Written by rjs, MarketWatch 666
July’s jobs report; June’s trade deficit, construction spending, factory inventories and wholesale sales
The major economic releases of the past week included the Employment Situation Summary for July from the Bureau of Labor Statistics, and four June reports that included metrics which were either estimated or included in last week’s release of 2nd quarter GDP: the Commerce Dept report on our International Trade for June, the June report on Construction Spending (pdf), the Full Report on Manufacturers’ Shipments, Inventories and Orders for June, and the June report on Wholesale Trade, Sales and Inventories, all from the Census Bureau.
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Privately issued reports included the ADP Employment Report for July, the light vehicle sales report for July from Wards Automotive, which is the source data for the BEA report and which estimated that vehicles sold at a 14.75 million annual rate in July, down 4.0% from the 15.36 million annual rate in June, but up 1.7% from the 14.52 annual sales rate of July 2020, and the Mortgage Monitor for June (pdf) from Black Knight Financial Services, which reported that 4.37% of mortgages were delinquent in June, down from the 4.73% that were delinquent in May, and down from the 7.59% delinquency rate of June of 2020, and that a record low 0.27% of mortgages remained in the foreclosure process in June, down from 0.28% of all mortgages in foreclosure in May, and down from the 0.36% in foreclosure a year ago….
This week also saw both of the widely followed purchasing manager’s surveys from the Institute for Supply Management (ISM): the July Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 59.5% in July, down from 60.6% in June, suggesting a bit slower growth among manufacturing firms nationally, and the July 2020 Services Report On Business, which saw their Services PMI rise to an all time high of 64.1%, up from 60.1% in June, and up from the prior record of 64.0% in May, indicating a significant plurality of service industry purchasing managers reported growth in various facets of their business in July.
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Seasonally Adjusted Jobs Rise by 943,000 in July, Unemployment Rate Falls 0.5% on Unemployment Decrease
The Employment Situation Summary for July from the Bureau of Labor Statistics indicated that there was an acceleration of the rebound in payroll jobs that we’ve seen most of this year, and a big decrease in the unemployment rate, both better than had been most forecast.…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 943,000 jobs in July, after the payroll job increase for May was revised up from 583,000 jobs to 614,000, and the June jobs increase was revised up from 850,000 jobs to 938,000, and hence the combined number of jobs created over those two months was 119,000 more than was previously reported….the unadjusted data shows that there were actually 133,000 fewer payroll jobs extant in July than in June, as the large seasonal job cutbacks associated with the end of the school year were normalized by the seasonal adjustments…
Seasonally adjusted job increases were widespread through throughout the private goods producing and service sectors, with the government sector seeing a significant gain of 240,000 jobs, as both local government and school districts shed fewer employees than they normally do at this time of year, boosting their seasonally adjusted job totals much higher than would otherwise be warranted…that adjustment meant that although 902,100 local school district teachers were furloughed in July, it was reported as a 220,700 job increase…other sectors showing large seasonally adjusted job gains included the leisure and hospitality sector, which added 380,000 jobs, including 253,200 more jobs in bars and restaurants, 73,700 jobs in accommodation, and 40,200 more working in amusements, gambling, and recreation, and the broad professional and business services category, which added 60,000 jobs, as 9,700 more workers found work with temporary employment services and 8,400 were added by accounting and bookkeeping services…there were also 49,700 more jobs in transportation and warehousing, including 18,800 in transit and ground passenger transportation and 10,700 in warehousing and storage.…in addition, employment in health care and social assistance rose by 46,800, with the addition of 17,100 jobs in ofices of health practitioners other than doctors and dentists and 18,300 jobs in hospitals….meanwhile, the catch-all “other services” category saw 39,000 jobs added in July, including 17,100 with membership associations and organizations and 15,100 performing personal and laundry services, and manufacturing employment increased by 27,000, including 6,800 jobs in the manufacture of machinery and 4,500 making fabricated metal products…the information sector added 24,000 more jobs, including 17,800 in the motion picture and sound recording industries, and the financial sector added 22,000, including 12,500 with rental and leasing services…other July job increases included the addition of 11,000 jobs in construction, 6,000 jobs in the resource extraction sector, and 2,800 jobs in wholesale trade, while 5,500 jobs were lost in retail, as an increase of 14,400 jobs in gas stations was more than offset by the loss of 33,800 jobs in building material and garden supply stores…
The establishment survey also showed that average hourly pay for all employees rose by 11 cents an hour to $30.54 an hour, after it had increased by a revised 12 cents an hour in June; at the same time, the average hourly earnings of production and non-supervisory employees also increased by 11 cents, to $25.83 an hour…employers also reported that the average workweek for all private payroll employees was unchanged at 34.8 hours, while hours for production and non-supervisory personnel remained at 34.8 hours for the third consecutive month….meanwhile, the average manufacturing workweek increased by two-tenths of an hour to 40.5hours, while factory overtime was unchanged at 3.2 hours..
Meanwhile, the seasonally adjusted extrapolation from the July household survey estimated that the number of those employed rose by 1,043,000 to 152,645,000, while the similarly estimated number of those unemployed fell by 782,000 to 8,702 ,000, which therefore meant that July saw a net increase of 261,000 in the total labor force…since the working age population had grown by 131,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 130,000 to 100,123,000….the 261,000 increase of those in the labor force was enough to raise the labor force participation rate by 0.1% to 61.7%….at the same time, the increase in number employed vis-a-vis the increase in the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.4% to 58.4%…in addition, the increase in the total labor force combined with the drop in those unemployed was enough to lower the unemployment rate from 5.9% to 5.4%….meanwhile, the number who reported they were involuntarily working part time fell by 144,000 to 4,483,000 in July, which was enough to lower the alternative measure of unemployment, U-6, which includes those “employed part time for economic reasons”, from 9.8% in June to 9.2% in July, 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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Trade Deficit at a Record High in June, Rises 6.7% on Surge in Imports of Industrial Supplies and Materials
Our trade deficit was at a record high in June after rising by 6.7% from May, as the value of both our exports and our imports increased, but our imports increased by nearly five times as much….the Commerce Department report on our international trade in goods and services for June indicated that our seasonally adjusted goods and services trade deficit rose by a rounded $4.8 billion to a record $75.7 billion in June from a revised May deficit of $71.0 billion, which had previously been reported at $71.2 billion…the value of our June exports rose by $1.2 billion to $207.7 billion on a $0.3 billion increase to $145.9 billion in our exports of goods and a $0.9 billion increase to $61.8 billion in our exports of services, while our imports rose by $6.0 billion to $283.4 billion on a $4.3 billion increase to $239.1 billion in our imports of goods and a $1.6 billion increase to $44.3 billion in our imports of services…export prices were on average 1.2% higher in June, so the increase in the month’s real exports would be relatively less than their nominal change by that percentage, while import prices were 1.0% higher, meaning that the increase in our real imports was likewise relatively smaller than the nominal increase by that percentage..
June’s exports of goods increased even as our higher exports of industrial supplies and materials was more than offset by lower exports of foods, feeds and beverages….referencing the Full Release and Tables for June (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $1,177 million to $53,506 million as an increase of $1,643 in our exports of our exports of crude oil, a $570 million increase in our exports of fuel oil, and a $487 million increase in our exports of natural gas were partly offset by a $598 million decrease in our exports of non monetary gold and a $461 million decrease in our exports of precious metals other than gold…in addition, our exports of automotive vehicles, parts, and engines rose by $195 million to $11,564 million on a $343 million increase in our exports of new and used passenger cars, our exports of consumer goods rose by $46 million to $18,004 million as a $871 increase in our exports of pharmaceutical preparations was partly offset by a $465 million decrease in our exports of gem diamonds, and our exports of other goods not categorized by end use rose by $124 million to $5,729 million….mostly offsetting the increases in those export categories, our exports of foods, feeds and beverages fell by $1,222 million to $12,780 million on a $485 million decrease in our exports of soybeans and lower exports of meat, poultry, corn and other foods, and our exports of capital goods fell by $93 million to $43,731 million as an increase of $1,193 million in our exports of civilian aircraft was more than offset by a $325 million decrease in our exports of industrial machines other than those itemized separately, a $299 million decrease in our exports of medical equipment, and decreases in exports of several other categories of capital goods..
Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that rising imports of industrial supplies and materials and of capital goods were responsible for the increase in March imports, and that those increases were partly offset by lower imports of consumer goods and automotive vehicles, parts, and engines …our imports of industrial supplies and materials rose by $4,635 million to $56,943 million on a $1,151 million increase in our imports of nonmonetary gold, a $459 million increase in our imports of finished metal shapes, a $425 million increase in our imports of iron and steel mill products, a $389 million increase of in our imports of organic chemicals and a $346 million increase in our imports of fuel oil, while our imports of capital goods rose by $841 million to $63,417 million, led by a $321 million increase in our imports of computer accessories…in addition, our imports of foods, feeds, and beverages rose by $627 million to $16,013 million led by a $226 million increase in our imports of meat products, and our imports of other goods not categorized by end use rose by $372 million to $10,118 million….partially offsetting the increases in those categories, our imports of consumer goods fell by $1,601 million to $62,391 million on a $782 million decrease in our imports of pharmaceutical preparations, a $672 million decrease in our imports of cotton apparel and household goods, and a $315 million decrease in our imports of televisions and video equipment, and our imports of automotive vehicles, parts, and engines fell by $704 million to $28,482 million on a $620 million decrease in our imports of new and used passenger cars…
The press release for this month’s report summarizes Exhibit 19 in the full release pdf for March, which gives us surplus and deficit details on our goods trade with selected countries:
The June figures show surpluses, in billions of dollars, with South and Central America ($4.5), Hong Kong ($1.7), Brazil ($1.5), and Singapore ($0.6). Deficits were recorded, in billions of dollars, with China ($27.0), European Union ($19.6), Mexico ($7.2), Germany ($6.3), Canada ($5.5), Japan ($4.9), Italy ($3.7), India ($3.5), Taiwan ($3.3), South Korea ($2.8), France ($1.9), Saudi Arabia ($0.3), and United Kingdom (less than $0.1).
- The deficit with the European Union increased $1.1 billion to $19.6 billion in June. Exports increased $0.6 billion to $22.6 billion and imports increased $1.7 billion to $42.2 billion.
- The deficit with India increased $1.0 billion to $3.5 billion in June. Exports decreased $0.3 billion to $2.9 billion and imports increased $0.7 billion to $6.5 billion.
- The deficit with Japan decreased $0.9 billion to $4.9 billion in June. Exports increased less than $0.1 billion to $6.4 billion and imports decreased $0.9 billion to $11.4 billion.
In the advance report on 2nd quarter GDP released last week, our June trade deficit was estimated based on the Advance Report on our International Trade in Goods which was also released last week, just before the GDP release…that report estimated that our June goods trade deficit was at $91,207 million on a Census basis, up from the $88,160 million goods deficit reported in May…this report revises those figures and shows that our actual goods trade deficit in June was at $93,174 million on a balance of payments basis, and $92,050 million on a Census basis, and that the May goods deficit was revised to $88,108 million on a Census basis…together, those revisions from the previously published data mean that the 2nd quarter goods trade deficit in goods was roughly $791 million more than the estimates that were used in last week’s GDP report, or about $3.2 billion more at an annual rate, before adjusting for price changes…that would indicate a downward revision of roughly 0.04 percentage points to 2nd quarter GDP when the 2nd estimate is released at the end of August…..
For our trade in services, the BEA’s Key source data and assumptions (xls) for the advance estimate of second quarter GDP provides aggregate exports and imports of services at annual rates on an international-transactions-accounts basis, indicating that the BEA assumed a $14.9 billion increase in exports of services and a $13.5 billion increase in imports of services on an annual basis in June…while there is no comparable annualized metric or adjusted data in this trade report that we could match that to, this release does show that exports of services rose $0.9 billion in June after May’s exports of services were revised $0.3 billion higher, and that imports of services rose $1.6 billion in June after May imports of services were revised $0.1 billion higher…that suggests that the annual rate for June exports of services used in the GDP report was on the order of $0.4 billion too high, while the annual rate for June imports of services used in the GDP report was about $20.5 billion too low…revising those annualized figures, and annualizing the services trade revisions for May vis a vis those reported, the annual rate for 2nd quarter services exports would be revised about $0.1 billion lower, while the annual rate for 2nd quarter services exports would be revised about $6.8 billion higher…the resulting upward revision of $6.7 billion to our total services deficit in NIPA terms should be enough to subtract about 0.09 more percentage points from 2nd quarter GDP.
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Construction Spending Rose 0.1% in June after Prior Months Were Revised Higher
The Census Bureau report on construction spending for June (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,552.2 billion annually if extrapolated over an entire year, which was 0.1 percent (±1.2 percent)* above the revised annualized estimate of $1,551.2 billion of construction spending for May and 8.2 percent (±1.3 percent) above the estimated annualized level of construction spending in June of last year…the May annualized construction spending estimate was revised almost 0.4% higher, from $1,545.3 billion to $1,551.2 billion, while the annual rate of construction spending for April was revised nearly 0.3% higher, from $1,549.5 billion to $1,553.547 billion…for the first half of 2020, actual construction spending amounted to $736.5 billion, 5.4 percent (±1.0 percent) above the $698.8 billion spent for construction in the first half of 2020..
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 $1,215.2 billion, 0.4 percent (±0.7 percent)* above the revised May estimate of $1,210.3 billion. Residential construction was at a seasonally adjusted annual rate of $763.4 billion in June, 1.1 percent (±1.3 percent)* above the revised May estimate of $755.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.8 billion in June, 0.7 percent (±0.7 percent)* below the revised May estimate of $454.9 billion.
- Public Construction: In June, the estimated seasonally adjusted annual rate of public construction spending was $337.0 billion, 1.2 percent (±2.0 percent)* below the revised May estimate of $340.9 billion. Educational construction was at a seasonally adjusted annual rate of $81.3 billion, 0.8 percent (±4.4 percent)* below the revised May estimate of $82.0 billion. Highway construction was at a seasonally adjusted annual rate of $92.4 billion, 5.3 percent (±4.6 percent) below the revised May estimate of $97.5 billion.
Construction spending for the first months of the 2nd quarter was higher than what was reported by the BEA in the advance report for 2nd quarter GDP last week, but construction spending for June was lower than the BEA had estimated…as we saw above, the annual rate of construction spending for April was revised almost $4.1 billion higher, and annualized construction spending for May was revised $5.9 billion higher…in reporting 2nd quarter GDP, the Excel file with key source data and assumptions accompanying the report indicated on line 86 that they had estimated that the value of June’s nonresidential construction would be $3.6 billion smaller than that of the previously reported May figure, that June’s residential construction on lines 110 and 111 would be $16.0 billion larger than that of the previously reported May figure, and that the value of June’s public construction shown on line 200 would be $0.2 billion greater than the previously published May figure…hence, the total of the figures used by the BEA for total June construction in the 2nd quarter GDP report were $12.6 billion more than the previously published May figure…with June construction now reported up $1.0 billion from a May figure that was revised $5.9 billion higher, that means that the BEA had overestimated annualized June construction spending by $5.7 billion when reporting 2nd quarter GDP…thus, after averaging the revisions to construction spending for the three months of the 2nd quarter, the total revised annualized figure for 2nd quarter construction spending would thus be $1.43 billion more in current dollars than the figures used by the BEA when computing 2nd quarter GDP, implying we’ll see an upward revision of about 0.03 percentage points to 2nd quarter GDP when the 2nd estimate is released on the 26th of August.
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Factory Shipments Up 1.6% in June, Factory Inventories Up 1.0%
The Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $7.4 billion or 1.5 percent to $506.0 billion in June, following an increase of 2.3% to $498.6 billion in May, which was revised from the 1.7 percent increase to $495.5 billion reported for May last month….however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched “factory orders report”, both the “new orders” and “unfilled orders” sections of this report are really only useful as a revised update to the advance report on durable goods we reported on last week…on those revisions, the Census Bureau’s summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we’ll just quote directly from that here:
- Summary New orders for manufactured goods in June, up thirteen of the last fourteen months, increased $7.4 billion or 1.5 percent to $506.0 billion, the U.S. Census Bureau reported today. This followed a 2.3 percent May increase. Shipments, also up thirteen of the last fourteen months, increased $7.6 billion or 1.6 percent to $499.0 billion. This followed a 0.9 percent May increase. Unfilled orders, up five consecutive months, increased $11.5 billion or 1.0 percent to $1,223.1 billion. This followed a 1.0 percent May increase. The unfilled orders-to-shipments ratio was 6.94, down from 6.96 in May. Inventories, up twelve of the last thirteen months, increased $7.4 billion or 1.0 percent to $740.7 billion. This followed a 1.1 percent May increase. The inventories-to-shipments ratio was 1.48, down from 1.49 in May.
- New Orders for manufactured durable goods in June, up thirteen of the last fourteen months, increased $2.3 billion or 0.9 percent to $257.9 billion, up from the previously published 0.8 percent increase. This followed a 3.2 percent May increase. Transportation equipment, up two consecutive months, led the increase, $1.5 billion or 2.0 percent to $77.4 billion. New orders for manufactured nondurable goods increased $5.1 billion or 2.1 percent to $248.1 billion.
- Shipments of manufactured durable goods in June, up three of the last four months, increased $2.6 billion or 1.0 percent to $250.8 billion, unchanged from the previously published increase. This followed a 0.4 percent May increase. Transportation equipment, up following two consecutive monthly decreases, led the increase, $0.8 billion or 1.1 percent to $71.6 billion. Shipments of manufactured nondurable goods, up thirteen of the last fourteen months, increased $5.1 billion or 2.1 percent to $248.1 billion. This followed a 1.4 percent May increase. Petroleum and coal products, up twelve of the last thirteen months, led the increase, $3.7 billion or 8.1 percent to $49.8 billion.
- Unfilled orders for manufactured durable goods in June, up five consecutive months, increased $11.5 billion or 1.0 percent to $1,223.1 billion, up from the previously published 0.9 percent increase. This followed a 1.0 percent May increase. Transportation equipment, up four of the last five months, led the increase, $5.8 billion or 0.7 percent to $813.9 billion.
- Inventories of manufactured durable goods in June, up five consecutive months, increased $4.2 billion or 0.9 percent to $451.0 billion, unchanged from the previously published increase. This followed a 1.0 percent May increase. Transportation equipment, also up five consecutive months, led the increase, $1.4 billion or 0.9 percent to $151.6 billion. Inventories of manufactured nondurable goods, up ten of the last eleven months, increased $3.1 billion or 1.1 percent to $289.7 billion. This followed a 1.4 percent May increase. Petroleum and coal products, up seven of the last eight months, led the increase, $2.0 billion or 4.9 percent to $42.0 billion. By stage of fabrication, June materials and supplies increased 1.1 percent in durable goods and 1.2 percent in nondurable goods. Work in process increased 1.2 percent in durable goods and 1.0 percent in nondurable goods. Finished goods increased 0.4 percent in durable goods and 1.1 percent in nondurable goods.
The BEA’s key source data and assumptions (xls) for the advance estimate of second quarter GDP indicates on line 142 that they had estimated that the value of non-durable goods inventories would rise $2.5 billion before any inflation adjustment in June, and this report indicates that total non-durable goods inventories actually increased in value by $3.1 billion; in addition, on line 143 of the BEA’s GDP source data, they estimated that durable goods inventories rose by $3.9 billion in June, while this report indicates that durable goods inventories rose by $4.2 billion…combined, this report thus shows that the BEA had underestimated the change in the 2nd quarter GDP inventory component by around $0.9 billion before an inflation adjustment, or by around $3.6 billion on an annualized basis, which would suggest that 2nd quarter GDP might have to be revised upwards by about 0.4 percentage points to account for what this report shows.
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June Wholesale Sales Up 2.0%; Inventories Up 1.4%
The June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $588.1 billion, up 2.0 percent (±0.4 percent) from the revised May level, and up 27.5 percent (±1.4 percent) from wholesale sales of June 2020…the May preliminary estimate was revised to $576.4 billion from the $576.5 billion in sales reported last month, which is still 0.8% more than April’s sales, same as the change reported a month ago…as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold….
On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf or in intermediate storage represent goods that were produced but not sold, and this June report estimated that wholesale inventories were valued at a seasonally adjusted $717.6 billion at month end, up 1.1 percent (+/-0.2%) from the revised May level and 10.5 percent (±1.4 percent) higher than in June a year ago, with the May preliminary estimate revised but essentially unchanged at $709.8 billion at the same time, still a 1.3% increase from April….
In the advance report on 2nd quarter GDP of last week, wholesale inventories were estimated based on the sketchy Advance Report on Wholesale and Retail Inventories which was released the day before the GDP release…that report estimated that our seasonally adjusted wholesale inventories were valued at $715,021 billion at the end of June, up from $709,676 billion in May….those figures total $2.74 billion less than the $717,593 billion for June and $709,845 for May that this report shows, which means that the quarterly increase in 2nd quarter wholesale inventories used in the GDP report was underestimated at an $11.0 billion annual rate…assuming there’s no revision or imbalance in the inflation adjustment to those inventories, that would suggest that the growth rate of 2nd quarter GDP was underestimated by around 0.14 percentage points, just based on what this report shows.
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