Sunday, June 9, 2019

May's job report; April’s trade deficit, construction spending, factory inventories, and wholesale sales, et al

With the first Friday of June, the Employment Situation Summary for May from the Bureau of Labor Statistics was the key report released this past week; other major monthly government issued reports released during the week included the Commerce Dept’s report on our International Trade in Goods and Services for Aprilthe April report on Construction Spending (pdf), the Full Report on Manufacturers' Shipments, Inventories and Orders for April and the April report on Wholesale Trade, Sales and Inventories, all from the Census Bureau...in addition, this week also saw the Consumer Credit Report for April from the Fed, which showed that overall consumer credit, a measure of non-real estate personal debt, expanded by a seasonally adjusted $17.5 billion, or at a 5.2% annual rate, as non-revolving credit expanded at a 4.2% rate to $3,005.4 billion and revolving credit outstanding rose at a 7.9% rate to $1,064.5 billion...

Privately issued reports released this week included the ADP Employment Report for May and the light vehicle sales report for May from Wards Automotive, which estimated that vehicles sold at a 17.31 million annual rate in May, up from the 16.43 million annual rate of sales in April, and up from the 16.81 million annual rate in May a year ago, and the Mortgage Monitor for April (pdf) from Black Knight Financial Services, which indicated that 3.47% of mortgages were delinquent in April, down from 3.65% delinquent in March, and down from the 3.67% delinquency rate in April 2018, and that 0.50% of mortgages remained in the foreclosure process in April, down from 0.51% of all mortgages in March and down from 0.61% a year ago....

In addition, the week saw both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the May Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 52.1% in May, down from 52.8% in April, which suggests quite sluggish expansion in manufacturing firms nationally, and the May Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 56.9%, up from 55.5% in April, indicating a somewhat larger 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 75,000 Jobs in May After Job Additions of Prior Months Revised 75,000 Lower

The Employment Situation Summary for May indicated anemic payroll job growth, while the employment rate, the unemployment rate, & the labor force participation rate were all unchanged…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 75,000 jobs in May, after the previously estimated payroll job increase for March was revised down from 189,000 to 153,000, while the payroll jobs increase for April was revised down from 263,000 to 224,000…with those revisions, that means that there was no net change in the number of seasonally adjusted payroll jobs from the number that was reported last month...the unadjusted data shows that there were actually 687,000 more payroll jobs extant in May than in April, as typical seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were reduced to a normal level by the seasonal adjustments…

Seasonally adjusted job increases were largely concentrated in the private service sector, as private goods producing sectors saw little employment increase and net jobs in various branches of government fell by 15,000....the broad professional and business services sector added 33,000 jobs, as 8,400 found employment with computer systems design and related services and 7,900 jobs were added by employment services...the health care and social assistance sector saw an increase of 24,000 jobs, with 7,000 of those in individual and family services and 7,900 more in doctor's offices...in addition, the leisure and hospitality sector added 26,000 more jobs than their usual May increase, with the addition of 16,900 more jobs in bars and restaurants...otherwise, the other major employment sectors, including mining, manufacturing, construction, wholesale trade, retail trade, transportation and warehousing, utilities, information, financial activities, and private education, all saw statistically insignificant changes 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 $27.83 an hour in May, after it had increased by 6 cents an hour in April; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $23.38 an hour....employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours in May, while hours for production and non-supervisory personnel was down a tenth of an hour at 33.6 hours...meanwhile, the manufacturing workweek was unchanged at 40.6 hours, while average factory overtime was unchanged at 3.4 hours...

At the same time, the seasonally adjusted extrapolation from the May household survey estimated indicated that the number of those who were employed rose an estimated 113,000 to 156,758,000, while the similarly estimated number of those who were unemployed rose by 64,000 to 5,888,000; which thus meant a rounded increase of 176,000 in the total labor force...since the working age population had grown by 168,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 8,000 to 96,215,000....meanwhile, the increase of those in the labor force as a percentage of the increasing working population was not enough to change the labor force participation rate, which remained at 62.8%....likewise, the smallish increase in number employed vis a vis the increase in the population was not enough to change the employment to population ratio, which we could think of as an employment rate, as it remained at 60.6%...in addition, the increase in the number counted as unemployed was not large enough to change the unemployment rate, which remained at 3.6%....on the other hand, the number who reported they were involuntarily working part time fell by 299,000 to 4,355,000 in May, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.3% in April to 7.1% in May, the lowest since December 2000...

A few caveats on this month;s report are in order: April temperatures were well above normal nationally, so some construction & other spring work got an earlier than normal start…on the other hand, May saw half the country blown away or flooded out, as it was the 2nd wettest May on record, with US temperatures in the bottom third of the historical average…those factors do not show up in the seasonal adjusted jobs data, which assumes seasonal weather…also remember the establishment survey only counts "non-farm payrolls", and doesn’t count the hundreds of thousands in the Midwest who are sitting on their hands because the fields are too wet to work…

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..  

April Trade Deficit Decreases 2.1% After March Trade Deficit Revised 3.8% Higher

our trade deficit decreased by 2.1% in April, after our March trade deficit was revised 3.8% higher, as both imports and exports decreased in April, but imports decreased by a greater amount...the Commerce Dept report on our international trade in goods and services for April indicated that our seasonally adjusted goods and services trade deficit fell by a rounded $1.1 billion to $50.8 billion in April, from a March deficit that was revised from the originally reported $50.0 billion to $51.9 billion, a revision which should result in a downward revision of about 0.14 percentage points to 1st quarter GDP when the third estimate is released at the end of June ...in rounded numbers, the value of our April exports fell by $4.6 billion, or 2.2 percent, to $206.8 billion on a $4.4 billion decrease to $136.9 billion in our exports of goods and a $0.2 billion decrease to $69.9 billion in our exports of services, while our imports fell by $5.7 billion, or 2.2 percent, to $257.6 billion on a $5.4 billion decrease to $208.7 billion in our imports of goods and a $0.3 billion decrease to $49.0 billion in our imports of services...export prices averaged 0.2% higher in April, so real exports were smaller than their nominal value by that percentage, while import prices were 0.2% higher, meaning that our real imports were likewise smaller than than their nominal value by that percentage..

The decrease in our April exports of goods came about largely as a result of lower exports of capital goods, of automotive goods, and of consumer goods....referencing the Full Release and Tables for April (pdf), in Exhibit 7 we find that our exports of capital goods fell by $2,723 million to $44,696 million as a $2,296 million decrease in our exports of civilian aircraft, a $221 million decrease in our exports of industrial engines, a $203 million decrease in our exports of electrical apparatuses and a $200 million decrease in our exports of measuring, testing, control instruments was partly offset by a increase of $340 million in exports of civilian aircraft engines, while our exports of automotive vehicles, parts, and engines fell by $752 million to $13,172 million on $438 million lower exports of passenger cars, and a $255 million decrease in our exports of parts and accessories of vehicles other than engines, chassis, and tires...in addition, our exports of consumer goods fell by $562 million to $17,293 million on a $441 million decrease in our exports of pharmaceutical preparations, our exports of industrial supplies and materials fell by $33 million to $44,628 million on a $822 million decrease in our exports of petroleum products other than fuel oil, which was offset by a $835 million increase in our exports of fuel oil, a $835 million increase in our exports of crude oil, a $835 million increase in our exports of natural gas liquids, while our exports of other goods not categorized by end use fell by $529 million to $5,076 million....meanwhile, our exports of foods, feeds and beverages rose by $109 million to $11,208 million on higher exports of wheat, corn, and animal feeds in the only export category to see an increase...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and indicates that lower imports of all categories of goods contributed to the April decrease in our imports...our imports of capital goods fell by $1,739 million to $55,617 million on a $871 million decrease in our imports of semiconductors, a $399 million decrease in our imports of civilian aircraft engines, and a $295 million decrease in our imports of computer accessories, and our imports of consumer goods fell by $1,099 million to $54,295 million on a $666 million decrease in our imports of gem diamonds, a $403 million decrease in our imports of cellphones, and a $304 million decrease in our imports of cotton apparel and household goods...in addition, our imports of automotive vehicles, parts and engines fell by $981 million to $30,907 million on a $601 million decrease in our imports of new and used passenger cars and a $281 million decrease in our imports of parts and accessories of vehicles other than engines, chassis, and tires, and our imports of industrial supplies and materials fell by $612 million to $44,568 million on a $703 million decrease in our imports of organic chemicals, and a $353 million increase in our imports of natural gas, which was partially offset by a $414 million increase in our imports fuel oil...meanwhile, our imports of foods, feeds, and beverages fell by $142 million to $12,845 million and our imports of other goods not categorized by end use fell by $807 million to $8,756 million...

The Full Release and Tables pdf for this report also gives us surplus and deficit details on our goods trade with selected countries:

The April figures show surpluses, in billions of dollars, with South and Central America ($4.2), Hong Kong ($2.4), Brazil ($0.9), and Singapore ($0.6). Deficits were recorded, in billions of dollars, with China ($29.4), European Union ($15.1), Mexico ($7.9), Japan ($6.5), Germany ($5.4), Italy ($3.1), Taiwan ($2.0), France ($2.0), Canada ($1.8), South Korea ($1.5), India ($1.3), United Kingdom ($0.4), Saudi Arabia ($0.2), and OPEC (less than $0.1).

  • • The deficit with the European Union decreased $1.0 billion to $15.1 billion in April. Exports decreased $0.4 billion to $27.0 billion and imports decreased $1.4 billion to $42.1 billion.
  • • The deficit with Canada decreased $0.9 billion to $1.8 billion in April. Exports decreased $0.4 billion to $24.6 billion and imports decreased $1.3 billion to $26.4 billion.
  • • The deficit with China increased $2.1 billion to $29.4 billion in April. Exports decreased $1.8 billion to $8.5 billion and imports increased $0.3 billion to $37.9 billion.

to gauge the impact of April’s trade on 2nd quarter 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 for inflation in chained 2012 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized in the table here...from this table, we can figure that 1st quarter real exports of goods averaged 150,609 million monthly in 2012 dollars, while inflation adjusted April exports were at 145,993 million in that same 2012 dollar quantity index representation... annualizing the change between those two figures, we find that April's real exports of goods were falling at a 11.7% annual rate from those of the 1st quarter, or at a pace that would subtract about 0.91 percentage points from 2nd quarter GDP if it were continued through May and June.....from that same table, we can figure that our 1st quarter real imports averaged 233,326.3 million monthly in chained 2012 dollars, while inflation adjusted April imports were at 227,905 million in that same 2012 dollar representation...that would indicate that so far in the 2nd quarter, our real imports have decreased at a 9.0% annual rate from those of the 1st quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their decrease at a 9.0% rate would conversely add 1.13  percentage points to 2nd quarter GDP....hence, if the April trade deficit is maintained at the same level throughout the 2nd quarter, our improving balance of trade in goods would add about 0.22 percentage points to the growth of 2nd quarter GDP....note that we have not estimated the impact of the less volatile change in services here because the Census does not provide handy inflation adjusted data on those, and we don't have easy access to the details on their price changes..

Construction Spending Little Changed in April; Real Construction Down at a 5.2% Rate from Q1

The Census Bureau's report on construction spending for April (pdf) estimated that the month's seasonally adjusted construction spending was at a $1,298.5 billion annual rate during the month, statistically unchanged (±1.3 percent)* from the revised March annualized rate of $1,299.2 billion, but 1.2 percent (±1.5 percent)* below the estimated annualized level of construction spending in April of last year...the annualized March construction spending estimate was revised 1.3% higher, from $1,282.2 billion to $1,299.2 billion, while the annual rate of construction spending for February was revised 0.7% lower, from $1,306.4 billion to $1,297.8 billion...taken together, those revisions would suggest an upward revision of around 0.21 percentage points to 1st quarter GDP when the third estimate is released at the end of June...

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 $954.0 billion, 1.7 percent (±1.0 percent) below the revised March estimate of $970.4 billion. Residential construction was at a seasonally adjusted annual rate of $499.3 billion in April, 0.6 percent (±1.3 percent)* below the revised March estimate of $502.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $454.7 billion in April, 2.9 percent (±1.0 percent) below the revised March estimate of $468.0 billion.
  • Public Construction: In April, the estimated seasonally adjusted annual rate of public construction spending was $344.6 billion, 4.8 percent (±2.5 percent) above the revised March estimate of $328.7 billion. Educational construction was at a seasonally adjusted annual rate of $80.0 billion, 2.1 percent (±2.6 percent)* above the revised March estimate of $78.3 billion. Highway construction was at a seasonally adjusted annual rate of $114.3 billion, 6.8 percent (±8.6 percent)* above the revised March estimate of $107.0 billion.

This construction spending report is used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and as government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of April's construction spending reported in this release on 2nd 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 many different price indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf) that are used by the BEA to make those inflation adjustments, so in lieu of trying to adjust for price changes 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 price adjustment needed for an estimate...that index showed that aggregate construction costs were up 1.6% from March to April, up 0.2% from February to March but down 0.1% from January to February....

On that basis, we can estimate that April construction costs were roughly 1.8% greater than those of February and 1.7% greater than those of January, and obviously 1.6% greater than those of March...we then use those percentages to inflate spending for each of those three months, which is arithmetically the same as deflating April construction spending against the first quarter, for comparison purposes...construction spending in millions of dollars for the first quarter is given as 1,299,161 for March, 1,297,819 for February, and 1,284,654 for January...thus to find the difference between April's inflation adjusted construction spending and the adjusted construction spending of the first quarter, our formula becomes: 1,298,547 / (( 1,299,161 * 1.016 + 1,297,819 * 1.018 + 1,284,654 * 1.017) / 3) = 0.98683, meaning real construction spending in April was actually down roughly 1.3% vis a vis the 1st quarter, or down at a 5.16% annual rate....to figure the potential effect of that change on 2nd quarter GDP,  we take the annualized difference between the first quarter average inflation adjusted construction spending and April's adjusted spending as a fraction of the real annualized 1st quarter GDP figure, and thus can estimate that real April construction spending was falling at a rate that would subtract about 0.42 percentage points from the growth of 2nd quarter GDP…

Factory Shipments Down 0.5% in April, Factory Inventories Up 0.3%

The April Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $4.0 billion or 0.8 percent to $499.3 billion in April, following an increase of 1.3% to $503.3 billion in March, which was revised from the 1.9% increase to $508.2 billion reported last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only useful as a revised update to the April advance report on durable goods we reported on two weeks ago...on those revisions, the Census Bureau's summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we'll just quote directly from that here:

  • Summary: New orders for manufactured goods in April, down two of the last three months, decreased $4.0 billion or 0.8 percent to $499.3 billion, the U.S. Census Bureau reported today.  This followed a 1.3 percent March increase.  Shipments, down following two consecutive monthly increases, decreased $2.7 billion or 0.5 percent to $504.1 billion.  This followed a 0.2 percent March increase.  Unfilled orders, down two of the last three months, decreased $0.6 billion or 0.1 percent to $1,179.3 billion.  This followed a 0.1 percent March increase.  The unfilled orders‐to‐shipments ratio was 6.69, up from 6.61 in March.  Inventories, up seven of the last eight months, increased $1.8 billion or 0.3 percent to $692.9 billion.  This followed a 0.4 percent March increase.  The inventories‐to‐shipments ratio was 1.37, up from 1.36 in March.
  • New orders for manufactured durable goods in April, down two of the last three months, decreased $5.2 billion or 2.1 percent to $248.6 billion, unchanged from the previously published decrease.  This followed a 1.7 percent March increase.  Transportation equipment, also down two of the last three months, drove the decrease, $5.3 billion or 5.9 percent to $85.5 billion.  New orders for manufactured nondurable goods increased $1.2 billion or 0.5 percent to $250.7 billion.
  • Shipments of manufactured durable goods in April, down three of the last four months, decreased $3.9 billion or 1.5 percent to $253.4 billion, up from the previously published 1.6 percent decrease.  This followed a 0.5 percent March decrease.  Transportation equipment, down four consecutive months, led the decrease, $3.7 billion or 4.1 percent to $85.9 billion.  Shipments of manufactured nondurable goods, up three consecutive months, increased $1.2 billion or 0.5 percent to $250.7 billion.  This followed a 0.9 percent March increase.  Petroleum and coal products, also up three consecutive months, led the increase, $1.1 billion or 2.0 percent to $56.2 billion.
  • Unfilled orders for manufactured durable goods in April, down two of the last three months, decreased $0.6 billion or 0.1 percent to $1,179.3 billion, unchanged from the previously published decrease.  This followed a 0.1 percent March increase.  Transportation equipment, also down two of the last three months, led the decrease, $0.4 billion or virtually unchanged to $810.7 billion. 
  • Inventories of manufactured durable goods in April, up nine of the last ten months, increased $1.7 billion or 0.4 percent to $422.4 billion, unchanged from the previously published increase.  This followed a 0.3 percent March increase.  Transportation equipment, also up nine of the last ten months, led the increase, $1.5 billion or 1.1 percent to $136.1 billion.   Inventories of manufactured nondurable goods, up four consecutive months, increased $0.2 billion or 0.1 percent to $270.5 billion.  This followed a 0.5 percent March increase.  Petroleum and coal products, also up four consecutive months, drove the increase, $0.5 billion or 1.3 percent to $42.2 billion.  By stage of fabrication, April materials and supplies increased 0.1 percent in durable goods and decreased 0.2 percent in nondurable goods.  Work in process increased 0.9 percent in durable goods and was virtually unchanged in nondurable goods.  Finished goods were virtually unchanged in durable goods and increased 0.3 percent in nondurable goods. 

To estimate the effect of those April factory inventories on 2nd 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 by 0.2% to $241,338 million; the value of work in process inventories rose 0.7% to $213,239 million, and the value of materials and supplies inventories was little changed at $238,372 million...the April producer price index reported that prices for finished goods were on average 0.3% higher, that prices for intermediate processed goods were on average 0.1% lower, while prices for unprocessed goods were 2.7% higher....assuming similar valuations for like types of inventories, that would suggest that April's real finished goods inventories were about 0.1% smaller, that real inventories of intermediate processed goods were roughly 0.8% greater, and real raw material inventory inventories were about 2.7% lower, with a caveat on the later that the entire raw material price increase in April was in food & energy goods; core raw materials prices were down 1.2%....still, since real NIPA factory inventories were somewhat larger in the 1st quarter, and this report seems to indicate a modest decrease in April’s real inventories, it appears that the real change in April factory inventories will have a noticeable negative impact on the growth rate of 2nd quarter GDP...

April Wholesale Sales Down 0.4%, Wholesale Inventories Up 0.8%

The April report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $503.1 billion, down 0.4 percent (+/-0.5%) from the revised March level, but up 2.7 percent (±0.7 percent) from wholesale sales of April 2016... the March preliminary sales estimate was revised from the $507.4 billion reported last month to $505,145 million, which meant the February to March percent change was revised from the preliminary estimate of an increase of 2.3 percent (±0.5 percent) to an increase of 1.8 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 any goods on the shelf or in intermediate storage represent goods that were produced but not sold, and this April report estimated that wholesale inventories were valued at a seasonally adjusted $675.5 billion at month end, an increase of 0.8 percent (+/-0.4%) from the revised March level and 7.6 percent (±1.2 percent) higher than in April a year ago, with the March preliminary estimate revised from $669.9 billion to $670.1 billion at the same time, now statistically unchanged from February....

That small upward revision to March wholesale inventories is not likely to have a statistical impact on the coming 1st quarter GDP revision...meanwhile, April wholesale inventories, after an adjustment for price changes for each category of wholesale goods as indicated by the components of the April producer price index, appears to indicate a modest real wholesale inventory increase heading into the 2nd quarter, which still might fall short of the $10.7 billion increase in real wholesale inventories that was indicated by the key source data and assumptions (xls) in the second estimate of 1st 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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