Sunday, May 5, 2019

April’s jobs report; March incomes and outlays, construction spending, and factory inventories

The major economic releases from the past week that we'll review today include the Employment Situation Summary for April from the Bureau of Labor Statistics, and three March reports that include metrics which were either estimated or included in last week's advance estimate of 1st quarter GDP: the March report on Personal Income and Spending from the Bureau of Economic Analysis, which also includes shutdown-delayed February spending data, the March report on Construction Spending (pdf), and the Full Report on Manufacturers' Shipments, Inventories and Orders for March, both from the Census Bureau...in addition to those, this week also saw the release of the last regional Fed manufacturing survey for April: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index fell to +2.0 in April, down from a revised +6.9 in March, suggesting near stagnation of the energy industry centered Texas economy…

privately issued reports released this week included the ADP Employment Report for April, the light vehicle sales report for April from Wards Automotive, which estimated that vehicles sold at a 16.43 million annual rate in April, down from the 17.48 million annual sales rate in March, and down from the 17.01 million annual sales rate in April a year ago, and the February Case-Shiller Home Price Index from S&P Case-Shiller, which actually is a relative average of December, January and February home prices...Case Shiller's report indicated that home prices nationally for those 3 months averaged 4.0% higher than prices for the same homes that sold during the same 3 month period a year earlier, down from the 4.3% year over year increase they reported a month ago…

in addition, the week saw both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the April Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 52.8% in April, down from 55.3% in March, which suggests a sluggish expansion in manufacturing firms nationally, and the April Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 55.2% in April from 56.1% in March, indicating a slightly smaller plurality of service industry purchasing managers reported expansion in various facets of their business in April...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 263,000 Jobs in April, Unemployment Rate Drops to 49 Year Low of 3.6% On Labor Force Decline

The Employment Situation Summary for April indicated strong payroll job growth, while the unemployment rate dropped because many of those unemployed stopped looking for work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 263,000 jobs in April, after the previously estimated payroll job increase for March was revised down from 196,000 to 189,000, while the payroll jobs increase for February was revised up from 33,000 to 56,000…including those revisions, this report thus represents a total of 279,000 more seasonally adjusted payroll jobs than were reported last month, well above the 2018 average increase of 223,000 jobs per month......the unadjusted data shows that there were actually 1,126,000 more payroll jobs extant in April than in March, as the usual seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were normalized by the seasonal adjustments…

Seasonally adjusted job increases in April were spread through throughout both the goods producing and the private service sectors, with only the retail trade sector showing statistically significant 12,000 job loss on a seasonally adjusted basis, while small job losses were shown in mining, utility, and information employment... the broad professional and business services sector added 76,000 jobs, as 20,600 more than normal for this time of year were added in services to buildings, and temporary help services employed 17,900 more....employment in health care and social assistance rose by 52,600, with the addition of 26,300 jobs in individual and family services and 8,300 jobs in hospitals...the leisure and hospitality sector added 34,000 jobs, with the addition of 25,000 more spots than in a normal April in bars and restaurants, while the construction sector added 33,000 jobs above their seasonal norm, with 22,100 of those added by nonresidential specialty trade contractors.…jobs in local government increased by 27,000, with 12,900 in public education and 13,600 employed by local governments outside of school systems...and another 12,000 were employed in financial activities, with 7,800 of those working in real estate, rental and leasing...meanwhile, the other major sectors, including manufacturing, wholesale trade, transportation and warehousing, and private education all also saw smaller increases in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 6 cents an hour to $27.77 an hour in April, after it had increased by a revised 5 cents an hour in March; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $23.31 an hour...employers also reported that the average workweek for all private payroll employees fell by 0.1 hour to 34.4 hours in April, while hours for production and non-supervisory personnel remained at 33.7 hours after rising 0.1 hour in March...the manufacturing workweek was also unchanged at 40.7 hours, while average factory overtime was unchanged at 3.4 hours...

At the same time, the April household survey indicated that the seasonally adjusted extrapolation of those who reported being employed fell by an estimated 103,000 to 156,645,000, while the similarly estimated number of those who reported being unemployed fell by 387,000 to 5,824,000; which thus meant a net 490,000 decrease in the total labor force...since the working age population had also grown by 156,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 646,000 to a near record 96,223,000....with the number of those in the labor force decreasing while the civilian noninstitutional population was increasing, the labor force participation rate fell 0.2% to 62.8%....at the same time, since the decrease in the number employed was statistically small, the employment to population ratio, which we could think of as an employment rate, remained unchanged 60.6%...however the decrease in the number unemployed was large enough to lower the unemployment rate from 3.8% to 3.6%, the lowest since 1969....meanwhile, the number who reported they were involuntarily working part time rose by 155,000 to 4,654,000 in April, which was enough to keep the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", unchanged at 7.3% of the labor force for the third month in a row, equal to 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..

March Personal Income Rose 0.1%, Personal Spending Rose 0.9% , PCE Price Index Up 0.2%

Note: much of the data in this Monday's release of the March Income and Outlays report from the Bureau of Economic Analysis had already been included in the release of the advance report on 1st quarter GDP on the prior Friday, as the PCE data reported here accounted for 69% of GDP...also note that while this income & outlays report usually only reports new data for one month, along with revisions to prior months, because the January government shutdown had caused delays in reports which input into this one, this month's report includes new data on personal income for March and revised personal income figures for January and February, and revised personal outlays data for January along with new personal outlays for both February and March...

Like the GDP report, all the dollar values reported here are at an annual rate and seasonally adjusted, ie, they tell us what income, spending and saving would be for a year if March's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one 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 February to March....hence, when the opening line of this report tell us "Personal income increased $11.4 billion (0.1 percent) in March", that means that the annualized figure for all US personal income in March, $18,053.0 billion, was $11.4 billion, or a less than 0.1% greater than the annualized personal income figure for February; the actual amounts of personal income in March and in February arenot given....similarly, disposable personal income, which is income after taxes, also rose by less than 0.1%, from an annual rate of $15,938.8 billion in February to an annual rate of $15,939.4 billion in March, an increase which is considered statistically unchanged...

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for February and March, which were included in the change in real PCE in 1st quarter GDP that we reviewed last week, showed an increase at a $11.7 billion annual rate in February and an increase at a $123.5 billion annual rate in March to a rate of $13,823.9 billion in consumer spending annually, or a rounded 0.1% increase in February and a 0.9% in March, after January's PCE was revised up from the originally reported annual rate of $14,166.0 billion to $14,202.3 billion, reflecting the sharp revisions to January retails sales that we saw in the February retail sales report...for March, the current dollar increase in spending included an annualized $51.0 billion increase in spending for services, and a $72.5 billion increase in annualized spending for goods, reflecting the 1.6% increase in March retail sales reported two weeks ago....total personal outlays for March, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $126.5 billion to $14,909.4 billion, after February’s total personal outlays had risen by $14.8 billion....that left personal savings, which is disposable personal income less total outlays, at a $1,030.1 billion annual rate in March, down from the $1,156.0 billion in annualized personal savings in February, and down from the revised $1,147.7 billion in annualized personal savings in January...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 6.5% in March, from 7.3% in February and 7.2% in January, which itself was originally reported at 7.5%..

While our personal consumption expenditures accounted for 69.1% of our first quarter GDP, before they were included in the measurement of the change in our output they were first 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 was done by computing the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is then applied to the spending....from Table 9 in the pdf for this report, we find that that index rose to 109.215 in March from 109.000 in February and from 108.887 in January, giving us month over month inflation rates of 0.019725% in March and 0.010378% in February, which the BEA reports as PCE price index increases of 0.2% and 0.1% in their tables….at the same time, Table 11 gives us a year over year PCE price index increase of 1.5% in March, up from 1.3% in February, and a core PCE price index increase, excluding food and energy, of 1.6% for the past year, both well below the Fed's inflation target....applying the March inflation adjustment to the change in March PCE shows that real PCE was up 0.67029% in March, which BEA reports as a 0.7% increase in their press release and in the tables, following a slightly negative February real PCE change that they report as a 0.0% change...note that when those PCE price indexes are applied to a given month's annualized current dollar PCE, it yields that month's annualized real PCE in chained 2012 dollars, which aren't really dollar amounts at all, but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....those results are shown in tables 7 and 8 of the PDF, where the quarterly figures given are identical to those shown in table 3 in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP...

Construction Spending Fell 0.9% in March after Prior Months Were Revised Much Lower

The Census Bureau's report on construction spending for March (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,282.2 billion annually if extrapolated over an entire year, which was 0.9 percent (±0.8%) below the revised annualized February estimate of $1,306.4 billion, and 0.8 percent (±1.5 percent)* below the estimated annualized level of construction spending in March of last year...the annualized February construction spending estimate was revised 2.0% lower, from $1,320.3 billion to $1,293.3 billion, while the annual rate of construction spending for January was revised 1.7% lower, from $1,307.3 billion to $1,284.654 billion...

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

  • Private Construction": Spending on private construction was at a seasonally adjusted annual rate of $961.5 billion, 0.7 percent (±0.7 percent)* below the revised February estimate of $968.6 billion. Residential construction was at a seasonally adjusted annual rate of $500.9 billion in March, 1.8 percent (±1.3 percent) below the revised February estimate of $510.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $460.6 billion in March, 0.5 percent (±0.7 percent)* above the revised February estimate of $458.5 billion.
  • Public Construction: In March, the estimated seasonally adjusted annual rate of public construction spending was $320.7 billion, 1.3 percent (±2.0 percent)* below the revised February estimate of $324.7 billion. Educational construction was at a seasonally adjusted annual rate of $76.6 billion, 1.5 percent (±3.5 percent)* below the revised February estimate of $77.8 billion. Highway construction was at a seasonally adjusted annual rate of $104.5 billion, 1.9 percent (±5.8 percent)* below the revised February estimate of $106.5 billion.

With the downward revisions to the prior months, it turns out that construction spending for all three months of the 1st quarter was lower than was reported by the BEA in their advance estimate of GDP last week....as we saw above, annualized construction spending for January was revised $21.8 billion lower, and annualized construction spending for February was revised $27.0 billion lower....in reporting 1st quarter GDP, the BEA's key source data and assumptions (xls) indicated that they had estimated March residential construction (at an annual rate) would be $6.7 billion less than that of the previously reported February figure, that March nonresidential construction would be valued at $454.9 billion, $1.3 billion more than that of the reported February figure, and that March public construction would decrease by $2.6 billion from previously reported February levels...totaling those changes, the 1st quarter GDP report showed March construction spending at an annual rate $8.0 billion lower than previously reported February levels...since this report shows that March construction spending was down at an $11.1 billion annual rate from February figures that were revised $27.0 billion lower, that means the total annualized construction figure used for March in the GDP report was $30.1 billion too high...averaging the overstatements in the annual rates of construction spending for the three months of the 1st quarter that were used in the GDP report, we find that this report shows that construction spending was overestimated by $26.4 billion (at an annual rate) in the 1st quarter GDP report, implying a downward revision to the related GDP components at a rate that would result in a subtraction of about 0.58 percentage points from first quarter GDP when the 2nd estimate is released at the end of May...we should caution that with a revision that large that an imbalance of inflation adjustments among the revised components might also have a material impact on the final revision..

March Factory Shipments Up 0.7%, Inventories up 0.4%

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) for March from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods increased by $9.3 billion or 1.9 percent to $508.2 billion in March, following a decrease of $1.7 billion or 0.3% to $500.1 billion in February, which was revised from the decrease of $2.6 billion or 0.5 percent to $497.5 billion that was reported for February 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 March advance report on durable goods which was released last week...on those durable goods orders 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 March, up following two consecutive monthly decreases, increased $9.3 billion or 1.9 percent to $508.2 billion, the U.S. Census Bureau reported today.  This followed a 0.3 percent February decrease.  Shipments, up two consecutive months, increased $3.7 billion or 0.7 percent to $509.7 billion.  This followed a 0.5 percent February increase.  Unfilled orders, up two of the last three months, increased $2.7 billion or 0.2 percent to $1,181.2 billion.  This followed a 0.2 percent February decrease.  The unfilled orders‐to‐shipments ratio was 6.56, unchanged from February.  Inventories, up twenty‐eight of the last twenty‐nine months, increased $2.8 billion or 0.4 percent to $690.9 billion.  This followed a 0.3 percent February increase.  The inventories‐to‐shipments ratio was 1.36, unchanged from February.
  • New orders for manufactured durable goods in March, up four of the last five months, increased $6.6 billion or 2.6 percent to $258.0 billion, down from the previously published 2.7 percent increase.  This followed a 1.3 percent February decrease.  Transportation equipment, also up four of the last five months,  led the increase, $6.1 billion or 7.0 percent to $93.8 billion.  New orders for manufactured nondurable goods increased $2.8 billion or 1.1 percent to $250.2 billion.
  • Shipments of manufactured durable goods in March, up four of the last five months, increased $1.0 billion or 0.4 percent to $259.5 billion, up from the previously published 0.3 percent increase.  This followed a 0.2 percent February increase.  Transportation equipment, up following two consecutive monthly decreases, drove the increase, $1.0 billion or 1.1 percent to $90.7 billion.  Shipments of manufactured nondurable goods, up two consecutive months, increased $2.8 billion or 1.1 percent to $250.2 billion.  This followed a 0.8 percent February increase.  Petroleum and coal products, also up two consecutive months, drove the increase, $3.2 billion or 6.0 percent to $55.5 billion.
  • Unfilled orders for manufactured durable goods in March, up two of the last three months, increased $2.7 billion or 0.2 percent to $1,181.2 billion, down from the previously published 0.3 percent increase.  This followed a 0.2 percent February decrease.  Transportation equipment, also up two of the last three months, drove the increase, $3.1 billion or 0.4 percent to $811.9 billion. 
  • Inventories of manufactured durable goods in March, up twenty‐six of the last twenty‐seven months, increased $1.2 billion or 0.3 percent to $420.5 billion, unchanged from the previously published increase.   This followed a 0.4 percent February increase.  Machinery, up fifteen of the last sixteen months, led the increase, $0.7 billion or 1.0 percent to $71.7 billion.  
  • Inventories of manufactured nondurable goods, up three consecutive months, increased $1.6 billion or 0.6 percent to $270.4 billion.  This followed a 0.2 percent February increase.  Petroleum and coal products, also up three consecutive months, led the increase, $1.2 billion or 3.0 percent to $41.5 billion.  By stage of fabrication, March materials and supplies decreased 0.1 percent in both durable goods and nondurable goods.  Work in process increased 0.5 percent in durable goods and increased 1.1 percent in nondurable goods.  Finished goods increased 0.5 percent in durable goods and increased 0.9 percent in nondurable goods.

The BEA's Key source data and assumptions (xls) for the advance estimate of first quarter GDP indicates that they had estimated that the value of non-durable goods inventories would decrease by $9.7 billion before price adjustments in March, while this report obviously shows total non-durable goods inventories increased by $1.2 billion...the value of February's non durable goods inventories was concurrently revised from $268.9 billion to $268.9 billion...that would mean that March's inventory change was underestimated by $10.8 billion in the GDP report, while February's change was overestimated by $0.1 billion, which combined would suggest an upward revision of around 0.07 percentage points to first 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…) 

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