

We just saw that the Core Retail Sales numbers came in well below expectations. So, what should we expect from the Retail Sales Report, which measures changes in the total value of sales at the retail level including automobiles? We should expect it to come in below expectations also, although automobile sales and online sales have improved, but by how much? Not that much because the actual number 0.4% came in well below the previous reading of 0.8% in July, while beating out a low-confidence-induced forecast of 0.2%. Why would expert economists develop a lowball forecast of 0.2% well below the previous reading of 0.8% if they didn’t think that the economy was growing slowly or slowing down?

Ok, there we have it. The U.S. Economy is currently experiencing slow growth or possibly slowing down. What are we going to do about it? Well, we should hope that things pick up soon because if such economic slowdown continues, we could end up sliding head first, into the teeth of a recession, which wouldn’t be a good thing for any economy. Stock Market Crashes and Economic Depressions are usually the outcomes of recessions that gets out of control. So, we definitely wouldn’t want that to happened; would we? During the stock market crash of 2008, portfolio values in the equities market dropped more than 50% and during the Great Depression of the 1920’s Portfolios lost 90% of their values.

So, how can we as citizens of this great nation prevent a recession? Please post your responses in the comment area below this video on Youtube.

Thank you for watching my video. Please like, subscribe, and hit the bell as hard as you can so you can see when I upload new videos to my channel. If your comment is helpful to society, I will shout you out in my next video. Thank you!

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