No. 304: Census Jobs Loss, Home Sales

June 23rd, 2010

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

COMMENTARY NUMBER 304
Census Jobs Loss, Home Sales

June 23, 2010

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Census Firings Cost June Payrolls Roughly 240,000 Jobs

May New Home Sales Down 40.5% in Month
After Major Downside Revisions to Earlier Reporting

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PLEASE NOTE: The next regular Commentary is scheduled for Friday, June 25th, following the release of the third estimate (second revision) of first-quarter 2010 GDP, and will include an assessment of the May new orders for durable goods due for release tomorrow (Thursday, June 24th).

– Best wishes to all, John Williams

Ongoing Activity Slows Anew, as Reported Economic "Recovery" Weakens in Revision, This morning’s (June 23rd) brief Commentary addresses the weaker-than-consensus homes sales reported yesterday and today, along with a first glance at hard data for part of the June payroll reporting, which is due for release on Friday, July 2nd.

What appears to be happening in the sudden "unexpected" weakening of a number of business statistics is a combination of reporting catch-up and a re-intensification of the economic downturn. This area will be covered more deeply in a broader update of economic activity in this Friday’s upcoming Commentary No. 305.

Census Bureau Reports Firing of 243,000 Temporary Census Workers in June. Key to the significance of the upcoming reported change in June payrolls will be the change in payrolls net of the change in temporary census workers employed. The Census Bureau reported its weekly payroll of temporary workers, today, for the week including June 12th (inclusion of that day defines the Bureau of Labor Statistics’ [BLS] payroll survey period). The June number was 330,737 versus 573,779 in May, a drop of 243,042, which should be very close to the number reported by the BLS, say roughly 240,000.

Forget the private sector payroll change that will get the press headlines, the total payroll change net of census firings is the number to watch. It includes the private sector as well as other government payrolls, a sector that has been seeing downside pressure recently, particularly at the state and local levels.

I would look for an outright contraction of June payrolls, net of temporary census impact. Such would mean an aggregate monthly loss in excess of 250,000 jobs. The early consensus from Briefing.com is an aggregate loss of 70,000 jobs in June, versus May’s census-spiked gain of 431,000, with the June U.3 unemployment rate unchanged at 9.7%. I would be surprised if the consensus estimates do not turn more negative.

As to unemployment, an increase from both census catch-up and underlying economic weakness could push the U.3 unemployment rate to 10% or higher.

Looking ahead, there still are 330,737 temporary census hires who will lose their jobs in the next couple of months, depressing reported payroll change in July and August, etc.

Downside Surprises and Major Revisions in Home Sales. Yesterday’s (June 22nd) report of May existing home sales (counted based on actual closings, National Association of Realtors [NAR]) shocked the markets with a seasonally-adjusted monthly contraction of 2.2% (1.9% net of revisions), where a strong upside gain had been expected from the residual effects of the expiring home-buyer tax credit, where a sales contract had to be in place by April 30th.

On a similar basis, today’s May new home sales (counted based on contract signings, Census Bureau) tumbled much more than expected, down by a statistically-significant 32.7% (40.5% net of prior period revisions) +/- 11.6% (95% confidence interval). The record low-level of an annualized 300,000 unit May sales pace was down from 446,000 in April, but April’s level was revised downward from 504,000, and March’s new level of 389,000 was revised downward from the benchmark revision level of 439,000.

Beyond the highly unstable nature of recent housing reports (see also the housing starts assessment in Commentary No. 303, the pattern — as the boosts from short-term stimulus measures pass — is that the "rebound" in these numbers was not as great as previously advertised, and weaker-than-expected economic activity again is taking hold.

Foreclosure activity also remains a major distortion in these numbers, with NAR estimating 31% of new home sales for May in the "distressed" category (the April estimate was 33%, but the number of foreclosures still has been fairly steady). That percentage should jump sharply in the next couple of months, as overall sales activity slows further. Census acknowledges that a portion of new home sales is from foreclosure activity but offers no estimates. Purportedly, foreclosure activity is on the rise, and some in the construction trade have difficulty competing with the pricing of foreclosed properties. Until the foreclosure problem works itself out, monthly changes in these numbers cannot be taken as meaningful indicators of trends in underlying activity in homeowner real estate, as it relates to general economic activity.

The following updated graphs reflect different measures of home sales activity since February 2009. The numbers, through May 2010, reflect the seasonally-adjusted level of monthly sales, rather than the annual rate usually published.

Chart of Foreclosures as % of existing home sales

Chart of Existing Home Sales with Foreclosures

Chart of Existing Home Sales

Chart of New Home Sales

Week Ahead. Given the unfolding reality of a weaker economy (or re-intensifying downturn) and more serious inflation problems than generally are expected by the financial markets, risks to reporting will tend towards higher-than-expected inflation and weaker-than-expected economic reporting in the months ahead. Such is true especially for economic reporting net of prior-period revisions.

New Orders for Durable Goods (May 2010). May durable goods orders are due for release tomorrow, Thursday, June 24th. The recent benchmark revisions appear to have put an upside recovery-bias into the monthly reporting. Nonetheless, the series should remain randomly volatile, with softer monthly numbers seen over time. Briefing.com shows a consensus forecast of a monthly contraction of 1.4% for May, versus the 2.8% gain reported initially for April.

Gross Domestic Product — GDP (First-Quarter 2010 — Third Estimate). The second revision to the first-quarter 2010 GDP estimate is due for release on Friday, June 25th. Likely to hold near the prior estimate of 3.0% annualized real growth, any GDP revision more than statistical noise would be surprise at this point in the reporting cycle.

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