Market Watch 666 For 04 August 2019

Written by rjs, MarketWatch 666

July’s jobs report; June’s income and outlays, trade deficit, construction spending and factory inventories

The major economic releases from the past week included the Employment Situation Summary for July from the Bureau of Labor Statistics and four June reports that included metrics which were either estimated or included in last week’s release of 2nd quarter GDP: the June report on Personal Income and Spending from the Bureau of Economic Analysis, the BEA report on our International Trade for June, and the June report on Construction Spending (pdf) and the Full Report on Manufacturers’ Shipments, Inventories and Orders for June, both from the Census Bureau.

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This week also saw the last regional Fed manufacturing survey for July: the Texas area manufacturing survey from the Dallas Fed, which also includes southeast New Mexico and northeast Louisiana as well as Texas, reported its broadest general business activity index rose from -12.1 in June to -6.3 in June, indicating that activity among Texas manufacturers is contracting at a slower pace…

Privately issued reports included the ADP Employment Report for July, the light vehicle sales report for July from Wards Automotive, which estimated that vehicles sold at a 16.82 million annual rate in July, down from the 17.21 million annual rate in June, but up from the 16.68 million annual rate in July a year ago, and the Case-Shiller house price indexes for May from S&P Case-Shiller, who reported that their national home price index was 3.4% higher than in the same month’s report a year ago…This week also saw the widely followed manufacturing purchasing manager’s survey from the Institute for Supply Management (ISM): the July Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 51.2% in July, down from 51.7% in June, suggesting very slow growth among manufacturing firms nationally.

See also:

• July 2019 Texas Manufacturing Survey Again Marginally Improves
• July 2019 ISM and Markit Manufacturing Surveys Continue Barely In Expansion
• July 2019 Chicago Purchasing Managers Barometer Falls Deeper In Contraction

Employers Add 164,000 Jobs in July, Manufacturing Workweek at a 66 Month Low; U6 Unemployment Rate at a 19 Year Low

The Employment Situation Summary for July from the Bureau of Labor Statistics indicated that payroll job growth was a bit below average, while the labor force participation rate and the employment to population ratio both rose because more of those not previously counted found work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 164,000 jobs in July, after the payroll job increase for May was revised down from 72,000 jobs to 62,000, and the June jobs increase was revised down from 224,000 jobs to 193,000, and hence the combined number of jobs created over those two months was 41,000 less than was previously reported….the unadjusted data shows that there were actually 1,059,000 fewer payroll jobs extant in July than in June, as the large seasonal job cutbacks associated with the end of the school year were normalized by the seasonal adjustments…

Seasonally adjusted job increases were spread through throughout the private goods producing and service sectors and government, with only the information sector seeing a statistically significant loss of 10,000 jobs, as there were 5,900 fewer jobs in the motion picture and sound recording industries…employment in health care and social assistance rose by 50,400, with the addition of 12,600 jobs in individual and family social services and 10,700 jobs in home health care services….the broad professional and business services category added 38,000 jobs, as 10,600 were added in computer systems design and management and technical consulting services added 5,800…financial industries added another 18,000 jobs, with 11,400 more employed by insurance carriers and related activities…meanwhile, employment in manufacturing increased by 16,000, mostly in the manufacture of durable goods, with 9,500 of those jobs in transportation equipment factories…the various branches of government also saw their employment increase by 16,000, as local school districts retained 11,700 more workers than they normally would in July…in addition, private educational services added 15,700 more jobs after seasonal adjustment…the leisure and hospitality sector also added a seasonally adjusted 10,000 jobs, with 15,400 more working in bars and restaurants than would be expected at this time of year…..meanwhile, the other major sectors, including mining and logging, construction, wholesale sales, retail sales, transportation and warehousing, and utilities all saw smaller changes 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 $27.98 an hour, after it had increased by a revised 8 cents an hour in June; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $23.46 an hour…employers also reported that the average workweek for all private payroll employees decreased by a tenth of an hour to 34.3 hours, while hours for production and non-supervisory personnel also fell by a tenth of an hour to 33.5 hours, a 27 month low….at the same time, the average manufacturing workweek fell by three-tenths of an hour to 40.3 hours, the lowest since January 2014, while factory overtime was down by two-tenths of an hour to 3.2 hours..

Meanwhile, the seasonally adjusted extrapolation from the July household survey estimated that the number of those employed rose by an estimated 283,000 to 157,288,000, while the similarly estimated number of those unemployed rose by 88,000 to 6,063,000; which therefore meant that July saw a net increase of 370,000 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 183,000 to 95,874,000….hence, the 370,000 increase of those in the labor force was enough to raise the labor force participation rate from 62.9% in June to 63.0% in July….at the same time, the increase in number employed vis-a-vis the increase in the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.7%…however, the increase in those unemployed vis-a-vis the increase in the total labor force meant the unemployment rate was unchanged at 3.7%….meanwhile, the number who reported they were involuntarily working part time fell by 363,000 to 3,984,000 in July, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.2% in June to 7.0% in July, the lowest since December 2000..

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:

• July 2019 BLS Jobs Situation – Continued Worst Jobs Year-to-Date Growth Since 2010
• July 2019 ADP Job Growth Is 156,000

June Personal Income Up 0.4%, Personal Spending Up 0.2%; Savings Jumps 30% on Annual Revision

Like the GDP report last week, the June Income and Outlays report also went through annual revision, with revisions from January 2014 through May 2019 for all of the metrics it reports, including personal consumption expenditures (PCE), the personal income and disposable personal income data, our savings and savings rate, and the PCE price index, the inflation gauge the Fed targets….since all the revisions made to personal consumption expenditures had already been incorporated into the GDP revisions that we looked at last week, today we’ll only consider those revisions from recent months that are relevant to putting the June change in perspective…

Also like the GDP report, all the dollar values reported in this release are seasonally adjusted and at an annual rate, ie, they tell us what income, spending and saving would be for an entire year if June’s adjusted income and spending were extrapolated over a whole year…however, the percentage changes are computed monthly, from one 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 May to June….thus, when the opening line of the news release for this report tell us “Personal income increased $83.6 billion (0.4 percent) in June..“, they mean that the annualized figure for all types of personal income in June, $18,675.9 billion, was $83.6 billion, or well more than 0.4% more than the $18,592.3 billion annualized personal income figure for May; the actual increase in personal income in June over May is not given….similarly, disposable personal income, which is income after taxes, also increased by more than 0.4%, from an annual rate of $16,384.7 billion in May to an annual rate of $16,454.5 billion in June…the contributors to the June increase in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were led by a $48.4 billion increase to $9,355.8 billion annually in wages and salaries and a $13.4 billion increase to $3,168.1 billion annually in personal transfer receipts from government programs….note that with the annual revision, the annualized figure for May personal income was revised from $18,183.5 billion up to $18,592.3 billion, and disposable personal income was revised from the originally reported 16,028.8 billion annually to $16,384.7 billion…

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in 2nd quarter GDP, rose at a $41.0 billion annual rate to a rate of $14,549.6 billion in consumer spending annually, an increase of a bit less than 0.3% from May’s PCE, which itself was revised from the previously reported annual rate of $14,468.4 billion to $14,508.6 billion….total personal outlays for June, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $62.7 billion to $15,118.5 billion, which left personal savings, which is disposable personal income less total outlays, at a $1,336.0 billion annual rate in June, up from the revised $1,310.4 billion in personal savings in May…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, was at 8.1% in June, up from 8.0% in May…we should note that as a result of the large upward revision to personal income and the smaller upward revision to personal consumption expenditures, that savings rate has jumped by 2.0% from the 6.1% previously published for May….in May’s report (pdf), before the annual revision, personal savings were reported at a $985.4 billion rate; moreover, the reported savings rate of May a year earlier was reported at 3.2%, with personal savings reported at a $482.0 annual rate, so we have had 2 consecutive annual revisions which have more than doubled the savings rate…

While our personal consumption expenditures accounted for 69.6% of our second quarter GDP, before they were included in the national measurement of the change in our output they were first 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 included in this report, which is a chained price index based on 2012 prices = 100….from Table 9 in the pdf for the June release, we find that that index rose from 109.514 in May to 109.646 in June, giving us a month over month inflation rate of 0.12053%, which BEA reports as an increase of +0.1%; at the same time, Table 11 gives us a year over year PCE price index rounded to an increase of 1.4%, and a core price increase, excluding food and energy, of 1.6% for the past year, both somewhat below the Fed’s inflation target….applying the June inflation adjustment to the change in June PCE shows that real PCE was up 0.162% in June, which BEA reports as a 0.2% change in their rounded tables…note that when those PCE price indexes are applied to a given month’s annualized current dollar PCE, it yields that month’s annualized real PCE in chained 2012 dollars, which aren’t really dollar amounts at all, but merely the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to another’s….those results are shown in tables 7 and 8 of the PDF, where you’ll see the quarterly figures given are identical to those shown in table 3 of last week’s GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP.

See also:

• June 2019 Median Household Income Upward Trend Continues
• June 2019 Headline Consumption Expenditures Growth Significantly Reduced Year-over-Year

June Trade Deficit Down 0.3% as Lower Imports of Oil & Cellphones Offset Falling Exports

Our trade deficit decreased by 0.3% in June as the value of both our exports and our imports decreased, but the value of our imports decreased by a bit more….the Commerce Department report on our international trade in goods and services for June indicated that our seasonally adjusted goods and services trade deficit fell by a rounded $0.2 billion to $55.154 billion in June from a revised May deficit of $55.344 billion, which had previously been reported at $55.5 billion…the value of our June exports fell by $4.4 billion to $206.3 billion on a $3.9 billion decrease to $137.1 billion in our exports of goods and a $0.5 billion decrease to $69.2 billion in our exports of services, while our imports fell $4.6 billion to $261.5 billion on a $4.7 billion decrease to $212.3 billion in our imports of goods which was partially offset by a $0.1 billion increase to $49.2 billion in our imports of services…export prices were on average 0.7% lower in June, so the month’s change in real exports was greater than their nominal change by that percentage, while import prices were 0.9% lower, meaning that our real imports were likewise greater than their nominal value by that percentage..

The decrease in our June exports resulted from lower exports of consumer goods, capital goods, and automotive vehicles, which were slightly offset by an increase in our exports of industrial supplies and materials….referencing the Full Release and Tables for June (pdf), in Exhibit 7 we find that our exports of consumer goods fell by $1,935 million to $16,171 million on a $793 million decrease in our exports of gem diamonds, $476 million decrease in our exports of pharmaceuticals, and a $353 million decrease in our exports of jewelry, and that our exports of capital goods fell by $1,190 million to $44,858 million on decreases of $381 million in our exports of computer accessories, $228 million in our exports of industrial machines other than those itemized separately, and $219 million in our exports of telecommunications equipment, and that our exports of automotive vehicles, parts, and engines fell by $512 million to $13,284 million on a $356 million decrease in our exports of new and used passenger cars and a $215 million decrease in our exports of trucks, buses, and special purpose vehicles…in addition, our exports of other goods not categorized by end use fell by $422 million to $5,519 million….slightly offsetting those decreases, our exports of industrial supplies and materials rose by $202 million to $44,574 million on increases in our exports of refined products and raw materials, and our exports of foods, feeds and beverages rose by $75 million to $12,046 million on a $339 million increase in our exports of soybeans…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that lower imports of cell phones, crude oil, and other petroleum products were among the reasons for the June decrease in our imports…our imports of industrial supplies and materials decreased by $3,208 million to $43,139 million on a $1,371 million decrease in our imports of crude oil, a $963 million decrease in our imports of petroleum products other than fuel oil, and a $333 million decrease in our imports of fuel oil…in addition, our imports of consumer goods fell by $915 million to $54,733 million on a $1,364 million decrease in our imports of cellphones and a $250 million decrease in our imports of furniture and similar household goods…in addition, our imports of automotive vehicles, parts and engines fell by $600 million to $32,633 million on a $247 million decrease in our imports of automotive parts other than tires, engines, bodies and chassis, our imports of capital goods fell by $335 million to $56,913 million on $389 million lower imports of civilian aircraft and $221 million lower imports of computer accessories, and our imports of foods, feeds, and beverages fell by $87 million to $12,699 million…partially offsetting the decreases in those categories, our imports of other goods not categorized by end use rose by $722 million to $10,495 million.

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

The June figures show surpluses, in billions of dollars, with South and Central America ($4.8), Hong Kong ($2.3), Brazil ($1.3), and United Kingdom ($0.1). Deficits were recorded, in billions of dollars, with China ($30.2), European Union ($15.9), Mexico ($9.2), Japan ($6.2), Germany ($5.2), Canada ($3.3), Italy ($2.6), France ($1.9), Taiwan ($1.7), India ($1.6), South Korea ($1.4), OPEC ($0.3), Saudi Arabia ($0.3), and Singapore ($0.1).

• The deficit with the European Union decreased $1.0 billion to $15.9 billion in June. Exports decreased $0.5 billion to $26.7 billion and imports decreased $1.5 billion to $42.7 billion.
• The surplus with Brazil increased $0.8 billion to $1.3 billion in June. Exports increased $0.3 billion to $3.9 billion and imports decreased $0.5 billion to $2.6 billion.
• The balance with Singapore shifted from a surplus of $0.6 billion to a deficit of $0.1 billion in June. Exports decreased $0.2 billion to $2.5 billion and imports increased $0.4 billion to $2.6 billion. *

In the advance report on 2nd quarter GDP released last week, our June trade deficit was estimated based on the Advance Report on our International Trade in Goods which was also released last week, just before the GDP release…that report estimated that our June goods trade deficit was at $74,171 million on a Census basis, down from the $75,049 million goods deficit reported in May…this report revises those figures and shows that our actual goods trade deficit in June was $75,121 million on a balance of payments basis, and $74,161 million on a Census basis, and that the May goods deficit was revised to $74,802 million on a Census basis…together, those revisions from the previously published data mean that the 2nd quarter goods trade deficit was roughly $257 million less than the estimate that was used in last week’s GDP report, or a bit over $1.0 billion more at an annual rate, which would indicate a upward revision of roughly 0.02 percentage points to 2nd quarter GDP when the 2nd estimate is released at the end of August…note that the BEA’s key source data and assumptions reports services at an annual rate which this report does not, but that May’s exports of services were revised down by $0.1 billion and May’s imports of services were revised down by $0.1 billion at the same time, revisions which should on net cancel each other out.

See also:

• June 2019 Headline Trade Data Shows Slowing of Imports and Exports

Construction Spending Fell 1.3% in June after Prior Months Were Revised Higher

The Census Bureau report on construction spending for June (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,287.0 billion annually if extrapolated over an entire year, which was 1.3 percent (±1.2 percent) below the revised annualized estimate of $1,332.2 billion of construction spending for May and 2.1 percent (±1.6 percent) below the estimated annualized level of construction spending in June of last year…the May annualized construction spending estimate was revised more than 0.7% higher, from $1,293.9 billion to $1,303.4 billion, while the annual rate of construction spending for April was revised nearly 0.5% higher, from $1,304.0 billion to $1,310.1 billion….

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 $962.9 billion, 0.4 percent (±0.8 percent)* below the revised May estimate of $967.0 billion. Residential construction was at a seasonally adjusted annual rate of $507.2 billion in June, 0.5 percent (±1.3 percent)* below the revised May estimate of $509.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $455.7 billion in June, 0.3 percent (±0.8 percent)* below the revised May estimate of $457.3 billion.
• Public Construction: In June, the estimated seasonally adjusted annual rate of public construction spending was $324.1 billion, 3.7 percent (±2.0 percent) below the revised May estimate of $336.4 billion. Educational construction was at a seasonally adjusted annual rate of $73.0 billion, 6.8 percent (±2.0 percent) below the revised May estimate of $78.3 billion. Highway construction was at a seasonally adjusted annual rate of $101.9 billion, 6.4 percent (±5.4 percent) below the revised May estimate of $108.9 billion.

Construction spending for April and May was higher than what was reported by the BEA in the advance report for 2nd quarter GDP last week, while construction spending for June was lower…as we saw above, annualized construction spending for April was revised $6.1 billion higher, and annualized construction spending for May was revised $9.5 billion higher…in reporting 2nd quarter GDP, the Excel file with key source data and assumptions accompanying the report indicated on line 84 that they had estimated that the value of June nonresidential construction would be $0.7 billion greater than that of the previously reported May figure, that June residential construction on lines 110 and 111 would be $1.3 billion greater than that of the reported May figure, and that the value of June public construction shown on line 200 would be unchanged from the previously published May figure…hence, the figures used by the BEA for total June construction in the 2nd quarter GDP report were $2.0 billion greater than the previously published May figure…with June construction now reported down $16.4 billion from a May figure that was revised $9.5 billion higher, that means that the BEA had overestimated annualized June construction spending by $8.9 billion when reporting 2nd quarter GDP…thus, after averaging the revisions to the three months, the total revised annualized figure for 2nd quarter construction spending would thus be $2.2 billion more than the figures used by the BEA when computing 2nd quarter GDP, implying they’d need an upward revision of roughly 0.05 percentage points to 2nd quarter GDP when the 2nd estimate is released at the end of August.

See also:

• June 2019 Construction Spending Year-over-Year Growth Falls Deeper In Contraction

Factory Shipments Up 0.4% in June, Factory Inventories Up 0.2%

The Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $3.1 billion or 0.6 percent to $493.8 billion in June, following a drop of 1.3% to $490.7 billion in May, which was revised from the 0.7 percent decrease to $493.6 billion reported for May 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 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 June, up following two consecutive monthly decreases, increased $3.1 billion or 0.6 percent to $493.8 billion, the U.S. Census Bureau reported today. This followed a 1.3 percent May decrease. Shipments, up four of the last five months, increased $1.9 billion or 0.4 percent to $506.2 billion. This followed a 0.1 percent May increase. Unfilled orders, down four of the last five months, decreased $8.0 billion or 0.7 percent to $1,160.2 billion. This followed a 0.8 percent May decrease. The unfilled ordersâ€toâ€shipments ratio was 6.53, down from 6.62 in May. Inventories, up nine of the last ten months, increased $1.3 billion or 0.2 percent to $695.6 billion. This followed a 0.2 percent May increase. The inventoriesâ€toâ€shipments ratio was 1.37, down from 1.38 in May.
• New orders for manufactured durable goods in June, up following two consecutive monthly decreases, increased $4.5 billion or 1.9 percent to $245.4 billion, down from the previously published 2.0 percent increase. This followed a 2.3 percent May decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $2.9 billion or 3.7 percent to $80.4 billion. New orders for manufactured nondurable goods decreased $1.3 billion or 0.5 percent to $248.4 billion.
• Shipments of manufactured durable goods in June, up two consecutive months, increased $3.2 billion or 1.3 percent to $257.7 billion, down from the previously published 1.4 percent increase. This followed a 0.5 percent May increase. Transportation equipment, also up two consecutive months, led the increase, $2.6 billion or 3.0 percent to $88.7 billion. Shipments of manufactured nondurable goods, down two consecutive months, decreased $1.3 billion or 0.5 percent to $248.4 billion. This followed a 0.3 percent May decrease. Petroleum and coal products, also down two consecutive months, drove the decrease, $2.2 billion or 4.1 percent to $52.1 billion.
• Unfilled orders for manufactured durable goods in June, down four of the last five months, decreased $8.0 billion or 0.7 percent to $1,160.2 billion, unchanged from the previously published decrease. This followed a 0.8 percent May decrease. Transportation equipment, also down four of the last five months, drove the decrease, $8.3 billion or 1.0 percent to $792.5 billion.
• Inventories of manufactured durable goods in June, up eleven of the last twelve months, increased $1.4 billion or 0.3 percent to $426.0 billion, unchanged from the previously published increase. This followed a 0.5 percent May increase. Transportation equipment, also up eleven of the last twelve months, led the increase, $1.2 billion or 0.9 percent to $139.7 billion. Inventories of manufactured nondurable goods, down three consecutive months, decreased $0.1 billion or virtually unchanged to $269.6 billion. This followed a 0.2 percent May decrease. Petroleum and coal products, down two consecutive months, drove the decrease, $1.0 billion or 2.4 percent to $40.0 billion. By stage of fabrication, June materials and supplies increased 0.1 percent in durable goods and increased 0.4 percent in nondurable goods. Work in process increased 0.5 percent in durable goods and decreased 1.3 percent in nondurable goods. Finished goods increased 0.5 percent in durable goods and increased 0.2 percent in nondurable goods.

The BEA’s key source data and assumptions (xls) for the advance estimate of second quarter GDP indicates on line 143 that they had estimated that the value of non-durable goods inventories would be unchanged before any inflation adjustment in June, while this report indicates that total non-durable goods inventories actually decreased in value by $0.1 billion, which would indicate that they overestimated the change in the 2nd quarter GDP inventory component by about $0.4 billion on an annualized basis, which would suggest that 2nd quarter GDP might have to be revised downwards by 0.01 percentage point to account for what this report shows…note that durable goods inventories, which had also been used as source data for the advance estimate of GDP, were unchanged from the previously published increase with this report.

See also:

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