Sunday, October 4, 2015

September jobs report; August personal income and outlays, construction spending, factory orders, et al

in addition to the Employment Situation Summary for September from the Bureau of Labor Statistics, this week also saw the release of three reports that together make up a large part of the August contribution to 3rd quarter GDP; the August report on Personal Income and Spending from the Bureau of Economic Analysis, and the Full Report on Manufacturers' Shipments, Inventories and Orders for August and the August report on Construction Spending, both from the Census Bureau...also impacting GDP, the Commerce Dept previewed the Advance International Trade in Goods report, which showed our deficit in goods increased to $67.2 billion in August from $59.1 billion in July; the full international trade report will be released Tuesday...the week also saw the release of the Case-Shiller house price indexes for July from S&P Case-Shiller, and light vehicle sales for September from Wards Automotive, which estimated that vehicles sold at a 18.07 annual rate in September, up 2.0% from the 17.72 million annual sales rate in August, and the highest vehicle sales rate in 10 years..in addition, the week also saw the release of several widely watched diffusion indexes for September, with indexes generated from business growth surveys that weigh the positive responses of executives against the negative ones...those included the Texas area manufacturing survey from the Dallas Fed, which reported its broadest general business activity index rose more than 6 points, from -15.8 to -9.5, while their production index inched above zero at +0.9, suggesting output had steadied at a lower level after several months of declines, the September Chicago Business Barometer from the ISM Chicago (pdf) which turned negative, falling 54.4 in August 48.7 in September, indicating return to contraction after two months of positive readings, and the September Manufacturing Report On Business from national the Institute for Supply Management (ISM), which saw the manufacturing PMI (Purchasing Managers Index) fall to 50.2 from a two year low at 51.1 in August, indicating that manufacturing purchasing managers saw stagnation in the various facets of their business they were polled on...

The Lousy September Jobs Report

the Employment Situation Summary for September showed weak job creation, lower wages, large downward revisions to July and August jobs, a record number of us not in the labor force, and a major drop in the labor force participation rate, which was already at a 38 year low...the establishment survey data indicated that employers added a seasonally adjusted 142,000 jobs in September, while the payroll job increase for July was revised from the previously reported 245,000 to 233,000, and while August's jobs number was revised from 173,00 to 136,000, making the combined number of jobs going into September 59,000 less than previously reported ….September job increases were entirely in the private service sector and in government, as 13,000 fewer of us were employed by goods producers than in August, with the loss of 9,000 jobs in manufacturing and another 12,000 in resource extraction...the leisure and hospitality sector added 35,000 jobs, with 20,700 of those in restaurants and bars, while the health care and social assistance sector added 34,400 jobs, with 12,900 of those in ambulatory services and another 15,500 jobs in hospitals...the broad professional and business services category accounted for another 31,000 additional jobs, with 17,700 of those spread in a variety of professional and technical service positions, while another 23,700 jobs were added in retail, with 10,000 of those in general merchandise stores...meanwhile, the government sector added a total of 24,000 jobs, with 13,600 of those in state government education...in addition, employers reported that average hourly earnings for all employees fell a penny to $25.09, and with a 0.1 hour decrease 34.5 hours in the average workweek, national average weekly earnings actually declined from $868.46 to $865.61...

the September household survey estimated that the seasonally adjusted count of those employed fell by 236,000 to 148,800,000, while the number of unemployed also fell, by 114,000 to 7,915,000, which left the unemployment rate statistically unchanged at 5.1%...with the reduction of the unemployed and the employed thus totaling 350,000 and the civilian working age population increasing by 229,000 new entrants, the count of those not in the labor force rose by 579,000 to a new record at 94,610,000, and as a result the labor force participation rate fell from 62.6% in August to 62.4% in September, near a 40 year low ...with the large decrease in the employed, the employment to population ratio, which we could think of as an employment rate, fell from 59.4% to 59.2%...while the number who reported they were voluntarily working part time rose by 211,000 to 19,971,000, those who reported being stuck in just part time work involuntarily fell by 447,000 to 6,036,000, and hence the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", fell by 0.3% to 10.0%...

the BLS employment situation press release itself is easy to read and understand, so you can get more details on this report from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page...thus, when you encounter a line such as "The number of persons unemployed for less than 5 weeks increased by 268,000 to 2.4 million in September, partially offsetting a decline in August...(See table A-12.)"  you can quickly open Table A-12 where you will find a table with the count of the unemployed by duration and the distribution thereof, and where you'd see that 2,104,000 of us have been unemployed for more than 26 weeks, accounting for 26.6% of all those unemployed...

August Personal Income up 0.3%; PCE on Track to Add 2.03 Percentage Points to GDP

other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important economic release we see monthly, as it gives us the monthly data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, the dollar change reported for each of those are not the current monthly change; rather, they're seasonally adjusted and at an annual rate, ie, they tell us how much income and spending would increase for a year if August's adjusted income and spending were extrapolated over an entire year...confusingly, however, the percentage changes are computed monthly, from one annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from July to August.. 

thus, when the opening line of the press release for this report tell us "Personal income increased $52.5 billion, or 0.3 percent, and disposable personal income (DPI) increased $47.1 billion, or 0.4 percent, in August", they mean that the annualized figure for all types of personal income in August, $15,403.8 billion, was $52.5 billion or 0.3% greater than the annualized personal income figure of $15,351.3 billion for July; the actual August increase in personal income over July is not given...similarly, disposable personal income, which is income after taxes, rose by 0.4%, from an annual rate of $13,408.8 billion in July to an annual rate of $13,456.0 billion in August...the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (PDF) for this release, the document we'll be referencing...so when the press release says, "Wages and salaries increased $35.6 billion in August", that really means wages and salaries would rise by $35.6 billion over an entire year if August's seasonally adjusted increase were extrapolated over an entire year, just as interest and dividend income, another contributor to the income increase, rose at a $5.2 billion annual rate in August...so you can see what's written in the press release is somewhat confusing, which is why we reference the pdf... 

for the personal consumption expenditures (PCE) that we're most interested in today, BEA reports that they increased by $54.9 billion, or more than 0.4 percent, which means the annual rate of PCE rose from $12,333.9 billion in July to $12,388.8 in August; in addition, the July PCE figure was revised up from the originally reported $12,305.4 billion annually, and prior months were revised up as well...the current dollar increase in August spending was driven by a $39.0 billion annualized increase to an annualized $8,342.3 billion in spending for services and a $11.7 billion increase to $1,346.7 billion annualized in spending for durable goods...outlays for non durable goods also increased at a $4.1 billion annual rate to an annualized $2,699.8 billion ...total personal outlays for August, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $55.2 billion to $12,840.4 billion, which left total personal savings, which is disposable personal income less total outlays, at $615.6 billion in August, down from the revised $623.6 billion in personal savings in July... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 4.6% from July's savings rate of 4.7%... 

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that adjustment is done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, also included in this report....looking at Table 9 in the pdf, we see that that index rose from 109.765 in July to 109.769 in August, a month over month inflation rate that's statistically 0.002%, which BEA reports as an increase of “less than 0.1 percent”, following the PCE price index increase of 0.1 percent in July...since the inflation adjustment to PCE is effectively zero, that leaves real PCE up more than 0.4%, after a revised 0.3% increase in July...note that when those price indexes are applied to a given month's annualized PCE, it yields that month's annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where August's chained dollar consumption total works out to 11,286.6 billion annually, 0.4% more than July's 11,237.1 billion...

however, in estimating the impact of the change in PCE on change in GDP, the month over month change doesn't buy us much, since GDP is reported quarterly...thus we have to compare real PCE from July and August to the the real PCE of the 3 months of the second quarter...while this report shows those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in the GDP report, as revised last Friday...in table 3 of the pdf for the GDP report, we see that the annualized real PCE for the 2nd quarter was represented by 11,178.9 million in chained 2009 dollars...by averaging the annualized chained 2009 dollar figures for July and August,  11,237.1 billion and 11,286.6 billion, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have so far...when we compare that average to the 2nd quarter real PCE, we find that 3rd quarter real PCE has grown at a 3.0% annual rate for the two months we do have (note the math to get that annual rate:  (((11,237.1 + 11,286.6 ) / 2) / 11,178.9 ) ^ 4 = 1.03001)...this means that even if September real PCE does not improve from the average of July and August, growth in PCE would still add 2.03 percentage points to the growth rate of the 3rd quarter...

real disposable personal income, or the purchasing power of disposable income, is arrived at in the same manner as we found real PCE; disposable personal income figures are adjusted for inflation using the PCE price index...even though that index was effectively unchanged in August, disposable personal income was only shown as up 0.4% by virtue of upward rounding from a 0.352% increase...hence, in a statistical oddity, when the 0.002% increase in the PCE index was applied to that, it reduced real disposable personal income to a rounded increase of 0.3%, following a 0.4% increase in July...our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the annualized scale in chained 2009 dollars for both shown in the current data box and on the lower 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 mostly the result of income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush…. 

August 2015 income and outlays

August Construction Spending Rises by 0.7% after July Revised Lower

in the August report on construction spending (pdf), the Census Bureau estimated that our seasonally adjusted construction spending would work out to a post-recession high of $1,086.2 billion annually if extrapolated over an entire year, which was 0.7 percent (±1.5%)* above the revised July estimate of $1,079.1 billion in construction spending annually, and 13.7 percent (±2.1%) above the estimated adjusted and annualized level of construction spending of August last year....the July construction spending estimate was revised from $1,083.4 billion annually to $1,079.1 billion, the June estimate was revised from $1,075.9 billion to $1,074.3 billion annually, while the May estimate was unrevised at $1,068.4 billion, which suggests that 2nd quarter GDP growth was around 0.1 percentage point less than was reported last week...private construction spending was at a seasonally adjusted annual rate of $788.0 billion in August, 0.7 percent (±0.7%)* above the revised July estimate of $782.3 billion, with residential spending rising 1.3 percent (±1.3%)* to a seasonally adjusted annual rate of  $383.3 billion, from the revised July estimate of $378.5 billion, while private non-residential construction spending rose 0.2 percent (±0.7%)* to $404.7 billion...meanwhile, public construction spending was estimated at a rate of $298.2 billion annually, 0.5 percent (±2.6%)* above the revised July estimate of $296.8 billion, with public power spending 10.0% higher than in July while highway and street spending was off 0.4% for the month, while it remained 7.0% higher than last year...

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...to see how this report of two month's construction spending might impact 3rd quarter GDP, we must first adjust those varied categories of spending for inflation to give us the quantity of construction in real terms....the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators for the various components of non-residential investment, such as the Turner Construction building-cost indices for several types of buildings and the Engineering News Record construction cost index for utilities construction, while specifies use of the Census Bureau construction price indexes for new one-family houses under construction and for new multi-family homes under construction for residential investment...the later indicates that prices for residential construction rose by 0.5% in July and by 0.1% in August, but more appropriately for our purposes, their average is up by 0.9% from the 2nd quarter average; for the other types of construction, we'll simplify our computation and just use the producer price index for final demand for construction, which showed a 0.4% increase in July but a 0.1% decrease in August, but again more importantly a quarter over quarter increase of 0.5%...note that because the GDP categories for construction spending include brokers’ commissions, title insurance, state and local taxes, attorney fees, title escrow fees, fees for surveys and engineering services, and remodeling not captured by this report, our estimate will be limited to the data included in this report...

using the revised monthly annualized construction spending data for April, May and June from Table 1 of this report, we find that 2nd quarter private residential construction spending was at a seasonally adjusted annual rate of $371,985 million, and that the comparable value of July and August residential spending adjusted for inflation would be at a $377,442 million rate, which would mean that real residential construction rose at a 6.0% annual rate so far in this quarter, vis a vis the 2nd quarter...for private non-residential construction, we find that 2nd quarter non-residential construction was at a $397,065 million annual rate, while July and August non-residential spending adjusted for 0.5% quarterly inflation would give us a non-residential spending rate of $402,234 in chained second quarter dollars, an increase in real non-residential construction at a 5.3% annual rate...lastly, using just the monthly data in this report, we find that public construction averaged at a $293,409 million annual rate over the 2nd quarter, while public construction for July and August adjusted for 0.5% inflation works out to a $296,034 million annual rate thus far in the 3rd quarter...hence, real government investment spending for construction was up at a 3.6% annual rate in July and August over the second quarter...finally, translating those increases in the rate of construction growth we have for these two months, we estimate that real residential construction growth would add 0.19 percentage points to 3rd quarter GDP growth, real private non-residential growth would add .15 percentage points to 3rd quarter growth, and real public construction growth would add .07 percentage points to 3rd quarter GDP in the various government investment components...

Factory Orders Report is in Error; Factory Inventories Shrink

in attempting to write about the Full Report on Manufacturers' Shipments, Inventories and Orders for August (pdf) for August from the Census Bureau i noticed that the line listing the totals for new orders for non-durable goods and the line listing shipments of non-durable goods were identical, ie, all the amounts for June, July, August and year to date were identical, as were the percentage changes shown...those numbers are then carried through to the totals...i downloaded the excel files for both and they also showed non-durable data for shipments and new orders to be identical...i called the Census bureau before 5PM on Friday and left a message notifying them of this error, but as of this writing on Saturday it has not been corrected...i suspect the error is with the new orders, but it’s hard to tell for sure, since the monthly dollar difference between orders and shipments has been less than 1% (0.6% in July)...given that, it doesn't make sense to review data that we suspect is a posting error...assuming the durables portion of the report is accurate, new orders for durable goods shows a $5.5 billion, 2.3% decrease from July, revised from the 2.0% decrease reported in the advance report last week, while August shipments of durables are now shown to have decreased $0.5 billion or 0.2 percent to $242.7 billion, down from the last week's report showing them unchanged...

this report also shows that August factory inventories, a major GDP component, decreased $1.6 billion or 0.3 percent to $648.4 billion, following a 0.3% decrease in July....the value of durables were also marked down from last week, when they were reported as unchanged; they're now shown to be down $0.1 billion to $401.2 billion, with inventories of primary metals, down $0.5 billion or 1.3 percent to $36.5 billion, responsible for the decrease....inventories of non durables were thus down 1.5 billion or 0.6% to $247.2 billion, following a 0.4% decrease in July, but here again it was inventories of petroleum and coal products, which we know to have dropped in price, which are shown down 4.9% to $34,669 on a 5.7% drop in the value of inventories at refineries...to access the impact of these factory inventories on GDP they must be adjusted for inflation, and the best broad index we have for doing that is the producer price index for industrial commodities, which was down 0.2% in August after rising by the same amount in July...without doing the fractional math, that suggests that there will be little inflation adjustment over the two months, and that end of August real factory inventories will be close to the nominal value of $648.4 billion, down from June inventories which were valued at $653.56 billion...it goes without saying that a decrease in inventories in the 3rd quarter, after factory inventories had increased from $650.96 billion at the end of the 1st quarter, would have a major negative impact on GDP...assuming no major inflation adjustment, the $7.76 billion swing in factory inventories would take 0.21 percentage points off 3rd quarter GDP...

if the misposting noted above affected the data on new orders as we suspect, it would have in like manner have screwed up the data on unfilled orders...Census reports unfilled factory orders decreased $2.4 billion or 0.2 percent to $1,195.0 billion, following a 0.2 percent July increase...this report also left unfilled orders for durable goods down $2.4 billion or 0.2 percent to $1,195.0 billion, which was virtually unchanged from the decrease published in the advance report for durable goods we covered last week...we'll refrain from commenting further until we see a corrected version of this report, or can otherwise verify the accuracy of the unfilled orders data provided here..

July Case Shiller National Home Price Index is 4.7% Higher Than a Year Ago

the Case-Shiller house price indexes for July indicated a 4.5% year over year increase in prices on repeat home sales in the ten cities of the original index, a 5.0% annual increase in the 20 city Composite, and a 4.7% increase in home prices nationally since the July report of last year, with home prices in San Francisco and Denver up more than 10%...they also report a 'monthly' increase of 0.6% the 10 city index and in the 20 city and a 0.7% increase in the national index, which compares prices of houses sold in April, May and June to those sold in May, June and July, and hence the change in the month over month indexes are equal to 1/3rd the difference between April home prices and July home prices...seasonally adjusting these so called month over month indexes show that national index 0.4% higher while the 10 and 20 city indices would be down 0.2% from the previous report...thus, while home prices in all 20 cities showed an increase in July when compared to April, after seasonal adjustments, home prices in 10 cities were down, 9 cities were up, and one city was unchanged....the full pdf of the release, titled July Home Price Gains Concentrated in the West, is here, and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary...for coverage of this Case-Shiller report on the web, Bill McBride has two thorough posts, which include several graphs: Case-Shiller: National House Price Index increased 4.7% year-over-year in July, followed by his analysis in Real Prices and Price-to-Rent Ratio in July...

(the above is the synopsis that accompanied my regular 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 receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

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