Market Watch 666 For 09August 2020

Written by rjs, MarketWatch 666

July’s jobs report; June’s trade deficit, construction spending, factory inventories and wholesale sales

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 Commerce Dept report on our International Trade for June, the June report on Construction Spending (pdf), the Full Report on Manufacturers’ Shipments, Inventories and Orders for June, and the June report on Wholesale Trade, Sales and Inventories, all from the Census Bureau.

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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 14.52 million annual rate in July, up 11.1% from the 13.05 million annual rate in June, but down 14.4% from the 16.82 annual sales rate of July 2019, and the Mortgage Monitor for June (pdf) from Black Knight Financial Services, which reported that 7.59% of mortgages were delinquent in June, down from the 7.76% that were delinquent in May, but way up from the 3.73% delinquency rate of June of 2019, and that a record low 0.36% of mortgages remained in the foreclosure process in June, down from 0.38% of all mortgages in May, and down from the 0.50% in foreclosure a year ago.

This week also saw both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the July Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 54.2% in July, up from 52.6% in June, suggesting a bit faster growth among manufacturing firms nationally, and the July 2020 Services Report On Business, which saw their Services PMI rise to 58.1%, up from 57.1% in June, and up from 45.4% in May, indicating a significant plurality of service industry purchasing managers reported growth in various facets of their business in July.

See also:

• 04 August 2020 New York Fed Weekly Economic Index (WEI): Index Again Declined and Remains At Recession Levels
• July 2020 ISM and Markit Services Surveys Again Improve
• June 2020 Headline Consumer Credit Continues To Slow
• 2Q2020 Report on Household Debt and Credit: Total Household Debt Declines for the First Time Since 2014
• June 2020 CoreLogic Home Prices: Fastest Monthly Gain In More Than 7 Years
• Rail Week Ending 01 August 2020 – July Down 9.3% Year-over-Year
• Average Gasoline Prices for Week Ending 03 August 2020 Down $0.51 From A Year Ago

Employers Add 1,763,000 Jobs in July on Aberrant Seasonal Adjustment; Unemployment Rate Falls to 10.2%

The Employment Situation Summary for July from the Bureau of Labor Statistics showed there was a continuation of the rebound in payroll jobs that we’ve seen over the past two months, and a decrease in the unemployment rate, bettering most estimates for a less robust jobs recovery……seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 1,763,000 jobs in July, after the payroll job increase for May was revised May was revised up by 26,000, from 2,699,000 to 2,725,000 jobs, and the June jobs increase was revised down by 9,000, from 4,800,000 jobs to +4,791,000, and hence the combined number of jobs created over those two months was 17,000 more than was previously reported….the unadjusted data shows that there were only 591,000 more payroll jobs extant in July than in June, as the large seasonal job cutback usually associated with the end of the school year actually occurred in April, and this month’s seasonal adjustments gave those jobs back…

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors and government, with only the information sector seeing a statistically significant loss of 15,000 jobs, led by 6,900 fewer jobs in the publishing industry…the leisure and hospitality sector, which added 592,000 jobs, accounted for about one-third of the seasonally adjusted July job increase, with the return of 502,000 employees in bars and restaurants and 99,900 workers in the amusements, gambling, and recreation industries….government employment indicated a 301,000 seasonally adjusted job increase, but 215,700 of those jobs were in local school districts and 29,800 were with state colleges and universities, which actually employed 928,300 and 31,900 fewer in July than in June respectively, so most of that job increase is a statistical aberration, even as 27,000 temporary workers were hired for the 2020 Census…meanwhile, the retail sector saw an increase of 258,300 jobs, led by 120,800 workers returning to jobs in clothing stores and 45,100 returning to jobs in department stores…employment in health care and social assistance rose by 291,400, with the addition of 45,100 workers in child day care services and the return of 44,800 jobs in dentist’s offices, and 24,700 jobs in hospitals…in addition, the broad professional and business services category added 170,000 jobs, as 143,700 were added by temporary help services. while professional and technical services other than those itemized added 17,700…meanwhile, “other services” added 149,000 jobs, with 118,600 of that increase coming in personal and laundry services…other July job increases included the addition of 37,900 jobs in transportation and warehousing, 26,000 jobs in manufacturing, 21,000 jobs in financial activities, and 20,000 jobs in construction, while the resource extraction sector shed 7,000 jobs and another 5,000 jobs were lost in wholesale trade…

Even with the return of mostly lower paid workers, the establishment survey also showed that average hourly pay for all employees rose by 7 cents an hour to $29.37 an hour, after it had decreased by a revised 38 cents an hour in June; at the same time, however, the average hourly earnings of production and non-supervisory employees decreased by 11 cents to $24.63 an hour…employers also reported that the average workweek for all private payroll employees decreased by a tenth of an hour to 34.5 hours, while hours for production and non-supervisory personnel was unchanged at 34.0 hours….at the same time, the average manufacturing workweek increased by seven-tenths of an hour to 39.7 hours, while factory overtime was up by three-tenths of an hour to 2.8 hours…

Meanwhile, the seasonally adjusted extrapolation from the July household survey estimated that the number of those employed rose by an estimated 1,350,000 to 143,532,000, while the similarly estimated number of those unemployed fell by 1,412,000 to 16,338,000; which together meant that July saw a net decrease of 62,000 in the total labor force…since the working age population had grown by 169,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 230,000 to 100,503,000….hence, the decrease of those in the labor force was enough to lower the labor force participation rate from 61.5% in June to 61.4% 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 0.5% to 55.1%…at the same time, the decrease in the number counted as unemployed was enough to lower the unemployment rate as a percentage of the labor force from 11.1% to 10.2%….meanwhile, the number who reported they were involuntarily working part time fell by 619,000 to 8,443,000 in July, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 18.0% in June to 16.5% in July, which is still way up from the 6.9% U-6 rate reported in July a year ago…

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 2020 BLS Jobs Situation – Employment Grew 1,763,000 But Still Down 12,572,000 Year-to-Date
• July 2020 ADP Employment Gains 167,000
• The Most Important Thing To Look For In Today’s Employment Report
• Response Rates Sound An Employment Report Warning
• Yellow Flag Jobs Data

June Trade Deficit Down 7.5% on $5.9 Billion Decrease in Imports of Nonmonetary Gold

Our trade deficit decreased by 7.5% in June as the value of both our exports and our imports increased, but the value of our exports increased by 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 $4.1 billion to $50.7 billion in June from a revised May deficit of $54.8 billion, which had previously been reported at $54.6 billion…the value of our June exports rose by $13.6 billion to $158.3 billion on a $13.0 billion increase to $102.9 billion in our exports of goods and a $0.6 billion increase to $55.4 billion in our exports of services, while our imports rose by $9.5 billion to $208.9 billion on a $9.0 billion increase to $175.0 billion in our imports of goods and a $0.5 billion increase to $33.9 billion in our imports of services…export prices were on average 1.4% higher in June, so the month’s real exports would be relatively less than their nominal value by that percentage, while import prices were also 1.4% higher, meaning that our real imports were likewise relatively smaller than their nominal value by that percentage..

The increase in our June exports was largely the result of greater exports of automotive products, of capital goods, and of industrial supplies and materials….referencing the Full Release and Tables for June (pdf), in Exhibit 7 we find that our exports of automotive vehicles, parts, and engines rose by $4,907 million to $8,306 million on a $1,840 million increase in our exports of parts and accessories of vehicles other than engines, chassis, and tires, a $1,674 million increase in our exports of new and used passenger cars, a $713 million increase in our imports of engines and engine parts, and a $591 million increase in our exports of trucks, buses, and special purpose vehicles…at the same time, our exports of capital goods rose by $3,769 million to $35,245 million on increases of $593 million in our exports of civilian aircraft, $550 million in our exports of industrial machines other than those itemized separately, $547 million in our exports of telecommunications equipment, $451 million in our exports of electrical apparatuses, $446 million in our exports of computer accessories, and $309 million in our exports of semiconductors, while our exports of industrial supplies and materials rose by $2,840 million to $32,810 million on increases of $807 million in our exports of fuel oil, $490 million in our exports of other refined products, $412 million in our exports of crude oil, and $353 million in our exports of natural gas liquids…in addition, our exports of consumer goods rose by $1,352 million to $12,295 million, led by a $262 million increase in our exports of cellphones and similar goods, while our exports of foods, feeds and beverages rose by $470 million to $9,950 million on a $356 million increase in our exports of soybeans, and our exports of other goods not categorized by end use rose by $509 million to $4,250 million….

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that greater imports of automotive products, consumer goods, and capital goods were the major reasons for the June increase in our imports, while the increases in those categories were partly offset by a drop in our imports of industrial supplies and materials…our imports of automotive vehicles, parts and engines rose by $9,666 million to $18,632 million on a $4,117 million increase in our imports of new and used passenger cars, a $2,715 million increase in our imports of automotive parts other than tires, engines, bodies and chassis, a $2,128 million increase in our imports of trucks, buses, and special purpose vehicles and a $672 million increase in our imports of engines and engine parts…in addition, our imports of consumer goods rose by $4745 million to $50,460 million on a $1,066 million increase in our imports of cellphones, a $712 million increase in our imports of gem diamonds, a $546 million increase in our imports of cotton apparel and household goods, a $523 million increase in our imports of antiques, artwork and other collectibles, a $391 million increase in our imports of toys and games, a $362 million increase in our imports of furniture and similar household goods, a $342 million increase in our imports of jewelry, a $309 million increase in our imports of televisions and video equipment and a $304 million increase in our imports of appliances, while our imports of capital goods rose by $2247 million to $49,785 million on a $778 million increase in our imports of computers, a $444 million increase in our imports of telecommunications equipment, a $427 million increase in our imports of electrical apparatuses, and a $343 million increase in our imports of semiconductors…at the same time, our imports of foods, feeds, and beverages rose by $307 million to $12,405 million…partially offsetting the increases in those categories, our imports of industrial supplies and materials fell by $8,288 million to $35,405 million on a $5,887 million decrease in our imports of nonmonetary gold and a $2,906 million decrease in our imports of finished metal shapes, and our imports of other goods not categorized by end use fell by $164 million to $7,153 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 ($1.8), United Kingdom ($1.3), Hong Kong ($1.0), OPEC ($0.5), and Brazil ($0.4). Deficits were recorded, in billions of dollars, with China ($26.7), European Union ($13.1), Mexico ($9.0), Germany ($3.8), Taiwan ($2.4), Italy ($2.1), South Korea ($1.9), Japan ($1.8), India ($1.7), France ($1.0), Saudi Arabia ($0.7), Singapore ($0.2), and Canada ($0.1).

• The deficit with Japan decreased $1.4 billion to $1.8 billion in June. Exports increased $0.2 billion to $4.9 billion and imports decreased $1.3 billion to $6.6 billion.
• The deficit with Singapore decreased $1.4 billion to $0.2 billion in June. Exports increased $0.3 billion to $2.1 billion and imports decreased $1.1 billion to $2.2 billion.
• The deficit with Mexico increased $4.8 billion to $9.0 billion in June. Exports increased $4.8 billion to $15.5 billion and imports increased $9.6 billion to $24.5 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 $70,641 million on a Census basis, down from the $75,258 million goods deficit reported in May…this report revises those figures and shows that our actual goods trade deficit in June was $72,150 million on a balance of payments basis, and $70,985 million on a Census basis, and that the May goods deficit was revised to $75,380 million on a Census basis…together, those revisions from the previously published data mean that the 2nd quarter goods trade deficit in goods was roughly $466 million more than the estimate that was used in last week’s GDP report, or around $1.9 billion more at an annual rate, before adjusting for price changes…that would indicate a downward revision of roughly 0.03 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 adjusted annual rate which this report does not, so we are unable to discern what revisions to that data might further impact 2nd quarter GDP.

See also:

• June 2020 Trade Improved But Remains Deep In Contraction

Construction Spending Fell 0.7% 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 $1,355.2 billion annually if extrapolated over an entire year, which was 0.7 percent (±1.2 percent)* below the revised annualized estimate of $1,364.7 billion of construction spending for May but 0.1 percent (±1.5 percent) above the estimated annualized level of construction spending in June of last year…the May annualized construction spending estimate was revised more than 0.6% higher, from $1,356.4 billion to $1,364.7 billion, while the annual rate of construction spending for April was revised more than 0.1% higher, from $1,386.1 billion to $1,387.936 billion…for the first half of 2020, actual construction spending amounted to $667.9 billion, 5.0 percent (±1.2 percent) above the $636.0 billion spent in the first half of 2019..

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 $1,001.9 billion, 0.7 percent (±0.7 percent)* below the revised May estimate of $1,009.0 billion. Residential construction was at a seasonally adjusted annual rate of $534.2 billion in June, 1.5 percent (±1.3 percent) below the revised May estimate of $542.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $467.7 billion in June, 0.2 percent (±0.7 percent)* above the revised May estimate of $466.9 billion.
• Public Construction: In June, the estimated seasonally adjusted annual rate of public construction spending was $353.3 billion, 0.7 percent (±2.0 percent)* below the revised May estimate of $355.8 billion. Educational construction was at a seasonally adjusted annual rate of $85.8 billion, 2.7 percent (±1.5 percent) below the revised May estimate of $88.2 billion. Highway construction was at a seasonally adjusted annual rate of $102.6 billion, 1.7 percent (±6.3 percent)* below the revised May estimate of $104.4 billion.

Construction spending for all three months of the 2nd quarter was higher than what was reported by the BEA in the advance report for 2nd quarter GDP last week…as we saw above, the annual rate of construction spending for April was revised $1.8 billion higher, and annualized construction spending for May was revised $8.3 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 $9.8 billion smaller than that of the previously reported May figure, that June residential construction on lines 110 and 111 would be $5.6 billion smaller than that of the previously reported May figure, and that the value of June public construction shown on line 200 would be $2.5 billion smaller than the previously published May figure…hence, the total of the figures used by the BEA for total June construction in the 2nd quarter GDP report were $17.9 billion less than the previously published May figure…with June construction now reported down $9.5 billion from a May figure that was revised $8.3 billion higher, that means that the BEA had underestimated annualized June construction spending by $16.7 billion when reporting 2nd quarter GDP…thus, after averaging the revisions to construction spending for the three months of the 2nd quarter, the total revised annualized figure for 2nd quarter construction spending would thus be $8.9 billion more than the figures used by the BEA when computing 2nd quarter GDP, implying they’d need an upward revision of roughly 0.21 percentage points to 2nd quarter GDP when the 2nd estimate is released on the 27th of August.

See also:

• June 2020 Construction Spending Declined

Factory Shipments Up 9.8% in June, Factory Inventories Up 0.6%

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 $25.5 billion or 6.2 percent to $437.2 billion in June, following an increase of 7.7% to $411.7 billion in May, which was revised from the 8.0 percent increase to $412.8 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 accurate 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 two consecutive months, increased $25.5 billion or 6.2 percent to $437.2 billion, the U.S. Census Bureau reported today. This followed a 7.7 percent May increase. Shipments, also up two consecutive months, increased $40.7 billion or 9.8 percent to $457.3 billion. This followed a 3.0 percent May increase. Unfilled orders, down three of the last four months, decreased $15.3 billion or 1.4 percent to $1,092.5 billion. This followed a virtually unchanged May increase. The unfilled orders-to-shipments ratio was 7.01, down from 7.56 in May. Inventories, up two consecutive months, increased $4.0 billion or 0.6 percent to $690.9 billion. This followed a 0.2 percent May increase. The inventories-to-shipments ratio was 1.51, down from 1.65 in May.
• New orders for manufactured durable goods in June, up two consecutive months, increased $14.6 billion or 7.6 percent to $207.2 billion, up from the previously published 7.3 percent increase. This followed a 15.0 percent May increase. Transportation equipment, also up two consecutive months, led the increase, $9.3 billion or 20.2 percent to $55.4 billion. New orders for manufactured nondurable goods increased $10.9 billion or 5.0 percent to $230.0 billion.
• Shipments of manufactured durable goods in June, up two consecutive months, increased $29.8 billion or 15.1 percent to $227.3 billion, up from the previously published 14.9 percent increase. This followed a 4.1 percent May increase. Transportation equipment, also up two consecutive months, led the increase, $24.3 billion or 52.1 percent to $70.9 billion. Shipments of manufactured nondurable goods, up two consecutive months, increased $10.9 billion or 5.0 percent to $230.0 billion. This followed a 2.0 percent May increase. Petroleum and coal products, also up two consecutive months, led the increase, $7.6 billion or 27.0 percent to $35.9 billion.
• Unfilled orders for manufactured durable goods in June, down three of the last four months, decreased $15.3 billion or 1.4 percent to $1,092.5 billion, unchanged from the previously published decrease. This followed a virtually unchanged May increase. Transportation equipment, down four consecutive months, drove the decrease, $15.6 billion or 2.1 percent to $743.5 billion.
• Inventories of manufactured durable goods in June, up four consecutive months, increased $0.2 billion or virtually unchanged to $425.0 billion, down from the previously published 0.1 percent increase. This followed a virtually unchanged May increase. Transportation equipment, up twenty-three of the last twenty-four months, drove the increase, $2.1 billion or 1.5 percent to $146.5 billion. Inventories of manufactured nondurable goods, up two consecutive months, increased $3.8 billion or 1.5 percent to $265.9 billion. This followed a 0.4 percent May increase. Petroleum and coal products, also up two consecutive months, led the increase, $3.2 billion or 11.0 percent to $32.1 billion. By stage of fabrication, June materials and supplies decreased 1.2 percent in durable goods and increased 1.9 percent in nondurable goods. Work in process increased 1.2 percent in durable goods and 2.3 percent in nondurable goods. Finished goods increased 0.1 percent in durable goods and 0.9 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 rise $3.8 billion before any inflation adjustment in June, and this report indicates that total non-durable goods inventories actually did increase in value by $3.8 billion, which means there should be no 2nd quarter GDP revision on account of June’s non-durable factory inventories…however, note that durable goods inventories, which had been used as source data for the advance estimate of GDP, were revised from the previously published $0.4 billion or 0.1% increase to $425.3 billion to a ‘virtually unchanged’ $0.2 billion increase to $425.0 billion with this report… that would indicate that they overestimated the change in the 2nd quarter GDP inventory component by up to $1 billion on an annualized basis, which would suggest that 2nd quarter GDP might have to be revised downwards by 0.01 or 0.02 percentage points to account for what this report shows.

See also:

• June 2020 Headline Manufacturing New Orders Improve

June Wholesale Sales Up 8.8%; Inventories Down 1.4%

The June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $457.3 billion, up 8.8 percent (±0.9 percent) from the revised May level, but down 8.5 percent (±1.1 percent) from wholesale sales of June 2019… the May preliminary estimate was revised up $1.3 billion or 0.3% to $420.44 billion from the $419.1 billion sales reported last month, which is now 5.7% more than April’s sales, revised from the 5.4% increase reported last month…as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold….

On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf or in intermediate storage represent goods that were produced but not sold, and this June report estimated that wholesale inventories were valued at a seasonally adjusted $633.3 billion at month end, down 1.4 percent (+/-0.2%) from the revised May level and 5.6 percent (±0.9 percent) lower than in June a year ago, with the May preliminary estimate revised but essentially unchanged at $642.5 billion at the same time, still a 1.2% decrease from April….

In the advance report on 2nd quarter GDP of last week, wholesale inventories were estimated based on the sketchy Advance Report on Wholesale and Retail Inventories which was released the day before the GDP release…that report estimated that our seasonally adjusted wholesale inventories were valued at $629.607 billion at the end of June, down from $642,207 billion in May….those figures total $3.96 billion less than the $633,283 billion for June and $642,489 for May that this report shows, which would imply that the quarterly decrease in 2nd quarter wholesale inventories was overestimated at roughly a $15.9 billion annual rate…assuming there’s no revision or imbalance in the inflation adjustment to those inventories, that would suggest that the contraction rate of 2nd quarter GDP was overestimated by around 0.20 percentage points, just based on what this report shows.

See also:

• June 2020 Headline Wholesale Sales and Inventories Remain In Contraction But Significantly Improved

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