Sunday, April 5, 2020

March jobs report; February’s trade deficit, construction spending & factory inventories

Major monthly reports released over the past week included the Employment Situation Summary for March from the Bureau of Labor Statistics, the Commerce Dept report on our International Trade for February, and the February report on Construction Spending and the Full Report on Manufacturers' Shipments, Inventories and Orders for February, both from the Census Bureau...this week also saw the last of the regional Fed manufacturing surveys for March: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index fell to -70.0 from last month's +1.2, the largest drop on record to the lowest level on record, indicating the sudden onset of depression like conditions in the Texas region's economy..

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 11.37 annual rate in March, down from the 16.83 annual sales rate in February, and down from the 17.48 million rate a year earlier...the week also had the Case-Shiller Home Price Index for January from S&P Case-Shiller, which reported that home prices during November, December and January averaged 3.9% higher nationally than prices for the same homes that sold during the same 3 month period 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) fell to 49.1% in March, down from 50.1% in February, which suggests a modest contraction in manufacturing firms nationally, and the March Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 52.5% in March, down from 57.3% 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 Cut 701,000 Jobs in March, Unemployment Rate Rises 0.9% to 4.4%, Employment Rate Falls 1.1% to 60.0%

The Employment Situation Summary for March is showing the first signs of jobs losses due to the coronavirus outbreak, and the policies put in place to contain its spread…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers cut 701,000 jobs in March, after the previously estimated payroll job increase for January was revised down from 273,000 to 214,000 and the payroll jobs increase for February was revised up from 273,000 to 275,000…so including those revisions, this report thus represents a total of 764,000 fewer seasonally adjusted payroll jobs than were reported last month...the unadjusted data shows that there were actually just 251,000 fewer 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…

Note that the surveys included in this report were conducted between March 9th and March 13th, and hence do not include the layoffs due to the coronavirus that were initiated over the past three weeks...in other words, this report does not include the record new unemployment claims of 3.34 million last week and 6.65 million this week, which suggests it's conceivable that the April report could show job losses as high as 10 million...such a sudden jump in unemployment claims is unprecedented in US history; the previous all-time high for weekly unemployment claims was 695,000, set in October 1982...

Seasonally adjusted job losses in March were spread through both the goods producing and the service sectors, but were concentrated in the sectors most impacted by the travel and business restrictions imposed by the states ...seasonally adjusted employment in the leisure and hospitality sector fell by 459,000, as an adjusted 417,400 jobs were were lost in bars and restaurants and anther 28,900 were shed by the hotel & accommodation industry...somewhat surprisingly, employment in health care and social assistance fell by 61,200, with a loss of 18,600 jobs in child day care services, a loss of 17,200 jobs in dentist's offices, and a decrease of 12,000 jobs in doctor's offices...employment in the broad professional and business services decreased by 52,000 in March, with the loss of 49,500 jobs in temporary help services...the retail sector showed a seasonally adjusted 46,200 job decrease, as furniture stores cut 10,400 employees and clothing stores cut 16,300 jobs...seasonally adjusted construction employment was off by 29,000 even as unadjusted construction employment rose by 50,000, with the adjusted job losses evenly split between those employed in construction of nonresidential buildings, by specialty trade contractors, and in heavy and civil engineering construction...employment in a so-called "other services industry" was down by 24,000 in March, with 13,100 of those losses occurring in personal and laundry services....manufacturing employment was also down by 18,000, with factories producing fabricated metal products seeing a loss of 4,400 jobs... meanwhile, federal government employment saw the only major job increase in March, with the addition of 18,000 jobs, including 17,000 census takers...otherwise, employment in the other major sectors, including resource extraction, wholesale trade, transportation and warehousing, utilities, finance, information, and private education all saw smaller changes in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 11 cents an hour to $28.62 an hour in March, after it had increased by a revised 8 cents an hour in February; at the same time, the average hourly earnings of production and non-supervisory employees increased by 10 cents to $24.07 an hour...employers also reported that the average workweek for all private payroll employees decreased by 0.2 hour to 34.2 hours in March, while hours for production and non-supervisory personnel fell by 0.3 hour to 33.4 hours, as average weekly hours in the leisure and hospitality sector dropped by 1.4 hours..in addition, the manufacturing workweek fell by 0.3 hour to 40.4 hours, while average factory overtime decreased by 0.2 hours to 3.0 hours...

Meanwhile, the March household survey indicated that the seasonally adjusted extrapolation of those who reported being employed fell by an estimated 2,987,000 to 155,772,000, while the similarly estimated number of those qualified as unemployed rose by 1,353,000 to 7,140,000; which thus meant a rounded decrease of 1,633,000 in the total labor force...since the working age population had grown by 130,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 1,763,000 to 96,845,000....with the number of those in the labor force decreasing while the civilian noninstitutional population was increasing, the labor force participation rate fell by 0.7% to 62.7%....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 61.1% to 60.0%...at the same time, the increase in the number unemployed was enough to raise the unemployment rate from 3.5% to 4.4%....meanwhile, the number who reported they were involuntarily working part time jumped by 1,447,000 to 5,765,000 in March, which was enough to raise the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.0% in February to 8.7% in March, the largest jump on record..

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.. 

US Trade Deficit Fell 12.2% February on Lower Imports from China and Europe

Our trade deficit fell by 12.2% February, as both our exports and imports decreased, but the value of our imports fell by more than the value of our exports did....the Commerce Department report on our international trade in goods and services for February indicated that our seasonally adjusted goods and services trade deficit fell by a rounded $5.5 billion to $39.9 billion in February, from a January deficit that was revised to $45.5 billion from the $45.3 billion deficit reported a month ago...also in rounded figures, the value of our February exports fell by $0.8 billion to $207.5 billion as a $1.0 billion increase to $137.2 billion in our exports of goods was more than offset by a $1.7 billion decrease to $70.3 billion in our exports of services, while our imports fell $6.3 billion to $247.5 billion on a $5.0 billion decrease to $198.4 billion in our imports of goods, and a $1.4 billion decrease to $49.1 billion in our imports of services....export prices averaged 1.1% lower in February, which means the relative real decrease in exports for the month was less than the nominal decrease by that percentage, while import prices fell 0.5%, meaning that the contraction in real imports was less than the nominal decrease reported here by that percentage...

The increase in our February exports of goods came about as a result of higher exports of industrial supplies and of automotive products, which was partially offset by a decrease in our exports of consumer goods...referencing the Full Release and Tables for February (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $719 million to $45,796 million as a $535 million increase in our exports of fuel oil, a $531 million increase in our exports of other petroleum products, and a $316 million increase in our exports of non-monetary gold were partly offset by a $357 million decrease in our exports of natural gas liquids, and a $253 million decrease in our exports of natural gas, and that our exports of automotive vehicles, parts, and engines rose by $537 million to $13,759 million on a $335 million increase in our exports of parts and accessories of vehicles other than tires, engines and chassis...in addition, our exports of capital goods rose by $241 million to $44,624 million on a $284 million increase in our exports of civilian aircraft, and our exports of other goods not categorized by end use rose by $292 million to $5,833 million....partially offsetting the increases in those end use categories, our exports of consumer goods fell by $698 million to $15,850 million on a $357 million decrease in our exports of pharmaceuticals and a $233 decrease in our exports of gem diamonds, while our exports of foods, feeds and beverages fell by $91 million to $10,878 million as a $503 million decrease in our exports of soybeans was partly offset by a $262 million increase in our exports of corn..

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports of goods and shows that lower imports of capital goods, industrial supplies, and consumer goods were responsible for the decrease in our February imports, while their impact was partly offset by greater imports of automotive vehicles, parts and engines...our imports of capital goods fell by $3,687 million to $51,719 million as a $1,404 million decrease in our imports of computers, a $640 million decrease in our imports of telecommunications equipment, a $544 million decrease in our imports of computer accessories, a $257 million decrease in our imports of civilian aircraft engines, and a $222 million decrease in our imports of industrial machines other than those separately itemized was only slightly offset by a $325 million increase in our imports of civilian aircraft....moreover, our imports of industrial supplies and materials fell by $1599 million to $40,770 million, as our imports of our imports of fuel oil fell by $560 million, our imports of bauxite and aluminum fell by $211 million, our imports of our imports of fuel oil fell by $223 million and our imports of industrial supplies other than those itemized fell by $202 million, while our imports of crude oil rose by $431 million and our imports of precious metals other than those itemized rose by $349 million…in addition, our imports of consumer goods fell by $1,125 million to $51,330 million as a $381 million decrease in our imports of toys, games, and sporting goods, a $349 million decrease in our imports of furniture, a $239 million decrease in our imports of textiles other than wool or cotton and a $202 million decrease in our imports of footwear were partially offset by a $610 million increase in our imports of cellphones, a $315 million decrease in our imports of pharmaceuticals, and a $380 million increase in our imports of gem diamonds, and our imports of foods, feeds, and beverages fell by $403 million to $12,488 million on a $256 million decrease in imports of foods other than those itemized separately...partially offsetting the decreases in those end use categories, our imports of automotive vehicles, parts and engines rose by $1,402 million to $30,509 million on a $1387 million increase in our imports of passenger cars, and our imports of other goods not categorized by end use rose by $285 million to $9,811 million…

The Full Release pdf for this month's report also summarizes Exhibit 19, which gives us surplus and deficit details on our goods trade with selected  countries:

The February figures show surpluses, in billions of dollars, with South and Central America ($5.9), Brazil ($1.9), Hong Kong ($1.5), United Kingdom ($1.3), OPEC ($1.2), Singapore ($0.7), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($19.7), European Union ($12.6), Mexico ($9.7), Japan ($5.1), Germany ($4.8), Italy ($2.3), South Korea ($1.7), India ($1.6), Canada ($1.6), Taiwan ($1.5), and France ($0.5).

  • • The deficit with China decreased $4.0 billion to $19.7 billion in February. Exports decreased $0.3 billion to $7.5 billion and imports decreased $4.2 billion to $27.2 billion. – 3 –
  • • The deficit with the European Union (excluding the United Kingdom) decreased $2.2 billion to $12.6 billion in February. Exports decreased $0.6 billion to $22.4 billion and imports decreased $2.7 billion to $35.0 billion.
  • • The deficit with South Korea increased $1.1 billion to $1.7 billion in February. Exports decreased $1.0 billion to $4.7 billion and imports increased $0.2 billion to $6.4 billion. *

To gauge the impact of January and February trade on 1st 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 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 the amounts are not annualized here....from that table, we can figure that 4th quarter real exports of goods averaged 148,271 million monthly in chained 2012 dollars, while inflation adjusted 1st quarter goods exports were at 146,832 million and 150,523 million for January and February respectively in that same 2012 dollar quantity index representation...averaging January’s and February’s goods exports and then computing the annualized change between that average and the average of the fourth quarter, we find that the 1st quarter's real exports of goods are running at a 1.101% annual rate above those of the 4th quarter, or at a pace that would add about 0.09 percentage points to 1st quarter GDP..... in a similar manner, we find that our 4th quarter real imports of goods averaged 226,868.3 million monthly in chained 2012 dollars, while inflation adjusted January and February imports were at 224,808 million and 219,546 million respectively, after that same 2012 chained dollars inflation adjustment...that would indicate that so far in the 1st quarter, our real imports of goods have decreased at a 8.018% annual rate from those of the 4th quarter...since increases in imports would subtract from GDP because they would represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their decrease at a 8.02% rate would thus conversely add about 0.99 percentage points to 1st quarter GDP....hence, if the average trade deficit in goods of the two months reported here is continued in March, the net effect of our international trade in goods will be to add around 1.08 percentage points to 1st quarter GDP...

Note that we have not computed the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, but that the $1.7 billion decrease in exports of services would only be partially offset by the $1.4 billion decrease in imports of services, which suggests that February’s trade in services would be a subtraction from 1st quarter GDP...

Construction Spending Fell 1.3% in February after January & December Figures Were Revised Higher

The Census Bureau's report on February construction spending (pdf) reported that "Construction spending during February 2020 was estimated at a seasonally adjusted annual rate of $1,366.7 billion, 1.3 percent (±0.8 percent) below the revised January estimate of $1,384.5 billion. The February figure is 6.0 percent (±1.2 percent) above the February 2019 estimate of $1,289.0 billion. During the first two months of this year, construction spending amounted to $193.5 billion, 8.2 percent (±1.2 percent) above the $178.8 billion for the same period in 2019"...the January annualized spending estimate was revised 1.1% higher, from $1,369.2 billion to $1,384.5 billion, while December's construction spending was revised from $1,345.5 billion to $1,347.333 billion annually, which together meant that the January construction spending increase was revised from +1.8% to +2.8%...the $2.2 billion upward revision to December’s annualized spending would mean we’ll see a upward revision of about 2 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:below:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,025.8 billion, 1.2 percent (±0.7 percent) below the revised January estimate of $1,038.5 billion. Residential construction was at a seasonally adjusted annual rate of $564.3 billion in February, 0.6 percent (±1.3 percent)* below the revised January estimate of $567.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $461.5 billion in February, 2.0 percent (±0.7 percent) below the revised January estimate of $471.0 billion.
  • Public Construction: In February, the estimated seasonally adjusted annual rate of public construction spending was $340.9 billion, 1.5 percent (±1.6 percent)* below the revised January estimate of $345.9 billion. Educational construction was at a seasonally adjusted annual rate of $79.5 billion, 1.5 percent (±2.6 percent)* below the revised January estimate of $80.7 billion. Highway construction was at a seasonally adjusted annual rate of $102.4 billion, 1.2 percent (±4.4 percent)* below the revised January estimate of $103.6 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 the figures 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 up 0.1% in February, after they had increased by 0.8% in January, and had been unchanged in December and in November...on that basis, we can estimate that February construction costs were about 0.9% more than those of December, roughly 0.9% more than those of November, and roughly 0.9% more than those of October, and of course 0.1% more than those of January...we then use those relative price change 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 $1,347,333 in December, $1,342,490 in November, and $1,320,788 in October, while annualized construction spending was at $1,366,697 in February and $1,384,486 in January....thus to compare January's nominal construction spending of $1,384,486 and February's figure of $1,366,697 to inflation adjusted figures of the fourth quarter, our formula becomes: ((1,366,697 + 1,384,486 * 1.001) / 2 ) / (( 1,347,333 * 1.009 + 1,342,490 * 1.009 + 1,320,788 * 1.009)/ 3) = 1.020299, which tells us that real construction spending over January and February was up by 2.030% from that of the 4th quarter period, or up at a 8.37% 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 0.70 percentage points to 1st quarter GDP, an estimate which assumes there would be little change in real construction in March over the January & February average..

February Factory Shipments Down 0.2%, Factory Inventories 0.4% Lower

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) for February from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods decreased by $0.1 billion $497.4 billion in February, a change that's considered statistically insignificant...that follows a revised 0.5% decrease to $497.5 billion in January, which was originally reported at $497.9 billion a month ago, also down 0.5%....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 February advance report on durable goods which was released last week...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 February, down three of the last four months, decreased $0.1 billion or virtually unchanged to $497.4 billion, the U.S. Census Bureau reported today. This followed a 0.5 percent January decrease. Shipments, down two consecutive months, decreased $0.8 billion or 0.2 percent to $500.3 billion. This followed a 0.6 percent January decrease. Unfilled orders, up four of the last five months, increased $1.4 billion or 0.1 percent to $1,158.6 billion. This followed a virtually unchanged January increase. The unfilled orders-to-shipments ratio was 6.61, down from 6.62 in January. Inventories, down two consecutive months, decreased $2.6 billion or 0.4 percent to $699.4 billion. This followed a 0.3 percent January decrease. The inventories-to-shipments ratio was 1.40, unchanged from January.
  • New orders for manufactured durable goods in February, up four of the last five months, increased $3.0 billion or 1.2 percent to $249.5 billion, unchanged from the previously published increase. This followed a 0.1 percent January increase. Transportation equipment, up two of the last three months, drove the increase, $3.9 billion or 4.6 percent to $86.9 billion. New orders for manufactured nondurable goods decreased $3.0 billion or 1.2 percent to $247.9 billion.
  • Shipments of manufactured durable goods in February, up following seven consecutive monthly decreases, increased $2.2 billion or 0.9 percent to $252.4 billion, up from the previously published 0.8 percent increase. This followed a virtually unchanged January decrease. Transportation equipment, also up following seven consecutive monthly decreases, drove the increase, $2.4 billion or 2.9 percent to $84.9 billion. Shipments of manufactured nondurable goods, down two consecutive months, decreased $3.0 billion or 1.2 percent to $247.9 billion. This followed a 1.1 percent January decrease. Petroleum and coal products, also down two consecutive months, led the decrease, $2.1 billion or 3.9 percent to $51.1 billion.
  • Unfilled orders for manufactured durable goods in February, up four of the last five months, increased $1.4 billion or 0.1 percent to $1,158.6 billion, unchanged from the previously published increase. This followed a virtually unchanged January increase. Transportation equipment, up seven of the last eight months, drove the increase, $1.9 billion or 0.2 percent to $791.2 billion. 
  • Inventories of manufactured durable goods in February, down two consecutive months, decreased $0.1 billion or virtually unchanged to $434.5 billion, down from the previously published increase. This followed a 0.2 percent January decrease. Computers and electronic products, also down two consecutive months, drove the decrease, $0.3 billion or 0.8 percent to $43.3 billion. Inventories of manufactured nondurable goods, down two consecutive months, decreased $2.5 billion or 0.9 percent to $264.9 billion. This followed a 0.5 percent January decrease. Petroleum and coal products, also down two consecutive months, led the decrease, $2.1 billion or 5.2 percent to $38.3 billion..

To gauge the effect of February's dollar valued factory inventories on 1st 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 decreased 0.5% to $242,639 million; the value of work in process inventories was 0.6% lower at $219,634 million, and the value of materials and supplies inventories was virtually unchanged at $237,132 million...at the same time, the producer price index for February indicated that prices for finished goods decreased 0.9%, that prices for intermediate processed goods were also 0.9% lower, and that prices for unprocessed goods were on average 7.7% lower, with even core raw materials priced 1.5% lower than January's....assuming similar valuations for like inventories, that would suggest that February's real finished goods inventories were around 0.4% more than January’s, that real inventories of intermediate processed goods were 0.3% greater, and that real raw material inventory inventories were at least 1.5% greater, and probably much higher…. while the 4th quarter quarter GDP inventory increase was relatively small, resulting in almost a full point hit to GDP, that was as a large increase in real factory inventories was offset by decreases in real retail and wholesale inventories....hence, taken alone, this modest increase in February real factory inventories, following the relatively small January increase in real factory inventories, might not be enough to have a positive impact on 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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