Sunday, December 4, 2016

November employment; 3rd quarter GDP revision, October income and outlays and construction spending

in an oddity of the economic calendar, the three most important monthly reports were all released this week: the Employment Situation Summary for November from the Bureau of Labor Statistics, the 2nd estimate of 3rd quarter GDP from the Bureau of Economic Analysis, and the October report on Personal Income and Spending, also from the Bureau of Economic Analysis...in addition, the week brought us the October report on Construction Spending (pdf), and the Dallas Fed Texas Manufacturing Outlook Survey, the last of the regional Fed manufacturing surveys for November, which reported their general business activity composite index rose to +10.2 from last month's -1.5, the first expansionary reading from that survey in 22 months, suggesting an end to the recession in the Texas oil patch economy...

the week’s privately issued reports included the ADP Employment Report for November, the Case-Shiller Home Price Index for September from S&P Case-Shiller, the light vehicle sales report for November from Wards Automotive, which estimated that vehicles sold at a 17.75 million annual rate in November, down 0.9% from the 17.91 million annual rate in October, and down 2.1% from November a year ago, and the widely followed manufacturing survey from the Institute for Supply Management (ISM): the November Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 53.2% in November, up from 51.9% in October, which suggesting a modest expansion in manufacturing firms nationally...

Employers Add 178,000 Jobs, Unemployment Rate Falls to 4.6% as 226,000 Quit Looking

the Employment Situation Summary for November reported fairly average job creation coupled with the first drop in average wages this year, while the unemployment rate fell to the lowest since August 2007 because of a drop in participation rate…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers added 178,000 jobs in November, after the previously estimated payroll job increase for September was revised up from 191,000 to 208,000, while the payroll jobs increase for October was revised down from 176,000 to 142,000…that means that this report represents a total of 176,000 more seasonally adjusted payroll jobs than were reported last month, which just happens to be the average payroll job gain over those three month...the unadjusted data, however, shows that there were actually 479,000 more payroll jobs extent than in October, 371,500 of which were seasonal jobs added in the retail sector...

seasonally adjusted job increases in November, however, indicated that retail was one of the few sectors to see relative job losses, with retail employment falling by 8,300 on a 17,600 job drop in clothing store employment, which basically means that seasonal retail hiring by those stores was below established norms by that amount; overall, seasonal retail hiring is the weakest it's been since 2009...other sectors seeing seasonally adjusted weakness were jobs in information and communication, which fell by 10,000, and durable goods manufacturing, which employed 6,000 less than last month...on the other hand, the broad professional and business services sector added 63,000 jobs, with 17,700 more positions in accounting and bookkeeping services and 14,300 more jobs in temporary help agencies...another 29,0000 were employed in the leisure and hospitality sector, with the addition of 18,900 jobs in bars and restaurants.. the health care sector saw the addition of 28,400 jobs with the addition of 22,200 jobs in ambulatory care services, of which 7,400 were in doctor's offices...branches of government added 22,000 more employees, with 15,400 of those employed by local governments, not including those working in schools...another 19,000 jobs were added in construction, with 14,400 of those working for residential specialty trade contractors...otherwise, employment in other major sector, including mining, manufacturing, wholesale trade, transportation and warehousing, and financial activities was little changed over the month...

with most of the job increases in generally poorer paying jobs, the establishment survey also showed that average hourly pay for all employees fell by 3 cents an hour to $25.89 an hour in November, after it had increased by a revised 11 cents an hour in October; at the same time, the average hourly earnings of production and non-supervisory employees increased by 2 cents to $21.73 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours in November, while hours for production and non-supervisory personnel was unchanged at 33.6 hours...at the same time, the manufacturing workweek decreased by 0.2 hour to 40.6 hours, while average factory overtime was unchanged at 3.3 hours...

meanwhile, the November household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 160,000 to 152,085,000, while the estimated number of those unemployed fell by 387,000 to 7,400,000; and hence the total labor force decreased by a total of 226,000, which represents the number of unemployed who quit looking for work....since the working age population had grown by 219,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 446,000 to a record high of 95,055,000, which was enough to reduce the labor force participation rate from 62.8% in October to 62.7% in November....meanwhile, the increase in number employed as a percentage of the increase in the population was stable and left the employment to population ratio, which we could think of as an employment rate, unchanged at 59.7%...at the same time, the relatively large drop in the number unemployed was also enough to cut the unemployment rate from 4.9% to 4.6%...meanwhile, the number of those who reported they were forced to accept just part time work fell by 222,000, from 5,889,000 in October to 5,669,000 in November, which combined with the lower unemployment rate, cut the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", down to 9.3% of the labor force in November, its lowest 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.. 

3rd Quarter GDP Revised to Indicate Growth at a 3.2% Rate

the Second Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.2% rate in the quarter, revised up from the 2.9% growth rate reported in the advance estimate last month, as personal consumption of both goods and services and investment in non-residential structures were revised higher, the decrease in residential investment was less than previously reported, while investment in equipment and state & local government shrunk more than was previously reported, and private inventory investment increased less than was previously estimated...in current dollars, our third quarter GDP grew at a 4.6% annual rate, increasing from what would work out to be a $18,450.1 billion a year rate in the 2nd quarter to a $18,657.9 billion annual rate in the 3rd quarter of this year, with the headline 3.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was applied to the current dollar change...

as we review the changes, recall that the press release for the GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that which actually occurred over the 3 month period, and that the prefix "real" is used to indicate that the change has been adjusted for inflation using prices chained from 2009, from which all percentage changes in this report are calculated, as they thus represent the change in quantity of goods and services output...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting the changes here comes directly from the pdf for the 2nd estimate of 3rd quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2012; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; table 4, which shows the change in the price indexes for each of the components; and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...the pdf for the 3rd quarter advance estimate, which this estimate revises, is here...

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.1% growth rate reported last month to a 2.8% rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 4.24% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 1.4% annual rate in the 3rd quarter, which was unrevised from the PCE inflation rate reported a month ago...real consumption of durable goods grew at a 11.6% annual rate, which was revised from the 9.5% growth rate shown in the advance report, and added 0.83 percentage points to GDP, as an increase in real consumption of motor vehicles and parts at a 20.1% rate accounted for more than half the durables goods increase...real consumption of nondurable goods by individuals shrunk at at a 0.6% annual rate, revised from the 1.4% decrease rate reported in the 1st estimate, and subtracted 0.09 percentage points from 3rd quarter economic growth, as higher consumption of food and beverages at home was more than offset by lower consumption of clothing, energy goods, and other non-durables ….at the same time, consumption of services rose at a 2.5% annual rate, revised from the 2.1% growth rate reported last month, and added 1.15  percentage points to the final GDP tally, as real consumption of housing and utilities rose at a 3.0% rate while all other services increased as well...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 2.1% annual rate in the 3rd quarter, revised from the 3.1% growth estimate reported last month, as real private fixed investment shrunk at a 0.9% rate, rather than at the 0.6% rate reported in the advance estimate, while inventory growth was somewhat less than previously estimated...investment in non-residential structures was revised from growth at a rate of 5.4% to growth at a 10.1% rate, while real investment in equipment was revised to show contraction at a 4.8% rate, worse than the 2.7% contraction rate previously reported, and the quarter's investment in intellectual property products was revised from growth at a 4.0% rate to growth at a 1.0% rate...on the other hand, real residential investment was shown to be shrinking at a 4.4% annual rate, rather than the 6.2% contraction rate previously reported…after those revisions, the increase in investment in non-residential structures added 0.26 percentage points to the 3rd quarter's growth rate, the decrease in investment in equipment subtracted 0.28 percentage points from growth, lower residential investment subtracted 0.17 percentage points from GDP, while growth in investment in intellectual property added just 0.04 percentage points to 3rd quarter GDP...

in addition, investment in real private inventories grew by an inflation adjusted $7.6 billion in the 3rd quarter, revised from the originally reported $12.6 billion of inventory growth...this came after inventories had shrunk at an inflation adjusted $9.5 billion rate in the 2nd quarter, and hence the $17.0 billion (rounded) increase in real inventory growth added 0.49 percentage points to the quarter's growth rate, in contrast to the 0.61 percentage point addition from inventory growth that was indicated in the advance estimate....since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or "sitting on the shelf”, their increase by $17.0 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP increased at a 2.7% rate in the 3rd quarter, little changed from the real final sales increase at a 2.6% rate in the 2nd quarter, when the change in inventories was negative, raising real final sales…

the previously reported increase in real exports was revised slightly higher with this estimate, while the reported increase in real imports was revised slightly lower, and as a result the change in our net trade was a larger addition to GDP rather than was previously reported...our real exports grew at a 10.1% rate rather than the 10.0% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 1.18 percentage points to the 3rd quarter's growth rate, up a bit from the 1.17 percentage point addition shown in the previous report....meanwhile, the previously reported 2.3% increase in our real imports was revised to a 2.1% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.31 percentage points from 3rd quarter GDP, rather than the 0.34 percentage point subtraction shown last month....thus, our improving trade balance added a net 0.87 percentage points to 3rd quarter GDP, rather than the 0.83 percentage point addition that had been indicated by the advance estimate…

finally, the entire government sector grew at a 0.2% rate, revised from the growth at a 0.5% rate previously reported, as there were negative revisions to real state & local government consumption and investment, while federal government consumption and investment was statistically unrevised...real federal government consumption and investment was seen to have grown at a 2.5% rate from the 2nd quarter in this estimate, which was unrevised, as real federal outlays for defense grew at a 2.1% rate and added 0.12% percentage points to 3rd quarter GDP, while all other federal consumption and investment grew at a 3.0% rate and added 0.10% percentage points to 2nd quarter GDP....meanwhile, real state and local consumption and investment shrunk at a 1.1% rate in the quarter, which was revised from the 0.7% contraction rate reported in the 1st estimate, and subtracted 0.25% percentage points from 2nd quarter GDP....note that 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, indicating an increase in the output of those goods or services...

Personal Income up 0.6% in October, Personal Spending up 0.3%, PCE Price Index up 0.2%

the October report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month's data for our personal consumption expenditures (PCE), which accounts for roughly 69% of the month's GDP, and with it 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...in addition, this release reports our 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 October'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 September to October....

thus, when the opening line of the press release for this report tell us "Personal income increased $98.6 billion (0.6 percent) in October", they mean that the annualized figure for seasonally adjusted personal income in October, $16,260.0 billion, was $98.6 billion, or a bit more than 0.6% greater than the annualized personal income figure of $16,161.3 billion extrapolated for September; the actual, unadjusted change in personal income from September to October is not given...at the same time, annualized disposable personal income, which is income after taxes, also rose by more than 0.6%, from an annual rate of $14,164.8 billion in September to an annual rate of $14,251.3 billion in October...the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in October, the largest contributors to the $98.6 billion annual rate of increase in personal income were a $45.2 billion increase in wages and salaries and a $27.8 billion increase in dividend and interest income…

for the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $38.1 billion rate, or a bit more than 0.3%, as the annual rate of PCE rose from $12,886.9 billion in September to $12,924.9 in October....September PCE was revised from $12,844.0 billion annually to $12,886.9 billion, a revision that was already included in the 2nd estimate of 3rd quarter GDP which we just reviewed (this report, although usually released a business day later than the GDP release, is computed concurrently)....the current dollar increase in October spending resulted from a $52.2 billion annualized increase to an annualized $4,189.0 billion in spending for goods, which was offset by a $14.1 billion decrease to an annualized $8,735.9 billion in spending for services...total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $40.4 billion to $13,391.2 billion annually in October, which left total personal savings, which is disposable personal income less total outlays, at a $860.2 billion annual rate in October, up from the revised $814.1 billion in annualized personal savings in September... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 6.0% in October from the September savings rate of 5.7%...

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's done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, which is included in Table 9 in the pdf for this report...that index was at 111.394 in October, up from 111.124 in September, giving us a PCE price index change and an inflation adjustment of 0.0243% in October, which the BEA rounded to +0.2% in the press release...note that when the PCE 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 October's chained dollar consumption total works out to 11,603.2 billion annually, 0.0526% more than September's 11,527.3 billion, a difference that the BEA reports as +0.1%...

however, to estimate the impact of the change in October PCE on the change in GDP, the month over month change in PCE doesn't help us much, since GDP is reported quarterly...thus we have to compare October's real PCE to the the real PCE of the 3 months of the third quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly 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 3rd quarter was represented by 11,563.5 billion in chained 2009 dollars..(ie, that's the same as is shown in table 3 of the pdf for the 3rd quarter GDP report)....when we compare October PCE of 11,603.2 to the 3rd quarter real PCE of 11,563.5, we find that October real PCE has grown at a 1.38% annual rate compared to the 3rd quarter....that would mean that even if October real PCE does not improve during November and December, growth in PCE would still add 0.95 percentage points to the growth rate of the 4th quarter...

Construction Spending Rose 0.5% in October after Prior Months Were Revised Much Higher

the Census Bureau's report on construction spending for October (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,172.6 billion annually if extrapolated over an entire year, which was 0.5 percent (±1.5%)* above the revised annualized September estimate of $1,166.5 billion and also 3.4 percent (±1.8%)* above the estimated annualized level of construction spending in October of last year...the annualized September construction spending estimate was revised 1.4% higher, from $1,150.0 billion to $1,166.5 billion, while the annual rate of construction spending for August was revised 1.0% higher, from $1,154.4 billion to $1,166.5 billion...the combined upward revisions to August and September construction spending would increase annualized 3rd quarter construction by more than $9.5 billion and would thus imply a further upward revision of about 0.24 percentage points to third quarter GDP when the third estimate is released on December 22nd....

private construction spending was at a seasonally adjusted annual rate of $885.9 billion in October, 0.2 percent (±1.8%)* below the revised September estimate of $887.4 billion, which was revised up from the $879.7 billion reported last month...residential spending at a $466.2 billion rate in October was 1.6 percent (±1.3%)* higher than the upwardly revised annual rate of $458.8 billion in September, while private non-residential construction spending fell 2.1 percent (±1.0%) to $419.6 billion from the revised September level, led by a 4.3% decrease in spending for construction of power facilities....at the same time, public construction spending was estimated to be at an annual rate of $286.8 billion, 2.8 percent (±2.8%) above the revised September estimate of $279.1 billion, with public spending for education up 4.1 percent (±3.0%) to an annual rate of $72.2 billion...

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, getting an accurate read on the impact of October spending reported in this release on 4th quarter 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... there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for all of those, we've opted to use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment... that index showed that aggregate construction costs were up 0.7% in October, after being unchanged in August and rising 0.1% in September...on that basis, we can estimate that October construction costs were roughly 0.8% more than those of July and August, and 0.7% more than September...we then use those percentages to inflate higher priced spending figures for each of those months, which is arithmetically the same as deflating October construction spending, for purposes of comparison...annualized construction spending in millions of dollars for the third quarter months is given as 1,166,509 in September, 1,166,513 in August, and 1,160,407 in July...thus to adjust October's nominal construction spending of $1,172,638 million for inflation compared to that of the third quarter, our formula becomes: 1,172,638 / (((1,166,509 * 1.007) + ( 1,166,513 *1.008) + (1,160,407* 1.008)) / 3) = 0.999348, meaning real construction spending in October was down 0.065% vis a vis the 3rd quarter, or down at a 0.26% annual rate...to figure the effect of that small change on GDP,  we annualize the difference between the third quarter average and October and take the result as a fraction of 3rd quarter GDP, and find that October construction spending is falling at a rate that would subtract 0.02 percentage points from 4th quarter GDP, if there is no improvement over the next two months…

 

(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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