November employment reports and the 3rd quarter GDP revision

we got hit with a bunch of important economic reports this week, most of which were released over the last few days…as is usually the case in the first business day of the month, Monday saw the release of the ISM manufacturing survey for November, which saw the PMI increase by 0.9% to 57.3%, a strong expansionary reading and the highest this year; also on Monday, the Census Bureau released the rescheduled construction spending for October, which was estimated at a seasonally adjusted annual rate of $908.4 billion, 0.8 percent (±1.8%) above September, a gain which was driven by a 3.9% increase in public construction as private construction slipped 0.5%…then on Wednesday, we had the release of the November ISM non-manufacturing survey, which saw the non-manufacturing index slip 1.5% to 53.9%, indicating slower grow in the service sector, the October report on our international trade in goods and services, which saw our trade deficit in goods and services decrease to $40.6 billion from $43.0 billion in September as October exports rose faster than imports, the November National Employment Report from payroll processor ADP, which indicated private sector jobs increased by 215,000; and the rescheduled reports on new home sales for September and October, which showed October new homes sales increased by 25.4 percent (±19.2%) above the one year low September annual rate of 354,000, revised after new home sales for June, July, and August were all revised down by a total of nearly 15% while the median new home sales price fell to a one year low of $245,800, down from the earlier high of $279,300…then on Thursday, we saw the revision of 3rd quarter GDP to a 3.6% annual growth rate from the 2.8% rate indicated by the advance estimate we reported 4 weeks ago, and the full report on manufacturer’s shipments, inventories and orders for October, which adds nondurable manufactures to and revises the durable goods report we covered last week and which saw new orders for manufactured goods, which have decreased three of the last four months, decrease $4.4 billion or 0.9% in October to $486.9 billion, calling into question the overly optimistic ISM survey earlier in the week…finally, on Friday we saw the Employment Situation Summary for November from the Bureau of Labor Statistics (BLS), which is composed of two surveys of employment, one solicited from employers and the other conducted as a telephone poll of households…with the jobs report dominating the blogs and news cycle, two other important reports on Friday received little coverage: Personal Income and Outlays report for October from the BEA, which indicated that personal income decreased by 0.1%, disposable personal income decreased by 0.2%, while personal consumption expenditures increased 0.3% and the G-19 Release on October Consumer Credit from the Fed, which helped explain how October spending increased in the face of falling incomes, ie, credit card debt hit a 3 year high as consumers increased their aggregate borrowing by $18.2 billion  …we’ll start our coverage by looking at the two jobs reports…

203,000 Jobs Added Across Most Sectors in November

data from the establishment survey, aka the Current Employment Statistics (CES), the monthly BLS survey of roughly 26% of all businesses and government agencies nationwide, indicated that payroll employment increased by a seasonally adjusted 203,000 jobs in November, a bit better than the average of 195,000 jobs per month this survey has indicated over the past year…October’s jobs gain was revised down by 4,000 to 200,000, while the September figure was revised up by 12,000 to 175,000 for a net gain of another 8,000 payroll jobs…these changes are all included on our FRED bar graph below, which shows the monthly number of payroll jobs gained above the ‘0’ line and job losses below the line since the beginning of 2008…the unadjusted data that this report is created from indicates that an additional 421,000 payroll jobs were added in the November for a total of 137,942,000 non-farm payroll jobs; the seasonal adjustment for November lowered totals on jobs such as retail sales that normally increase with the shopping season and raises totals on jobs such as construction which typically decrease seasonally at this time of year…thus, though there were an additional 471,000 retail hires for the holidays, the seasonal adjustment writes that down to an increase of 22,300 retail jobs, ie, that many more than would normally be added at this time of year…

FRED Graph

the seasonally adjusted job gains in November were by and large in employment sectors other than the retail and fast food sectors that have dominated recent reports; 30,500 jobs were added in transportation and warehousing industries, including 8,600 couriers and messengers, 8,400 truckers, and 4,600 in warehousing and storage; again, these are over and above the seasonal increases in these areas, as the unadjusted data shows an increase of 53,200 couriers and messengers for the month…another sector showing greater than normal job creation was health care and social assistance, where 29,600 payroll jobs were added, 26,300 of which were in ambulatory care services with 11,800 of those serving patients in their homes…manufacturing job growth at 27,000 was also strong, with 17,000 additional payroll jobs in durable goods manufacturing, of which 6,700 were in motor vehicles, while the 10,000 increase in non-durable manufacturing jobs was predominately in food manufacturing with 7,800 additional hires…the large professional and business services sector, which had been averaging 55,000 new jobs a month, also added 35,000 jobs, with an increase of 16,400 in temporary help services and another 5,500 in accounting and bookkeeping, and of the previously mentioned 22,300 jobs in retail, 13,800 were added by general merchandise stores and 11,700 were added by sporting goods, hobby, book, and music stores, while grocers cut 5,400…in addition, 17,000 jobs were added in the leisure and hospitality sector, with the addition of 17,900 jobs in bars and food service, and 17,000 jobs were added in construction, of which 12,500 were with specialty trade contractors…government employment was up by 7,000, with 8,000 additional at the state level and 6,000 for local governments offset by 7,000 job cuts at the federal level…meanwhile, payroll employment in other sectors, including resource exploitation, wholesale trade, information, and financial activities, showed little or no change…

our FRED bar graph below shows the monthly change in payroll employment in selected sectors since the beginning of 2012; in each monthly grouping of 8 bars, the monthly change in manufacturing employment for that month is indicated in blue, the change in monthly construction employment is in red, the monthly change in retail employment is in dark green, the monthly change in government jobs is in yellow, and the change in employment in professional and business services, which includes everything from accounting to janitorial, is in grey; also included are the CES employment subcategories of jobs in bars and restaurants in light green, and new health care jobs in orange, with non government jobs in education shown in violet…note that jobs added are above the 0 line, with job reductions below it, and that November on the far right is notable in that modest job gains occurred in every sector… (click to enlarge)

FRED Graph

there were also gains in pay and hours worked per week in November; the average workweek for all payroll employees inched up a tenth of a hour to 34.5 hours from 34.4 hours in October and November a year ago, with construction workers and those in resource extraction gaining 0.3 hours to 39.1 hours and 44.5 hours respectively….the manufacturing workweek also increased 0.1 hour to 41.0 hours, and factory overtime at 3.5 hours was up 0.1 hours as well…the average workweek for production and nonsupervisory employees was at 33.6 hours, reversing October’s 0.1 hour loss…the average hourly pay for all workers was up 4 cents to $24.15, with utilities workers seeing an 8 cent an hour gain to $35.18 an hour, the highest average pay for any sector, while the lowest paid workers in leisure and hospitality lost 3 cents and hour to average $13.51 / hour…meanwhile, average pay for nonsupervisory workers was up 3 cents to $20.31, with utility linemen again making the most at $32.43 an hour and pay for leisure and hospitality workers again shrinking 5 cents to $11.80 an hour…

Unemployment Falls to 7% as Labor Force Participation Remains Near Record Low

the results from the November household survey, also known as the Current Population Survey (CPS), are difficult to interpret on the basis of a few factors; first, on month to month comparisons, all comparisons to October are relative to the data that was affected by the government shutdown that month, which you’ll recall left some 448,000 government employees classified as “unemployed on temporary layoff” and in the confusion may have even had some of them classified as out of the labor force; so some of the November increase in employment here just reflects their return to work; in addition, due to the tight schedule resulting from the Thanksgiving holiday, the household survey’s reference period was changed to the week including November 5th, not the week of the 12th as all other surveys normally based on…hence, the October survey was conducted late in that month because of the shutdown, while the November survey was a week early based on the holiday rescheduling…although Census, which conducts the survey for the BLS, likely attempts to control for the variability thus introduced, this just raises another question about the reliability of data which already has a margin of error of +/- 300,000 in the monthly change in the number unemployed, and +/- 0.2% in the unemployment rate…so we’ll try to include the two month change where it’s appropriate to get something closer to an apples to apples comparison…

FRED Graph

according to the seasonally adjusted household survey, 144,386,000 of us were employed in November, which was an increase of 818,000 from October but just 83,000 more than September; in addition, 10,907,000 of us were classified as unemployed, a reduction of 365,000 from those so classified in October and still a reduction of 348,000 in the unemployed count from September; meanwhile, those unemployed considered ‘not in the labor force’ and hence not counted when the unemployment rate is figured fell 268,000 in November to 91,273,000, which was nonetheless still 673,000 higher than those “not in the labor force” in September; hence, with 673,000 less of us not counted, the unemployment rate, or the percentage of us still remaining in the labor force who were classified as unemployed, fell to 7.0% in November… with the partial recovery of those in the labor force in November, the labor force participation rate rose from it’s record low of 62.8% in October to a 63.0% reading in November; this uptick can be seen in red on our FRED graph above…and with the major increase in employment from October to November, the employment to population ratio, shown in blue, rebounded from 58.3% in October to 58.6% in November, statistically the same as September…in a bit of a reality check on the BLS, we’d note that Gallup’s household survey indicated that the Payroll to Population employment rate was unchanged at 43.7% in November, while their seasonally adjusted unemployment rate rose from 7.7% in October to 8.6% in November….

the seasonally adjusted number of us working part time in November rose by 174,000 to 27,452,000; however, the number who reported that they were working part time who indicated they wanted full time work fell 331,000 to 7,719,000; hence, when combined with the decrease in the unemployed count, the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, fell from 13.8% to 13.2% in November, a post recession low…there was, however, a jump in the percentage of those unemployed 27 weeks or longer; in October, 36.1% of the unemployed fell into that long term unemployed category; by November, it had risen to 37.3%…this is critical because the extended unemployment rations that were renewed as part of the fiscal cliff deal will be expiring at the end of December, and there is little sign that the republican controlled House would go along with another extension….should they expire, 1.3 million of us will have our rations cut off immediately, and another 800,000 will lose these stipends as their unemployment tier comes up between January and March..the FRED graph below puts this group of long term unemployed in historical perspective; it’s quite obvious that never before have so many been unemployed for so long…

Graph of Of Total Unemployed, Percent Unemployed 27 Weeks and Over

Unadjusted Data from November Jobs Reports Continues to Diverge

finally, we want to look at the raw unadjusted employment numbers from these two surveys once again, since last week we noted there was a divergence of nearly 3 million in the unadjusted numbers of employment between the two surveys over the preceding three month period…as we showed at the time, the unadjusted payroll job count from the establishment survey had increased by 1,963,000 over the August to October span, while the count of the employed as reported by the household survey had decreased by 967,000, only to have them brought into approximate alignment by completely different seasonal adjustments applied to each….in November, an additional 421,000 payroll jobs were reported by establishments participating in the CES, which again, for the 4th month running, was cut down by the seasonal adjustments; so we now have seen an actual 2,384,000 increase in payroll jobs over the past four months, despite the seasonal adjustments which put the four month job creation total at 816,000…in the November household survey, individuals reported an actual, unadjusted increase of 631,000 in the number who said they were employed…that was ultimately reported as an increase of 818,000 in the number employed…so unbelievably once again, the seasonal adjustment added employed to the household survey after subtracting jobs from the establishment survey…we’ll include our historical FRED graph of the unadjusted jobs data from the two surveys below…what we want to look at is the track over the last 4 months, which shows that payroll jobs in red have increased by 2,384,000 over 4 months to 137,942,000 in November, while the actual count of employed as reported by the household survey before adjustments has decreased by 363,000 to 144,775,000 over the same 4 months…note that we expect the household survey count to be higher, because it includes farm workers and self employed who not part of the payrolls report; the point is that the two surveys have been moving in different directions significantly over 4 months…ie, notice that the blue graph of the employed, which had been relatively hundreds of thousands above the red graph for most of the last five years, has now dipped below the red payrolls graph, which is spiking…sooner or later they must converge; one or both must return to trend…
FRED Graph

3rd Quarter GDP Growth Rate Revised to 3.6% on Massive Inventory Accumulation

as we mentioned in opening, the 3rd quarter GDP was revised from the 2.8% growth rate reported 4 weeks ago to show growth in the 3rd quarter at a 3.6% annual rate, as nominal GDP rose from a seasonally adjusted and annualized $16,661.0 billion in the 2nd quarter to an annualized $16,890.8 billion in the third…as we had discussed previously, several analysts had anticipated an upward revision to 3rd quarter GDP based on higher inventories which were not reported until after the “advance” estimate was released, but no one saw an increase of this magnitude coming….the caveat is that most of the increase, and in fact nearly half of the growth in 3rd quarter GDP, could be attributed to an increase in inventories, which we can think of as that part of the gross national product which has not yet been sold or used in production, which is still sitting on a store shelf or on a skid in a warehouse somewhere, and that eventually those inventories will either have to move or new production will cease….indeed, real final sales of domestic product only rose at a 1.9% rate in the 3rd quarter, compared to the increase of 2.1% in real final sales in the second quarter…note that while 3rd quarter GDP, adjusted for inflation using chained 2009 dollars is the basis of the percentages in this report, we’ll use current dollars in any amounts in our coverage…also note that the BEA has provided pdf supplements showing itemized percentage changes from the second to third quarter and itemized contributions to the percentage change in real GDP which are more accessible than the Full Release and Tables pdfthe small insert below is from Ed Dolan and it summaries how each of the components contributed to GDP in last month’s advance estimate on the left, and on the right, how they add up to the current estimate…

real personal consumption expenditures (PCE), which at an annualized $11,522.8 billion in current dollars accounted for over 68.2% of GDP, was originally reported to have grown at a 1.5% annual rate between the second quarter to the third; that has been revised slightly lower to a 1.4% growth rate, with the change in consumer spending marked down a bit in every category; outlays for durable goods, originally reported to have grown at a 4.3% rate, are now revised to a 4.1% increase; spending for nondurable goods, originally seen as having grown at 2.7% rate, was revised to 2.4%, while spending for services, seen as growing at a 0.1% rate last month, is now revised to show a statistically insignificant contraction…on net, this lowered the contribution from PCE to GDP from an originally reported 1.04% to just 0.96%, the lowest personal consumption contribution to GDP since the third quarter of 2009

gross private investment, when annualized as all GDP data is, accounted for $2,732.6 billion of 3rd quarter GDP in current dollars and grew at a 16.7% annual rate, compared to the original guestimate of a 9.2% rate; again, most of that annualized increase in gross investment was due to the annualized jump of $146.0 billion in private inventories, so while investment is now seen as adding 2.49% to third quarter GDP rather than the 1.45% reported last month, most of that is the result of the revision of inventory’s contributions from .83% to 1.68%…meanwhile, fixed private investment grew at a 5.4% rate, a slightly stronger pace than the 4.1% rate estimated last month; which increased the contribution from fixed investment from .63% to .81%…the improvement there was from the non-residential components, as investments in non-residential structures grew at a 13.8% rate over the quarter, a bit better than the 12.3% rate earlier reported and hence added 0.36% to the GDP figure, while investment in equipment, reported last month as having decreased at a 3.7% rate, was actually statistically unchanged from the 2nd quarter…meanwhile, growth in intellectual property  at 1.7% was slightly less than the 2.2% indicated by the advance report and added 0.07%…in addition, the growth in investment in residential property was also less than the 14.6% reported at 13.0%, and hence its contribution to 3rd quarter growth was written down from .43% to .38%…

meanwhile, net exports (exports minus imports) subtracted $501.9 billion from third quarter GDP, as it always subtracts as long as we’re running a trade deficit…but in computing the GDP change from the second quarter, the BEA tells us that inflation adjusted exports were up $18.3 billion, or 3.7%, while adjusted imports were down $15.9 billion or 2.7%; exports were originally reported as up 4.5% for the quarter, while imports were originally said to be up 1.9%, so in this second estimate both made the net trade deficit worse than the first estimate; as the change in exports adds to GDP and the change in imports subtracts from it…hence, where exports were seen to have added .60% to the thrid quarter grwoth rate, they’re now seen as adding .50%, while imports, which had been thought to have subtracted but .30%, are now seen to have subtracted .43%, for a total negative change of .24% to GDP from trade…

the final component of GDP, real net government consumption and investment, accounted for $3,137.4 billion of 3rd quarter GDP; $1,251.2 billion of that was Federal government outlays, of which $777.3 billion was defense spending, and $1,886.2 billion was state and local government consumption and investment…note that government transfer payments, such as social security, are only accounted for in GDP insofar as they are spent by consumers…originally estimated to have grown at a 0.2% annual rate in the third quarter, this revision now estimates government outlays grew at a 0.4% pace, with Federal spending shrinking only 1.4% rather than the advance estimate of 1.7%, and state and local government outlays increasing at a 1.7% rate rather than the 1.5% rate first reported…as a result of these changes, falling Federal government outlays subtracted 0.10% from GDP, while rising state and local spending and investment added .19% to the 2nd estimate of 3rd quarter growth…

our FRED bar graph below shows the annualized change of each of the major components of GDP, over each quarter since the beginning of 2011, expressed in the billions of the chained 2009 dollars BEA uses to adjust for inflation….those components that contracted in a given quarter are shown below the zero line and subtract from GDP, those that grew during that quarter are above the line and added to GDP; the exception is imports in green, which subtract from GDP, and which we are showing on this chart as a negative, so that when imports shrunk, they appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they appear below the zero line…the other components include real personal consumption expenditures, shown in blue and clearly the most consistent contributor to GDP, gross private investment, including structures, equipment and intangibles, shown by the red bars, while exports are shown in purple, the change in private inventories is shown in yellow…lastly, the change in state and local government spending and investment is shown in pink, while the change in Federal government spending and investment is shown in grey…(click to enlarge)

FRED Graph

(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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