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November employment & ISM surveys, 3rd quarter Flow of Funds, October consumer credit

it should go without saying that the fiscal cliff has continued to dominate the discussion in the blogosphere and the media, as it probably will till year end…some of the point-counterpoint on what transpired this past week is included in links below, but the one development of note seems to be a fairly open split among republicans in the House…after making a somewhat vacuous counter proposal in the budget negotiations with Geithner and receiving a lot of criticism from the right, Boehner pulled something of a power play on Tuesday and purged several tea-party members from important House committees…then, without much explanation, tea party leader Jim DeMint quit the Senate on Thursday to join the conservative think tank the Heritage Foundation, about the same time conservatives were attempting to find 17 more House members to join them to oust Boehner as Speaker; even if they’re unsuccessful, the attempt will put a short leash on Boehner while he negotiates on behalf of the House during the lame duck session…but if the usually reliable Ezra Klein is correct about the shape of the deal, he wont have to give up much; the latest rumored compromise raises income taxes on the top bracket by just two percent, while the Democratic concession would allow the the Medicare eligibility age to rise from 65 to 67

the headline number of jobs created in November was better than expected, as the BLS reported that payroll employment rose by a seasonally adjusted 146,000 in November; the prevailing opinion was that this month’s report would be weak due to Sandy related job losses, (as first time jobless claims had been up by more than 100,000) with the consensus forecast before the report came out at 86,000…however, the BLS led the release with a statement thatanalysis suggests that Hurricane Sandy did not substantively impact the national employment and unemployment estimates for November”; although that seems unlikely, the fact that the reference week for the establishment survey was the week of the 12th, which fell on a Monday, meaning the data was collected 2 weeks after the storm, may have diminished the storm’s impact on this report; on the other hand, the household survey was conducted the week of the 5th “to avoid conflicting with Thanksgiving“, so that part of this report likely included some responses that would have been different if not for the storm…what ever the case, we’ll have to wait till the state by state data comes out in 2 weeks to attempt to quantify the effect… 


FRED Graph

of the 146,000 job increase shown in the establishment survey, retail sales jobs were up 52,600, business services added 43,000 jobs, leisure and hospitality added 23,000, and healthcare added 22,000 jobs; partially offsetting that was the loss of 7,000 manufacturing and 20,000 construction jobs; in fact, despite the fact that housing starts are up around 40% over last year, residential construction jobs are at a new multi year low...and of the 52,600 seasonally adjusted jobs gained in retail, over 33,000 were in clothing stores alone…unadjusted, clothing store jobs rose from 1,469,600 last November to 1,581,000 this November, a gain of 111,900 real jobs….so it seems the seasonal adjustments might have thrown this report off a bit…since the reference week was later in the month than normal, and thanksgiving was earlier, more of the pre-thanksgiving seasonal hires were included in this months establishment survey than would be in a normal November survey…job gains for the 2 previous months were revised lower; employment for September was revised down from 148,000 down to 132,000, and the jobs increase for October was revised from 171,000 to 138,000…the adjacent FRED graph shows the trajectory of employment in thousands since 1980 in three of the broad job classifications covered in this report; blue is manufacturing employment; green is employment in retail trade, and red is employment in construction..this survey also shows that the average workweek for all nonfarm employees remained unchanged at 34.4 hours, while the manufacturing workweek edged up by 0.1 hour to 40.6 hours; average hourly earnings for all non-farm employees rose 4 cents to $23.63, while the average hourly earnings for nonsupervisory employees was up by 3 cents to $19.84

FRED Graph

the underlying results from the household survey belied the headline decline in the unemployment rate from 7.9% to 7.7%, which was the lowest jobless rate since Dec 2008; while the seasonally adjusted number who reported they were unemployed declined by 229,000, the number employed also declined, by 122,000, as 350,000 dropped out of the official count of the civilian labor force…since the non-institutional population grew by 191,000, the total count of those “not in the labor force” rose by 542,000, reversing some of the large increases we’ve seen in the labor force over the past two months…the result of this was to reverse the minor gains in the two important metrics from this survey that we’ve been watching; the labor force participation rate, shown in red on the adjacent chart, declined from 63.8% to 63.6%, while the employed to population ratio, shown in blue, declined from 58.8% to 58.7%over the past year, those “not” in the labor force rose by 2,380,000; the number of those who were working part time hours but who wanted full time work declined 168,000 from 8,344,000 in October to 8,176,000 in November; that resulted in a decline of the alternate measure of unemployment from 14.6% to 14.4%…it also appears that the number of those jobless more than 27 weeks declined by a seasonally adjusted 216,000, from 5,002,000 in October to 4,786,000 in November; however, since those unemployed less than 5 weeks, 5 to 14 weeks, and 15 to 27 weeks also declined by an additional 176,000, the duration of employment numbers dont add up to the 229,000 less unemployed reported in this household survey… the November household survey also reports an increase from 2,433,000 to 2,505,000 of those they call “marginally attached to the workforce“; despite the fact that they wanted work and had searched for a job sometime over the past year, they are not included among the unemployed or in the labor force because they hadnt looked for work during the 4 weeks referenced by the survey…of those, 979,000 were classified as discouraged, because they answered the survey indicating they hadnt looked for work because they believe no jobs are available for them; however, such discouraged workers are only carried as “marginally attached” for one year; if they remain discouraged for longer than that, they become unpersons and are no longer accounted for by any of the BLS metrics

FRED Graphthis week also saw the two major surveys of US purchasing managers for November by the Institute for Supply Management; the PMI from the November ISM Manufacturing Survey was at 49.5%, its lowest reading since July 2009, indicating a slight contraction in US manufacturing during the month; (above 50 indicates expansion, below 50 contraction) the new orders index was at 50.3%, down 3.9 percentage points from October, but still indicating a slight growth bias in new orders, and the production index at 53.7%, up 1.3%, also showed firm expansion…however, the employment index slipped into negative territory at 48.4%, falling 3.7% from the October reading of 52.1%; suppliers deliveries were reported to be slowing, with the index increasing from 49.6 to 50.3…surveyed firms inventories contracted, with the index falling to 45.0 from 50.0, and customer’s inventories also shrunk, with the index reading 42.5, down from 49.0%…of the 18 manufacturing industries covered by this report, 6 indicated month over month growth, led by petroleum and coal products, & followed in order by paper products, furniture, electrical equipment & appliances, food, beverage & tobacco, and computers and electronics…although Sandy was barely mentioned in the ISM manufacturing survey, delayed and replacement purchases of cars and light trucks on the east coast was the reason given for the spike in November vehicle sales to an annual rate of 15.54 million units, the highest one month sales since September 2007…with that much dealer inventory clearing, we wouldnt be surprised to see an impact on the December manufacturing indexes…

  the other ISM release was the November Non-Manufacturing Report. which generally covers the service industries; the November NMI (non-manufacturing index) increased to 54.7%, up from 54.2% in October, indicating a clearly expanding service sector; the non-manufacturing business activity Index registered 61.2%, which was 5.8 points higher than the 55.4 percent reported in October; the new orders index increased by 3.3 points to 58.1 percent, but the employment index slipped 4.6% and stayed barely above flat at 50.3%…the backlog of orders was growing again, with that index increasing 4.5%, from 49.0 to 53.5, while supplier deliveries slipped 2.5 points from October’s 51.5 to 49.0 in November, and inventories edged up from 46.5 to 47.0…11 non manufacturing industries reported growth in November, led by the outdoor catch all “agriculture, forestry, hunting & fishing”, and followed by utilities, retail and real estate, and six reported contraction, with the weakest being mining, educational services, and management and support services…the graph that is included above shows the NMI Composite from this report, which originated in early 2008, graphed in red…for a longer history of an ISM service index, the non-manufacturing business activity index, which goes back to 1997, is included in green…and the longest running and closely watched ISM Manufacturing PMI history is graphed in blue…

on Thursday, the Fed released the 3rd quarter Flow of Funds, aka the Z1; while this report covers changes in assets & liabilities of all sectors of the entire economy, from corporations to the financial sector, it is generally covered in the media and the blogosphere for its reporting on household balance sheets; according to the Fed, aggregate household net worth increased to $64.77 trillion in the third quarter, up from $62.67 trillion in the second quarter and an increase of $6.11 trillion from a year ago, primarily driven by gains in equity prices and real estate owned by households (the Fed uses the CoreLogic HPI); household assets totaled $78.2 trillion, while outstanding debt held by households, including mortgages, student loans, auto loans and credit cards, totaled $13.5 trillion; financial assets accounted for $53.6 trillion of total assets, while just $24.6 trillion was in the form of tangible assets such as real estate or durable goods; below we have two graphics on this report from Zero Hedge which serve to illustrate the 3rd quarter household balance sheet condition and changes to it over time; click either to open in a new window…on the left is a snapshot of the aggregate US household balance sheet as of September 30; total household assets from the top down include $19.5 trillion in real estate, indicated by dark blue; below that in red is $5.2 trillion of other tangible assets (ie, cars, appliances); next, financial assets include $8.7 trillion of deposits in light orange, $9.8 trillion of stock holdings in purple, $5.5 trillion worth of mutual funds in teal, pension funds worth $14.1 trillion in orange, and $15.5 trillion of other financial assets in light blue; aggregate household liabilities are below the dashed line; reading from the bottom up, they include $9.5 trillion in mortgage debt, shown in pink, $2.7 trillion of outstanding consumer credit in light green, and $1.3 trillion of other liabilities in light violet…the bar graph to the left shows the change in aggregate household balance sheets from quarter to quarter since the beginning of 2004; it has the same color coding as the graph on the right, except deposits are in green and it has the top to bottom order of both assets and liabilities reversed; the black line tracks household net worth, with the key on the right axis…household net worth peaked at $67.3 trillion in the 3rd quarter of 2007, and then fell to $51.2 trillion by the first quarter of 2009 (a loss of $16.1 trillion) since the majority of the middle class is far from recovering from its 40 year low, the fact that aggregate household wealth is again approaching its peak indicates at least that the recession is over for the select few…

on Friday, after the release of the employment report from the BLS, the Fed released the G19, or the monthly Consumer Credit report for October, and as of Saturday afternoon the only blogosphere coverage i noted of it was from ZeroHedge; you’ll recall we’re following this report for the ballooning student debt issued by the Federal government, which has more than quintupled since 2009 and now represents more outstanding consumer debt than credit cards; in October, total consumer credit rose by a seasonally adjusted $14.2 billion, of which increase $3.4 billion was revolving credit (ie, credit cards), which increased at an annual rate of 4.7%, and $10.8 billion of the increase was of non-revolving credit, such as auto and student loans, which grew at a 6.9% annual rate in October…checking the G19’s 3rd table, Consumer Credit Outstanding, for major types of credit by holder, we see that student debt owed to the government rose $6.9 billion, from $509.5 billion in September to $516.4 billion in October, and it has increased $99.0 billion, from $417.4 billion, at the beginning of this year….the adjacent chart from the Zero Hedge report, which notes that the Federal government has funded $114 billion, or 70% of the total $156 billion in total consumer debt in the past year, graphs the monthly change in revolving credit in the blue part of each bar, the monthly change in non-revolving credit in the red, and tracks the total change in consumer credit with a black line..

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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