Factory orders drop 2.4% in July, layoffs up in August

posted at 2:41 pm on September 5, 2013 by Ed Morrissey

As we wait for tomorrow’s BLS report on jobs numbers for August, we have a few more data points to collect.  The ADP report on private-sector job growth this morning provided a narrow miss on a mediocre target, but another look at layoffs shows a jump of over a third from July:

The number of planned layoffs at U.S. firms surged in August to their highest in half a year, with industrial goods manufacturers the hardest hit, a report on Thursday showed.

Employers announced 50,462 layoffs last month, up 33.8 percent from 37,701 in July, according to the report from consultants Challenger, Gray & Christmas.

The August job cuts were up 57 percent from the same time a year ago. For 2013 so far, employers have announced 347,095 job losses, close to the 352,185 that were seen in the first eight months of last year.

The largest cuts came in manufacturing, which had their worst month since January 2009:

Industrial goods manufacturers saw the biggest layoffs, cutting 22,162 employees, the largest total for the sector since January 2009.

Gallup sees a similar trend.  Not only has their measure of unemployment jumped up, their measure of workforce participation continues to fall:

 The U.S. Payroll to Population employment rate (P2P), as measured by Gallup, dropped to 43.7% in August, from 44.6% in July, and is down from 45.3% in August 2012. …

Unlike Gallup’s P2P rate, which is a percentage of the total population, traditional employment metrics, such as the unemployment rates Gallup and the U.S. Bureau of Labor Statistics report, are based on a percentage of theworkforce. Gallup defines the “workforce” as adults who are working or actively looking for work and available for employment.

The U.S. workforce participation rate in August was 66.4%, a decline from 67.7% in July, and down from 68.1% in August 2012.

Gallup’s unadjusted unemployment rate for the U.S. workforce was 8.7% in August, up from 7.8% in July and from 8.1% in August 2012. Similar to P2P, unemployment fluctuates seasonally, and the year-over-year change is the most informative comparison. The uptick in unemployment this August compared with August of last year is the first year-over-year increase since Gallup was able to begin tracking yearly changes in 2011.

The increase is partly due to the decline in the size of the workforce. Because the unemployment rate is based on the size of the workforce, if people drop out of the workforce but the number of unemployed remains relatively flat, the unemployment rate will actually increase, even though the same number of people are unemployed. This is at least partly responsible for the increase in August’s rate, though some of the jump is a true increase. When looking at the population as a whole, in August 5.8% of the population was unemployed, compared with 5.3% in July and 5.5% August 2012.

It will be interesting to see whether these trends show up in the BLS report tomorrow.  Gallup uses similar methodology for its survey, but it uses a larger sample across a longer period of time.  If BLS’ surveys see the same trend, we may see the first jump in the U-3 jobless rate in some time.

Commerce also announced today that manufacturing saw a 2.4% decrease in orders in July, similar to the trend for durable goods:

New orders for manufactured goods in July, down following three consecutive monthly increases, decreased $12.0 billion or 2.4 percent to $485.0 billion, the U.S. Census Bureau reported today. This followed a 1.6 percent June increase. Excluding transportation, new orders increased 1.2 percent. Shipments, up two of the last three months, increased $5.3 billion or 1.1 percent to $487.6 billion. This followed a 0.3 percent June decrease. Unfilled orders, up five of the last six months, increased $4.0 billion or 0.4 percent to $1,033.9 billion. This was at the highest level since the series was first published on a NAICS basis in 1992, and followed a 2.1 percent June increase. The unfilled orders-to-shipments ratio was
6.44, up from 6.38 in June. Inventories, up seven of the last eight months, increased $1.5 billion or 0.2 percent to $629.7 billion. This was at the highest level since the series was first published on a NAICS basis and followed a 0.2 percent June increase. The inventories-to-shipments ratio was 1.29, down from 1.30 in June.

That’s the worst performance in four months, Reuters notes:

New orders for U.S. factory goods dropped in July by the most in four months, a worrisome sign for economic growth in the third quarter. …

New orders for capital goods other than military items and aircraft, which is seen as a gauge ofbusiness spending plans, dropped 4 percent in July, its steepest decline since February.

Shipments of this category, which directly feed into the Commerce Department’s calculations of economic growth, also slipped.

Don’t expect stellar news tomorrow, in other words.  And probably not in September, either.


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