November employment reports and the 3rd quarter GDP revision

we got hit with a bunch of important economic reports this week, most of which were released over the last few days...as is usually the case in the first business day of the month, Monday saw the release of the ISM manufacturing survey for November, which saw the PMI increase by 0.9% to 57.3%, a strong expansionary reading and the highest this year; also on Monday, the Census Bureau released the rescheduled construction spending for October, which was estimated at a seasonally adjusted annual rate of $908.4 billion, 0.8 percent (±1.8%) above September, a gain which was driven by a 3.9% increase in public construction as private construction slipped 0.5%...then on Wednesday, we had the release of the November ISM non-manufacturing survey, which saw the non-manufacturing index slip 1.5% to 53.9%, indicating slower grow in the service sector, the October report on our international trade in goods and services, which saw our trade deficit in goods and services decrease to $40.6 billion from $43.0 billion in September as October exports rose faster than imports, the November National Employment Report from payroll processor ADP, which indicated private sector jobs increased by 215,000; and the rescheduled reports on new home sales for September and October, which showed October new homes sales increased by 25.4 percent (±19.2%) above the one year low September annual rate of 354,000, revised after new home sales for June, July, and August were all revised down by a total of nearly 15% while the median new home sales price fell to a one year low of $245,800, down from the earlier high of $279,300...then on Thursday, we saw the revision of 3rd quarter GDP to a 3.6% annual growth rate from the 2.8% rate indicated by the advance estimate we reported 4 weeks ago, and the full report on manufacturer's shipments, inventories and orders for October, which adds nondurable manufactures to and revises the durable goods report we covered last week and which saw new orders for manufactured goods, which have decreased three of the last four months, decrease $4.4 billion or 0.9% in October to $486.9 billion, calling into question the overly optimistic ISM survey earlier in the week...finally, on Friday we saw the Employment Situation Summary for November from the Bureau of Labor Statistics (BLS), which is composed of two surveys of employment, one solicited from employers and the other conducted as a telephone poll of households...with the jobs report dominating the blogs and news cycle, two other important reports on Friday received little coverage: Personal Income and Outlays report for October from the BEA, which indicated that personal income decreased by 0.1%, disposable personal income decreased by 0.2%, while personal consumption expenditures increased 0.3% and the G-19 Release on October Consumer Credit from the Fed, which helped explain how October spending increased in the face of falling incomes, ie, credit card debt hit a 3 year high as consumers increased their aggregate borrowing by $18.2 billion  ...we'll start our coverage by looking at the two jobs reports...

203,000 Jobs Added Across Most Sectors in November

data from the establishment survey, aka the Current Employment Statistics (CES), the monthly BLS survey of roughly 26% of all businesses and government agencies nationwide, indicated that payroll employment increased by a seasonally adjusted 203,000 jobs in November, a bit better than the average of 195,000 jobs per month this survey has indicated over the past year...October's jobs gain was revised down by 4,000 to 200,000, while the September figure was revised up by 12,000 to 175,000 for a net gain of another 8,000 payroll jobs...these changes are all included on our adjacent FRED bar graph, which shows the monthly number of payroll jobs gained above the '0' line and job losses below the line since the beginning of 2008...the unadjusted data that this report is created from indicates that an additional 421,000 payroll jobs were added in the November for a total of 137,942,000 non-farm payroll jobs; the seasonal adjustment for November lowered totals on jobs such as retail sales that normally increase with the shopping season and raises totals on jobs such as construction which typically decrease seasonally at this time of year...thus, though there were an additional 471,000 retail hires for the holidays, the seasonal adjustment writes that down to an increase of 22,300 retail jobs, ie, that many more than would normally be added at this time of year...

the seasonally adjusted job gains in November were by and large in employment sectors other than the retail and fast food sectors that have dominated recent reports; 30,500 jobs were added in transportation and warehousing industries, including 8,600 couriers and messengers, 8,400 truckers, and 4,600 in warehousing and storage; again, these are over and above the seasonal increases in these areas, as the unadjusted data shows an increase of 53,200 couriers and messengers for the month...another sector showing greater than normal job creation was health care and social assistance, where 29,600 payroll jobs were added, 26,300 of which were in ambulatory care services with 11,800 of those serving patients in their homes...manufacturing job growth at 27,000 was also strong, with 17,000 additional payroll jobs in durable goods manufacturing, of which 6,700 were in motor vehicles, while the 10,000 increase in non-durable manufacturing jobs was predominately in food manufacturing with 7,800 additional hires...the large professional and business services sector, which had been averaging 55,000 new jobs a month, also added 35,000 jobs, with an increase of 16,400 in temporary help services and another 5,500 in accounting and bookkeeping, and of the previously mentioned 22,300 jobs in retail, 13,800 were added by general merchandise stores and 11,700 were added by sporting goods, hobby, book, and music stores, while grocers cut 5,400...in addition, 17,000 jobs were added in the leisure and hospitality sector, with the addition of 17,900 jobs in bars and food service, and 17,000 jobs were added in construction, of which 12,500 were with specialty trade contractors...government employment was up by 7,000, with 8,000 additional at the state level and 6,000 for local governments offset by 7,000 job cuts at the federal level...meanwhile, payroll employment in other sectors, including resource exploitation, wholesale trade, information, and financial activities, showed little or no change...

our FRED bar graph below shows the monthly change in payroll employment in selected sectors since the beginning of 2012; in each monthly grouping of 8 bars, the monthly change in manufacturing employment for that month is indicated in blue, the change in monthly construction employment is in red, the monthly change in retail employment is in dark green, the monthly change in government jobs is in yellow, and the change in employment in professional and business services, which includes everything from accounting to janitorial, is in grey; also included are the CES employment subcategories of jobs in bars and restaurants in light green, and new health care jobs in orange, with non government jobs in education shown in violet...note that jobs added are above the 0 line, with job reductions below it, and that November on the far right is notable in that modest job gains occurred in every sector... (click to enlarge)

there were also gains in pay and hours worked per week in November; the average workweek for all payroll employees inched up a tenth of a hour to 34.5 hours from 34.4 hours in October and November a year ago, with construction workers and those in resource extraction gaining 0.3 hours to 39.1 hours and 44.5 hours respectively....the manufacturing workweek also increased 0.1 hour to 41.0 hours, and factory overtime at 3.5 hours was up 0.1 hours as well...the average workweek for production and nonsupervisory employees was at 33.6 hours, reversing October's 0.1 hour loss...the average hourly pay for all workers was up 4 cents to $24.15, with utilities workers seeing an 8 cent an hour gain to $35.18 an hour, the highest average pay for any sector, while the lowest paid workers in leisure and hospitality lost 3 cents and hour to average $13.51 / hour...meanwhile, average pay for nonsupervisory workers was up 3 cents to $20.31, with utility linemen again making the most at $32.43 an hour and pay for leisure and hospitality workers again shrinking 5 cents to $11.80 an hour...

Unemployment Falls to 7% as Labor Force Participation Remains Near Record Low

the results from the November household survey, also known as the Current Population Survey (CPS), are difficult to interpret on the basis of a few factors; first, on month to month comparisons, all comparisons to October are relative to the data that was affected by the government shutdown that month, which you'll recall left some 448,000 government employees classified as "unemployed on temporary layoff" and in the confusion may have even had some of them classified as out of the labor force; so some of the November increase in employment here just reflects their return to work; in addition, due to the tight schedule resulting from the Thanksgiving holiday, the household survey's reference period was changed to the week including November 5th, not the week of the 12th as all other surveys normally based on...hence, the October survey was conducted late in that month because of the shutdown, while the November survey was a week early based on the holiday rescheduling...although Census, which conducts the survey for the BLS, likely attempts to control for the variability thus introduced, this just raises another question about the reliability of data which already has a margin of error of +/- 300,000 in the monthly change in the number unemployed, and +/- 0.2% in the unemployment rate...so we'll try to include the two month change where it's appropriate to get something closer to an apples to apples comparison...

according to the seasonally adjusted household survey, 144,386,000 of us were employed in November, which was an increase of 818,000 from October but just 83,000 more than September; in addition, 10,907,000 of us were classified as unemployed, a reduction of 365,000 from those so classified in October and still a reduction of 348,000 in the unemployed count from September; meanwhile, those unemployed considered 'not in the labor force' and hence not counted when the unemployment rate is figured fell 268,000 in November to 91,273,000, which was nonetheless still 673,000 higher than those "not in the labor force" in September; hence, with 673,000 less of us not counted, the unemployment rate, or the percentage of us still remaining in the labor force who were classified as unemployed, fell to 7.0% in November... with the partial recovery of those in the labor force in November, the labor force participation rate rose from it's record low of 62.8% in October to a 63.0% reading in November; this uptick can be seen in red on our adjacent FRED graph...and with the major increase in employment from October to November, the employment to population ratio, shown in blue, rebounded from 58.3% in October to 58.6% in November, statistically the same as September...in a bit of a reality check on the BLS, we'd note that Gallup's household survey indicated that the Payroll to Population employment rate was unchanged at 43.7% in November, while their seasonally adjusted unemployment rate rose from 7.7% in October to 8.6% in November....

the seasonally adjusted number of us working part time in November rose by 174,000 to 27,452,000; however, the number who reported that they were working part time who indicated they wanted full time work fell 331,000 to 7,719,000; hence, when combined with the decrease in the unemployed count, the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", fell from 13.8% to 13.2% in November, a post recession low...there was, however, a jump in the percentage of those unemployed 27 weeks or longer; in October, 36.1% of the unemployed fell into that long term unemployed category; by November, it had risen to 37.3%...this is critical because the extended unemployment rations that were renewed as part of the fiscal cliff deal will be expiring at the end of December, and there is little sign that the republican controlled House would go along with another extension....should they expire, 1.3 million of us will have our rations cut off immediately, and another 800,000 will lose these stipends as their unemployment tier comes up between January and March..the adjacent FRED graph puts this group of long term unemployed in historical perspective; it's quite obvious that never before have so many been unemployed for so long...

Unadjusted Data from November Jobs Reports Continues to Diverge

finally, we want to look at the raw unadjusted employment numbers from these two surveys once again, since last week we noted there was a divergence of nearly 3 million in the unadjusted numbers of employment between the two surveys over the preceding three month period...as we showed at the time, the unadjusted payroll job count from the establishment survey had increased by 1,963,000 over the August to October span, while the count of the employed as reported by the household survey had decreased by 967,000, only to have them brought into approximate alignment by completely different seasonal adjustments applied to each....in November, an additional 421,000 payroll jobs were reported by establishments participating in the CES, which again, for the 4th month running, was cut down by the seasonal adjustments; so we now have seen an actual 2,384,000 increase in payroll jobs over the past four months, despite the seasonal adjustments which put the four month job creation total at 816,000...in the November household survey, individuals reported an actual, unadjusted increase of 631,000 in the number who said they were employed...that was ultimately reported as an increase of 818,000 in the number employed...so unbelievably once again, the seasonal adjustment added employed to the household survey after subtracting jobs from the establishment survey...we'll include our historical FRED graph of the unadjusted jobs data from the two surveys below...what we want to look at is the track over the last 4 months, which shows that payroll jobs in red have increased by 2,384,000 over 4 months to 137,942,000 in November, while the actual count of employed as reported by the household survey before adjustments has decreased by 363,000 to 144,775,000 over the same 4 months...note that we expect the household survey count to be higher, because it includes farm workers and self employed who not part of the payrolls report; the point is that the two surveys have been moving in different directions significantly over 4 months...ie, notice that the blue graph of the employed, which had been relatively hundreds of thousands above the red graph for most of the last five years, has now dipped below the red payrolls graph, which is spiking...sooner or later they must converge; one or both must return to trend...

3rd Quarter GDP Growth Rate Revised to 3.6% on Massive Inventory Accumulation

as we mentioned in opening, the 3rd quarter GDP was revised from the 2.8% growth rate reported 4 weeks ago to show growth in the 3rd quarter at a 3.6% annual rate, as nominal GDP rose from a seasonally adjusted and annualized $16,661.0 billion in the 2nd quarter to an annualized $16,890.8 billion in the third...as we had discussed previously, several analysts had anticipated an upward revision to 3rd quarter GDP based on higher inventories which were not reported until after the "advance" estimate was released, but no one saw an increase of this magnitude coming....the caveat is that most of the increase, and in fact nearly half of the growth in 3rd quarter GDP, could be attributed to an increase in inventories, which we can think of as that part of the gross national product which has not yet been sold or used in production, which is still sitting on a store shelf or on a skid in a warehouse somewhere, and that eventually those inventories will either have to move or new production will cease….indeed, real final sales of domestic product only rose at a 1.9% rate in the 3rd quarter, compared to the increase of 2.1% in real final sales in the second quarter...note that while 3rd quarter GDP, adjusted for inflation using chained 2009 dollars is the basis of the percentages in this report, we'll use current dollars in any amounts in our coverage...also note that the BEA has provided pdf supplements showing itemized percentage changes from the second to third quarter and itemized contributions to the percentage change in real GDP which are more accessible than the Full Release and Tables pdf...the small insert below is from Ed Dolan and it summaries how each of the components contributed to GDP in last month’s advance estimate on the left, and on the right, how they add up to the current estimate...

real personal consumption expenditures (PCE), which at an annualized $11,522.8 billion in current dollars accounted for over 68.2% of GDP, was originally reported to have grown at a 1.5% annual rate between the second quarter to the third; that has been revised slightly lower to a 1.4% growth rate, with the change in consumer spending marked down a bit in every category; outlays for durable goods, originally reported to have grown at a 4.3% rate, are now revised to a 4.1% increase; spending for nondurable goods, originally seen as having grown at 2.7% rate, was revised to 2.4%, while spending for services, seen as growing at a 0.1% rate last month, is now revised to show a statistically insignificant contraction...on net, this lowered the contribution from PCE to GDP from an originally reported 1.04% to just 0.96%, the lowest personal consumption contribution to GDP since the third quarter of 2009...

gross private investment, when annualized as all GDP data is, accounted for $2,732.6 billion of 3rd quarter GDP in current dollars and grew at a 16.7% annual rate, compared to the original guestimate of a 9.2% rate; again, most of that annualized increase in gross investment was due to the annualized jump of $146.0 billion in private inventories, so while investment is now seen as adding 2.49% to third quarter GDP rather than the 1.45% reported last month, most of that is the result of the revision of inventory's contributions from .83% to 1.68%...meanwhile, fixed private investment grew at a 5.4% rate, a slightly stronger pace than the 4.1% rate estimated last month; which increased the contribution from fixed investment from .63% to .81%...the improvement there was from the non-residential components, as investments in non-residential structures grew at a 13.8% rate over the quarter, a bit better than the 12.3% rate earlier reported and hence added 0.36% to the GDP figure, while investment in equipment, reported last month as having decreased at a 3.7% rate, was actually statistically unchanged from the 2nd quarter...meanwhile, growth in intellectual property  at 1.7% was slightly less than the 2.2% indicated by the advance report and added 0.07%...in addition, the growth in investment in residential property was also less than the 14.6% reported at 13.0%, and hence its contribution to 3rd quarter growth was written down from .43% to .38%...

meanwhile, net exports (exports minus imports) subtracted $501.9 billion from third quarter GDP, as it always subtracts as long as we're running a trade deficit...but in computing the GDP change from the second quarter, the BEA tells us that inflation adjusted exports were up $18.3 billion, or 3.7%, while adjusted imports were down $15.9 billion or 2.7%; exports were originally reported as up 4.5% for the quarter, while imports were originally said to be up 1.9%, so in this second estimate both made the net trade deficit worse than the first estimate; as the change in exports adds to GDP and the change in imports subtracts from it...hence, where exports were seen to have added .60% to the thrid quarter grwoth rate, they're now seen as adding .50%, while imports, which had been thought to have subtracted but .30%, are now seen to have subtracted .43%, for a total negative change of .24% to GDP from trade...

the final component of GDP, real net government consumption and investment, accounted for $3,137.4 billion of 3rd quarter GDP; $1,251.2 billion of that was Federal government outlays, of which $777.3 billion was defense spending, and $1,886.2 billion was state and local government consumption and investment...note that government transfer payments, such as social security, are only accounted for in GDP insofar as they are spent by consumers...originally estimated to have grown at a 0.2% annual rate in the third quarter, this revision now estimates government outlays grew at a 0.4% pace, with Federal spending shrinking only 1.4% rather than the advance estimate of 1.7%, and state and local government outlays increasing at a 1.7% rate rather than the 1.5% rate first reported...as a result of these changes, falling Federal government outlays subtracted 0.10% from GDP, while rising state and local spending and investment added .19% to the 2nd estimate of 3rd quarter growth...

our FRED bar graph below shows the annualized change of each of the major components of GDP, over each quarter since the beginning of 2011, expressed in the billions of the chained 2009 dollars BEA uses to adjust for inflation....those components that contracted in a given quarter are shown below the zero line and subtract from GDP, those that grew during that quarter are above the line and added to GDP; the exception is imports in green, which subtract from GDP, and which we are showing on this chart as a negative, so that when imports shrunk, they appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they appear below the zero line...the other components include real personal consumption expenditures, shown in blue and clearly the most consistent contributor to GDP, gross private investment, including structures, equipment and intangibles, shown by the red bars, while exports are shown in purple, the change in private inventories is shown in yellow...lastly, the change in state and local government spending and investment is shown in pink, while the change in Federal government spending and investment is shown in grey...(click to enlarge)

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

October’s durable goods report and September Case-Shiller home prices

it's been a short week with no really important economic releases; the last two of the regional manufacturing surveys for November were released by the Dallas and Richmond Feds, there was the release of a purchasing managers index for the Chicago area, and there were several non-critical reports on housing, including pending home sales and the release of two home prices indexes, the Case-Shiller 10, 20 and National Indexes and the FHFA House Price Index...data for new home starts and completions for both September and October were originally rescheduled for November 26th, but the release of both was delayed again until December 18th, although the information on building permits was available on Tuesday and released then, showing a 6.2% increase in new building authorizations on a 15.3% jump in permits for apartment units.....as we've pointed out in the past, both of the Census releases on new home construction - both housing starts and new home sales - are collected by Census field agents who visit just a small sampling of about 1 in 50 building permit offices nationally, and then also conduct road canvasses in areas not covered by building permit regulations to come up with a monthly estimate of new construction and sales activity nationally which has a large margin of error, typically on the order of ±10% to ±20%...apparently the 16 day government shutdown affected the housing data collection for both months enough that the Census felt the margin of error with even a smaller sampling would result in such uncertainty as to render the results useless, so they are still attempting to gather enough data for a reasonably complete survey, which could not be completed by November 26...since the last release of housing starts data was on September 18th for August, that means this latest delay will mean that we'll go a full 3 months without new data on new residential construction...

New Orders for Durable Goods Up 4.8% Year to Date

one regular release we usually take a look at is the October Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf), which is most often covered as just 'new orders for durable goods', because new orders are thought to be a forward looking indicator...but as we've seen in the many previous times we've covered this report, the headline number rises and falls on the widely volatile swings of the big ticket orders for commercial aircraft, and even ex aircraft there are sectors which seem to defy normal seasonal adjustments...so even though seasonally adjusted new orders for manufactured durable goods decreased by $4.6 billion, or 2.0%, to $230.3 in October, the unfilled order book rose 0.3%, or $3.5 billion above September's level to $1,045.4 billion, hardly indicative that manufacturers will have to pull back anytime soon...so it pays to take a look at the whole report and see what it implies for current production, output and GDP, rather than turn the coverage of it into an effort to read next year's tea leaves...

October's 2.0% seasonally adjusted drop in new orders for durable goods, which are manufactured items generally expected to last more than 3 years, followed a 4.1% increase in orders in September and a 0.5% increase in August...in the year to date, new orders have amounted to $2,274,148 million, a 4.8% increase over the same period 2012...precipitating the decrease in October, new orders for transport equipment were down 5.9% to $73,015 million; once again, that was because new orders for civilian aircraft fell 15.9% to $16,047 million and new orders for defense aircraft fell 20.0% to $3,998 million...the generally stabler new orders for motor vehicles and parts were up 1.7% to $46,602 million and are 10.2% ahead of the year ago pace...without transportation equipment, October new orders were at $157,237 million, down less than 0.1% from $157,322 in September...however, the important orders for non-defense capital goods, which are a barometer of business investment, were down 3.9% to $77,886 million in October, and even excluding the decrease in aircraft orders from that, the orders for the so-called core capital goods were still down 1.2% to $66,239...our FRED graph below shows the monthly change for total new orders for durable goods in red, the change in new orders for capital goods excluding defense in green, and the change in new orders for core capital goods in blue for each month since the beginning of 2012..

seasonally adjusted shipments of durable goods were up $0.5 billion, or 0.2% to $233.2 billion in October; shipments represent the first look at what manufactured goods were actually sold & delivered and thus will contribute to fourth quarter GDP, whether included as personal consumption, investment, exports, government procurement or wholesaler's inventories...in contrast to new orders, the strength here was in the transportation sector, where shipments increased $0.7 billion or 1.1% to $70,899 million; that increase, in turn, was driven by a 2.4% increase in shipments of non defense aircraft and parts to $12,277 million and a 1.7% increase is shipments of motor vehicles and parts to $46,785 million, while shipments of defense aircraft and parts fell 20.0% to $3,998 million...

seasonally adjusted shipments of durable goods other than transports were down 0.1%, from $162,555 million in September to $162,346 million in October, largely because of a 2.6% decline in shipments of computers and electronic products to $27,207 million; and it was computers in that sector where the weakness was centered, as shipments of computers and related gear fell 9.1% to $2,240 million...meanwhile, shipments of nondefense capital goods were statistically unchanged as they rose from $74,156 million in September to $74,192 million in October, although without aircraft, shipments of so-called core capital goods fell  0.2% to $65,608 million...however, except for the noted weakness in computers and electronic products, shipments of other durable goods improved over September, with October machinery shipments up 0.8% to $34,246 million, shipments of primary metals up 0.5% to $25,932 million, while shipments of fabricated metal products rose 0.4% to $29,047 million, and shipments of electrical equipment, appliances,and components rose 0.3% to $10,091 million...

durable goods inventories also increased modestly in October, up $1.2 billion to a seasonally adjusted $383.3 billion, which was 0.3% above September inventories and a new record for the series...inventories of transportation equipment made up most of the gain with a 0.9%, $1,053 million increase to $120,040 million, with a $901 million increase in commercial aircraft and parts to $66,065 accounting for most of that... excluding transportation equipment, inventories were just up 0.1% to $263,291 million. with inventories of communications equipment down by 1.9%, the largest percentage contraction in any sector...nondefense capital goods inventories rose 0.5% to $174,249 million, but mirroring the overall durable inventories, they only increased 0.1% ex-aircraft...

the value of unfilled orders for manufactured durable goods were at $1,045.4 billion in October, up $3.5 billion or 0.3% from September...again, unfilled orders for transportation equipment accounted for the majority of the increase, rising $42,116 million to $644,359 million in October, an increase of 0.3%. with unfilled orders for non-defense aircraft and parts again leading that increase with a 0.8% addition to $469,722 million...both  electrical equipment, appliances, and components at $22,589 million and producers of primary metals at $36,433 million saw their order books grow by 1.3% in October, while unfilled orders for motor vehicles and parts shrunk 1.1% to $16,439 million...notice that unfilled orders for all durable goods producers are roughly 4.5 times the value of shipments, while unfilled orders for non-defense aircraft are more than 38 times monthly shipments, meaning there's more than a 3 year backlog at companies such as Boeing, vs an order backlog of around 4 months for the typical durable goods producer..

the FRED graph below shows the monthly percentage change in seasonally adjusted durable goods shipments in orange over the past two years, the monthly change in durable goods inventories in red, and the monthly change in unfilled orders for durable goods in blue, all fairly stable when contrasted with the widely watched monthly gyrations of new orders for durable goods shown here in green; as we pointed out earlier, despite the ups and downs, new orders for durable goods so far this year are still 4.8% above the pace of a year ago…

Case-Shiller: September Homes Post Double Digit Annual Returns

  as we mentioned in opening, the S&P/Case-Shiller House Price Indexes for September (pdf), which is really a 3 month average of prices of repeat home sales over the three month period of July, August and September, was released on Tuesday of this week, and it continues to show the Fed's ongoing success in reinflating the housing price bubble, as unadjusted prices for homes in both the 10 city index and the 20 city index rose 0.7% since the August report and 13.3% over the price level of last September's report, the greatest year over year change since February 2006...in addition, by adjusting the monthly change for typical seasonal home price differences, they found the 10 city index to have increased 0.9% and the 20 city index to have increased 1.0% since August...meanwhile, their National Home Price Index, which is released quarterly, showed an increase of 3.2% from the second to the third quarter and an increase of 11.2% from the 3rd quarter of 2012...with their indexes based on prices from January 2000 equal to 100, the Composite 10 city index was at 180.03, the Composite 20 was at 165.66, and the national price index was at 150.92…of the 20 cities covered in the expanded index, Detroit showed the largest monthly increase in average home prices at 1.5%, although the index for that city remained at the lowest among the lot at 93.86...other cities seeing unadjusted price increases greater than 1% were Las Vegas, up 1.3% to 125.74, Phoenix, up 1.2% to 143.14, and Los Angeles up 1.1% to 212.83...only Charlotte saw home prices lower in the September report, with an index of 124.85 0.2% lower than it was in August..

it's curious that the report continues to refer to changes in house prices as "returns", as if a house were not a building to be lived in, but rather an investment vehicle which could be flipped as soon as a profit could be realized....thus they report that "twelve cities posted double-digit annual returns...with Las Vegas gaining 29.1% year-over-year followed by San Francisco at 25.7%, Los Angeles at 21.8% and San Diego at 20.9% and that "San Francisco and Los Angeles showed their highest annual returns since March 2001 and December 2005"...there's not a mention that the price increases are shutting out most first time home buyers or of whether the average person could afford the average house...other cites seeing significantly large year over year home price increases included Atlanta, where prices rose 18.7% as their index rose to 113.99, Phoenix, where prices rose 18.6% and the index rose to 143.14, and Detroit, where prices rose 17.2% from levels that were already 19.9% below January 2000 levels...the year over year change in each of the 20 cities in the index can be seen on the bar graph below from Robert Oak at the Economic Populist; the scale for the year over year percentage price change is on the left..

Bill McBride at Calculated Risk used the index values for each of the 20 cities to create the next bar graph, which shows the maximum percentage price appreciation from January 2000 for homes in each city to its peak during the bubble years in red, and the low point for the average home price in each city after the crash in blue, also as a percentage change from January 2000...then the current percentage price change from the 2000 index benchmark is shown in orange, which will yield the index value for each city if the benchmark value of 100 is added to that percentage change...you might note that the orange bars for Dallas and Denver have already exceeded their bubble high prices levels shown by their red bars..

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finally, we'll include the pair of FRED graphs we created to show the historical track of home prices in each of the cities in the 20 city index the last time we covered this report; recall that each price index was set to equal 100 in January 2000, so that’s where each of these tracks starts; in the first FRED graph, we have the tracks of home price indexes for Atlanta in bright blue, Boston in bright red, Charlotte in dark green, Chicago in Orange, Cleveland in purple, Dallas in grey, Detroit in mauve, Denver in mustard, Las Vegas in dark blue, and Los Angeles with the highest price track on this chart in beet red (for a better view, click to enlarge)

the second FRED graph shows the the historical price track of each of the metro home price indexes for Miami in bright blue, Minneapolis in bright red, New York in dark green, Phoenix in orange, Portland in violet, San Diego in grey, San Francisco in mauve, Seattle in mustard, Tampa in dark blue and Washington DC in beet red; in addition, this second chart includes the track of the Case-Shiller Composite 20 shown as a heavier black line…again, click for a larger 1000 pixel version of this graph at the St Louis Fed web site where the lines are more distinguishable…at the FRED site you can also look below the graph and click on the line or lines of the cities you want a better view of, and to facilitate that, change the Line Width in the drop down box, and then click "Redraw Graph” to remake the graph so those cities stand out; refreshing the FRED page will return you to these originals, with the opportunity to further edit them…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

adjusting October retail sales with consumer prices; 2 more jobs reports; can the unemployment rate be manipulated? and more..

there were two somewhat important economic reports for October released this week, coincidentally both rescheduled for release at 8:30 AM on Wednesday, retail sales from the commerce department and the consumer price index from the bureau of labor statistics (BLS)....together they're often used by economists to generate a metric that goes by 'real retail sales', which is supposed to be something analogous to the real personal consumption expenditures metric of GDP, and which is said to be an indicator used by the NBER Business Cycle Dating Committee to determine turning points in the economy, ie, the beginning and end points of official recessions...even the Fed generates a graph for real retail sales from these two reports, constructed by a simple deflation the monthly retail sales results with the change in the consumer price index of the same month...the last time we covered these two reports together we suggested that this metric was an inexact and crude measurement that was prone to leading to incorrect conclusions about the direction of the economy, especially in the way it's viewed by the Fed, NBER (National Bureau of Economic Research) and most economists...today we're going to show why it's wrong, and moreover, point to the correct way real retail sales should be calculated...but before we do that, we'll take a look at the two reports in question...

October Retail Sales Increase 0.4% on Unexpected 1.4% Jump in Vehicle Sales

according to the Advance October Report on Retail and Food Service Sales (pdf) from the Census Bureau, seasonally adjusted retail and food services sales were at $428.1 billion in October, an increase of 0.4 percent (±0.5%)* from September and 3.9 percent (±0.7%) above October 2012...unadjusted retail sales, extrapolated from a small sampling, were reported at $421,946 million, an increase over the revised September sales of $402,927... that asterisk points us to a footnote that tells us Census doesn't not yet have sufficient statistical evidence to determine whether seasonally adjusted sales actually rose in October of not, but that they're 90% certain the September to October change was between a decrease of 0.1% and an increase of 0.9%; with that caveat, we'll look at these widely followed advance estimates as reported...

October sales were better than expected; the consensus of analysts had forecast no change in total sales, due to an apparent decrease in October auto sales based on reports from manufacturers; however, the small sampling of auto and other vehicle dealers surveyed for this report indicated their actual sales for the month had increased 1.4% over September, adding to October's sales increase rather than subtracting from it... including parts dealers, October's seasonally adjusted sales in the vehicle sector were at $81,871, a 1.3% increase over September; that percentage change is shown in the first column in the table below from the report, where we can also see in the second column that the percentage change from October 2012 for auto and other vehicle dealers was 11.9%, with a 10.6% year over year sales increase for the whole automotive category…also note that total retail sales excluding motor vehicle & parts dealers were up 0.2% for the month, also beating expectations...

  it's also clear from looking at that first column above that most kinds of business, except for building and garden supplies and gas stations, saw seasonally adjusted sales rise, led by a 1.6% month over month increase in the sporting goods, hobby, book & music store group, who saw seasonally adjusted sales rise to $7,714 million for the month...clothing stores rebounded to show a 1.4% month over month increase while selling $37,847 million of clothing and shoes, and electronics and appliance stores also saw October sales rise by 1.4% to $8,699 million, while furniture stores logged a one month sales increase of 1.0% to $8,687 million, as did restaurants and bars, whose October sales were at a seasonally adjusted $46,317 million...also showing month over month sales gains were drug stores (health and personal care) at 0.5%, where $24,327 million of products were sold in October, non-store or online retailers, who moved $37,847 million of merchandise, 0.4% more than September, and general merchandise stores, where sales of $55,303 million were up 0.2% for the month..meanwhile, food and beverage store sales were virtually unchanged, with seasonally adjusted sales rising to $54,693 million in October, from $54,682 million in September, gas station sales fell 0.6% to $45,165 million as gasoline prices fell 2.9%, and sales at building material & garden equipment stores fell 1.9% to $25,793 million...also note that miscellaneous retailers, where sales fell 0.1%, account for another $10,609 million sales for the month…

also note the third and fourth columns on the table above, which represent the 2nd estimate of retail sales for September...as originally reported, retail sales were down 0.1% to $425.9 billion in September; that estimate has now been revised to a preliminary figure of $426.369 billion, and that works out to a 0.0% change from the seasonally adjusted sales of $426.355 billion in August...the major revision to September sales was in in motor vehicles and parts sales, which were originally reported at $79,773, down 2.2% from August; that's been revised to show September motor vehicle and parts sales at $80,815 million, down just 1.2% from August....other retail sales groups which saw sales revisions of more than 0.2% included clothing stores, which were originally reported to have seen September sales fall 0.5%, which has now been revised to a 0.9% drop; the sporting goods, hobby, book & music store group, originally reported to have seen just a 0.5% change who've now seen their September totals rewritten to indicate a 1.3% sales gain; general merchandise stores, initially reported as up 0.4% which has been revised to just a 0.1% increase; and restaurants and bars, where September sales were reported up 0.9% three weeks ago, which has now been revised to just a 0.2% gain from August...on net, this revision suggests a small upward revision to the durable goods component of PCE in 3rd quarter GDP, partially offset by an even smaller downward revision to non-durable goods…

our FRED bar graph below shows the monthly percentage sales change for each of the 12 major retail sales categories since last October....the monthly data for each of the past 13 months is represented by a grouping of 12 bars, with each type of retail sales represented by its own color code in each group, wherein an increase in sales appears above the ‘0’ line and a decrease below it…from left to right in each group is a dark blue bar representing the percentage change in motor vehicles and parts sales, a red bar indicating the change at general merchandise stores, followed by the percentage change at food and beverage stores in green, the sales change restaurants and bars in mauve, the change at gas stations in orange, the change non-store or online retailers in sky blue, the change at building and garden supply stores in light green, the percentage change at drug stores in mustard, the change in sales at clothing stores in in pink , the change at electronics and appliance stores in purple, the change at furniture stores in yellow, and the percentage change in sales at stores specializing in sporting goods, books or music in pale blue…(click to enlarge)
 

Slowest Annual Inflation Since 2009 as October Consumer Prices Fall 0.1% on Lower Gas Prices

also seeing a delayed release on Wednesday, the Consumer Price Index for October from the Bureau of Labor Statistics was one of the economic reports most profoundly effected by the government shutdown because its input data is normally collected by an army of field agents who visit thousands of retail stores, service establishments, rental units, and doctors' offices, et al each month to track changes in price in the items appearing in the index...to compensate for the loss of 16 days of such data collection, BLS personnel normally devoted to in-office maintenance work were redirected into field data collection and index production, and as a result BLS managed to collect roughly 75 percent of the amount of prices normally used in constructing the CPI, albeit only during the last two weeks of the month, absent prices from the prior days...understanding that this may make the results less reliable, we'll go with what's reported, since considering the methodology there wont be any revision anyhow...

the seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1% in October; entirely due to lower energy prices, as the energy price index fell 1.7% on gasoline prices that were 2.9% lower in October than September.. meanwhile, the food price index rose 0.1%, and the Core CPI, which is the index of all prices less food and energy, also rose 0.1%...the unadjusted CPI, which is based on prices over 1982 to 1984 equal to 100, fell from 234.149 in September to 233.546 in October, and the unadjusted energy index fell from 248.513 to 238.524, while the food index rose from 237.522 to 237.871 and the Core CPI rose from 234,782 to 235.162...the CPI is now up just 0.96%  to 231.317 on a year over year basis, the lowest annual inflation rate since October 2009, while the Core CPI has logged a 1.68% (rounded to 1.7%) annual rate of inflation for all items less food and energy...

other than 2.9% lower prices for gasoline, items in the energy price index which fell in price in October included fuel oil, which was down 0.6%, the index for propane, kerosene and firewood, which slipped 0.4%, and other motor fuels, which also were 0.4% lower; the energy services index was off 0.2%, as a 1.0% decrease in the price of natural gas was partial offset by a 0.1% increase in the cost of electricity...on a year over year basis, the energy price index has fallen 4.8%, as the 9.5% decrease in energy commodities outweighed the 3.3% increase in energy services...

  both of the major components of the food price index, food at home and food away from home, were up 0.1% in October, as was the overall food index; among categories of food at home, prices for cereals and baked goods fell 0.4% for the month, as bread prices fell 3.0%, flour prices fell 0.9%, and the rice pasta and cornmeal index rose 2.2%, while dairy products were 0.2% lower as a 1.3% drop in cheese prices and a 1.4% drop in ice cream prices offset an 0.3% increase in milk prices...meanwhile, prices for meats, poultry, fish, and eggs rose 0.6% on a 1.0% increase in pork prices, 1.5% higher prices for fish and other seafood, and 1.8% higher egg prices, while fruit and vegetable prices were 0.2% higher as lettuce prices rose 4.0%, citrus fruits rose 1.9%, fresh fruits other than apples, bananas and citrus rose 3.2%, while prices for processed fruits and vegetables fell 1.2%; in the beverage group, which saw prices rise 0.4% in October, roast coffee prices increased 0.7% and carbonated drinks fell 0.1%, while the catch all category of other food at home saw a 0.2% price decline, as sugars and sweets rose 0.4%, snacks rose 0.5%, while both butter and margarine and spices and seasoning prices fell 1.1%...in the food away from home grouping, fast food prices rose 0.2%, full service restaurant prices were unchanged, and food at work and school cost on average 0.8% more than it did in September...

  among core prices that increased in October, the cost of shelter rose 0.1%, as rents for one's primary residence rose 0.2%, homeowners equivalent rent rose 0.2% while room prices at hotels and motels fell 4.0%; the cost of apparel fell 0.5%, as men's and boys clothing rose 0.8% as prices for pants and shorts were up 10.2%, women's and girls' apparel fell by 0.8% on 2.2% lower prices for girls clothing, while the prices for footwear fell 0.6%...the overall transportation index, which includes fuel costs, showed a 0.7% decline, but prices for transportation commodities less fuel were unchanged, as prices for new cars and trucks fell 0.2% while prices for used cars and trucks rose 0.3% and parts and accessory prices fell 0.1%...meanwhile, prices for transportation services rose 0.7% in October as public transportation costs rose 2.2% on a 3.6% spike in airline fares...the medical care index showed no change for the month as medical commodities were up 0.3% in price on a 0.6% increase in nonprescription drugs prices while costs for medical care services were off 0.1% on 0.2% lower hospital and related services; in addition, the recreation index rose 0.1% as prices for recreation commodities were unchanged overall as prices for video & audio equipment fell 0.4%, offsetting increases of 0.4% in prices for sporting goods and pets and pet supplies, while recreation services prices increased 0.2% on a 0.4% increase in cable and satellite service and a 05% increase in veterinary and other pet services..the last major price index, for education and communication, showed a 0.2% increase in October as education costs were up 0.4% and communication prices were unchanged; within education and communication commodities, which were down 0.4%, textbook prices were up 1.0% and personal computers fell 1.3% in prices, while education and communication services rose 0.3% for the month as college tuitions were up 0.4% and telephone services rose 0.2%...

  our FRED graph below shows the relative price change in each of these major components of the CPI-U since January 2000, with all the indexes reset to 100 as of that date to make for an apples to apples comparison, as two of the composites were restructured in 1997 and the rest were based on 1982-4 prices…in blue, we have the track of the change in the price index for food and beverages, which tracks pretty close to the track of the CPI-U, which is shown in black; in red, we have the change in the price index for housing, which includes rent and equivalents, utilities, repairs and other homeowners costs like insurance and which at 41% of the CPI also tracks close to the CPI… in violet, we have the price index for apparel, which has been the only index to show a net price decline over the decade…the transportation index, in brown, shows the impact of volatile gas prices on the cost of transportation, while the price index for medical care in orange has obviously risen the most over the entire period…in addition, education and communication prices are tracked in dark green, and the track of the recreation price index is shown in light green..
 

We Find Real Retail Sales Rose .75% in October

now, as we mentioned in opening, an economic metric called "real retail sales" is commonly constructed by using the CPI to adjust retail sales for the same month...the reasoning behind this is that we'd want to know how many units of product were sold, not just the dollar value, and if prices were rising (or falling), the retail sales figures, which do not adjust for price changes, we'd get a skewed result...for instance, if the retail sales report told us the dollar sales of apples were up 5% month over month, the actual change in the number of apples sold couldn't be determined unless we knew if prices for apples changed or not, and by how much...and the reason we would want to know real retail sales early is because real personal consumption expenditures (adjusted for inflation) constitute 70% of GDP, and although that is mostly spending for services, spending for durable goods like cars and appliances, and non-durable goods, like food, clothing and gasoline, still make up a third of expenditures, or over 23% of GDP...in the common method of computing real retail sales for October, the increase in dollar value retail sales of 0.4% is adjusted for prices that were 0.1% lower, suggesting that real retail sales had increased by 0.5% for the month (or 0.47%, using two decimal places)...but as we've seen in reviewing these two reports together, the expenditures they cover don't really match up; in fact, more than 60% of price changes covered by the CPI are for services, not products sold at retail at all....so, if we use the CPI to adjust retail sales for inflation, there's a good chance there will be months where the price change in many of the items sold at retail would go in a different direction than the majority of the CPI components...to put it another way, by adjusting retail sales with the CPI, we'd often end up adjusting sales of cars, clothing, and appliances with the price changes of doctor's visits, apartment rents, airfares, and tuition increases...the only correct way to adjust retail sales with the CPI would be to itemize retail sales and adjust it with the corresponding CPI component price change...we'll run through an example of how that could be done here using our October data, but as you'll see it's a very tedious process better left to a computer program...

the largest component of retail sales is sales at motor vehicle & parts dealers, which at a seasonally adjusted $81,871 million in October accounted for 19.1% of total retail sales; of that, $75,035 million was from vehicle sales, and the rest was sales at parts and tire stores....and as we saw, sales at car dealers increased 1.4% in October...we have two components of the CPI which are suitable to adjust the vehicle sales for inflation; prices for new cars and trucks, which were down 0.2% and prices for used cars and trucks, which were up 0.3%; the weighting of new vehicles in the CPI was 3.133, and the weighting of used vehicles was 1.889, which means that new vehicles were five-eighths of sales, and used vehicles accounted for three-eighths; so we want to adjust 5/8ths of the 1.4% increase up by 0.2%, and 3/8ths of it down by 0.3%, which quite coincidentally gives us a real vehicle sales increase of just over 1.4%, not much change....also buried in that aggregate motor vehicle data are sales of parts and tires, which were up 0.48% in October, while the corresponding prices for motor vehicle parts and equipment were down 0.1%, resulting in a real sales increase of .58%...so in a quick and dirty calculation, we have real retail sales for the motor vehicle & parts dealers component up 1.346% for October...moving on, another large component of retail sales is sales at food and beverage stores, which accounted for 12.8% of retail sales and saw dollar value sales virtually unchanged in October...applying the 0.1% increase in the 'food at home' index of the CPI to those sales, we thus find that real retail sales at food and beverage stores fell 0.1% in October...there were also $46,317 million in sales at restaurants and bars in October, or 10.8% of retail sales; those sales increased 1.0% month over month, and we'd deflate them with "food away from home" from the CPI, which indicated a 0.1% MoM price increase; thus real retail sales at bars and restaurants increased 0.9% in October...$45,165 million in sales at gasoline stations were down 0.6% according to the retail sales report, where they accounted for 10.6% of sales; however, the gasoline component of the CPI tells us that gasoline prices were down 2.9%, so real sales at gasoline stations were up around 2.3%...sales at furniture stores, at just over 2% of retail sales, were up 1.0%, which was not broken down into types by the retail sales report, whereas there are prices for a dozen separate items that might be found at a furniture store on the detailed CPI list...so to adjust furniture sales for inflation, we'd use the overall 'household furnishings and supplies' component, which includes several non-furniture items but is still mostly furniture with appropriate weightings; prices for that index were down 0.2%, so we'd conclude that real furniture sales were up 1.2% in October...sales of $55,303 at general merchandise stores, which were up 0.2% and account for 12.9% of retail sales, presents another problem, in that these stores sell a wide range of merchandise for which there's probably over a hundred CPI entries...we'll adjust those sales with the price change for consumer "commodities less food and energy commodities", which includes all retail items except food and energy, and which was down 0.1% for October, and thus results in a real sale increase of 0.3% at general merchandise stores...the $8,699 million of sales at electronic and appliance stores were not broken down in October, but in prior months appliances, TV & camera stores accounted for about 3/4ths of those sales and computers and software stores were the rest; together they accounted for just over 2.0% of retail sales and increased 1.4% in nominal terms...in the CPI index, appliances, unchanged in price, are a household item, TVs, down 0.6% and cameras, down 0.1% are entertainment, while personal computers, down 1.3%, are educational; using the CPI weightings of each, we figure a 1.6% real sales increase in TV and appliances sales, and a 2.7% real sales increase in PCs and related equipment, giving us a 1.9% increase in real unit sales for the retail group...computing the other retail businesses in a similar manner, we find that real sales at clothing stores, which account for over 4.9% of retail sales, were up 1.9% in October; while real sales at drug stores, which account for 5.7% of sales, were up 0.4% based on weighted price indexes of personal care products and drugs...real sales at sporting goods, hobby, book and music stores, which account for 1.7% of retail, are up 1.6%, same as the actual increase, when adjusted with the unchanged recreational commodity index, and real sales for non-store retailers, which account for 8.8% of retail and adjusted as general merchandise, were up 0.5% in October...we also find that real sales at building and garden supply stores, which at $25,793 million account for 6.0% of retail sales, when adjusted with prices for tools, hardware, outdoor equipment and supplies, were down 2.0% in October and that miscellaneous store retailers, at 2.5% of the total, saw no change in real retail sales...

now that we've done this exercise of computing the real retail sales percentage change of each business group covered by the retail sales report, we have to add them together to come up with a final figure for real retail sales, so we'll express that math in a detailed longhand expression so we all can see what we're doing...real retail sales for October = 19.1% * 1.346% + 12.8% * -0.1% + 10.8% * .9% + 10.6% * 2.3% + 2% * 1.2% + 12.9% * .3% + 2.0% * 1.9% + 4.9% * 1.9% + 5.7% * .4% + 1.7% * 1.6% + 8.8% * .5% + 6.0% * -2.0% + 2.5% * 0% = + .75%, assuming we've done the math right...so our calculation of real retail sales is apparently nearly 0.3% higher than the simplistic method of just deflating total sales with the CPI...one obvious reason that would account for much of the difference was the gas station component, which would have been carried as down 0.5% when deflated with CPI-U, but is apparently up 2.3% when deflated with gasoline prices...perhaps some combination of gasoline and tires, batteries and accessories would have been a more appropriate deflator, but we have no data on which to base that percentage...another reason that this workout produces a higher real retail sale result is more valid; that being that prices for items bought at retail (aka commodities in CPI jargon) have been trending down in price while prices for services have generally been up; that's clear just from reviewing some of what we saw in this month's CPI core data; it makes no sense to deflate car sales (transport commodity) with the 3.6% spike in airfares (transport service)...but that's the kind of thing actually being done when the NBER, the Fed and other economists deflate retail sales using the entire CPI...

Job Openings and Hiring at 5 Year Highs

there were also two more employment reports released on Friday, both at 10 AM, as the Bureau of Labor Statistics is quickly catching up on its shutdown delayed backlog...the Job Openings and Labor Turnover Summary for September, which includes estimates of the number and rate of job openings, hires, and separations by industry and by geographic region, uses the phrase "little changed" in describing the month over month change in the first five metrics mentioned in the opening summary, in recognition of the fact that what changes did occur fall within the margin of error in this report, as they only survey 16,400 establishments to create this report, in contrast with the 145,000 businesses and government agencies surveyed for the Current Employment Statistics, aka the establishment survey...what they actually reported is that that the seasonally adjusted number of job openings rose by 69,000, from 3,844,000 in August to 3,913,000 in September, the highest level since before the recession, with 32,000 new openings in retail trade while manufacturing job openings, primarily in the durable goods area, fell by 16,000...the unadjusted number of job openings was a bit higher at 3,950,000, with 531,000 of those in retail, up from the 455,000 retail job openings in August...the seasonally adjusted number of workers hired (or rehired) in September also hit a new 5 year high, at 4,585,000, up 26,000 from the 4,559,000 hired in August...the biggest jump in hiring came in the professional and business services sector, where 1,012,000 were hired, 33,000 more than were hired in August...total separations were up as well, by 21,000 to 4,426,000 in September, as the leisure and hospitality sector saw 51,000 more employees fired, laid off, quit or otherwise discharged than were in August...the difference between those hired and those separated in September was thus 159,000, which is pretty close to the 163,000 payroll jobs gained in September indicated by the most recent establishment survey revision...this JOLTS survey had been showing roughly 20,000 less net new jobs per month than indicated by the Current Employment Statistics throughout this year…

monthly job separations are further divided into those who quit, those who were fired or laid off or otherwise let go, and 'other' separations, which includes retirement and employee deaths; in seasonally adjusted data, 2,342,000 workers reportedly quit their jobs in September, down a bit from the 2,364,000 who quit in August, another 1,727,000 were laid off or otherwise discharged by their employer, an increase from August's 1,676,000 discharges, and other separations numbered 303,000...the unadjusted data shows 2,567,000 worker quits, with nearly a million of those who had worked in retail or food service quitting their jobs, and 1,848,000 layoffs or discharges, with the largest number of those, 431,000, coming from professional and business services...our FRED bar graph above shows the monthly change in each of the major metrics from this series over the past two years…each grouping of five bars represents the changes that occurred in one month, with increases above the ‘0’ line and decreases below it…the blue bars indicate the change in the number of job openings each month, while the orange bars represent the change in the number hired for the month; in addition, the red bars indicate the change in layoffs and discharges, the green bars indicate the change in the number of those who quit each month, and each violet bar shows the monthly change in the total number of separations…you might notice that increases in overall job turnover have slowed somewhat from last year, and in fact, from the years before it, which you can view if you click on the FRED graph for a larger view and change the “Observation Date Range” for “All Bar Series”…

Regional and State Job Creation and Unemployment Rates Show Little Improvement

the other jobs report released by the BLS on Friday was the Regional and State Employment and Unemployment Summary for October, and like the US employment summary usually released on the first Friday of each month, this report is actually two reports, one which reports new payroll job creation as reported by businesses and agencies, and the other on the status of employment or lack of it as reported by households, combined with state data and estimates...so basically what this report does is takes the data from the October jobs report which we covered two weeks ago and breaks both job creation and household employment statistics down by region and by state...so like that report, data collection was delayed by the shutdown, and there was a similar divergence in reporting methods between the two surveys, wherein furloughed government employees were still considered employed by the establishment survey, while they were supposed to be marked as unemployed on temporary layoff in the household survey...

seasonally adjusted state data from establishments showed the states with the largest seasonally adjusted increases in payroll jobs were Florida with 44,600, including 11,300 in professional and business services and 11,000 in leisure and hospitality, California with 39,800, including 12,200 government jobs, and North Carolina with 22,200, including 7,600 in education and health, while Kentucky lost 12,600 jobs and Washington's payroll employment was reduced by 8,100...the largest percentage job increase occurred in Wyoming, which saw payroll jobs rise by 1.0%, while Delaware, Florida, and Nevada all saw job increases of 0.6%...percentage-wise,  the largest month over month decrease in employment occurred in Kentucky at 0.7%, followed by South Dakota at 0.6% and Washington at 0.3%...the map below, taken from page 23 of the full pdf of this report, shows the year over year percentage change in payroll employment in each state, from greater than 3.1% in white to a decrease in employment in black… 

from the seasonally adjusted state labor force and unemployment data, we find that Nevada has the highest state unemployment rate at 9.3%, followed by Rhode Island with 9.2% and Michigan with 9.0%, while North Dakota continues to have the lowest jobless rate at 2.7%...only the District of Columbia saw its unemployment rate rise measurably, as it increased from 8.6% to 8.9%, whixh was more than likely mostly shutdown related...meanwhile Missouri saw it's unemployment rate fall 0.4%, from  6.9% in September to  6.5% in October, as did South Carolina, where the unemployment rate fell from 7.9% to 7.5%...meanwhile, the unemployment rate for North Carolina fell 0.3%, from 8.3% to 8.0% , and five states saw their jobless rate fall by 0.2%: Nebraska, where the rate went from 4.1% to 3.9%, Minnesota, where the rate fell from 5.0% to 4.8%, Maine, where the jubless rate 6.7% was down from 6.9% in September, Delaware, where unemployment fell from 7.0% to 6.8%, and Georgia, where the September jobless rate of 8.3% gave way to the 8.1% rate in October...the map below, also taken from the full pdf report, indicates the unemployment rate in each of the 50 states by darkness of its shading, from those with an unemployment rate below 5.4% in white to those with an unemployment rate between 8.5% and 9.9% with the densest cross hatching..

 

Manipulation of Employment Data is Possible but Not Easy

and since we've been talking unemployment rates, there was a story in the NY Post this week wherein a Census Bureau employee claimed to have falsified survey data for the monthly unemployment report during the run-up to to the 2012 election, which resulted in a precipitous decline in the September unemployment rate from 8.1% to 7.8%, and thereby helped Obama win the election...it shouldn't be much of a surprise that this was picked up by the right wing media, including the likes of Rush Limbaugh, so since the allegation that an employment report was manipulated, and is still being manipulated, is in the news, maybe we should look at how feasible that would be... 

recall that the unemployment rate comes from a survey 60,000 households representing the employment status of 110,000 individuals per month...these surveys are conducted by the Census bureau for the labor department, and the BLS tells us that roughly 2,200 census employees from district offices interview those chosen to participate (based on a regional & demographic mix) first at their home, then three times later by phone before they are dropped out of the survey for a year...so that means the average Census employee is responsible for 50 responses to the survey each month...since there are more employed than unemployed, the opportunity for one employee to switch unemployed to employed is minimal; ie, with the labor force participation rate less than 65%, the average mix of those in the caseload for one census employee would include 29 employed, 3 unemployed, and 18 not in the labor force...thus, with each answer to the survey translating into a little over 22,000 in the final totals (based on a working age population around 245 million), it's unlikely one rouge employee could reduce the number of unemployed in the final tally by more than 70,000...so with a margin of error of +/- 300,000 in the monthly change in the number unemployed and +/- 0.2% in the employment rate already assume for this survey, it would take at least 5 census employees falsifying every unemployed person they interview to even swing a change larger than the margin of error...

part of the subsequent media discussion after this article revealed that Census offices in the New York and Philadelphia regions were having trouble meeting their quotas of 90% successful interviews, and that in Philadelphia in particular, they were alleged to have filled the gap with fake interviews...we can almost imagine a supervisor under pressure to meet a quota telling employees do whatever you have to, even make up data, to cover his backside, and that a supervisor made such a statement was part of the allegation...but if that’s the case, it didn't show up in the data; the unemployment rate in the Philadelphia region actually rose in September 2012…what we have to understand is that most census employees are career number crunchers; so we would not be surprised to find that some started work at the Census under Reagan or even earlier...so their politics is probably in a similar proportion to that of the general population...if it was known in the agency that some employees were fudging reports to make Obama look better, as was alleged, those opposed to him could much more easily switch employed to unemployed than vice-versa, simply because there are more employed in each caseload... 

BEA Misses September Inventory Increase; Implies +0.3% Revision to 3rd Quarter GDP

finally, we'll take a quick look at a bit of old business...if you recall last week, we were trying to piece together a few missing pieces of September data that weren't available to the BEA when they computed 3rd quarter GDP two weeks ago; this week we got another bit, when the Census released the Manufacturing and Trade Inventories and Sales report for September (pdf)...what we pointed out when the report on wholesale inventories was released last week was that the BEA, in estimating 3rd quarter GDP, added a a technical note (pdf) that indicated one of their assumptions was that wholesale and retail inventories other than motor vehicles would decrease by $7.6 billion in September, so when wholesale inventories already had shown a $2.0 billion increase last week and forecasts were for retail inventories to also increase, it looked like the BEA had seriously underestimated inventory buildup in September....this week all the results are in; total seasonally adjusted manufacturers’ and trade inventories at the end of September were at $1,679.1 billion, up 0.6% (±0.1) from August; manufacture's inventories were at $634.0 billion, up from $631.3 billion, retailers inventories were at $538.8 billion, up from $534.1 billion, and as reported last week, September wholesale inventories were at $506.3 billion, up from $504.3 billion in August...thus total inventories were up by $9.4 billion, and only $3.3 billion of that was motor vehicles...with both the CPI and wholesale prices showing almost no inflation, there wont be much of a deflator, so it's a good bet that J.P. Morgan, Barclays, and Macroeconomic Adviser economists are probably right, and that 3rd quarter GDP will be revised up by 0.3% or more as a result...but that only means that goods produced earlier in the year on still sitting on manufacturers, wholesalers, and retailers shelves, which will have to be drawn down before much more new goods can be produced…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)