Written by rjs, MarketWatch 666
June’s jobs report; May’s trade deficit, construction spending and factory inventories
This week’s major agency issued economic releases included the Employment Situation Summary for June from the Bureau of Labor Statistics, and three May reports that will input into 2nd quarter GDP: the BEA’s report on our International Trade for May, the May report on Construction Spending and the Full Report on Manufacturers’ Shipments, Inventories and Orders for May, both from the Census Bureau….this week also saw the last regional Fed manufacturing survey for June; the Dallas Fed’s Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, reported its general business activity index fell to +31.1 in June from +34.9 in May, still indicating an ongoing robust expansion of the Texas area economy.
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Privately issued reports released this week included the ADP Employment Report for June, the light vehicle sales report for June from Wards Automotive, which is the source data for the BEA report and which estimated that vehicles sold at a 15.36 million seasonally adjusted annual rate in June, down from 16.99 million annual rate in May, but up from the 13.05 million annual rate in June of 2020, and the Case-Shiller house price indexes for April from S&P Case-Shiller, who reported that their national home price index was 14.6% higher than in the same month’s report a year ago, up from the 13.3% year over year gain reported for March….this week also saw the widely followed purchasing manager’s survey from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 60.6% in June, down from 61.2% in May, which means that a smaller plurality of manufacturing industry purchasing managers reported expansion in various facets of their business in June than a month ago.
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Employers Added 850,000 Jobs in June, Unemployment Rate Rises to 5.9%
The Employment Situation Summary for June indicated an increase in payroll jobs that was both above expectations and the most in 10 months, but that fewer Americans reported they were employed in June than did in May…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 850,000 jobs in June, after the payroll job increase for May was revised up from 559,000 to 583,000 jobs, while the April increase was revised down from 278,000 jobs to 269,000, which means that the combined number of jobs added over those two months was 15,000 more than was previously reported….the unadjusted data indicates that there were actually 1,148,000 more payroll jobs in June than in May, as seasonal job increases that are typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…
Seasonally adjusted job increases were spread throughout government and the private goods producing and service sectors, and continue to reflect recoveries in sectors hardest hit by the pandemic…..the leisure and hospitality sector’s gain of 343,000 jobs accounted for a sizable part of the June job gain, and included an increase of 194,300 employees working in bars and restaurants, an increase of 75,100 jobs in accommodation, and 44,800 more working in amusements, gambling, and recreation….the government sector saw an addition of 188,000 jobs in June, as 155,200 seasonally adjusted jobs were added in local school districts and another 74,500 were added in state education, while private educational services also added 38,600 jobs, all of which reflect fewer June teacher layoffs than normal….the broad professional and business services sector added 72,000 jobs in June, as 33,000 more were employed by temporary help services and 8,000 more found work in advertising and related services….the retail sector saw an increase of 67,100 jobs, led by 27,900 more jobs in clothing stores and 25,400 additional jobs with general merchandise retailers, even as building material and garden supply stores cut 12,700 employees…another 56,000 jobs gains were seen by “other services”, with an increase of 29,200 employed by personal and laundry services and 18,200 more by membership associations and organizations…wholesale trade added 21,300 jobs, with wholesale durable goods accounting for 13,500 of those… in addition, employment in health care and social assistance rose by 20,200, as an increase of 24,900 jobs with child day care services was partly offset by the loss of 9,600 jobs with nursing and residential care facilities…meanwhile, other June job increases included the addition of 15,000 jobs in manufacturing, 14,000 in information, 12,000 in resource extraction, and 10,700 in transportation and warehousing, while 7,000 seasonally adjusted jobs were lost in construction, and the financial sector employed a thousand fewer than it did in May…
The establishment survey also showed that the average hourly pay for all employees rose by 10 cents to $30.40 an hour in June, after it had increased by a downwardly revised 13 cents an hour in May; at the same time, the average hourly earnings of production and nonsupervisory employees also increased by 10 cents to $25.68 an hour…employers also reported that the average workweek for all private payroll employees decreased by 0.1 hours to 34.7 hours, while hours for production and non-supervisory personnel fell by 0.2 hours to 34.1 hours…in addition, the manufacturing workweek fell by 0.2 hour to 40.2 hours, while factory overtime decreased by 0.1 hour to 3.2 hours..
Meanwhile, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed actually fell by an estimated 18,000 to 151,602,000, while the similarly estimated number of those unemployed rose by 168,000 to 9,484,000; which together meant that June saw a net increase of 151,000 in the total labor force…since the working age population had grown by 128,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 22,000 to 100,253,000….the increase of those in the labor force was not enough to raise the labor force participation rate, which remained at 61.6%….likewise, the small change in the number employed vis a vis the increase in the population left the employment to population ratio, which we could think of as an employment rate, unchanged at 58.0%…however, the increase in the number counted as unemployed was enough to raise the unemployment rate from 5.8% to 5.9%….meanwhile, the number who reported they were involuntarily working part time fell by 644,000 to 4,627,000 in June, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 10.2% in May to 9.8% in June, 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 alongside the press release to avoid the need to scroll up and down the page.
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May Trade Deficit Rose 3.1% on Higher Imports of Industrial Supplies and Materials
Our trade deficit increased by 3.1% in May as the value of both our exports and our imports increased, but our imports increased by more than twice as much….the Commerce Department report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit rose by a rounded $2.2 billion to $71.2 billion in May, from a April deficit of $69.1 billion, which was revised up from the $68.9 billion deficit reported for April last month….also in rounded totals, the value of our May exports rose by $1.3 billion to $206.0 billion on a $0.4 billion increase to $145.5 billion in our exports of goods and a $0.9 billion increase to $60.5 billion in our exports of services, while our imports rose $3.5 billion to $277.3 billion on a $2.7 billion increase to $234.7 billion in our imports of goods and a $0.7 billion increase to $42.6 billion in our imports of services…export prices were on average 2.2% higher in May, so this month’s real exports were less than their nominal value by that percentage, while import prices were 1.1% higher, meaning that our real imports were likewise smaller than their nominal value by that percentage..
The increase in May’s exports was largely due to greater exports of consumer goods and agricultural goods, which were partly offset by lower exports of automotive goods and capital goods….referencing the Full Release and Tables for the May trade report (pdf), in Exhibit 7 we find that our exports of consumer goods rose by $979 million to $17,956 million, on a $801 million increase in our exports of pharmaceutical preparations and a $313 million increase in our exports of cell phones, and that our exports of foods, feeds and beverages rose by $297 million to $13,981 million on a $237 million increase in our exports of meat and poultry….in addition, our exports of industrial supplies and materials rose by $141 million to $52,312 million as an increase of $595 in our exports of precious metals other than gold, a $558 million increase in our exports of petroleum products other than fuel oil, an increase of $468 in our exports of plastic materials, a $329 million increase in our exports of organic chemicals, and a $312 million increase in our exports of natural gas were offset by a $2,232 million decrease in our exports of non monetary gold and a $561 million decrease in our exports of crude oil….partly offsetting the increases in those export categories, our exports of automotive vehicles, parts, and engines fell by $546 million to $11,369 million on a $416 million decrease in our exports of new and used passenger cars, our exports of capital goods fell by $453 million to $43,786 million as a $1,417 million decrease in our exports of commercial aircraft was partly offset by a $428 million increase in our exports of semiconductors, and our exports of other goods not categorized by end use fell by $23 million to $5,565 million..
Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of industrial supplies and materials and of foods, feeds and beverages were largely responsible for the May increase in our imports, and that they were partly offset by lower imports of capital goods…our imports of industrial supplies and materials rose by $2,568 million to $52,252 million on a $797 million increase in our imports of crude oil, a $606 million increase in our imports of fuel oil, and a $322 million increase in our imports of lumber, and our imports of foods, feeds, and beverages rose by $841 million to $15,385 million on increased imports of fish and shellfish, beer and wine, vegetables and other foods….in addition, our imports of consumer goods rose by $265 million to $63,984 million as a $1,411 million increase in our imports of pharmaceutical preparations, a $466 million increase in our imports of toys, games, and sporting goods, a $435 million increase in our imports of artwork, antiques, and other collectibles, and a $434 million increase in our imports of cotton apparel and household goods were partly offset by decreases of $790 million in our imports of cell phones and $675 million in our imports of gem diamonds, while our imports of other goods not categorized by end use rose by $270 million to $9,745 million…partly offsetting the increases in those categories, our imports of capital goods fell by $1,128 million to $62,577 million on a $1,286 million decrease in our imports of computers and a $578 million decrease in our imports of telecommunications equipment, and our imports of automotive vehicles, parts and engines fell by $172 million to $29,187 million on a $598 million decrease in our imports of new and used passenger cars…
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, and provides more details in exhibit 19:
The May figures show surpluses, in billions of dollars, with South and Central America ($4.0), Hong Kong ($2.7), Brazil ($1.2), United Kingdom ($1.0), and Singapore ($0.1). Deficits were recorded, in billions of dollars, with China ($27.2), European Union ($18.5), Mexico ($7.7), Germany ($6.2), Japan ($5.9), Canada ($4.8), Taiwan ($3.3), Italy ($3.2), India ($2.5), South Korea ($2.3), France ($1.5), and Saudi Arabia ($0.3).
- The deficit with the European Union increased $2.4 billion to $18.5 billion in May. Exports decreased $0.2 billion to $22.0 billion and imports increased $2.3 billion to $40.5 billion.
- The deficit with Canada increased $1.8 billion to $4.8 billion in May. Exports increased $0.2 billion to $24.5 billion and imports increased $1.9 billion to $29.3 billion.
- The deficit with China decreased $5.1 billion to $27.2 billion in May. Exports decreased less than $0.1 billion to $13.1 billion and imports decreased $5.2 billion to $40.3 billion.
To gauge the impact of April and May trade on 2nd 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 for inflation in chained 2012 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference here being that the amounts are not annualized…from that table, we can figure that 1st quarter real exports of goods averaged 143,737.3 million monthly in 2012 dollars, while inflation adjusted April and May exports were at 147,944 million and 144,965 million respectively in that same 2012 dollar quantity index representation….after averaging inflation adjusted April and May goods exports and then computing the annualized change between that average and the average of the first quarter, we find that the 2nd quarter’s real exports of goods are running at a 7.78% annual rate above those of the 1st quarter, or at a pace that would add about 0.48 percentage points to 2nd quarter GDP if continued at the same rate through June…..
In a similar manner, we find that our 1st quarter real imports averaged 245,402.7 million monthly in chained 2012 dollars, while inflation adjusted April and May imports were at 246,698 million and 246,814 million in those same inflation adjusted dollars respectively….that would mean that so far in the 2nd quarter, our real imports of goods have increased at a 2.22% annual rate from those of the 1st 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 2.2% rate would thus subtract about 0.23 percentage points from 2nd quarter GDP….hence, if our goods trade deficit at the April – May level is maintained through June, our improving balance of trade in goods would add a net of roughly 0.25 percentage points to the growth of 2nd quarter GDP….
Note that we have not figured the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, but that the month’s increase in exports of services was a bit more than the increase in imports of services, which thus suggests that May’s trade in services would also add to 2nd quarter GDP.
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Construction Spending Falls 0.3% in May after March & April Spending Revised Much Higher
The Census Bureau report on construction spending for May (pdf) estimated that May’s seasonally adjusted construction spending would work out to $1,545.3 billion annually if extrapolated over an entire year, which was 0.3 percent (±1.0 percent)* below the revised annualized estimate of $1,549.5 billion of construction spending in April, but 7.5 percent (±1.3 percent) above the estimated annualized level of construction spending in May of last year…with this release, unadjusted construction spending data was revised back to January 2019 and seasonally adjusted data was revised back to January 2014…as a result of that and the usual monthly revision, the April spending estimate was revised 1.7% higher, from $1,524.2 billion to $1,386.1 billion, while the annual rate of construction spending for March was revised 1.8% higher, from $1,521.0 billion to $1,548.555 billion…we would normally suggest that a large upward revision to annualized March construction spending would have large positive impact on first quarter GDP when the annual revisions to GDP are released in late July, but with 4th quarter construction also being revised, the entire quarter over quarter change will need to be recomputed, a chore which we’re not about to undertake at this time…after revisions, construction spending tor the first 5 months of 2021 now amounts to $594.8 billion, 4.6 percent (±1.0 percent) more than the $568.5 billion in construction spending for the same 5 months of 2020…
A further breakdown of the different subsets of May 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 $1,203.3 billion, 0.3 percent (±0.8 percent)* below the revised April estimate of $1,206.8 billion. Residential construction was at a seasonally adjusted annual rate of $751.7 billion in May, 0.2 percent (±1.3 percent)* above the revised April estimate of $750.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.6 billion in May, 1.1 percent (±0.8 percent) below the revised April estimate of $456.5 billion.
- Public Construction: In May, the estimated seasonally adjusted annual rate of public construction spending was $342.0 billion, 0.2 percent (±1.8 percent)* below the revised April estimate of $342.7 billion. Educational construction was at a seasonally adjusted annual rate of $82.0 billion, 1.9 percent (±1.8 percent) below the revised April estimate of $83.6 billion. Highway construction was at a seasonally adjusted annual rate of $98.6 billion, 1.4 percent (±6.1 percent)* above the revised April estimate of $97.2 billion.
This construction spending report will be used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local governments….however, gauging the impact of the revised April and May construction spending as reported here on 2nd quarter GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…accurately adjusting construction spending for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, ie, such as using the Engineering News Record construction cost index for utilities’ construction….in lieu of trying to find and adjust for all of the obscure price indices the BEA uses, we’ve opted to just use the producer price index for final demand construction as an inexact shortcut to make an aggregate price adjustment sufficient to make an estimate…that index showed that aggregate construction costs rose 0.6% in May, after being up 1.1% from March to April, up 0.5% from February to March, and up 0.2% from January to February..
On that basis, we can estimate that May construction costs were roughly 1.7% greater than those of March, 2.2% greater than those of February and 2.4% greater than those of January, and obviously 0.6% more than those of April…we then use those percentages to inflate spending for each of the months of the first quarter which, for purposes of comparison, is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter….annualized construction spending in millions of dollars for the five months in question is given here as 1,545,272 for May, 1,549,488 for April, 1,548,555 for March, 1,533,252 for February, and 1,549,793 for January….thus to figure the annual rate of change of May’s nominal construction spending figure of $1,293,872 and April’s figure of $1,304,007 from those of the ‘inflation adjusted’ figures of the first quarter, our calculation becomes (((1,545,272 + 1,549,488 * 1.006) / 2) / (((1,548,555 * 1.017) + (1,533,252 * 1.022) + (1,549,793 * 1.024)) / 3)) ^ 4 = 0.939855, which means that after adjusting for inflation, construction spending has been shrinking at a 6.01% annual rate over the first 2 months of the second quarter…put another way, that would be a construction spending contraction at a $24.26 billion annual rate, which means that if June construction shows no improvement, the 2nd quarter contraction in real construction would subtract a net of about 0.64 percentage points from 2nd quarter GDP across those components that it influences.
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Factory Shipments Up 0.7% in May, Factory Inventories Up 0.9%
The May Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods increased by $8.1 billion or 1.7 percent to $495.5 billion in May, following a decrease of 0.1% to $487.4 billion in April, which was revised from the 0.6% decrease to $485.2 billion reported for April 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 May 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 May, up twelve of the last thirteen months, increased $8.1 billion or 1.7 percent to $495.5 billion, the U.S. Census Bureau reported today. This followed a 0.1 percent April decrease. Shipments, also up twelve of the last thirteen months, increased $3.3 billion or 0.7 percent to $490.4 billion. This followed a 0.2 percent April increase. Unfilled orders, up four consecutive months, increased $9.6 billion or 0.8 percent to $1,209.5 billion. This followed a 0.4 percent April increase. The unfilled orders-to-shipments ratio was 6.95, up from 6.88 in April. Inventories, up eleven of the last twelve months, increased $6.6 billion or 0.9 percent to $731.6 billion. This followed a 0.5 percent April increase. The inventories-to-shipments ratio was 1.49, unchanged from April.
- New orders for manufactured durable goods in May, up twelve of the last thirteen months, increased $5.8 billion or 2.3 percent to $253.4 billion, unchanged from the previously published increase. This followed a 0.7 percent April decrease. Transportation equipment, up following two consecutive monthly decreases, led the increase, $5.3 billion or 7.7 percent to $74.3 billion. New orders for manufactured nondurable goods increased $2.4 billion or 1.0 percent to $242.1 billion.
- Shipments of manufactured durable goods in May, up two of the last three months, increased $0.9 billion or 0.4 percent to $248.3 billion, unchanged from the previously published increase. This followed a virtually unchanged April decrease. Machinery, up seven of the last eight months, led the increase, $0.5 billion or 1.4 percent to $35.2 billion. Shipments of manufactured nondurable goods, up twelve of the last thirteen months, increased $2.4 billion or 1.0 percent to $242.1 billion. This followed a 0.5 percent April increase. Petroleum and coal products, up eleven of the last twelve months, led the increase, $1.1 billion or 2.5 percent to $45.2 billion.
- Unfilled orders for manufactured durable goods in May, up four consecutive months, increased $9.6 billion or 0.8 percent to $1,209.5 billion, unchanged from the previously published increase. This followed a 0.4 percent April increase. Transportation equipment, up three of the last four months, led the increase, $3.3 billion or 0.4 percent to $806.3 billion.
- Inventories of manufactured durable goods in May, up four consecutive months, increased $3.1 billion or 0.7 percent to $445.5 billion, unchanged from the previously published increase. This followed a 0.7 percent April increase. Primary metals, up ten consecutive months, led the increase, $0.9 billion or 2.4 percent to $38.5 billion. Inventories of manufactured nondurable goods, up nine of the last ten months, increased $3.5 billion or 1.2 percent to $286.1 billion. This followed a 0.3 percent April increase. Petroleum and coal products, up six of the last seven months, led the increase, $2.2 billion or 5.8 percent to $39.9 billion.
To estimate the effect of those May 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 value of finished goods inventories rose 1.1% to $260,584 million; the value of work in process inventories rose 0.7% to $216,446 million, while the value of materials and supplies inventories rose 0.8% to $254,605 million…the May producer price index reported that prices for finished goods were on average 1.5% higher, that prices for intermediate processed goods were 2.8% higher, while prices for unprocessed goods averaged 8.4% higher….those producer price increases mean that the entirety of the reported May factory inventories increase was price related, and that real inventories dropped…assuming similar valuations for like types of inventories, producer price changes would suggest that May’s real finished goods inventories were about 0.4% less than April’s, that real inventories of intermediate processed goods were about 1.7% lower, and that real raw material inventories were about 7.6% lower….since real NIPA factory inventories were just modestly lower in the 1st quarter, and this report seems to indicate a significant decrease in May’s real inventories, it appears that the real change in April factory inventories would have a modest negative impact on the growth rate of 2nd quarter GDP, if only because they fell more than they did in the first quarter.
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