hurricane sandy, October unemployment and PMIs, September income & outlays, et al

it’s interesting that every now and then the planet we’re living on reminds us who’s in charge; so it was that hurricane sandy pushed aside the campaign rhetoric & delayed some economic reports and pretty much dominated the news cycle this past week, not just in the media, but in the econ-blogosphere as well…we would not be surprised to see sandy become a permanent part of the lexicon, maybe even moreso than katrina has, because the storm has touched so many topical bases already, in less than one week…while i normally dont cover one-off weather events, articles about the storm & its effects that were included in this week’s globalglassonion showed up in a wide range of the topics usually covered, from it’s impact on the federal budget and how to pay for it (rules and precedent indicate there will be offsetting cuts to other programs), to the role of the government in such events (opinions included ranged from return the role of FEMA to the states to let the markets do it, which also included several posts in defense of “price gouging”, to solve problems of food & fuel shortages, to whether state & local budget cuts ignored needed infrastructure, making the impact on new york city much worse…the ultimate economic impact was also considered; three studies (by IHS Global Insight, Eqecat (an insurance appraiser), and Moody’s) all put the hit at around $50 billion, & economist David Rosenberg has forecast a negative 4th quarter GDP…but few realize how large the storm was; even before the storm came ashore at cape may, new jersey, truck traffic was banned from the ohio turnpike and storm warnings went up on lake michigan for 20 foot waves…& at it’s peak, the precipitation circulation around the storm extended from nova scotia to wisconsin and from hudson bay to south carolina (see picture)…of course, the question of whether climate change was responsible for this monster storm also came up, highlighted by the large black & red letters reading “It’s Global Warming, Stupid” on the cover of Bloomberg Businessweek, here’s what we know: sea surface temperatures in the area of the atlantic the storm transversed were some 5°F above the 30-year average, or “normal,” for late october, and with every degree of temperature, the atmosphere can hold 4% more moisture, so the storm was able to pick up more moisture & expand more than an average late october storm could…and instead of tracking into the north atlantic, as october storms normally do, Sandy was turned towards the coast by a blocking ridge of high pressure over greenland, something that occurs only 2% of the time in the fall; and as Dr Jeff Masters points out, that by contributing to a negative North Atlantic Oscillation, arctic sea ice loss can cause such blocking ridges to form…then the storm blew up to historical proportions when it joined with an arctic front created by an unusually sharp dip in the jet stream into the eastern US, that was also blocked by the same high pressure ridge…but whether storms like this become the norm or not, we do know that sea levels are rising, and will continue to rise, probably faster than expected, possibly by as much as 5 meters this century, for at least 50 years, irregardless of what we do about carbon emissions or anything else…so it might behoove us to start thinking like the Dutch, and put our unused human & construction capacity to use building the necessary seawalls, dikes, and levees to protect our major cities on the coasts

we did have a decent October jobs report, quite a bit better than anyone expected; the Bureau of Labor Statistics reported that seasonally adjusted nonfarm payroll employment increased by 171,000, while the unemployment rate ticked up a tenth of a percent to 7.9%, but that uptick was only because the labor force increased by 578,000, which indicates a number of those who had earlier given up looking for work reported they had started looking again…both ADP, a payroll processor who reports new private jobs, and Gallup, who runs their own survey paralleling the BLS household survey; confirmed the BLS data; ADP reported 158,000 non-government jobs were added in October, while Gallup reported their unadjusted unemployment rate fell from 7.9% in September to 7.0% in October, while their seasonally adjusted unemployment rate, meant to track the BLS figures, came in even better than the official stats at 7.4%…

the establishment survey, covering one-third of the businesses and agencies in the US, had even better news than the 171,000 new jobs headline, as new employment for August was revised from 142,000 to 192,000 jobs added, and the change for September was revised from the reported + 114,000 to a respectable gain of 148,000 jobs (you might recall that job gains in august was originally reported as 96,000; so the initial report was pretty close to the 100K margin of error)…major contributors to october’s jobs gains were 51,000 new jobs professional & business services, with selected gains of 13,000 in services to buildings and dwellings, and 7,000 in computer systems design; health care fields added 31,000 jobs, of which 25,000 were in ambulatory care, and there were a seasonally adjusted 36,000 new jobs in retail in October, of which 7300 were in auto parts sales (NB; on an unadjusted basis, retailers added 130,100 jobs in october, which is roughly the normal for the first month of pre-holiday seasonal retail jobs, and the actual, unadjusted job gain for october was 911,000)…other areas seeing job gains were hospitality & leisure and construction, while manufacturing, wholesale trade, finance & government employment saw little change, and “mining” lost 9,000 jobs…in October, the average workweek for all employees remained at 34.4 hours for the fourth consecutive month, while the manufacturing workweek was cut a tenth of an hour to 40.5 hours…the bad news was that the average hourly earnings for all employees fell by 1 cent to $23.58, likewise, the average hourly earnings of production and nonsupervisory employees also fell a penny to $19.79, for only the 5th decline in this series since the recession startedthe above chart from zero hedge shows the year over year change in hourly earnings since 1990, which at 1.1% arent even keeping up with inflation; it’s pretty clear that for line personnel, the annual earnings gains have never been lower…

Graph of Average (Mean) Duration of Unemployment

as previously noted, the volatile household survey showed an increase of 578,000 in the civilian labor force, which includes all those classified as employed or unemployed (those who’ve searched for work over the past month); the number employed rose by 410,000, but the number of unemployed also rose, by 170,000, which was enough to raise the ratio of unemployed to the labor force (aka the unemployment rate) to 7.9%…the similar ratio for black americans rose from 13.4% to 14.3%, while the unemployment rates for whites at 7.0%, hispanics at 10.0%, adult men at 7.3%, adult women at 7.2%, and teenagers at 23.7% showed little or no change…the two metrics we’ve been watching both improved as well; the labor force participation rate, which is the percentage of the population in the labor force, rose from 63.6% in september to 63.8% in october, and the employment-population ratio rose from 58.7% to 58.8%, after rising from 58.3% in august…the number of us involuntary employed part time (because their hours had been cut back or because they couldnt find full time work) fell by 269,000 to 8.344 million in October, which partially offset the disappointing increase of 582,000 forced part time workers in September…one piece of bad news was that the number unemployed more than 27 weeks rose from 4,844,000 to 5,002,000, which contributed to a rise in the average length of unemployment from 39.8 weeks to 40.2 weeks, shown in the chart above, and a significant rise in the median time of unemployment from 18.5 to 19.6 weeks

Click to View

this week also brought us the manufacturing report for October from the Institute for Supply Management; the headline PMI (purchasing managers index) was at 51.7% in October, up from 51.5% in September, which was the 3nd month of expansion (reading over 50) after the 3 slightly contractionary readings during the summer months; the new orders index also showed the second month of growth with a reading of 54.2%, up 1.9% from the 52.3% reading of september (NB: ISM says that the survey generated new orders Index above 52.3 percent is generally consistent with an increase in the Census Bureau’s new manufacturing orders); the production index moved into positive territory after 2 months of contraction, gaining 2.9 points to register 52.4%, while the employment index gave ground, registering 52.1%, a decrease of 2.6 percentage points from september’s reading; october sub-indexes that showed contraction were orders backlog at 41.5%, suppliers deliveries at 49.6%, exports, at 48.0%, and imports, at 47.5%…here’s the list of 8 industries that showed overall growth in october, copied from the report: Petroleum & Coal Products; Furniture & Related Products; Apparel, Leather & Allied Products; Paper Products; Miscellaneous Manufacturing; Food, Beverage & Tobacco Products; Plastics & Rubber Products; and Chemical Products; the 8 that showed contraction were Primary Metals; Wood Products; Machinery; Fabricated Metal Products; Transportation Equipment; Electrical Equipment, Appliances & Components; Computer & Electronic Products; and Nonmetallic Mineral Products…ISM offers similar listings of contraction or expansion by industry for each of the subindexes mentioned, which you can view by scrolling through the report; the above graph from doug short shows the ISM manufacturing PMI Composite since 1948; red dots represent the PMI the month before recessions (horizontal grey bars) started; his assessment is that the ISM manufacturing index shows insufficient correlation to recessions to be used as a forecasting tool…

we’ll just briefly touch on the october purchasing managers indexes for the major world economies…the manufacturing contraction contraction in europe deepened in October, with the Composite Markit Eurozone Manufacturing PMI (pdf) coming in at 45.4 in October, down from 46.1 in September and the 15th successive month of contraction for Europe as a whole…as the Dutch PMI slipped back into contraction, Ireland’s manufacturing sector was the only one left showing expansion, with a PMI of 52.1…rates of contraction accelerated in Germany, Italy, Spain, Austria and Greece, and although France’s PMI rose a bit from September, it remained mired among the lowest in Europe at 43.7…across the eurozone, output declined for the eighth month in a row during October, and at a faster rate than in the previous month, while production fell across all sectors, and new orders declined for the 17th successive month…in Asia, the HSBC China Manufacturing PMI (pdf) showed improvement but remained contractionary for the 12th consecutive month, reading 49.5 in October, up from 47.9 in September…that was an 8 month high, however, indicating the rate of deterioration was marginal…China’s official state manufacturing PMI was back above 50 in September, rising from 49.8 to 50.2, just barely ending the 2 months of state acknowledged contraction; meanwhile, the October Markit/JMMA Japan Manufacturing PMI (pdf) fell sharply to an 18 month low, with both employment and average output charges falling at the fastest pace since 2009, besting the economic damage resulting from Fukushima, and indicating that their dispute with China over islands in the south china sea is having serious deleterious effects on their economy…and apparently the weakness in Japan and Europe was more than enough to offset the stronger US & chinese numbers, as the JPMorgan Global Manufacturing PMI showed contraction for the 5th consecutive month

another important release this week was on Personal Income and Outlays for September from the BEA; personal income increased $48.1 billion, or 0.4%, and disposable personal income (DPI) increased $43.0 billion, which was also a 0.4% increase, while september personal consumption expenditures (PCE) increased more than twice that at $87.9 billion; for an 0.8% month over month gainaugust figures were revised to show a DPI gain of $15.1 billion, or 0.1%, while PCE increased $59.9 billion, or 0.5%…adjusted for inflation, real disposable income decreased fractionally, less than 0.1 percent, after a decrease of 0.3% in august; similarly adjusted, real PCE increased 0.4%, contrasted with an increase of 0.1% in august real PCE…and as we noted last week, it was rising personal consumption expenditures which made up the lions share of the increase in 3rd quarter GDP…most of the gains in september personal income came from increases in wages and salaries, which were up $19.5 billion, and increases in proprietors’ income, which was up $13.2 billion…while rental income increased $5.1 billion, income from dividends and interest decreased $5.7 billion… seasonally adjusted september spending on durable goods was up $18.0 billion, or 1.3%, to $1,381.4 billion, while PCE on nondurable goods was up $10.3 billion, or 0.5%, to $2,114.1 billion; meanwhile spending on services was up just 0.2%, increasing $13.9 billion to $6,196.7 billion (see table 7)…however, with personal consumption expenditures exceeding disposable income for the 2nd month in a row, the savings rate, which is disposable income less personal outlays, fell to 3.3%, on savings of $395 billion in september, from 3.7%, on $445.1 billion, in august, the lowest in a year and approaching the low saving levels of 2007, as you can see in the adjacent chart from zero hedge…this report also generates the PCE price index, which is the Fed’s preferred inflation gauge; the price index for PCE increased 0.4 percent in September, which was the same increase it had in August; the core PCE price index, which excludes food and energy, increased 0.1 percent in September, also the same increase as in Augustdoug short computes the year over year rate of inflation for both of these indexes to two decimal places; for septeber, the headline PCE price index was 1.71% higher than a year ago, in contrast with august’s 1.48% YoY reading, and the core PCE index of 1.67% increased YoY from the previous month’s 1.58%…the Dallas Fed’s trimmed mean PCE inflation rate, (which “trims” the most volatile prices) was at  an annualized 1.9 percent for September, up from a revised 1.7% YoY in August…

this week also brought the release of the Case-Shiller home prices indexes, which showed average home prices increased by 0.9% for both the 10- and 20-City Composites in their 3 month August report over their July readings; year over year, case-shiller shows home prices have increased 2.0%; Bill McBride has more details and charts on this report in his weekly summary, as well as other reports not covered here, such as the downturn in october auto sales already attributed to Sandy effects, and links to his 3 posts on the unemployment report, which have nearly a dozen charts to go with those…

(the above is my weekly commentary that accompanied my sunday morning links emailing, 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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