August’s jobs report; July’s trade deficit, construction spending, and factory inventories

In addition to the Employment Situation Summary for August from the Bureau of Labor Statistics, this week also saw the release of three July reports that provide us with inputs to 3rd quarter GDP, and in some cases suggest revisions to 2nd quarter GDP: the July report on our International Trade from the Bureau of Economic Analysis, and the July report on Construction Spending (pdf), and the Full Report on Manufacturers’ Shipments, Inventories and Orders for July, both from the Census Bureau…

The week’s major privately issued reports included the ADP Employment Report for August; the light vehicle sales report for August from Wards Automotive, which estimated that vehicles sold at a 16.60 million annual rate in August, down from the 16.68 million annual rate in July, but up from the hurricane impacted 16.03 million annual rate in August a year ago; and both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the August Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 61.3% in August, up from 58.1% in July, and the highest index reading since May 2004, and the August Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 58.5% in August, up from 55.7% in July, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in August than in July…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 201,000 Jobs in August but Employment Rate Falls; Those ‘Not in Labor Force’ at a Record High

The Employment Situation Summary for August reported modest job creation but a large drop in the number employed, and hence a drop in both the employment rate and the labor participation rate, while the unemployment rate remained unchanged….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 201,000 jobs in August, after the payroll job increase for July was revised down from 157,000 to 147,000, and the payroll jobs increase for June was revised down from 248,000 to 208,000…those revisions mean that this report represents a total of just 151,000 more seasonally adjusted payroll jobs than were reported last month, less than the increase in the working age population…the unadjusted data shows that there were actually 334,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,148,000, so seasonal adjustments continue to impact the monthly headline job count…

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors, slightly offset by smallish decreases of 6,000 jobs in the information sector, 5,900 jobs in retail, 3,000 in manufacturing, and 3,000 in government….the broad professional and business services category added 53,000 jobs, as 8,000 more were added by management and technical consulting services and 10,000 more workers found work with temporary employment services….employment in health care and social assistance rose by 40,700, with the addition of 7,900 jobs with home health care services and 8,200 jobs in hospitals….employment in construction increased by 23,000, with 15,300 of those working for specialty trade contractors….employment in the wholesale trade sector increased by 22,400, with 13,600 of those in durable goods trade…..there were also 20,200 more jobs in transportation and warehousing, with the addition of 5,700 in trucking, and the leisure and hospitality sector added a seasonally adjusted 17,000 jobs, by virtue of the addition of 17,500 more jobs in bars and restaurants….in addition, employment in private education increased by 11,700 and employment in the financial sector rose by 11,000, with the addition of 4,900 jobs in real estate…..meanwhile, the other major sectors, including mining and logging and utilities all saw increases of less than 10,000 in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 10 cents an hour to $27.16 an hour, after it had increased by a revised 8 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $22.73 an hour, after July’s pay figure was also revised a penny higher….employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours in August, while hours for production and non-supervisory personnel remained at 33.8 hours for the fifth consecutive month…meanwhile, the manufacturing workweek was unchanged at 41.0 hours, while average factory overtime was unchanged at 3.5 hours…

At the same time, the seasonally adjusted extrapolation from the August household survey indicated that the number of those who would self-report being employed fell by an estimated 423,000 to 155,542,000, while the similarly estimated number of those who would report unemployment fell by 46,000 to 6,234,000; which together meant that August saw a net decrease of 469,000 in the total labor force…since the working age population had grown by 223,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 692,000 to a record 96,290,000, which was enough to lower the labor force participation rate by 0.2% to 62.7%….at the same time, the drop in number employed vis-a-vis the increasing population was great enough to decrease the employment to population ratio, which we could think of as an employment rate, by 0.2% to 60.3%…on the other hand, decrease in count of those unemployed as a percentage of the smaller labor force was not enough to change the unemployment rate, as it remained at 3.9%…..meanwhile, the number who reported they were involuntarily working part time fell by 188,000 to 4,379,000 in August, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.5% in July to 7.4% in August, the lowest since April 2001…..

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..

July Trade Deficit Up 9.5% on Record Imports and Lower Exports

Our trade deficit rose by 9.5% in July as the value of our exports decreased and the value of our imports increased….the Census report on our international trade in goods and services for July indicated that our seasonally adjusted goods and services trade deficit increased by $4.34 billion to $50.08 billion in July from a revised June deficit of $45.74 billion…after rounding, the value of our July exports fell by $2.1 billion to $211.1 billion on a $2.3 billion decrease to $140.8 billion in our exports of goods, which was slightly offset by a $0.2 billion increase to $70.3 billion in our exports of services, while our imports rose by $2.2 billion to a record $261.2 billion on a $1.9 billion increase to a $213.9 billion in our imports of goods and a $0.3 billion increase to $47.2 billion in our imports of services…export prices were on average 0.5% lower in July, so the relative real change in exports for the month was greater than the nominal change by that percentage, while import prices were on average unchanged, meaning that real growth in imports would be at the same percentage as the nominal dollar growth change reported here…

The decrease in our July exports was mostly due to lower exports of capital goods and farm products, or more specifically commercial aircraft and soybeans….referencing the Full Release and Tables for July (pdf), in Exhibit 7 we find that our exports of capital goods fell by $949 million to $46,335 million due to a $1,568 million decrease in our exports of civilian aircraft, and that our exports of foods, feeds and beverages fell by $880 million to $13,175 million on a $682 million decrease in our exports of soybeans…in addition, our exports of consumer goods fell by $389 million to $15,974 million on a $285 million decrease in our exports of artwork, antiques, and other collectibles, and our exports of other goods not categorized by end use fell by $514 million to $5,118 million…partially offsetting those decreases, our exports of automotive vehicles, parts, and engines rose by $597 million to $12,967 million on a $986 million increase in our exports of new and used passenger cars, and our exports of industrial supplies and materials rose by $241 million to $46,530 million on a $411 million increase in our exports of natural gas liquids and a $277 million increase in our exports of petroleum products other than fuel oil, which were partly offset by a $413 million decrease in our exports of fuel oil..

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that greater imports of capital goods, industrial supplies and materials, and automotive vehicles, parts and engines were responsible for the $2.2 billion jump in our goods imports…our imports of capital goods rose by $665 million to $58,159 million on an increase of $467 million in our imports of computers, a $320 million increase in our imports of computer accessories, and a $268 million increase in our imports of semiconductors, while our imports of industrial supplies and materials rose by $531 million to $49,289 million on an increase of $348 million in our imports of fuel oil, an increase of $273 million in our imports of crude oil and an increase of $218 million in our imports of iron and steel mill products, while our imports of automotive vehicles, parts and engines rose by $503 million to $30,710 million on a $469 million increase in our imports of trucks, buses, and special purpose vehicles…in addition, our imports of foods, feeds, and beverages rose by $286 million to $12,440 million and our imports of other goods not categorized by end use rose by $650 million to $9,030 million….partially offsetting the increases in those categories, our imports of consumer goods fell by $777 million to $52,618 million because our imports of pharmaceuticals fell by $1,307 million, offsetting increased imports in a slew of other consumer goods..

To gauge the impact of July trade in goods on 3rd quarter GDP 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 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, except they are not annualized here….from that table, we can compute that 2nd quarter real exports of goods averaged 151,601.7 million monthly in 2012 dollars, while inflation adjusted July exports were at 149,577 million in that same 2012 dollar quantity index representation… annualizing the change between the two figures, we find that July’s real exports are running at a 5.2% annual rate below those of the 2nd quarter, or at a pace that would subtract about 0.41 percentage points from 3rd quarter GDP if continued through August and September…..in a similar manner, we find that our 2nd quarter real imports averaged 229,085.3 million monthly in chained 2012 dollars, while inflation adjusted July imports were at 232,034 million…that would indicate that so far in the 3rd quarter, our real imports have grown at annual rate of more than 5.2% from those of the 2nd 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 increase at a 5.2% rate would subtract about 0.59 percentage points from 3rd quarter GDP….hence, if the July trade deficit is maintained throughout the 3rd quarter, our deteriorating balance of trade in goods over that of the 2nd quarter would subtract a full percentage point from the growth of 3rd quarter GDP….however, note that we have not computed the impact of the less volatile change in services here because the BEA does not provide inflation adjusted data on those, and we don’t have easy access to all their price changes…

Construction Spending Rose 0.1% in July after Prior Months Were Revised Lower

The Census Bureau report on construction spending for July (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,315.4 billion annually if extrapolated over an entire year, which was a scant 0.1 percent (±1.5 percent)* above the revised annualized estimate of $1,314.2 billion of construction spending in June but still 5.8 percent (±1.8 percent) above the estimated annualized level of construction spending in July of last year…the June construction spending estimate was revised 0.2% lower, from $1,317.2 billion to $1,314.2 billion, while the annual rate of construction spending for May was revised 0.6% lower, from $1,332.2 billion to $1,324.347 billion….together, those revisions would suggest a downward revision of 0.08 percentage points to 2nd quarter GDP when the third estimate is released at the end of September, assuming the net impacts from the inflation adjustments are similar to those we saw in the 2nd estimate…

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 $1,010.9 billion, 0.1 percent (±0.7 percent)* below the revised June estimate of $1,011.9 billion. Residential construction was at a seasonally adjusted annual rate of $560.1 billion in July, 0.6 percent (±1.3 percent)* above the revised June estimate of $556.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.9 billion in July, 1.0 percent (±0.7 percent) below the revised June estimate of $455.3 billion.
  • Public Construction: In July, the estimated seasonally adjusted annual rate of public construction spending was $304.5 billion, 0.7 percent (±3.0 percent)* above the revised June estimate of $302.3 billion. Educational construction was at a seasonally adjusted annual rate of $71.6 billion, 2.1 percent (±5.9 percent)* above the revised June estimate of $70.1 billion. Highway construction was at a seasonally adjusted annual rate of $94.2 billion, 0.4 percent (±7.1 percent)* above the revised June estimate of $93.8 billion.

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…however, getting an accurate read on the impact of July spending reported in this release on 3rd quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment, so in lieu of trying to adjust for all of those 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 for our estimate…

That price index showed that aggregate construction costs were up 0.4% in July, after rising 0.2% in and June but after being unchanged from April to May…on that basis, we can estimate that July construction costs were roughly 0.6% more than those of May and those of April, and obviously 0.4% more than those of June…we then use those percentages to inflate the lower priced spending figures for each of those months, which is arithmetically the same as deflating July construction spending, for comparison purposes…annualized construction spending in millions of dollars for the second quarter is given as 1,314,235 for June, 1,324,347 for May, and 1,314,692 for April, while it was at 1,315,441 million in July …thus to compare July’s inflation adjusted construction spending to that of the first quarter, our formula becomes: 1,315,441 / (((1,314,235 * 1.004)+ ( 1,324,347 * 1.006) + (1,314,692 * 1.006)) /3) = 0.9929, meaning real construction spending in July was down 0.7% vis a vis the 2nd quarter, or down at a 2.8% annual rate…to figure the effect of that change on GDP,  we take the difference between the second quarter spending average and that of July and take that result as a fraction of 2nd quarter GDP, and find that aggregate July construction spending is falling at a rate that would subtract approximately 0.20 percentage points from 3rd quarter GDP should we see no improvement in August or September…

Factory Shipments Flat in July, Factory Inventories Up 0.8%

The July Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $3.9 billion or 0.8 percent to $497.8 billion in July, following an increase of 0.6% to $501.6 billion in June, which was revised from the 0.7% increase to $501.7 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 July advance report on durable goods we reported on two weeks ago…on those revisions, the Census Bureau’s own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we’ll just quote directly from that summary here:

  • New orders for manufactured goods in July, down following two consecutive monthly increases, decreased $3.9 billion or 0.8 percent to $497.8 billion, the U.S. Census Bureau reported today. This followed a 0.6 percent June increase. Shipments, up fourteen of the last fifteen months, increased less than $0.1 billion or virtually unchanged to $501.7 billion. This followed a 1.0 percent June increase. Unfilled orders, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.9 billion. This followed a 0.4 percent June increase. The unfilled orders-to-shipments ratio was 6.73, up from 6.64 in June. Inventories, up twenty-one consecutive months, increased $5.6 billion or 0.8 percent to $675.8 billion. This followed a 0.2 percent June increase. The inventories-to-shipments ratio was 1.35, up from 1.34 in June.
  • New orders for manufactured durable goods in July, down three of the last four months, decreased $4.3 billion or 1.7 percent to $247.2 billion, unchanged from the previously published decrease. This followed a 0.9 percent June increase. Transportation equipment, also down three of the last four months, drove the decrease, $4.6 billion or 5.2 percent to $83.0 billion. New orders for manufactured nondurable goods increased $0.5 billion or 0.2 percent to $250.6 billion.
  • Shipments of manufactured durable goods in July, down following two consecutive monthly increases, decreased $0.4 billion or 0.2 percent to $251.1 billion, unchanged from the previously published decrease. This followed a 1.7 percent June increase. Transportation equipment, down three of the last four months, drove the decrease, $1.4 billion or 1.7 percent to $84.2 billion. Shipments of manufactured nondurable goods, up thirteen of the last fourteen months, increased $0.5 billion or 0.2 percent to $250.6 billion. This followed a 0.4 percent June increase. Petroleum and coal products, up twelve of the last thirteen months, led the increase, $0.2 billion or 0.4 percent to $56.2 billion.
  • Unfilled orders for manufactured durable goods in July, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $1,164.9 billion, unchanged from the previously published increase. This followed a 0.4 percent June increase. Machinery, up five of the last six months, drove the increase, $0.4 billion or 0.4 percent to $104.9 billion.
  • Inventories of manufactured durable goods in July, up twenty of the last twenty-one months, increased $5.1 billion or 1.3 percent to $408.6 billion, unchanged from the previously published increase. This followed a virtually unchanged June increase. Transportation equipment, up three of the last four months, led the increase, $4.5 billion or 3.5 percent to $131.4 billion. Inventories of manufactured nondurable goods, up thirteen consecutive months, increased $0.5 billion or 0.2 percent to $267.3 billion. This followed a 0.6 percent June increase. Petroleum and coal products, up three of the last four months, led the increase, $0.5 billion or 1.1 percent to $42.0 billion. .

To estimate the effect of those July factory inventories on 3rd 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 was statistically unchanged at $235,002 million; the value of work in process inventories rose 2.1% to $209,065 million, and materials and supplies inventories were valued 0.6% higher at $231,772 million…the July producer price index reported that prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were on average unchanged, while prices for unprocessed goods were 2.7% higher….assuming similar valuations for like types of inventories, that would suggest that April’s real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were 2.1% higher, and real raw material inventory inventories were about 2.1% lower…since real NIPA factory inventories were substantially lower in the 2nd quarter, the fact that this report indicates little real change in aggregate July factory inventories will therefore have a corresponding positive impact on the growth rate of 3rd 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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