July unemployment, global manufacturing PMIs, june personal income & outlays, May case-shiller, et al

a few caveats before we look at the employment situation summary for July from the BLS…first, July is subject to a large upward seasonal adjustment, the 2nd greatest after january’s; while June jobs had been adjusted downward to compensate for typical seasonal hires in that month….there are usually over a million less employed every July, mostly due to seasonal layoffs associated with the end of the school year, which BLS smoothes to a normalized number with their seasonal adjustment process…due to the unusual nature of this recession, with a large number of school district jobs already lost (see above chart), there were less school employees to be let go than normal, but the BLS seasonal adjustment algorithm doesnt account for such specific details, only normal seasonal trends…so like january’s, this month’s adjustment was massive; the actual unadjusted number reported employed in July was 132,868,000, 1,204,000 million less than were working in June; and just about all of those job losses were from local government; actual private jobs numbered 112,192,000 in July, 27,000 more than June…so some of what we are seeing this month may be compensation for the lousy jobs reports we saw last fall, when less than expected numbers of school employees were rehired; by the same thinking, less will be rehired this fall, not boding well for those reports…so maybe the year over year number, which is that 1,830,000 jobs were added, may make more sense than trying to outguess an imperfect seasonal statistical process…the other adjustment that takes place with this report was less significant: normally, auto manufacturers shut down plants for annual retooling in July, and the seasonal adjustment compensates for that; however they didnt shutdown this july, so economists at Morgan Stanley figure that added 10,000 jobs to this report that will be reversed next month

  so with those sources of noise that influence this months reported numbers accounted for, the establishment survey showed a seasonally adjusted 163,000 increase in July payroll employment; 172,000 private jobs less the 9,000 government jobs that were lost on that seasonally adjusted basis; revisions to earlier reports were minor, as May’s was revised from +77,000 to +87,000, and June’s was revised from +80,000 to +64,000…the sectors with the largest jobs gains were professional and business services, which increased by 49,000, work in food services and drinking places, which rose by 29,000, & manufacturing employment, which was up 25,000, almost all of which was in durable goods, with 13,000 of those in the auto industry…other than the 9,000 government jobs cut, utilities were the only industry where jobs declined, off 8,000, more than accounted for by a labor dispute…the 12,000 new jobs in health care in July were less than in previous reports, and other major industries showed little change over the month...the average hourly earnings for all private payroll employees was up by a seasonally adjusted 2 cents to $23.52; for just production and nonsupervisory employees, pay also rose by 2 cents, to $19.77;. year over year, hourly earnings rose 1.7%, coincidentally by the same rate as prices as measured by the CPI increased YoY…meanwhile, both the overall workweek for all employees and the manufacturing workweek remained unchanged, at 34.5 hours and 40.7 hours respectively, & factory overtime was also unchanged at 3.2 hours…as a result, average weekly earnings for all employees rose less than a dollar, from $810.75 in June to $811.44 in July...

Percent Job Losses During Recessions the results of the household survey ran contrary to what was reported by the more reliable establishment survey (the household survey is of only 60,000 households; while the establishment survey goes to about 140,000 businesses and agencies)…also seasonally adjusted, the household survey reported 195,000 less employed in July than were working in June; furthermore, this survey reported an increase of 31.000 part-time workers, which would suggest a lost of even more full time jobs…the important metrics from this part of the report which we watch both declined as well: the labor force participation rate declined from 63.8% to 63.7%, and the employment / population ratio declined 0.2%, from 58.6% to 58.4%…with the civilian labor force, the denominator of the unemployment rates, 150,000 less than in June, and the number counted as unemployed up by 45,000, the headline percentage of unemployed increased from 8.2 to 8.3%, the rate for whites was 7.4%, while 10.3% of hispanics and 14.1% of blacks searched for work and couldnt find it… the unemployment rate for adult men was 7.7%, for adult women it was 7.5%, while 23.8% of teenagers were looking for work in July and couldnt find it… the U-6 measure, which includes those working part time who want full time work, rose from 14.9% to 15.0%, as 36,000 more than last month were considered part time for economic reasons…in a bright spot, if one can call it that, the number of long term unemployed, or those out of work more than 27 weeks, fell 185,000 from 5,370,000 to 5,185,000; they still, however accounted for 40.7% of those counted as unemployed… included here is bill mcbride’s chart of job losses in this recession, compared to all earlier post war recessions, just so we remember how bad it still is out there, now that Federal unemployment rations past the state’s 26 weeks are being withdrawn (click on the chart to view the color codes for other downturns)….parallel to the BLS household survey of 60,000, Gallup runs its own tracking interviews of 30,000 households to determine an unemployment rate without seasonal adjustment; for July, they report 8.2% unemployed, up from the 8.0% they reported out of work in June…they also report underemployment (U-6 equivalent) declined for the third straight month in July, to 17.1%, the lowest since they started tracking that number…they also report a dramatic drop in the equivalent of the government’s seasonally adjusted workforce participation rate to 63.1% in July, down from 63.8% in June..

this week also brought the release of several purchasing managers indexes (PMI) worldwide, as well as both of the major US PMIs from the Institute for Supply Management (ISM)…for the second month in a row, the July ISM Manufacturing Index was slightly below 50, indicating contraction, with the PMI at 49.8, a tenth of a point above the three-year low of 49.7 reached in June…again, much of the weakness came from contraction in the new orders index, which registered 48.0, slightly better than the 47.8 of last month, but nonetheless confirming a 0.5% downturn in June factory orders as reported by the commerce dept; production ticked up from 51.0 to 51.3, but the employment index fell from 56.6 to 52.0, still growing but much weaker…the orders backlog fell to 43.0 from 44.5, while the export index registered 46.5, down from 47.5…in sync with the manufacturing slowdown reported by purchasing managers, US automakers projected sales for July at 1.1 million vehicles, about 10% less than analysts had expected…the ISM also released its July Non-Manufacturing Report, covering businesses in service industries, which showed the overall index at 52.6%, up from 52.1% in June, indicating faster expansion; the business activity index rose 51.7% to 57.2, while the new orders index rose 1 point to 54.3…ominously, however, the non-manufacturing employment index fell 3 points to 49.3%, the first time it has shown contraction since last year…  

manufacturing indexes from Europe and the rest of the world were also released this week, which we’re going to take a quick look at so as to see how the global slowdown is taking hold (all Markit PMIs linked here are pdfs) …we’ll start in europe, where manufacturing in all of the major economies except Ireland is contracting…Markit reported that the German composite PMI slid further into contraction from 45.0 in June to 43.0 in July, its lowest level since June 2009, with new export work shrinking faster than total business….similarly, the French Manufacturing PMI fell from 45.2 in June to 43.4 in July, a 38-month low as the downturn deepened, with output and new orders falling at a sharper rate, and the fastest drop in the employment index since september 2009…and although the Italian Manufacturing PMI at 44.3 in July was only a three month low, they saw the sharpest reduction in employment in 33 months, along with an accelerated decrease in work backlogs…manufacturing activity for the euro area as a whole was at it’s lowest level since mid 2009, with Markit reporting a 37-month low of 44.0 in July, down from 45.1 in June, which is shown on the adjacent chart…manufacturing also fell at the fastest rate in three years in the UK, where the Markit/CIPS manufacturing PMI fell to 45.4 in July, from a downwardly revised 48.4 in June…in Asia, the state affiliated Chinese Federation of Logistics and Purchasing reported its PMI was near contraction as it fell 0.1 percentage point to 50.1 in July, down from 50.2 in June, while the HSBC PMI for China showed contraction at 49.3, but at a slower pace than June’s reading of 48.2…and in Japan, the Markit/JMMA PMI posted a 47.9 in July, down from 49.9, the sharpest deterioration since the month after the fukushina earthquake, as output and and new orders fell at an accelerated rate….JP Morgan, in association with Markit, ISM, et al, also released a global PMI for July (pdf); at 48.4 this composite index was indicating global contraction for the 2nd month in a row, and was at its lowest level since June 2009…in another useful post, the real time economics blog at the wall street journal has collected these PMIs from various sources to show world-wide factory activity, by country, including countries in europe, asia, & the BRICS in an interactive sortable table, if you just want to take a quick look without pouring through a bundle of pdfs…

while the uneventful Fed meeting, the situation in europe and the deteriorating PMIs were getting all the attention, the BEA (Bureau of Economic Analysis) released the Personal Income and Outlays report for June, important in that it gives us a picture of disposable personal income (DPI), which underpins all consumer economic activity, Personal Consumption Expenditures (PCE), which accounts for over 70% of GDP, and personal savings, as well as PCE inflation, which is used by the Fed in monetary policy decisions….in June, personal income increased $61.8 billion, or 0.5%, which was its largest jump in 3 months, and of which $31.9 billion came from wages and salaries, and DPI, which is personal income after taxes, increased $52.4 billion, or 0.4%….PCE decreased $1.3 billion, or less than 0.1 percent, the second consecutive monthly decline, after May’s revised 0.1% $13.3 billion decline, results of which we’ve seen in retail sales and last weeks estimate of 2nd quarter GDPpersonal savings, which is DPI less personal outlays, was $529.5 billion in June, compared with $472.4 billion in May, giving us a personal saving rate (as a percentage of DPI) of 4.4%, which was the highest savings rate since June of last yearreal DPI, which is adjusted to remove price changes, increased 0.3% in June compared with an increase of 0.5% in May, while real PCI declined by .1% both monthsBEA reports the PCE price index as increasing 0.1% in June, after declining 0.2% in May, and reports the core PCE price index (excluding food & energy) as up 0.2%doug short computes the PCI price indexes to two decimal places; he gives the year over year increase in the headline PCE price index as 1.52% and the year over year increasing in the core PCE index as 1.80%, both under the Fed’s target of 2% annual inflation..

Real House Prices

another release of this past week that we should cover are the Case-Shiller Home Price Indices for May, which are really 3 month averages of March, April and May…this report showed that average home prices increased by 2.2% in May over April’s report for both the 10- and 20-City Composites; note that these indices are not seasonally adjusted, so much of these price increases are typical for this time of year; on a year over year basis, home prices fell by 1.0% for the 10 city composite and by 0.7% for the 20 city composite; none of the 20 cities saw a price decrease in this report, but even with a seasonal adjustment applied, only Detroit and Charlotte posted drops in May…a couple cities that have seen large prices declines over the year led the May price increases; atlanta, where prices had been down over 17% in the year to april. saw a 4.0% increase, and chicago, which had been down over 7%, posted a 4.5% increase in home prices…bill mcbride continues to calculate and graph over time the real inflation adjusted prices of the Case-Shiller 20, the case-shiller national index, & the CoreLogic HPI; which you see in the chart to the right; adjusted for inflation using the CPI less shelter, the Case Shiller 20 seasonally adjusted prices in red are now at March 2001 levels, the C/S national index prices in yellow are now equal to what they were in the 4th quarter of 1998, and CoreLogic index, in blue and not seasonally adjusted, is back to its May 2000 level… also, CoreLogic released its National Foreclosure Report for June, which showed there were 60,000 foreclosures completed in June, approximately the same number as in May, but down from the 80,000 completed in June of last year; approximately 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in the national foreclosure inventory as of June, unchanged from May…indications are that banks are taking homes up to the final step of foreclosure, then letting them languish, leaving the foreclosed homeowners on the hook for upkeep & property taxes…we should also make note that under the various principal reduction programs now in effect to help underwater homeowners, the banks are reporting the amount of forgiven debt to the IRS…unless congress extends the mortgage debt forgiveness act, and finds $15 billion in spending cuts or other taxes to offset the loss of revenue in accordance with the budget control act, any forgiven homeowner debt will be taxed as income…

(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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