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 initial input data 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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In addition, this week saw the release of the last regional Fed manufacturing survey for August: the Dallas Fed’s Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, reported its general business activity index rose to +8.0 in August, up from -3.0 in July, and the first positive reading in five months, indicating a tentative recovery in the depressed Texas area economy.
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 15.19 million annual rate in August, up from the 14.52 million annual rate reported in July, but down from the 16.99 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) rose to 56.0% in August, up from 54.2% in July, and the highest reading since November 2018, and the August Services Report On Business; which saw the NMI (non-manufacturing index) slip to 56.9% in August, down from 58.1% in July, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business in August than in July.
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Employers Added 1,371,000 Jobs in August; Unemployment Rate Fell to 8.4% as 3,756,000 Found Work
The Employment Situation Summary for August indicated that the strong rebound in payroll jobs from their April nadir continued for a 4th consecutive month, and that the unemployment rate fell by 1.8% to 8.4%, while the employment rate rose 1.4% to 56.5%….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 1,371,000 jobs in August, after the payroll job increase for July was revised down from 1,763,000 to 1,734,000, and the payroll jobs increase for June was revised down from 4,791,000 to 4,781,000…those revisions mean that the combined number of jobs created over those two months was 39,000 less than was previously reported…the unadjusted data shows that there were actually 1,535,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 960,200 education jobs that were adjusted away, so the impact of this month’s seasonal adjustments was minor by comparison …
Seasonally adjusted job increases were spread throughout the private goods producing and service sectors and government, with a 2,000 job drop in the resource extraction trades the only sector showing a decrease…federal government payrolls increased by 251,000, with the hiring of 238,000 temporary 2020 Census workers, while the retail sector saw an increase of 248,900 jobs, with 116,400 workers returning to jobs in general merchandise stores, 22,300 more employed by motor vehicle and parts dealers, and 21,000 returning to jobs in electronics and appliance stores….the broad professional and business services category added 197,000 jobs, as 123,600 workers found jobs with employment services and 14,400 were hired by architectural and engineering services…meanwhile, the leisure and hospitality sector added a seasonally adjusted 174,000 jobs, with the return of of 133,600 jobs in bars and restaurants and 19,100 more employed in performing arts and spectator sports….local government payrolls increased by 95,000, with an increase of 63,300 in local government jobs outside of education and another 31,700 working in local school districts… at the same time, employment in health care and social assistance rose by 90,100, with the addition of 26,500 jobs in doctor’s offices and 23,600 jobs in dentist’s offices….other increases included the addition of 78,100 jobs in transportation and warehousing, with 34,400 of those in warehousing and storage, and 74,000 more jobs in “other services”, which included 30,800 jobs with membership associations and organizations, 28,700 repair and maintenance jobs, and 13,900 jobs with personal and laundry services…there were also 36,000 more jobs in the financial sector, with 23,100 of those in real estate, while employment in manufacturing increased by 29,000, with 12,100 of those working in food manufacturing plants….other August job additions included 16,000 jobs in construction, 15,000 in the information sector, and 13,500 in wholesale trade…
The establishment survey also showed that average hourly pay for all employees rose by 11 cents an hour to $29.47 an hour, after it had increased by a revised 4 cents an hour in July; at the same time, the average hourly earnings of production and nonsupervisory employees increased by 18 cents to $24.81 an hour, after it had decreased by a revised 10 cents an hour in July…employers also reported that the average workweek for all private payroll employees increased by 0.1 hour to 34.6 hours in August, while hours for production and non-supervisory personnel was unchanged at 34.0 hours…meanwhile, the manufacturing workweek increased by 0.3 hours to 40.0 hours, while average factory overtime rose by a tenth of an hour to 3.0 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 3,756,000 to 147,288,000, while the similarly estimated number of those who would be counted as unemployed fell by 2,788,000 to 13,550,000; which together meant that August saw an increase of 968,000 to 160,838,000 in the total labor force.…since the working age population had grown by 185,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 783,000 to 99,720,000, and that the labor force participation rate increased by 0.3% to 61.7%….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 1.4% to 56.5%…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 10.2% to 8.4%….meanwhile, the number who reported they were involuntarily working part time fell by 871,000 to 7,572,000 in August, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 16.5% in July to 14.2% 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 alongside the press release to avoid the need to scroll up and down the page.
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July Trade Deficit Up 18.9% to an 11 Year High After 2nd Quarter Deficits Revised Much Higher
Our trade deficit rose by 18.9% in July as the value of both our exports and our imports increased, but the value of our imports increased by almost twice as much….the Commerce Dept report on our international trade in goods and services for July indicated that our seasonally adjusted goods and services trade deficit increased by $10.1 billion to $63.6 billion in July from a revised June deficit of $53.5 billion, which had previously been reported at $50.7 billion…trade figures going back to January were revised with this report, which on net left the 2nd quarter trade deficit $9.6 billion higher than was previously reported, suggesting a large 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 $12.6 billion, or 8.1 percent, to $168.1 billion on a $12.3 billion increase to $115.5 billion in our exports of goods, and an increase of less than $0.4 billion to $52.6 billion in our exports of services, while our imports rose by $22.7 billion, or 10.9 percent, to $231.7 billion on a $21.5 billion increase to $196.4 billion in our imports of goods and a $1.2 billion increase to $35.3 billion in our imports of services…export prices were on average 0.8% higher in July, so the month’s real exports were less than their nominal amount by that percentage, while import prices were 0.7% higher, meaning that our real imports were also smaller than their nominal value by that percentage..
The increase in our July exports included increases in all end use categories, let by greater exports of automotives and parts, consumer goods, industrial supplies and capital goods…referencing the Full Release and Tables for July (pdf), in Exhibit 7 we find that our exports of automotive vehicles, parts, and engines rose by $3,849 million to $12,161 million on a $2,103 million increase in our exports of new and used passenger cars, an $882 million increase in our exports of parts and accessories of vehicles other than engines, chassis, and tires, and a $505 million increase in our exports of trucks, buses, and special purpose vehicles, and that our exports of consumer goods rose by $2,602 million to $14,899 million on a $694 million increase in our exports of gem diamonds and a $648 million increase in our exports of artwork, antiques, and other collectibles….at the same time, our exports of industrial supplies and materials rose by $2,512 million to $35,317 million on a $1,138 million increase in our exports of crude oil, a $446 million increase in our exports of petroleum products other than fuel oil, and a $282 million increase in our exports of fuel oil, and our exports of capital goods rose by $2,473 million to $37,719 million on a $831 million increase in our exports of semiconductors, a $492 million increase in our exports of engines for civilian aircraft, and a $384 million increase in our exports of electric apparatuses…in addition, our exports of foods, feeds and beverages rose by $231 million to $10,185 million on a $196 million increase in our exports of meat and poultry, and our exports of other goods not categorized by end use rose by $641 million to $4,894 million…
Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that our imports also rose in all end use categories, and were also led by increased imports of automotives and parts, industrial supplies and materials, capital goods and consumer goods…our imports of automotive vehicles, parts and engines rose by $7,729 million to $26,357 million on a $3,702 million increase in our imports of new and used passenger cars, a $2,482 million increase in our imports of parts and accessories of vehicles other than engines, chassis, and tires, a $697 million increase in our imports of engines and engine parts, and a $589 million increase in our imports of trucks, buses, and special purpose vehicles, and our imports of industrial supplies and materials rose by $4,353 million to $39,758 million on a $1,325 million increase in our imports of finished metal shapes, an $876 million increase in our imports of nonmonetary gold, a $689 million increase in our imports of crude oil, and a $482 million increase in our imports of other precious metals…at the same time, our imports of capital goods rose by $4,069 million to $53,845 million on a $1,691 million increase in our imports of civilian aircraft, a $423 million increase in our imports of electric apparatuses, a $362 million increase in our imports of generators and accessories, and a $280 million increase in our imports of industrial engines, and our imports of consumer goods rose by $3549 million to $54,004 million on an increase of $1694 million in our imports of cellphones, a $794 million increase in our imports of cotton clothing and household goods, a $704 million increase in our imports of furniture, a $554 million increase in our imports of appliances, a $429 million increase in our imports of toys, games, and sporting goods, a $346 million increase in our imports of jewelry, and a $321 million increase in our imports of televisions, which were partly offset by a $1,640 million decrease in our imports of pharmaceuticals….in addition. our imports of foods, feeds, and beverages rose by $395 million to $12,798 million on a $237 million increase in our imports of alcoholic beverages other than bear and wine, and our imports of other goods not categorized by end use rose by $1,373 million to $8,528 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 ($2.9), OPEC ($1.5), Hong Kong ($1.4), Brazil ($0.8), United Kingdom ($0.6), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with China ($28.3), European Union ($13.1), Mexico ($11.5), Japan ($3.4), Germany ($3.0), Taiwan ($2.8), France ($2.5), India ($2.0), Italy ($1.8), South Korea ($1.5), Singapore ($1.0), and Canada ($0.5).
- • The deficit with Mexico increased $2.5 billion to $11.5 billion in July. Exports increased $2.4 billion to $17.8 billion and imports increased $4.9 billion to $29.3 billion.
- • The deficit with China increased $1.6 billion to $28.3 billion in July. Exports increased $0.1 billion to $9.5 billion and imports increased $1.7 billion to $37.8 billion.
- • The surplus with South and Central America increased $1.2 billion to $2.9 billion in July. Exports increased $1.3 billion to $9.7 billion and imports increased $0.1 billion to $6.8 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 113,766 million monthly in 2012 dollars, while inflation adjusted July exports were at 133,728 million in that same 2012 dollar quantity index representation… figuring the annualized change between the two figures, we find that July’s real exports of goods are running at a 90.9% annual rate above those of the 2nd quarter, or at a pace that would add about 3.70 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 196,062 million monthly in chained 2012 dollars, while the similarly inflation adjusted July imports were at 224,215 million…that would indicate that so far in the 3rd quarter, our real imports have grown at annual rate of roughly 71.0% 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 71.0% rate would subtract about 5.66 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 about 1.96 percentage points from the growth of 3rd quarter GDP….note, however, that we have not even 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.
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Construction Spending Rose 0.1% in July after 2nd Quarter Spending was Revised Higher
The Census Bureau report on construction spending for July (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,364.6 billion annually if extrapolated over an entire year, which was more than 0.1 percent (±1.2 percent)* above the revised annualized estimate of $1,362.8 billion of construction spending in June but 0.1 percent (±1.6 percent)* below the estimated annualized level of construction spending in July of last year….the June construction spending estimate was revised nearly 0.6% higher, from $1,355.2 billion to $1,362.8 billion, while the annual rate of construction spending for May was revised more than 0.3% higher, from $1,364.7 billion to $1,369,363 billion….on net, those revisions would suggest a upward revision of 0.10 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 $1,013.5 billion, 0.6 percent (±0.5 percent) above the revised June estimate of $1,007.2 billion. Residential construction was at a seasonally adjusted annual rate of $546.6 billion in July, 2.1 percent (±1.3 percent) above the revised June estimate of $535.6 billion. Nonresidential construction was at a seasonally adjusted annual rate of $466.9 billion in July, 1.0 percent (±0.5 percent) below the revised June estimate of $471.6 billion.
- Public Construction: In July, the estimated seasonally adjusted annual rate of public construction spending was $351.1 billion, 1.3 percent (±2.0 percent)* below the revised June estimate of $355.6 billion. Educational construction was at a seasonally adjusted annual rate of $82.2 billion, 3.0 percent (±1.8 percent) below the revised June estimate of $84.7 billion. Highway construction was at a seasonally adjusted annual rate of $99.0 billion, 3.1 percent (±5.9 percent)* below the revised June estimate of $102.1 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 different 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 falling 0.3% in June and falling 0.1% from April to May…on that basis, we can estimate that July construction costs were roughly 0.3% more than those of May and 0.2% more than 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 1,362,823 for June, 1,369,363 for May, and 1,387,936 for April, while it was at 1,364,565 million in July …thus to compare July’s inflation adjusted construction spending to that of the first quarter, our arithmetic formula becomes: 1,364,565 / (((1,362,823 * 1.006) + (1,369,363 *1.003) + (1,387,936 * 1.002)) / 3) = 0.989967, meaning real construction spending in July was down 1.0% vis a vis the 2nd quarter, or down at a 4.0% 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 0.34 percentage points from 3rd quarter GDP should we see no improvement from July’s adjusted figures in August or September.
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Factory Shipments Up 4.6% in July, Factory Inventories Down 0.5%
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 $27.8 billion or 6.4 percent to $466.1 billion in July, following an increase of 6.4% to $438.2 billion in June, which was revised from the 6.2% increase to $437.2 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 three consecutive months, increased $27.8 billion or 6.4 percent to $466.1 billion, the U.S. Census Bureau reported today. This followed a 6.4 percent June increase. Shipments, also up three consecutive months, increased $21.3 billion or 4.6 percent to $479.5 billion. This followed a 10.0 percent June increase. Unfilled orders, down four of the last five months, decreased $8.3 billion or 0.8 percent to $1,084.3 billion. This followed a 1.4 percent June decrease. The unfilled orders-to-shipments ratio was 6.70, down from 7.01 in June. Inventories, down following two consecutive monthly increases, decreased $3.1 billion or 0.5 percent to $687.2 billion. This followed a 0.5 percent June increase. The inventories-to-shipments ratio was 1.43, down from 1.51 in June.
- New orders for manufactured durable goods in July, up three consecutive months, increased $23.7 billion or 11.4 percent to $231.1 billion, up from the previously published 11.2 percent increase. This followed a 7.7 percent June increase. Transportation equipment, also up three consecutive months, led the increase, $19.6 billion or 35.7 percent to $74.7 billion. New orders for manufactured nondurable goods increased $4.2 billion or 1.8 percent to $235.0 billion.
- Shipments of manufactured durable goods in July, up three consecutive months, increased $17.1 billion or 7.5 percent to $244.6 billion, up from the previously published 7.3 percent increase. This followed a 15.2 percent June increase. Transportation equipment, also up three consecutive months, led the increase, $12.7 billion or 17.9 percent to $83.2 billion. Shipments of manufactured nondurable goods, up three consecutive months, increased $4.2 billion or 1.8 percent to $235.0 billion. This followed a 5.3 percent June increase. Petroleum and coal products, also up three consecutive months, led the increase, $2.3 billion or 6.5 percent to $38.3 billion.
- Unfilled orders for manufactured durable goods in July, down four of the last five months, decreased $8.3 billion or 0.8 percent to $1,084.3 billion, unchanged from the previously published decrease. This followed a 1.4 percent June decrease. Transportation equipment, down five consecutive months, drove the decrease, $8.5 billion or 1.1 percent to $735.0 billion.
- Inventories of manufactured durable goods in July, down two consecutive months, decreased $2.7 billion or 0.6 percent to $421.8 billion, down from the previously published 0.5 percent decrease. This followed a 0.1 percent June decrease. Fabricated metal products, also down two consecutive months, led the decrease, $0.9 billion or 1.6 percent to $51.7 billion. Inventories of manufactured nondurable goods, down following two consecutive monthly increases, decreased $0.5 billion or 0.2 percent to $265.4 billion. This followed a 1.4 percent June increase. Chemical products, down two of the last three months, led the decrease, $0.2 billion or 0.2 percent to $96.4 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 decreased by 0.6% to $244,324 million; the value of work in process inventories fell 0.4% to $205,699 million, and materials and supplies inventories were valued 0.4% lower at $237,193 million.…meanwhile, the July producer price index reported that prices for finished goods were on average 0.8% higher, that prices for intermediate processed goods were on average 1.5% higher, while prices for unprocessed goods were 0.7% lower….assuming similar valuations for like types of inventories, that would suggest that July’s real finished goods inventories were about 1.4% lower, that real inventories of intermediate processed goods about 1.9% lower, and real raw material inventory inventories were about 0.3% higher…since real NIPA factory inventories were a bit higher in the 2nd quarter, the fact that this report appears to indicate a real decrease in aggregate July factory inventories would therefore have a corresponding negative impact on the growth rate of 3rd quarter GDP….however, with total business inventories down sharply in the 2nd quarter, the negative impact of falling factory inventories is likely to be offset by less severe contraction, or even growth of inventories at the retail and wholesale levels.
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