Sunday, April 3, 2016

March employment report, February's income and outlays and construction spending, & January's Case-Shiller HPI

the important economic releases this week were the Employment Situation Summary for March from the Bureau of Labor Statistics and the February report on Personal Income and Spending from the Bureau of Economic Analysis, which includes 2 months of data on personal consumption expenditures and hence accounts for 46% of 1st quarter GDP....also impacting GDP, the week saw the release of the February report on Construction Spending from the Census Bureau and the Commerce Dept preview of the Advance International Trade in Goods for February, which showed our trade deficit in goods increased to $62,864 million in February, from $62,228 million in January...since that advance report is short on background data and usually revised, we will wait to cover it in detail when the full international trade report is released next week...

the week also saw the release of the Case-Shiller house price indexes for January from S&P Case-Shiller, and light vehicle sales for March from Wards Automotive, which estimated that vehicles sold at a 16.46 million annual rate in March, down 5.6% from the 17.43 million annual rate in February, and the lowest vehicle sales rate since January of last year....in addition, the week also saw the release of three widely watched manufacturing diffusion indexes for March, 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 18 points, from -31.8 to -13.6, while their production index rose above zero to 3.3, after two months of negative readings, suggesting a moderation of the area's energy based recession, the Chicago Business Barometer for March from the ISM Chicago (pdf) which increased by 6.0 points to 53.6 in March, led by increases in production and employment, where readings above 50 suggest growth, and the March Manufacturing Report On Business from national the Institute for Supply Management (ISM), which saw the manufacturing PMI (Purchasing Managers Index) rise from 49.5% in February to 51.8% in March, indicating that a small plurality of manufacturing purchasing managers nationally saw growth in the various facets of their business for the first time in 6 months...

Employers add 215,000 Jobs in March; Unemployment Rate Rises to 5.0%

the Employment Situation Summary for March showed a modest increase in payroll jobs, a modest increase in average hourly pay, a relatively large increase in those working just part time for economic reasons, and nominal increases in both the unemployment rate and the employment rate, as well as an uptick in the labor force participation rate....

estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 215,000 jobs in March, after the payroll job increase for February was revised up from 242,000 to 245,000, and the January jobs increase was revised down from 172,000 to 168,000, meaning the combined number of jobs created in those months was just 1,000 less than was previously reported, in one of the smallest two month revisions we've seen…seasonally adjusted job increases in March were fairly widespread throughout government, construction and the private service sector, while the manufacturing sector saw a net loss of 29,000 jobs, with 24,000 of those in industries producing durable goods, and the resource extraction sector lost 12,000 jobs, 9,900 in the broad "support activities for mining" sector, which includes support for oil and gas drilling....

47,700 jobs were added by retailers, with 12,000 of those in general merchandise stores and 10,200 in drug stores...after a seasonal adjustment, 37,000 jobs were added in construction, with 11,600 working for residential specialty trade contractors, and 11,200 in heavy and civil engineering construction...36,800 jobs were added in the health care and social assistance sector, with 27,400 of those spread through ambulatory health care services and another 10,200 in hospitals....the leisure and hospitality sector added 40,000 jobs, including 24,800 jobs in bars and restaurants...the broad professional and business services sector, the largest employer overall, saw the addition of another 33,000 payroll jobs, as 13,500 jobs were added in professional and technical services and 12,500 more were employed in services to buildings...another 20,000 were added by various governments, with 19,000 of those at the state and local level, mostly outside of education...

meanwhile, the average hourly pay for all employees rose by 7 cents to $25.43 an hour, after it had decreased by 2 cents an hour in February; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $21.37 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours, after it had fallen by 0.2 hours in February, while hours for production and non-supervisory personnel were also unchanged at 33.7 hours...meanwhile, with 29,000 fewer working, the manufacturing workweek still fell 0.1 hours to 40.6 hours, while factory overtime was at 3.3 hours for the fourth month in a row...

at the same time, results of the March household survey estimated that the seasonally adjusted number of those who were employed rose by 246,000 to 151,320,000; while the estimated number of unemployed also rose by 151,000 to 7,966,000; and thus the labor force increased by 396,000...the relatively large increase in the unemployed was enough to increase the unemployment rate, as it rose from 4.9% to 5.0% ...with the net increase in the number employed and unemployed greater than the 191,000 increase in the civilian working age population, the count of those ‘not in the labor force’ fell by 206,000 to 93,482,000, which was enough to increase the labor force participation rate from 62.9% in February to 63.0% in March, its fifth increase in as many months....with the decent increase in the employed, the employment to population ratio, which we could think of as an employment rate, also rose by 0.1% to 59.9%...however, there was also a 135,000 increase in the number who reported they were involuntarily working part time, from 5,988,000 in February to 6,123,000 in March...like the unemployment rate, that increase was enough to increase the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", which rose to 9.8%%, from a post recession low of 9.7% in February...

like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports 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 read a line such as "the unemployment rates for adult men (4.5 percent), adult women (4.6 percent), teenagers (15.9 percent), Whites (4.3 percent), Blacks (9.0 percent), Asians (4.0 percent), and Hispanics (5.6 percent) showed little or no change in March.(See tables A-1, A-2, and A-3.)", you can quickly open Table A-1, Table A-2.and Table A-3, where you would see that the unemployment rate for black Americans rose 0.2%, from 8.8% in February to 9.0% in March, largely as the result of an increase in the black teenage unemployment rate from 23.3% to 25.3%...

February Personal Income up 0.2%; 2 Months PCE Would Add 0.88 Percentage Points to Q1 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; in the case of the February report Personal Income and Outlays from the Bureau of Economic Analysis, it alone gives us nearly half the data that will go into 1st quarter GDP, since it gives us 2 months of 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....the same report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if February's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's 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 January to February..

for example, when the opening line of the press release for this report tell us "Personal income increased $23.7 billion, or 0.2 percent, and disposable personal income (DPI) increased $23.7 billion, or 0.2 percent, in February", they mean that the annualized figure for seasonally adjusted personal income in February, $15,697.9 billion, was $23.7 billion, or actually somewhat less than 0.2% greater than the annualized  personal income figure of $15,674.2 billion extrapolated for January; the actual, unadjusted change in personal income from January to February is not given...similarly, annualized disposable personal income, which is income after taxes, also rose by less than 0.2%, from an annual rate of an annual rate of $13,664.8 billion in January to an annual rate of $13,688.5 billion in February...likewise, all the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be more clearly seen in the Full Release & Tables (PDF) for this release...so when the press release, or a news account copying from it says, "Wages and salaries decreased $9.4 billion in February, in contrast to an increase of $46.5 billion in January.", that really means wages and salaries would fall by $9.4 billion over an entire year if February's seasonally adjusted decrease in wages and salaries were extrapolated over that year, just as personal current transfer payments from government agencies rose at a $14.1 billion annual rate and interest and dividend income, sometimes the largest contributor to the monthly personal income increase, rose at a $7.3 billion annual rate in February....so you can see what's written in the press release is misleading, and often leads to media reports that parrot those lines the same way the BEA wrote them, and why we favor referencing the pdf in reviewing this report...

for the personal consumption expenditures (PCE) that we're most interested in today, BEA reports that they increased at a $11.0 billion rate, or a bit less than 0.1 percent, as the annual rate of PCE rose from $12,484.2 billion in January to $12,495.2 in February; that happened as the January PCE figure was revised down from the originally reported $12,520.4 billion annually, and prior months, which were included in last Friday's 4th quarter GDP, were revised as well....the current dollar increase in February spending resulted from a $38.2 billion annualized increase to an annualized $8,542.9 billion annualized in spending for services, which was partially offset by a $27.2 billion decrease to $3,952.3 billion in spending for goods....total personal outlays for February, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $10.4 billion to $12,954.9 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $733.6 billion annual rate in February, up a bit from the revised $720.3 billion in annualized personal savings in January... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 5.4% in February from January's savings rate of 5.3%...

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....the BEA does that 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 fell from 109.942 in January to 109.825 in February, a month over month deflation rate that's statistically -0.106%, which BEA reports as an decrease of 0.1 percent, following the PCE price index increase of ~0.1% in January...applying that inflation adjustment to the nominal amounts left real PCE up 0.2% in February, after January's real PCE increase was revised to statistically unchanged from the previously reported 0.4% increase...note that when those price indexes are applied to a given month's annualized PCE in current dollars, 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 we see that February's chained dollar consumption total works out to 11,377.7 billion annually, roughly 0.2% more than January's 11,355.6 billion...

however, in estimating the impact of the change in PCE on the change in GDP, the month over month change doesn't help us much, since GDP is reported quarterly...thus we have to compare real PCE from January and February to the the real PCE of the 3 months of the fourth quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 4th quarter was represented by 11,330.7 billion in chained 2009 dollars..(ie, same as shown in table 3 of the pdf for the 4th quarter GDP report)...by averaging the annualized chained 2009 dollar figures for January and February, 11,355.6 billion and 11,377.7 billion, we get an equivalent annualized PCE for the two months of the 1st quarter that we have data for so far....when we compare that average of 11,366.6 to the 4th quarter real PCE of 11,330.7, we find that 1st quarter real PCE has grown at a 1.28% annual rate for the two months we do have (note the math to get that annual rate: (((11,290.0 + 11,323.4) /2 ) / 11,262.4) ^ 4 = 1.01275171...this means that if March real PCE does not improve from the average of January and February, growth in PCE would add just 0.88 percentage points to the growth rate of the 1st quarter, which would be the weakest contribution from PCE since the first quarter of 2014...

Construction Spending Decreased 0.5% in  February after January Revised 0.8% Higher

the report on February construction spending (pdf) from the Census Bureau estimated that February's seasonally adjusted construction spending would work out to $1,144.0 billion annually if extrapolated over an entire year, which was 0.5 percent (±1.6%) below the revised annualized estimate of $1,150.1 billion of construction spending in January but still 10.3 percent (±2.1%) above the estimated annualized level of construction spending of February last year...the January spending estimate was revised 0.8% higher, from $1,140.8 billion to $1,150.1 billion, while December's construction spending was revised from $1,123.5 billion to $1,125.9 billion, which would suggest that the final report on 4th quarter GDP was short by 0.06 percentage points...

private construction spending was at a seasonally adjusted annual rate of $846.2 billion in February, 0.1 percent (±1.0%) below the revised January estimate of $847.2 billion, with residential spending of $447.9 billion 0.9 percent (±1.3%) above the upwardly revised annual rate of $443.8 billion in January, while private non-residential construction spending fell 1.3 percent (±1.0%) to $398.3 billion from the revised January level on a 6.0% decrease in private spending for construction of manufacturing facilities and a 15.0% decrease in communication construction spending...at the same time, public construction spending was estimated to be at an annual rate of $297.8 billion, 1.7 percent (±3.1%) below the revised January estimate, with spending for education down 4.2 percent (±2.6%) to $66.4 billion and spending for highway construction down 2.1 percent (±11.5%) to an annual rate of $101.7 billion, but still 24.5% higher than a year earlier...

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.... however, gauging the impact of the January and February spending reported in this release on GDP is difficult because all figures given here are nominal and as you know, data used to compute the change in GDP must be adjusted for changes in price...moreover, the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA 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 it 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....so to quickly come up with rough estimate on real construction over January and February, we've decided to use the producer price index for final demand construction as an inexact shortcut... that index showed that aggregate construction costs were down 0.1% in February and down 0.4% in January, after they had been unchanged in December and down 0.2% in November...on that basis, we can estimate that the average of real January and February construction spending was $31.1 billion, or 2.77% higher than that of the 4th quarter average, or growing at a 11.5% annual rate, a pace that which, if sustained through March, would add 1.90 percentage points to 1st quarter GDP...

S&P/Case-Shiller Home Price Indices remained unchanged in January

the Case-Shiller house price indexes for January indicated a 5.1% year over year increase in sales prices on repeat home sales in the ten cities of the original index, a 5.7% year over year increase in the 20 City Composite, and a 5.4% increase in home prices nationally since the January report of last year, led by an 11.8% increase in home prices in Portland, a 10.7% increase in home prices in Seattle, and a 10.5% increase in home prices in San Francisco....Case-Shiller also reports no change since last month in the national, 10 city and 20 city indexes, all of which compare prices of houses sold in November, December and January to those sold in October, November, and December, and hence the change in the month over month indexes are arithmetically equal to 1/3rd the difference between October home prices and January home prices, ie, not really a useful monthly change at all...seasonally adjusting those so called month over month indexes shows that the National, 10-City Composite, and 20-City Composite rose 0.5%, 0.8%, and 0.7%, respectively, from the prior month's seasonally adjusted index; thus, while home prices in 11 of the 20 cities showed an actual increase in their January price index when compared to those of October, after those seasonal adjustments were applied, home prices in all 20 of the cities increased...the full pdf of the release, titled Home Price Increases Continue in January, 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, see the following two posts from Bill McBride, which include several graphs: Case-Shiller: National House Price Index increased 5.4% year-over-year in January, followed by his analysis in Real Prices and Price-to-Rent Ratio in January.... 

as we mentioned, since Case-Shiller indexes are simple averages of home price changes over 3 months, they are not very useful for monthly comparisons...that's simply because two of the months are being compared to themselves, leaving only prices changes from the current month, and the month before the month before last left in each month over month comparison....this is also the case with any three month average, which we can represent by (a + b + c) / 3, with a being the current month, b being last month, and c being the month before that...another way of writing that same expression is "a/3 + b/3 + c/3 " .... when one compares that to the prior month 3 month average, represented by (b + c + d) / 3, where d is the month before the month before last, we end up comparing (a/3 + b/3 + c/3) to (b/3 + c/3 + d/3), and since two of our elements in that comparison are identical, the comparison simply becomes a/3 to d/3, or one-third the difference between months a and d....nonetheless, such 3 month averages are used by economists everywhere, including at the Fed, as if they're providing some special insight, even though the comparison they offer borders on nonsense...


(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my blog post for this week 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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