Sunday, June 4, 2017

May's job report; April’s personal income and outlays, trade deficit, and construction spending, et al

in addition to the Employment Situation Summary for May from the Bureau of Labor Statistics, this week also saw the release of three reports for April that give us a major share of that month's contribution to 2nd quarter GDP, and in some cases suggest revisions to 1st quarter GDP....those reports were the April report on Personal Income and Spending from the Bureau of Economic Analysis, the Commerce Dept report on our International Trade for April, and the April report on Construction Spending (pdf), from the Census Bureau...other regular reports issued this week included the report on light vehicle sales for May from Wards Automotive, which estimated that vehicles sold at a 16.58 million annual rate in May, down from the 16.81 million annual pace in April, and down from 17.37 million rate reported in May of 2016, and the March Case-Shiller Home Price Index, which is a relative average of January, February & March home prices; Case Shiller reported that home prices nationally for those 3 months averaged 5.8% higher than prices for the same homes that sold during the same 3 month period a year earlier...among the diffusion indexes released this week were the Dallas Fed Texas Manufacturing Outlook Survey, which indicated its general business activity index rose to 17.2, up slightly from 16.8 in April, still indicating an ongoing expansion in the Texas economy, and the May Manufacturing Report On Business from the Institute for Supply Management (ISM) which indicated that the manufacturing PMI (Purchasing Managers Index) increased from 54.8% in April to 54.9% in May, which still suggests a modest expansion in manufacturing firms nationally...

Employers Add 138,000 Jobs in May, Employment and Participation Rates Drop

the Employment Situation Summary for May indicated anemic payroll job growth, while the employment rate again fell even as the labor force participation rate dropped…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 138,000 jobs in May, after the previously estimated payroll job increase for March was revised down from 79,000 to 50,000, while the payroll jobs increase for April was revised down from 211,000 to 174,000…that means that this report represents just 72,000 more seasonally adjusted payroll jobs than were reported last month, less than half the past year's average of 189,000 jobs per month...the unadjusted data shows that there were actually 810,000 more payroll jobs extant in May than in April, as typical seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were normalized by the seasonal adjustments…

seasonally adjusted job increases were spread through throughout the private goods producing and service sectors, while the government sector lost 9,000 jobs , and both retail and wholesale trade also saw modest job losses....the broad professional and business services sector added 38,000 jobs, as 14,200 more found work with employment services....employment in health care and social assistance rose by 32,300, with the addition of 7,400 jobs in hospitals......the leisure and hospitality sector added 31,000 jobs, with the addition of 33,000 more jobs in bars and restaurants...there were also 11,000 more jobs than normal in construction, with the addition of 7,400 more workers by heavy and civil engineering construction firms...meanwhile, the other major sectors, including manufacturing, mining, transportation and warehousing, utilities, information, finance and private education, all saw little or no increases in payroll employment over the month…

at the same time, the seasonally adjusted extrapolation from the May household survey estimated that the count of those employed fell by an estimated 233,000 to 152,923,000, while the similarly estimated number of those unemployed fell by 195,000 to 6,861,000; which meant that May saw a net decrease of 429,000 in the total labor force...since the working age population had also grown by 179,000 over the same period, that meant the number of employment aged individuals who were not counted as being in the labor force rose by 608,000 to 94,983,000....the large decrease of those in the labor force was enough to lower the labor force participation rate 0.2% to 62.7%....at the same time, the decrease in number employed along with the increase in the population was great enough to cut the employment to population ratio, which we could think of as an employment rate, by 0.2% to 60.0%...in addition, the decrease in the number counted as unemployed was also large enough to lower the unemployment rate from 4.4% to 4.3%....meanwhile, the number who reported they were involuntarily working part time fell by 53,000 to 5,219,000 in May, which was also enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 8.6% in April to 8.4% in May, the lowest since November 2007....

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.. 

April Personal Incomes Up 0.4%, Personal Spending Up 0.4%, PCE Price Index Up 0.2%

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 each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of GDP by itself...in addition, this report also includes 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, 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 April'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 March to April..

thus, when the opening line of the press release for the April report tell us "Personal income increased $58.4 billion (0.4 percent) in April", they mean that the annualized figure for seasonally adjusted personal income in April, $16,437.5 billion, was $58.4 billion, or a bit less than 0.4% greater than the annualized personal income figure of $16,379.1 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given...at the same time, annualized disposable personal income, which is income after taxes, rose by almost 0.4%, from an annual rate of an annual rate of $14,375.9 billion in March to an annual rate of $14,432.5 billion in April....the contributors to the increase in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and were led by a $55.3 billion increase in wages and salaries to $8,315.6 billion, while interest and dividend income, usually a major component, fell by $2.4 billion to $2,299.4 billion..

for the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they increased at a $53.2 billion rate, or about 0.4%, as the annual rate of PCE rose from $13,008.9 billion in March to $13,108.4 in April....March PCE was revised from $13,099.5 billion annually to $13,008.9 billion, while February PCE was revised from $13,093.7 billion annually to $12,832.2 billion, which increased the February to March change to 0.3% from the previously reported unchanged, revisions that were already included in last week’s GDP report....the current dollar increase in April spending resulted from a $28.2 billion annualized increase to an annualized $4,238.1 billion in spending for goods and a $25.0 billion increase to an annualized $8,952.9 billion in spending for services, so the contribution from April retail sales is evident....total personal outlays for April, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $56.4 billion to $13,673.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $759.1 billion annual rate in April , virtually unchanged from the revised $759.0 billion in annualized personal savings in March... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 5.3% in April, after the previously reported March savings rate of 5.9% was revised to that level...

as you know, before those 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 rose from 112.028 in March to 112.240 in April, a month over month inflation rate that's statistically 0.189%, which BEA reports as an increase of 0.2 percent, following the PCE price index decrease of 0.2% reported for March...applying that inflation adjustment to the nominal changes in PCE left real PCE up 0.2% in April, after the March real PCE increase was revised to up 0.5%...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 April's chained dollar consumption total works out to 11,752.7 billion annually, 0.2157% more than March's 11,727.4 billion, a difference that the BEA reports as 0.2%...

however, to estimate 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 April's real PCE to the the real PCE of the 3 months of the first 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 1st quarter was represented by 11,688.5 billion in chained 2009 dollars..(note that's the same as is shown in table 3 of the pdf for the 1st quarter GDP report)....when we compare April's adjusted PCE of 11,467.7 to the 1st quarter real PCE of 11,688.5 on an annual basis, we find that April real PCE has grown at a 2.22% annual rate compared to the 1st quarter....this means that even if April real PCE does not improve during May and June, growth in PCE would still add 1.63 percentage points to the growth rate of the 2nd quarter...

April Trade Deficit Increases 5.2% on a Jump in Cellphone Imports

our trade deficit increased by 5.2% in April, after our March deficit was revised 3.6% higher...the Census report on our international trade in goods and services for April indicated that our seasonally adjusted goods and services trade deficit rose by $2.33 billion to $47.62 billion in April, from a March deficit that was revised from the originally reported $43.71 billion to $45.28 billion, which would result in a downward revision of 0.16 percentage points to 1st quarter GDP when the third estimate is released at the end of June ...in rounded numbers, the value of our April exports fell by ~$0.5 billion to $191.0 billion on a $0.5 billion decrease to $126.9 billion in our exports of goods and an increase of $0.1 billion to $64.0 billion in our exports of services, while our imports rose $1.9 billion to $238.6 billion on a $1.8 billion increase to $195.3 billion in our imports of goods and a less than $0.1 billion increase to $43.3 billion in our imports of services...export prices averaged 0.2% higher in April, so real growth in exports was less than the nominal dollar value by that percentage, while import prices were 0.5% higher, meaning real imports would be reduced from the nominal dollar values reported here by that percentage...

the nominal decrease in our April exports of goods came about as a result of lower exports of consumer and automotive goods, partially offset by increases in our exports of feeds and fuels...referencing the Full Release and Tables for April (pdf), in Exhibit 7 we find that our exports of consumer goods fell by $720 million to $15,855 million on a $392 million decrease in our exports of artwork and antiques and a $211 decrease in our exports of pharmaceuticals, and that our exports of automotive vehicles, parts, and engines fell by $532 million to $12,559 million on $258 million lower exports of passenger cars and $221 million lower exports of trucks, buses, and special purpose vehicles...in addition, our exports of other goods not categorized by end use fell by $160 million to $5,230 million...partially offsetting those decreases, our exports of foods, feeds and beverages rose by $582 million to $11,887 million on a $795 million increase in our exports of soybeans, our exports of industrial supplies and materials rose by $429 million to $37,533 million on a $380 million increase in our exports of fuel oil, a $202 million deincrease in our exports of crude oil, and a $511 million increase in our exports of other petroleum products, and our exports of capital goods rose by $19 million to $43,569 million solely on the strength of a $926 million increase in our exports of engines for civilian aircraft..

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of consumer goods was the major reason for the April increase in our imports...our imports of consumer goods rose by $1,944 million to $50,947 million on a $1,758 million increase in our imports of cellphones; in addition, our imports of capital goods rose by $933 million to $51,530 million on a $313 million increase in our imports of computer accessories and a $252 million increase in our imports of computers, our imports of foods, feeds, and beverages rose by $370 million to $11,451 million, and our imports of other goods not categorized by end use rose by $731 million to $7,802 million....partially offsetting those increases, our imports of industrial supplies and materials fell by $1,472 million to $42,142 million, as our imports of crude oil fell by $1,946 million, our imports of fuel oil fell by $540 million, and our imports of non-monetary gold fell by $376 million, and our imports of automotive vehicles, parts and engines fell by $673 million to $29,898 million on a $396 million decrease in our imports of vehicle parts and accessories other than engines, bodies or tires.....

to gauge the impact of April trade on 2nd quarter growth figures, we 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 compute that 1st quarter real exports of goods averaged 124,616 million monthly in 2009 dollars, while inflation adjusted April exports were at 123,856 million in the same 2009 dollar quantity index representation... annualizing the change between the two figures, we find that April's real exports were at a 2.4% annual rate below those of the 1st quarter, or at a pace that would subtract about 0.18 percentage points from 2nd quarter GDP if continued through May and June.....from that same table, we can figure that our 1st quarter real imports averaged 186,836 million monthly in chained 2009 dollars, while inflation adjusted April imports were at 187,405 million in that same 2009 dollar representation...that would indicate that so far in the 2nd quarter, our real imports have increased at a 1.2% 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 1.2% rate would thus subtract another 0.14 percentage points from 2nd quarter GDP....hence, if the April trade deficit is maintained at the same level throughout the 2nd quarter, our deteriorating balance of trade in goods would subtract about 0.32 percentage points from 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 handy inflation adjusted data on those, and we don't have easy access to the details on their price changes....

Construction Spending Fell 1.4% in April after March was Revised 1.4% Higher

the Census Bureau's report on construction spending for April (pdf) estimated that the month's seasonally adjusted construction spending was at a $1,218.5 billion annual rate, 1.4 percent (±1.0 percent) below the revised March annualized rate of $1,235.5 billion, but 6.7 percent (±1.5 percent) above the estimated annualized level of construction spending in April of last year...the annualized March construction spending estimate was revised 1.4% higher, from $1,218.3 billion to $1,235.5 billion, while the annual rate of construction spending for February was revised less than 0.1% higher, from $1,220.7 billion to $1,221.68 billion...those revisions together would suggest an upward revision of 0.16 percentage points to 1st quarter GDP when the third estimate is released at the end of June...

quoting further details from the release: "Spending on private construction was at a seasonally adjusted annual rate of $943.3 billion, 0.7 percent (± 0.8 percent)* below the revised March estimate of $949.7 billion. Residential construction was at a seasonally adjusted annual rate of $516.7 billion in April, 0.7 percent (±1.3 percent)* below the revised March estimate of $520.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $426.6 billion in April, 0.6 percent (± 0.8 percent)* below the revised March estimate of $429.3 billion. Public Construction: In April, the estimated seasonally adjusted annual rate of public construction spending was $275.3 billion, 3.7 percent (±2.0 percent) below the revised March estimate of $285.9 billion. Educational construction was at a seasonally adjusted annual rate of $70.7 billion, 2.0 percent (±2.6 percent)* below the revised March estimate of $72.2 billion. Highway construction was at a seasonally adjusted annual rate of $89.5 billion, 3.7 percent (±5.8 percent)* below the revised March estimate of $93.0 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 April spending reported in this release on 2nd 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, and the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment....in lieu of trying to adjust for all of those indices, we've opted to just 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 0.4% in April, up 0.2% in March and down 0.1% in February and up 0.3% in January....on that basis, we can estimate that April construction costs were roughly 0.6% greater than those of February and 0.5% greater than those of January, and obviously 0.4% greater than those of March...we then use those percentages to inflate spending for each of those months, which is arithmetically the same as deflating April construction spending, for comparison purposes...construction spending in millions of dollars for the first quarter is given as 1,235,541 for March, 1,221,681 for February, and 1,198,779 for January ...thus to find the difference between April's inflation adjusted construction spending and the construction spending of the first quarter, our formula becomes: 1,218,509 / ((1,235,541*1.004 +  1,221,681 *1.006 + 1,198,779 * 1.008) /3) =  0.99393, meaning real construction spending in April was down roughly 0.6% vis a vis the 1st quarter, or down at a 2.41% annual rate...to figure the potential effect of that change on 2nd quarter GDP,  we take the annualized difference between the first quarter average and April and take that result as a fraction of the annualized 1st quarter GDP figure, and thus can estimate that April construction spending is falling at a rate that would subtract 0.18 percentage points from the  growth of 2nd quarter GDP…

 

(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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