Manufacturing remains strong for the US economy. US Factory orders popped 10.50 percent in July from a revised 1.50 percent in June while construction spending increased 1.80 percent in July. The Institute for Supply Management Manufacturing Purchasing Managers index increased to 59 percent in August from 57.10 percent in July. A reading above 50 indicates the manufacturing economy is generally expanding.
The labor market reported mixed results as US Initial Jobless Claims were 302,000 coming in near its moving average, while US Non Farm Payrolls decreased to 142,000 in August from 212,000 in July. Payrolls was a big surprise for economists, many believing this report being a one month blip. The Labor Force Participation Rate increased to 62.90 percent in July from 62.80 percent in June. The participation rate averaged near 66 percent for the prior decade which confirms the “slack” in the economy the Fed has been referring to. US Average Hourly Earnings grew .20% in August from the prior month.
A great deal of focus was on the European Central Banks interest rate decision. As expected Mario Draghi, President of the ECB, increased monetary stimulus by lowering the interest rate on the main refinancing operations of the Euro system by 10 basis points to 0.05% and the rate on the margin lending facility by 10 basis points to 0.30%. The rate on overnight deposits was reduced to -0.20%. In addition to the changes in interest rates, the European Central Bank will purchase a broad portfolio of asset-backed securities.
This week’s labor report and Europe’s monetary stimulus decision leads to continued healing and slow growth of the US economy. Lower rates in Europe should keep US rates low while the Fed continues to provide accommodative policies in order for the labor market to strengthen.