June’s jobs report; May’s trade deficit, construction spending and factory inventories..

in addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, this week’s major economic releases included three May reports that will input into 2nd quarter GDP:  the BEA report on our International Trade for May, and the May report on Construction Spending, and the Full Report on Manufacturers’ Shipments, Inventories and Orders for May, both from the Census Bureau….privately issued reports released this week included the ADP Employment Report for June, the light vehicle sales report for June from Wards Automotive, which estimated that vehicles sold at a 17.38 seasonally adjusted annual rate in June, up from the 16.81 million rate in May, and up from the 16.41 annual rate in June of 2017, and both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 60.2% in June, up from 58.7% in May, which suggests a stronger expansion in manufacturing firms nationally, and the June Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 59.1%, up from 58.6% in May, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in June…both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally… 

Employers Add 213,000 Jobs in June, Unemployment Rate Rises 0.2% as More Look for Work

the Employment Situation Summary for June indicated payroll job growth a bit above the average, while the unemployment rate rose because hundreds of previously uncounted individuals began to seek work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 213,000 jobs in June, after the payroll job increase for May was revised up from 223,000 jobs to 244,000, and the April increase was revised up from 159,000 jobs to 175,000, which means that the combined number of jobs created over those two months was 37,000 more than was previously reported….the unadjusted data shows that there were actually 646,000 more payroll jobs extant in June than in May, as large seasonal job increases that are typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…

seasonally adjusted job increases were spread through throughout government and the private goods producing and service sectors, while only the retail sector saw a seasonally adjusted loss of 21,600 jobs, on a decrease of 21,500 workers in general merchandise stores…the broad professional and business services sector added 50,000 jobs, as 9,300 more workers found work with temporary help services and 8,100 more were employed by services to buildings and dwellings….manufacturing industries added another 36,000 workers in June, with the addition of 12,000 jobs in the auto industry…meanwhile, employment in health care and social assistance rose by 34,700, with the addition of 10,600 jobs in hospitals and 6,800 in individual and family services….the leisure and hospitality sector added a seasonally adjusted 25,000 jobs, with the addition of 16,400 more jobs in bars and restaurants…in addition, the transportation and warehousing sector added 15,400 employees, led by an increase of 4,300 in ground passenger transportation services…also, after a downward seasonal adjustment of 147,000, the construction sector still saw 13,000 more jobs than normal, as heavy and civil engineering construction firms hired 6,100 more than worked in May….meanwhile, the other major sectors, including wholesale trade, information, financial activities, private education, and government all saw smaller increases in payroll employment over the month…

the establishment survey also showed that average hourly pay for all employees rose by 5 cents to $26.98 an hour, after it had increased by a revised 7 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.62 an hour…employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours, while hours for production and non-supervisory personnel were also unchanged at 33.8 hours…meanwhile, the manufacturing workweek rose by 0.1 hour to 40.9 hours, while factory overtime rose by 0.1 hour to 3.5 hours..

Meanwhile, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 102,000 to 155,576,000, while the similarly estimated number of those unemployed rose by 499,000 to 6,564,000; which together meant that June saw a net increase of 601,000 in the total labor force…since the working age population had grown by 188,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 413,000 to 95,502,000….the big increase of those in the labor force was enough to raise the labor force participation rate by 0.2% to 62.9%….on the other hand, the increase in number employed vis-a-vis the increase in the population was not great enough to increase the employment to population ratio, which we could think of as an employment rate, as it remained unchanged at 60.4%…however, the increase in the number counted as unemployed was large enough to raise the unemployment rate from 3.8% to 4.0%….at the same time, even though the number who reported they were involuntarily working part time fell by 205,000 to 4,743,000 in June, the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, still rose from 7.6% in May to 7.8% in June, as 38,000 more reported “slack work or business conditions” than in May..

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..

May Trade Deficit Down 6.6% on Higher Exports of Soybeans and Aircraft

our trade deficit decreased by 6.6% in May as the value of both our exports and our imports increased, but our exports increased by a greater amount….the Commerce Department report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit fell by $3.0 billion to $43.1 billion in May, from a April deficit of $46.08 billion, which was revised down from the $46.2 billion deficit reported last month…the value of our May exports rose by $4.1 billion to $215.3 billion on a $3.7 billion increase to $144.9 billion in our exports of goods and a $0.4 billion increase to $70.4 billion in our exports of services, while our imports rose $1.1 billion to $258.4 billion on a rounded-up $1.1 billion increase to $210.7 billion in our imports of goods while our imports of services slipped $0.1 billion to $47.7 billion…export prices were on average 0.6% higher in May, so the real growth in exports for the month was less than the nominal dollar growth by that percentage, while import prices were also 0.6% higher, meaning real imports would be reduced from the nominal dollar values reported here by that percentage…

the increase in our May exports can mostly be accounted for by higher exports of capital goods and of foods, feeds, and beverages, which were partially offset by a decrease in exports of industrial supplies and materials….referencing the Full Release and Tables for May (pdf), in Exhibit 7 we find that our exports of capital goods rose by $2,032 million to $48,158 million on an increase of $1,892 million in our exports of civilian aircraft and an increase of $761 million in our exports of engines for civilian aircraft, and that our exports of foods, feeds and beverages rose by $1737 million to $14,097 million on a $1,956 million increase in our exports of soybeans….in addition, our exports of consumer goods rose by $580 million to $17,795 million on a $487 million increase in our exports of pharmaceuticals and a $300 million increase in our exports of jewelry, and our exports of other goods not categorized by end use rose by $888 million to $6,179 million….partially offsetting those increases, our exports of industrial supplies and materials fell by $1288 million to $44,368 million on a $907 million decrease in exports of petroleum products other than fuel oil and a $719 decrease in our exports of non-monetary gold, and our exports of automotive vehicles, parts, and engines fell by $362 million to $13,558 million on a $334 million decrease in our exports of trucks, buses, and special purpose vehicles…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of capital goods was the major reason for the May increase in our imports…our imports of capital goods rose by $2,057 million to $58,980 million on increases of $648 million in our imports of telecommunications equipment, $410 million in our imports of computers, $251 million in our imports of parts for civilian aircraft, and $248 million in our imports of civilian aircraft engines…in addition, our imports of foods, feeds, and beverages rose by $105 million to $12,378 million….partially offsetting the increases in those two categories, our imports of consumer goods fell by $468 million to $51,423 million on a $613 million decrease in our imports of pharmaceuticals and a $303 million decrease in our imports of artwork and antiques, our imports of automotive vehicles, parts and engines fell by $301 million to $29,728 million on a $257 million decrease in our imports of parts and accessories other than chassis, engines and tires, and a $238 million decrease in our imports of automotive engines and engine parts, and our imports of other goods not categorized by end use fell by $412 million to $8,560 million, while our imports of industrial supplies and materials fell by $21 million to $47,853 million, as our imports of crude oil fell by $685 million while our imports of fuel oil rose by $496 million..

to gauge the impact of April and May’s international trade on 2nd quarter domestic growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized in this report….from that table, we can compute that 1st quarter real exports of goods averaged 146,834.3 million monthly in 2009 dollars, while inflation adjusted April and May exports were at 150,636 million and 153,240 million respectively in the same 2009 dollar quantity index representation…then, annualizing the change between the first quarter average and the April – May average, we find that the 2nd quarter’s real goods exports are running at a 14.6% annual rate above those of the 1st quarter, or at a pace that would add about 1.20 percentage points to 2nd quarter GDP if maintained through June…..in a similar manner, we find that our 1st quarter real imports averaged 229,287.3 million monthly in chained 2009 dollars, while inflation adjusted April and May imports were at 228,116 million and 228,523 million in those same inflation adjusted dollars respectively….that would mean that so far in the 2nd quarter, our real imports of goods have decreased at a 1.68% annual rate from those of the 1st quarter…since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their decrease at a 1.68% rate would conversely add another 0.21 percentage points to 2nd quarter GDP….hence, if our goods trade deficit at the April – May level is maintained through June, our improving balance of trade in goods would add about 1.41 percentage points to the growth of 2nd quarter GDP….note that we have not attempted to compute the impact of the less volatile change in services here because the Commerce Department does not provide inflation adjusted data on that trade, but that there was also a notable increase in our services surplus in May that will likely have an impact as well…

Construction Spending Rises 0.4% in May after April Spending Revised 0.4% Lower

the Census Bureau report on construction spending for May (pdf) estimated that May’s seasonally adjusted construction spending would work out to $1,309.5 billion annually if extrapolated over an entire year, which was 0.4 percent (±1.3 percent)* above the revised annualized estimate of $1,304.5 billion of construction spending in April and 4.5 percent (±1.6 percent) above the estimated annualized level of construction spending in May of last year…the April spending estimate was revised 0.45% lower, from $1,310.4 billion to $1,304.5 billion, while the annual rate of construction spending for March was revised higher, from $1,286.8 billion to $1,293.5 billion, and the annual rate of February construction spending was revised down from $1,309.2 billion to a $1,305.5 billion rate…combined, the net $3.0 billion upward revision to annualized February and March construction spending would suggest that 1st quarter GDP, which was released last week, will be revised about 0.07 percentage points higher when annual revisions to GDP are released in late July…construction spending tor the first 5 months of 2018 has now amounted to $497.06 billion, 4.3 percent (±1.3 percent) above the $476.66 billion in construction spending for the same 5 months of 2017…

Further details on different subsets of construction spending are provided by the Census release summary:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,005.4 billion, 0.3 percent (±0.8 percent)* above the revised April estimate of $1,002.3 billion. Residential construction was at a seasonally adjusted annual rate of $553.8 billion in May, 0.8 percent (±1.3 percent)* above the revised April estimate of $549.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.5 billion in May, 0.3 percent (±0.8 percent)* below the revised April estimate of $453.0 billion.
  • Public Construction: In May, the estimated seasonally adjusted annual rate of public construction spending was $304.1 billion, 0.7 percent (±2.6 percent)* above the revised April estimate of $302.1 billion. Educational construction was at a seasonally adjusted annual rate of $74.3 billion, 0.9 percent (±2.5 percent)* above the revised April estimate of $73.6 billion. Highway construction was at a seasonally adjusted annual rate of $94.6 billion, 0.2 percent (±8.1 percent)* below the revised April estimate of $94.8 billion.”

this construction spending report is used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local and Federal governments…. however, gauging the impact of revised April and May construction spending as reported here on GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction….in lieu of trying to find and adjust for all of those obscure price indices, we’ve opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..,that index showed that aggregate construction costs were unchanged in May, after being up 1.1% from March to April, up 0.2% from February to March, and unchanged from January to February..

on that basis, we can estimate that May construction costs were roughly 1.1% greater than those of March, 1.3% greater than those of February and 1.3% greater than those of January, and obviously roughly the same as those of April…we then use those percentages to inflate spending for each of the months of the first quarter, which is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter for comparison purposes, and then compare the inflation adjusted average of the 1st quarter months to the inflation adjusted average of the 2nd quarter months…annualized construction spending in millions of dollars for the five months in question is given as 1,309,490 for May, 1,304,455 for April, 1,293,125 for March, 1,305,527 for February, and 1,276,260 for January….thus to figure the growth of  May’s nominal construction spending figure of $1,309,490 and April’s figure of $1,304,455 over that of inflation adjusted figures of the first quarter, our calculation becomes (((1,309,490 + 1,304,455) / 2) / (((1,293,125 * 1.011) + (1,305,527 * 1.013) + (1,276,260 * 1.013)) / 3)) ^ 4 = .998184, which means that after adjusting for inflation, construction spending has been shrinking at a 0.18% annual rate over the first 2 months of the second quarterthat’s a contraction at a $594 million annual rate, which means that if June shows no improvement, that relatively tiny contraction in construction would subtract a net of about 0.01 percentage point from 2nd quarter GDP across those components that it influences…

Factory Shipments Up 0.6% May, Factory Inventories Up 0.2% in Big Hit to GDP

the May Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods increased by $1.8 billion or 0.4 percent to $498.2 billion in May, following a decrease of 0.4% to $496.4 billion in April, which was revised from the 0.8% decrease to $494.4 billion reported last month….however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched “factory orders report”, both the “new orders” and “unfilled orders” sections of this report are really only useful as a revised update to the May advance report on durable goods we reported on last week…on those revisions, the Census Bureau’s summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we’ll just quote directly from that here:

  • Summary: New orders for manufactured goods in May, up three of the last four months, increased $1.8 billion or 0.4 percent to $498.2 billion, the U.S. Census Bureau reported today. This followed a 0.4 percent April decrease. Shipments, up twelve of the last thirteen months, increased $2.8 billion or 0.6 percent to $496.1 billion. This followed a 0.1 percent April increase. Unfilled orders, up six of the last seven months, increased $6.2 billion or 0.5 percent to $1,160.8 billion. This followed a 0.6 percent April increase. The unfilled orders-to-shipments ratio was 6.68, down from 6.73 in April. Inventories, up nineteen consecutive months, increased $1.3 billion or 0.2 percent to $668.4 billion. This followed a 0.4 percent April increase. The inventories-to-shipments ratio was 1.35, unchanged from April.
  • New Orders: New orders for manufactured durable goods in May, down two consecutive months, decreased $0.9 billion or 0.4 percent to $249.2 billion, up from the previously published 0.6 percent decrease. This followed a 1.0 percent April decrease. Transportation equipment, also down two consecutive months, drove the decrease, $0.9 billion or 1.1 percent to $86.1 billion. New orders for manufactured nondurable goods increased $2.7 billion or 1.1 percent to $249.0 billion.
  • Shipments: Shipments of manufactured durable goods in May, up nine of the last ten months, increased $0.1 billion or virtually unchanged to $247.1 billion, up from the previously published 0.1 percent decrease. This followed a virtually unchanged April decrease. Machinery, up three of the last four months, drove the increase, $0.2 billion or 0.7 percent to $32.4 billion. Shipments of manufactured nondurable goods, up eleven of the last twelve months, increased $2.7 billion or 1.1 percent to $249.0 billion. This followed a 0.3 percent April increase. Petroleum and coal products, up ten of the last eleven months, led the increase, $1.8 billion or 3.4 percent to $55.5 billion.
  • Unfilled Orders: Unfilled orders for manufactured durable goods in May, up six of the last seven months, increased $6.2 billion or 0.5 percent to $1,160.8 billion, unchanged from the previously published increase. This followed a 0.6 percent April increase. Transportation equipment, also up six of the last seven months, led the increase, $3.9 billion or 0.5 percent to $800.2 billion.
  • Inventories: Inventories of manufactured durable goods in May, up eighteen of the last nineteen months, increased $1.3 billion or 0.3 percent to $403.3 billion, unchanged from the previously published increase. This followed a 0.4 percent April increase. Transportation equipment, up five of the last six months, led the increase, $0.5 billion or 0.4 percent to $129.0 billion. Inventories of manufactured nondurable goods, up eleven consecutive months, increased less than $0.1 billion or virtually unchanged to $265.1 billion. This followed a 0.4 percent April increase. Chemical products, up seven of the last eight months, drove the increase, $0.1 billion or 0.1 percent to $87.9 billion..

to estimate the effect of those May factory inventories on 2nd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the value of finished goods inventories rose by 0.1% to $233,967 million; the value of work in process inventories rose 0.2% to $206,668 million, and materials and supplies inventories were valued 0.3% higher at $227,800 million…the May producer price index reported that prices for finished goods were on average 1.0% higher, that prices for intermediate processed goods were 1.5% higher, while prices for unprocessed goods averaged 2.5% higher….assuming similar valuations for like types of inventories, that would suggest that May’s real finished goods inventories were about 0.9% smaller, that real inventories of intermediate processed goods were 1.3% lower, and real raw material inventory inventories were about 2.2% lower…so even though real NIPA factory inventories were a bit smaller in the 1st quarter, this report seems to indicate a much larger real decrease in May, following a small decrease in April, suggesting that the real change in May factory inventories will have a significant negative impact on the growth rate of 2nd quarter GDP…

 

(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 picked from the aforementioned GGO posts, contact me…)     

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