Market Watch 666 For 06 October 2019

Written by rjs, MarketWatch 666

Real Construction Contraction on Track to Subtract 47 Basis Points from Q3 GDP

In addition to the Employment Situation Summary for September from the Bureau of Labor Statistics, this week saw the release of three August reports from the Census Bureau that incorporate major contributions to 3rd quarter GDP: the August report on our International Trade, the August report on Construction Spending (pdf), and the Full Report on Manufacturers’ Shipments, Inventories and Orders for August.

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In addition, this week also saw the release of the last regional Fed manufacturing survey for September: the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity index fell from +2.7 in August to +1.5 in September, suggesting an even more sluggish expansion of the Texas region manufacturing economy, after 3 prior months of contraction…

This week’s major privately issued reports included the ADP Employment Report for September and the September report on light vehicle sales from Wards Automotive, (the source of the BEA’s data) which estimated that vehicles sold at a 17.19 million annual rate in September, up from the 16.99 million annual pace in August, but down from the 17.36 million annual rate in September of last year…both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM) were also released this week: the September Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 47.8% in September, down from 49.1% in August, suggesting a deeper contraction of manufacturing nationally, while the September Non-Manufacturing Report On Business saw the NMI (non-manufacturing index) fall to 52.6% in September, down from 56.4% in August, indicating a considerably smaller plurality of service industry purchasing managers reported expansion in various facets of their business in September…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:

• September 2019 Texas Manufacturing Survey Declines
• September 2019 Chicago Purchasing Managers Barometer Back To Contraction
• September 2019 ISM and Markit Manufacturing Surveys Weak with ISM In Contraction

Employers Add 136,000 Jobs in September; Unemployment Rate Falls to 3.5%, a 50 Year Low

The Employment Situation Summary for September indicated relatively weak job creation, even as the unemployment rate fell 0.2% to 3.5%, a 50 year low…estimates extrapolated from the establishment survey data projected that employers added a seasonally adjusted 136,000 jobs in September, after the previously estimated payroll job increase for July was revised up from 159,000 to 166,000 and the payroll jobs increase for August was revised up from 130,000 to 168,000….thus, with revisions, that this report represents a total of 181,000 more seasonally adjusted payroll jobs than were reported last month, pretty close to the monthly average increase over the past year…the unadjusted data, meanwhile, shows that there were actually 362,000 more payroll jobs in September, largely due to job increases relating to the beginning of the school year, so the seasonal adjustment brought the headline jobs number down to a level where that normal September increase was negated…

Seasonally adjusted job increases in September were seen throughout the private goods producing and service sectors and in government, with only jobs in retail sales and durable goods manufacturing seeing employment decreases of 11,400 and 4,100 jobs respectively…the health care sector saw 38,800 jobs added in September, with the addition of 9,500 jobs in offices of health practitioners other than doctors and dentists, and 8,100 jobs in hospitals…the broad professional and business services sector saw the addition of 34,000 jobs, with 11,600 more employed by employment services and 5,600 more positions in management and technical consulting services…in addition, the government sector saw a 22,000 seasonally adjusted increase, with 7,600 more employed by local governments outside of school districts, and 6,400 more than seasonal in school districts…in addition, the leisure and hospitality sector added 21,000 more jobs, including 13,400 in amusements, gambling, and recreation, while there were 15,700 more jobs in the transportation and warehousing sector, as 10,500 more were employed in ground transportation of passengers….meanwhile, the other major sectors, including construction, nondurable goods manufacturing, wholesale trade, information, financial activities, and utilities all saw increases of less than 10,000 in payroll employment over the month, while there was no net change in the resource exploitation sector…

The establishment survey also showed that average hourly pay for all employees fell by one cent an hour to $28.09 an hour, after it had increased by a revised 11 cents an hour in August; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $23.65 an hour…employers also reported that the average workweek for all private payroll employees remained unchanged at 34.4 hours in September, while hours for production and non-supervisory personnel were unchanged at 33.6 hours, after their August workweek increased by a tenth of an hour…at the same time, the manufacturing workweek was unchanged at 40.5 hours after a downward August revision from the originally reported 40.6 hours, while average factory overtime was unchanged at 3.2 hours without any August revision…

Meanwhile, the seasonally adjusted extrapolation from the September household survey indicated that the number of those who would self-report being employed rose by an estimated 391,000 to 158,269,000, while the similarly estimated number of those who would qualify as being unemployed fell by 275,000 to 5,964,000; and hence the labor force increased by a net of 117,000…however, since the working age population had grown by 206,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 89,000 to 95,599,000, which was still not enough to change the labor force participation rate, which remained at 63.2%…however, the relatively large increase in number employed was enough to boost the employment to population ratio, which we could think of as an employment rate, as it rose from 60.9% to 61.0%…at the same time, the relatively large drop in the number unemployed was also enough to decrease the unemployment rate from 3.7% to 3.5%, which was the lowest unemployment rate since December 1969…meanwhile, the number of the employed who reported they were forced to accept just part time work fell by 31,000, from 4,381,000 in August to 4,350,000 in September, 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 August to 6.9% of the labor force in September, 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:

• September 2019 BLS Jobs Situation – Employment Picture Remains Weak
• September 2019 ADP Job Growth Is 135,000
• September 2019 Job Cuts Decline
• Weekly Economic Release Summary: Real Employment Numbers?

August Trade Deficit Rose 1.6% on Lower Exports of Civilian Aircraft & Higher Imports of Cellphones

Our trade deficit rose by 1.6% in August as the value of both our exports and our imports increased, but the value of our imports increased by more….the Commerce Dept report on our international trade in goods and services for August indicated that our seasonally adjusted goods and services trade deficit rose by $0.9 billion to $54.9 billion in August from a revised July deficit of $54.0 billion, statistically the same as had been reported last month…after rounding, the value of our August exports rose by $0.5 billion to $207.9 billion on a $0.4 billion increase to $138.6 billion in our exports of goods and a $0.1 billion increase to $69.3 billion in our exports of services, while the value of our imports rose by $1.3 billion to $262.8 billion on a 1.2 billion increase to $213.0 billion in our imports of goods and a $0.1 billion increase to $49.8 billion in our imports of services…prices for our exports were on average 0.6% lower in August, which means the relative real change in exports for the month was greater than the nominal change by that percentage, while import prices were 0.5% lower, meaning that relative real change in imports was similarly greater than the nominal dollar values reported here by that percentage…

The increase in our August exports of goods resulted from greater exports of industrial supplies and farm products, which were partially offset by lower exports of capital goods and consumer goods…referencing the Full Release and Tables for August (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $1,456 million to $44,283 million on an $841 million increase in our exports of fuel oil, a $361 million increase in our exports of non-monetary gold, and a $311 million increase in our exports of petroleum products other than fuel oil, and that our exports of foods, feeds and beverages rose by $481 million to $12,290 million on a $261 million increase in our exports of soybeans…in addition, our exports of automotive vehicles, parts, and engines rose by $378 million to $14,281 million on a $369 million increase in our exports of trucks, buses, and special purpose vehicles, while our exports of other goods not categorized by end use rose by $383 million to $6,102 million…partially offsetting the increases in those categories, our exports of capital goods fell by $1,433 million to $44,258 million on a $1,291 million decrease of in our exports of civilian aircraft and a $516 million decrease of in our exports of drilling & oilfield equipment, while our exports of consumer goods fell by $854 million to $16,877 million on an $804 million decrease in our exports of pharmaceuticals and a $289 million decrease in our exports of artwork, antiques, and other collectibles…

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that higher imports of consumer goods and capital goods were responsible for the $1.2 billion increase in our imports of goods, as our imports in all other categories decreased…our imports of consumer goods rose by $1,890 million to $57,225 million on a $1,149 increase in our imports of cellphones, a $319 increase in our imports of pharmaceuticals, a $288 increase in our imports of artwork, antiques, and other collectibles and a $230 increase in our imports of jewelry, while our imports of capital goods rose by $1,861 million to $57,271 million on a $800 million increase in our imports of semiconductors and a $370 million increase in our imports of industrial machines other than those itemized separately….partially offsetting the increases in those two categories, our imports of industrial supplies and materials fell by $1,461 million to $42,536 million on a $740 million decrease in our imports of petroleum products other than fuel oil, a $554 million decrease in our imports of crude oil, a $311 million decrease in our imports of iron and steel mill products, and a $201 million decrease in our imports of organic chemicals, which were partially offset a $385 million increase in our imports of nonmonetary gold….in addition, our imports of automotive vehicles, parts and engines fell by fell by $790 million to $31,953 million on a $776 million decrease in our imports of new & used passenger cars, our imports of foods, feeds, and beverages fell by $157 million to $31,953 million on a $151 million decrease in our imports of fruits and fruit juices, and our imports of other goods not categorized by end use fell by $249 million to $9,549 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 August figures show surpluses, in billions of dollars, with South and Central America ($5.0), Hong Kong ($2.2), Brazil ($1.4), OPEC ($0.8), Singapore ($0.7), United Kingdom ($0.6), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($28.9), European Union ($15.6), Mexico ($8.4), Germany ($6.9), Japan ($6.1), Italy ($2.6), India ($2.4), Taiwan ($2.3), South Korea ($2.1), Canada ($1.6), and France ($1.5).

• • The deficit with Germany increased $0.7 billion to $6.9 billion in August. Exports increased $0.2 billion to $4.9 billion and imports increased $0.8 billion to $11.8 billion.
• • The deficit with South Korea increased $0.5 billion to $2.1 billion in August. Exports increased $0.1 billion to $4.8 billion and imports increased $0.7 billion to $6.9 billion.
• • The deficit with Canada decreased $1.4 billion to $1.6 billion in August. Exports increased $0.6 billion to $24.8 billion and imports decreased $0.8 billion to $26.4 billion.

To gauge the impact of July and August goods trade on 3rd quarter GDP growth figures, we use exhibit 10 in the full 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 148,369.7 million monthly in 2012 dollars, while the similarly inflation adjusted July and August goods exports were at 148,776 million and 150,403 million respectively, in that same 2012 dollar quantity index representation…computing the annual rate of change between the second and third quarter inflation adjusted averages, we find that the 3rd quarter’s real exports of goods are running at a 3.33% annual rate above those of the 2nd quarter, or at a pace that would add about 0.27 percentage points to 3rd quarter GDP if it were continued through 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 and August imports were at 234,132 million and 236,064 million in 2012 dollars respectively…that would mean that so far in the 3rd quarter, our real imports have grown at 3.23% annual rate 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 3.23% rate would thus subtract 0.30 percentage points from 3rd quarter GDP…(note that imports are larger than exports and hence the smaller percentage here has a larger impact)….hence, if our July and August trade deficit in goods remains at these same levels throughout September, our deteriorating balance of trade in goods would subtract a net of about 0.03 percentage points from the growth of 3rd quarter GDP….note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don’t have an easy way to estimate the relevant price changes, but that services exports decreased during the quarter, while services imports have increased, suggesting trade in services will also have a negative impact on 3rd quarter GDP.

See also:

• August 2019 Headline Export Trade Grew
• August 2019 Sea Container Counts Remain In Contraction

Real Construction Contraction on Track to Subtract 47 Basis Points from Q3 GDP

The August report on construction spending (pdf) from the Census Bureau estimated that our seasonally adjusted construction spending construction spending for the month was at an annual rate of $1,287.3 billion, which was 0.1 percent (±1.2 percent)* above the revised annualized estimate of $1,285.6 billion in construction spending in July, but was 1.9 percent (±1.8 percent) below the estimated annualized level of construction spending of August of last year….July construction spending was originally reported at a $1,288.8 billion annual rate, and it has thus been revised down to a $1,285.6 billion annual rate, while June construction spending was revised from the $1,288.1 billion annual rate reported last month to a $1,285.3 billion rate, which would mean that 2nd quarter GDP was overestimated by 0.03 percentage points…however, 2nd quarter’s GDP will not be revised to reflect that overestimation until the annual revision of next summer…

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 $955.0 billion, nearly the same as (±0.8 percent)* the revised July estimate of $954.8 billion. Residential construction was at a seasonally adjusted annual rate of $507.2 billion in August, 0.9 percent (±1.3 percent)* above the revised July estimate of $502.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $447.9 billion in August, 1.0 percent (±0.8 percent) below the revised July estimate of $452.3 billion.
• Public Construction: In August, the estimated seasonally adjusted annual rate of public construction spending was $332.3 billion, 0.4 percent (±2.0 percent)* above the revised July estimate of $330.8 billion. Educational construction was at a seasonally adjusted annual rate of $77.0 billion, 1.4 percent (±2.6 percent)* above the revised July estimate of $75.9 billion. Highway construction was at a seasonally adjusted annual rate of $98.9 billion, 0.6 percent (±4.8 percent)* above the revised July estimate of $98.3 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 government investment outlays, for both state and local and Federal governments…. however, gauging the impact of revised July and August construction spending as reported here on 3rd quarter GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction spending….in lieu of trying to find and adjust for all of those obscure 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 in order to make a ballpark estimate.

That producer price index showed that aggregate construction costs rose 0.1% in August after rising 0.6% in July, 0.2% in June and being unchanged from April to May…on that basis, we can estimate that construction costs for August were roughly 0.7% more than June, roughly 0.9% more than those of May and also roughly 0.9% more than those of April, while obviously 0.1% more than those of July…we then use those percentages to inflate lower priced spending figures for each of those previous months, which is arithmetically the same as adjusting higher priced July and August construction spending downward, for comparison purposes… annualized construction spending in millions of dollars for the second quarter months is shown at 1,285,299 for June, 1,297,464 for May, and 1,307,136 for April in this report, while it was at $1,285,572 million for July and $1,287,306 million for August…thus to compare July and August’s inflation adjusted construction spending to that of the second quarter, our formula becomes: ((1,287,306 + 1,285,572 * 1.001) / 2 ) / ((1,285,299 * 1.007 + 1,297,464 * 1.009 + 1,307,136 *1.009) / 3) = 0.98442, meaning real construction over July and August was 1.5575% lower than that of the 2nd quarter…that means that after adjusting for inflation, real construction for the 3rd quarter fell at a 6.09% annual rate from that of the 2nd quarter…that’s a contraction at a $20.364 billion annual rate, which means that if September shows no improvement, the contraction in construction would subtract a net of about 0.47 percentage points from 3rd quarter GDP across those components that it influences.

See also:

• August 2019 Construction Spending Year-over-Year Growth Improved

Factory Shipments Down 0.1% in August, Factory Inventories Statistically Unchanged

The August Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $0.4 billion or 0.1 percent to $499.8 billion in August, following an increase of 1.4% to $500.2 billion in July, which was revised from the $500.3 billion in new orders 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 accurate as revised updates to the August 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 clear and complete, so we’ll just quote directly from that summary here:

• Summary: New orders for manufactured goods in August, down following two consecutive monthly increases, decreased $0.4 billion or 0.1 percent to $499.8 billion, the U.S. Census Bureau reported today. This followed a 1.4 percent July increase. Shipments, down two consecutive months, decreased $0.7 billion or 0.1 percent to $503.0 billion. This followed a 0.3 percent July decrease. Unfilled orders, up two consecutive months, increased $1.1 billion or 0.1 percent to $1,162.9 billion. This followed a 0.1 percent July increase. The unfilled orders‐to‐shipments ratio was 6.66, down from 6.67 in July. Inventories, down following eight consecutive monthly increases, decreased $0.3 billion or virtually unchanged to $695.9 billion. This followed a 0.1 percent July increase. The inventories‐to‐shipments ratio was 1.38, unchanged from July.
• New orders for manufactured durable goods in August, up three consecutive months, increased $0.4 billion or 0.2 percent to $250.7 billion, unchanged from the previously published increase. This followed a 2.1 percent July increase. Fabricated metal products, up four of the last five months, drove the increase, $0.4 billion or 1.2 percent to $34.3 billion. New orders for manufactured nondurable goods decreased $0.8 billion or 0.3 percent to $249.0 billion.
• Shipments of manufactured durable goods in August, up three of the last four months, increased $0.1 billion or 0.1 percent to $253.9 billion, unchanged from the previously published increase. This followed a 1.2 percent July decrease. Machinery, up four of the last five months, drove the increase, $0.5 billion or 1.6 percent to $33.4 billion. Shipments of manufactured nondurable goods, down three of the last four months, decreased $0.8 billion or 0.3 percent to $249.0 billion. This followed a 0.7 percent July increase. Petroleum and coal products, also down three of the last four months, drove the decrease, $1.9 billion or 3.6 percent to $51.0 billion.
• Unfilled orders for manufactured durable goods in August, up two consecutive months, increased $1.1 billion or 0.1 percent to $1,162.9 billion, unchanged from the previously published increase. This followed a 0.1 percent July increase. Fabricated metal products, up three consecutive months, led the increase, $0.6 billion or 0.7 percent to $87.2 billion.
• Inventories of manufactured durable goods in August, up thirteen of the last fourteen months, increased $1.1 billion or 0.2 percent to $428.3 billion, down from the previously published 0.3 percent increase. This followed a 0.4 percent July increase. Transportation equipment, also up thirteen of the last fourteen months, drove the increase, $1.7 billion or 1.2 percent to $143.2 billion. Inventories of manufactured nondurable goods, down five consecutive months, decreased $1.4 billion or 0.5 percent to $267.6 billion. This followed a 0.2 percent July decrease. Petroleum and coal products, down four consecutive months, led the decrease, $0.9 billion or 2.3 percent to $39.1 billion.

To gauge the effect of August factory inventories on 3rd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the value of finished goods inventories was 0.1% lower at $243,147 million; the value of work in process inventories was statistically unchanged at $215,028 million, and the value of materials and supplies inventories was also statistically unchanged at $237,706 million…the producer price index for August indicated that prices for finished goods were on average 0.5% lower, that prices for intermediate processed goods were 0.7% lower, while prices for unprocessed goods were 1.0% lower….assuming similar valuations for like inventories, we could thus estimate that August’s real finished goods inventories increased by 0.4%, that real inventories of intermediate processed goods were 0.7% greater, and that real raw material inventory inventories were roughly 1.0% greater…those real inventory increases would appear to more than offset July’s inventory change, when real factory inventories were somewhat lower…but since real NIPA factory inventories were somewhat higher in the 2nd quarter, the fact that this report barely covers the decrease in real July factory inventories seems to suggest that the 3rd quarter change in factory inventories will have a small negative impact on the growth rate of 3rd quarter GDP.

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