A bevy of data released Thursday confirmed America once again is the brightest light in the global economy.
One report showed the non-manufacturing industry expanded the most in nine years in August. The Commerce Department said exports grew faster than imports in July, a positive for overall economic growth. Two other indicators showed that U.S. employers continue to add workers as one the fastest paces on record.
“The encouraging economic news continues to roll in, pointing to continued job creation and, at some point, higher wages and then, stronger consumer spending,” Jennifer Lee, an economist at Bank of Montreal, advised clients Thursday in a research note.
There were doubts about the strength of the U.S. economy after gross domestic product contracted in the first quarter. The Bank of Canada, for one, expressed worry as recently as June that there could be “slightly less underlying momentum” in the U.S. economy than expected at the start of the year.
Instead, the American economy appears to be gaining speed. GDP expanded at an annual rate of 4.2 per cent in the second quarter and non-farm payrolls increased by more than 200,000 positions for six consecutive months through August, marking one of strongest periods of job creation on record. The doubters are starting to believe. Canada’s central bank said Wednesday that a “solid recovery seems to be back on track” in the United States.
The Institute for Supply Management’s monthly index of economic activity in non-manufacturing industries jumped to 59.6 last month, better than Wall Street’s consensus expectation and the highest since August 2005. A figure that is higher than 50 indicates expansion. The index is compiled with reports from executives across the country. Construction, retail, and business support services showed the strongest growth.
Hiring in non-manufacturing industries accelerated last month from July, the ISM report showed. Two separate measures of the labour market sent a similar message. Back-office service provider ADP LLC’s latest survey of the labour market said private payrolls increased by 204,000 in August, compared with a gain of 212,000 in July.
The August reading was the weakest since March, but remained at a historically elevated level. Separately, a government report said the four-week moving average of initial jobless claims rose slightly last week to 302,750 from 299,750 the previous week. The number of Americans seeking jobless benefits remains at historically low levels, indicating the unemployment rate will continue to fall.
“After weakness in early 2014, in large part because of the weather, job growth has kicked into higher gear recently,” Gus Faucher, senior economist at PNC Financial Services, said in a research note.
Mr. Faucher predicted the U.S. unemployment rate dropped to 6.1 per cent in August, and said Thursday’s hiring data suggest payrolls again increased by about 200,000 last month. The Labor Department is scheduled to release its official survey of the August labour market Friday morning in Washington.
The growing stack of evidence that the U.S. economy is picking up speed will feed the debate over when the Federal Reserve will increase its benchmark interest rate, something it hasn’t done since 2006. While some officials say the time for higher borrowing costs has arrived, most of the Fed’s leaders say the labour market still could be improved. Rates of long-term unemployment and underemployment remain elevated, and wage growth is stagnant, despite the acceleration in economic growth.
There is some discussion about whether those rates are high because of structural changes in the economy such as higher number of retirees and greater use of automation, rather than a lack of demand for workers. The answer could become clearer in the months ahead. There appears to be enough economic growth to put those people back to work, if they want to, or if they are needed to keep up with demand.
American exports of goods increased 1.3 per cent in July from June on an inflation-adjusted basis, while imports rose only 0.5 per cent. Because exports add to GDP, and imports subtract from it, there is reason to think trade could contribute to economic growth in third quarter.
Over all, the U.S. still imports much more than it exports. The trade deficit was $40.5-billion (U.S.) in July compared with $40.8-billion in June. Wall Street analysts had predicted the deficit would widen in July.