December employment; November trade deficit, construction spending, factory orders, wholesale inventories, et al

the major reports released this week were the Employment Situation Summary for December from the Bureau of Labor Statistics and the November report on our International Trade from the Census Bureau,..other regular monthly reports we usually review included the November report on Construction Spending (pdf), the Full Report on Manufacturers’ Shipments, Inventories and Orders for November (pdf), and the Monthly Wholesale Trade: Sales and Inventories report for November (pdf), all of which also came from the Census Bureau…in addition, Friday also saw the Consumer Credit report for November from the Federal Reserve, which indicated that consumer credit outstanding rose to $13.9 billion to $3,526.0 billion, increasing at a seasonally adjusted annual rate of 4.8% from October, as revolving credit rose at a 7.4% rate to $929.1 billion and non-revolving credit, which is mostly car and student loans, rose at a 3.8% rate to $2,596.9 billion…

in addition to reports from the government agencies, both of the widely followed reports from the Institute for Supply Management (ISM) were also released this week: the December Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell from 48.6 in November to 48.2 in December, its lowest reading since June 2009, indicating an ongoing contraction in manufacturing firms nationally, and the December Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 55.3%, down from 55.9% in November, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business…both of those reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally…

Payroll Jobs Up 292,000 in December But Hourly Pay Slips Back

the Employment Situation Summary for December indicated a decent increase in payroll employment and an even larger increase in those who reported they were employed, while average hourly pay slipped….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 292,000 jobs in November, after the payroll job increase for October was revised up from 298,000 to 307,000, and the November jobs increase was revised up from 211,000 to 252,000, making the combined number of jobs going into December 50,000 more than was previously reported…roughly 2.65 million payroll jobs were added in 2015, second only to 2014 in payroll job creation in this century…

December job increases were spread through construction, government, and the private service sector, with only the resource extraction sector losing 8,000 slots and durable goods manufacturers shedding 6,000 jobs…73,000 jobs were added in the broad professional and business services category, with the increase of 34,400 jobs in temporary help services accounting for nearly half of those…the health care and social assistance sector added another 52,600 jobs, with 12,300 of those in hospitals…construction trades, which led the payroll job increases in November, added another 45,000 jobs in December, with 18,100 of those with residential specialty trade contractors…another 32,100 jobs were added in accommodation and food services, as bars and restaurants increased payrolls by 36,900…in addition, jobs in transportation and warehousing rose by 23,100 with the addition of 15,100 more private couriers and messengers than normal for December, and the information sector added 16,000 jobs as the motion picture and sound recording industries added another 15,200 employees….however, employers also reported that average hourly earnings for all employees fell by a penny to $25.24, after an November increase of 4 cents, leaving us with a 2.5% wage gain over 2015…meanwhile, the average workweek for all private employees was unchanged at 34.5 hours, after falling by a tenth of an hour in November, with the manufacturing workweek down by 0.1 hour to 40.6 hours in December, even though factory overtime was up by 0.1 hour to 3.3 hours…

meanwhile, the November household survey estimated that the seasonally adjusted count of those who were employed rose by 485,000 to 149,929,000, while the number of unemployed fell by 20,000 to 7,904,000, which nonetheless left the unemployment rate unchanged at 5.0%…with the net increase in the number employed and unemployed greater than the 189,000 increase in the civilian working age population, the count of those not in the labor force fell by 277,000 to 94,103,000, which was enough to increase the labor force participation rate from 62.5% in November to 62.6% in December, its second increase in as many months….with the decent increase in the employed, the employment to population ratio, which we could think of as an employment rate, also rose by 0.1% to 59.5%…there was also a 63,000 drop in the number who reported they were involuntarily working part time, from 6,085,000 in November to 6,022,000 in December…however, like the unemployment rate, that decrease was not enough to change the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, which remained at 9.9%, same as in November… 

like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there…note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page…thus, when you read a line such as “The unemployment rate for blacks declined to 8.3 percent in December, while the rates for adult men (4.7 percent), adult women (4.4 percent), teenagers (16.1 percent), whites (4.5 percent), Asians (4.0 percent), and Hispanics (6.3 percent) showed little or no change. (See tables A-1, A-2, and A-3.)”, you can quickly open Table A-1, Table A-2.and Table A-3, where you would see that the unemployment rate for black Americans fell 1.1%, from 9.4% in November to 8.3% in December, while the “little changed”  unemployment rates for whites and Asians both rose 0.1%..

Trade Deficit a 0.43 Percentage Point Hit to 4th Quarter GDP Despite 5% Improvement in November

our trade deficit fell by 5.0% November, after rising by a revised 5.0% in October, as the net value of both our exports and imports decreased….the Census report on our international trade in goods and services for November indicated that our seasonally adjusted goods and services trade deficit fell by $2.2 billion to $42.4 billion in November from a October deficit which was revised from $43.9 billion to $44.6 billion…the value of our November exports fell by $1.6 billion to $182.2 billion on a $1.4 billion decrease to $122.2 billion in our exports of goods and a $0.1 billion decrease to $60.0 billion in our exports of services, while our imports fell $3.8 billion to $224.6 billion on a $3.7 billion decrease to $183.5 billion in our imports of goods and a $0.1 billion decrease to $41.1 billion in our imports of services…export prices averaged 0.6% lower in November, so the real growth in exports was greater than the nominal dollar value by that percentage, while import prices were 0.4% lower, similarly incrementally increasing growth in real imports from the value shown here…

the decrease in our November goods exports resulted from modestly lower exports of industrial supplies, consumer goods and other goods not categorized by end use…referencing the Full Release and Tables for October (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials fell by $677 million to $32,886 million on a $457 million drop in our exports of non-monetary gold, a $443 million decrease in our exports of fuel oil, a $272 million decrease in our exports of crude oil and a $100 million decrease in our exports of coal, which were only partially offset by a $457 million increase in our exports of other petroleum products…our exports of consumer goods fell by $644 million to $15,882 million on decreases of $264 million in our exports of cell phones and similar goods, $190 million in our exports of artworks and antiques and $174 million in our exports of pharmaceuticals …in addition, our exports of goods not categorized by end use fell by $733 million to $5,065 million, and our exports of capital goods fell by $2 million to $44,398 million as an $829 million increase in our exports of civilian aircraft and a $383 million increase in our exports of industrial engines were offset by a $537 million decrease in our exports of telecommunications equipment, a $242 decrease in drilling and other oilfield equipment, a $125 million decrease in our exports of medical equipment and a $111 million decrease in our exports of industrial machines not otherwise listed…on the other hand, our exports of automotive vehicles, parts and engines rose by $85 million to $12,868 million, and our exports of foods, feeds and beverages rose by $33 million to $10,247 million as a $197 increase in our wheat exports and modest increases in our exports of other foods and agricultural products was offset by a $360 million drop in our exports of soybeans…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that a $2,954 drop to $48,810 million in our imports of consumer goods was largely responsible for the November drop in imports, as our imports of cellphones fell by $1,781 million, our imports of pharmaceutical preparations fell by $586 million, our imports of TVs and video equipment fell by $428 million, our imports of toys, games and sporting goods fell by $246 million, our imports of gem diamonds fell by $165 million, and our imports of household appliances fell by $131 million….the value of our imports of capital goods also decreased, falling by $597 million to $49,319 million, as our imports of computers fell $325 million, our imports of industrial engines fell $152 million, our imports of civilian aircraft fell $126 million, and our imports of industrial machines not separately itemized fell $112 million, which were only partially offset by a $287 million increase in our imports of semiconductors…imports of industrial supplies and materials also fell, by $339 million to $36,139 million, as our imports of nonmonetary gold fell $277 million, our imports of “other” petroleum products fell $265 million, our imports of iron and steel mill products fell $235 million, our imports of other steel making materials fell $157 million, our imports of fuel oil fell $150 million, and our imports of natural gas fell $128 million, all offsetting a $1031 million increase in our imports of crude oil…on the other hand, our imports of foods, feeds and beverages rose $101 million to $10,413 million as increases of $169 million in our imports of fruits and frozen juices and $128 million in our imports of fish and shellfish were only partially offset by a $151 million decrease in our imports of meat products, and our imports of automotive vehicles, parts and engines rose by $8 million to $29,145 million, and our imports of goods not categorized by end use rose by $314 to $7,819 million…

to assess the impact of October and November trade on 4th quarter growth figures, we must first adjust the value of October and November imports and exports for inflation and then compare those figures to the similarly adjusted 3rd quarter figures…normally, that would be done on an item by item basis using the prices changes for those import and export items that we’d find in the import-export price index published earlier by the BLS…however, exhibit 10 in the pdf for this report gives us monthly goods trade figures by end use category and in total that are already adjusted to chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP…although these figures are not annualized like the GDP figures would be, our interest is not in the absolute chained dollar numbers that would appear in the GDP report, but rather the change in exports and imports from the 3rd to the 4th quarter, which we can arrive at by averaging the monthly figures in the 3rd quarter and comparing those to the average of monthly figures from the 4th quarter…thus, computing 1- ((((119,519 + 118,178)/2)/ ((121,126 + 119,242 +122,628) / 3)) ^ 4 = 0.0692, we find that 4th quarter real exports are running at a 6.92% annual rate below those of the 3rd quarter…extrapolating that percentage change against 3rd quarter goods exports as carried in the latest GDP report, we find that a 6.9% decrease in exports would subtract 0.61 percentage points from 4th quarter GDP growth…..in a similar manner, we find that our 3rd quarter real imports averaged 179,814 million monthly in chained 2009 dollars, while inflation adjusted October and November imports averaged 179,167 million in that same chained dollar quantity index…that would mean that so far in the 4th quarter, our real imports have decreased at a 1.43% annual rate over those of the 3rd quarter…since imports subtract from GDP because they represent that portion of our consumption or investment that occurred during the quarter that was not produced domestically, lower imports would add to GDP, in this case by 0.19 percentage points…hence, the combined effect of greater deficit despite a decrease in trade so far in the 4th quarter would subtract 0.43 percentage points from the ultimate 4th quarter GDP growth tally…

November Construction Spending Down 0.4% After Significant Errors Found in Prior Data

with its release of November construction spending data, the Census revised all construction data going back to January 2005, and admitted a large “processing error” that had caused all residential construction data to be misstated in the interim…the November construction spending report (pdf) from the Census Bureau estimated that the seasonally adjusted rate of our construction spending in November would work out to $1,122.5 billion annually if extrapolated over an entire year, which was 0.4 percent (±1.5%)* below the revised estimate of construction spending at a $1,127.0 billion annual rate in October but still 10.5 percent (±1.8%) above the estimated annualized level of construction spending in November of last year…the October spending estimate was revised from a $1,107.4 billion annual rate to a $1,127.0 billion annual rate, as were all the prior months, which will be reflected in revisions to previously published GDP figures when the annual revision to GDP is released this summer…as a result of these revisions, October spending was only 0.3% above that of the September, rather than the 1.0% month over month increase previously reported; this will have the effect of reducing its positive contribution to 4th quarter GDP, even though the actual spending was larger than previously reported…

private construction spending was at a seasonally adjusted annual rate of $828.2 billion, 0.2 percent (±0.8%)* below the revised October estimate, with residential spending rising 0.3 percent (±1.3%)* to an annual rate of $427.9 billion while private non-residential construction spending fell 0.7 percent (±0.8%)* to an annual rate of  $400.3 billion, largely due to a 4.0% decrease to $83,585 million in spending for manufacturing facilities…..meanwhile, public construction spending was estimated to be at a rate of $294.3 billion annually, 1.0 percent (±2.5%)* below the revised October estimate, with large drops in spending for public safety, highways and streets, sewage and water supply construction only partially offset by a 5.0% increase to $71,178 million in spending for construction of educational facilities..

the previously published and revised construction data (xls) going back to January 2005 is provided by the Census Bureau as an Excel file, which Mish has transcribed 2 years of in a table at his blog, should you want to review it online….although it’s been widely reported that residential construction was revised lower, from scanning the data it appears to me that most reports on it in recent years up until 2013 were revised higher, and as a result the increase from 2014 residential construction spending data to 2015 residential construction spending was smaller…we aren’t going to get into the weeds of what those revisions will mean to prior years and quarterly GDP, but we’ll take a quick look at spending for October and November vis-a-vis the third quarter with an eye to how that might affect the coming 4th quarter GDP estimate…

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments…to see how this report of two month’s construction spending might impact 4th quarter GDP, we have to first adjust those varied categories of spending for inflation to give us the quantity of construction in real terms… the Census Bureau construction price indexes for new one-family houses under construction and for new multi-family homes under construction, which shows a 0.5% increase for both months, are specified as the deflator for residential investment….however, the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators for the various components of non-residential investment, such as the Turner Construction building-cost indices for several types of buildings and the Engineering News Record construction cost index for utilities construction, making an true to form estimate of those adjustments too difficult to undertake manually…however, the producer price index for final demand construction indicates that construction costs rose 1.0% in October and fell 0.3% in November, which we can use as a rough estimate of the deflator for non-residential types of construction…

using the revised monthly annualized construction spending data for July, August and September from Table 1 of this report, we find that 3rd quarter private residential construction spending was at a seasonally adjusted annual rate of $427,642 million, and that the comparable annual rate of October and November residential spending adjusted for inflation would be at a $430,549 million rate, which would mean that real residential construction rose at a 2.7% annual rate so far in this quarter, vis a vis the 3rd quarter…for private non-residential construction, we find that 3rd quarter non-residential construction was at a $399,249 million annual rate, while October and November non-residential spending adjusted for PPI construction inflation would give us a non-residential spending rate of $398.187 in chained third quarter dollars, indicating that real non-residential construction fell at a 1.1% annual rate…lastly, using just the monthly data in this report, we find that public construction averaged at a $299,967 million annual rate in the 3rd quarter, while public construction for October and November adjusted for inflation works out to a $293,291 million annual rate thus far in the 4th quarter…hence, real government investment spending for construction was down at a 8.6% annual rate in October November from the third quarter..

finally, translating those changes in the rate of construction growth we have for these two months, we estimate that real residential construction growth would add 0.07 percentage points to 4th quarter GDP growth, real private non-residential growth would subtract 0.03 percentage points to 3rd quarter growth, and real public construction growth would subtract .17 percentage points to 3rd quarter GDP across the various government investment components…to those estimates we have to add the caveat that this construction spending report does not capture everything that is included in the GDP investment categories of the same names, such as brokers’ commissions on sales and other ownership transfer costs on sales of both new and existing residential and non-residential structures, which often have a significant impact unto themselves…

Value of Factory Inventories Falls 0.3% in November

it was widely reported in the financial and mainstream press that new orders for factory goods fell by 0.2% in November, which is what the report says…however, as we learned from a conversation with the Census personnel responsible for that report three months ago, the Census Bureau does not even collect data on new orders for non durable goods for their widely watched Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf), aka “the factory orders report” because, due to the quick turnaround time on non-durable goods orders, they figured that the data they have for shipments of those goods would be a fair proxy for orders…that, in effect, leaves the “new orders” and “unfilled orders” sections of this report only useful as a revised update to the advance report on durable goods from two weeks ago…in the case of November new orders for durable goods, then, the November Full Report showed that new orders for manufactured durable goods was virtually unchanged from October, falling less than $0.1 billion to $238.6 billion, following an October increase of 2.8% that was previously reported as a 2.9% increase…including the 0.4% decrease in shipments of non-durable goods with that, then, the Census Bureau reported that new orders for manufactured goods decreased $1.1 billion or 0.2 percent to $472.2 billion in November, after rising 1.3% in October..

more importantly, then, this report indicated that the value of November factory shipments rose by $1.0 billion or 0.2 percent to $475.3 billion, following four monthly decreases, including a drop of 0.7% in October…shipments of durable goods were up by $2.0 billion or 0.8 percent to $241.7 billion, revised from the 0.9% increase reported in the durables report, as shipments of automobiles rose 3.9% and shipments of commercial aircraft were up 16.0%, leading to a 2.6% increase in overall shipments of transportation equipment…without those transportation sector shipments, factory shipments were 0.3% lower….the value of shipments (and hence of “new orders”) of non-durable goods fell by more than $1.0 billion, or 0.4%, with a 1.7% drop in shipments from refineries accounting for two-thirds of that decrease and a 7.1% drop in shipments of tobacco products accounting for most of the rest…however, with producer prices for finished goods were down 0.1% in November, and prices for intermediate goods down 0.4%, real shipments of non-durable goods were certainly higher than the nominal change in their value would lead us to believe…

meanwhile, the aggregate value of November factory inventories fell for the 5th month in row, down by $1.7 billion or 0.3 percent to $641.3 billion, following an October decrease that was revised from 0.1% to a 0.2% decrease from September…inventories of durable goods, down six of the last seven months, fell by $1.3 billion or 0.3 percent to $395.3 billion, unchanged from the previously published 0.3% decrease, as the value of inventories of primary metals, which were priced 1.7% lower, fell $412 million or 1.2 percent to $35.25 billion…the value of non-durable goods’ inventories fell $0.3 billion or 0.1 percent to $246.0 billion, following a increase of 0.1% in October…the value of inventories of petroleum and coal products, down in value most of the year, drove the decrease in non-durables, as they fell by $0.3 billion or 1.0 percent to $33.8 billion, which was nonetheless a real increase to record levels according to energy department data…as we previously noted, producer prices for finished goods down 0.1% in November, and prices for intermediate goods were down 0.4%, so real factory inventories of other goods might have also increased as well…however, any such change would be minimal, and would not likely be a positive contribution to 4th quarter GDP…

November Wholesale Sales Down 1.0%; Wholesale Inventories Down 0.3%

both wholesale sales and wholesale inventories were lower in November, against expectations of little change…the November report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $442.8 billion, down 1.0 percent (+/-0.5%) from the revised October level, and was 4.6 percent (+/-1.4%) lower than wholesale sales of a year earlier… .the October preliminary estimate was revised down $0.5 billion or 0.1 percent, or more than 0.1 percent lower that the previously reported figure, leaving both month’s sales below the September level… November wholesale sales of durable goods rose 0.4 percent (+/-0.7%)* from last month but are still down 1.9 percent (+/-1.9%)* from a year earlier, with a 1.8% increase in wholesale sales of furniture and a 1.4% increase in wholesale sales of lumber and other construction materials carrying the sector gain for the month…wholesale sales of nondurable goods were down 2.4 percent (+/-0.7%) from October and were down 7.2 percent (+/-2.1%) from last November, with wholesale sales of farm  products down 15.0% and wholesale sales of petroleum and petroleum products down 7.4%, both at least in part due to lower prices…as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods sold….

on the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold, and this November report estimated that wholesale inventories were valued at $582.9 billion at month end, a decrease of 0.3 percent (+/-0.4%)* from the revised October level but 2.2 percent (+/-1.6%) higher than November a year ago, with the October preliminary estimate revised downward $1.0 billion or almost 0.2%…inventories of durable goods were down 0.2 percent (+/-0.4%)* from October but were up 1.3 percent (+/-1.4%)* from a year earlier, with inventories of metals and minerals down 3.0% on lower commodity prices and inventories of furniture down 0.9% on higher sales…meanwhile, the value of wholesale inventories of nondurable goods was down 0.5 percent (+/-0.7%)* from October, but was up 3.7 percent (+/-2.1%) from last November, as the value of inventories of raw farm products fell 7.1% while wholesale inventories of petroleum and petroleum products rose 2.3% on the global oil glut…

as you know, to approximate the contribution of wholesale inventories, valued here in current dollars, to the change in GDP, we must first convert these dollar figures into an approximation of the change in the quantity of goods that were inventoried…the BEA does that by deflating the value of each of the categories of inventories with the appropriate sub-index from the producer price index for the same month, but since inventories are notoriously difficult to estimate without knowing the month that each subset of the total was inventoried, and since the BEA does not break out wholesale inventories from other business inventories in the GDP report, we’ll simply our rough approximation by referring to the producer price index for finished goods, with the caveat that inventories of wholesale commodities would need to be adjusted separately…so, in November, producer prices for finished goods fell 0.1%, largely on a 0.6% decrease in wholesale energy prices, after October’s producer prices for finished goods fell 0.4% on a 0.8% drop in wholesale food prices…that suggests that the October change in real wholesale inventories was positive by about 0.1%, after which real wholesale inventories fell by about 0.2% in November…that would suggest real wholesale inventories at the end of November were lower than they were at the end of the 3rd quarter…since the GDP calculation looks at the change in the growth of inventories, such negative or even slower real growth in wholesale inventories in October and November appears it will be at least a modest subtraction from the 4th quarter growth rate computation, if not worse…

(the above is the synopsis that accompanied my regular 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 receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

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