November’s jobs report; October’s trade deficit, construction spending, factory inventories and wholesale sales

In addition to the Employment Situation Summary for November from the Bureau of Labor Statistics, this week’s economic releases included four reports that will feed into 4th quarter GDP: the Commerce Department report on our International Trade for October, the October report on Construction Spending (pdf), the Full Report on Manufacturers’ Shipments, Inventories and Orders for October, and the October report on Wholesale Trade, Sales and Inventories, all from the Census Bureau…in addition, late on Friday the Fed released the Consumer Credit Report for October, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $18.9 billion, or at a 5.5% annual rate, as non-revolving credit expanded at a 4.3% rate to $3,076.6 billion and revolving credit outstanding increased at a 8.8% rate to $1,088.7 billion…

The week’s major privately issued reports included the ADP Employment Report for November; the light vehicle sales report for November from Wards Automotive, which estimated that such vehicles sold at a 17.09 million annual rate in November, up from the 16.55 million annual rate in October, but down from the 17.40 million annual rate in November a year ago; and both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the November Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 48.1% in November, down from 48.3% in October, indicating an ongoing contraction in US manufacturing, and the October Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 53.9% in November, down from 54.7% in October, meaning a smaller plurality of service industry purchasing managers reported expansion in various facets of their business in November than in October…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 266,000 Jobs in November, Unemployment Rate and Labor Force Participation Rate Both Lower

The Employment Situation Summary for November reported the strongest job creation since January, while the unemployment rate and the labor force participation rate both fell…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers added 266,000 jobs in November, after the previously estimated payroll job increase for September was revised up from up from 180,000 to 193,000 and the payroll jobs increase for October was revised up from 128,000 to 156,000…that means that this report represents a total of 307,000 more seasonally adjusted payroll jobs than were reported last month, with the caveat that the November figures includes the return of 48,000 GM workers who were on strike during the BLS reference week for October…the unadjusted data, meanwhile, shows that there were actually 622,000 more payroll jobs extent than in October, 466,400 of which were seasonal jobs additions in the retail sector…

Seasonally adjusted job increases in November were spread throughout the private goods producing and service sectors, with the 7,000 jobs lost in the mining and logging sector and the 4,300 jobs lost in wholesale trade the only notable decreases…the largest job increase was seen in the health care and social assistance sector, which added 60,200 jobs, with the addition of 16,100 jobs in doctor’s offices and 11,100 jobs in individual and family services.…another 54,000 jobs were added in manufacturing, as the end of the GM strike resulted in a 42,100 net increase of those employed in the manufacture of transportation equipment…the leisure and hospitality sector added 45,000 jobs, including 25,300 more jobs in bars and restaurants and 8,700 additional jobs in amusements, gambling, and recreation…the broad professional and business services sector added 38,000 more jobs, with 8,400 of those working in architectural and engineering services and 5,800 employed by computer systems design and related services….at the same time, 15,500 jobs were added in transportation and warehousing, with 8,000 of those employed in warehouses, and 13,800 more were employed in private education services….in addition, both the financial sector and the information sector each saw the addition of 13,000 jobs during November, while 12,000 more jobs were added in various branches of government…that leaves only the retail sector, with a 2,000 job increase after the seasonal adjustment, and construction, with a 1,000 job increase, as the only major sectors we’d consider virtually unchanged…

The establishment survey also showed that average hourly pay for all employees rose by 7 cents an hour to $28.29 an hour in November, after it had increased by an upwardly revised 10 cents an hour in October; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $23.83 an hour…employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours in November, while weekly hours for production and non-supervisory personnel was unchanged at 33.5 hours…at the same time, the manufacturing workweek increased by 0.1 hour to 40.5 hours, while average overtime decreased by 0.1 hour to 3.1 hours…

Meanwhile, the November household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 83,000 to 158,593,000, while the estimated number of those unemployed and looking for work fell by 44,000 to 5,811,000, and as a result the total labor force increased by a rounded total of 40,000….since the working age population had grown by 175,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by a rounded 135,000 to 95,616,000, which was enough to lower the labor force participation rate from 63.3% in October to 63.2% in November….meanwhile, the increase in number employed as a percentage of the increase in the population was not enough to statistically change the employment to population ratio, which we could think of as an employment rate, as it remained at 61.0%….on the other hand, the decrease in the number unemployed was just enough to lower the unemployment rate, which fell from 3.6% to 3.5%, matching the lowest rate since December 1969…meanwhile, the number of those who reported they were forced to accept just part time work fell by 116,000, from 4,438,000 in October to 4,322,000 in November, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.0% of the labor force in October to 6.9% in November, thus matching a 19 year low…

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.. 

October Trade Deficit Falls 7.6% on Lower Imports of Consumer & Automotive Goods

Our trade deficit fell 7.6% in October as the value of both our exports and our imports decreased, but our imports decreased by more….the Commerce Dept report on our international trade in goods and services for October indicated that our seasonally adjusted goods and services trade deficit fell by $3.9 billion to $47.2 billion in October from a revised September deficit of $51.1 billion, which had previously been reported as a deficit of $52.5 billion…the value of our October exports fell by a rounded $0.4 billion to $207.1 billion on a $0.8 billion decrease to $136.1 billion in our exports of goods and a $0.3 billion increase to $71.1 billion in our exports of services, while our imports fell by a rounded $4.3 billion to $254.3 billion on a $4.5 billion decrease to $204.1 billion in our imports of goods, partly offset by a $0.1 billion increase to $50.2 billion in our imports of services…export prices were on average 0.1% lower in October, which means the relative real decrease in exports for the month was smaller than the nominal decrease by that percentage, while import prices were 0.5% lower, meaning the decrease in real imports was smaller than the nominal dollar change reported here by that percentage…put another way, a fraction of the decrease in the value of October trade was due to lower prices..

The decrease in our October exports of goods resulted from lower exports of consumer goods, capital goods, automotive products and soybeans, which were partly offset by increases in exports of industrial supplies and materials and other goods…referencing the Full Release and Tables for October (pdf), in Exhibit 7 we find that our exports of consumer goods fell by $744 million to $16,623 million on a $436 million decrease in our exports of pharmaceutical preparations and a $354 million decrease in our exports of gem diamonds, and that our exports of capital goods fell by $391 million to $44,718 million on a $587 million decrease in our exports of engines for civilian aircraft which was partially offset by $309 million increase in our exports of industrial machines other than those itemized separately….in addition, our exports of automotive vehicles, parts, and engines fell by $311 million to $12,966 million as a $316 million decrease in our exports of trucks, buses, and special purpose vehicles and a $250 million decrease in our exports of parts and accessories other than engines, chassis and tires was partially offset by a $374 million increase in our exports of passenger cars, while our exports of foods, feeds and beverages fell by $281 million to $10,477 million on a $794 million decrease in our exports of soybeans…partially offsetting the decreases in those export categories, our exports of industrial supplies and materials rose by $556 million to $44,562 million on a $629 million increase in our exports of crude oil, a $379 million increase in our exports of precious metals other than those itemized separately, and a $210 million increase in our exports of natural gas liquids, which were partially offset by a $364 million decrease in our exports of fuel oil, while our exports of other goods not categorized by end use rose by $464 million to $6,103 million……

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that lower imports of consumer goods and of automotive goods were the largest factors in the $4.5 billion decrease in our goods imports….our imports of consumer goods fell by $2404 million to $52,314 million on a $783 million decrease in our imports of pharmaceutical preparations, a $374 million decrease in our imports of cell phones, a $338 million decrease in our imports of cotton apparel and household goods, and a $314 million decrease in our imports of toys, games and sporting goods, and our imports of automotive vehicles, parts and engines fell by $1,801 million to $29,049 million on a $768 million decrease in our imports of parts and accessories other than engines, chassis and tires, a $498 million decrease in our imports of new and used passenger cars, and a $464 million decrease in our imports of trucks, buses, and special purpose vehicles…..in addition, our imports of industrial supplies and materials fell by $528 million to $41,390 million as a $820 million decrease in our imports crude oil was offset by a $469 million increase in our imports of petroleum products other than fuel oil and a $315 million increase in our imports fuel oil, and our imports of foods, feeds, and beverages fell by $370 million to $12,403 million…slightly offsetting the decreases in those import categories, our imports of capital goods rose by $399 million to $56,563 million as a $628 million increase in our imports of semiconductors, a $620 million increase in our imports of computers, a $303 million increase in our imports of computer accessories and a $259 million increase in our imports of telecommunications equipment was offset by a $437 million decrease in our imports of engines for civilian aircraft, and a $334 million decrease in our imports of industrial machines other than those itemized separately, and our imports of other goods not categorized by end use rose by $141 million to $10,530 million…

The Full Release and Tables pdf for this month’s report also summarizes Exhibit 19, which gives us surplus and deficit details on our goods trade with selected  countries:

The October figures show surpluses, in billions of dollars, with South and Central America ($4.7), OPEC ($1.9), Hong Kong ($1.8), Brazil ($1.2), United Kingdom ($0.8), Singapore ($0.6), and Saudi Arabia ($0.6). Deficits were recorded, in billions of dollars, with China ($27.8), European Union ($14.3), Mexico ($7.8), Germany ($5.0), Japan ($4.5), Canada ($3.4), Italy ($2.6), France ($2.0), India ($2.0), Taiwan ($1.6), and South Korea ($1.5).

  • • The deficit with Japan decreased $1.4 billion to $4.5 billion in October. Exports increased $0.6 billion to $6.4 billion and imports decreased $0.9 billion to $10.9 billion.
  • • The deficit with the European Union decreased $1.3 billion to $14.3 billion in October. Exports increased $0.5 billion to $28.7 billion and imports decreased $0.9 billion to $43.0 billion.
  • • The deficit with Canada increased $0.8 billion to $3.4 billion in October. Exports decreased $0.7 billion to $23.8 billion and imports increased $0.2 billion to $27.2 billion.

The $1.35 billion downward revision to the September trade deficit will have the effect of decreasing the annualized 3rd quarter trade deficit by about $4.4 billion, which would increase reported 3rd quarter GDP growth by about 0.06 percentage points from previously published figures (assuming that inflation adjustments are similar)…meanwhile, to estimate the impact of October trade in goods on 4th 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, with the exception that they are not annualized here….from that table, we can figure that 3rd quarter real exports of goods averaged 149,243.3 million monthly in 2012 dollars, while inflation adjusted October exports were at 147,801 million in that same 2012 dollar quantity index representation… annualizing the change between those two figures, we find that October’s real exports of goods are running at a 3.80% annual rate below those of the 3rd quarter, or at a pace that would subtract about 0.21 percentage points from 4th quarter GDP if continued through November and December…..in a similar manner, we find that our 3rd quarter real imports of goods averaged 233,955.7 million monthly in chained 2012 dollars, while inflation adjusted October goods imports were at 226,933 million in that same 2012 dollar representation…that would indicate that so far in the 4th quarter, we have seen our real imports decrease at annual rate of 11.48% from those of the 3rd 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 11.48% rate would conversely add 1.47 percentage points to 4th quarter GDP….hence, if the October trade deficit is maintained at the same level throughout the 4th quarter, our improving balance of trade in goods would add a net of roughly 1.26 percentage points to the growth of 4th quarter GDP…..however, note that we have not included the impact of the less volatile change in services in our figures here because the BEA does not provide inflation adjusted data on those, and we don’t have an easy way to adjust for all their price changes…

Construction Spending Fell 0.8% in October after Prior Months Were Revised Much Higher

The Census Bureau’s report on construction spending for October (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,291.1 billion annually if extrapolated over an entire year, which was 0.8 percent (±1.0 percent)* below the revised annualized September estimate of $1,301.8 billion but still 1.1  percent (±1.5 percent)* above the estimated annualized level of construction spending in October of last year. The annualized September construction spending estimate was revised 0.6% higher, from $1,293.6 billion to $1,301.8  billion, while the annual rate of construction spending for August was revised nearly 1.5% higher, from $1,287.1 billion to $1,305.986 billion.  The combined upward revisions of $27.1 billion to annualized August and September construction spending figures would be averaged over the 3 months of the quarter and increase the annualized 3rd quarter construction figure by around $9.0 billion ex any inflation adjustment, which would thus suggest a upward revision of about 0.20 percentage points to third quarter GDP when the third estimate is released on December 20th…

A further breakdown of the different subsets of construction spending is provided in a Census summary, which precedes the detailed spreadsheets:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $956.3 billion, 1.0 percent (±0.7 percent) below the revised September estimate of $966.1 billion. Residential construction was at a seasonally adjusted annual rate of $508.2 billion in October, 0.9 percent (±1.3 percent)* below the revised September estimate of $512.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $448.1 billion in October, 1.2 percent (±0.7 percent) below the revised September estimate of $453.5 billion.
  • Public Construction: In October, the estimated seasonally adjusted annual rate of public construction spending was $334.8 billion, 0.2 percent (±1.6 percent)* below the revised September estimate of $335.6 billion. Educational construction was at a seasonally adjusted annual rate of $83.3 billion, 2.5 percent (±2.6 percent)* above the revised September estimate of $81.3 billion. Highway construction was at a seasonally adjusted annual rate of $95.0 billion, 2.2 percent (±3.9 percent)* below the revised September estimate of $97.1 billion.

As you can see from the above, construction spending would be included in 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 October spending reported in this release on 4th 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.  There are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for all of those types of construction separately, we’ve opted to use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment on the total. That index showed that aggregate construction costs were up 0.4% month over month in October, after increasing 0.1% in August and 0.1% in September… 

On that basis, we can estimate that October construction costs were roughly 0.6% more than those of July, 0.5% more than those of August, and obviously 0.4% more than September. We’ll then use those percentages to inflate higher priced spending figures for each of those months, which is arithmetically the same as deflating October construction spending, for purposes of comparison.  Annualized construction spending in millions of dollars for the third quarter months is given as 1,301,764 in September, 1,305,986 in August, and 1,291,250 in July.   Thus to adjust October’s nominal construction spending of $1,291,069 million for inflation and compare it to that of the third quarter, our arithmetic formula would be: 1,291,069  / (((1,310,806 * 1.019) + ( 1,311,824 *1.020) + (1,317,701 * 1.021)) / 3) = 0.988445, meaning real construction in October was 1.2% lower than that of the 3rd quarter, or down at a 4.54% annual rate.   To figure the effect of that change on GDP,  we figure the difference between the third quarter inflation adjusted average and that of October and take that annualized result of that as a fraction of the inflation adjusted 3rd quarter GDP figure, and find that October construction spending is falling at a rate that would subtract 0.34 percentage points from 4th quarter GDP, assuming hypothetically that there would be no change over the next two months. …

Factory Shipments Down 0.1% in October, Factory Inventories Up 0.1%

The Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) for October from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $1.4 billion or 0.3 percent to $497.0 billion in October, following a decrease of 0.8% to $495.574 billion in September, which was revised from the 0.6 percent decrease to $496.7 billion that was reported for September 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 accurate as revised updates to the October advance report on durable goods we reported on last week…on those durable goods 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:

  • Summary:  New orders for manufactured goods in October, up following two consecutive monthly decreases,  increased $1.4 billion or 0.3 percent to $497.0 billion, the U.S. Census Bureau reported today.  This followed a 0.8 percent September decrease.  Shipments, up following three consecutive monthly  decreases, increased less than $0.1 billion or virtually unchanged to $500.2 billion.  This followed a 0.4  percent September decrease.  Unfilled orders, up three of the last four months, increased $1.0 billion or  0.1 percent to $1,164.3 billion.  This followed a virtually unchanged September decrease.  The unfilled  orders‐to‐shipments ratio was 6.67, down from 6.70 in September.  Inventories, up ten of the last eleven  months, increased $0.9 billion or 0.1 percent to $698.8 billion.  This followed a 0.3 percent September  increase.  The inventories‐to‐shipments ratio was 1.40, unchanged from September.  
  • New orders for manufactured durable goods in October, up four of the last five months, increased $1.3  billion or 0.5 percent to $248.4 billion, down from the previously published 0.6 percent increase.  This  followed a 1.5 percent September decrease.  Transportation equipment, also up four of the last five  months, led the increase, $0.6 billion or 0.7 percent to $84.6 billion.  New orders for manufactured  nondurable goods increased $0.1 billion or virtually unchanged to $248.6 billion. 
  • Shipments of manufactured durable goods in October, down four consecutive months, decreased less than  $0.1 billion or virtually unchanged to $251.6 billion, down from the previously published increase.  This  followed a 0.7 percent September decrease.  Transportation equipment, also down four consecutive  months, drove the decrease, $0.3 billion or 0.4 percent to $83.7 billion.  Shipments of manufactured  nondurable goods, up following two consecutive monthly decreases, increased $0.1 billion or virtually  unchanged to $248.6 billion.  This followed a 0.1 percent September decrease.  Petroleum and coal  products, up three of the last four months, drove the increase, $0.3 billion or 0.7 percent to $51.7 billion.  
  • Unfilled orders for manufactured durable goods in October, up three of the last four months, increased  $1.0 billion or 0.1 percent to $1,164.3 billion, unchanged from the previously published increase.  This  followed a virtually unchanged September decrease.  Transportation equipment, up four consecutive  months, led the increase, $0.9 billion or 0.1 percent to $795.5 billion.  
  • Inventories of manufactured durable goods in October, up fifteen of the last sixteen months, increased  $1.6 billion or 0.4 percent to $432.2 billion, up from the previously published 0.3 percent increase.  This  followed a 0.5 percent September increase.  Transportation equipment, also up fifteen of the last sixteen  months, drove the increase, $1.9 billion or 1.3 percent to $147.4 billion.  Inventories of manufactured  nondurable goods, down seven consecutive months, decreased $0.7 billion or 0.3 percent to $266.6  billion.  This followed a virtually unchanged September decrease.  Food products, down two of the last  three months, led the decrease, $0.4 billion or 0.8 percent to $54.0 billion.  By stage of fabrication,  October materials and supplies increased 0.2 percent in durable goods and were virtually unchanged in  nondurable goods.  Work in process increased 0.8 percent in durable goods and decreased 1.3 percent in  nondurable goods.  Finished goods were virtually unchanged in both durable and nondurable goods.

To estimate the effect of those October factory inventories on 4th 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 $243,268 million; the value of work in process inventories rose 0.3% to $218,161 million, and materials and supplies inventories were valued 0.1% higher at $237,356 million…the October producer price index reported that prices for finished goods were on average 0.7% higher, that prices for intermediate processed goods were on average 0.4% higher, and that prices for unprocessed goods were 1.0% higher….assuming similar valuations for like types of inventories, those price increases would suggest that October’s real finished goods inventories were about 0.7% lower, that real inventories of intermediate processed goods were 0.1% lower, and that real raw material inventory inventories were about 0.9% lower…since real NIPA factory inventories were grew substantially in the 3rd quarter, the fact that this report indicates a drop in aggregate real October factory inventories will therefore have a correspondingly large negative impact on the growth rate of 4th quarter GDP… 

October Wholesale Sales Down 0.7%, Wholesale Inventories Up 0.1%

The October report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at “$494.3 billion, down 0.7 percent (±0.5 percent) from the revised September level and were down 1.4 percent (±0.9 percent) from the October 2018 level. The August 2019 to September 2019 percent change was revised from the preliminary estimate of virtually unchanged (±0.5 percent)* to down 0.1 percent (±0.5 percent)*“…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 produced or finally sold…

On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods left in a warehouse represent goods that were produced but not sold, and this October report estimated that wholesale inventories were valued at a seasonally adjusted “$675.6 billion at the end of October, up 0.1 percent (±0.4 percent)* from the revised September level. Total inventories were up 3.8 percent (±1.1 percent) from the revised October 2018 level. …they also report that: The September 2019 to October 2019 percent change was revised from the advance estimate of up 0.2 percent (±0.4 percent)* to up 0.1 percent (±0.4 percent)*. in reference to the sketchy Advance Report on Wholesale and Retail Inventories released before the release of 3rd quarter GDP revisions…September’s wholesale inventories were reported down 0.4% at $676.7 billion a month ago, and were revised to down 0.7% at $674,944 million with that advance report, & this report further revises that figure to $674,897 million…

Like factory inventories, to estimate the effect of October wholesale inventories on 4th quarter GDP, we must first adjust them for changes in price with appropriate components of the producer price index…although details are not broken out, we’ve previously estimated that more than 2/3rd of wholesale inventories are finished goods, with notable exceptions such as crude oil and farm product inventories…as we noted earlier, the producer price index for October indicated that prices for finished goods rose 0.7%, prices for intermediate goods intermediate goods rose 0.4%, and prices for unprocessed goods rose 1.0%; hence the 0.1% increase in the nominal value of wholesale inventories masks a decrease of around 0.6% in real terms…since real wholesale inventories in the 3rd quarter were somewhat higher, any decrease in real wholesale inventories in the 4th quarter would thus subtract from the growth of 4th 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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