Written by rjs, MarketWatch 666
December’s jobs report; November’s trade deficit, construction spending, factory inventories, and wholesale trade
The major economic reports released the past week were the Employment Situation Summary for December from the Bureau of Labor Statistics, the November report on our International Trade from agencies within the Commerce Dept, and the November report on Construction Spending (pdf), the Full Report on Manufacturers’ Shipments, Inventories and Orders for November and the November report on Wholesale Trade, Sales and Inventories (pdf), all from the Census Bureau.
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In addition, this week the Fed released the Consumer Credit Report for November, which showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $15.3 billion, or at a 4.4% annual rate, as non-revolving credit expanded at a 6.1% rate to $3,198.0 billion in November, while revolving credit outstanding shrank at a 1.0% rate to $978.8 billion.
Privately issued reports released this week included the ADP Employment Report for December, the light vehicle sales report for December from Wards Automotive, which estimated that vehicles sold at a 16.27 million annual rate in December, up from the 15.55 million annual pace of vehicle sales reported for November, but down from the 16.70 million vehicle sales rate reported for December of 2019, and both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the December Manufacturing Report On Business® indicated that the manufacturing PMI (Purchasing Managers Index) rose to 60.7% in December, up from 57.5% in November, indicating a more robust growth rate of US manufacturing during the month, and the December Services Report On Business, which saw the Services index rise to 57.2% in December, up from 55.9% in November, meaning a modestly larger plurality of service industry purchasing managers reported expansion in various facets of their business in December than in November. 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.
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Employers Cut 140,000 Jobs in December, Unemployment Rate Steady
The Employment Situation Summary for December indicated that employers reduced payrolls for the first time since April, but that the unemployment rate remained at 6.7% and the U-6 unemployment rate fell by 0.3% to 11.7%…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers cut 140,000 jobs in December, after the previously estimated payroll job increase for November was revised up by 91,000, from 245,000 to 336,000, and the payroll jobs increase for October was revised up by 44,000, from 610,000 to 654,000…while that means that this report represents a net of just 5,000 fewer seasonally adjusted payroll jobs than were reported last month, it still leaves December’s non-farm payrolls down by 9,812,000 jobs from the 152,436,000 seasonally adjusted jobs that were reported in February…the unadjusted data, meanwhile, shows that there were actually 328,000 fewer payroll jobs extent in December than in November, as the usual seasonal layoffs in areas such as construction and other outdoor services were normalized by the seasonal adjustments to show the job increases indicated..
December’s seasonally adjusted job losses were concentrated in just a few sectors; the largest job decrease was in the leisure and hospitality sector, which lost 498,000 jobs, with the loss of 372,900 jobs in bars and restaurants, 91,900 more in amusements, gambling, and recreation and 23,600 fewer jobs in accommodation…in addition, private educational services cut 62,500 employees, while the government sector shed 45,000 jobs, with 31,500 of those from local governments excluding education and 19,900 jobs cut from state government education…meanwhile, seasonally adjusted job increases included 161,000 more jobs in the professional and business services sector, where 67,600 jobs were added by temporary employment services and 20,300 were added by computer systems design and related services…after a holiday related downward seasonal adjustment, retail sales still added 120,500 more workers, led by a 56,700 increase in those working in general merchandise stores, a 14,300 increase in jobs with non-store retailers, and a 13,400 job increase in those working for automobile dealers…after a upward seasonal adjustment of 154,000 jobs, the construction sector showed a 51,000 job increase, with 18,300 of those employed by nonresidential specialty trade contractors and another 15,000 added in heavy and civil engineering construction…the transportation and warehousing sector added 46,600 employees in December, of which 37,400 were ‘couriers and messengers’ (ie, package delivery), while employment in health care increased by 38,800 jobs during the month, as 31,500 more employees were added by hospitals…meanwhile, manufacturing employment increased by 38,000, as manufacturers of plastics and rubber products added 6,900 jobs, motor vehicles and parts factories added 6,700, and nonmetallic mineral products manufacturers added 6,100, while the wholesale trade sector saw the addition of 25,100 employees, with 11,400 of those in durable goods sales and 10,800 in sales of non-durable goods…at the same time, employment in the other major sectors, including utilities, financial activities, information, and resouce extraction, was little changed over the month..
With the aforementioned employment decreases of mostly lower paying jobs, the establishment survey thus showed that average hourly pay for all employees rose by 23 cents an hour to $29.81 an hour in December, after it had increased by a 9 cents an hour in November; at the same time, the average hourly earnings of production and nonsupervisory employees increased by 20 cents to $25.09 an hour……employers also reported that the average workweek for all private payroll employees was down by a tenth of an hour to 34.7 hours in December, while hours for production and non-supervisory personnel was unchanged at 34.2 hours…at the same time, the manufacturing workweek held steady at 40.2 hours, while average factory overtime rose 0.1 hour to 3.3 hours…
Meanwhile, the December household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 21,000 to 149,830,000, while the estimated number of those unemployed rose by 8,000 to 10,736,000; which together meant there was a rounded 30,000 increase in the total labor force….since the working age population had grown by 145,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 115,000 to 100,663,000…with the increase of those in the labor force just a bit below the increase in the civilian noninstitutional population, the labor force participation rate remained unchanged at 61.5% in December….meanwhile, the increase in number employed as a percentage of the increase in the population was not significant enough to change the employment to population ratio, which we could think of as an employment rate, as it was also unchanged at 57.4%…at the same time, the relatively small increase in the number considered unemployed was not enough to change the unemployment rate, which remained at 6.7% in December.. however, the number of those who reported they were forced to accept just part time work fell by 471,000, from 6,641,000 in November to 6,170,000 in December, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, by 0.3% to 11.7% of the labor force in December, the lowest since March…
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.
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Trade Deficit Rose 8.0% in November on Higher Imports of Consumer Goods, Industrial Supplies and Capital Goods
Our trade deficit rose 8.0% in November as the value of our exports increased but the value of our imports increased by quite a bit more….the Commerce Dept report on our international trade in goods and services for November indicated that our seasonally adjusted goods and services trade deficit rose by a rounded $5.0 billion to $68.1 billion in November, from an October deficit of $63.1 billion, which was revised but remained statistically unchanged from the deficit reported for October a month ago….the value of our November exports rose by $2.2 billion to $184.2 billion on a $1.3 billion increase to $127.7 billion in our exports of goods and a $0.9 billion increase to $56.4 billion in our exports of services, while the value of our imports rose by $7.2 billion to $252.3 billion on a $6.3 billion increase to $214.1 billion in our imports of goods and an increase of $0.9 billion to $38.2 billion in our imports of services…export prices were on average 0.6% higher in November, which means the relative real increase in exports for the month was smaller than the nominal increase by that percentage, while import prices were 0.1% higher, meaning the increase in real imports was smaller than the nominal dollar increase reported here by that percentage…
The $1.3 billion increase in the value of our November exports of goods largely resulted from greater exports of industrial supplies and materials and of foods, feeds, and beverages…referencing the Full Release and Tables for November (pdf), in Exhibit 7, we find that the value of our exports of industrial supplies and materials rose by $830 million to $41,798 million on a $473 million increase in our exports of natural gas, and that our exports of foods, feeds and beverages rose by $538 million to $12,904 million on increased exports of soybeans, wheat, barley, sorghum, oats, meats and poultry…in addition, our exports of exports of consumer goods rose by $176 million to $16,375 million, and our exports of other goods not categorized by end use rose by $136 million to $5,007 million…partially offsetting the increases in those export categories, our exports of capital goods fell by $241 million to $38,904 million on a $291 million decrease in our exports of civilian aircraft engines, and our exports of automotive vehicles, parts, and engines fell by $125 million to $12,550 million on a $133 million decrease in our exports of trucks, buses, and special purpose vehicles…
Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports of goods, and shows that higher imports of consumer goods, industrial supplies and materials, and capital goods accounted for November’s $6.3 billion increase in our imports…our imports of consumer goods rose by $4,003 million to $61,183 million on a $2,752 million increase in our imports of cellphones, a $300 million increase in our imports of household appliances and a $296 million increase in our imports of artwork, antiques and other collectibles, and our imports of industrial supplies and materials rose by $1511 million to $39,727 million, led by a $353 million increase in our imports of precious metals other than gold and a $222 million increase in our imports of crude oil, and our imports of capital goods rose by $1,203 million to $58,092 million on a $414 million increase in our imports of civilian aircraft, a $320 million increase in our imports of semiconductors, and a $264 million increase in our imports of photo servicing industry machinery…in addition, our imports of foods, feeds, and beverages rose by $53 million to $13,403 million, and our imports of other goods not categorized by end use rose by $706 million to $9,452 million….partly offsetting the increases in those import categories, our imports of automotive vehicles, parts and engines fell by $1,035 million to $31,168 million on a $1,054 million decrease in our imports of new and used passenger cars….
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 November figures show surpluses, in billions of dollars, with South and Central America ($3.0), Hong Kong ($1.8), OPEC ($1.2), Brazil ($1.2), United Kingdom ($1.1), Saudi Arabia ($0.2), and Singapore ($0.2). Deficits were recorded, in billions of dollars, with China ($30.0), European Union ($16.7), Mexico ($11.3), Japan ($6.6), Germany ($4.9), Italy ($3.5), Taiwan ($3.0), South Korea ($2.9), India ($2.4), Canada ($1.7), and France ($1.7).
- The deficit with China increased $3.5 billion to $30.0 billion in November. Exports decreased $0.5 billion to $12.6 billion and imports increased $3.0 billion to $42.6 billion.
- The deficit with the European Union increased $1.0 billion to $16.7 billion in November. Exports increased $0.9 billion to $20.4 billion and imports increased $2.0 billion to $37.1 billion.
- The surplus with South and Central America increased $0.8 billion to $3.0 billion in November. Exports increased $0.2 billion to $11.0 billion and imports decreased $0.6 billion to $8.0 billion.
To estimate the impact of October’s and November’s trade in goods on the eventual 4th 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, with the exception that they are not annualized here….from that table, we can figure that we can figure that 3rd quarter real exports of goods averaged 136,611 million monthly in 2012 dollars, while similarly inflation adjusted October and November exports were at 143,883 million and 144,581 million respectively in that same 2012 dollar quantity index representation…annualizing the change between the average monthly real exports of the two quarters, we find that the 4th quarter’s real exports of goods are running at a 24.25% annual rate above those of the 3rd quarter, or at a pace that would add about 1.32 percentage points to 4th quarter GDP if it were to continue at the same pace through December….in a similar manner, we find that the 3rd quarter’s real imports of goods averaged 227,055.3 million monthly in chained 2012 dollars, while inflation adjusted October and November imports were at 233,736 million and 241,121 million in 2012 dollars respectively…those chained dollar representations of real goods imports would indicate that so far in the 4th quarter, real imports have been growing at annual rate of 19.565% from those of the 3rd quarter…since imports are subtracted from GDP because they represent the portion of the consumption and investment components of GDP that occurred during the quarter that was not produced domestically, their increase at a 19.656% rate would subtract about 1.36 percentage points from 4th quarter GDP….hence, if our October and November trade deficit in goods is maintained at these levels throughout December, our deteriorating balance of trade in goods would subtract a negligible 0.04 percentage points from the growth of 4th quarter GDP….(note, however, that we have not computed the impact on GDP of the usually less volatile change in services here, mostly because the BEA does not provide inflation adjusted data on those, but that the increases in November’s imports and exports of services were statically similar, also suggesting a negligible impact on GDP).
See also:
- November 2020 Trade Data Continues To Show Recovery But Exports Remain In Contraction Year-over-Year
Construction Spending Rose 0.9% in November After Prior Months Were Revised Higher
The Census Bureau’s report on construction spending for November (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,459.4 billion annually if extrapolated over an entire year, which was 0.9 percent (±0.8%) above the revised October annualized estimate of $1,446.9 billion and also 3.8 percent (±1.3 percent) above the estimated annualized level of construction spending in November of last year…at the same time, the annualized October construction spending estimate was revised nearly 0.6% higher, from $1,438.5 billion to $1,446.9 billion, while the annual rate of construction spending for September was revised almost 0.3% higher, from $1,420.4 billion to $1,423.963 billion…the $3.6 billion upward revision to September construction spending would imply that the 3rd estimate of 3rd quarter GDP growth was understated by roughly 0.03 percentage points, a change which will not be applied to published GDP figures until the annual revision is released in the middle 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 $1,111.8 billion, 1.2 percent (±0.5 percent) above the revised October estimate of $1,098.6 billion. Residential construction was at a seasonally adjusted annual rate of $658.1 billion in November, 2.7 percent (±1.3 percent) above the revised October estimate of $641.0 billion. Nonresidential construction was at a seasonally adjusted annual rate of $453.8 billion in November, 0.8 percent (±0.5 percent) below the revised October estimate of $457.6 billion.
- Public Construction: In November, the estimated seasonally adjusted annual rate of public construction spending was $347.6 billion, 0.2 percent (±1.3 percent)* below the revised October estimate of $348.3 billion. Educational construction was at a seasonally adjusted annual rate of $86.7 billion, 0.3 percent (±1.2 percent)* above the revised October estimate of $86.5 billion. Highway construction was at a seasonally adjusted annual rate of $97.5 billion, 1.8 percent (±3.5 percent)* above the revised October estimate of $95.8 billion.
As you can infer from that summary, construction spending would be included in 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and in government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of November spending reported in this release on 4th 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…that’s problematic because there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for the prices changes of all of those types of construction separately, we’ve opted to use the producer price index for final demand construction as an inexact shortcut to make an approximate price adjustment and thereby get a rough estimate of the real change in construction…
That price index showed that aggregate construction costs were up 0.1% in November after being unchanged in October, down 0.2% in September and down 0.3% in August…on that basis, we can estimate that construction costs for November were up 0.1% from September, down 0.1% from August, and down 0.4% from July, while they were obviously up 0.1% from October…we then use those percentage changes to adjust the spending figures for each of those 3rd quarter months against November, which is arithmetically the same as adjusting lower priced October and November construction spending upward, for purposes of comparison…annualized construction spending in millions of dollars for the third quarter months is given as $1,423,963 for September, $1,426,884 for August, and $1,398,952 for July, while it was at annual rates of $1,446,877 in October and $1,459,440 in November….thus to compare the difference between the inflation adjusted construction spending of the two recent 4th quarter months and those of the third quarter, our calculation would be ((1,459,440 + 1,446,877 * 1.001)/2) / ((1,423,963 *1.001 + 1,426,884 * .999 + 1,398,952 * .996) / 3) = 1.027672, meaning average real construction over the months of October and November was up 2.7672% vis a vis the 3rd quarter…in GDP terms, that means real construction for the 4th quarter has increased at an annual rate of 11.537% from that of the 3rd quarter so far, or at a pace that would add about 1.30 percentage points to 4th quarter GDP, should real December construction continue at the same pace as that of October and November.
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Factory Shipments Up 0.7% in November, Factory Inventories Up 0.7%, Both on Higher Prices
The Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) for November from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $5.0 billion or 1.0 percent to $487.2 billion in November, following an increase of 1.3% to $482.2 billion in October, which was revised from the 1.0% increase to $480.8 billion that was reported for October a month ago….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 October advance report on durable goods we reported on two weeks ago…on those durable goods 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 November, up seven consecutive months, increased $5.0 billion or 1.0 percent to $487.2 billion, the U.S. Census Bureau reported today. This followed a 1.3 percent October increase. Shipments, also up seven consecutive months, increased $3.4 billion or 0.7 percent to $492.9 billion. This followed a 1.2 percent October increase. Unfilled orders, down eight of the last nine months, decreased $0.6 billion or 0.1 percent to $1,073.2 billion. This followed a 0.2 percent October decrease. The unfilled orders-to-shipments ratio was 6.40, up from 6.38 in October. Inventories, up three of the last four months, increased $5.1 billion or 0.7 percent to $692.9 billion. This followed a 0.3 percent October increase. The inventories-to-shipments ratio was 1.41, unchanged from October.
- New orders for manufactured durable goods in November, up seven consecutive months, increased $2.3 billion or 1.0 percent to $244.4 billion, up from the previously published 0.9 percent increase. This followed a 1.8 percent October increase. Transportation equipment, up six of the last seven months, led the increase, $1.6 billion or 2.1 percent to $79.0 billion. New orders for manufactured nondurable goods increased $2.7 billion or 1.1 percent to $242.8 billion.
- Shipments of manufactured durable goods in November, up six of the last seven months, increased $0.8 billion or 0.3 percent to $250.1 billion, unchanged from the previously published increase. This followed a 1.5 percent October increase. Miscellaneous products, up nine of the last ten months, led the increase, $0.4 billion or 2.5 percent to $15.5 billion. Shipments of manufactured nondurable goods, up seven consecutive months, increased $2.7 billion or 1.1 percent to $242.8 billion. This followed a 0.8 percent October increase. Petroleum and coal products, up six of the last seven months, led the increase, $1.8 billion or 4.4 percent to $41.6 billion.
- Unfilled orders for manufactured durable goods in November, down eight of the last nine months, decreased $0.6 billion or 0.1 percent to $1,073.2 billion, unchanged from the previously published decrease. This followed a 0.2 percent October decrease. Transportation equipment, down nine consecutive months, drove the decrease, $3.4 billion or 0.5 percent to $713.4 billion.
- Inventories of manufactured durable goods in November, up three consecutive months, increased $3.8 billion or 0.9 percent to $426.5 billion, unchanged from the previously published increase. This followed a 0.3 percent October increase. Transportation equipment, up twenty-six of the last twenty-seven months, led the increase, $2.5 billion or 1.7 percent to $150.8 billion. Inventories of manufactured nondurable goods, up three of the last four months, increased $1.3 billion or 0.5 percent to $266.5 billion. This followed a 0.2 percent October increase. Petroleum and coal products, up following two consecutive monthly decreases, led the increase, $0.9 billion or 2.9 percent to $31.3 billion.
To gauge the impact of November factory inventories on 4th 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 November’s finished goods inventories was 0.8% higher at $247,059 million; the value of work in process inventories was 1.0% higher at $219,930 million, and materials and supplies inventories were valued 0.4% higher at $236,198 million…the producer price index for November indicated that prices for finished goods increased 0.4%, that prices for intermediate processed goods were 1.4% higher, and that prices for unprocessed goods were on average 7.3% higher….assuming similar valuations for like types of inventories, those price changes would suggest that November’s real finished goods inventories were up about 0.4%, that real inventories of intermediate processed goods were around 0.4% smaller, and around 6.9% smaller, with a caveat on that last figure because two-thirds of the increase in the index for unprocessed goods was due to a 48.9% jump in prices for unprocessed natural gas; even so, real raw material inventories were down at least 2% without that…those November inventory changes follow an October report that indicated real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were about 2.6% lower, and that real raw material inventory inventories were about 2.3% lower…since real factory inventories in the 3rd quarter were only slightly lower, any larger inventory decreases in the 4th quarter such as we see indicated here will subtract from GDP by the difference bewteen the 3rd quarter and 4th quarter decreases.
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November Wholesale Sales Up 0.2%, Wholesale Inventories Unchanged
The November report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at “$496.7 billion, up 0.2 percent (±0.4 percent)* from the revised October level, but were down 0.2 percent (±1.1 percent)* from the revised November 2019 level.“…October’s sales were revised down to $495,974 million from the $496.6 billion reported last month, and as a result “The September 2020 to October 2020 percent change was revised from the preliminary estimate of up 1.8 percent (±0.4 percent) to up 1.7 percent (±0.4 percent).” 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 left in a warehouse represent goods that were produced but not sold, and this November report estimated that wholesale inventories were valued at a seasonally adjusted “$649.8 billion at the end of November, virtually unchanged (±0.2 percent)* from the revised October level. Total inventories were down 2.1 percent (±1.1 percent) from the revised November 2019 level”. ..the value of inventories at the end of October was revised to $649.8 billion from the $649.0 billion indicated by last month’s report, which is now up 1.3% from September..
To estimate the impact of November wholesale inventories on 4th quarter GDP, we must first adjust them for changes in price with appropriate components of the producer price index…although details are not broken out in this report, we’ve previously estimated that about 2/3rd of wholesale inventories are finished goods, with notable exceptions such as inventories of crude oil and farm products…as we noted earlier, the producer price index for November indicated that prices for finished goods increased 0.4%, that prices for intermediate processed goods were 1.4% higher, and that prices for unprocessed goods were on average 7.3% higher; thus the lack of change in the nominal value of wholesale inventories was despite rising prices, and hence real wholesale inventories were at least 0.4% lower for the month, and that follows an October when real whole inventories were around 0.5% higher….since real wholesale inventories in the 3rd quarter were down sharply, the change real wholesale inventories in the 4th quarter would thus add to the growth of 4th quarter GDP by first reversing the 3rd quarter decline, and then by incrementing or decrementing that with the magnitude of the 4th quarter change.
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