Sunday, December 9, 2018

November’s jobs report; October’s trade deficit, construction spending, factory inventories and wholesale sales

In addition to the Employment Situation Summary for November from the Bureau of Labor Statistics, this week's economic releases included four reports that will feed into 4th quarter GDP: the Commerce Department report on our International Trade for October, the October report on Construction Spending (pdf), the Full Report on Manufacturers' Shipments, Inventories and Orders for October, and the October report on Wholesale Trade, Sales and Inventories, all from the Census Bureau...in addition, late on Friday the Fed released the Consumer Credit Report for October, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $25.4  billion, or at a 7.7% annual rate, as non-revolving credit expanded at a 6.7% rate to $2,926.3 billion and revolving credit outstanding rose at a 10.7% rate to $1,037.4 billion...

The week’s major privately issued reports included the ADP Employment Report for November; the light vehicle sales report for November from Wards Automotive, which estimated that vehicles sold at a 17.40 million annual rate in November, down from the 17.46 million annual rate in October, but up from the 17.35 million annual rate in November a year ago; and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the November Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 59.3% in November, up from 57.7% in October, and the October Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 60.7% in November, up from 60.3% in October, indicating a slightly larger plurality of service industry purchasing managers reported expansion in various facets of their business in November than in October...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 155,000 Jobs in November, Unemployment Rate and Labor Force Participation Unchanged

The Employment Situation Summary for November reported fairly weak job creation, while the employment rate, the unemployment rate and the labor force participation rate were all unchanged…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers added 155,000 jobs in November, after the previously estimated payroll job increase for September was revised up from up from 118,000 to 119,000, while the payroll jobs increase for October was revised down from 250,000 to 237,000…that means that this report represents a total of 143,000 more seasonally adjusted payroll jobs than were reported last month, about 60,000 less than the average increase of the past 12 months...the unadjusted data, meanwhile, shows that there were actually 475,000 more payroll jobs extent than in October, 463,600 of which were seasonal jobs additions in the retail sector...

Seasonally adjusted job increases in November were spread throughout the private goods producing and service sectors, with the 8,000 jobs lost in the information sector and the 6,000 jobs lost in government the only notable decreases...the largest job increase was seen in the health care and social assistance sector, which added 40,100 jobs, with the addition of 5,500 jobs in doctor's offices and 8,300 jobs in individual and family services.…the broad professional and business services sector added 32,000 more jobs, with 8,300 of those working for temporary employment services and 7,600 employed by computer systems design and related services...another 27,000 jobs were added in manufacturing, with 5,300 of those employed in the manufacture of transportation equipment...in addition, 25,400 jobs were added in transportation and warehousing, with 9,900 of those employed as couriers or messengers....then, after the seasonal adjustment, retail sales added 18,200 workers, with a 39,300 increase in those working in general merchandise stores offsetting a 14,100 decrease in clothing store employment...meanwhile, other sectors including mining, construction, wholesale trade, leisure and hospitality, financial activities, and private education all saw smaller job gains over the month..

The establishment survey also showed that average hourly pay for all employees rose by 6 cents an hour to $27.35 an hour in November, after it had increased by a revised 4 cents an hour in October; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $22.95 an hour...employers also reported that the average workweek for all private payroll employees decreased by a tenth of an hour to 34.4 hours in November, while weekly hours for production and non-supervisory personnel was unchanged at 33.7 hours...at the same time, the manufacturing workweek was unchanged at 40.8 hours, while average factory overtime was unchanged at 3.5 hours...

Meanwhile, the November household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 233,000 to 156,795,000, while the estimated number of those unemployed and looking for work fell by 100,000 to 5,975,000, and hence the total labor force increased by a net total of 133,000....since the working age population had grown by 194,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by a rounded 60,000 to 95,937,000, which was not enough to statistically impact the labor force participation rate, which remained at 62.9% in November....meanwhile, the increase in number employed as a percentage of the increase in the population was also not enough to statistically change the employment to population ratio, which we could think of as an employment rate, as it remained at 60.6%....similarly, the decrease in the number unemployed was not enough to statistically change the unemployment rate, which remained at 3.7%...on the other hand, the number of those who reported they were forced to accept just part time work rose by 181,000, from 4,621,000 in October to 4,802,000 in November, which was enough to increase the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.4% of the labor force in October to 7.6% in November...

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.. 

October Trade Deficit Rises to 10 Year High on Increased Drug Imports, Lower Soybean Exports

Our trade deficit rose by 1.7% in October as the value of our exports decreased while the value of our imports increased....the Commerce Dept report on our international trade in goods and services for October indicated that our seasonally adjusted goods and services trade deficit rose by $0.93 billion to $55.49 billion in October from a revised September deficit of $54.56 billion, which had previously been reported at $54.0 billion...the value of our October exports fell by a rounded $0.3 billion to $211.0 billion on a $0.4 billion decrease to $141.5 billion in our exports of goods and a $0.1 billion increase to $69.6 billion in our exports of services, while our imports rose by a rounded $0.6 billion to $266.5 billion on a $0.5 billion increase to $219.6 billion in our imports of goods and a $0.2 billion increase to $46.9 billion in our imports of services...export prices were on average 0.4% higher in October, so the relative percentage decrease in real October exports would be 0.4% greater than the nominal decrease, while import prices were 0.5% higher, meaning the increase in real imports was smaller than the nominal dollar values reported here by that percentage...

The decrease in our October exports of goods resulted from lower exports of food, feed, and beverages and of capital goods, which were partly offset by increases in exports of industrial supplies and materials and other goods...referencing the Full Release and Tables for October (pdf), in Exhibit 7 we find that our exports of foods, feeds and beverages fell by $670 million to $10,340 million on a $837 million decrease in our exports of soybeans, and that our exports of capital goods fell by $533 million to $46,964 million on a $326 million decrease in our exports of engines for civilian aircraft, a $309 million decrease in our exports of civilian aircraft, and a $273 million decrease in our exports of industrial engines...in addition, our exports of automotive vehicles, parts, and engines fell by $234 million to $12,727 million on lower exports of engines, engine parts, trucks, buses and other special purpose vehicles...partially offsetting the decreases in those export categories, our exports of industrial supplies and materials rose by $291 million to $47,183 million on a $699 million increase in our exports of crude oil, a $316 million increase in our exports fuel oil, and a $273 million increase in our exports of metallurgical grade coal, which were partially offset by a $838 million decrease in our exports of nonmonetary gold and a $245 million decrease in our exports of organic chemicals...in addition, our exports of consumer goods rose by $186 million to $17,947 million and our exports of other goods not categorized by end use rose by $417 million to $5,177 million...

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 and automotive goods were responsible for the $0.5 billion increase in our goods imports, even as our imports of capital goods decreased...our imports of consumer goods rose by $1,962 million to $57,440 million on a $1485 million increase in our imports of pharmaceutical preparations, and a $306 million increase in our imports of cell phones, and our imports of automotive vehicles, parts and engines rose by $727 million to $31,839 million on a $480 million increase in our imports of new and used passenger cars...in addition, our imports of foods, feeds, and beverages rose by $155 million to $12,299 million, and our imports of other goods not categorized by end use rose by $811 million to $10,147 million.....mostly offsetting those increases, however, our imports of capital goods fell by $3,152 million to $56,907 million on a $528 million decrease in our imports of telecommunications equipment, a $761 million decrease in our imports of computers, a $747 million decrease in our imports of computer accessories, a $507 million decrease in our imports of engines for civilian aircraft, and a $341 million decrease in our imports of semiconductors, and our imports of industrial supplies and materials fell by $241 million to $49,207 million on a $341 million decrease in our imports crude oil and a $303 million decrease in our imports of petroleum products other than fuel oil..

The $0.56 billion upward revision to the September trade deficit will have the effect of increasing the annualized 3rd quarter trade deficit by about $2.25 billion, which would reduce 3rd quarter GDP by about 0.04 percentage points from previously published figures (assuming that inflation adjustments are similar)...meanwhile, to gauge the impact of October trade in goods on 4th quarter GDP 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 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, with the exception that they are not annualized here....from that table, we can estimate that 3rd quarter real exports of goods averaged 149,417 million monthly in 2012 dollars, while inflation adjusted October exports were at 149,644 million in that same 2012 dollar quantity index representation... annualizing the change between the two figures, we find that October's real exports of goods are running at a 0.6% annual rate above those of the 3rd quarter, or at a pace that would add about 0.05 percentage points to 4th quarter GDP if continued through November and December.....in a similar manner, we find that our 3rd quarter real imports of goods averaged 234,772.7 million monthly in chained 2012 dollars, while inflation adjusted October goods imports were at 237,524 million...that would indicate that so far in the 4th quarter, we have seen our real imports increase at annual rate of 4.77% from those of the 3rd 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 4.77 rate would subtract 0.57 percentage points from 4th quarter GDP....hence, if the October trade deficit is maintained at the same level throughout the 4th quarter, our deteriorating balance of trade in goods would subtract a net of roughly 0.52 percentage points from the growth of 4th quarter GDP.....however, note that we have not computed the impact of the less volatile change in services here because the BEA does not provide inflation adjusted data on those, and we don't have an easy way to access to all their price changes...

Construction Spending Slipped 0.1% in October after Prior Months Were Revised Much Lower

The Census Bureau's report on construction spending for October (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,308.8 billion annually if extrapolated over an entire year, which was 0.1 percent (±1.5 percent)* below the revised annualized September estimate of $1,310.8 billion but still 4.9 percent (±1.6 percent) above the estimated annualized level of construction spending in October of last year. The annualized September construction spending estimate was revised 1.4% lower, from $1,329.5 billion to $1,310.8  billion, while the annual rate of construction spending for August was revised 1.3% lower, from $1,328.85 billion to $1,311.82 billion.  The combined downward revisions of $34.1 billion to annualized August and September construction spending figures would be averaged over the 3 months of the quarter and decrease the annualized 3rd quarter construction figure by around $11.4 billion, which would thus imply a downward revision of about 0.27 percentage points to third quarter GDP when the third estimate is released on December 21st...

Further details on different subsets of construction spending are provided by the Census release summary:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $998.7 billion, 0.4 percent (±0.8 percent)* below the revised September estimate of $1,003.0 billion. Residential construction was at a seasonally adjusted annual rate of $539.0 billion in October, 0.5 percent (±1.3 percent)* below the revised September estimate of $541.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $459.7 billion in October, 0.3 percent (±0.8 percent)* below the revised September estimate of $461.3 billion. 
  • Public Construction: In October, the estimated seasonally adjusted annual rate of public construction spending was $310.2 billion, 0.8 percent (±2.6 percent)* above the revised September estimate of $307.8 billion. Educational construction was at a seasonally adjusted annual rate of $76.9 billion, 2.6 percent (±2.3 percent)* above the revised September estimate of $75.0 billion. Highway construction was at a seasonally adjusted annual rate of $94.6 billion, 0.1 percent (±6.9 percent)* below the revised September estimate of $94.6 billion.

As you can see from the above, construction spending would be included in 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 in nominal dollars 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 types of construction separately, 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 1.9% month over month in October, after increasing 0.1% in August and 0.1% in September... 

On that basis, we can estimate that October construction costs were roughly 2.1% more than those of July, 2.0% more than those of August, and obviously 1.9% more than September. We'll 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 1,310,806 in September, 1,311,824 in August, and 1,317,701 in July.   Thus to adjust October's nominal construction spending of $1,241,538 million for inflation and compare it to that of the third quarter, our formula would be: 1,308,848  / (((1,310,806 * 1.019) + ( 1,311,824 *1.020) + (1,317,701 * 1.021)) / 3) = 0.97696, meaning real construction in October was 2.3% lower than that of the 3rd quarter, or down at a 8.90% annual rate.   To figure the effect of that change on GDP,  we figure the difference between the third quarter inflation adjusted average and that of October and take that annualized result of that as a fraction of the inflation adjusted 3rd quarter GDP figure, and find that October construction spending is falling at a rate that would subtract 0.64 percentage points from 4th quarter GDP, assuming hypothetically that there would be no change over the next two months.  As bad as that sounds, we have reason to believe it may be worse, since nominal construction spending has now been falling for 3 months straight.. 

Factory Shipments Down 0.1% in October, Factory Inventories Up 0.1%

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) for October from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $10.5 billion or 2.1 percent to $502.7 billion in October, following an increase of 0.2% to $513.2 billion in September, which was revised from the 0.7 percent increase to $515.3 billion that was reported for September 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 revised updates to the October advance report on durable goods we reported on two weeks ago...on those durable goods revisions, the Census Bureau's own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we'll just quote directly from that summary here:

  • Summary: New orders for manufactured goods in October, down following two consecutive monthly increases, decreased $10.5 billion or 2.1 percent to $502.7 billion, the U.S. Census Bureau reported today.  This followed a 0.2 percent September increase.  Shipments, down following fifteen consecutive monthly increases, decreased $0.5 billion or 0.1 percent to $508.4 billion.  This followed a 0.7 percent September increase.  Unfilled orders, down following eight consecutive monthly increases, decreased $1.7 billion or 0.1 percent to $1,183.6 billion.  This followed a 0.7 percent September increase.  The unfilled orders‐to‐ shipments ratio was 6.70, up from 6.65 in September.  Inventories, up twenty‐four consecutive months, increased $0.9 billion or 0.1 percent to $681.7 billion.  This followed a 0.6 percent September increase.   The inventories‐to‐shipments ratio was 1.34, unchanged from September.
  • New orders for manufactured durable goods in October, down three of the last four months, decreased $11.2 billion or 4.3 percent to $249.0 billion, up from the previously published 4.4 percent decrease.  This followed a virtually unchanged September decrease.  Transportation equipment, down following two consecutive monthly increases, drove the decrease, $11.6 billion or 12.0 percent to $84.8 billion.  New orders for manufactured nondurable goods increased $0.7 billion or 0.3 percent to $253.7 billion.
  • Shipments of manufactured durable goods in October, down following two consecutive monthly increases, decreased $1.2 billion or 0.5 percent to $254.6 billion, up from the previously published 0.6 percent decrease.  This followed a 0.9 percent September increase.  Transportation equipment, also down following two consecutive monthly increases, drove the decrease, $1.5 billion or 1.7 percent to $87.6 billion.  Shipments of manufactured nondurable goods, up sixteen of the last seventeen months, increased $0.7 billion or 0.3 percent to $253.7 billion.  This followed a 0.5 percent September increase.  Petroleum and coal products, up fifteen of the last sixteen months, drove the increase, $0.9 billion or 1.6 percent to $59.1 billion.
  • Unfilled orders for manufactured durable goods in October, down following eight consecutive monthly increases, decreased $1.7 billion or 0.1 percent to $1,183.6 billion, up from the previously published 0.2 percent decrease.  This followed a 0.7 percent September increase.  Transportation equipment, down following two consecutive monthly increases, drove the decrease, $2.8 billion or 0.3 percent to $815.2 billion.
  • Inventories of manufactured durable goods in October, up twenty‐one of the last twenty‐two months, increased $0.3 billion or 0.1 percent to $411.3 billion, up from the previously published virtually unchanged decrease.  This followed a 0.8 percent September increase.  Transportation equipment, up three of the last four months, drove the increase, $0.5 billion or 0.4 percent to $131.1 billion.  Inventories of manufactured nondurable goods, up sixteen consecutive months, increased $0.6 billion or 0.2 percent to $270.3 billion.  This followed a 0.4 percent September increase.  Chemical products, up twelve of the last thirteen months, drove the increase, $0.6 billion or 0.7 percent to $90.5 billion.

To estimate the effect of those October factory inventories on 4th 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 rose 0.3% to $236,517 million; the value of work in process inventories fell 0.3% to $208,424 million, and materials and supplies inventories were valued 0.3% higher at $236,748 million...the October producer price index reported that prices for finished goods were on average 0.6% higher, that prices for intermediate processed goods were on average 0.8% higher, and that prices for unprocessed goods were 3.6% higher....assuming similar valuations for like types of inventories, those price increases would suggest that October's real finished goods inventories were about 0.3% lower, that real inventories of intermediate processed goods were 1.1% lower, and that real raw material inventory inventories were about 3.3% lower...since real NIPA factory inventories were substantially higher in the 2nd quarter, the fact that this report indicates a drop in aggregate October factory inventories will therefore have a correspondingly large negative impact on the growth rate of 4th quarter GDP... 

October Wholesale Sales Down 0.2%, Wholesale Inventories Up 0.8%

The October report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at "$510.1 billion, down 0.2 percent (±0.5 percent)* from the revised September level, but..up 6.8 percent (±3.5 percent) from the October 2017 level. The August 2018 to September 2018 percent change was revised from the preliminary estimate of up 0.2 percent (±0.5 percent)* to up 0.1 percent (±0.5 percent)*"...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold...

On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods left in a warehouse represent goods that were produced but not sold, and this October report estimated that wholesale inventories were valued at a seasonally adjusted "$652.1 billion at the end of October, up 0.8 percent (±0.4 percent) from the revised September level. Total inventories were up 6.9 percent (±4.2 percent) from the revised October 2017 level. The September 2018 to October 2018 percent change was revised from the advance estimate of up 0.7 percent (±0.4 percent) to up 0.8 percent (±0.4 percent)."

Like factory inventories, to estimate the effect of October wholesale inventories on 4th quarter GDP, we must first adjust them for changes in price with appropriate components of the producer price index...although details are not broken out, we've previously estimated that about 2/3rd of wholesale inventories are finished goods, with notable exceptions such as crude oil and farm product inventories...as we noted earlier, the producer price index for October indicated that prices for finished goods rose 0.6%, prices for intermediate goods intermediate goods rose 0.8%, and prices for unprocessed goods rose 3.6%;  thus the 0.8% increase in the nominal value of wholesale inventories was mostly due to rising prices...since real wholesale inventories in the 3rd quarter were higher each month, a nearly flat level of real wholesale inventories change in the 4th quarter would thus subtract from the growth of 4th 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 picked from the aforementioned GGO posts, contact me…)      

No comments:

Post a Comment