Sunday, September 3, 2017

August’s jobs report; 2nd quarter GDP revision; July’s income and outlays and construction spending

what are probably the three most important monthly economic releases were released on successive days this week; the 2nd estimate of 2nd quarter GDP from the Bureau of Economic Analysis was released on Wednesday, followed by the July report on Personal Income and Spending, also from the BEA, on Thursday, and then the Employment Situation Summary for August from the Bureau of Labor Statistics on Friday...Friday also saw the release of the July report on Construction Spending (pdf) from the  Census Bureau, while earlier in the week saw the release of the Dallas Fed Texas Manufacturing Outlook Survey for August, which indicated its general business activity index was unchanged at 17.0 in August, indicating an ongoing robust manufacturing expansion supporting the energy focused Texas economy...

the week’s privately issued reports included the ADP Employment Report for August; the light vehicle sales report for August from Wards Automotive, which estimated that vehicles sold at a 16.03 million annual rate in August, down 4.0% from the 16.69 million annual rate in July, and down 6% from the 16.9 million annual rate in August a year ago; the Case-Shiller Home Price Index for June, which is an average of April, May and June relative home prices, and which 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; and the widely followed August Manufacturing Report On Business from the Institute for Supply Management (ISM), which reported that their manufacturing PMI (Purchasing Managers Index) rose to 58.8% in August, up from 56.3% in July, and the highest index reading since April 2011...

Employers Add 156,000 Jobs in August; Employment Rate Falls

the Employment Situation Summary for August reported weak job creation and a drop in the average workweek, while the unemployment rate rose and the employment rate fell…estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 156,000 jobs in August, after the payroll job increase for July was revised down from 209,000 to 189,000, and the payroll jobs increase for June was revised down from 231,000 to 210,000…that means that this report represents a total of just 115,000 more seasonally adjusted payroll jobs than were reported last month, not even enough to keep up with the increase in the working age population...the unadjusted data shows that there were actually 211,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,091,000, so seasonal adjustments had a relatively small impact on this month's headline count...

seasonally adjusted job increases were spread throughout the private goods producing and service sectors, with only the information and government sectors seeing notable losses of 8,000 and 9.000 jobs respectively....the manufacturing sector added a seasonally adjusted 36,000 jobs, with the addition of 13,700 more jobs in the manufacturing of vehicles and parts....employment in construction increased by 28,000, with 15,400 of those jobs working for residential specialty trade contractors....the broad professional and business services category added 40,000 jobs, as 8,000 more were added in computer systems design and 7,000 more workers found work with employment services....employment in health care rose by 20,200, with the addition of 7,500 jobs in doctor's offices and 6,400 in hospitals...meanwhile, the other major sectors, including mining and logging, wholesale and retail sales, transportation and warehousing, financial activities, private education and  leisure and hospitality, all saw increases of less than 10,000 in payroll employment over the month...'

the establishment survey also showed that average hourly pay for all employees rose by 3 cents an hour to $26.39 an hour, after it had increased by 9 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.12 an hour, after July's pay figure was revised 2 cents lower....employers also reported that the average workweek for all private payroll employees decreased by 0.1 hour to 34.4 hours in August, while hours for production and non-supervisory personnel remained at 33.7 hours for the fifth consecutive month...meanwhile, the manufacturing workweek fell by 0.2 hours to 40.7 hours, while average factory overtime was unchanged at 3.3 hours...

at the same time, the seasonally adjusted extrapolation from the August household survey indicated that the number of those who reported being employed fell by an estimated 74,000 to 153,439,000, while the similarly estimated number of those unemployed rose by 151,000 to 7,132,000; which together meant that August saw a net increase of 77,000 in the total labor force...since the working age population had grown by 206,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 128,000 (rounded) to 94,785,000, which was nonetheless not enough to change the labor force participation rate, as it remained at 62.9%....at the same time, the drop in number employed vis-a-vis the increase in the population was great enough to decrease 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 count of those unemployed as a percentage of the labor force was enough to increase the unemployment rate from 4.3% to 4.4%.....at the same time, there was also a small decrease of 27,000 in those who reported they were forced to accept just part time work, from 5,282,000 in July to 5,255,000 in August, which thus left the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", unchanged at 8.6% of the labor force in August....

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..

2nd Quarter GDP Revised to Indicate Growth at a 3.0% Rate

the Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.0% rate in the quarter, revised down from the 2.6% growth rate reported in the advance estimate last month, as growth in personal consumption expenditures and all types of investment was greater than previously estimated, offsetting smaller downward revisions to exports and to state & local government outlays.....in current dollars, our second quarter GDP grew at a 4.0% annual rate, increasing from what would work out to be a $19,057.7 billion a year rate in the 1st quarter to a $19,246.7 billion annual rate in the 2nd quarter of this year, with the headline 3.0% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.0%, aka the GDP deflator, was applied to the current dollar change...

remember that the GDP release 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 what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 2nd estimate of 2nd 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 2nd 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 2.8% growth rate reported last month to a 3.3% growth rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 3.6% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 0.3% annual rate in the 2nd quarter, which was unrevised from the PCE inflation rate reported a month ago...real consumption of durable goods grew at a 8.9% annual rate, which was revised from the 6.3% growth rate shown in the advance report, and added 0.65 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 14.0% rate accounted for more than half the durables increase....real consumption of nondurable goods by individuals rose at a 4.3% annual rate, revised from the 3.8% increase rate reported in the 1st estimate, and added 0.62 percentage points to 2nd quarter economic growth, as growth in clothing consumption at a 10.6% annual rate led the non-durables growth ….at the same time, consumption of services grew at a 2.1% annual rate, revised from the 1.9% growth rate reported last month, and added 1.00 percentage points to the final GDP tally, led by 3.5% growth in real consumption of housing and utilities...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 3.6% annual rate in the 2nd quarter, revised from the 2.0% growth estimate reported last month, as real private fixed investment grew at a 3.6% rate, rather than at the 2.2% rate reported in the advance estimate, while the previously reported contraction in inventory growth was reversed to show real inventory growth....real investment in non-residential structures was revised from growth at a 4.9% rate to growth at a 6.2% rate, while real investment in equipment was revised to show growth at a 8.8% rate, up from the 8.2% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from growth at a 1.4% rate to growth at a 4.9% rate, while the contraction rate of residential investment was revised from -6.8% to -6.5% annually…after those revisions, the increase in investment in non-residential structures added 0.18 percentage points to the 2nd quarter's growth rate, the increase in investment in equipment added 0.47 percentage points to the quarter's growth, greater investment in intellectual property added 0.20 percentage points, while the decrease in investment in residential structures subtracted 0.26 percentage points from the 2nd quarter's GDP...

at the same time, investment in real private inventories grew by an inflation adjusted $1.8 billion in the 2nd quarter, revised from the originally reported inventory shrinkage of $0.3 billion...this came after inventories had grown at an inflation adjusted $1.2 billion rate in the 1st quarter, and hence the $0.6 billion increase in real inventory growth added 0.02 percentage points to the quarter's growth rate, in contrast to the 0.02 percentage point subtraction due to slower inventory growth that was shown in the advance estimate....since growth in inventories indicates that more of the goods produced during the quarter were left "sitting on the shelf”, their increase by $0.6 billion meant that real final sales of GDP were relatively smaller by that much, but not enough to statistically change the growth rate in real final sales of GDP, which was also revised from 2.6% to 3.0%..

the previously reported increase in real exports was revised smaller with this estimate, while at the same time the reported increase in real imports was revised lower by a similar amount, and as a result the net impact of our foreign trade little changed from what was previously reported...our real exports grew at a 3.7% rate rather than the 4.1% 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 0.45 percentage points to the 2nd quarter's growth rate, a bit less than the 0.48 percentage point addition shown in the previous report....meanwhile, the previously reported 2.1% increase in our real imports was revised to a 1.6% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.23 percentage points from 2nd quarter GDP....thus, our improving trade balance added a net 0.21 percentage points to 2nd quarter GDP, rather than the 0.18% percentage point addition that had been indicated by the advance estimate…

finally, there were negative revisions to real government consumption and investment in this 2nd estimate, as the entire government sector shrunk at a 0.3% rate, revised from the 0.7% growth rate previously reported...real federal government consumption and investment was seen to have grown at a 1.9% rate from the 1st quarter in this estimate, which was revised from the 2.3% growth rate in the 1st estimate...real federal outlays for defense were revised to show growth at a 4.7% rate, rather than the 5.2% growth rate previously reported, and added 0.18% percentage points to 2nd quarter GDP, while all other federal consumption and investment shrunk at a 1.9% rate, same as was previously reported, and subtracted 0.05% percentage points from 2nd quarter GDP...meanwhile, real state and local consumption and investment shrunk at a 1.7% rate in the quarter, which was revised from the 0.2% contraction rate reported in the 1st estimate, and subtracted 0.18% 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, thus indicating an increase in the output of those goods or services...

July Personal Incomes Up 0.4%, Personal Spending Up 0.3%, PCE Price Index Up 0.1%

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 regular economic release we see monthly, as each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of its quarter's 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 July’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 June to July..

thus, when the opening line of the press release for the July report tell us "Personal income increased $65.6 billion (0.4 percent) in July", they mean that the annualized figure for seasonally adjusted personal income in July, $16,450.3 billion, was $65.6 billion, or a bit less than 0.4% greater than the annualized personal income figure of $16,384.7 billion extrapolated for June; the actual, unadjusted change in personal income from June to July, which is an order of magnitude lower,  is not given...at the same time, annualized disposable personal income, which is income after taxes, rose by less than 0.3%, from an annual rate of $14,370.8 billion in June to an annual rate of $14,410.4 billion in July....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 July, the largest contributors to the $65.6 billion annual rate of increase in personal income were a $41.4 billion increase in wages and salaries and a $13.5 billion increase in dividend and interest income…

for the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at a $44.7 billion rate, or by a bit more than 0.3% from June, as the annual rate of PCE rose from $13,338.6 billion in June to $13,383.3 billion in July....June PCE was revised from $13,304.7 billion annually to $13,338.6 billion, while PCE for the months going back to April were also revised as well, all of which were already included in the upward revision in the 2nd estimate of 2nd quarter GDP which we reviewed earlier (data in this report, although released a business day later than the GDP release, is concurrent with GDP data)....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $45.2 billion to $13,900.3 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $510.2 billion annual rate in July, down from the revised $515.7 billion in annualized personal savings in June... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, slipped to 3.5% in July from the June savings rate of 3.6%...

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 rose from 112.285 in June to 112.384 in July, a month over month inflation rate that's statistically 0.088%, which BEA reports as an increase of 0.1 percent, following the statistically unchanged PCE price index reported for June...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 July's chained dollar consumption total works out to 11,909.1 billion annually, 0.2458% more than June's 11,879.9 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 July's real PCE to the the real PCE of the 3 months of the second 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 2nd quarter was represented by 11,854.4 billion in chained 2009 dollars..(ie, that's the same as is shown in table 3 of the pdf for the 2nd quarter GDP report)....when we compare July's adjusted PCE of 11,909.1 to the 2nd quarter real PCE of 11,854.4, we find that July real PCE has grown at a 1.86% annual rate compared to the 2nd quarter....this means that even if July’s real PCE growth does not improve during August and September, growth in PCE would still add 1.28 percentage points to the growth rate of the 3rd quarter...

Construction Spending Fell 0.6% in July after Prior Months Were Revised Much Higher

the Census Bureau report on construction spending for July (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,211.5 billion annually if extrapolated over an entire year, which was 0.6 percent (±1.5 percent)* below the revised annualized estimate of $1,219.2 billion of construction spending in June but still 1.8 percent (±1.8 percent)* above the estimated annualized level of construction spending in July of last year...the June construction spending estimate was revised 1.1% higher, from $1,205.8 billion to $1,221.6 billion, while the annual rate of construction spending for May was revised more than 1.2% higher, from $1,221.6 billion to $1,236.7 billion....together, those revisions would suggest an upward revision of 0.26 percentage points to 2nd quarter GDP when the third estimate is released at the end of September...

quoting further details from the Census release: "Spending on private construction was at a seasonally adjusted annual rate of $945.5 billion, 0.4 percent (±1.0 percent)* below the revised June estimate of $949.4 billion. Residential construction was at a seasonally adjusted annual rate of $517.5 billion in July, 0.8 percent (±1.3 percent)* above the revised June estimate of $513.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $428.0 billion in July, 1.9 percent (± 1.0 percent) below the revised June estimate of $436.2 billion.In July, the estimated seasonally adjusted annual rate of public construction spending was $266.0 billion, 1.4 percent (±2.6 percent)* below the revised June estimate of $269.8 billion. Educational construction was at a seasonally adjusted annual rate of $66.2 billion, 4.4 percent (±3.9 percent) below the revised June estimate of $69.2 billion. Highway construction was at a seasonally adjusted annual rate of $84.8 billion, 0.1 percent (±6.9 percent)* above the revised June estimate of $84.7 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 July spending reported in this release on 3rd 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 1.2% in July, after rising 0.2% in and June and 0.1% from April to May...on that basis, we can estimate that July construction costs were roughly 1.4% more than those of May and 1.5% more  than those of April...we then use those percentages to inflate lower priced spending figures for each of those months, which is arithmetically the same as deflating July construction spending, for comparison purposes...annualized construction spending in millions of dollars for the second quarter is given as 1,219,237 for June, 1,236,722 for May, and 1,217,658 for April, while it was at 1,211,508 for July ...thus to compare July's inflation adjusted construction spending to that of the first quarter, our formula becomes: 1,211,508 / (((1,219,237 * 1.012)+ ( 1,236,722 * 1.014) + (1,217,658 * 1.015)) /3) = 0.976, meaning real construction spending in July was down 2.4% vis a vis the 2nd quarter, or down at a 9.2% annual rate...to figure the effect of that change on GDP,  we annualize the difference between the second quarter average and July and take the result as a fraction of 2nd quarter GDP, and find that July construction spending is falling at a rate that would subtract nearly a full percentage point from 3rd quarter GDP should we see no improvement in August or September…

 

(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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