Market Watch 666 For 08 Sept 2019

Written by rjs, MarketWatch 666

August’s jobs report; July’s trade deficit, construction spending & 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.

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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 16.99 million annual rate in August, up from the 16.82 million annual rate in July, and up from the 16.66 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) fell to 49.1% in August, down from 51.2% in July, and the lowest reading since January 2016, and the August Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 56.4% in August, up from 53.7% 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.

See also:

• August 2019 ADP Job Growth Is 195,000
• 2Q2019 Final Headline Labor Costs Now Growing Faster Than Productivity
• August 2019 ISM and Markit Services Significantly Disagree

Employers Add 130,000 Jobs in August; Employment Rate at a 10 Year High as 590,000 Find Work

The Employment Situation Summary for August reported weak job creation despite a boost from Census hiring, but that those who reported they were employed jumped by the most in over a year, resulting in the highest employment rate since December 2008….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 130,000 jobs in August, after the payroll job increase for July was revised down from 164,000 to 159,000, and the payroll jobs increase for June was revised down from 193,000 to 178,000…those revisions mean that this report represents a total of just 110,000 more seasonally adjusted payroll jobs than were reported last month, less than the increase in the working age population and far less than the 174,000 monthly average job gain over the last 12 months…the unadjusted data shows that there were actually 348,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,074,000 jobs, so large seasonal adjustments continue to impact the monthly headline job count…

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors and government, which were offset by decreases of 11,100 jobs in the retail sector, 5,400 jobs in private education, 5,000 jobs in mining, 1,400 utility jobs, and 500 jobs in transportation and warehousing….the broad professional and business services category added 37,000 jobs, as 10,200 more were added by computer systems design services and 15,400 more workers found work with temporary employment services….employment in health care and social assistance rose by 36,800, with the addition of 17,100 jobs with individual and family services and 8,800 jobs in hospitals….federal government payrolls increased by 28,000, with the initial hiring of 25,000 for the decennial census, and another 15,000 found jobs in the financial sector, with 7,500 of those in insurance……employment in construction increased by 14,000, with 7,000 of those working on residential buildings, while the leisure and hospitality sector added a seasonally adjusted 12,000 jobs, by virtue of the addition of 11,900 more jobs in bars and restaurants…meanwhile, the other major sectors, including manufacturing, wholesale trade, and state and local government all saw increases of less than 10,000 in payroll employment over the month, while employment in the information sector was unchanged….

The establishment survey also showed that average hourly pay for all employees rose by 11 cents an hour to $28.11 an hour, after it had increased by a revised 9 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 11 cents to $23.59 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 increased by 0.1 hour to 34.4 hours in August, while hours for production and non-supervisory personnel increased by 0.1 hour to 33.6 hours…meanwhile, the manufacturing workweek increased by 0.2 hours to 40.6 hours, while average factory overtime fell by a tenth of an hour to 3.2 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 rose by an estimated 590,000 to 157,878,000, the biggest jump in the employed since February of last year, while the similarly estimated number of those who would report unemployment fell by 19,000 to 6,044,000; which together meant that August saw a net increase of 571,000 in the total labor force.…since the working age population had grown by 207,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 364,000 to 95,510,000, while the labor force participation rate increased by 0.2% to 63.2%….at the same time, the jump in number employed vis-a-vis the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.2% to 60.9%, the highest since December 2008…on the other hand, the decrease in count of those unemployed as a percentage of the labor force was not enough to change the unemployment rate, as it remained at 3.7%…..meanwhile, the number who reported they were involuntarily working part time rose by 397,000 to 4,381,000 in August, which was enough to increase the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 7.0% in July to 7.2% in August…..

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:

• August 2019 BLS Jobs Situation – Another Poor Employment Picture
• August 2019 Job Cuts: Surge In Tech, Health Care, and Manufacturing

July Trade Deficit Down 2.7% After 2nd Quarter Deficits Revised Higher

Our trade deficit fell by 2.7% in July as the value of our exports increased and the value of our imports decreased….the Census report on our international trade in goods and services for July indicated that our seasonally adjusted goods and services trade deficit decreased by $1.519 billion to $53,989 billion in July from a revised June deficit of $55,508 billion, which had previously been reported at $55.154 billion…trade figures going back to January were revised with this report, which on net left the 2nd quarter trade deficit more than $1.6 billion higher than was previously reported, suggesting a downward revision to 2nd quarter GDP, the magnitude of which depends on the 1st quarter revisions…after rounding, the value of our July exports rose by $1.2 billion to $207.4 billion on a $1.2 billion increase to $138.2 billion in our exports of goods, which was slightly offset by a decrease of less than $0.1 billion to $69.2 billion in our exports of services, while our imports fell by $0.4 billion to $261.4 billion on a $0.4 billion decrease to $211.8 billion in our imports of goods and less than a $0.1 billion increase to $49.6 billion in our imports of services…export prices were on average 0.2% higher in July, so the month’s change in real exports was less than their nominal change by that percentage, while import prices were also 0.2% higher, meaning that our real imports were likewise smaller than their nominal value by that percentage..

The increase in our July exports was due to greater exports of consumer goods, capital goods and automobiles, which were partially offset by a drop in our exports of industrial supplies and materials….referencing the Full Release and Tables for July (pdf), in Exhibit 7 we find that our exports of consumer goods rose by $1,549 million to $17,720 million on a $1190 million increase in our exports of pharmaceutical preparations and a $251 million increase in our exports of artwork, antiques, and other collectibles, and that our exports of capital goods rose by $831 million to $45,690 million on a $598 million increase in our exports of drilling & oilfield equipment and a $257 million increase in our exports of civilian aircraft, and that our exports of automotive vehicles, parts, and engines rose by $615 million to $13,901 million on a $676 million increase in our exports of new and used passenger cars…in addition, our exports of other goods not categorized by end use rose by $124 million to $5,682 million…partially offsetting those increases, our exports of industrial supplies and materials fell by $1,417 million to $42,837 million on a $510 million decrease in our exports of crude oil, a $231 million decrease in our exports of metallurgical grade coal, a $226 million decrease in our exports of fuel oil, and a $217 million decrease in our exports of petroleum products other than fuel oil, and our exports of foods, feeds and beverages fell by $244 million to $11,779 million on a $76 million decrease in our exports of soybeans…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that a drop in our imports of capital goods was responsible for the $0.4 billion decrease in our goods imports, while their drop was partially offset by increased imports of industrial supplies and materials and consumer goods…our imports of capital goods fell by $1,506 million to $55,408 million on a $1,406 million decrease in our imports of computers and a $203 million decrease in our imports of semiconductors, and our imports of other goods not categorized by end use fell by $697 million to $9,797 million…mostly offsetting those decreases, our imports of industrial supplies and materials rose by $860 million to $44,008 million on an increase of $953 million in our imports of petroleum products other than fuel oil, an increase of $270 million in our imports of fuel oil, an increase of $265 million in our imports of fertilizers and an increase of $219 million in our imports of organic chemicals, which were in turn themselves offset by a decrease of $1153 million in our imports of crude oil…in addition, our imports of consumer goods rose by $604 million to $55,344 million on an increase of $514 million in our imports of cellphones, a $490 million increase in our imports of toys, games, and sporting goods, and a $231 million increase in our imports of furniture, offset by a $326 million decrease in our imports of artwork, antiques, and other collectibles and $304 million decrease in our imports of televisions, while our imports of automotive vehicles, parts and engines rose by $106 million to $32,738 million as a $543 million decrease in our imports of passenger cars was more than offset by a $391 increase in our imports of vehicle parts and accessories, and increased imports of trucks, buses, and special purpose vehicles, engines, and tires….in addition. our imports of foods, feeds, and beverages rose by $72 million to $12,770 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 July figures show surpluses, in billions of dollars, with South and Central America ($3.7), Hong Kong ($2.4), Brazil ($0.7), United Kingdom ($0.3), OPEC ($0.3), and Singapore ($0.1). Deficits were recorded, in billions of dollars, with China ($29.6), European Union ($15.9), Mexico ($8.9), Germany ($6.2), Japan ($5.9), Italy ($3.1), Canada ($3.1), India ($2.1), Taiwan ($2.0), France ($1.9), South Korea ($1.5), and Saudi Arabia (less than $0.1).

• • The balance with members of OPEC shifted from a deficit of $0.3 billion to a surplus of $0.3 billion in July. Exports decreased $0.3 billion to $3.6 billion and imports decreased $0.8 billion to $3.3 billion.
• • The deficit with China decreased $0.5 billion to $29.6 billion in July. Exports decreased $0.3 billion to $9.3 billion and imports decreased $0.8 billion to $39.0 billion.
• • The surplus with South and Central America decreased $1.1 billion to $3.7 billion in July. Exports decreased $0.9 billion to $13.0 billion and imports increased $0.2 billion to $9.3 billion.

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 148369.7 million monthly in 2012 dollars, while inflation adjusted July exports were at 148,740 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 1.00% annual rate above those of the 2nd quarter, or at a pace that would add about 0.12 percentage points to 3rd quarter’s GDP if they were continued through August and September…..in a similar manner, we find that our 2nd quarter real imports averaged 233,235 million monthly in chained 2012 dollars, while inflation adjusted July imports were at 234,249 million…that would indicate that so far in the 3rd quarter, our real imports have grown at annual rate of roughly 1.75% 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 1.75% rate would subtract about 0.27 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 0.15 percentage points 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 an easy way to adjust for all their price changes.

See also:

• July 2019 Headline Trade Data Shows Inflation Adjusted Trade Improving

Construction Spending Rose 0.1% in July after 2nd Quarter Spending was 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 $1,288.8 billion annually if extrapolated over an entire year, which was less than 0.1 percent (±1.3 percent)* above the revised annualized estimate of $1,288.1 billion of construction spending in June but 2.7 percent (±1.6 percent) below the estimated annualized level of construction spending in July of last year….the June construction spending estimate was revised 0.1% higher, from $1,287.0 billion to $1,288.1 billion, while the annual rate of construction spending for May was revised nearly 0.5% lower, from $1,303.4 billion to $1,297.464 billion….on net, those revisions would suggest a downward revision of 0.03 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…

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 $963.1 billion, 0.1 percent (±0.7 percent)* below the revised June estimate of $963.7 billion. Residential construction was at a seasonally adjusted annual rate of $506.7 billion in July, 0.6 percent (±1.3 percent)* above the revised June estimate of $503.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $456.4 billion in July, 0.8 percent (±0.7 percent) below the revised June estimate of $460.2 billion.
• Public Construction: In July, the estimated seasonally adjusted annual rate of public construction spending was $325.7 billion, 0.4 percent (±2.5 percent)* above the revised June estimate of $324.3 billion. Educational construction was at a seasonally adjusted annual rate of $73.3 billion, 1.6 percent (±2.8 percent)* above the revised June estimate of $72.1 billion. Highway construction was at a seasonally adjusted annual rate of $97.0 billion, 2.7 percent (±6.4 percent)* below the revised June estimate of $99.7 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 an approximate estimate…

That price index showed that aggregate construction costs were up 0.6% in July, after rising 0.2% in June but after being unchanged from April to May…on that basis, we can estimate that July construction costs were roughly 0.8% more than those of May and those of April, and obviously 0.6% 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 1,288,070 for June, 1,297,464 for May, and 1,307,136 for April, while it was at 1,288,794 million in July …thus to compare July’s inflation adjusted construction spending to that of the first quarter, our arithmetic formula becomes: 1,288,794 / (((1,288,070 * 1.006) + (1,297,464 *1.008) + (1,307,136 * 1.008)) / 3) = 0.98601, meaning real construction spending in July was down 1.4% vis a vis the 2nd quarter, or down at a 5.6% 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 0.42 percentage points from 3rd quarter GDP should we see no improvement from July’s adjusted figures in August or September.

See also:

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

Factory Shipments Down 0.2% in July, Factory Inventories Up 0.2%

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 rose by $6.9 billion or 1.4 percent to $500.3 billion in July, following an increase of 0.5% to $493.4 billion in June, which was revised from the 0.6% increase to $493.8 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 last week…on those revisions, the Census Bureau’s own 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 July, up two consecutive months, increased $6.9 billion or 1.4 percent to $500.3 billion, the U.S. Census Bureau reported today. This followed a 0.5 percent June increase. Shipments, down following two consecutive monthly increases, decreased $0.9 billion or 0.2 percent to $504.0 billion. This followed a 0.1 percent June increase. Unfilled orders, up following three consecutive monthly decreases, increased $0.6 billion or virtually unchanged to $1,161.5 billion. This followed a 0.6 percent June decrease. The unfilled orders‐to‐shipments ratio was 6.67, up from 6.55 in June. Inventories, up ten of the last eleven months, increased $1.2 billion or 0.2 percent to $696.5 billion. This followed a 0.1 percent June increase. The inventories‐to‐shipments ratio was 1.38, unchanged from June.
• New orders for manufactured durable goods in July, up two consecutive months, increased $5.0 billion or 2.0 percent to $250.2 billion, down from the previously published 2.1 percent increase. This followed a 1.8 percent June increase. Transportation equipment, also up two consecutive months, drove the increase, $5.7 billion or 7.0 percent to $86.4 billion. New orders for manufactured nondurable goods increased $2.0 billion or 0.8 percent to $250.1 billion.
• Shipments of manufactured durable goods in July, down following two consecutive monthly increases, decreased $2.9 billion or 1.1 percent to $253.9 billion, unchanged from the previously published decrease. This followed a 0.9 percent June increase. Transportation equipment, also down following two consecutive monthly increases, led the decrease, $1.8 billion or 2.0 percent to $86.5 billion. Shipments of manufactured nondurable goods, up following two consecutive monthly decreases, increased $2.0 billion or 0.8 percent to $250.1 billion. This followed a 0.7 percent June decrease. Petroleum and coal products, also up following two consecutive monthly decreases, led the increase, $1.3 billion or 2.4 percent to $53.4 billion.
• Unfilled orders for manufactured durable goods in July, up following three consecutive monthly decreases, increased $0.6 billion or virtually unchanged to $1,161.5 billion, down from the previously published 0.1 percent increase. This followed a 0.6 percent June decrease. Fabricated metal products, up two consecutive months, led the increase, $0.4 billion or 0.5 percent to $86.5 billion.
• Inventories of manufactured durable goods in July, up twelve of the last thirteen months, increased $1.4 billion or 0.3 percent to $427.1 billion, down from the previously published 0.4 percent increase. This followed a 0.3 percent June increase. Transportation equipment, also up twelve of the last thirteen months, led the increase, $1.4 billion or 1.0 percent to $141.1 billion. Inventories of manufactured nondurable goods, down four consecutive months, decreased $0.2 billion or 0.1 percent to $269.4 billion. This followed a virtually unchanged June decrease. Chemical products, down following two consecutive monthly increases, drove the decrease, $0.2 billion or 0.3 percent to $90.7 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 increased by 0.3% at $243,670 million; the value of work in process inventories rose 0.5% to $214,950 million, and materials and supplies inventories were valued 0.2% lower at $237,864 million.…meanwhile, the July producer price index reported that prices for finished goods were on average 0.4% higher, that prices for intermediate processed goods were on average 0.2% higher, while prices for unprocessed goods were 1.6% higher….assuming similar valuations for like types of inventories, that would suggest that July’s real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were 0.3% higher, and real raw material inventory inventories were about 1.8% lower…since real NIPA factory inventories were somewhat higher in the 2nd quarter, the fact that this report appears to indicate a real decrease in aggregate July factory inventories will therefore have a corresponding negative impact on the growth rate of 3rd quarter GDP.

See also:

• July 2019 Headline Manufacturing New Orders Improves

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