Sunday, September 9, 2012

August unemployment, US and global PMI indexes

you've probably already heard that we had a rather weak employment report for August, as it was widely reported as bad news for obama; its hard to believe one set of government statistics released two months before the election could influence its outcome (if you took a poll it's doubtful few voters could quote any numbers, much less explain them) but the media buzz about it could certainly create a sense that things are getting worse...and they have, but it's been ongoing for months; job gains over the past three months averaged 94,000 per month, barely down from the 2nd quarter average of 95,000; numbers inadequate to keep up with a working age population growing 125,000 monthly; and even with the strong first quarter job growth, the average monthly job gain of 139,000 this year is still weaker than last year's average of 153,000...

the headline numbers for the August employment report from the BLS showed that nonfarm payroll employment rose by a seasonally adjusted 96,000 in August, and the unemployment rate fell to 8.1% from the 8.3% rate of July; the reported job gain of 163,000 in July was revised to a gain of 141,000, and added employment for June was revised from 64,000 to 45,000, so the revisions alone leave us with 41,000 less jobs ...both of the metrics we watch monthly declined; the employment-population ratio fell to 58.3%, a new low for the year, and the labor force participation rate fell from 63.7% to 63.5%, a 31 year low, which is of course what accounted for the decline in the headline unemployment rate...as you should all know, this report is created from two BLS surveys; we'll start by looking at the establishment survey summary, which as it goes to 140,000 businesses and agencies, is considered more accurate than the household survey of 60,000...the 96,000 job gains reported by this survey were fairly concentrated in 3 areas; employment by restaurants & bars accounted for 28,000 new jobs; professional and technical services accounted for another 27,000, of which 11,000 were in computer systems design, and health care employment rose 17,000, most of which were the 14,000 jobs added by ambulatory care services...other job gains were registered by utilities, which added back 9000 jobs after the resolution of a labor dispute, and by the finance and insurance sector, which added 11,000 jobs....7,000 jobs in government were also eliminated, which means we had a total private sector gain of 103,000 for August...manufacturing employment, which had been strong all year, showed the most job losses at 15,000, but that was largely due to a seasonal adjustment which reversed the manufacturing "jobs gained" when auto industry July retooling shutdowns were less than normal; other sectors, including retail and construction, were little changed...although employment by construction workers is now at a one year low, CNBC ran a story this week implying that home builders cannot find enough skilled workers to meet the demand...the caveat to these numbers, of course, is that this survey has a margin of error of ±100,000, and since the payroll processor ADP, who's numbers normally run close to those of the BLS, reported a jobs gain of 201,000 in August, we might suspect the numbers in this report to have erred on the downside...this survey also reports the average workweek for all employees on private payrolls, which was unchanged at 34.4 hours in August, and the average manufacturing workweek, which declined 0.2 hours to 40.5 hours; average factory overtime was unchanged at 3.2 hours...the average hourly earnings for all employees on private payrolls edged down by a penny to $23.52, leaving us with a year over year earnings gain of only 1.7%...spencer at angry bear provides a long term graph of the YoY decline in hourly earnings gains, which is included here to the above right; you can see hourly earning climbed from 1965 to increase at an annual rate over 8% during the carter years, after which the rate of increase fell precipitously during the reagan years, and has barely kept up with inflation since...

Employment Pop Ratio, participation and unemployment ratesthe household data summary is the part of this report that gives us the headline and other unemployment rates as well as the labor force metrics; despite the fact that the headline unemployment rate fell to 8.1%, the number of employed reported by the household survey also fell, as it showed 119,000 less employed than were working in July (on a seasonally adjusted basis); the reason the rate went down was that number of those counted as unemployed also went down, by 250,000, as the total civilian labor force fell by 386,000...since this survey reported an increase in the civilian noninstitutionalized population of 212,000, that resulted in a total "not in the labor force" of 88,921,000, 581,000 more than July, & the highest number of us not counted by the BLS in history...with such a large number of newly uncounted in August, other stats from this survey should probably taken with a grain of salt: for instance, the number of those listed as working parttime for economic reasons who wanted full time work fell by 215,000 to 8.031 million, from 8.246 million so listed in July; that resulted in a fall in the underutilized (U-6) unemployed rate from 15.0% to 14.7%...in an anomaly of sorts, the unemployment rate for high school graduates without college went up from 8.7% to 8.8% while the unemployment rate for high school dropouts fell from 12.7% to 12.0% (graph)...the number of those unemployed 27 weeks or longer also fell by a substantial 152,000, which should be good news if we didnt suspect the decline was due to a large number who stopped looking for work because they were no longer eligible for federal emergency unemployment rations, since all the states have now seen a large enough decrease in their headline jobless rates to have been tripped of the extended program...the household survey also categorizes 2,561,000 of us as marginally attached to the labor force, who are those individuals not in the labor force, who wanted and were available for work, and had looked for work sometime during the previous 12 months but were not counted because they hadnt looked for work during the 4 weeks covered by the survey; of those, BLS numbered 844,000 as discouraged workers in August, a decline of 133,000 from a year earlier; these are persons who didnt look for work in August because they believed no jobs were available for them; the remaining marginally attached are those who had returned to school or had family responsibilities prevent them from seeking work during the last 4 weeks...the chart included to the right here from bill mcbride graphs 3 metrics derived from the household survey; the unemployment rate in red is at 8.1%; the labor force participation rate, at a 31 year low, is in blue, and the employment population ratio at 58.3% is in black...you might also notice a general correlation between the labor force expansion in 80s as women began to enter the labor force and the period of decline in the rate of hourly earnings increase during that same time-frame, as shown in the graph from spencer above...

ISM PMIexcluding the friday jobs figures, the major economic releases of the week were the purchasing managers indexes from the Institute for Supply Management; the ISM August Manufacturing Report showed the 3rd consecutive month of marginal contraction, following 3 uninterrupted years of expansion, as the PMI registered 49.6, down slightly from the 49.8 reading in July, & also the lowest reading for the PMI since July 2009; the important new orders index was down 0.9% to 47.1, and the employment index, though still positive, dropped from 52.0 to 51.6, its lowest reading since November 2009 (recall that for these indices, a reading below 50 indicates contaction); the production index also fell 4.1% to 47.2%,, indicating contraction in production for the first time since May 2009, & the order backlog index fell to 42.5 from 43.0 in July...the only manufacturing subindexes which showed increases were inventories, which rose from 49.0 to 53.0, and prices, which rose from 39.5 to 54.0...of 18 manufacturing industries covered in this report, only 8 experienced expansion, led by printing, primary metals, food, beverage & tobacco, and petroleum & coal...the adjacent graph is Bill McBride's long term graph of the ISM manufacturing index with recessions marked by light blue bars; the correlation between contraction (below 50) in this index and recession is clearly obvious...the ISM also released their August Non-Manufacturing Report On Business which covers service industries in the same manner as manufacturing; relatively new (started 2008), this index is thus less widely followed than the manufacturing PMI, and the PMI for this index has remained in expansion since the beginning of 2010; for August, the NMI/PMI registered 53.7, which was 1.1 points higher than the 52.6 reading for July, indicating the service sector continues to expand at a slighter faster rate than in July; the business activity index registered 55.6%, which was 1.6 points lower than the 57.2 reported in july; the new orders index decreased by 0.6 to 53.7, but the employment index, which had indicated contraction in July, was 4.5 points higher at 53.8%, indicating growth in service sector employment; like the manufacturing index, the greatest component gains were in the prices index, which increased 9.4 percentage points to register at 64.3, and "inventory sentiment", which rose from 59.0 to 67.0, which means it's too high...the ten non-manufacturing industries reporting growth in August were led by agriculture, fishing & hunting, finance & insurance, & food and lodging in that order; only the mining, wholesale, information, entertainment and health care assistance industries indicated contraction in August...

since we seem to be in the midst of a global slowdown, we're also going to continue to watch the manufacturing indexes of the major european & asian economies, because they are the best proxy we have for the ongoing economic situation in the countries we trade with...we'll start by looking at the two August manufacturing PMIs releases for china, the world's 2nd largest economy, because they both indicate a deeper slowdown than was widely expected; first, the official reading of manufacturing output from the Chinese National Bureau of Statistics slipped into contraction for the first time in nine months as the PMI declined to 49.2 in August from a reading of 50.1 in July; weakness in orders acted to pull the overall index into negative territory, as the new orders index fell to 48.7 from 50.9 and the export index was unchanged from the July at 46.6…then the HSBC China Manufacturing PMI (pdf) reported operating conditions for Chinese manufacturers deteriorated at the fastest pace in 41 months as the HSBC PMI posted a 47.6 in August, down from 49.3 in July, signaling a tenth successive month-on-month contraction; without specifying numbers for the subindexes, HSBC reported that export orders dropped the most since March 2009, backlogs of work fell modestly, job shedding was recorded for the 6th month in a row, & average input costs declined at the sharpest rate in 41 months; anecdotal stories tell of raw material import shiploads sitting idle on chinese docks, and finished goods inventories gathering dust in showrooms…in a separate release, HSBC reported activity of chinese service industries expanded at a slower pace in August as the service PMI fell to 52 from 53.1 in July…most of the other major asian powers were also showing contraction; the Markit/JMMA Japan Manufacturing PMI (pdf) fell to 47.7 in August down from 47.9 in July, with output and new orders down at an accelerated pace; the HSBC South Korea Manufacturing PMI (pdf) rose to 47.5 in August from 47.2 in July, but remains at a level still indicatiing moderate contraction, and the HSBC Taiwan Manufacturing PMI registered 46.1 in August, down from 47.5 in July…only India, the world’s third largest economy, continued to show an expansionary reading, although the HSBC Manufacturing PMI for India (pdf) slipped slightly to 52.8, down from 52.9 in July…

all the major economies of europe also continue to show contraction except for Ireland, which seems to be benefiting from exports to the US, although the Markit Irish Manufacturing PMI fell to a 4 month low of 50.9 from July's 53.9...(all Markit releases are pdfs)...the final Markit Eurozone Manufacturing PMI at came in at 45.1 in August, up from the 37 month low of 44.0 recorded in July but the 13th consecutive month of contraction overall;  the August Markit German Manufacturing PMI showed a slower decline in manufacturing output while new export orders fell at the fastest pace since the depth of the recession 40 months ago, as the German manufacturing PMI rose to 44.7 from a 37 month low of 43.0 in July, its first gain since january...the Markit French Manufacturing PMI also increased, to 46.9 from 43.4 in July, the highest reading since April but as Markit notes "still indicative of a marked pace of deterioration in overall operating conditions"...meanwhile, conditions for Italian manufacturing got even worse, as the Italian Manufacturing PMI fell to 43.6 in August, from the reading of 44.3 in July, it's second lowest reading in 3 years; although international demand decreased, the domestic market remained the key weakness, and the Markit Spanish Manufacturing PMI remained well below the 50.0 unchanged level at 44.0, although it rose from 42.3 in July…PMIs for several other major economies are included in the above table from bank of america via ZeroHedge, which notes that 80% of the 22 countries they track are now in contraction (shown in red); the chart, which will expand if you click it, is ordered with those countries whose PMI gained the most in August at the top, to the biggest August losers at the bottom, whether in contraction or not…the WSJ also has an interactive table of world wide PMIs from their own research dept, which is sortable by each column & covers a few more countries….

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…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…)

1 comment:

  1. EXCELLENT WORK BREAKING DOWN THE PMIs

    Thank You RJ

    ReplyDelete