Summary
Last Friday morning, the Labor Department released employment data for May that overall, was weaker than had been forecast. Also last Friday morning, the Institute for Supply Management released results for its index measuring the economy's May service-sector activity. This result also came in below the consensus forecast. In tandem, these two reports raised questions about whether the economy's so-called "soft spot" really was only the first-quarter phenomenon that many analysts have been opining.
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May Employment Data
Friday's release from the Labor Department indicated an unexpected decline of 0.1% in May's unemployment rate, to 5.1%. However, the report showed that payroll employment expanded by only 78,000 jobs, well below a consensus forecast that was looking for 175,000 new payroll jobs.
The two components comprising each month's employment report are the household survey and the payroll survey. The unemployment rate is derived from the former, making it a visible, highly sensitive number for political purposes.
The payroll survey represents the number generally more important to the immediate behavior of the financial markets, but it also possesses a good deal of political importance. Friday's report indicated job growth of 78,000 during May. This compared with a gain of a much larger 250.000 in payroll employment during May of last year.
Friday's release contained a modest downward revision to March payroll job creation, to +122,000 from +146,000. Oddly, there was no revision at all to the April figure, which remained at the +274,000 reported last month. Thus, including revisions, payroll employment over the last three months grew by 474,000 jobs, versus the 498,000 gain before the March/April net adjustment. (During the same three-month period in 2004, payroll employment rose by 907,000.)
The following table puts into perspective the reported growth in payroll employment over the trailing three months, versus the comparable period during the prior five years.
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TRAILING THREE-MONTH PAYROLL EMPLOY-
MENT GROWTH (Thousands of Workers)
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Mo. 2005 2004 2003 2002 2001 2000
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May 78 250 -26 -9 -27 220
Apr. 274 337 -54 -106 -297 285
Mar. 122 320 -218 -37 -35 476
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Tot. 474 907 -298 -152 -359 981
=== === === === === ===
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For the 12 months ended May 2005, payroll employment grew by a reported 1,974,000 jobs. This compares with an increase of 1,546,000 jobs during the 12-month period ended May 2004. Over the six-month periods ending in May of 2005 and 2004, reported growth was 1,053,000 and 1,201,000, respectively.
According to Friday's report, average hourly earnings rose three cents, or by about 0.2% in May, to $16.03. This compared with April's $16.00. The April figure was unrevised from last month's report.
Year over year, average hourly earnings rose 2.6%. This compares with a Consumer Price Index that rose 3.5% for the 12 months ended April (latest CPI data currently available).
During the 12 months ended April, the year-over-year gain in the CPI exceeded year-over-year growth in average hourly earnings in all 12 of those months, exhibiting the continuing loss of real purchasing power based on these particular series.
The table below contains the latest available results for key employment and inflation series. (NOTE: The new material contained in these tables will be posted to the "Data & Charts" section on the GRA website.)
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KEY U.S. EMPLOYMENT AND INFLATION DATA
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PAYROLL
UNEMPLOYMENT EMPLOYMENT AVERAGE HOURLY
RATE CHANGE EARNINGS
(%) (000s) ($s)
--------------- ---------- -----------------
Month Yr. Yr. Yr. Year/
/Year No. Ago No. Ago No. Ago Year
--------------- ---------- ------------------
05/05 5.1 5.6 78 250 16.03 15.62 2.6%
04/05 5.2 5.5 274 337 16.00 15.58 2.7%
03/05 5.2 5.7 122 320 15.95 15.54 2.6%
02/05 5.4 5.6 300 94 15.91 15.51 2.6%
01/05 5.2 5.7 124 117 15.90 15.48 2.7%
=================================================
12/04 5.4 5.7 155 83 15.85 15.45 2.6%
11/04 5.4 5.9 132 96 15.82 15.45 2.4%
10/04 5.5 6.0 282 123 15.81 15.41 2.6%
09/04 5.4 6.1 130 94 15.77 15.40 2.4%
08/04 5.4 6.1 188 2 15.74 15.40 2.2%
07/04 5.5 6.2 83 3 15.70 15.39 2.0%
06/04 5.6 6.3 106 27 15.64 15.34 2.0%
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EMPLOY. COST INDEX (%)* PRODUCTIVITY (%)#
----------------------- ------------------------
Year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Yr.
----------------------- ------------------------
2005 0.7 - - - 2.9 - - - -
2004 1.1 0.9 0.9 0.8 3.8 4.1 0.9 2.3 4.0
2003 1.2 0.9 1.0 0.8 3.4 7.2 8.6 2.7 4.3
2002 0.8 1.0 0.8 0.9 7.0 1.1 4.5 1.4 4.3
2001 1.1 1.0 1.0 1.0 -0.4 5.7 1.4 6.5 2.5
2000 1.2 1.0 0.9 0.9 -2.0 7.3 -0.9 4.0 2.7
1999 0.4 1.1 0.9 1.1 3.6 0.5 2.8 7.1 2.8
1998 0.7 0.8 1.0 0.7 3.2 1.2 4.5 2.1 2.8
1997 0.7 0.8 0.8 1.0 -1.2 5.0 3.4 1.6 1.6
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CONSUMER PRICE INDEX## PRODUCER PRICE INDEX@
-------------------------- ---------------------
Month Yr. Year/ Yr. Year/
/Year Index Ago Year Index Ago Year
-------------------------- --------------------
04/05 194.2 187.7 3.5% 154.5 147.7 4.8%
03/05 193.2 187.3 3.2% 153.6 146.4 4.9%
02/05 192.0 186.5 2.9% 152.5 145.6 4.7%
01/05 191.3 185.9 2.9% 151.9 145.7 4.2%
=================================================
12/04 191.2 185.0 3.4% 151.7 145.3 4.4%
11/04 191.2 184.6 3.6% 152.1 144.6 5.2%
10/04 190.7 184.8 3.2% 151.1 144.8 4.4%
09/04 189.6 185.0 2.5% 148.9 144.1 3.3%
08/04 189.3 184.4 2.7% 148.5 143.6 3.4%
07/04 189.2 183.8 2.9% 148.3 142.8 3.9%
06/04 189.3 183.4 3.2% 148.2 142.6 3.9%
05/04 188.8 183.3 3.0% 148.3 141.7 4.7%
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NOTE: All data are seasonally adjusted. *Total
civilian compensation, 3-month change. #Nonfarm
business output per hour, annual rates. ##All
urban, all items. @Finished goods.
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ISM May Service-Sector Activity
Last Friday, the Institute for Supply Management reported that its index measuring the economy's May service-sector activity came in at a reading of 58.5, down from April's 61.7. The May result was materially worse than a consensus estimate that was looking for something around 60.0. It also marked the second monthly decline in a row.
This series' most recent high was 66.9, occurring in April of 2004. The ISM's service-sector measure works in the same manner as its manufacturing index: A reading above 50.0 indicates sector expansion.
(As an aside, ISM reported last week that its index measuring the economy's manufacturing activity also fell during May, to 51.4 from 53.3 in April. This was the sixth month in a row of declines in this measure, which was down from a recent high reading of 62.8 in January of 2004.)
Although the service-sector result was weaker than the consensus forecast, its key sectors did not exhibit the pervasive weakness in evident in the May manufacturing index.
Friday's report did show a 4.0-point decline in the service sector's price component during May, to 57.9. However, a 57.9 reading remains high enough to indicate there are persisting price pressures in the service sector. (The recent high recorded in this component was 73.6, registered last December.) Moreover, May marked the 24th consecutive month of rising prices.
Some price-related comments from the "What Respondents Are Saying" section of Friday's ISM release:
* "Price increases and interest rates climbing could affect second half of year. A lot of bids now but not many in fall" (Construction);
* "Steel pricing for pipe and fittings is leveling and dropping in some instances" (Utilities);
* "Economic uncertainties and frequently fluctuating pricing for products and services globally are causing companies to postpone purchases" (Business Services).
ISM reported a substantial decline during May in the number of its survey respondents reporting higher prices -- 27%, versus 41% in April. However, only 5% of respondents reported lower prices (up marginally from 2% in April), while 68% reported prices that were unchanged (up from 57% April). In turn, this compared with a 55%/3%/42% result in May of 2004.
The following table examines overall and price data over the last 12 months. (NOTE: December and prior data incorporate new US Department of Commerce seasonal-adjustment factors used by ISM. In this series, ISM does seasonally adjust the price data. It does not do so in its manufacturing index.)
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INSTITUTE FOR SUPPLY MANAGEMENT
NON-MANUFACTURING INDEX -- TOTAL
INDEX AND PRICE COMPONENT
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Respondents Reporting
Higher, Lower, or
Unchanged Prices
Month/ Overall Price ---------------------
Year Index Index Higher Lower Unch.
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05/05 58.5 57.9 27% 5% 68%
04/05 61.7 61.9 41% 2% 57%
03/05 63.1 65.6 43% 1% 56%
02/05 59.8 66.4 43% 3% 54%
01/05 59.2 66.6 37% 4% 59%
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12/04 63.1 73.6 38% 5% 57%
11/04 61.3 73.2 38% 4% 58%
10/04 61.5 74.0 44% 3% 53%
09/04 58.7 68.8 35% 3% 62%
08/04 59.3 70.1 40% 4% 56%
07/04 63.4 72.4 45% 5% 50%
06/04 61.1 72.9 52% 3% 45%
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Materials/Services Reported in Short Supply During May:
(NOTE: The number of consecutive months the commodity is listed is indicated after each item.)
Lumber; Roofing Shingles/Materials; and Tires.
Materials/Services Reported Up in Price During May:
Advertising/Advertising Services; Air Fares (2); Asphalt/Asphalt Products (3); Beef (6); Building Materials/Supplies; Cardboard/Cardboard Boxes; Cellular Phone Service; Cement (2); Computer Hardware (PCs and related products); Construction-Related Goods and Services; Consulting Services; Copper (21); Dairy; #1 Diesel Fuel (3); #2 Diesel Fuel (5); Fuel (18); Fuel Surcharges (2); Furniture; Gasoline* (18); Gypsum Board/Products; Hotel Rates (6); Maintenance Contracts/Services; Network Equipment; Packaging Supplies/Materials (3); Paper/Paper Products (16); Personnel Resources; Photocopiers/Supplies; Plastic Items/Products (5); Plastics (17); Printer Supplies/Toner; Programming Services; Research Materials; Resin; Steel (19); Steel Products* (15); Tape; Transportation/Freight Charges (13); and Travel Costs.
Materials/Services Reported Down in Price During May:
Gasoline*; Lumber including Pine, Spruce and Treated; Printed Forms and Materials; Steel Products* (2); Telephone Network Access and Rates; and Unleaded Gasoline.
*Reported as both up and down in price.
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