Sunday, April 7, 2019

March jobs; February’s retail sales, construction spending & durable goods; January’s business inventories

Major monthly reports released over the past week included the Employment Situation Summary for March from the Bureau of Labor Statistics, the Retail Sales report for February and the Business Sales and Inventories report for January, the February report on Construction Spending, and the Advance report on Durable Goods for February, all from the Census Bureau...in addition, the Fed released the Consumer Credit Report for February, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $15.2 billion, or at a 4.5% annual rate, as non-revolving credit expanded at a 4.9% annual rate to $2,984.8 billion and revolving credit outstanding grew at a 3.3% rate to $1,061.0 billion...

Privately issued reports released this week included the ADP Employment Report for March and the light vehicle sales report for March from Wards Automotive, which estimated that vehicles sold at a 17.48 annual rate in March, up from the 16.53 annual sales rate in February, and up from the 17.40 million rate a year earlier...in addition, the week saw both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the March Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 55.3% in March, up from 54.2% in February, which suggests an ongoing modest expansion in manufacturing firms nationally, and the March Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 56.1% in March, down from 59.7% in February, indicating a somewhat smaller plurality of service industry purchasing managers reported expansion in various facets of their business in March...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 196,000 Jobs in March, Labor Force Participation Rate Falls 0.2% to 63.0%

The Employment Situation Summary for March indicated that payroll job growth was in line with recent averages, while the labor force participation rate fell because of a large decrease in those who reported being employed…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 196,000 jobs in March, after the previously estimated payroll job increase for January was revised up from 311,000 to 312,000 and the payroll jobs increase for February was revised up from 20,000 up to 33,000…including those revisions, this report thus represents a total of 210,000 more seasonally adjusted payroll jobs than were reported last month, a bit less than the 2018 average increase of 223,000 jobs per month...the unadjusted data shows that there were actually 714,000 more payroll jobs extant in March than in February, as the usual seasonal job increases in sectors such as construction, administrative and waste services, and in leisure and hospitality were normalized by the seasonal adjustments…

Seasonally adjusted job increases in March were spread through both the goods producing and the service sectors, with only manufacturing and the retail sector showing job losses a seasonally adjusted basis, while both of those sectors actually added a jobs on an unadjusted basis...seasonally adjusted manufacturing employment was down 6,000 but remains 209,000 higher than a year ago, while the retail sector showed a seasonally adjusted 11,700 job decrease, as drug stores cut 7,700 employees and general merchandise stores cut 7,200 jobs, probably due to widespread store closings...meanwhile, employment in health care rose by 49,100, with the addition of 13,600 jobs in hospitals, and the broad professional and business services sector added 37,000 jobs, as 9,600 more were employed in computer systems design and related services...the leisure and hospitality sector, which actually added 248,000 employees, saw a 33,000 seasonally adjusted payroll job increase, as an adjusted 27,400 more jobs were added in bars and restaurants...similarly, the construction sector saw the addition of 16,000 seasonally adjusted jobs, with 13,000 of those working for specialty contractors, after aberrant weather caused the sector to ‘show’ an increase of 56,000 jobs in January and a decrease of 25,000 jobs in February...at the same time, government sector jobs increased by 12,000, with the addition of 8,200 in local government education....in addition, there was also a 12,200 payroll job increase in social assistance sector, with the addition of 10,000 jobs in individual and family services, and the financial sector saw an 11,000 job increase, with 7,400 of those in the insurance business...meanwhile the other major sectors, including resource extraction, wholesale trade, transportation and warehousing, utilities, information, 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 an hour to $27.70 an hour in March, after it had increased by a revised 10 cents an hour in February; at the same time, the average hourly earnings of production and non-supervisory employees increased by 6 cents to $23.24 an hour...employers also reported that the average workweek for all private payroll employees increased by 0.1 hour to 34.5 hours in March, while hours for production and non-supervisory personnel rose 0.1 hour to 33.7 hours...however, the manufacturing workweek was unchanged at 40.7 hours, while average factory overtime decreased by 0.1 hours to 3.4 hours...

Meanwhile, the March household survey indicated that the seasonally adjusted extrapolation of those who reported being employed fell by an estimated 201,000 to 162,960,000, while the similarly estimated number of those qualified as unemployed fell by 24,000 to 6,211,000; which thus meant a rounded decrease of 224,000 in the total labor force...since the working age population had grown by 145,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 369,000 to 95,577,000....with the number of those in the labor force decreasing while the civilian noninstitutional population was increasing, the labor force participation rate fell by 0.2% to 63.0%....at the same time, the decrease in number employed as a percentage of the increase in the population was enough to lower the employment to population ratio from 60.7% to 60.6%...however, the small decrease in the number unemployed was not enough to impact the unemployment rate, which remained at 3.8%....meanwhile, the number who reported they were involuntarily working part time rose by 189,000 to 4,499,000 in March, which apparently wasn't enough to change the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", as it remained at 7.3% in March, which in February had been the lowest since January 2001.....

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.. 

Retail Sales Down 0.2% in February after January Sales Revised 0.5% Higher

Seasonally adjusted retail sales decreased 0.2% in February after retail sales for January were revised higher...the Advance Retail Sales Report for February (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $506.0 billion during the month, which was 0.2 percent (±0.5%) lower than January's revised sales of $507.0 billion but still 2.2 percent (±0.7 percent) above the adjusted sales in February of last year...January's seasonally adjusted sales were revised up from $504.4 billion to $507.0 billion, while December's sales were revised from $503.4 billion to $503.327 million; as a result, the December to January change was revised up from up 0.2 percent (±0.5%) to up 0.7 percent (±0.2%).…the downward revision to December sales was not large enough to have a material impact on 4th quarter GDP...estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales were down 2.7%, from $459,480 million in January to $446,952 million in February, while they were up 2.2% from the $437,520 million of sales in February of a year ago...

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the February Census Marts pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each kind of business from the January revised figure to this month's February "advance" report in the first sub-column, and then the year over year percentage sales change since last February is in the 2nd column...the second double column pair below gives us the revision of the January advance estimates (now called "preliminary") as of this report, with the new December to January percentage change under "Dec 2018 (r)" (revised) and the January 2018 to January 2019 percentage change as revised in the last column shown...for your reference, our copy of the table of last month’s advance estimate of January sales, before this month's revisions, is here.…

February 2019 retail sales table

The revision to January's sales is actually the bigger story here than February's sales themselves...last week we reported on personal consumption expenditures for January and estimated their likely impact on 1st quarter GDP...more than a third of that figure was consumption of goods, which was sourced from the January retail sales report, which this report revises....in the January income and outlays report, personal consumption expenditures were seen barely growing at a 0.06% rate in January, largely because the $17.5 billion annualized increase in services spending for services was more than offset by a $17.6 billion annualized decrease in spending for durable goods...now January retail sales for major durable goods categories have been significantly revised higher: the previously reported 2.6% decrease in sales at auto dealers has been revised to a 2.0% decrease; the previously reported 1.2% decrease in sales at furniture stores has been revised to a 0.3% decrease; and the previously reported 0.3% decrease in sales at appliance stores has now been revised to a 0.6% increase….since there was no change in the January PCE price index for goods, the entirety of the $2.6 billion upward revision to January retail sales will go to the bottom line of January real PCE when it's revised at the end of this month.…but remember, retail sales shown here are a monthly figure, while personal consumption expenditures are expressed as an annual rate...that means the $2.6 billion upward revision to January retail sales will show up in PCE as a revision roughly 12 times that amount, or something on the order of $31 billion annualized, more than enough for a 0.2% upward revision to January PCE...

Meanwhile, to compute February's real personal consumption of goods data for national accounts from this February retail sales report, the BEA will use the corresponding price changes from the February consumer price index, which we reviewed when it was released in mid-March...to estimate what they will find, we first separate out the volatile sales of gasoline from the other totals...from the third line on the above table, we can see that February retail sales excluding the 1.0% price-related increase in sales at gas station were down by 0.3%....then, pulling the 1.2% decrease in grocery & beverage sales and the 0.1% increase in food services sales out from that total, we find that core retail sales were down by less than 0.2% for the month...since the February CPI report showed that the the composite price index of all goods less food and energy goods was 0.2% lower in February, we can thus figure that real retail sales excluding food and energy will show a small real increase...however, the actual adjustment in national accounts for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were up 0.7%, the February price index for for transportation commodities other than fuel was 0.4% lower, as prices for new cars and trucks fell 0.3% and prices for used cars and trucks fell 0.7%...that would mean that real unit sales at auto & parts dealers were probably on the order of 1.1% higher, with real new car sales 1.0% higher.. on the other hand, while nominal sales at clothing stores were 0.4% lower in February, the apparel price index was 0.3% higher, which means that real sales of clothing likely fell around 0.7%...

In addition to figuring those core retail sales, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the February CPI report showed that the food price index was 0.4% higher, with the both the index for food purchased for use at home and prices for food bought to eat away from home 0.4% higher...thus, while nominal sales at food and beverage stores were 1.2% lower, real sales of food and beverages would be roughly 1.6% lower in light of the 0.4% higher prices…meanwhile, the 0.1% increase in nominal sales at bars and restaurants, once adjusted for 0.4% higher prices, suggests that real sales at bars and restaurants fell about 0.3% during the month...in addition, while sales at gas stations were up 1.0%, there was 1.5% increase in the retail price of gasoline during the month, which would suggest that real sales of gasoline were down on the order of 0.5%, with a caveat that gasoline stations do sell more than gasoline... averaging real sales that we have thus estimated together, and excluding food services, we can then estimate that the income and outlays report for February will show that real personal consumption of goods fell by more than 0.1% in February, after rising by a revised 0.3% in January, but after falling by 2.0% December...at the same time, the 0.3% decrease in real sales at bars and restaurants would clip February's real personal consumption of services by less than 0.1%...

Construction Spending Rose 1.0% in February after January & December Revised Much Higher

The Census Bureau's report on February construction spending (pdf) reported that "Construction spending during February 2019 was estimated at a seasonally adjusted annual rate of $1,320.3 billion, 1.0 percent (±0.8 percent) above the revised January estimate of $1,307.3 billion. The February figure is 1.1 percent (±1.5 percent)* above the February 2018 estimate of $1,305.5 billion. During the first two months of this year, construction spending amounted to $181.9 billion, 1.4 percent (±1.3 percent) above the $179.4 billion for the same period in 2018."...the January annualized spending estimate was revised 2.2% higher, from $1,279.6 billion to $1,307.3 billion, while December's construction spending was revised from $1,263.1 billion to $1,275.953 billion annually, which together meant that the January construction spending increase was revised from 1.3% to 2.5%...the $12.85 billion upward revision to December’s annualized spending would mean we’d see a upward revision of about 11 basis points to 4th quarter GDP when the annual revisions are released later this summer...

A further breakdown of the different subsets of construction spending are provided by a Census summary, which precedes the detailed spreadsheets:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $994.5 billion, 0.2 percent (±0.8 percent)* above the revised January estimate of $993.0 billion. Residential construction was at a seasonally adjusted annual rate of $540.9 billion in February, 0.7 percent (±1.3 percent)* above the revised January estimate of $536.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $453.6 billion in February, 0.5 percent (±0.8 percent)* below the revised January estimate of $456.0 billion. 
  • Public Construction: In February, the estimated seasonally adjusted annual rate of public construction spending was $325.8 billion, 3.6 percent (±1.6 percent) above the revised January estimate of $314.4 billion. Educational construction was at a seasonally adjusted annual rate of $76.3 billion, 0.8 percent (±2.0 percent)* above the revised January estimate of $75.7 billion. Highway construction was at a seasonally adjusted annual rate of $111.1 billion, 9.5 percent (±5.3 percent) above the revised January estimate of $101.5 billion.

As you can tell from that summary, construction spending data would input 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 February’s construction spending reported in this release on 1st 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 to determine the actual change in construction put in place...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 just use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment and come up with an estimate...

That price index showed that aggregate construction costs were down 0.1% in February, after they had increased by 0.6% in January, and had increased by 0.1% in December and in November...on that basis, we can estimate that February construction costs were roughly 0.5% more than those of December, 0.6% more than those of November, and 0.7% more than those of October, and of course 0.1% less than January...we then use those relative percentages to inflate the lower cost spending figures for each of the 4th quarter months vis a vis February, which is arithmetically the same as adjusting higher priced January and February construction spending downward, for purposes of comparison....this report gives annualized construction spending in millions of dollars for the 4th quarter months as $1,275,953 in December, $1,273,143 in November, and $1,290,551 in October, while annualized construction spending was at $1,320,305 in February and $1,272,178 in January....thus to compare January's nominal construction spending of $1,307,335 and February's figure of $1,320,305 to inflation adjusted figures of the fourth quarter, our formula becomes:  ((1,320,305 +1,307,335 * 0.999) / 2 ) / ((1,275,953 * 1.005 + 1,273,143 * 1.006 + 1,290,551 * 1.007)/ 3) = 1.01988, which tells us that real construction spending over January and February was up by 1.988% from that of the 4th quarter period, or up at a 8.19% annual rate...then, to figure the potential effect of that change on GDP,  we take the difference between the 4th quarter inflation adjusted average and that of January's & February's adjusted spending as a fraction of 4th quarter GDP, and find that 1st quarter construction spending is rising at a rate that would add about 0.63 percentage points to 1st quarter GDP, an estimate which assumes there would be little change in real construction in March..

February Durable Goods: New Orders Down 1.6%, Shipments Up 0.2%, Inventories Up 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for February (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods decreased by $4.2 billion or 1.6 percent to $250.6 billion in February, after January's new orders were revised from the $255.3 billion reported last month to $254.7 billion, now just 0.1% more than December's new orders…nonetheless, year to date new orders are still up by 4.4% from those of 2018...the volatile monthly new orders for transportation equipment were responsible for the month’s decrease, as new transportation equipment orders fell $4.3 billion or 4.8 percent to $86.0 billion, on a 31.1% drop to $10,185 million in new orders for commercial aircraft....excluding orders for transportation equipment, new orders rose 0.1%, while excluding just new orders for defense equipment, new orders fell 1.9%....new orders for nondefense capital goods less aircraft, a proxy for equipment investment, were also weak, falling $66 million or 0.1% to $68,873 million...

Meanwhile, the seasonally adjusted value of February shipments of durable goods, which will ultimately be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, increased by $0.5 billion or 0.2 percent to $258.6 billion, after the value of January shipments was revised from $257.9 billion to $258.062 billion, now down 0.4% from December....higher shipments of computers and electronic products led the February increase, as their shipments increased by $0.3 billion or 1.1 percent to $28.0 billion...

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $1.3 billion or 0.3 percent to $418.9 billion, after end of January inventories were revised from $417.0 billion to $416.6 billion, now up 0.5% from December....increasing inventories of transportation equipment were responsible for the February increase, as they rose $1.3 billion or 1.0 percent to $134.1 billion....

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but very volatile new orders, fell for the 4th time in five months, decreasing by $3.6 billion or 0.3 percent to $1,177.6 billion, following a January increase of 0.1% to $1,181.27 billion, which was revised from the previously reported $1,181.9 billion...a $3.8 billion or 0.5 percent decrease to $807.2 billion in unfilled orders for transportation equipment was responsible for the overall decrease, while unfilled orders excluding transportation equipment orders were up $135 million to $370,450 million...the unfilled order book for durable goods is still 3.3% above the level of last February, with unfilled orders for transportation equipment 2.9% above their year ago level, boosted by a 15.3% increase in the backlog of orders for defense aircraft...

January Business Sales up 0.3%, Business Inventories Up 0.8%

After the release of the February retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for January (pdf), which incorporates the revised January retail data from that February report and the earlier published January wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,449.6 billion in January, up 0.3 percent (±0.3%)* from December's revised sales, and up 2.8 percent (±0.3 percent) from January sales of a year earlier...note that total December sales were concurrently revised up from the originally reported $1,445.0 billion to $1,445.5 billion, now just a 0.9% decrease from November....manufacturer's sales fell 0.4% to $503,052 million in January; retail trade sales, which exclude restaurant & bar sales from the revised January retail sales reported earlier, rose 0.8% to $446,712 million, while wholesale sales rose 0.5% to $499,822 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,013.9 billion at the end of January, up 0.8 percent (±0.1%) from the end of December, and 5.3  percent (±0.4 percent) higher than in January a year earlier...at the same time, the value of end of December inventories was revised from the $1,994.5 billion reported last month to $1,997.0 billion, which would imply an upward revision of about 0.05 percentage points to 4th quarter GDP....seasonally adjusted inventories of manufacturers were estimated to be valued at $685,681 million in January, up 0.5% from December, and inventories of retailers were valued at $658,352 million, 0.8% more than in December, while inventories of wholesalers were estimated to be valued at $678,241 million at the end of January, 1.2% higher than in December...

For GDP purposes, all inventories, including retail, are adjusted for inflation with appropriate component price indices of the producer price index for January, which was down 0.8% for finished goods...two weeks ago, we looked at real factory inventories with price adjustments for goods at various stages of production, and judged those inventories would have a positive impact on 1st quarter GDP…also last week, we found that real wholesale inventories would be up by more than 2% but still not be enough to add to 1st quarter GDP growth yet, given the big jump in 4th quarter wholesale inventories….since nominal retail inventories for January have now been shown to be 0.8% higher, real retail inventories for the month, after the 0.8% finished goods price adjustment, thus would have thus increased by around 1.6% from December, after a fourth quarter that saw retail inventories increase at a 8.3% annual rate...so while the real retail inventory increase is not year enough to add to GDP, they are increasing at a rate greater than in the 4th quarter and hence well on their way to contributing positively to 1st quarter GDP by the end of March...

 

(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…)  

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