Written by rjs, MarketWatch 666
In an oddity of the economic calendar, this week brought us what are arguably the three most important releases we see each month: the Employment Situation Summary for May from the Bureau of Labor Statistics, the second estimate of 1st quarter GDP from the Bureau of Economic Analysis, and the April report on Personal Income and Spending, also from the BEA.
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In addition, the Census Bureau released the April report on Construction Spending (pdf), and the Dallas Fed released the Texas Manufacturing Outlook Survey, which indicated its general business activity index rose to 26.8, up from 21.8 in April, indicating a fairly robust expansion in the Texas economy….
Privately issued reports released this week included the ADP Employment Report for May and the March Case-Shiller Home Price Index, which is a relative average of January, February & March home prices; the Case Shiller index indicated that home prices nationally for those 3 months averaged 6.5% higher than prices for the same homes that sold during the same 3 month period a year earlier…in addition, the week also saw the release of the light vehicle sales report for May from Wards Automotive, which estimated that vehicles sold at a 16.81 million annual rate in April, down from the 17.07 million annual rate of sales in April, but up from the 16.58 million annual rate in May a year ago, and the April Manufacturing Report On Business from the Institute for Supply Management (ISM), which reported that their manufacturing PMI (Purchasing Managers Index) increased from 57.3% in April to 58.7% in May, which suggests an accelerating expansion among manufacturing firms nationally…
Employers Add 223,000 Jobs in May, Unemployment Rate Falls to 3.8%
The Employment Situation Summary for May indicated above average payroll job growth, while the employment rate fell again even as the labor force participation rate ticked lower…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 223,000 jobs in May, after the previously estimated payroll job increase for March was revised up from 135,000 to 155,000, while the payroll jobs increase for April was revised down from 164,000 to 159,000…with those revisions, that means that this report represents 238,000 more seasonally adjusted payroll jobs than were reported last month, somewhat more than the past year’s average increase of 197,000 jobs per month…the unadjusted data shows that there were actually 943,000 more payroll jobs extant in May than in April, as typical seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were reduced to a normal level by the seasonal adjustments…
Seasonally adjusted job increases were spread through throughout the private goods producing and service sectors, with only the utility sector showing a 1,100 job decrease….the health care and social assistance sector saw the largest increase, adding 31,700 jobs, with 6,200 of those in hospitals and 4,500 in outpatient care centers…the retail sector added 31,100 jobs, with the addition of 13,400 employees in general merchandise stores…broad professional and business services sector added another 31,000 jobs, as 7,600 found employment in the management of companies and enterprises….seasonally adjusted employment in construction rose by 25,000, with the addition of 14,800 more workers than the normal seasonal additions by nonresidential specialty trade contractors….in addition, the leisure and hospitality sector added 21,000 more jobs than their usual May, with the addition of 17,600 more jobs in bars and restaurants, and the transportation and warehousing sector added 18,700 employees, with the addition of 6,600 truck drivers and 6,600 in warehousing and storage….manufacturing also saw an 18,000 job increase, with the addition of 5,800 workers in the production of machinery….meanwhile, the other major sectors, including mining, 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 8 cents an hour to $26.92 an hour in May, after it had increased by 4 cents an hour in April; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $22.59 an hour….employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours in May, while hours for production and non-supervisory personnel was unchanged at 33.8 hours…however, the manufacturing workweek was down by 0.2 hours at 40.8 hours, while average factory overtime decreased by 0.2 hours to 3.5 hours…
At the same time, the seasonally adjusted extrapolation from the May household survey estimated indicated that the number of those who were employed rose an estimated 293,000 to 155,474,000, while the similarly estimated number of those who were unemployed fell by 281,000 to 6,065,000; which thus meant a net increase of just 12,000 in the total labor force…since the working age population had grown by 182,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 170,000 to a record 95,915,000….meanwhile, that small increase of those in the labor force as a percentage of the increasing working population was enough to cause the labor force participation rate to tick down 0.1% to 62.7%….at the same time, the larger increase in number employed vis a vis the increase in the population was just enough to bump up the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.4%…in addition, the decrease in the number counted as unemployed was also large enough to lower the unemployment rate from 3.9% to 3.8%, the lowest in 18 years….meanwhile, the number who reported they were involuntarily working part time fell by 37,000 to 4,948,000 in May, which was also enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.8% in April to 7.6% in May, the lowest since May 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..
See also:
- May 2018 ADP Job Growth Is 178,000
- May 2018 BLS Jobs Situation Improved
- 26 May 2018 Initial Unemployment Claims Rolling Average Again Worsens
- May 2018 Job Cuts Hold Steady
1st Quarter GDP Revised to Show Growth at a 2.2% Rate
The Second Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 2.2% rate in the 1st quarter, revised from the 2.3% growth rate reported in the advance estimate last month, even as growth of real fixed investment was revised higher, as growth of real personal consumption expenditures, real exports, and especially private inventories were all less than had previously been reported…in current dollars, our first quarter GDP grew at a 4.2% annual rate, increasing from what would work out to be a $19,754.1 billion a year output rate in the 4th quarter of last year to a $19,956.8 billion annual rate in the 1st quarter of this year, with the headline 2.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.9%, aka the GDP deflator, was computed and applied to the current dollar change…
As we review this month’s revisions, remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the second estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release…specifically, we cite the data from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2014, from table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts….the full pdf for the 1st quarter advance estimate, which this estimate revises, is here…
Growth in real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 1.1% growth rate reported last month to indicate growth a 1.0% rate with this estimate…that growth figure was arrived at by deflating the 3.6% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation grew at a 2.6% annual rate in the 1st quarter, which was revised from the 2.7% PCE inflation rate published a month ago…real consumption of durable goods fell at a 2.6% annual rate, which was revised from the 3.3% drop shown in the advance report, and subtracted 0.20 percentage points from GDP, as a drop in consumption of automobiles at a 11.4% rate more than offset increases in real consumption of furniture, appliances and recreational goods and vehicles, and other durable goods….real consumption of nondurable goods by individuals rose at a 0.4% annual rate, revised from the 0.1% increase reported in the 1st estimate, and added 0.06 percentage points to 1st quarter economic growth, as higher consumption of food and most other non-durables was partially offset by decreases in consumption of clothing and energy….at the same time, consumption of services rose at a 1.8% annual rate, revised from the 2.1% growth rate reported last month, and added 0.84 percentage points to the final GDP tally, as a virtually unchanged growth rate in real consumption of housing and utilities offset greater real growth in other services….
At the same time, seasonally adjusted real gross private domestic investment grew at a 7.2% annual rate in the 1st quarter, revised from the 7.3% growth estimate reported last month, as real private fixed investment grew at a 5.6% rate, rather than at the 4.6% rate reported in the advance estimate, while inventory growth was somewhat less than had been previously estimated…real investment in non-residential structures was revised from growth at a 12.3% rate to growth at a 14.2% rate, while real investment in equipment was revised to show growth at a 5.5% rate, up from the 4.7% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from real growth at a 3.6% rate to real growth at a 10.9% rate…however, real residential investment was revised lower, from virtually unchanged to shrinking at a 2.0% annual rate…after those revisions, the increase in investment in non-residential structures added 0.39 percentage points to the 1st quarter’s growth rate, the increase in investment in equipment added 0.31 percentage points to the quarter’s growth, the increase in investment in intellectual property added 0.43 percentage points, while the contraction in residential investment subtracted 0.08 percentage points from the increase in 1st quarter GDP…
Meanwhile, the growth in real private inventories was revised from the originally reported $33.1 billion in inflation adjusted dollars to show inventory grew at an inflation adjusted $20.2 billion rate…this came after inventories had grown at an inflation adjusted $15.6 billion rate in the 4th quarter, and hence the $4.6 billion increase in real inventory growth over that of the 4th quarter added 0.13 percentage points to the 1st quarter’s growth rate, revised from the 0.43 percentage point addition from inventory growth shown in the advance estimate….however, since greater growth in inventories indicates that more of the goods produced during the quarter were left “sitting on the shelf” or in a warehouse, that increase by $4.6 billion meant that real final sales of GDP were actually smaller by that much, and therefore the BEA found that real final sales of GDP rose at a 2.0% rate in the 1st quarter, revised from 1.9% real final sales rate shown in the advance estimate…
The previously reported increase in real exports was revised lower with this estimate, while the previously reported increase in real imports was revised higher, and as a result our net trade was a somewhat smaller addition to GDP rather than was previously reported…our real exports grew at a 4.2% rate, revised from the 4.8% rate shown in first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their increase added 0.51 percentage points to the 1st quarter’s growth rate, revised from the 0.59 percentage points shown last month…meanwhile, the previously reported 2.6% increase in our real imports was revised to a 2.8% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, that increase subtracted 0.43 percentage points from 1st quarter GDP….thus, our improving trade balance only added a net 0.08 percentage points to 1st quarter GDP, reduced from the 0.20 percentage point addition resulting from our improving foreign trade balance that was indicated by the advance estimate..
Finally, there was also a small statistical downward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown growing at a 1.1% rate, revised from the 1.2% growth rate for government indicated by the 1st estimate….however, real federal government consumption and investment was seen to have grown at a 1.7% rate from the 4th quarter in this estimate, which was unrevised from the growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 1.8% rate and added 0.07 percentage points to 1st quarter GDP, and all other federal consumption and investment grew at a 1.6% rate and added 0,04 percentage points to GDP, both of which were unrevised…meanwhile, real state and local consumption and investment grew at a 0.8% rate in the quarter, also the same as was shown in the 1st estimate, and added 0.08 percentage points to 1st quarter GDP, which was revised down from the 0.09 addition shown in the advance estimate, so there was apparently a fractional downward revision to real state and local consumption and investment that isn’t apparent in the growth rate..note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thereby indicating an increase in the output of those goods or services…
See also:
April Personal Incomes Up 0.3%, Personal Spending Up 0.6%, PCE Price Index Up 0.2%
Other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important economic release we see monthly; as each monthly report on personal consumption expenditures (PCE) accounts for more than 23% of GDP by itself…in addition, this report also includes the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated, monthly personal income data, disposable personal income, which is income after taxes, and our national monthly savings rate…however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they’re seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would change over a year if April’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from March to April..
Thus, when the opening line of the press release for the April report tell us “Personal income increased $49.5 billion (0.3 percent) in April“, they mean that the annualized figure for seasonally adjusted personal income in April, $16,934.5 billion, was $49.5 billion, or a bit less than 0.3% greater than the annualized personal income figure of $16,885.0 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given…at the same time, annualized disposable personal income, which is income after taxes, rose by more than 0.4%, from an annual rate of an annual rate of $14,799.9 billion in March to an annual rate of $14,860.8 billion in April….the contributors to the annualized $49.5 billion increase in personal income can be viewed in the Full Release & Tables (PDF) for this release, also as annualized amounts, and were led by a $31.0 billion increase to $8,665.8 billion in wages and salaries, a $7.3 billion increase to $2,923.4 billion in personal current transfer receipts from benefit programs, and a $6.3 billion increase to $2,508.4 billion in interest and dividend income; again, all annualized figures…
For the April personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they increased at a $79.8 billion annual rate, or less than 0.6%, as the annual rate of PCE rose from $13,827.1 billion in March to $13,906.9 in April….March PCE was revised from $13,823.9 billion annually to $13,827.1 billion, while February PCE was revised from $13,762.2 billion annually to $13,753.2 billion, revisions that were already included in last week’s GDP report….the current dollar increase in April spending resulted from a $28.2 billion annualized increase to an annualized $31.5 billion in spending for goods and a $48.2 billion increase to an annualized $9,359.4 billion in spending for services, so the contribution from April retail sales is evident….total personal outlays for April, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $86.9 billion to $14,441.2 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $419.6 billion annual rate in April, down from the revised $445.7 billion in annualized personal savings in March… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 2.8% in April, after the previously reported 3.1% March savings rate was revised to 3.0%…
As you know, before those personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….that’s done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report…that index rose from 114.258 in March to 114.512 in April, a month over month inflation rate that’s statistically 0.2223%, which BEA reports as an increase of 0.2 percent, following the statistically unchanged PCE price index reported for March…applying that April inflation adjustment to the nominal changes in PCE left real PCE up 0.4% in April, after the March real PCE increase was revised to an increase of 0.5%…note that when those PCE price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in those familiar chained 2009 dollars, which are the means that the BEA uses to compare the goods and services produced in one month or one quarter to the real goods and services produced in another….that result is shown intable 7 of the PDF, where we see that April’s chained dollar consumption total works out to 12,145.1 billion annually, 0.354% more than March’s 12,102.3 billion, an increase that the BEA reports as +0.4%…
However, to estimate the impact of the change in PCE on the change in GDP, that month over month change doesn’t help us much, since GDP is computed quarterly…thus we have to compare April’s real PCE to the the real PCE of all 3 months of the first quarter….while this release reports PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 12,065.9 billion in chained 2009 dollars..(note that’s the same as is shown in table 3 of the pdf for the 1st quarter GDP report)….when we compare April’s adjusted PCE of 12,145.1 billion to the 1st quarter real PCE of 12,065.9 billion on an annual basis, we find that April real PCE has grown at a 2.65% annual rate compared to the 1st quarter….this means that even if April real PCE does not appreciate during May and June, growth in PCE would still add 1.83 percentage points to the growth rate of the 2nd quarter…
See also:
April 2018 Headline Personal Spending Improves
Construction Spending Rose 1.8% in April; Real Construction Down 0.2% from Q1
The Census Bureau’s report on construction spending for April (pdf) estimated that the month’s seasonally adjusted construction spending was at a $1,310.4 billion annual rate, 1.8 percent (±1.0 percent) above the revised March annualized rate of $1,286.8 billion, and 7.6 percent (±1.5 percent) above the estimated annualized level of construction spending in April of last year…the annualized March construction spending estimate was revised higher by less than 0.2%, from $1,284.7 billion to $1,286.8 billion, while the annual rate of construction spending for February was also revised 0.2% higher, from $1,306.4 billion to $1,309.2 billion…those revisions together would suggest an upward revision of 0.02 percentage points to 1st quarter GDP when the third estimate is released at the end of June…
Details on different subsets of construction spending are provided by the Census release summary:
“Spending on private construction was at a seasonally adjusted annual rate of $1,014.3 billion, 2.8 percent (±0.8 percent) above the revised March estimate of $986.6 billion. Residential construction was at a seasonally adjusted annual rate of $556.3 billion in April, 4.5 percent (±1.3 percent) above the revised March estimate of $532.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $458.0 billion in April, 0.8 percent (±0.8 percent)* above the revised March estimate of $454.2 billion. In April, the estimated seasonally adjusted annual rate of public construction spending was $296.1 billion, 1.3 percent (±2.0 percent)* below the revised March estimate of $300.1 billion. Educational construction was at a seasonally adjusted annual rate of $74.2 billion, nearly the same as (±2.3 percent)* the revised March estimate of $74.2 billion. Highway construction was at a seasonally adjusted annual rate of $88.0 billion, 1.0 percent (±6.3 percent)* below the revised March estimate of $88.8 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 as government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of April’s construction spending reported in this release on 2nd 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 many different price indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf) that are used by the BEA to make those inflation adjustments, so in lieu of trying to adjust for all of those types of construction separately, 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 an estimate…that index showed that aggregate construction costs were up 1.1% from March to April, up 0.2% from February to March and up 0.1% from January to February….
On that basis, we can estimate that April construction costs were roughly 1.3% greater than those of February and 1.4% greater than those of January, and obviously 1.1% greater than those of March…we then use those percentages to inflate spending for each of those three months, which is arithmetically the same as deflating April construction spending, for comparison purposes…construction spending in millions of dollars for the first quarter is given as 1,286,766 for March, 1,309,205 for February, and 1,294,027 for January…thus to find the difference between April’s inflation adjusted construction spending and the adjusted construction spending of the first quarter, our formula becomes: 1,310,404 / ((1,286,766 * 1.011 + 1,309,205 * 1.013 + 1,294,027 * 1.014) / 3) = 0.997949, meaning real construction spending in April was actually down roughly 0.2% vis a vis the 1st quarter, or down at a 0.82% annual rate…to figure the potential effect of that change on 2nd quarter GDP, we take the annualized difference between the first quarter average inflation adjusted construction spending and April’s adjusted spending as a fraction of the real annualized 1st quarter GDP figure, and thus can estimate that real April construction spending was falling at a rate that would subtract 0.07 percentage points from the growth of 2nd quarter GDP…
See also:
- April 2018 Headline Construction Spending Three Month Rolling Average Growth Improved
- May 2018 Texas Manufacturing Survey Growth Significantly Improves
- May 2018 Manufacturing Survey Growth Rate Mixed
- Case-Shiller 20 City Home Price Index March 2018 Statistically Unchanged at 6.8 % Year-over-Year Growth
- April 2018 Pending Home Sales Seasonally Adjusted Index Remains In Contraction Year-over-Year
