june unemployment, worldwide PMIs, & other notes on the week ending July 7th

other than the reported economic news, the blogosphere generally continued to focus this week on coverage of two stories; first, sorting out the ramifications of the 193 page supreme court decision on the 2400 page health care law, and also the rapidly expanding investigation into the long running collusion to manipulate the benchmark LIBOR interest rate by the major international banks; briefly, last week british bank barclay’s agreed to pay a fine of $450 million to settle findings that it had been rigging benchmark interest rates between 2005 & 2009; testimony & emails also implicated managers & traders at most other major international banks in the scheme, which also included manipulation of the other international benchmark rates, Euribor & Tibor, which basically means that they had been illegally skimming a fraction of a percent off of every variable rate loan issued, including mortgage, student loan and credit card rates, as well as every transaction in the multi-trillion dollar interest rate derivatives market, for at least that duration; although this hasnt received much coverage in the US media, the british press has gone apoplectic, especially since testimony before the House of Commons suggested that this rate rigging was done with the tacit approval of figures in the british central bank…links to articles discussing the domestic implications of this rate rigging were included in my mailing, but for more complete coverage of the british scandal, you can find it in the last couple dozen linked paragraphs on the global glass onion…the results of the supreme court decision on obamacare has become more complicated as well…there have been several articles discussing how the ruling on the mandate changes long running interpretations of the powers outlined in the constitution’s commerce clause, and the new limits this ruling will impose on congress, which appears to be something that will keep the legal wonks mulling over for some time…somewhat easier to understand are the implications of the ruling that threw out the Medicaid expansion…it’s been reported that as many as 15 governors have indicated they will either flat-out reject the Medicaid expansion money or are leaning in that direction; that includes two of the states with the highest number who’d be eligible; Florida, which has 44% of its non-elderly people making less than 139% of the Federal poverty line, and south carolina, which has 39% of its non elderly poor enough to be eligible under the ACA… the WaPo has a state by state graphic that shows what happens if your state should opt out of the Medicaid expansion; unsurprisingly, its the poorest that get screwed, because they are also ineligible for tax credits to purchase health insurance….the Medicaid expansion was meant to give coverage to about 17 million of us by 2019, accounting for almost half of the 32 million people the bill promised to insure, so a major revolt by the states could just about gut the purpose of a national health care law…moreover, the supreme court ruling will allow states to cut off those poor who are already on the Medicaid rolls, and also opt out of the ACA program to set up state level insurance exchanges designed to provide subsidies to help people with low and moderate incomes afford coverage…

although our June unemployment report was miserable, with the 80,000 jobs added not even being enough to keep up with the increase in the working age population, the more inclusive economic story of the week has been the worldwide slowdown in manufacturing activity, as measured by PMIs (purchasing managers indexes) worldwide, most of which reported for june this week…the bad news started monday when the ISM (Institute for Supply Management) reported that our manufacturing PMI for June dropped to 49.7 from 53.5 in May, the first time it’s shown that our manufacturing sector was contracting in 3 years…we had a hint that this report was going to show some slowing, when we looked at the 1st two regional Fed reports a few weeks ago, but although others saw the same data, none of the 70 economists polled by bloomberg expected this index to show contraction…& a reading of the subindexes does not bode well for the future, either, as the new orders index dropped 12.3 percentage points, from 60.1 to 47.8, a single month drop exceeded only by the collapse in new orders following the 9-11 attack on the twin towers…the co-incident production index remains in positive territory (above 50 is expansionary), showing a slowing to 51.0, 4.6% lower than May’s 55.6, and the employment index slipped from 56.9 to 56,6; however, the price index for raw materials continued to collapse for the second consecutive month, registering 37 percent, which is 10.5 points lower than the 47.5 percent reported in MayISM also reported the June PMI for the US non-manufacturing sector, which is arguably more important for a service based economy such as ours; although it declined 1.6%, it remained in positive territory at 52.1% for June, which was still its lowest level since January 2010; of the component indexes, new orders decreased 2.2% to 53.3%, with the order backlog slipping 3.5% to 49.5; business activity decreased 3.9 points to 51.7%, while the employment index increased by 1.5 percentage points to 52.3%..

looking at the PMIs for major economies worldwide, most reported by london based Markit, the eurozone composite showed the 11th consecutive month of contraction, finishing the weakest quarter in 3 years with the eurozone manufacturing PMI unchanged at 45.1% in june; the five largest eurozone economies all showed contraction in manufacturing, with only ireland having an expansionary reading, with a 14 month high of 53.1, which you see on the above chart from the Markit report (pdf); germany’s reading was 45.0, its steepest contraction in three years; while dutch &  french manufacturing moderated to 2 month highs, at 48.9 and 45.2 respectively; italy’s PMI was slightly lower at 44.6, while spain’s PMI collapsed to a 37 month low of 41.1declines were widespread across the eurozone in forward looking new orders; the level of new export orders reportedly fell at the fastest pace since last November…outside of the eurozone, UK manufacturing PMI continued to contract, but slower: the UK PMI rose to 48.6 in June from a three-year low of 45.9 in MayNorway’s PMI for manufacturing collapsed to 46.4, down from a previous 54.9, while sweden’s PMI for manufacturing was also lower than expected at 48.4, down from May’s 49.0.

the major asian economies also showed contraction; in china, manufacturing weakened for the 8th consecutive month, with the HSBC PMI as reported by Markit slipping to 48.1 in June from a reading of 48.4 in May; new orders fell the most in 7 months while input costs fell at their sharpest rates in 39 months; separately, a purchasing managers index released by the Beijing-based statistics bureau showed the chinese economy still expanding, but barely, with the PMI falling from 50.4 to 50.2…Markit also reported that japanese manufacturing output fell for the first time this year (pdf), although the contractionary reading was just fractionally below neutral at 49.9 (down from 50.7 in May); purchasing managers in japan reported that new orders fell for the first time in six months…on the other side of the sea of japan, South Korea’s HSBC manufacturing PMI number for June fell to 49.4, a decline from 51.0 in May and their first contraction in 5 months…as with other exporters, manufacturers reported a contraction in their order book… meanwhile, india was the only major asian economy to show expansion, as their manufacturing PMI climbed from 54.8 in May  to 55.0 in June…rounding out the BRICS, the Russian HSBC PMI compiled by Markit (pdf) fell from 53.2 in May to 51.0 in June, its steepest monthly decline in 3 and a half years, while the Brazilian manufacturing PMI (pdf) registered its 8th month of contraction, with a June reading of 48.5, down from 49.3 in May…new orders again fell, continuing a contraction that started in april of 2011…and Markit also released a Global PMI, which reading dropped to 48.9, the first decisively contractionary global PMI since the recession ended in 2009..
FRED Graph

the June employment situation release from the BLS was pretty much a big nothing for the 27.5 million who need a real job; a paltry 80,000 seasonally adjusted jobs were added, indicative of a economy barely treading water, the headline unemployment rate remained at 8.2%, and both the metrics we’re watching were unchanged: the labor force participation rate stayed at 63.8% and the employment-population ratio remained at 58.6% (see chart above)…looking first at the establishment survey, which is considered to be more accurate as it includes roughly 141,000 businesses and government agencies, even though, as we’ve pointed out previously, it has confidence interval  on the order of plus or minus 100,000; we’ll note first that the revisions to earlier reports were mostly a wash; jobs added in May were revised from 69,000 to 77,000, but employment for April was revised from +77,000 to +68,000, giving us an average of 75,000 new jobs per month for the second quarter, less than one-third of the 226,000 per month job creation rate of the first quarter… the bulk of the private job creation in June was in professional  and business services, which added a seasonally adjusted 47,000 jobs, with temporary help services accounting for 25,000 of the increase; manufacturing added 11,000 jobs, somewhat less than previous months & confirming the slowdown seen in the manufacturing PMI…other areas which saw employment increase were healthcare, which  added 13,000 jobs, & wholesale trade, which added 9,000jobs in retail declined 5,400 and government payrolls fell 4,000, while employment in construction,  transportation and warehousing, financial activities, & leisure and hospitality were little changed…the average workweek for all employees was up by a tenth of an hour to 34.5 hours in june, while the manufacturing workweek edged up by 0.1 hour to 40.7 hours, and factory overtime remained at an average of 3.3 hours for the 5th consecutive month…the average hourly earnings for all employees on private payrolls rose 6 cents to $23.50, while average hourly earnings  of private-sector nonsupervisory employees increased by  5 cents to $19.74; for the year ending June, average earnings were up 2.0%..

Graph of Average (Mean) Duration of Unemployment

as you should recall, the widely reported unemployment rate (8.2% in June) is based on a household survey of just 60,000 households, so it tends to be very volatile with a much wider margin of error…nonetheless, it is from extrapolations of that small sample that BLS constructs the widely followed tables of employment by sex, age, race, region, education, and duration of employment, as well as the labor force participation and employment ratios…with that caveat, the household survey showed that the unemployment rate for blacks edged up to 14.4% over the month, while the rates for whites (7.4 percent), Hispanics (11.0 percent), adult men (7.8 percent),  adult women (7.4 percent), and teenagers (23.7 percent) all remained unchangedthe number of those unemployed for over 27 weeks, and who’ve hence become ineligible for unemployment compensation in states whose overall rate has fallen, remained roughly unchanged at 5,400,000they now account for 41.9% of all those that BLS counts as employed; the average length of time unemployed ticked up again, from 39.7 weeks in May to 39.9 weeks in June, and remains in that highly unusual elevated range around 40 weeks, as you can see on the adjacent chart…in june, the labor force rose by 156,000 to 155,163,000, while those “not in the labor force” by the BLS definition increased by 34,000 to 87,992,000, another record high; those “not in the labor force” are not counted as unemployed; of those, BLS showed 2.5 million workers as marginally attached to the labor force because they had not searched for work in the 4 week period prior to the survey week…of those, BLS reported 821,000 as “discouraged workers” who had not looked for work because they believed that no jobs were available for them….the number of “involuntary part time workers” also continues to climb; these are those who had their hours cut because slack conditions or who could only find part-time work; in June, 8.21 million of such “involuntary part timers” reported they’d rather have full time work, up 112,000 from 8.09 million in May and 7.7 million in March, as a result, the U-6 alternate measure of unemployment rose to 14.9%, up from 14.8% in May

other reports and important stories from this rather this rather busy week include the report of the CoreLogic home price index for May, which showed home prices up 1.8% over april and 2% year over year; in a related report, Trulia reported home asking prices rose 0.8% in the 2nd quarter over the 1st, but rents were rising even faster; Reis reported that US apartment rents were rising at highest rate since 2007…Reis also reported on commercial real estate for the 2nd quarter; reporting that the apartment vacancy rate in 82 markets fell to 4.7% in the second quarter from 4.9% in the first quarter, also reporting that the vacancy rate for regional malls declined slightly to 8.9% in Q2 from 9.0% in Q1, that the office vacancy rate was unchanged in the second quarter at 17.2%…in another report, June domestic car sales surprised analysts with a seasonally adjusted sales rate of 14.08 light vehicles sold, but retailers indicated that june sales were the worst they’ve seen in three years, with only stores “catering to the well-heeled” reporting better than expected sales….and the Association of American Railroads reported rail traffic was mixed in june, with carloads down considerably year over year on lower coal & grain shipments, while intermodal shipments were at the highest average for any June on record…

and i dont think it’s a surprise to anyone east of the Rockies that it’s been hot; what you may not know is that accompanying the heat is an intensifying drought which now includes 56 percent of the continental U.S., the most in the 12 years that the data have been compiled…reports on percentage corn in good or excellent condition have been falling each week that this persists, and in at least nine states conditions in one-fifth to one-half of cornfields have been deemed poor or very poor, so it shouldn’t be a surprise that corn prices have breached their 2008 highs..although the late June heat wave itself broke 3215 high temperature records, we dont have a ranking as of yet for this June as compared to others…but with March having been the warmest ever, May having been the 2nd warmest ever, and every other month this year in the top ten of all time, it seems safe to say that the first half of this year in the US has been the hottest in recorded history

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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