Sunday, July 5, 2020

June’s jobs report; May’s trade deficit, construction spending and factory inventories..

In addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, this week's economic releases included three major May reports that will input into 2nd quarter GDP: the BEA's report on our International Trade for May, and the May report on  Construction Spending and the Full Report on Manufacturers' Shipments, Inventories and Orders for May, both from the Census Bureau....this week also saw the last regional Fed manufacturing survey for June; the Dallas Fed's Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, indicated its general business activity index rose to -6.1 in June from -49.2 in May and from a record low of -74.0 in April, still indicating an ongoing contraction of the Texas economy...

Privately issued reports released this week included the ADP Employment Report for June, the light vehicle sales report for June from Wards Automotive, which is the source data for the BEA report and which estimated that vehicles sold at a 13.05 million seasonally adjusted annual rate in June, up from the 12.21 million rate in May, but down from the 17.21 annual rate in June of 2019, and the Case-Shiller house price indexes for April from S&P Case-Shiller, who reported that their national home price index was 4.7% higher than in the same month's report a year ago, up from the 4.4% year over year gain reported for March...note that this "April" index compares repeat home sales that were filed in February, March, and April to those that were filed during the same three months a year ago, and that the deed filing typically lags the closing, so that this "April" report largely involves home sales that closed before this year's widespread coronavirus related lockdowns...this week also saw the widely followed purchasing manager's survey from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 52.6% in June, up from 43.1% in May, which suggests that manufacturing nationally is recovering after bottoming out over the past two months..

Employers Add 4,800,000 Jobs in June, Unemployment Rate Falls 2.2% to 11.1%

The Employment Situation Summary for June showed there was a continuation of the rebound in payroll jobs we saw a month ago, and a decrease in the unemployment rate, beating consensus expectations for a less robust recovery…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 4,800,000 jobs in June, after the payroll job increase for May was revised up from 2,509,000 jobs to 2,699,000, and the April decrease was revised down from a loss of 20,687,000 jobs to a loss of 20,787,000, which means that the combined number of jobs extant over those two months was 90,000 more than was previously reported....the unadjusted data indicates that there were actually 5,103,000 more payroll jobs in June than in May, as large seasonal job increases that are typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…

Seasonally adjusted job increases were spread throughout government and the private goods producing and service sectors, while only the resource extraction sector saw a seasonally adjusted loss as large as 10,000 jobs, on a decrease of 7,300 workers in support activities for 'mining', which includes oil & gas extraction....with an increase of 2,088,000 jobs, the leisure and hospitality sector gain accounted for a big part of the June job gain, with a return of 1,483,400 employees working in bars and restaurants, an increase of 365,900 employees in performing arts and spectator sports, and a gain of of 238,600 jobs in accommodation....the retail sector saw an increase of 739,800 jobs, led by 201,600 returning jobs in clothing stores and 108,100 returning jobs in general merchandise retailers...employment in health care and social assistance rose by 474,900, with the return of 190,400 jobs in dentist's offices, and 80,000 jobs in doctor's offices...another 357,000 jobs gains were seen by "other services", with an increase of 264,200 employed by personal and laundry services… manufacturing industries added back 356,000 workers in June, with the return of 195,800 workers in motor vehicles and parts factories and 25,500 in the manufacture of miscellaneous durable goods...the broad professional and business services sector added back 306,000 jobs, as 148,900 more were employed by temporary help services and 53,100 more found work in services to buildings and dwellings....seasonally adjusted construction employment rose by 158,000 in June, with 71,300 of those construction jobs added by nonresidential specialty trade contractors and another 64,100 added by residential specialty trade contractors.….the transportation and warehousing sector saw an increase of 98,700 jobs, as the addition of 60,500 workers in warehousing and storage left employment in that sector one of the few higher than a year ago (another was food and beverage stores)...in addition, the wholesale trade sector saw an increase of 67,600 jobs, led by a 37,800 job increase in trade of durable goods...other June job increases included the addition of 93,400 jobs in private education, 33,000 in government, 32,000 in financial activities, and 9,000 in the information sector...

Reflecting the return of so many lower paid workers, the establishment survey also showed that the average hourly pay for all employees fell by 35 cents to $29.37 an hour in June, after it had decreased by a downwardly revised 32 cents an hour in May; at the same time, the average hourly earnings of production and nonsupervisory employees decreased by 23 cents to $24.74 an hour...employers also reported that the average workweek for all private payroll employees decreased by 0.2 hours to 34.5 hours, while hours for production and non-supervisory personnel also fell by 0.2 hours to 33.9 hours...meanwhile, the manufacturing workweek rose by 0.5 hour to 39.2 hours, while factory overtime was unchanged at 2.4 hours..

Meanwhile, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 4,940,000 to 142,182 ,000, while the similarly estimated number of those unemployed fell by 3,235,000 to 17,750,000; which together meant that June saw a net increase of 1,705,000 in the total labor force...since the working age population had grown by 157,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 1,547,000 to 100,273,000....the big increase of those in the labor force was enough to raise the labor force participation rate by 0.7% to 61.5%....likewise, the big increase in number employed vis a vis the increase in the population was enough to raise the employment to population ratio, which we could think of as an employment rate, from 52.8% to 54.6%...at the same time, the decrease in the number counted as unemployed was enough to lower the unemployment rate from 13.3% to 11.1%....meanwhile, the number who reported they were involuntarily working part time fell by 1,517,000 to 9,062,000 in June, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 21.2% in May to 18.0% in June...

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 alongside the press release to avoid the need to scroll up and down the page.. 

May Trade Deficit Rose 9.4% on Lower Exports of Oil & Oil Products, Capital Goods, Automotives, et al

Our trade deficit increased by 9.4% in May as the value of both our exports and our imports decreased, but our exports decreased by more than three times as much....the Commerce Department report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit rose by $4.8 billion to $54.6 billion in May, from a April deficit of $49.8 billion, which was revised up from the $49.4 billion deficit reported for April last month....in rounded totals, the value of our May exports fell by $6.6 billion to $144.5 billion on a $5.5 billion decrease to $90.0 billion in our exports of goods and a $1.1 billion decrease to $54.5 billion in our exports of services, while our imports fell $1.8 billion to $199.1 billion on a $1.3 billion decrease to $166.0 billion in our imports of goods and a $0.5 billion decrease to $33.1 billion in our imports of services...export prices were on average 0.5% higher in May, so this month's real exports were less than their nominal value by that percentage, while import prices were 1.0% higher, meaning that our real imports were likewise smaller than their nominal value by that percentage..

The decrease in May's exports was largely due to lower exports of industrial supplies and materials and of capital goods, with only exports of consumer goods seeing a relatively smaller increase ....referencing the Full Release and Tables for the May trade report (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials fell by $3,928 million to $29,942 million on a $1,648 million decrease in our exports of petroleum products other than fuel oil, a $696 million decrease in our exports of crude oil, a $638 million decrease in our exports of fuel oil and a $298 decrease in our exports of organic chemicals, and that our exports of capital goods fell by $896 million to $31,476 million on a $389 million decrease in our exports of semiconductors, a $349 million decrease in our exports of computer accessories, a $253 million decrease in our exports of medical equipment, and a $219 million decrease in our exports of parts for civilian aircraft, which were partially offset by a $322 million increase in our exports of industrial machines other than those itemized separately and a $241 million increase in our exports of civilian aircraft...at the same time, our exports of automotive vehicles, parts, and engines fell by $426 million to $3,402 million on a $522 million decrease in our exports of passenger cars, our exports of foods, feeds and beverages fell by $314 million to $10,469 million on a $239 million decrease in our exports of meat, poultry, and related products, and our exports of other goods not categorized by end use fell by $606 million to $3,811 million....partly offsetting those decreases, our exports of consumer goods rose by $557 million to $10,968 million, led by a $116 million increase in our exports of gem diamonds...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that lower imports of automotive goods and capital goods were largely responsible for the May decrease in our imports, and that they were mostly offset by higher imports of industrial supplies and materials and consumer goods...our imports of automotive vehicles, parts and engines fell by $4384 million to $8,967 million on a $2955 million decrease in our imports of new and used passenger cars, a $589 million decrease in our imports of parts and accessories of vehicles other than engines, chassis, and tires,  a $405 million decrease in our imports of trucks, buses, and special purpose vehicles, and a $319 million decrease in our imports of automotive tires and tubes, while our imports of capital goods fell by $643 million to $47,531 million on a $400 million decrease in our imports of computers and our imports of other goods not categorized by end use fell by $238 million to $7,314 million....largely offsetting the decreases in those import categories, our imports of industrial supplies and materials rose by $2,270 million to $43,694 million on a $1,239 million increase in our imports of non-monetary gold, a $1267 million increase in our imports of finished metal shapes, and a $482 million increase in our imports of other precious metals, and a $281 million increase in our imports of organic chemicals, and our imports of consumer goods rose by $1,914 million to $45,723 million on a $1,783 million increase in our imports of clothing and textiles other than those of wool and cotton, a $1,181 million increase in our imports of cell phones, a $449 million increase in our imports of TVs and video equipment and a $249 million increase in our imports of artwork and antiques, which were offset by decreases of $816 million in our imports of cotton apparel and household goods, $665 million in our imports of furniture and household goods and $339 million in our imports of footwear...in addition, our imports of foods, feeds, and beverages rose by $34 million to $12,098 million on a $204 million increase in our imports of vegetables....

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

The May figures show surpluses, in billions of dollars, with South and Central America ($1.9), Brazil ($0.4), OPEC ($0.4), United Kingdom ($0.2), and Hong Kong ($0.1). Deficits were recorded, in billions of dollars, with China ($27.9), European Union ($12.7), Mexico ($4.2), Germany ($3.9), Japan ($3.2), Taiwan ($2.6), South Korea ($1.9), Singapore ($1.6), Italy ($1.4), Canada ($1.2), France ($1.1), India ($0.7), and Saudi Arabia ($0.1).

  • • The deficit with China increased $1.9 billion to $27.9 billion in May. Exports increased $0.7 billion to $10.0 billion and imports increased $2.7 billion to $37.9 billion.
  • • The surplus with members of OPEC decreased $1.0 billion to $0.4 billion in May. Exports decreased $0.5 billion to $2.4 billion and imports increased $0.5 billion to $2.1 billion.
  • • The deficit with the European Union decreased $1.6 billion to $12.7 billion in May. Exports decreased $1.0 billion to $14.9 billion and imports decreased $2.6 billion to $27.6 billion.

To gauge the impact of April and May trade on 2nd 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 here being that the amounts are not annualized...from that table, we can figure that we can figure that 1st quarter real exports of goods averaged 147,392 million monthly in 2012 dollars, while inflation adjusted April and May exports were at 113,528 million and 106,801 million respectively in that same 2012 dollar quantity index representation.... after averaging inflation adjusted April and May goods exports and then computing the annualized change between that average and the average of the first quarter, we find that the 2nd quarter's real exports of goods are running at a 68.8% annual rate below those of the 1st quarter, or at a pace that would subtract about 7.18 percentage points from 2nd quarter GDP if continued at the same rate through June.....

In a similar manner, we find that our 1st quarter real imports averaged 221,310 million monthly in chained 2012 dollars, while inflation adjusted April and May imports were at 193,973 million and 193,287 million in those same inflation adjusted dollars respectively....that would mean that so far in the 2nd quarter, our real imports of goods have decreased at a 41.4% 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 41.4% rate would conversely add 5.28 percentage points back to 2nd quarter GDP....hence, if our goods trade deficit at the April - May level is maintained through June, our deteriorating balance of trade in goods would subtract a net of roughly 1.90 percentage points from the growth of 2nd quarter GDP....

Note that we have not figured 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 month’s decrease in exports of services was twice the decrease in imports of services, which thus suggests that May’s trade in services would also subtract from 2nd quarter GDP...

Construction Spending Falls 2.1% in May after March & April Spending Revised Much Higher

The Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,356.4 billion annually if extrapolated over an entire year, which was 2.1 percent (±1.0 percent) below the revised annualized estimate of $1,386.1 billion of construction spending in April but 0.3 percent (±1.5 percent)* above the estimated annualized level of construction spending in May of last year...with this release, unadjusted construction spending data was revised back to January 2018 and seasonally adjusted data was revised back to January 2013, and there was a methodology change in computing the total construction cost of private multifamily residential projects for months going back to January 2009...as a result of that and the usual monthly revision, the April spending estimate was revised 3.0% higher, from $1,346.2 billion to $1,386.1 billion, while the annual rate of construction spending for March was revised 3.6% higher, from $1,386.6 billion to $1,436.7 billion...we would normally suggest that a large upward revision to annualized March construction spending would have large positive impact on first quarter GDP when the annual revisions to GDP are released in late July, but with 4th quarter construction also being revised, the entire quarter over quarter change will need to be recomputed...construction spending tor the first 5 months of 2020 has now amounted to $543.2 billion, 5.7 percent (±1.2 percent) more than the $513.7 billion in construction spending for the same 5 months of 2019…

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 $1,001.2 billion, 3.3 percent (±0.7 percent) below the revised April estimate of $1,035.2 billion. Residential construction was at a seasonally adjusted annual rate of $535.9 billion in May, 4.0 percent (±1.3 percent) below the revised April estimate of $558.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $465.3 billion in May, 2.4 percent (±0.7 percent) below the revised April estimate of $476.9 billion.
  • Public Construction: In May, the estimated seasonally adjusted annual rate of public construction spending was $355.2 billion, 1.2 percent (±2.0 percent)* above the revised April estimate of $350.9 billion. Educational construction was at a seasonally adjusted annual rate of $87.3 billion, 0.1 percent (±2.0 percent)* above the revised April estimate of $87.2 billion. Highway construction was at a seasonally adjusted annual rate of $106.6 billion, 2.8 percent (±6.7 percent)* above the revised April estimate of $103.7 billion.

This construction spending report will be used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local and Federal governments.... however, gauging the impact of the revised April and May construction spending as reported here on 2nd quarter GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities' construction....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..,that index showed that aggregate construction costs fell 0.1 in May, after being up 0.5% from March to April, up 0.1% from February to March, and up 0.1% from January to February..

On that basis, we can estimate that May construction costs were roughly 0.4% greater than those of March, 0.5% greater than those of February and 0.6% greater than those of January, and obviously 0.1% less than those of April...we then use those percentages to inflate spending for each of the months of the first quarter, which is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter for comparison purposes, and then we'll compare the 'inflation adjusted' average of the 1st quarter months to the spending average of the 2nd quarter months...annualized construction spending in millions of dollars for the five months in question is given as 1,356,409 for May, 1,386,129 for April, 1,436,727 for March, 1,441,145 for February, and 1,437,719 for January....thus to figure the annual rate of change of May's nominal construction spending figure of $1,293,872 and April's figure of $1,304,007 from those of  the 'inflation adjusted'  figures of the first quarter, our calculation becomes (((1,356,409 + 1,386,129 * .999) / 2) / (((1,436,727 * 1.004) + (1,441,145 * 1.005) + (1,437,719 * 1.006)) / 3)) ^ 4 = 0.80774, which means that after adjusting for inflation, construction spending has been shrinking at a 19.2% annual rate over the first 2 months of the second quarter...that would be a contraction at a $75.15 billion annual rate, which means that if June shows no improvement, that contraction in real construction would subtract a net of about 1.89 percentage points from 2nd quarter GDP across those components that it influences...

Factory Shipments Up 3.1% in May, Factory Inventories Up 0.2%

The May Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods increased by $30.5 billion or 8.0 percent to $412.8 billion in May, following a decrease of 13.5% to $382.3 billion in April, which was revised from the 13.0% decrease to $384.3 billion reported for April 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 accurate as a revised update to the May advance report on durable goods we reported on last week...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 May, up following two consecutive monthly decreases, increased $30.5 billion or 8.0 percent to $412.8 billion, the U.S. Census Bureau reported today. This followed a 13.5 percent April decrease. Shipments, up following four consecutive monthly decreases, increased $12.5 billion or 3.1 percent to $417.0 billion. This followed a 14.0 percent April decrease. Unfilled orders, up following two consecutive monthly decreases, increased $0.7 billion or 0.1 percent to $1,108.5 billion. This followed a 1.5 percent April decrease. The unfilled orders-to-shipments ratio was 7.53, down from 7.70 in April. Inventories, up following four consecutive monthly decreases, increased $1.1 billion or 0.2 percent to $687.0 billion. This followed a 0.5 percent April decrease. The inventories-to-shipments ratio was 1.65, down from 1.70 in April.
  • New orders for manufactured durable goods in May, up following two consecutive monthly decreases, increased $26.3 billion or 15.7 percent to $193.8 billion, down from the previously published 15.8 percent increase. This followed an 18.3 percent April decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $21.1 billion or 82.0 percent to $46.9 billion. New orders for manufactured nondurable goods increased $4.2 billion or 2.0 percent to $219.0 billion.
  • Shipments of manufactured durable goods in May, up following two consecutive monthly decreases, increased $8.3 billion or 4.4 percent to $198.0 billion, unchanged from the previously published increase. This followed an 18.8 percent April decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $5.1 billion or 12.4 percent to $46.6 billion. Shipments of manufactured nondurable goods, up following four consecutive monthly decreases, increased $4.2 billion or 2.0 percent to $219.0 billion. This followed a 9.3 percent April decrease. Petroleum and coal products, also up following four consecutive monthly decreases, led the increase, $3.1 billion or 12.1 percent to $28.2 billion.
  • Unfilled orders for manufactured durable goods in May, up following two consecutive monthly decreases, increased $0.7 billion or 0.1 percent to $1,108.5 billion, unchanged from the previously published increase. This followed a 1.5 percent April decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $0.3 billion or virtually unchanged to $760.0 billion.
  • Inventories of manufactured durable goods in May, up three consecutive months, increased $0.3 billion or 0.1 percent to $425.0 billion, unchanged from the previously published increase. This followed a virtually unchanged April increase. Transportation equipment, up twenty-two of the last twenty-three months, drove the increase, $1.3 billion or 0.9 percent to $144.0 billion. Inventories of manufactured nondurable goods, up following four consecutive monthly decreases, increased $0.8 billion or 0.3 percent to $262.0 billion. This followed a 1.2 percent April decrease. Petroleum and coal products, also up following four consecutive monthly decreases, drove the increase, $1.8 billion or 6.5 percent to $28.8 billion.

To estimate the effect of those May 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 were statistically unchanged at $245,140 million; the value of work in process inventories rose 0.7% to $203,300 million, while the value of materials and supplies inventories fell 0.1% to $238,576 million...the May producer price index reported that prices for finished goods were on average 1.6% higher, that prices for intermediate processed goods were 0.1% higher, while prices for unprocessed goods averaged 8.9% higher....assuming similar valuations for like types of inventories, that would suggest that May's real finished goods inventories were about 1.6% less than April's, that real inventories of intermediate processed goods were about 0.6% higher, and that real raw material inventories were about 9% lower, with a caveat on the later that most of the May price increase was in energy goods, which account for a relatively smaller amount of the producer inventory aggregate....nonetheless, those decreases are not great enough to reverse the real inventory increases seen in April, and since real NIPA factory inventories were much lower in the 1st quarter, it appears that the real change in 2nd quarter factory inventories still will have a notable positive impact on the growth rate of 2nd 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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