Sunday, July 9, 2017

June jobs report; May’s trade deficit, construction spending and factory inventories..

in addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, this week's major releases included three May reports that will input into 2nd quarter GDP: the BEA report on our International Trade for May, and the May report on Construction Spending, and the Full Report on Manufacturers' Shipments, Inventories and Orders for May, both from the Census Bureau....privately issued reports released this week included  the ADP Employment Report for June, the light vehicle sales report for June from Wards Automotive, which estimated that vehicles sold at a 16.41 annual rate in March, down from the 16.58 million rate in May, and the lowest since October 2014, and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 57.8% in June, up from 54.9% in May, which suggests a stronger expansion in manufacturing firms nationally, and the June Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 57.4%, up from 56.9% in May, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in June...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally...  

Employers Add 222,000 Jobs in June, Unemployment Rate Up 0.1% as More Look for Work

the Employment Situation Summary for June indicated moderate payroll job growth, while the employment rate, the unemployment rate, and the labor force participation rate all rose …seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 222,000  jobs in June, after the payroll job increase for May was revised up from 138,000 jobs to 152,000, and the April increase was revised up from 174,000 jobs to 207,000, which meant that the combined number of jobs created over those two months was 47,000 more than was previously reported....the unadjusted data shows that there were actually 599,000 more payroll jobs extant in June than in May, as large seasonal job increases typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…

seasonally adjusted job increases were spread through throughout government and the private goods producing and service sectors, while only the information sector saw a loss of 4,000 jobs...employment in health care and social assistance rose by 59,100, with the addition of 11,700 jobs in hospitals and 11,500 in individual and family services....the leisure and hospitality sector added a seasonally adjusted 36,000 jobs, with the addition of 29,300 more jobs in bars and restaurants....the broad professional and business services sector added 35,000 jobs, as 14,400 more workers found work with employment services....the government sector also added 35,000 jobs, with 13,600 of those in local education systems and 22,200 more in other local government jobs....financial activities employed another 17,000, with 9,500 of those in real estate...and, after adjustment, the construction sector still saw 16,000 more jobs, as specialty trade contractors hired 18,500 more than in May...meanwhile, the other major sectors, including manufacturing, mining, wholesale and retail, transportation and warehousing, utilities, and private education, all saw smaller increases in payroll employment over the month…

the establishment survey also showed that average hourly pay for all employees rose by 4 cents to $26.25 an hour, after it had increased by a revised 3 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.03 an hour...employers also reported that the average workweek for all private payroll employees increased 0.1 hour to 34.5 hours, while hours for production and non-supervisory personnel rose by 0.1 hour to 33.7 hours...similarly, the manufacturing workweek rose by 0.1 hour to 40.8 hours, while factory overtime was unchanged at 3.3 hours..

at the same time, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 245,000 to 153,168,000, while the similarly estimated number of those unemployed rose by 116,000 to 6,977,000; which together meant that June saw a net increase of 361,000 in the total labor force...since the working age population had grown by 190,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 170,000 (rounded) to 94,813,000....the increase of those in the labor force was enough to raise the labor force participation rate 0.1% to 62.8%....at the same time, the increase in number employed vis-a-vis the increase in the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.1%...in addition, the increase in the number counted as unemployed was also large enough to raise the unemployment rate from 4.3% to 4.4%....meanwhile, the number who reported they were involuntarily working part time rose by 107,000 to 5,326,000 in June, which was also enough to raise the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 8.4% in May to 8.6% in June, as 204,000 more reported "slack work or business conditions" than in May..

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 Down 2.3% on Improved Balance in Autos and Consumer Goods

our trade deficit decreased by 2.3% in May as the value of our exports increased and our imports decreased....the Census report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services trade deficit fell by $1.1 billion to $46.5 billion in May from a April deficit of $47.59 billion, which was slightly revised from the $47.62 billion reported last month...the value of our May exports rose by $0.9 billion (rounded) to $192.0 billion on a $0.2 billion increase to $127.2 billion in our exports of goods and a $0.6 billion increase to $64.8 billion in our exports of services, while our imports fell $0.2 billion to $238.5 billion on a $0.6 billion decrease to $194.7 billion in our imports of goods while our imports of services rose $0.4 billion to $43.8 billion...export prices were on average 0.7% lower in May, so the relative real amount of May exports would be higher than the nominal amount by that percentage, while import prices were 0.2% lower, meaning real imports were on average greater than the nominal dollar values reported here by that percentage....

the increase in our May exports could be accounted for by higher exports of consumer goods and of automotive vehicles, parts, and engines, which were partially offset by a decrease 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  of consumer goods rose by $885 million to $16,741 million on a $456 million increase in our exports of cellphones, a $271 million increase in our exports of pharmaceuticals, and a $257 million increase in our exports of jewelry....in addition, our exports of automotive vehicles, parts, and engines rose by $619 million to $13,179 million on a $437 million increase in our exports of new and used passenger cars...offsetting those increases, our exports of foods, feeds and beverages fell by $711 million to $11,195 million on a $577 million decrease in our exports of soybeans, our exports of capital goods fell by $450 million to $43,117 million on a decrease of $292 million in exports of civilian aircraft, our exports of industrial supplies and materials fell by $118 million to $37,442 million on a $627 million decrease in exports of petroleum products other than fuel oil, and our exports of other goods not categorized by end use fell by $116 million to $5,108 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that lower imports of consumer goods was the major reason for the May decrease in our imports and trade deficit...our imports of consumer goods fell by $1,466 million to $49,473 million on a $937 million decrease in our imports of cellphones, a $564 million decrease in our imports artwork and antiques, and a $241 million decrease in our imports of inorganic textiles... in addition, our imports of automotive vehicles, parts and engines fell by $722 million to $29,173 million on a $1,267 million decrease in our imports of new and used passenger cars, and our imports of foods, feeds, and beverages fell by $65 million to $11,383 million...offsetting the decreases in those categories, our imports of capital goods rose by $1251 million to $52,783 million on increases of $460 million in our imports of computers, $333 million in our imports of civilian aircraft, $293 million in our imports of semiconductors, and $228 million in our imports of civilian aircraft engines, and our imports of industrial supplies and materials rose by $104 million to $42,276 million, as our imports of crude oil rose by $456 million and our imports of fuel oil rose by $302 million, and our imports of other goods not categorized by end use rose by $225 million to $8,020 million....

to gauge the impact of April and May's international trade on 2nd quarter domestic 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 and May exports were at 123,760 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 0.8% annual rate below those of the 1st quarter, or at a pace that would subtract about 0.09 percentage points from 2nd quarter GDP if maintained through June.....in a similar manner, we find that our 1st quarter real imports averaged 186,836 million monthly in chained 2009 dollars, while inflation adjusted April and May imports were at 187,579 million and 187,787 million in inflation adjusted dollars respectively....that would indicate that so far in the 2nd quarter, our real imports have increased at a 1.8% 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 1.8% rate would thus subtract about 0.24 percentage points from 2nd quarter GDP....hence, if the trade deficit at the April - May level is maintained through June, our deteriorating balance of trade in goods would subtract about 0.33 percentage points from the growth of 2nd quarter GDP....note that we have not attempted to compute the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on that trade, but that there were unusually large increases in both imports and exports of services trade in May that will likely have an impact as well...

Construction Spending Flat in  May after Prior Months Revised Higher

the Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,230.1 billion annually if extrapolated over an entire year, which was statistically unchanged from the revised annualized estimate of $1,230.4 billion of construction spending in April and 4.5 percent (±2.5 percent) above the estimated annualized level of construction spending in May of last year...the April spending estimate was revised 1.0% higher, from $1,218.5 billion to $1,230.4 billion, while the annual rate of construction spending for March was revised from $1,235.5 billion to $1,239.6 billion, and the annual rate of February construction spending was revised up from $1,221.7 billion to a $1,235.7 billion rate...combined, the revisions to February and March construction spending would suggest that 1st quarter GDP, which was released last week, will be revised higher when annual revisions to GDP are released in early August...construction spending tor the first 5 months of 2017 has now amounted to $469.2 billion, 6.1 percent (±1.3 percent) above the $442.4 billion in construction spending for the same 5 months of 2015…

the Census release gives us the following summary: "Spending on private construction was at a seasonally adjusted annual rate of $943.2 billion, 0.6 percent (±0.7 percent) below the revised April estimate of $949.3 billion. Residential construction was at a seasonally adjusted annual rate of $509.6 billion in May, 0.6 percent (±1.3 percent) below the revised April estimate of $512.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $433.6 billion in May, 0.7 percent (± 0.7 percent) below the revised April estimate of $436.7 billion. In May, the estimated seasonally adjusted annual rate of public construction spending was $286.9 billion, 2.1 percent (±5.3 percent) above the revised April estimate of $281.0 billion. Educational construction was at a seasonally adjusted annual rate of $74.3 billion, 5.1 percent (±3.3 percent) above the revised April estimate of $70.7 billion. Highway construction was at a seasonally adjusted annual rate of $90.6 billion, 0.9 percent (±16.9 percent) below the revised April estimate of $91.5 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, gauging the impact of revised April and May construction spending as reported here on GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because 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 Engineering News Record construction cost index for utilities construction....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..

that index indicated that aggregate construction costs were up 0.1% in the month of May, up 0.4% in April, up 0.2% in March, down 0.1% in February and up 0.3% in January....on that basis, we can estimate that May construction costs were roughly 0.5% greater than those of March, 0.7% greater than those of February and 0.6% greater than those of January, and obviously 0.1% greater than those of April...we then use those percentages to inflate spending for April and for each of the months of the first quarter, which is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter for comparison purposes, and then compare the inflation adjusted average of the 1st quarter months to the inflation adjusted average of the 2nd quarter months...construction spending in millions of dollars for the five months in question is given as 1,230,094 for May, 1,230,381 for April, 1,239,564 for March, 1,235,700 for February, and 1,223,501 for January, which we can see is going to result in a quarter over contraction...since we want to know the inflation adjusted rate of contraction, then, our calculation becomes  (((1,230,094 + (1,230,381 *1.001))/2 ) / ( ( (1,239,564 *1.005) +(1,235,700 *1.007) + (1,223,501 *1.006))/3)) ^ 4 = .96982, which means that construction spending has been shrinking at a 3.0% annual rate over the first 2 months of the second quarter...if June shows no improvement, that contraction in construction would be enough to subtract roughly 0.20 percentage points from 2nd quarter GDP in those components that it influences...

Factory Shipments Up 0.1% May, Factory Inventories Down 0.1% in Plus 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 $3.7 billion or 0.8 percent to $464.9 billion in May, following an decrease of 0.3% to $468.6 billion in April, which was revised from the 0.2 percent decrease to $469.0 billion 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 last week...this report showed that new orders for manufactured durable goods fell by $1.9 billion or 0.8 percent to $229.1 billion, revised from the previously published 1.1% decrease to $228.2 billion...

this report also indicated that the seasonally adjusted value of May factory shipments rose for the fifth month out of the last six, increasing by $0.6 billion or 0.1 percent to $471.5 billion, following statistically insignificant increase in April, which was essentially unrevised...shipments of durable goods were down by $0.6 billion or 0.2 percent to $231.6 billion, revised but virtually unchanged from what was published two weeks ago...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods fell $1.8 billion or 0.8 percent to $235.7 billion, as a 3.4% decrease in the value of shipments from refineries drove the decrease...

meanwhile, the aggregate value of May factory inventories fell for the 1st time in the past seven months, decreasing by $0.3 billion or 0.1 percent to $648.9 billion, following a April increase of 0.1% that was virtually unrevised from the previously published figure....inventories of durable goods increased in value by $0.9 billion or 0.2 percent to $395.8 billion, virtually unchanged from the increase that was reported was reported in the advance report....the value of non-durable goods' inventories decreased by decreased $1.3 billion or 0.5 percent to $253.1 billion, following a decrease of 0.4% in April....

to gauge the effect of these May factory inventories on 1st quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories fell by 0.4% to $226,342 million; the value of work in process inventories was little changed at $200,050 million, and materials and supplies inventories were valued 0.3% higher at $222,512 million...the May producer price index reported that prices for finished goods decreased 0.5%, prices for intermediate processed goods were 0.1% higher, while prices for unprocessed goods were 3.0% lower....assuming similar valuations for inventories, that would suggest that May's real finished goods inventories were roughly 0.1% higher, real inventories of intermediate processed goods were 0.1% lower, while real raw material inventory inventories were 3.3% higher...since 1st quarter inventories were virtually unchanged, a large drag on GDP, any inventory increases in the 2nd quarter will boost 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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