obamacare unraveling, June’s jobs and ISM reports, May’s trade deficit and factory orders

in a move that surprised even White House insiders, the administration announced on Tuesday that they would delay until 2015 implementation of a key part of Obamacare known as the employer mandate; this is the requirement of the law that companies with 50 or more full-time employees (defined in the law as those working 30 or more hours a week) provide affordable coverage for their workers or face fines of $2000 or more per employee…seen by the left as a capitulation to business interests and on the right as a cynical ploy to postpone a difficult program until after the 2014 midterm elections, this mandate has often been blamed for reluctance of businesses to hire and for providing an incentive for even major employers such as Walmart to replace full time employees with part time workers…recognizing that the employer mandate provides such perverse incentives has led even establishment liberal Ezra Klein at the WaPo to call for its repeal…other major parts of obamacare are faltering as well; with the Supreme court overturning the mandatory Medicaid expansion, less than half of the states have agreed to expand access to Medicaid to include those below 133% of the official poverty level, and several states are struggling to set up even a bare bones health care exchange by the October 1st deadline…

  this all occurred while obama & his wife were travelling in Africa, where he announced his Power Africa initiative, wherein he pledged $7 billion from the Export-Import Bank and other agencies to help countries around the continent upgrade their grids to provide access to electricity for their citizens, a program expected to be worth billions to GE…meanwhile the Senate passed an immigration reform bill that would provide an eventual path to citizenship to some of the estimated 11 million immigrants now living in the country and provide the border patrol with six airborne radar systems @ $9.3 million each, 15 Black Hawk helicopters @ more than $17 million apiece, and eight light enforcement helicopters @ $3 million each and 17 UH-1N helicopters from Bell, an enticement for Senators representing defense manufactures who’ve been seen cuts from sequestered programs…however, one thing Congress didnt manage to do before they left town for their holiday recess was pass a student loan fix; without their action, interest rates on subsidized loans from the federal government jumped from 3.4% to 6.8% as of July 1st

on its face, the headline increase of a seasonally adjusted 195,000 new jobs reported by the Bureau of Labor Statistics in its June Employment Situation Summary was a respectable monthly increase and better than expected, and with the revisions of April’s payroll jobs from 149,000 to 199,000 and May’s from 175,000 to 195,000, this report represents 265,000 net new jobs compared to last month’s report, adding up to give us the best first half of private job creation since the Clinton administration…however, as we’ll see, the jobs that have been added for the most part aren’t the types that would typically support a decent middle class lifestyle, and almost twice as many new workers were only part time, strongly suggesting that full time jobs had actually declined in June…

  FRED Graphconsidering the large revisions, we’d do well to start our look at the establishment survey with a reminder that the 90% confidence interval for this survey is on the order of +/- 90,000 jobs, and that the average change from the initial estimate to the 3rd review has been averaging 46,000, so none of the numbers in this report are cast in concrete…of the seasonally adjusted net new jobs created in June, all but 8,000 were in service providing industries, with more than half in leisure and hospitality and retail; of the 75,000 new jobs in leisure and hospitality, 51,700 were in restaurants and bars, and 18,900 were in amusements, gambling and similar recreation…the 37,100 jobs in retail trades  were widespread across the sector, with 8,500 in building material supply stores, 8,300 in car and parts dealers, 8,100 in sporting goods, book & music stores, and 7,300 in food and beverage stores…an additional 53,000 net new jobs were added in professional & business services, of which 18,500 were in employment services, 10,800 were in services to buildings, and 9,500 were temporary help…there were also 23,500 new jobs in health care and social assistance, 12,600 of which were in ambulatory care, while there were 10,600 less jobs in education…wholesale trade added 11,300 jobs, while there were 5,100 fewer transportation and warehousing jobs…meanwhile, financial services, which includes real estate, added 7,000 jobs, while governments shed 7,000 employees and 5,000 jobs were lost in information industries…in addition, 13,000 jobs were added in construction and 6,000 were lost in manufacturing

our FRED bar graph above shows the net change in payroll jobs monthly since the beginning of 2008; the FRED bar graph below shows monthly job gains in selected sectors since the beginning of 2012 (click either to enlarge); the change in manufacturing employment in shown in blue below; the change in construction employment is shown in red, the change in retail employment is indicated by the green bars, while the change in government payrolls in shown in yellow…jobs in the education and health services establishment survey sector are indicated by purple; and as we’ve seen monthly, most of those have been in ambulatory care and nursing homes; lastly, in bright blue we have new jobs created monthly in hospitality and leisure, and, to get a sense of how many of those are waitress and bartender jobs, which just hit a new all time high of 10,339,800 workers,.we’ve added a bright green bar showing those numbers from the household survey data…these aren’t directly comparable monthly to the other graphed metrics, but should approximately equal the establishment data over time…at any rate, it’s fairly clear that many of the new jobs over the past three months are in that category, a thought you should keep in mind when we check the increase in part time jobs in the household survey…

FRED Graph

the establishment survey also provides seasonally adjusted data on average weekly hours by industry sector and average hourly and weekly earnings by industry sector...in aggregate, the average workweek for all private payroll employees was at 34.5 hours in June, the same as April and May; the average workweek for nonsupervisory employees was also unchanged at 33.7 hours…meanwhile, the manufacturing workweek increased by 0.1 hour to 40.9 hours, and overtime was unchanged at 3.3 hours..the average hourly earnings on all private nonfarm payrolls rose by 10 cents to $24.01, the best jump this year…for production and nonsupervisory employees, the average hourly increase was 5 cents to $20.14….

  the household survey, data for which is extrapolated from a survey of just 60,000 households, has a large margin of error; the 90% confidence interval for the monthly change in unemployment is roughly +/- 300,000, and for the monthly change in the unemployment rate it’s about +/- 0.2 percentage points…this means that when BLS reports that the unemployment rate for June was 7.6%, it means that there’s a one in ten chance that it’s actually either less than 7.4% or greater than 7.8%; obviously, that’s not something you want to base your monetary policy on

  FRED Graphwith that understanding as our caveat, the June household survey showed that those of us employed increased by 160,000 to 144,058,000 and those of us counted as unemployed rose by 17,000 to 11,777,000, resulting in a 177,000 increase in the civilian labor force; since the working age noninstitutional population rose by 189,000 to 245,552,000 by BLS reckoning, that leaves 12,000 more of us not in the labor force in June…both of the metrics from this survey we consider to be definitive ticked up by 0.1%; the labor force participation rate, shown in red on our FRED graph, rose from 63.4% to 63.5% while the employment to population ratio, shown in blue, rose from 58.6% to 58.7%

among major demographic groupings, BLS notes that the unemployment rate for adult women rose 0.3% to 6.8% in June, and all other groupings were statistically “little changed” (recall that margin of error); we’ll note that the jobless rate for adult men is indicated 0.2% lower than May at 7.0%, the unemployment rate for blacks is shown 0.2% lower at 13.7%, while the jobless rate for teenagers fell from 24.5% to 24.0%…the number of those counted as unemployed for more than half a year was at 4,328,000, 29,000 less than in May; that’s down from 5,336,000 a year ago, but there is no way to tell how many got jobs and how many just quit looking and hence are no longer counted…the roughly 3.8 million of them who are still eligible for federal emergency stipends will have their rations cut by an average of $43 to $246 as a result of the sequester…

the number who were working part time in June who wanted full time work increased by a seasonally adjusted 322,000 to 8,226,000; that resulted in a jump in the broad U-6 unemployment rate in from 13.8% in April to 14.3% in June…it’s known that several restaurant chains are cutting worker’s hours to below 30 to avoid the obamacare employer mandate, so it’s possible that some of that kind of manipulation accounts for both the big jump in involuntary part time workers and the large increase in waitress type jobs we saw in the establishment survey…in addition, 110,000 more than May reported that they had taken part time work voluntarily, bringing their total to 19,044,000 and hence the total number of part time jobs in the economy to 27,270,000, an all time high…note that the establishment survey does not distinguish between full and part time job creation, and that an individual who hold two part time jobs is only counted as employed once in the household survey, so there will always be a mismatch in job counts between the surveys…the household survey notes 6,990,000 multiple jobholders, which is now 4.8% of all those employed…

  among those of us who aren’t in the labor force, and hence not counted as unemployed, 7,152,000 reported they still wanted a job; 2,582,000 of those are considered “marginally attached to the labor force” because they’ve looked for work during the last 12 months, but not during the 30 day window referenced by the June household survey…of those, 1,027,000 are considered “discouraged workers” because they reported that they’re not looking for work because they believe there are no jobs available for them….the number of these so-called discouraged workers rose by 206,000 from the 821,000 in that category a year ago..

  other than the employment situation, the key economic release of the past week was on our International Trade in Goods and Services for May (pdf) from the Census bureau, which showed that our trade deficit grew by 12.1% as our exports slumped and our imports jumped from the levels of April…seasonally adjusted May exports of $187.1 billion, $0.5 billion less than revised April exports of $187.6 billion, combined with May imports of $232.1 billion, $4.4 billion more than April imports of $227.7 billion, resulted in a May goods and services deficit of $45.0 billion, up from $40.1 billion in April…our seasonally adjusted trade deficit in goods increased by $5.0 billion as exports of goods decreased $0.9 billion to $130.3 billion and imports of goods increased $4.2 billion to $193.7 billion, while our trade surplus in services increased by $0.2 billion as exports of services increased by $0.4 billion to $56.8 billion, and imports of services increased $0.2 billion to $38.4 billion…on an unadjusted basis, our goods deficit was at $64,887 billion in May, a bit more than the $63,400 billion seasonally adjusted amount…

the change in imports of goods from April to May reflected increases of imports in all end use categories…imports of industrial supplies and materials rose $1.05 billion to $57.184 billion on a $713 million increase of crude oil and $682 million of other petroleum products, while imports of natural gas fell $250 million; this despite the fact that oil prices averaged $96.84 in May, down from $97.82 in April, and down from $108.06 a year ago; imports of consumer goods rose $1.03 billion on a $1,890 jump in cell phone imports, while imports of pharmaceuticals fell $967 million and TV & video equipment imports fell $181 million; automotive vehicles, parts, and engines accounted for another $788 million increase in imports, while imports of foods, feeds and beverages rose $370 million to $9.919 billion on increases of $178 million of fish and shellfish, $111 million in fresh fruits and juices, and $98 million of green coffee beans, while imports of meat products fell $111 million…in addition, imports of capital goods rose $347 million to $45.694 billion on $269 million more computer accessories, $211 million more in imported civilian aircraft, and a $198 million increase in imported semiconductors, offset by declining imports of $225 million of telecommunications equipment and $261 million less in civilian aircraft engines…in addition, imports of other goods not included in an end use category rose $0.5 billion.

FRED Graph

changes in exports of goods from April to May included a $1.2 billion decrease in exports of consumer goods to $13.06 billion, led by a $757 million decrease in exports of jewelry and a $512 million decrease in exports of gem diamonds, partially offset by a $97 million increase in exports of pharmaceuticals; a $0.9 billion decrease in exports of industrial supplies and materials, led by a $1,130 million decrease in exports of non-monetary gold and a $229 million decrease in exports of organic chemicals, partially offset by a $439 increase in exports of fuel oil, and a $0.1 billion decrease in exports of and foods, feeds, and beverages, including $72 million less wheat exports, $66 million less oil & oilseeds exports, and a $65 million decrease in exports of soybeans, which was partially offset by a $69 million increase in exports of dairy products and eggs…end use categories that saw exports increase included an $0.8 billion in capital goods exports, where exports of civilian aircraft rose $1,365 million to $5,115 million and exports of telecommunication equipment fell $373 million to $3,160 million, and exports of autos engines and parts rose $320 million to $13.06 billion…in addition, exports of other goods not otherwise categorized rose $172 million to $5.015 billion…

  our trade with China accounted for $27.9 billion of the unadjusted $64.9 billion May deficit in goods, up from $24.1 billion in April; other major bilateral trade deficits on an unadjusted basis in May include a $10.8 billion deficit with the European Union, a $6.3  billion deficit with OPEC, $5.8 billion with Germany, $5.4 billion with Japan, $5.3  billion with Mexico, $2.7 billion with Saudi Arabia, $2.5 billion with South Korea, $2.3 billion with India, $2.3 billion with Ireland, $1.9  billion with Canada, and $1.5 billion with Venezuela…small bilateral trade surpluses were recorded with Hong Kong at $3.0 billion, Australia at $1.4 billion, Singapore at $1.2 billion, and Brazil at $0.9 billion…

our FRED graph above shows the monthly changes, positive or negative, in exports in blue, and the monthly change in imports in red…you should remember from our GDP coverage that an increase in exports adds to the GDP change, and a decrease in exports subtracts from it, while an increase in imports subtracts from GDP, while a decrease in exports adds to it…this 12.1% increase in our May trade deficit, on the heals of a 8.5% wider trade shortfall in April, this virtually assures negative impact from net trade on 2nd quarter GDP…indeed, forecasters are already writing that in; after this report, Goldman Sachs cut its estimate for second quarter GDP growth by 0.2% to 1.6%, while Barclays was even more bearish, cutting their 2nd quarter estimate from 1.6% to 1.0%

both of the widely followed Purchasing Manager’s Indexes (PMIs) were released by the the Institute for Supply Management (ISM) this week; understand that as diffusion indexes, neither track hard data, but merely the present situation in a number of industries as derived from a survey of purchasing managers in those industries; the individual indexes are based on questionnaires sent to these execs on the current conditions in their industry; each response of “better” out of a each hundred queries adds one to the index; each response of “the same” adds a half point, and responses of “worse” are not counted; hence any reading over 50 indicates a majority of those polled reported that conditions in their industry are improving…the composite indexes are, in turn, a seasonally adjusted average of several indexes in different aspects of the given business…no weighting is given for the different sizes of businesses polled, or whether conditions are a whole lot better, just marginally so, or a whole lot worse…nonetheless, these indexes are a widely watched indicator of business conditions, and even those who dismiss them stil report on them monthly

  released on July 1st, the June Manufacturing ISM Report indicated slight expansion (over 50) in June, after reporting the worst contraction since 2009 in May; the manufacturing PMI, which is composite index based on equal weights of the new orders, production, employment, suppliers deliveries, and inventories indexes, registered 50.9 in June, up from 49.0 in May; the new orders index increased by 3.1% to 51.9%; the production index rose 4.8 points to 53.4%, but the employment index indicated contraction in manufacturing employment for the fist time since september 2009…among other indexes included in the PMI, inventories improved from a shrinking reading at 49.0% in May to a slowly growing reading at 50.5% suppliers’ deliveries moved from faster at 48.7% to unchanged at 50.0% in June; apparently fast deliveries are indicative of not much work…other indexes not part of the composite showing faster growth include exports, up 3.5 to 54.5%, and imports, up 1.5% to 56.0%, meanwhile the prices index went from 49.5 in May to 52.5 in June, meaning more prices are now increasing than decreasing…two indexes that remain contractionary are the order backlog, which declined from 48.0 to 46.6, and customers inventories, which shrunk from 46.0% in May to 45.0% in June…

  although this report covers 18 manufacturing industries, the ISM does not break out the PMIs for specific industries; rather, they just list those that are expanding in order from growing fastest to barely growing; those that are seeing the greatest expansion in new orders include apparel and leather goods, paper, and furniture manufacturers; those that are seeing the most expansion in production are again apparel and leather goods, electrical equipment and appliances, and furniture; those that are seeing the greatest increase in hiring include wood products, furniture manufactures and paper products producers, while those that are seeing the greatest slowing of supplier’s deliveries are oil & coal products, furniture, and fabricated metal products…just four manufacturing industries are reporting overall slowing: textile mills; transportation equipment; chemical products; and computers & electronics….

FRED Graph

released two days later than the manufacturing report, the June Non-Manufacturing ISM Report showed the slowest growth since February 2010, with the composite non-manufacturing index (MNI) down 1.5 points from May’s 53.7% at 52.2%; forecasts were for a reading of 54.4%…of the four equally weighted diffusion indexes that make up the NMI composite, the business activity index fell 4.8 percentage points from 56.5% to 51.7%, and the new orders index fell 5.2 from 56.0% to 50.8%, the lowest reading for new orders since July 2009..the employment index, important in that the service sector now accounts for 5 out of every 6 private sector jobs, rose 4.6 points, from 50.1% in May to 54.7% in June, indicating that at least hiring is picking up…finally, the suppliers deliveries index fell slightly, from 52.0% to 51.5%, indicating that deliveries were slightly less slow in June…

  readings for the other indexes that don’t contribute to the composite include the inventory index, which rose from 51.5% to 54.5%, indicating expanding inventories, an index for inventory sentiment, which was said to be too high in May at 62.5% and slipped a bit to 61.5% in June, and an index for prices, which improved to 52.5% from 51.1%, as prices rose even more…the backlog of orders increased, from 51.5% to 52.0%, but the new exports index slipped into contraction at 47.5% from the stagnant 50.0% in May, while the import index reverse it’s May contraction, rising 4.0 points from 49.5% to show expansion in June at 53.5%..

of the 14 service industries showing growth in June, those with the greatest growth were, in order, management and support services, transportation and warehousing, wholesale trade, retail and information…the four service sectors indicating contraction were mining, educational services, health care and assistance, and other services…our FRED graph above shows the history of the NMI since it’s inception in January of 2008 in blue, and the track of the older manufacturing PMI since 2000 in red, with recessions marked by grey vertical bars; we’ve also included in light grey the track of the older ISM non-manufacturing Business Activity Index, which is now incorporated into the NMI, as a indicator of the historical track of the service industries before the creation of the composite NMI…

as an alternative to the soft readings from the ISM manufacturing survey, we can find the hard data for the manufacturing sector in the Full Report on Manufacturers’ Shipments, Inventories and Orders for May (pdf), barely covered because it’s released a week after the Advance Report on Durable Goods (pdf), which is a first estimate covering just the durable goods orders, shipments and inventories; the full report, based on more complete data, often revises the durable goods orders slightly, but these revisions are rarely mentioned…census admits to the probability of a sampling error, as the overall survey represents roughly 60 percent of the estimate, with a bias to including large companies with $500 million or more in annual shipments in lieu of smaller ones, but doesn’t quantify it… since most analysts are interested in the most forward looking data, this report is usually watched for the change in new factory orders..

FRED Graph

  seasonally adjusted new orders for manufactured goods, or in common parlance, “new factory orders” rose by $9.9 billion to $485.0 billion in May, 2.2% above April’s orders level; but still below the record $492.0 billion in new orders set in February…April had registered a 1.3% increase, following a 4.7% fall in orders in March; unadjusted data shows new orders at $499.4 billion, up from $473.98 billion in April…new orders for durable goods increased $8.2 billion or 3.7 percent to $231.2 billion, a change which was revised from the 3.6% increase in new orders for durable goods reported the week before last…new orders for nondurable goods increased $1.8 billion or 0.7% to $253.8 billion….since volatile monthly orders for for big ticket aircraft often cause large swings in the aggregate totals, new orders are often quoted ex-transports; on this basis, new factory orders were up 0.6% in May

  new orders for transportation equipment, which have driven the headline gains in 3 of the last 4 months, increased $7.3 billion or 10.9% to $74.5 billion; that in turn was largely driven by a $6.3 billion jump in orders for non-defense aircraft at $18,613 in May, a line item which usually reflects Boeing’s orders….orders for ships and boats also rose, but orders for motor vehicles fell by $401 million despite the highest June car sales since November 2007 as the big three all reported full-size pickup truck sales of greater than 20 percent…other than transportation, there were also increases in new orders for machinery, computer and electronic products, appliances and components, and primary metals…orders for non-defense capital goods excluding aircraft, also known as core capital goods, increased 1.5%, revising the 1.1% increase reported in the durable goods report last week; included in “equipment and software: in national accounts, these core capital goods are direct contributions to the investment component of GDP…our FRED graph for this report above covers the current series since 2000; it shows total factory orders in green, orders for durable goods in red, and new orders for non-defense capital goods excluding aircraft, or so called core capital goods, in blue…factory orders are not adjusted for price inflation..

(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…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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