Sunday, May 4, 2014

April employment, 1st Quarter GDP, March income and spending, February Case-Shiller home prices, et al

the economic releases came fast and furious this past week, as it was one of those odd weeks where month end reports, such as the S&P Case Shiller Home Price Index, quarterly GDP, and the Income and Outlays report fell into the same week as the employment reports and the ISM indexes, which are typically released in the first week of the month....widely watched reports from this past week that we wont cover in this summary include the March Pending Home Sales Report from the National Association of Realtors, which saw their index up 3.4% in its first increase in 9 months, the March report on Construction Spending (pdf) from the Census Bureau, which saw private construction increase by 0.5 percent (±1.0%)* to $679.6 billion while public construction fell 0.6 percent (±2.1%)* to $262.9 billion, the lowest since 2006, the Dallas Fed Survey of Texas area manufacturing for April, which saw it's general business activity index increase  from 4.9 to 11.7, the April Chicago Purchasing Managers Index for Midwest manufacturing, which rose 7.1 points to 63.0, the Institute for Supply Management's report on April manufacturing, which saw the composite purchasing manager's index (PMI) increase from 53.7% to 54.9%, the Full Report on  Manufacturers' Shipments, Inventories and Orders for March (pdf) from the Census Bureau, which saw new orders for manufactured goods increase by 1.1%, shipments of manufactured goods increase by 0.3%, inventories of manufactured goods increase by 0.1%, and unfilled orders for manufactured goods increase by 0.6%, and the April ADP National Employment Report (pdf), which indicated that private sector employment increased by 220,000 jobs, with 197,000 of those in service industries...

Employers Add 288,000 Jobs in April

on its face, the Employment Situation Summary for April from the Bureau of Labor Statistics appeared to be one of the better employment reports we've seen in some time...the establishment survey indicated that non-farm payrolls grew by a seasonally adjusted 288,000 jobs in April, the largest one month increase since January 2012...in addition, the increase in non-farm payroll employment for February was revised from 197,000 to 222,000, while the change for March was revised from from an increase of 192,000 to an increase of 203,000 jobs....on net, that left the seasonally adjusted payroll job count at 138,252,000, 324,000 higher than the last report...even better, the unadjusted establishment data indicates that non-farm payrolls increased by 1,152,000 to 138,288,000 in April, 2,377,000 more than April a year ago....the FRED bar graph below incorporates the revisions to the February and March reports and shows the seasonally adjusted payroll job change monthly since the beginning of 2008....the 713,000 payroll jobs added over the past three months is the strongest 3 months of job creation since the 829,000 jobs added in the first three months of 2012...

seasonally adjusted payroll jobs increased in most sectors in April, with only information services showing a net reduction of 3,000 jobs as motion picture and sound recording payrolls shrunk by 7,300...75,000 jobs were added within the  broad professional and business services category, with 24,000 of those in temporary services, 11,900 in management services, and 8,900 in computer systems design; another 34,500 jobs were added in retail, with clothing stores adding 10,500 while electronics and appliance stores cut the same number....seasonally adjusted construction employment rose by 32,000 with gains of more than 10,000 each in building construction, specialty trade contractors and heavy and civil engineering construction; note that actual job growth in the sector was 212,000 before the seasonal adjustment...employment in the leisure and hospitality sector increased by 28,000 as 32,600 more jobs opened up in restaurants and bars while jobs in amusements, gambling, and recreation fell by 8,700...the health care and social assistance sector added another 27,900, with 12,600 of those in ambulatory health care services and 9,200 in social assistance...another 15,700 jobs were added in wholesale trade, with 8,200 of those involved in distribution of non-durable goods...government employment increased by 15,000 with the addition of 12,000 employees at the local school district level while private education services also added another 12,400...manufacturing industries also added 12,000 slots, with 11,000 of those in durable goods manufacturing, led by the 4,200 added by machinery manufacturers...another 11,300 jobs were added in transportation and warehousing with the addition of 6,800 jobs in trucking while the mining category, which includes oil and gas exploitation workers, added 9,600 jobs, with 7,300 of those in support activities...a net of 6,000 more were on payrolls in financial activities, as the addition of 8,100 in real estate and leasing offset the loss of 5,500 in credit intermediation...and "other services", such as membership associations and personal and laundry services, added another 15,000 more...

despite the widespread hiring in higher paying sectors, there wasn't much improvement in average paychecks...the average workweek for all payroll employees was unchanged at 34.5 hours, with the sectors seeing the heaviest hiring,  professional and business services and retail, slipping a tenth of an hour to 36.2 hours and 32.1 hours respectively, while the manufacturing workweek shortened by 0.2 hours to 40.8 hours, and factory overtime was unchanged at 3.5 hours, and only construction, transportation and education workers saw their workweeks increase...in addition, the average workweek for production and nonsupervisory employees was unchanged at 33.7 hours, with retail nonsupervisory workers seeing their workweek increase a tenth of an hour to 30.0 hours...the average hourly pay for all workers was also unchanged at $24.31 an hour as 2 cent an hour lower pay in goods producing industries offset a penny an hour increase in the service industry average...only the average pay for nonsupervisory workers, which was down 2 cents an hour to $20.47 an hour in March, saw a rebound as the April average pay improved 3 cents to $20.50 an hour, with non-supervisory personnel in the information sector seeing the largest increase of 16 cents an hour to $28.89...

Those "Not in Labor Force” Top 92 Million for the First Time

in contrast to the relatively decent returns from the survey of employers, the results of the household survey were a disaster...the only saving grace with this survey is that since it's extrapolated from a tiny telephone sampling of 60,000 households, the margin of error in the count of the unemployed is +/- 300,000 and it's tended to be so volatile that discouraging results in one month are typically reversed the next...despite the 288K increase in payroll job count, this survey indicates that 73,000 less of us were employed in April than in March...and even though the count of those unemployed fell 733,000 to 9,753,000, it wasn't because they found jobs; instead, it was simply because they quit looking for work during the month and hence weren't counted, as the civilian labor force fell by 806,000, despite a 181,000 increase in the working age population...that meant that the number of us "not in the labor force" rose by 988,000 to a new record high of 92,018,000 non-participants...as a result, the labor force participation rate fell by 0.4% to 62.8%, matching the 36 year low for this metric that was set in October, when the government shutdown resulted in what we thought at the time was a one time aberration in the labor force count...our FRED graph below shows the labor force participation rate in red going all the way back to January 1978, in order to include February 1978, the last time the participation rate was below today's at 62.7%, a time when most women did not need to work outside of their home...this graph also shows the employment to population ratio in blue, which was statistically unchanged at 58.9% in April, despite the decline in employment and increase in population...bizarrely, with less of us counted as unemployed because they dropped out of the labor force in April, the widely watched unemployment rate also dropped by 0.4% to 6.3%, the lowest unemployment rate since September 2008...

in like manner, with the number of unemployed depressed because of labor force drop outs, other metrics from this survey were correspondingly reduced...the broader unemployment rate, U-6, which includes those just working part time for economic reasons, also fell by 0.4%, from 12.7% to a new post-recession low at 12.3%, even though the number of us who were stuck working part time who indicated they wanted to be working full time, or those who had their hours cut, rose by 54,000 to 7,465,000....and the number of us unemployed for more than 27 weeks, who are no longer eligible for unemployment rations, also fell by 287,000 to 3,452,000, which could account for a lot of the labor force drop outs...that in turn contributed to a reduction of the average duration of unemployment from 35.6 weeks in March to 35.1 weeks in April...but among those not officially in the labor force and hence not counted, 6,088,000 reported that they still wanted a job even though they hadn't searched for one during the month, up from 5,891,000 in March....of those, 2,160,000 were categorized as "marginally attached to the labor force" because they had looked for work sometime during the last year, but not during the 30 day period covered by the April survey...783,000 of those were further characterized as "discouraged workers", because they reported that they haven't looked for work because they believe there are no jobs available to them...and discouraged workers also increased by 85,000 from the March count of 698,000....

Except for Health Care and Heating, Economy Contracts in 1st Quarter

the Advance Estimate of 1st Quarter GDP from the Bureau of Economic Analysis indicated that the output of goods and services produced in the US grew at a bare minimum 0.1% annual rate in the first three months of this year when compared to the 4th quarter of 2013, against expectations of a 1.0% or greater growth rate in the quarter....in current dollars, our 1st quarter GDP would extrapolate to $17,149.6 billion annually, up from the $17,089.6 billion annualized figure of the 4th quarter...however, since the change in GDP being reported here is not a measure of the change in the dollar value of our GDP but a measure of the change in our output, it's adjusted for inflation using chained 2009 dollars, from which all percentage calculations in this report are based...the adjustment used in the first quarter, aka the "GDP deflator" would suggest annual inflation at a 1.3% rate, down from 1.6% in the 4th quarter...also recall that all quarter over quarter percentage changes reported here are given at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period...as is always the case with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions which average +/-0.7% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate is released, which will be two months from now...note that March trade and inventory data have yet to be reported, and BEA assumed an increase in exports and a decrease in imports, and that wholesale and retail inventories and nondurable manufacturing inventories had also increased in March...also note that revised construction data released the day after this report suggests that our GDP actually contracted during the first quarter...

real personal consumption expenditures grew at a 3.0% seasonally adjusted annual rate in the first quarter, but much of that increase was due to larger outlays for home heating and Obamacare related increases in health care spending....real consumption of goods was up at a 0.4% rate, with unit consumer purchases of durable goods growing at a 0.8% rate and adding 0.06% to GDP on the strength of a 3.0% real growth rate in recreational goods and vehicles, while real outlays for furnishings and durable household equipment fell at a 1.7% rate...a major factor in the real growth of durables was a 2.5% negative deflator, greater than we had estimated, which turned lower dollars sales of durables in the 1st quarter into a positive GDP contribution….consumption of non-durable goods was up a tiny 0.1%, as a annualized 4.3% drop in consumption of clothing and footwear offset small gains in consumption of food, gasoline, and other non-durable goods...but it was the growth of services at a 4.4% annual rate, the largest jump since 2000, that taken alone would have indicated a GDP growth rate of 1.96% for the quarter, that certainly saved us from contraction, as household consumption expenditures for health care grew at a 9.9% annual rate and the housing and utilities component grew at a 6.0% rate while real outlays for recreation services and food services and accommodation fell and other services consumption only grew marginally...

seasonally adjusted gross private domestic investment, which had been growing at a 2.5% annual rate in the 4th quarter of 2013, fell at a 6.1% annual rate in the first three months of the new year and subtracted 1.01% from the GDP growth rate...real gross private fixed investment fell at a 2.8% rate as nonresidential fixed investment fell at a 2.1% rate on a 5.5% reduction in outlays for equipment, with a contraction in business spending on transportation equipment and computers leading the decline, while investment in intellectual property products grew at a 1.5% rate and investment in non-residential structures barely grew at all...on net. fixed investment subtracted from GDP at a 0.44% annual rate, with contraction in equipment subtracting 0.32% and intellectual property adding 0.6%, while real residential investment contracted at a 5.7% annual rate and subtracted 0.18% from the quarter's growth rate...meanwhile, real private inventories shrunk by $24.3 billion in chained 2009 dollars and subtracted 0.57% from the quarter's growth rate...since lower inventories indicate less produced goods have not been shipped or sold, their reduction by that amount means real final sales of GDP rose at a 0.68% in the first quarter…

our increasing trade deficit in the 1st quarter also subtracted from GDP as the result of a negative change to our net exports....recall that exports add to gross domestic product because they represent that part of our production that is not consumed or added to investment in our country, while imports subtract from GDP because they represent either consumption or investment that was not produced here, but that it's the quarter over quarter change in each that affects the quarterly change in GDP...in the 1st quarter, our exports of goods fell at a 12.0% rate leading our real exports of goods and services to decrease at a 7.6% annual rate in contrast to export growth at a 9.5% rate in the 4th quarter, thus subtracting 1.07% from the quarterly growth rate, while while real imports of goods and services decreased at a 1.4% rate, and because imports are a subtraction from GDP, the reduction of imports from the 4th quarter to the 1st added .24% to the quarter over quarter growth rate...

finally, real net government consumption and investment decreased at a 0.5% annual rate, as Federal government consumption and investment only grew at a 0.7% rate over the shutdown depressed fourth quarter, while state and local consumption and investment fell at a 1.3% rate....federal spending for defense fell at a 2.4% rate and subtracted 0.11% from GDP, while all other Federal consumption and investment rose at a 5.9% rate and added 0.16% to GDP...note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services...meanwhile, state and local government investment and consumption expenditures, which fell at a 1.3% annual rate, subtracted 0.14% from the quarter's growth rate, as state and local consumption spending rose at a 0.6% rate while state and local investment fell at a 10.6% rate...

the picture of our FRED graph below shows the change, in billions of chained 2009 dollars, in each of the major components of GDP, over each quarter over the past 2 years, in order to give us a visualization of the magnitude of the impact of each on the quarterly change.…within each quarterly grouping of seven bars, the quarterly change in real personal consumption expenditures is shown in blue, the change in gross private investment, including structures, equipment and intangibles, is shown in red, the change in imports is shown as a negative in green, the change in exports are shown in purple, the change in private inventories is in yellow, 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....those components of GDP that contracted in a given quarter are shown below the zero line and subtracted from GDP in that quarter, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so when imports shrink, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they'll appear below the zero line...you can see how consumer spending in blue and business investment in red that have been driving economic growth over the previous two years, but that the contraction of the investment and export components almost totally offset above trend personal consumption in the first quarter of this year...as usual, this graph can be viewed as an interactive at the FRED website, where the quarterly change to three decimal places in each component appears as you move your cursor across the graph....

1st quarter 2014 Advance GDP

Personal Spending Rises 0.9% in March as Disposable Personal Income Rises 0.5%

another important release from the BEA this week was on Personal Income and Outlays for March, which in addition to the data on personal incomes, also includes the March data for personal consumption expenditures (PCE) that was included in the GDP report we just looked at...note like the GDP reports, all the dollar amounts referenced by this report are seasonally adjusted and at an annual rate; so the reported monthly dollar changes are actually on the order of one twelfth of the reported amounts... however, the percentage changes are expressed as a month over month change and are used within the report as if they refer to the annualized amounts, often leading to confusion and misreporting,.despite their recently added footnote to this report clarifying that standard...we'll try to express what the numbers actualy indicate..

In March, total personal income increased by a seasonally adjusted and annualized $78.4 billion to a $14,496.2 billion a year rate, which was 0.5% higher than in greater than the annualized personal income in February, when income rose by 0.4%...disposable personal income (DPI), which is income after taxes, increased at an annualized rate of $68.0 billion to $12,789.1 billion, which was also 0.5% increase over February, when DPI also rose by 0.4%...but in contrast to January and February, when most of the income gains were from the increase in Medicaid benefits associated with expanded coverage under Obamacare, private wages and salaries accounted for the lion's share of the March income gain, as they increased at a $42.3 billion annual rate...increased supplements to wages and salaries, such as employer contributions to pension plans, accounted for another $4.8 billion of the annualized increase...increases in personal transfer payments from government programs accounted for $15.5 billion of the increase, with Medicaid accounting for just $6.5 billion in March, in contrast to the $11.4 billion Medicaid added to annualized incomes in February and the $19.3 billion it added in January...in addition, total proprietor's income rose at a $9.3 billion rate, of which was a $2.5 billion annualized increase in farm owner's income, while rents paid to individuals increased at a $4.6 billion rate and personal interest and dividend income increased at a $6.9 billion rate...taking all these sources into account, per capita disposable personal income topped $40,000 for the first time in March, rising to $40,045 from $39,782 in February...

meanwhile, seasonally adjusted personal consumption expenditures (PCE), which were included in the GDP data we reviewed earlier, rose at a $107.2 billion annual rate in March to $11,880.5 billion, 0.9% higher than February and the largest one month jump in PCE in 5 years...the March increase included a $32.8 billion annualized increase to $1,296.6 billion in outlays for durable goods, a $20.2 billion increase to $2,676.2 billion annualized in spending for non-durable goods, and an annualized $54.2 billion increase to an annual rate of $7,907.7 billion in spending for services...total personal outlays for March, which includes interest payments, and personal transfer payments in addition to PCE, increased by an annualized $109.7 billion to $12,301.4 billion, which left personal savings, which is disposable personal income less total outlays, at $487.7 billion for the month, which was the lowest monthly savings since January 2013, when disposable personal incomes collapsed 4.0% after the fiscal cliff brought the expiration of the payroll tax cut... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 3.8% in March, down from 4.2% in February and except for January of 2013, the lowest savings rate since August 2008...

while personal consumption expenditures were more than 68.4% of 1st quarter GDP, before they were included in that GDP computation they had to be adjusted for inflation using the PCE price indices, which are based on prices in 2009 equal to 100.0...in March, the PCE index for durable goods fell another 0.1% to 93.243, continuing a 2 year string of falling prices for durable goods, while the PCE price index for non-durable goods also fell 0.1% to 109.574 after being statistically unchanged for the first two months this year, meanwhile, the PCE price index for services rose 0.3% to 109.451, leading to a 0.2% overall increase in the March PCE price index... as a result, real personal consumption expenditures rose by 0.7% in March, after rising 0.4% in February...adjusting disposable personal income with the same PCE price index, we find that real inflation adjusted DPI rose by 0.3% in March after a 0.5% increase in February...on a annual basis, the PCE price index has risen 1.15%, with the Core PCE price index 1.21% above a year ago, still well below the 2.50% PCE inflation target the Fed has allegedly been trying to hit.....

our FRED graph below, which can also be viewed as an interactive, shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the scale in chained 2009 dollars for both on the left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right...the spike in income and savings at the end of 2012 was a result of bonuses and income manipulation before the aforementioned fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush….although it may appear from the graph that real disposable income has been accelerating over the past 13 years, real DPI below is not adjusted for increases in the population; on a per capita basis, real DPI is up just 19.5% over the span of this graph

Case Shiller: February Home Price Index Unchanged

the last Tuesday of the month brought the release of the widely watched S&P/Case-Shiller home index for February, which compares the 3 month average of December, January and February home sales prices to the historical record of sales prices of those same homes in each of 20 US metro areas...the Composite 20 index, which is formulated so that home prices in the 20 metro areas equaled 100.00 in 2000, was at 165.35, essentially unchanged from the 165.50 reading in the January release...home prices in 13 of the 20 cities fell in February, which is typical for the winter months, with home prices in the snow bound cities of Cleveland down 1.6% and Minneapolis and Chicago both down 0.9% showing the worst declines, while Portland and Seattle home prices, up 0.8% and 0.6% respectively, saw the largest monthly price gains...on an annual basis, the Case-Shiller index was 12.9% higher than last February; Las Vegas, up 23.1% and SanFrancisco, up 22.7%, saw the largest one year home price increases, while Cleveland, up 3.0% and New York, up 6.1%, lagged...

it appears that the differences between FRED and S&P/Case-Shiller have been resolved, as the notice that FRED will discontinue carrying data from S&P has been removed, and the pair of interactive FRED graphs we created to show the historical track of home prices in each of the cities in the 20 city index have been updated with the latest data, so we'll include pictures of them below... 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 dull blue, and Los Angeles in beet red….and for the larger interactive view of this graph at FRED, click here; where you can move your cursor across the graph and view the monthly price history of the changes in the price indices for all 10 cities shown below..

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 dull 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…the S&P Case-Shiller index is not seasonally adjusted, but notice that the seasonal home price swings have become more pronounced since the housing bust…/again, you can click here for the larger 1000 pixel interactive version of this graph at the St Louis Fed web site, where all the lines can be easily traced and index values viewed with their interactive tool…

(the above are the comments that accompanied my regular sunday morning links emailing, synopses which in turn were mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links that accompanies these commentaries, most from the aforementioned GGO posts, contact me…)

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