April Macro Update: Employment Growth Continues to Decelerate

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Summary: The macro data from the past month continues to mostly point to positive growth. On balance, the evidence suggests the imminent onset of a recession is unlikely.

One concern in recent months had been housing, but revised data shows housing starts breaking above the flattening level that has existed over the past two years. A resumption in growth appears to be starting.

That leaves employment growth as the main watch out: employment growth is decelerating, from over 2% last year to 1.5% now. It's not alarming but it is noteworthy that expansions weaken before they end, and slowing employment growth is a sign of some weakening that bears monitoring.

A second watch out is demand growth. Real retail sales excluding gas is in a decelerating trend. In February, growth was just 1.8%. Personal consumption accounts for about 70% of GDP so weakening retail sales bears watching closely.

Overall, the main positives from the recent data are in employment, consumption growth and housing:

  • Monthly employment gains have averaged 178,000 during the past year, with annual growth of 1.5% yoy. Full-time employment is leading.
  • Recent compensation growth is among the highest in the past 8 years: 2.7% yoy in March.
  • Most measures of demand show 2-3% real growth. Real personal consumption growth in February was 2.6%. Real retail sales (including gas) grew 2.8% yoy in February.
  • Housing sales grew 13% yoy in February. Starts grew 6% over the past year.
  • The core inflation rate is ticking higher but remains near the Fed's 2% target.

The main negatives are concentrated in the manufacturing sector (which accounts for less than 10% of employment):

  • Core durable goods growth rose 3.4% yoy in February. It was weak during the winter of 2015-16 and is slowly rebounding in recent months.
  • Industrial production has also been weak; it's flat yoy due to weakness in mining (oil and coal). The manufacturing component grew 1.4% yoy in February.

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