in addition to the Employment Situation Summary for May from the Bureau of Labor Statistics, this week also saw the release of four reports that together will make up the lion's share of the April contribution to 2nd quarter GDP: the April release on Personal Income and Spending from the Bureau of Economic Analysis, the Census report on our International Trade for April, the Full Report on Manufacturers' Shipments, Inventories and Orders for April and the April report on Construction Spending, both also from the Census Bureau...today, we'll look at those reports to see how they might affect 2nd quarter economic growth figures...
this week also saw the revised 1st Quarter Labor Productivity and Costs Report from the BLS, which showed unit labor costs rose by 6.7% and non-farm productivity fell by 3.1% as output declined 1.6% and hours worked increased 1.6%, probably because the requirements of increased automation are so much more time consuming than back in the days when people just did their work, the Consumer Credit Report for April from the Fed, which showed that overall credit expanded by $20.6 billion, or at a 7.3% annual rate in April, as non-revolving credit expanded at a 5.8% rate, the smallest increase since November 2013, while revolving credit outstanding rose at a 11.6% rate, the biggest jump in credit card debt in a year, and the report on Light vehicle sales for May from Wards Automotive, which indicated US vehicles sold at a 17.71 million annual rate in May, up from the 16.46 million annual sales rate in April, and the highest monthly rate of auto sales since July 2005...in addition, the week also saw the release of the two widely watched diffusion indexes from the Institute for Supply Management (ISM), the May Manufacturing Report On Business, which saw the manufacturing PMI (Purchasing Managers Index) rise from 51.5 in April to 52.8 in May, still indicating slow manufacturing growth, and the February Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall from 57.8 to 55.7, still an indication of modest expansion among the services industries...both of those reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in these surveys nationally...
May Sees Addition of 280,000 Payroll Jobs and Unemployment Rate Rise to 5.5%
the Employment Situation Summary for May from the BLS indicated that employers added a seasonally adjusted 280,000 jobs, the largest increase this year and a bit more than 20.000 above the average of last year, which saw the strongest job creation of the millennium....in addition, the payroll jobs increase for March was revised up from 85,000 to 119,000 while the April report was revised slightly from 223,000 added jobs to 221,000, so on net this report shows 312,000 more payroll jobs than last months...job gains were spread across most sectors, with only the resource exploitation industries seeing a major decline, as 16,900 jobs were shed in 'mining support activities', most likely in the oil patch...average hourly earnings for all payroll employees, an area of weakness in recent reports, rose by 8 cents to $24.96, which is 2.3% higher than last May, keeping the average worker ahead of weak consumer inflation...
the unemployment rate inched up, from 5.4% to 5.5%, but for the right reason, as the number who were counted in the labor force rose by 397,000, as a net of 208,000 who weren't counted in April either found work or returned to the job market...hence, while the count of the employed rose by 272,000, the count of the unemployed also rose by 125,000, just barely enough to account for the jobless rate uptick...the labor force participation rate rose for the second month in a row, from 62.8% in April to 62.9% in May, while the employment-population ratio, the equivalent of an employment rate, rose from 59.3% to 59.4%...while total part time employment was down by 95,000, the count of those who reported they were working part time but wanted full time work rose by 72,000, and hence the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", remained unchanged at 10.8%...
the BLS employment situation press release itself is very readable, so you can get more details 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 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....thus, when you encounter a line in the report such as "The number of unemployed new entrants edged up by 103,000 in May but is about unchanged over the year. Unemployed new entrants are those who never previously worked. (See table A-11.)" you can quickly open Table A-11, where you will find all the reasons given by those who reported they were unemployed in May...
Negligible Decrease in April PCE is Small Increase Over 1st Quarter
the key monthly release in determining the trajectory of GDP is the report on Personal Income and Outlays from the Bureau of Economic Analysis, which gives us the monthly data on our personal consumption expenditures (PCE), the major component of GDP, and the PCE price index, which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated...the report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted and at an annual rate, ie, they tell us what income and spending would be for a year if April's adjusted income and spending were extrapolated over an entire year...confusingly, however, the percentage changes are computed monthly, and in this case of this month's report they give us the percentage change in each metric from March to April...
thus, when the opening line of the press release for this report tell us "Personal income increased $59.4 billion, or 0.4 percent, and disposable personal income (DPI) increased $48.8 billion, or 0.4 percent, in April", they mean that the annualized figure for all types of personal income in April, $15,211.7 billion, was $59.4 billion or 0.4% greater than the annualized personal income figure for March; the actual April increase in personal income over March is not given...similarly, disposable personal income, which is income after taxes, rose at by 0.4%, from an annual rate of $13,304.6 billion in March to an annual rate of $13,353.4 billion in April...the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (PDF) for this release, the document we'll be referencing...so when the press release says, "Wages and salaries increased $17.7 billion in April" that really means wages and salaries would rise by $17.7 billion over an entire year if April's seasonally adjusted increase were extrapolated over an entire year, just as interest and dividend income, the largest contributor to the increase, rose at a $26.6 billion annual rate in April...so you can see what's written in the press release is confusing, and often leads to misreporting the data the same way the BEA describes it...
for the personal consumption expenditures (PCE) that we're interested in today, BEA reports that they decreased by $2.6 billion, or less than 0.1 percent, which means the annual rate of PCE fell from $12,161.5 billion in March to $12,158.9 in April; in addition, the March PCE figure was revised up from the originally reported $12,160.5 billion annually...however, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100....looking at Table 9 in the pdf, we see that that index rose from 108.622 in March to 108.649 in April, giving us a month over month inflation rate of 0.02%, which BEA reports as an increase of “less than 0.1 percent”, following the increase of 0.2 percent in March...applying that tiny inflation adjustment to PCE still leaves real PCE down less than 0.1%, which BEA reports as a 0.0% change in the tables...note that when those price indexes are applied to a given month's annualized PCE, it yields that month's annualized real PCE in chained 2009 dollars, which aren't really dollar amounts at all but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where April's chained dollar consumption works out to 11,191.3 million, 0.04% less than March's 11,196.5 million, which the BEA reports as a 0.0% change in real PCE...
however, in estimating the change in GDP, the month over month change doesn't tell us much; as we have to compare April to the first quarter real PCE of all 3 months: January and February and March...while this report shows those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in the GDP report , as revised last Friday...in table 3 of the pdf for the GDP report, we see that the annualized real PCE for the 1st quarter was represented by 11,169.6 million in chained 2009 dollars...if we use the real April PCE as a 2nd quarter amount, we find that real April PCE has grown at a 0.078% rate compared to the first quarter, and given that real PCE is about 68% of GDP, we could thus estimate that April PCE would add 0.05 percentage points to the 2nd quarter GDP growth rate...
April Trade Deficit Falls by 19%, on Pace to Add 0.57 Percentage Points to GDP Growth Rate
our April trade deficit fell by 19% from the 7 year high set in March when waiting ships were unloaded en masse in the wake of the end of the west coast dock strike...the Census report on our international trade in goods and services for April showed that our seasonally adjusted goods and services trade deficit fell by $9.7 billion to $40.9 billion in April from a revised March deficit of $50.6 billion, which had itself risen from the strike depressed level of $37.2 billion in February...our April exports rose $1.9 billion to $189.9 billion on a $1.9 billion increase to $129.0 billion in our exports of goods and an increase of less than $0.1 billion to $60.9 billion in our exports of services, while our imports fell $7.8 billion to $230.8 billion on a $7.4 billion decrease to $189.6 billion in our imports of goods and a $0.4 billion decrease to $41.1 billion in our imports of services....
increased exports of capital goods accounted for the entire increase in our exports and then some, as they rose $2,066 million to $47,323 million on a $982 million increase in exports of civilian aircraft and a $552 million increase in our exports of telecommunications equipment...we also saw an increase of $635 million to $36,889 million in our exports of industrial supplies and materials as our exports of fuel oil rose $412 million and our exports of crude oil rose $279 million...in other categories, our exports of automotive products rose by $161 million to $12,523 million, our exports of foods feeds and beverages fell by $188 million to $10,791 million, our exports of consumer goods fell $79 million to $16,036 million, and our exports of goods not categorized by end use fell $486 million to $4,685 million...
much of the April drop in imports was simply the reversal of the March surge; imports of consumer goods, for instance, fell by $4,859 million to $48,954 million after they rose $9,013 million in March from a strike depressed February level...lower imports of consumer items that had seen an import surge of over 20% in March, such as cellphones, furniture footware and clothing, led the April decline...every other import end use category saw declines as well: the value of imports of capital goods fell by $635 million to 451,500 million on a $407 million decrease in imports of industrial machines and a $410 million decrease in imports of telecom equipment; imports of industrial supplies and materials fell by $613 million to $41,564 million on a $331 million drop in our natural gas imports; imports of automotive products fell by $372 million to $28,610 million; imports of foods, feeds, and beverages fell by $70 million to $10,911 million on a $140 million drop in our imports of fish and shellfish, and out imports of goods not categorized by end use fell by $974 million to $6,344 million..
for more details, two itemized lists of the value of more than 200 export and import line items, both monthly and year to date, can be viewed in table form in exhibit 7 and exhibit 8 of the full pdf for this release...
normally, to determine how these April changes in trade will effect 2nd quarter GDP, we first would have to adjust each item for inflation with the appropriate price change for that item or category from the Import and Export Price Indexes for February to get the quantity of items traded, quite a tedious process...however, exhibit 10 in the pdf for this report gives us monthly goods trade figures by end use category and in total in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures, except they are not annualized....to compute the April change in GDP terms, we have to annualize it, which we will again do by treating April as the sole 2nd quarter figure...thus, our exports averaged $119,172 million monthly in the first quarter, while April exports were $121,602 million; taking April exports as a proxy for the 2nd quarter, that suggests our exports are rising at an 8.4% annual rate so far this quarter...similarly. our imports averaged $176,770 million monthly in the first quarter while April imports were $178,782 million; taking April imports as a proxy for the 2nd quarter, that means our imports rose at a 4.6% annual rate so far this quarter...as you'll recall, exports add to GDP because they are domestic production that was not counted in any other GDP component, while imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically....exports increasing at an 8.4% in the 2nd quarter would more than reverse their 7.6% 1st quarter rate of decline and would add ~1.28 percentage points to GDP, while imports increasing at a 4.6% rate would be less than the 5.6% rate of increase imports saw in the first quarter and would subtract ~.71 percentage points from GDP....so if the April trade deficit persists, the improvement in net trade will add about .57 percentage points to GDP..
Construction Spending Rises 2.2% in April, a Pace to Add 1.51 Percentage Points to GDP
in the report on April construction spending (pdf), the Census Bureau estimated that our seasonally adjusted construction spending would work out to $967.9 billion annually if extrapolated over an entire year, which was 2.2 percent (±1.5%) above the revised estimate of $984.0 billion annually in March and 4.8 percent (±2.0%) above the estimated adjusted and annualized level of construction spending of April last year...the March spending estimate was revised from $967 billion to $984.0 billion, which suggests an incremental upward revision to first quarter GDP.....private construction spending was at a seasonally adjusted annual rate of $725.2 billion, 1.8 percent (±1.2%) above the revised March estimate, with residential spending rising to an annual rate of $353.1 billion in April, 0.6 percent (±1.3%)* above the revised March estimate, while private non-residential construction spending rose 3.1 percent (±1.2%) to $372.1 billion...meanwhile, public construction spending was estimated at a rate of $280.9 billion annually, 3.3 percent (±2.8%) above the revised March estimate, with highway and street spending up 8.5% while spending for public utilities was off 15.0% for the month and down 31.3% since last year...
construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...to adjust those varied categories of spending for inflation to give us construction in real terms, the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators for the various components of non-residential investment, while they use the Census Bureau construction price indexes for new one-family houses under construction and for new multi-family homes under construction for residential investment...the later indicates that prices for residential construction fell by 0.2% in April; for the other types of construction, we'll simplify and just use the same overall deflator as was used in the 1st quarter GDP release of last week...Table 4 there showed prices for structures falling 0.8% annually, or a one month deflator of about -0.066%, which is the deflator we'll use in estimating real public construction and real non-residential construction....note that because the GDP categories for construction spending include brokers’ commissions, title insurance, state and local taxes, attorney fees, title escrow fees, fees for surveys and engineering services, and remodeling not captured by this report, our estimate is limited to the data included in this report...
thus, using the monthly annualized construction spending data for January, February and March, we find that 1st quarter private residential construction spending was at a seasonally adjusted annual rate of $353,295 million, and that comparable inflation adjusted value of April residential spending adjusted for inflation would be $360,148 million, which would mean that real residential construction rose at a 7.99% annual rate so far in this quarter, vis a vis the 1st quarter...for private non-residential construction, we find that 1st quarter non-residential construction was at a $353,568 million annual rate, while April non-residential spending of $372.1 billion adjusted for inflation would give us $374.556 in chained first quarter dollars, an increase in real non-residential construction at a 25.9% annual rate...finally, using just the monthly data in this report, we find that public construction averaged at a $271,727 million annual rate over the 1st quarter, while public construction for April adjusted for inflation works out to a $282,727 million annual rate...hence, real government investment spending was up at a 17.2% annual rate in April...thus, at the April rate of construction growth, residential construction would add .26 percentage points to 2nd quarter GDP growth, private non-residential would add .83 percentage points to 2nd quarter growth, and public construction would add .42 percentage points to 2nd quarter GDP in the various government investment components...
April Factory Orders Fall 0.4%; Factory Shipments Flat; Real Factory Inventories Grow at 0.5% Rate
the last report from this week that we'll look at with an eye as to how it might affect first quarter growth figures is the Full Report on Manufacturers' Shipments, Inventories and Orders for April( pdf) from the Census Bureau, which is usually reported on as just "factory orders" in the business press, although new or unfilled orders aren't our concern today, as we'll be looking at shipments of equipment and inventories...this report did indicate that the value of new orders for manufactured goods fell again, for the eighth time in the last nine months, decreasing $1.8 billion or 0.4 percent to $476.7 billion, as the value of new orders for non-durable goods rose by 0.2% while the value of new orders for durable goods was revised from last week's reported 0.5% decrease to show a 1.0% drop...unfilled orders outstanding, meanwhile, were down for the 4th month of the past five, falling by $1.1 billion or 0.1% to $1,202.4 billion...while the value of new factory orders is now 5.6% lower than a year ago, in part due to falling prices for refinery products and other commodity based manufactures, total unfilled factory orders are still running 6.9% above those of a year ago, so there shouldn't be any general factory slowdown in the offing as a result of recent new orders downturn...
factory shipments were statistically unchanged in April, slipping just $4 million to $482,428 million, after rising 0.5% in March and 0.1% in February...shipments of durable goods fell by 0.2%, largely on a 0.3% decrease in shipments of transportation equipment, as shipments of light trucks & utility vehicles fell by 4.3% and shipments of defense aircraft fell 3.9%...however, the value of key groups of capital equipment were higher, with shipments of machinery rising 0.4% on a 15.3% increase in shipments of industrial machinery and shipments of computers and electronic products inching up 0.1%...remember, though, that these are nominal values, and before they can be applied to GDP they must be converted into quantities by adjusting for inflation...that can be estimated with the price changes for wide variety of equipment from the April producer prices report, but one would have to do it on an item by item basis for an accurate take...for instance, while the value of the shipments of metalworking machinery was 2.4% higher in April, prices for such machines rose 2.2%, so the real increase in investment in this type of equipment was on the order of 0.2%...furthermore, in figuring the change in investment in equipment, the BEA will make an adjustment in each item of equipment back to 2009 dollars, and then compare those 2009 dollar values of second quarter spending to the first; not something we can approximate easily without knowing the weighting of all the BEA’s components...
the value of April factory inventories, meanwhile, rose by $0.6 billion or 0.1 percent to $649.0 billion in April after a 0.1% decrease March...the change in factory inventories is included directly in GDP, along with other retail, wholesale and farm inventories, and we want to know if the inflation adjusted change in inventories in April is greater than or less than the change in inventories was in the 1st quarter, and by how much...however, as we explained over 2 months ago, companies use a wide variety of accounting methods in valuing their inventories, such as LIFO, FIFO, average cost or weighted average cost, all of which the BEA adjusts for before including them in a quarter over quarter GDP comparison of real inventories (see the National Income and Product Accounts Handbook, Chapter 7 (22 pp pdf), for details), and furthermore, some of that inventory does not move off the “shelf” month to month and hence is not revalued from month to month...hence, while we can use deflators from the producer price index to arrive at a partial estimate, it still leaves us far short of anything accurate...in April, producer prices for finished goods were down 0.4%, with prices for major non-durable inventory categories, such as food, energy, and industrial chemicals, down by 0.9%, 2.9%, and 2.8% respectively....that suggests that real April factory inventories rose by something on the order of a half percent over March, and by even more over that of the first quarter, indicating a larger than normal boost to GDP from this single month's data..
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in sum, we can see over 2 percentage points added to 2nd quarter GDP if our real trade balance and construction investment are maintained at the April pace, while real personal consumption expenditures would contribute almost nothing, which would be unheard of outside of a recession....putting a number on inventories is more problematic, especially with data for retail, wholesale and farm inventories yet to be released, and we're still missing data for several other categories of investment and for government outlays...nonetheless, the consensus for growth at a 2.6% rate does not seem too far off the mark, while the GDPNow forecast from the Atlanta Fed, which accurately forecast 1st quarter GDP, comes up short this time in forecasting growth at a 1.1% rate, as they use new housing starts as a proxy for construction..
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(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)