Sunday, July 10, 2016

June jobs report; May’s trade deficit and factory inventories

the Employment Situation Summary for June from the Bureau of Labor Statistics was the most widely watched release of the past week, especially in light of May's weak report and its impact on the Fed's interest rate policy…other key releases this week included the Commerce Dept report on our International Trade for May and the Full Report on Manufacturers' Shipments, Inventories and Orders for May (pdf) from the Census Bureau...in addition, the week saw the Consumer Credit Report for May from the Fed, which indicated that overall credit expanded by a seasonally adjusted $18.6 billion, or at a 6.2% annual rate, as non-revolving credit expanded at a 7.3% rate to $2,670.4 billion and revolving credit outstanding grew at a 3.0% rate to $953.3 billion, and the June Non-Manufacturing Report On Business from the Institute for Supply Management, which saw the NMI (non-manufacturing index) rise to 56.5% from 52.9% in May, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business than a month earlier...

Employers Add 287,000 Jobs in June, Unemployment Rate Up 0.2% as More Look for Work

the Employment Situation Summary for June reported the strongest monthly job creation since October and an increase in both the labor force participation rate and the unemployment rate, largely reversing May's metrics....estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 287,000 jobs in June, after the payroll job increase for May was revised down from 38,000 jobs to 11,000, and the April jobs increase was revised up from 123,000 jobs to 144,000, which meant that the combined number of jobs created over those two months was 6,000 less than was previously reported...the swing from just 11,000 new jobs in May to 287,000 jobs in June leads us to suspect an aberration in the May seasonal adjustment was the cause; the unadjusted data shows that 623,000 jobs were added in May, followed by 682,000 in June, so payroll job increases in both months saw substantial downward adjustments to produce the reported headline numbers...

seasonally adjusted job increases in June were spread throughout the service sector and in manufacturing, while the resource extraction sector lost 5,000 jobs and construction netted no change.....the leisure and hospitality sector added 59,000 jobs with the addition of 21,900 more jobs in bars and restaurants and 14,000 more jobs in performing arts and spectator sports...another 58,400 jobs were added in the health care and social assistance sector, topped by 15,000 additional jobs in hospitals and 14,500 in day care services for children...the relatively small information sector saw the addition of 44,000 jobs, with 28,700 in telecommunications and 10,900 in motion picture and sound recording industries...the broad professional and business services sector added another 38,000 jobs, with 15,200 of those in temporary help employment services...an additional 29,900 jobs were added in the retail sector, with 8,700 of those in general merchandise stores...another 22,000 jobs were added by various levels of government, with 9,100 of those in local education systems...in addition, the financial sector saw an increase of 16,000 jobs, with 7,300 of those in insurance...

the establishment survey also showed that average hourly pay for all employees rose by 2 cents to $25.61 an hour, after it had increased by a revised 6 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $21.51 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours for the 5th month in a row, while hours for production and non-supervisory personnel was also unchanged at 33.6 hours...similarly, the manufacturing workweek was unchanged at 40.7 hours, after the May manufacturing workweek was revised down a tenth of an hour, while factory overtime was at 3.3 hours for the seventh month in a row...

the data extrapolation from the June household survey indicated that the seasonally adjusted number of those who were employed rose by an estimated 67,000 to 151,097,000, while the estimated number of unemployed also rose by 347,000 to 7,783,000; and thus the labor force increased by a total of 414,000...since the working age population had grown by 223,000 at the same time, that meant the number of employment aged individuals who weren’t in the labor force fell by 191,000 to 94,517,000, a reduction that was enough to boost the labor force participation rate by 0.1% to 62.7%...however, since the increase in number employed was small relative to the increase in the population, the employment to population ratio, which we could think of as an employment rate, fell by 0.1% to 59.6%...meanwhile, with the large increase in the unemployed, most of whom had not been counted in May, the unemployment rate rose by 0.2% to 4.9%...at the same time, there was also a large 587,000 drop in the number who reported they were involuntarily working just part time, from 6,430,000 in May to 5,843,000 in June, which meant the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons" fell from 9.7% of the labor force in May to 9.6% in June, the lowest U-6 unemployment rate since April 2008....

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..

May Trade Deficit Increase of 10.1% is Not Bad Enough to hit GDP

our trade deficit increased by 10.1% in May as the value of our exports decreased and our imports increased....the Census report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services trade deficit rose by $3.8 billion (rounded) to $41.1 billion in May from a revised April deficit of $37.4 billion...the value of our May exports fell by $0.3 billion to $182.4 billion on a $0.2 billion decrease to $119.8 billion in our exports of goods and a $0.1 billion decrease to $62.5 billion in our exports of services, while our imports rose $3.4 billion to $217.1 billion on a $3.4 billion increase to $182.1 billion in our imports of goods while our imports of services were virtually unchanged at $41.4 billion...export prices were on average 1.1% higher in May, so the relative real amount of May exports would be lower than the nominal amount by that percentage, while import prices were 1.4% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage....

most of the decrease in our May exports could be accounted for by lower exports of capital goods and of automotive vehicles, parts, and engines, which were partially offset by an increase in exports of foods, feeds, and beverages.... referencing the Full Release and Tables for May (pdf), in Exhibit 7 we find that our exports of capital goods fell by $835 million to $42,689 million on decreases of $446 million in exports of civilian aircraft and $279 million in exports of computer accessories....in addition, our exports of automotive vehicles, parts, and engines fell by $348 million to $12,588 million on a $334 million decrease in our exports of automotive parts other than tires and engines, and our exports of consumer goods fell by $236 million to $15,568 million on a $224 million decrease in our exports of jewelry and a $141 million decrease in our exports of pharmaceuticals, which was partially offset by a $327 million increase in our exports of artwork, antiques, and other collectibles....at the same time, our exports of foods, feeds and beverages rose by $544 million to $10,364 million on a $213 million increase in our exports of soybeans, and our exports of industrial supplies and materials rose by $47 million to $32,529 million on increases in exports of $486 million in petroleum products other than fuel oil, $240 million in our exports of natural gas liquids, and $208 million in our exports of crude oil, which were partially offset by a $552 million decrease in our exports of nonmonetary gold...meanwhile, our exports of other goods not categorized by end use rose by $489 million to $5,407 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that a $2,319 million increase to $36,172 million in our imports of industrial supplies and materials accounted for more than two-thirds of the increase in our imports, as our imports of nonmonetary gold rose by $956 million, our imports of crude oil rose by $735 million, and our imports of finished metal shapes rose by $197 million...in addition, our imports of consumer goods rose by $1,253 million to $47,945 million on a $215 million increase in our imports of jewelry and a $210 million increase in our imports of cellphones, and our imports of automotive vehicles, parts and engines rose $267 million to $29,003 million on a $413 million increase in our imports of passenger cars...at the same time, our imports of foods, feeds, and beverages rose by $78 million to $10,802 million with small increases in several line items, and our imports of goods not categorized by end use rose by $240 million to $7,601 million....offsetting those increases, our imports of capital goods fell $864 million to $48,704 million on a $963 million decrease in our imports of civilian aircraft and a $348 million decrease in our imports of computers, which were only partially offset by by a $516 million increase in our imports of telecommunications equipment...

to gauge the impact of April and May's international trade on 2nd quarter domestic growth figures, we need to use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit they are not annualized here.....from that table, we can estimate that 1st quarter real exports of goods averaged 117,576.3 million monthly in 2009 dollars, while inflation adjusted April and May exports were at 119,443 million and 117,626 million respectively in the same 2009 dollar quantity index representation... annualizing the change between the first quarter and the April - May average, we find that the 2nd quarter's real exports are running at a 3.3% annual rate above those of the 1st quarter, or at a pace that would add about 0.27 percentage points to 2nd quarter GDP if maintained through June.....in a similar manner, we find that our 1st quarter real imports averaged 178,034 million monthly in chained 2009 dollars, while inflation adjusted April and May imports were at 177,996 million and 178,730 million in inflation adjusted dollars respectively...that would indicate that so far in the 2nd quarter, our real imports have increased at a 0.7% annual rate from those of the 1st quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 0.7% rate would thus subtract about 0.09 percentage points from 2nd quarter GDP....hence, if the trade deficit at the April - May level is maintained through June, our improving balance of trade in goods would add about 0.18 percentage points to the growth of 2nd quarter GDP....note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on that trade; moreover, there is usually not enough change in nominal exports and imports of services to materially impact GDP anyway..

Factory Shipments Flat in May, Factory Inventories Down 0.1% in Big Hit to GDP

the Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $4.6 billion or 1.0 percent to $455.2 billion in May, following an increase of 1.8% in April, which was revised from the 1.9% increase reported last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only useful as a revised update to the advance report on durable goods we reported on two weeks ago...this showed that new orders for manufactured durable goods fell by $5.4 billion or 2.3 percent to $230.4 billion, revised from the previously published 2.2% decrease to $230.7 billion..

this report also indicated that the seasonally adjusted value of May factory shipments rose for the third month in a row, after being down 8 straight months, increasing by $0.2 billion to $456.5 billion, an amount considered statistically unchanged, following a 0.4% increase in April, which had previously been reported as an 0.5% increase...shipments of durable goods were down by $0.6 billion or 0.2 percent to $231.6 billion, virtually unchanged from what was published two weeks ago...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods rose by $0.8 billion, or 0.3%, to $224.9 billion, as a $0.7 billion, 2.1% increase in the value of shipments from refineries drove the increase...

meanwhile, the aggregate value of May factory inventories fell for the 12th time in the past thirteen months, decreasing by $0.8 billion or 0.1 percent to $619.7 billion, following a April decrease of 0.1% that was virtually unrevised from the previously published figure....inventories of durable goods decreased in value by $1.1 billion or 0.3 percent to $382.6 billion, virtually unrevised from what was reported was reported in the advance report....the value of non-durable goods' inventories increased by $0.3 billion to $237.1 billion, following a decrease of 0.2% in April....producer prices for finished goods were up 0.7% in May, following an increase of 0.2% in April, with producer prices for energy goods up 2.8% and core producer prices up 0.3%, so after factory inventories are adjusted for inflation, they will likely show a real decrease on the order of 0.8% for the month, following the 0.3% real decrease in April...with two months of factory inventory data in the books, then, it thus appears that this real inventory contraction will result in a substantial subtraction from 2nd quarter GDP figures when they're released at the end of 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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