Written by rjs, MarketWatch 666
May’s employment report; April’s construction spending, factory inventories, et al
The most significant economic report released this past week was the Employment Situation Summary for May from the Bureau of Labor Statistics; other major monthly government agency issued reports released during the week included the April report on Construction Spending (pdf) and the Full Report on Manufacturers’ Shipments, Inventories and Orders for April, both from the Census Bureau.
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In addition, this week also saw the last regional Fed manufacturing survey for May; the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas, western Louisiana and eastern New Mexico, reported their general business activity composite index slipped to +34.9 in May from +37.3 in April, still indicating that a large majority of Texas businesses had reported expansion during the month..
Privately issued reports released this week included the ADP Employment Report for May and the light vehicle sales report for May from Wards Automotive, which estimated that vehicles sold at a 16.99 million annual rate in May, down from the 18.51 million annual rate of sales in April, but up from the 12.21 million annual sales rate during the pandemic restrictions of May a year ago….in addition, this week saw the release of both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the May Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 61.2% in May, up from 61.7% in April, which suggests a broad based expansion of manufacturing activity nationally, and the May Services Report On Business; which saw the ISM Services index rise to a record 64.0%, up from 62.7% percent in April, indicating a record plurality of service industry purchasing managers reported expansion in various facets of their business in May…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 Add 559,000 Jobs in May; Unemployment Rate Falls to 5.8%
The Employment Situation Summary for May indicated an increase in payroll jobs that was a bit below expectations but in line with recent trends, and a 0.3% decrease in the unemployment rate against consensus expectations for little change…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 559,000 jobs in May, after the previously estimated payroll job increase for March was revised from 770,000 to 785,000, while the payroll jobs increase for April was revised from 266,000 to 278,000 jobs…with those revisions, that means that this report indicates an increase of 588,000 more jobs than were reported last month, but also means that seasonally adjusted non-farm payrolls are still 7,627,000 below the record 152,523,000 jobs reported for February of 2020, before the first pandemic related layoffs kicked in…the unadjusted data shows that there were actually 973,000 more payroll jobs extant in May than in April, as typical seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were reduced to what is considered a normal level by the seasonal adjustment algorithm…
Seasonally adjusted job increases in May were spread through the private sector and government, with the notable exceptions of construction, which lost 20,000 on a seasonally adjusted basis, despite increasing by 114,000 in reality, and retail sales, which shed a net 5,000 jobs due to the loss of 26,000 jobs in food and beverage stores….however, even after a 287,000 job downward seasonally adjustment, employment in the leisure and hospitality sector still increased by 292,000 jobs, including the addition of 186,000 more jobs in bars and restaurants, 71,700 more in performing arts and spectator sports, 57,900 jobs in amusements, gambling, and recreation, and 34,600 more jobs in accommodation…the government sector saw the addition of 67,000 jobs, despite the loss of 19,800 with local governments and 14,700 at the Post Office, as 53,000 jobs were added in local school districts and another 50,000 were added in state education…in addition, private educational services also added 40,700 jobs in May…. meanwhile, employment in health care and social assistance rose by 45,800, with the addition of 18,300 jobs in child day care services and 7,900 jobs in offices of health practitioners other than doctors and dentists….the broad professional and business services sector added 35,000 jobs, as 12,800 found employment in services to buildings and dwellings and 14,100 jobs were added by accounting and bookkeeping services, while the information sector saw the addition of 29,000, with the addition of 13,900 spots in the motion picture and sound recording industries…at the same time, manufacturing employment rebounded by 23,000, on a 24,800 job gain in motor vehicles and parts manufacturing, the transportation and warehousing sector added 22,900 including 10,200 providing support activities for transportation, and wholesale trades added 19,900 more employees with the addition of 13,900 in durables goods trade…meanwhile, employment in other major sectors, including resource extraction, the financial sector and utilities, all saw employment change by less than 1,000 over the month…
Despite the big increase in lower paid workers, the establishment survey also showed that average hourly pay for all employees rose by 15 cents an hour to $30.33 an hour in May, after it had increased by 21 cents an hour in April; at the same time, the average hourly earnings of production and non-supervisory employees increased by 14 cents to $25.60 an hour….employers also reported that the average workweek for all private payroll employees remained at 34.9 hours for the third month in a row in May, while hours for production and non-supervisory personnel was down 0.1 hour to 34.3 hours…at the same time, the manufacturing workweek rose a tenth of a hour to 40.5 hours, while average factory overtime also rose a tenth of a hour to 3.3 hours…
Meanwhile, the seasonally adjusted extrapolation from the May household survey estimated indicated that the number of those who were employed rose an estimated 444,000 to 151,620,000, while the similarly estimated number of those who were unemployed fell by 496,000 to 9,316,000; which thus meant there was a rounded decrease of 53,000 in the total labor force…since the working age population had grown by 107,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 160,000 to 100,2755,000….meanwhile, the modest decrease of those in the labor force as a percentage of the increasing working age population was still enough to lower the labor force participation rate from 61.7% to 61.6%….however, the big increase in number employed vis a vis the increase in the population was enough to raise the employment to population ratio, which we could think of as an employment rate, from 57.9% to 58.0%…in addition, the decrease in those counted as unemployed vis a vis the total labor force was enough to lower the unemployment rate from 6.1% to 5.8%…meanwhile, the number who reported they were involuntarily working part time inched up by 28,000 to 5,271,000 in May, which meant the the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, fell by 0.2%, from 10.4% in April to 10.2% in May, still the lowest since March of last year….
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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Construction Spending Up 0.2% in April After March Spending Revised 0.5% Higher
The Census Bureau’s report on construction spending for April (pdf) estimated that the month’s seasonally adjusted construction spending was at a $1,524.2 billion annual rate during the month, up 0.2 percent (±0.8 percent) from the revised March annual sales rate of $1,521.0 billion, and 9.8 percent (±1.2 percent) above the estimated annualized level of construction spending in April of last year…the annualized March construction spending estimate was revised 0.5% higher, from $1,513.1 billion to $1,521.0 billion, while the annual rate of construction spending for February was revised 0.2% lower, from $1,509.9 billion to $1,506.64 billion…taken together, those revisions would suggest an upward revision of $2.1 billion to first quarter construction spending on a annualized basis, which would in turn add around 0.05 or 0.06 percentage points to 1st quarter GDP when the third estimate is released at the end of June…
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 $1,180.7 billion, 0.4 percent (±0.7 percent)* above the revised March estimate of $1,175.4 billion. Residential construction was at a seasonally adjusted annual rate of $729.2 billion in April, 1.0 percent (±1.3 percent)* above the revised March estimate of $721.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.4 billion in April, 0.5 percent (±0.7 percent)* below the revised March estimate of $453.7 billion.
- Public Construction: In April, the estimated seasonally adjusted annual rate of public construction spending was $343.5 billion, 0.6 percent (±1.6 percent)* below the revised March estimate of $345.6 billion. Educational construction was at a seasonally adjusted annual rate of $84.8 billion, 0.5 percent (±1.8 percent)* below the revised March estimate of $85.2 billion. Highway construction was at a seasonally adjusted annual rate of $99.8 billion, 0.6 percent (±5.6 percent)* above the revised March estimate of $99.2 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 as government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of April’s construction spending reported in this release on 2nd 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…there are many different price indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf) that are used by the BEA to make those inflation adjustments, so in lieu of trying to adjust for price changes for all of those types of construction separately the way the BEA will do, 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 estimate…that index showed that aggregate construction costs were up 1.1% from March to April, up 0.5% from February to March and up 0.3% from January to February….
On that basis, we can estimate that April construction costs were roughly 1.6% greater than those of February and at least 1.9% greater than those of January, and obviously 1.1% greater than those of March….we then use those percentage differences to inflate spending for each of those three months, which is arithmetically the same as deflating April construction spending against the first quarter, for comparison purposes….annualized construction spending in millions of dollars for the first quarter months is given as 1,521,014 for March, 1,506,639 for February, and 1,518,707 for January….thus to find the difference between April’s inflation adjusted construction spending and the inflation adjusted construction spending of the first quarter, our formula becomes: 1,524,183 / (( 1,521,014 * 1.011 + 1,506,639 * 1.016 + 1,518,707 * 1.019) / 3) = 0.9906, meaning real construction spending in April was down roughly 0.94% vis a vis the 1st quarter, or down at a 3.72% annual rate….to figure the potential effect of that change on 2nd quarter GDP, we take the annualized difference between the first quarter average inflation adjusted construction spending and April’s spending as a fraction of the annualized 1st quarter GDP figure, and from that estimate that real April construction spending was falling at a rate that would subtract about 0.35 percentage points from the growth rate of 2nd quarter GDP, in the unlikely event that May and June’s inflation adjusted construction is little changed from that of April.
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Factory Shipments up 0.4% in April, Factory Inventories Up 0.3%, on Mostly Higher Prices
The April 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 $2.9 billion or 0.6 percent to $485.2 billion in April, the first decrease in twelve months, following an increase of 1.4% to $488.1 billion in March, which was revised from the 1.1% increase to $512.9 billion reported for March last month….note that other than the usual monthly revisions to the underlying data, this month’s report also reflects the May 14th re-benchmarking of shipments and inventories data to the 2019 and 2018 Annual Survey of Manufactures data, revised back to 2013, and then adjusting the new orders data to be consistent with the re-benchmarked data…
However, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched “factory orders report”, and uses non-durables shipments data in its place instead, we believe that both the “new orders” and “unfilled orders” sections of this report are really only useful as a revised update to the April 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 summary here:
- Summary: New orders for manufactured goods in April, down following eleven consecutive monthly increases, decreased $2.9 billion or 0.6 percent to $485.2 billion, the U.S. Census Bureau reported today. This followed a 1.4 percent March increase. Shipments, up eleven of the last twelve months, increased $1.8 billion or 0.4 percent to $487.8 billion. This followed a 2.1 percent March increase. Unfilled orders, up three consecutive months, increased $1.8 billion or 0.2 percent to $1,196.9 billion. This followed a 0.5 percent March increase. The unfilled orders-to-shipments ratio was 6.84, down from 7.00 in March. Inventories, up ten of the last eleven months, increased $2.4 billion or 0.3 percent to $723.6 billion. This followed a 0.8 percent March increase. The inventories-to-shipments ratio was 1.48, unchanged from March.
- New orders for manufactured durable goods in April, down following eleven consecutive monthly increases, decreased $3.2 billion or 1.3 percent to $246.3 billion, unchanged from the previously published decrease. This followed a 1.3 percent March increase. Transportation equipment, down two consecutive months, drove the decrease, $4.9 billion or 6.6 percent to $68.9 billion. New orders for manufactured nondurable goods increased $0.2 billion or 0.1 percent to $238.9 billion.
- Shipments of manufactured durable goods in April, up eleven of the last twelve months, increased $1.5 billion or 0.6 percent to $249.0 billion, unchanged from the previously published increase. This followed a 2.7 percent March increase. Primary metals, also up eleven of the last twelve months, led the increase, $0.6 billion or 2.7 percent to $21.7 billion. Shipments of manufactured nondurable goods, up eleven of the last twelve months, increased $0.2 billion or 0.1 percent to $238.9 billion. This followed a 1.6 percent March increase. Chemical products, also up eleven of the last twelve months, drove the increase, $0.6 billion or 0.9 percent to $63.0 billion.
- Unfilled orders for manufactured durable goods in April, up three consecutive months, increased $1.8 billion or 0.2 percent to $1,196.9 billion, unchanged from the previously published increase. This followed a 0.5 percent March increase. Fabricated metal products, up eleven consecutive months, drove the increase, $3.1 billion or 3.4 percent to $95.9 billion.
- Inventories of manufactured durable goods in April, up three consecutive months, increased $2.3 billion or 0.5 percent to $441.8 billion, unchanged from the previously published increase. This followed a 1.1 percent March increase. Transportation equipment, also up three consecutive months, led the increase, $0.9 billion or 0.6 percent to $149.4 billion. Inventories of manufactured nondurable goods, up eight of the last nine months, increased $0.1 billion or virtually unchanged to $281.8 billion. This followed a 0.3 percent March increase. Beverage and Tobacco products, up three consecutive months, drove the increase, $0.2 billion or 0.7 percent to $26.2 billion.
To estimate the effect of those April factory inventories on 2nd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the total value of finished goods inventories inched up by 0.1% to $256,888 million; the value of work in process inventories rose 0.2% to $214,620 million, and the value of materials and supplies inventories rose 0.9% to $252,074 million…the April producer price index reported that prices for finished good were on average 0.6% higher, that prices for intermediate processed goods were on average 1.6% higher, but that prices for unprocessed goods were 3.8% lower….assuming similar valuations for like types of inventories, those prices would suggest that April’s real finished goods inventories were about 0.5% smaller than those of March, that real inventories of intermediate processed goods were roughly 1.4% smaller, but that real raw material inventory inventories were about 4.5% greater, with a caveat on the later that much of raw material price drop in April was due to a 17.2% drop in crude energy prices, the impact of which would be distorted in our simplistic calculation…since real NIPA factory inventories were modestly lower in the 1st quarter, and this report seems to indicate a small decrease in April’s real inventories, it appears that the real change in April factory inventories could have a small positive impact on the growth rate of 2nd quarter GDP, if only on the strength of falling less than they did in the first quarter.
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