Sunday, July 26, 2015

June’s new and existing home sales, state jobs report, et al

the only widely covered reports released this week were on June existing home sales, released by the National Association of Realtors (NAR) on Wednesday, and on June new home sales, from the Census Bureau on Friday; we also saw the Regional and State Employment and Unemployment Summary for June, an annual revision to the Fed's G17 on Industrial Production and Capacity Utilization, and the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, constructed such that a zero value indicates economic growth at the historical trend rate; the June reading on the CFNAI rose to +0.08 in June, up from –0.08 in May, which left the 3 month average at –0.01, indicating national economic activity has stayed close to its historical trend...the week also saw the release of the Kansas City Fed manufacturing survey for July, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, and which reported its broadest composite index rose to -7 in July, up from -9 in June and -13 in May, still indicating a ongoing regional contraction, mostly in the energy industry..

June Existing Home Sales at Post Recession Sales & Price Records

the National Association of Realtors (NAR) reported that existing home sales rose a seasonally adjusted 3.2% in June, projecting that 5.49 million homes would sell over an entire year if June sales were extrapolated over that year, a rate 9.6% higher than the annual rate projected in June of a year ago, and the greatest pace of existing home sales since February 2007…the annual rate of May home sales was revised from 5.35 million to 5.32 million....the NAR also says that the median existing-home price for all housing types in June was $236,400, which was up 6.5% from a year earlier and the highest median sales price in their records, topping the July 2006 peak for the first time in the recovery...the NAR press release, which is titled Existing-Home Sales Rise in June as Home Prices Surpass July 2006 Peak, is in easy to read plain English, so there's no point in our rewriting what they already clearly  report; note though, that first time home buyers as a percentage of total sales slipped back to 30%, still well below the 40% pre-housing bust norm...

since this report is entirely seasonally adjusted and at a fairly meaningless annual rate, we'll take a look at the raw data overview (pdf), which shows that 573,000 homes actually sold in June, up 15.8% from 495,000 in May (which was revised from 497,000) and up 13.2% from the 506,000 homes that sold in June last year...the June sales increase was consistent across all NAR regions, ranging from an increase of 14.2% to 129,000 home sales in the West to a 16.8% increase to 146,000 home sales in the Midwest....that same pdf indicates that the median home selling price for all housing types rose from a revised $228,900 in May to $236,400 in June, while the average home sales price was $280,300, up 2.7% from the $273,000 average in May, and up 4.6% from the $268,100 average home sales price of June a year ago, with the regional averages ranging from a low of $223,300 in the Midwest to a high of $360,600 in the West...for additional coverage with long term graphs on this report, see Existing Home Sales Up 3.2% As Prices Soar To Record Highs by Robert Oak at The Economic Populist, and the two posts by Bill McBride: Existing Home Sales in June: 5.49 million SAAR, Highest Pace in Eight Years and A Few Random Comments on June Existing Home Sales..

New Home Sales Remain Above Last Year's Trend

the Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 482,000 new home sales a year, which was 6.8 percent (±12.5%)* below the revised May rate of 517,000 new single family homes a year, but still 18.1 percent (±18.1%)  above the annual rate that new homes were selling at in June of last year....as you know, the asterisks indicate that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May, and the figures in parenthesis represent the 90% confidence range for reported data in  this report, which has the largest margin of error and subject to the largest revisions of any census construction series...in keeping with that, sales new single family homes in May were revised from the annual rate of 546,000 reported last month to 517,000 a year with this report, the annual rate of April sales was revised from 534,000 to 523,000, and the annual rate of March new home sales was revised from 494,000 to 485,000...

the annual rates of sales reported here are extrapolated from seasonally adjusted estimates of Census field reps which showed that approximately 45,000 new homes sold in June, down from 48,000 new homes sold in May, which was revised from the 51,000 reported last month....the estimate for unadjusted April home sales was revised from 51,000 to 50,000, while the estimate for March sales was revised from 47,000 to 46,000....the raw samples from Census field agents further estimated that the median sales price of new houses sold was $281,800, up from $280,500 in May, which was originally reported as $282,800, while the average sales price was $328,700, down from $335,900 in May, as the number of homes selling for more than $300,000 fell by ~2,000.... a seasonally adjusted estimate of 215,000 new houses remained for sale at the end of June, which represents a 5.4 month supply of new homes at the June sales rate...for more details and graphics on this report, see Robert Oak's New Home Sales Plunge -6.8% for June with 6 FRED graphs and Bill McBride's two posts, New Home Sales decreased to 482,000 Annual Rate in June and Comments on New Home Sales..

June State and Regional Employment Report

the Regional and State Employment and Unemployment Summary for June expands on the national employment situation summary of three weeks ago by breaking down the state and regional details...as with most BLS reports, the press release is very readable & self explanatory, with BLS referring to appropriate tables linked to at the bottom of the press release wherever relevant, and with tables and coverage of 50 states, it's more thorough than we can meaningfully restate....the BLS table corresponding to household survey data,  including the seasonally adjusted count of the unemployed and the unemployment rate for each state, is here....for graphics on that, Bill McBride graphs current and historical unemployment rates for the 50 states here: BLS: Twenty-One States had Unemployment Rate Decreases in June....for a breakdown of payroll employment by job type for each state over the past 3 months, and the change in employment since last April, see the following two BLS tables accompanying this release: Table 5. Employees on nonfarm payrolls by state and selected industry sector, seasonally adjusted and Table 6. Employees on nonfarm payrolls by state and selected industry sector, not seasonally adjusted ...the latter two tables are very detailed, giving you both actual and seasonally adjusted totals for jobs in each state and the District of Columbia in several categories, including construction, manufacturing, trade, transportation and utilities, financial, professional and business services, education and health services, leisure and hospitality and government....


(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…)

Sunday, July 19, 2015

June reports on retail sales, consumer and producer prices, industrial production and home construction; May’s business inventories

there were several major monthly reports released this week, beginning with retail sales for June and the business inventories report for May, both released by the Census bureau on Tuesday, followed by the June report on Industrial Production and Capacity Utilization from the Fed and the June Producer Price Index from the Bureau of Labor Statistics on Wednesday, and concluding with the June Consumer Price Index from the Bureau of Labor Statistics and the New Residential Construction report for June (pdf) from the Census Bureau on Friday....in addition, this week also saw the Import and Export Price Indexes for Junefrom the BLS, and the release of the first two regional Fed manufacturing indexes for July: the Empire State Manufacturing Surveyfrom the New York Fed, which covers New York and northern New Jersey, saw their headline general business conditions index rise from -2.0 to +3.9, indicating a return to slow growth, while the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions fell from 15.2 in June to 5.7 in July, indicating a much slower expansion rate than previously....

June Retail Sales 0.7% Lower than Reported for May Last Month

seasonally adjusted retail sales unexpectedly fell in June, and revisions knocked 0.4% off the advance May retail sales report...the Advance Retail Sales Report for June (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $442.0 billion, which was a decrease of 0.3 percent (±0.5%) from May's revised sales of $443,236 million, which were revised down from the originally reported $444.9 billion, but up 1.4 percent (±0.9%) above June of last year...April's sales, which had been revised up from $436.8 billion to $439.6 billion last month, were revised down to $438,717 million; hence, we would expect a downward revision to both April and May PCE, and as a result a smaller contribution from real PCE to 2nd quarter GDP than previously estimated...estimated unadjusted sales in May, extrapolated from surveys of a small sampling of retailers, indicated actual sales fell 3.5%, from $461,911 million in May to $445,819 million in June, while they were up 2.8% from the $433,388 million of sales in May a year ago...

again, we'll include the table from this report showing retail sales by business type that we've been including here for years, as it shows more that we can verbalize...again, to explain what it shows, the first double column shows us the seasonally adjusted percentage change in sales for each kind of business from the May revised figure to this month's June "advance" report in the first sub-column, and then the year over year percentage sales change since last June in the 2nd column; the second double column pair below gives us the revision of the May advance estimates (now called "preliminary") as of this report, with the new April to May percentage change under "Apr 2015 r" (revised) and the May 2014 to May 2015 percentage change as revised in the 2nd column of the pair....then, the third pair of columns shows the percentage change of the last 3 months of this year's sales (April, May and June) from the preceding three months of the 1st quarter (January, February and March) and from the same three months of a year ago....that pair of columns gives us a snapshot comparison of first quarter sales to second quarter sales, which is useful in estimating the impact of this report on 2nd quarter GDP….

June 2015 retail sales

as you can see from the above, the 1.1% decrease to $91,776 million in sales at vehicle and parts dealers was a major drag on June sales, but even excluding automotive sales from the total, other retail sales were still down 0.1% to $350,256 million...several types of retailers saw major sales declines in June; furniture store sales fell 1.6% to $8,533 million; clothing store sales fell 1.5% to $21,083 million, and building materials and garden supply store sales were off 1.3% to $26,708 million...on the other hand, electronics and appliance store sales rose 1.0% to $8,768 million...also note that the 0.8% increase in gas station sales to $37,824 million was not a distorting factor in this report, as it was during the months when oil & fuel prices were falling...

June Prices Increase 0.3% on Higher Food, Energy and Housing

a broad based increase in June prices brought us the fifth consecutive increase in the consumer price index, which turned the year over year index change positive for the first time since February...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.3% in June after rising 0.4% in May, 0.1% in April and by 0.2% in both March and February, while falling in each of the 5 months prior to that, mostly on lower energy costs..the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 238.638 in June from 237.805 in May, which left it 0.1% higher than the 238.343 reading of June of last year...regionally, prices for urban consumers have risen 1.1% in the West, while they have fallen 0.1% in the South, 0.7% in the Midwest and were unchanged in the Northeast over the past year, with greater increases within regions in cities of more than 1,500,000 people...since both energy and food prices increases were significant contributors to the June CPI index, core prices, which exclude food and energy, rose by 0.2% in June, as the unadjusted core index rose from 242.119 to 242.354, to a level 1.76% ahead of its year ago reading of 238.157... 

the seasonally adjusted energy price index rose by 1.7% in June after rising 4.3% in May; nonetheless, energy prices are still averaging 15.0% lower than they were in June a year ago...prices for energy commodities were 3.1% higher in June while the index for energy services saw a 0.2% increase after three down months....the increase in the energy commodity index was driven by a 3.4% increase in the price of gasoline, the largest component, while fuel oil prices fell 1.9% and prices for other fuels, including propane, kerosene and firewood, averaged a 0.4% increase…within energy services, the index for utility gas service rose for the first time this year but just by 0.3%, leaving utility gas priced 13.0% below a year ago, while the electricity price index rose by 0.2% after it fell by 1.2% in May...energy commodities are still priced 23.2% below their year ago levels, with gasoline still 23.3% lower than a year ago, while the energy services price index is now 2.9% lower than last June, as electricity prices were unchanged over that period...  

the seasonally adjusted food index rose by 0.3% in June, after it was was statistically unchanged in April and May, as prices for food at home rose 0.4% and prices for food away from home rose 0.2% on a 0.4% average price increase at full service restaurants, while fast food outlets left prices unchanged...among food at home categories, prices for the meat, poultry, fish, and egg group rose 1.4% on a 1.7% increase in chicken prices and an 18.3% jump in egg prices; the index for cereals and bakery products rose 0.5% on a 1.3% increase in bread prices and 1.2% higher priced crackers, and the beverages index rose 0.1% as a 2.0% increase in tea prices was offset by a 0.9% decrease in coffee prices...offsetting those increases, prices for dairy and related products fell 0.6% on a 1.2% drop in prices for fresh whole milk, and the fruit and vegetable index fell 0.4% on a 3.1% drop in prices for potatoes, 1.5% lower tomatoes and 1.4% lower priced bananas; meanwhile, the index for other foods at home rose 0.3% on 2.8% higher prices for sauces and gravies and 2.3% higher prices for salt and other seasonings and spices....over the past year, egg prices are up by 21.8% and average beef prices have risen by 10.9%, while breakfast pork prices have declined 11.0%....the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.2% in June, the composite of all commodities less food and energy commodities fell by 0.1%, while the composite for all services less energy services rose by 0.3% on 0.4% higher owner equivalent rent...lower prices for commodities suggests a more modest decline in real June retail consumption than we saw in this week's retail report, with the caveat that retail sales of gasoline and food will be adjusted separately with their appropriate price change index...otherwise, noteworthy price increases in June included a 5.2% increase in intercity train fares, a 2.3% increase in prices for women's outerwear, a 2.1% increase in dues and fees for participant sports and group exercises, and a 2.0% increase in airline fares....meanwhile, telephones and other consumer information items were 2.9% cheaper, rentals of video and audio media were 2.8% lower, prices for infants' equipment saw a 2.8% decrease, and hotel and motel prices fell 2.0%...other than the aforementioned eggs, beef, pork, and energy commodities, only telephones, which fell by 12.9%, televisions, which were 12.6% cheaper, and video discs and similar media, which were 10.0% lower, saw their prices change by more than 10% over the past year...

Producer Prices Rise 0.4% on Eggs and Energy

meanwhile, wholesale prices saw a relatively large increase for the second month in a row in June as the seasonally adjusted Producer Price Index (PPI) for Total Final Demand showed a 0.4% increase as final demand for wholesale goods rose by 0.7% while final demand for services was 0.3% higher; this followed a May increase of 0.5% in the overall index, when final demand for wholesale goods rose by 1.3% while final demand for services was unchanged...the year over year change in producer prices remains negative, however, as the annual change in the index moved up from a negative 1.1% in May to a negative 0.7% in June....

the index for final demand for goods, aka 'finished goods', rose by 0.7% in June after rising 1.3% in May and falling 9 out of 10 of the prior months, as the index for energy prices rose by 2.4% as wholesale gasoline prices rose 4.3% and wholesale residential gas prices rose 3.1%...the price index for final demand for foods was 0.6% higher, as wholesale fresh egg prices rose by 69.6% after rising 42.9% in May while wholesale fresh vegetable prices fell 6.0% and wholesale fresh fruit fell 5.5% (see table 4)...excluding food and energy, the index for final demand for wholesale core goods rose by 0.2% in May, as a 1.2% increase in wholesale drug prices was the only core price change greater than 1%....excluding food and energy, the index for final demand for wholesale core goods rose by 0.4% in June after an increase of 0.2% in May, as a 2.6% increase in wholesale cigarette prices and a 2.5% increase in wholesale drug prices were the largest price increases in June, while wholesale prices for computers and computer equipment fell 1.4%

as previously noted, the index for final demand for services was rose 0.2% in June after being unchanged in May, as the index for final demand for transportation and warehousing services rose 0.6%, the index for final demand for trade services rose by 0.2%, and the index for final demand for services less trade, transportation, and warehousing services was up 0.2%......margins for passenger car rentals rose 8.2% and margins for fuels and lubricants retailing, major appliances retailing, and furnishings wholesaling all rose more than 4%, while margins for food and alcohol retailing fell 3.7%...

in addition, this report showed the price index for processed goods for intermediate demand rose by 0.7% in June after a 1.0% increase in May broke a string of 9 consecutive monthly price declines; this still left intermediate processed goods 6.3% lower priced than in June a year ago....the June increase was driven by a 2.8% jump in prices for intermediate energy goods, and a 1.4% increase in the index for processed foods and feeds, while the price index for processed goods for intermediate demand less food and energy rose 0.2%...moreover, the price index for intermediate unprocessed goods rose by 1.2% after rising 3.3% in May, on a 2.2% increase in the price of crude energy materials and a 1.0% increase in the index for unprocessed foodstuffs and feedstuffs, while the index for other raw materials rose 0.3%…nonetheless, this raw materials index still remains 21.7% lower than it was a year ago, as it saw prices fall 10 out of the 11 months prior to April, only eking out a 0.1% increase in September of last year...

finally, the price index for services for intermediate demand rose by 0.4% in June following a 0.5% decrease in May, as 0.6% increases in both the index for transportation and warehousing services for intermediate demand and the price index for services less trade, transportation, and warehousing for intermediate demand offset a 0.4% decrease in the index for trade services for intermediate demand ..over the 12 months ended in June, the price index for services for intermediate demand has risen 1.6%... 

Industrial Production Up 0.3% in June; Down at a 1.4% Rate in Second Quarter

industrial production rose 0.3% in June after falling 0.7% over April and May and hence fell at an annual rate of 1.4% over the second quarter as the important manufacturing sector remained weak...the Fed's G17 release on Industrial production and Capacity Utilization for June showed that the 0.3% increase in seasonally adjusted industrial production came after a May decrease of 0.2%, an April decrease of 0.5%, and a revision to March output that left it 0.2% above February vs the unchanged March reported last month... the industrial production index, the benchmark with 2007 production set equal to 100.0, rose to 105.7 in June after the index for March was revised from 105..8 to 106.1, the index for April was revised from 105.3 to 105.6, and the index for May was revised from 105.1 to 105.4...to the extent that this report plays into GDP, the upward revision to March would suggest a stronger than originally reported 1st quarter when the annual revision is released at month end, but still leaves us with a 2nd quarter downturn in comparison..

the manufacturing index, which accounts for roughly 70% of the industrial composite, was unchanged at 101.7 in June after May's index was revised from 101.3 to 101.7, the index for April was revised from 101.5 to 101.6, and the index for every prior month this year was revised upwards by 0.1%; those revisions improved the manufacturing index to a reading 1.8% higher than a year earlier...the mining index, which is now dominated by oil and gas activity, rose 1.0% in June after falling a revised 2.1% in May and a revised 0.2% in April, which were previously reported as declines of 0.3% and 1.3% respectively; as a result of revisions, the mining index at 130.1 is now 0.8% lower than a year earlier, in contrast with the year over year 0.3% decrease reported for this sector last month......the utility index, meanwhile, increased 1.5% in June after rising a revised 1.2% in May as this weather influenced index also saw major revisions; from a decrease of 3.7% to a decrease of 5.1% in April and from an increase of 0.2% to an increase of 1.2% in May, as both May and June were warmer than usual in heavily populated regions, resulting in increased use of air conditioning...the June utility index reading of 103.6 now represents a 4.3% increase from a year ago...

this report also gives us capacity utilization by industry, which is expressed as the percentage of plant and equipment that was in use during the month, and which rose from 78.2% in May to 78.4% in June, with the utilization rate for May revised up from 78.1%...seasonally adjusted capacity utilization for manufacturing industries was down 0.1% to 77.2% after May manufacturing utilization was revised from 77.0% to 77.3%...capacity utilization for mining rose from 83.4% in May to 84.1% in June after the May utilization rate for 'mining' equipment', including drilling rigs, was revised from 83.3%, while utilities were operating at 80.7% of capacity during June, up from 79.5% in May, which was previously reported as an operating rate of 80.0%...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and a handful of other special categories....

Business Sales Rose 0.4% in May; Business Inventories Rose 0.3%

following the release of retail sales report, Census released the composite Manufacturing and Trade Inventories and Sales report for May, incorporating the revised May retail data, the wholesale trade data we looked at last week, and the full factory orders report of two weeks ago, to give us a complete picture of the business contribution to the economy for May...according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,323.6 billion in May, 0.4 percent (±0.2%) higher than April revised sales, but down 2.2 percent (±0.4%) from May a year earlier...total April sales were revised down 0.1%, from $1,318.8 billion to $1,318.0 billion, 0.5% higher than March...manufacturer's sales slipped by a barely significant $252 million to $482,323 million, retail trade sales, which exclude bar & restaurant sales from the retail sales reported earlier, rose by 1.1% to $391,647, and wholesale sales rose by 0.3% to $449,838 million..

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be at a seasonally adjusted $1,797.8 billion at the end of May, 0.3 percent (±0.1%) higher than April and up 2.4 percent (±0.5%) from May a year earlier...seasonally adjusted inventories of manufacturers were estimated to be valued at $649,664 million, a $95 million increase over April which is so small that it's considered unchanged, inventories of retailers were valued at $566,310 million, $40 million higher than April, also statistically unchanged, and inventories of wholesalers were estimated to be valued at $581,850 million at the end of May, up 0.8% from April...to get the change in real inventories that will be applied to 2nd quarter GDP, new factory inventories would need to be adjusted for inflation with the manufactured goods components of the producer price index, for which the 0.4% increase in final demand goods less foods and energy would be a close approximation; new retail inventories would be deflated with goods components of the May CPI, which averaged a 0.1% decrease, and new wholesale inventories could be deflated with the 1.3% increase in the producer price index for finished goods, with the caveat that energy has a larger weighting in the price indexes than in inventories...moreover, the portion of the inventories in all three business types that were inventoried before May would remain at its earlier value...while we aren't given the percentage for the later metric, it appears that new real inventories decreased in May, which could imply a decrease in overall real inventories for the month, following on the heels of a large inventory build in April....

New Housing Permits at Post Recession High in June

the June report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing starts were at a seasonally adjusted annual rate of 1,174,000 in June, which was 9.8 percent (±19.9%)* above the revised May estimate of 1,069,000 annually and 26.6 percent (±19.6%) above last June's rate of 927,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts rose or fell over the past month, with the figure in parenthesis the most likely range of the change indicated; in other words, housing starts could have risen 29.7% or fallen 10.1% in June, for all they know....those annual rates of starts indicated by the headline change are extrapolated from a survey of a small percentage of permit offices visited by Census field agents, which estimated that 110,400 housing units were started in June, up from 99,700 units started in May, which was initially estimated at 96,800 housing starts...single family houses accounted for 69,400 of the June starts, while 39,900 units were started in apartment buildings with 5 or more units...housing starts were up in the Northeast and South while they were down slightly in the Midwest and West, with only the 16.9% increase to 53,900 units started in the South greater than the margin of error for that region...

as we've noted previously, the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised starts data... in June, Census estimated new permits were issued at a seasonally adjusted annual rate of 1,343,000, which was 7.4 percent (±1.2%) above the revised May rate of 1,250,000 permits annually and 30.0 percent (±2.3%) above the rate of permit issuance a year earlier, and the most permits issued in any month since July 2007....those estimates were extrapolated from the unadjusted estimate which showed permits for 134,800 housing units were issued in June, which was up from the estimated 111,100 new permits issued in May, and driven by a jump from 25,600 to 32,500 in new permits issued in the Northeast, up from 12,500 a year ago, all but 5,200 of which were permits for units in multifamily structures...for graphs and additional commentary on this new housing report, see the following two posts from Bill McBride: Housing Starts increased to 1.174 Million Annual Rate in June and Comments on June Housing Starts...

(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 theglobal glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

Sunday, July 12, 2015

May reports on international trade, wholesale trade, job openings, consumer credit, and the Mortgage Monitor

  the key report of the past week was the May Report on International Trade, while we also saw the May Wholesale Trade, Sales and Inventories Report (pdf) from the Census Bureau, the May Job Openings and Labor Turnover Survey (JOLTS) from the BLS, which showed a record number of job openings, and the G-19 on May consumer credit from the Fed, which showed credit expansion slowed from last month...private releases included June Non-Manufacturing Report On Business from the Institute for Supply Management (ISM), which saw their non-manufacturing index rise to 56.0% from 55.7%, and the Mortgage Monitor for May (pdf) from Black Knight Financial Services, which showed mortgage delinquencies rose for a 2nd month running, and which we'll also look at briefly today..

Trade Deficit Increases $1.2 Billion in May: Slight Real Decrease From 1st Quarter

our trade deficit increased by 2.9% in May as the value of both exports and imports decreased but our exports fell by a greater amount...the Census report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services trade deficit rose by $1.2 billion to $41.9 billion in May from an April deficit which was revised from $40.9 billion to $40.7 billion....our May exports fell $1.5 billion to $188.6 billion on a $1.6 billion decrease to $127.7 billion in our exports of goods and an increase of $0.1 billion to $60.9 billion in our exports of services, while our imports fell $0.3 billion to $230.5 billion on a $0.4 billion decrease to $189.2 billion in our imports of goods and a $0.1 billion increase to $41.2 billion in our imports of services....

lower exports of capital goods accounted for the entire decrease in our exports and then some, as they fell $2,438 million to $44,896 million on a $1,240 million drop in our exports of civilian aircraft and decreases of over $300 million each in our exports of industrial engines, other industrial machines, and telecommunications equipment...we also saw $80 million decrease in our exports of consumer goods as decreases in exports of pharmaceuticals and cells phones offset an increase in our exports of artwork and antiques...offsetting decreases in those categories, we saw an $804 million increase to $37,695 million in our exports of industrial supplies, as our exports of fuel oil rose by $515 million and our exports of other petroleum products rose by $456 million...in other categories, our exports of automotive products rose by $106 million to $12,618 million, our exports of foods, feeds, and beverages rose by $181 million to $10,964 million, and our exports of goods not categorized by end use fell $19 million to $4,892 million...

reduced imports of capital goods, which fell by $781 million to $50,791 million on a $793 million drop to $575 million in our imports of oilfield equipment, lower imports of industrial supplies, which fell by $604 million to $40,945 million on a $372 million drop in oil imports, and a drop of $382 million to $10,500 in our imports of foods feeds and beverages accounted for the lower May imports; those were offset by a $847 million increase to $29,462 million in our imports of automobiles, parts and engines, a $16 million increase to $48,928 million in our imports of consumer goods, and a $468 million increase to $6,817 million in our imports of goods not categorized by end use...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...

in determining how the April and May changes in trade will effect 2nd quarter GDP, the BEA adjusts each imported or exported item for inflation with the appropriate price change for that item or category from the Import and Export Price Indexes for those months to get the quantity of items traded, quite a tedious process which we'd be unable to duplicate...however, exhibit 10 in the pdf for this report provides us with monthly goods trade figures by end use category and in total in chained 2009 dollars, ie, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit these are not annualized here....

to compute the change in trade from the first quarter to April and May in GDP terms, we have to annualize the change in the monthly figures, which we do here by treating the average of April and May trade as a proxy for the total 2nd quarter figure, and compare that to the average we have for the first quarter...first, we find that our real goods exports averaged $119,172 million monthly in the first quarter, while April and May real exports averaged $120,651 million in 2009 dollars; then, comparing the change between the two as an annualized figure, we find that our real goods exports are rising at an 5.1% annual rate so far this quarter...computing similarly, our imports averaged $176,770 million monthly in the first quarter while they’ve averaged $178,307 million so far in the second quarter; meaning our real imports are rising at a 3.5% annual rate so far this  quarter...

as you'll recall, exports add to GDP because they are domestic production that is 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....goods exports increasing at an 5.1% in the 2nd quarter would partially reverse their 11.6% 1st quarter rate of decline and would add ~0.48 percentage points to GDP, while imports increasing at a 3.5% rate would be less than half of the 7.2% rate of increased imports saw in the first quarter and would subtract ~0.45 percentage points from GDP....so if the April and May trade deficit persists in June, the slight improvement in net trade will add about 0.03 percentage points to GDP..

Wholesale Sales Up 0.3% in May; Inventories Rise 0.8%

the May Wholesale Trade, Sales and Inventories Report (pdf) from the Census Bureau estimated that seasonally adjusted wholesale sales were at $449.8 billion, increasing 0.3 percent (+/-0.5)* from the revised April level, while they still remained 3.8 percent (+/-1.2%) lower than wholesale sales of a year earlier...the April preliminary estimate was revised upward by $0.2 billion or less than a tenth of a percent...wholesale sales of durable goods slipped 0.1 percent (+/-0.9%)* after an increase of 1.2% in April and 0.9% in March and were 1.6 percent (+/-1.4%) higher than a year earlier, with a 2.0% decrease in electrical and electronic goods sales the major drag....wholesale sales of nondurable goods were up 0.7 percent (+/-0.5%) from April, but were down 8.3 percent (+/-1.6%) from last May with wholesale sales of petroleum and petroleum products up 4.3% on the month on higher prices...as an intermediate economic activity, wholesale sales are not included in GDP except as a trade service, as they do not represent an increase in our output of the goods traded...

on the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced, and this May report estimated that wholesale inventories were valued at $581.9 billion at month end, an increase of 0.8 percent (+/-0.4%) from the revised April level and 5.0 percent (+/-1.4%) higher than May a year ago, again with an April upward revision of $0.1 billion or much less than 0.1%...inventories of durable goods were up 0.6 percent (+/-0.4%) from April and were up 6.2 percent (+/-1.6%) from a year earlier, with inventories of all durable goods categories showing an increase, while the value of wholesale inventories of nondurable goods were up were up 1.2 percent (+/-0.5%) from April and were up 3.1 percent (+/-1.8%) from last May as a 4.4% increase in the value of inventories of petroleum and petroleum products was again a factor..

as you know, to approximate the contribution of wholesale inventories that are valued here in current dollars to the change in GDP, we must first convert these figures into an approximation of the change in the quantity of goods inventoried...we'd do that by deflating the value of each of the categories of inventories with the appropriate sub-index from the producer price index for the same month; in May, producer prices for finished goods rose 1.3%, largely on a 5.9% increase in wholesale energy prices, after April's producer prices for finished goods fell 0.7%, again on a 2.9% drop in wholesale energy prices...that suggests that the May change in real wholesale inventories was negative by about a half a percent, after an April when real wholesale inventories rose by 0.8%...

Job Openings at a Record High in May; Hiring and Firing Falls

`by virtue of a downward revision of April job openings, the number of job openings reported by private businesses and government agencies in May were the highest since the labor department started tracking the metric in December 2000....the May Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 29,000 to 5,363,000 in May after April job openings were revised from 5,376,000 to 5,334,000, while May's jobs were still 16.3% higher than the 4,608,000 job openings reported in May a year ago...the increase in openings was spread across goods producing industries, services, and government, as only job openings in health care and social assistance fell by 23,000 (see table 1)...like most BLS releases, the press release for report is very readable and also refers us to the associated table for the data cited, linked at the end of the release...

the JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in May, seasonally adjusted new hires totaled 5,000,000, down 34,000 from the 5,034,000 hired or rehired in April, as the hiring rate as a percentage of all employed remained slipped from 3.6% to 3.5%, the same hiring rate as in May a year earlier (details of hiring by industry are in table 2).....total separations also fell, from 4,895,000 in April to 4,743,000 in May, as the separations rate as a percentage of the employed fell from 3.5% to 3.3%, the same rate as a year ago (see table 3)...subtracting the 4,743,000 total separations from the total hires of 5,000,000 would imply an increase of 257,000 jobs in May, remarkably close to the revised payroll job increase of 254,000 for May reported by the June establishment survey last week, considering large margins of error in both surveys...

breaking down the seasonally adjusted job separations, the BLS finds that 2,699,000 quit their jobs in May, down 10,000 from the revised 2,709,000 who quit their jobs in April, while the quits rate, widely watched as an indicator of worker confidence, was unchanged at 1.9% of total employment (see table 4)....in addition to those who quit, another 1,653,000 were either laid off, fired or otherwise discharged in May, down from the 1,784,000 discharges in April, as the discharges rate fell from 1.3% to 1.2% of all those who were employed during the month....meanwhile, other separations, which includes retirements and deaths, were at 391,000 in May, down from 402,000 in April, for an 'other separations' rate of 0.3%, which was unchanged...both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

Consumer Credit Expansion Slows to a 5.7% Rate in May

the Fed's G.19 Release on Consumer Credit for May showed that total seasonally adjusted consumer credit outstanding increased by $16.1 billion to $3,401.0 billion, or at a 5.7% annual rate, down from growth at 7.6% rate in both March and April ... the revolving credit portion of the aggregate, which would mostly be credit card debt, rose by $1.6 billion, or at a 2.1% annual rate, to $901.0 billion, after rising at a post recession record 11.5% rate in April, while non-revolving credit, which includes loans for cars, yachts, and college tuition but not borrowing for real estate, rose at a by $14.5 billion to $2,500.0 billion, an annual growth rate of 7.0%....April's total credit expansion was revised from $20.6 billion to $21.4 billion, or growth at a 7.6% rate, up from the 7.3% rate originally reported, with revolving credit rising at a 11.5% rate and non-revolving credit increasing at an 6.2% rate... oddly, the New York Times reported on this release with the headline "Consumer Borrowing Hits a Record $3.4 Trillion" and spoke of a surge in auto and student loans, when in fact the growth in new auto and student loans was well below the average of the past two and a half years and consumer credit has increased every month since 2011 (and hence every month sets a new record)

Delinquent Mortgages Rise Almost 4% in May to Nearly 5% of All Mortgages

the Mortgage Monitor for May (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 754,422 home mortgages, or 1.49% of all mortgages outstanding, remaining in the foreclosure process at the end of May, which was down from 763,531, or 1.51% of all active loans that were in foreclosure at the end of April, and down from 1.91% of all mortgages that were in foreclosure in May of last year...these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the May "foreclosure inventory" remains the lowest percentage of homes that were in the foreclosure process since late 2007... new foreclosure starts rose, however, from 73,547 in April to 81,944 in May, while they remained lower than the 86,258 new foreclosures started in May of 2014, and while they've been volatile from month to month, they have remained in a range from 73,500 to 95,000 monthly since the beginning of 2014, which is still about twice the monthly level of new foreclosures we saw in the precrisis year of 2005...

in addition to homes in foreclosure, May BKFS data showed that 2,513,318 mortgages, or 4.96% of all mortgage loans, or were at least one mortgage payment overdue but not in foreclosure, up from 4.77% of homeowners with a mortgage who were more than 30 days behind in April, but still below from the mortgage delinquency rate of 5.62% a year earlier…BKFS attributes the increase, the second in a row, to the fact that the month ended on a Sunday, such that a portion of homeowner’s regular payment checks were thus delivered late...of those who were delinquent in May, 922,072 home owners, or 1.82% of those with a mortgage, were considered seriously delinquent, which means they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month...combining these totals, we find a total of 6.45% of homeowners with a mortgage were either late in paying or in foreclosure at the end of May, and 3.31% of them were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

as you may recall, the Mortgage Monitor (pdf) is a mostly graphics presentation that covers a variety of mortgage related issues each month; in addition to delinquencies and foreclosures, this May monitor also includes graphics showing mortgage prepayment rates, the ARM share of current mortgage originations, charts on home affordability based on their own home price index and Census income figures, and a look at mortgages that could be refinanced, and the purported advantages to homeowners of doing so...

the graph that we'll include here, from page 7 of the mortgage monitor, shows the count of foreclosure starts as they occurred in each month since the beginning of 2008, wherein each bar represents monthly foreclosure starts, and within each bar foreclosure starts on mortgages that have never been in trouble previously are indicated in blue, and foreclosure starts on mortgages that had been in foreclosure at least once before are in red...the latter therefore represent mortgages that were in foreclosure, resolved that earlier foreclosure prior to a completed foreclosure sale either through a modification, or by making a payment to get caught up on their loan, only to fall behind on payments again and end up in foreclosure yet another time...the green line on the graph then shows such repeat foreclosures as a percentage of total foreclosure starts for the month, which has now risen to nearly 54% of all foreclosures, as a large number of those who've had their mortgages modified previously are now in foreclosure again...in May, new foreclosures rose by 9.3%, from 34,700 in April to 37,900 in May, while repeat foreclosures rose by more than 5,000 to over 44,000, or 13.4% over April's level...

May 2015 LPS new and repeat foreclosures

we’ll also include below that part of the Mortgage Monitor table showing the monthly count of active home mortgage loans and their delinquency status, which comes from page 18 of the pdf....the columns here show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month the past year and a half and for each January shown going back to January 2008….in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…the average length of delinquency for those who have been more than 90 days delinquent without foreclosure slipped from the April record of 544 days and is now at 535 days, while the average time for those who’ve been in foreclosure without a resolution is also off its record high but is still nearly three years at 1013 days… 

May 2015 LPS loan counts and days delinquent

(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…)

Monday, July 6, 2015

June jobs report, May construction spending and factory orders, April’s Case-Shiller Index, et al..

in addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, the past week also saw the release of the Full Report on Manufacturers' Shipments, Inventories and Orders for May and the May report on Construction Spending, both from the Census Bureau, the April Case-Shiller Home Price Index from S&P Dow Jones, and the light vehicle sales report for June from Wards Automotive, which indicated vehicles sold at a 17.11 million annual rate in June, down from their post recession record rate of 17.71 annually in May, but still on track for the highest vehicle sales in 10 years...we also saw the release of several diffusion indexes on June manufacturing: the Texas area manufacturing survey from the Dallas Fed reported their general business activity index rose to -7.0 from to in May, indicating a moderating slowdown in their oil based economy; the May Manufacturing Report On Business from the Institute for Supply Management (ISM), which saw their manufacturing PMI (Purchasing Managers Index) rise from 52.8 in May to 53.5 in June, and the Chicago Business Barometer from the ISM Chicago (pdf) which increased 3.2 points to 49.4 in June from 46.2 in May, but still the 4th month in contraction out of the last five..

Employers add 223,000 Jobs in May While Labor Force Participation Rate Falls to 38 Year Low

the Employment Situation Summary for June again showed weaker net job creation than we saw last year, with two prior months revised lower; in addition, the unemployment rate fell because the labor force participation rate crashed to a 38 year low...the establishment survey data indicated that employers added a seasonally adjusted 223,000 jobs, while job additions for May were revised from 280,000 to 254,000 and the payroll increase in April was revised from 221,000 to 187,000.....job gains were concentrated in the service sector, led by 41,100 in health care services, 33,600 in administrative and waste services, and 32,900 in retail, while the goods producing sectors of manufacturing, construction, and resource exploitation together netted only 1,000 additional jobs...the average workweek was unchanged at 34.5 hours and the average hourly earnings for all employees was also unchanged at $24.95...

the June household survey indicated that the seasonally adjusted count of the employed fell by 56,000 to 148,739,000, and the number of unemployed fell by 375,000 to 8,299,000, and as a result of this 432,000 decrease in the number counted in the labor force, the unemployment rate fell from 5.5% to 5.3%...combining the labor force dropouts with a 208,000 increase in the civilian population meant that the count of those not in the labor force rose 640,000 to a record 93,626,000, and the labor force participation rate crashed from 62.9% to 62.6%, the lowest since 1977, a time when women were not yet a major factor in the work force..and even with the drop in the number employed, the number who willingly took only part time work rose by 519,000 to 20,480,000 and these voluntary part time employees now represent 13.8% of all employed workers..

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 such as "The number of long-term unemployed (those jobless for 27 weeks or more) declined by 381,000 to 2.1 million in June". (See table A-12.) you can quickly open Table A-12.to get the details on what the change really was....

April and May Construction on Track to Add 1.24 Percentage Points to 2nd Quarter GDP

in the report on May construction spending (pdf), the Census Bureau estimated that our seasonally adjusted construction spending would work out to $1,035.8 billion annually if extrapolated over an entire year, which was 0.8 percent (±1.5%)* above the revised estimate of a $1,027.0 billion annual rate in April, 8.2 percent (±2.0%) above the estimated adjusted and annualized level of construction spending of May last year, and the highest since October 2008...the April construction spending estimate was revised from $967.9 billion annually to $1,027.0 billion, the March estimate was revised from $984.0 billion to $1,006.35 billion annually, and the February estimate was revised up to $993.465 billion, which together imply a large enough revision to first quarter GDP to turn the quarter positive when the annual revisions are released July 30th....private construction spending was at a seasonally adjusted annual rate of $752.4 billion in May, 0.9 percent (±0.8%) above the revised April estimate, with residential spending rising to a seasonally adjusted annual rate of $359.5 billion in May, 0.3 percent (±1.3%)* above the revised April estimate of $358.5 billion, while private non-residential construction spending rose 1.5 percent (±0.8%) to $392.8 billion...meanwhile, public construction spending was estimated at a rate of $283.4 billion annually, 0.7 percent (±2.5%)* above the revised April estimated rate of $281.5 billion, with highway and street spending up 2.1% (±6.9%)* while construction spending for public safety was off 7.6% for the month and down 12.9% 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 see how this report of two month's spending might impact 2nd quarter GDP, we must adjust those varied categories of spending for inflation to give us the quantity of 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, such as the Turner Construction building-cost indices for several types of buildings and the Engineering News Record construction cost index for utilities construction, 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 0.1% in April and rose by 0.1% in May, but more appropriately for our purposes, their average is down by 0.8% from the first quarter average; for the other types of construction, we'll simplify and just use the producer price index for final demand for construction, which showed 0.1% increases in both April and May, as well as in each of the preceding months, giving us a quarter over quarter increase of 0.3%...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...

using the revised monthly annualized construction spending data for January, February and March from Table 1 of this report, we find that 1st quarter private residential construction spending was at a seasonally adjusted annual rate of $359,009 million, and that comparable inflation adjusted value of April and May residential spending adjusted for inflation would be at a $387,700 million rate, which would mean that real residential construction rose at a 36.0% 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 $363,230 million annual rate, while April and May non-residential spending adjusted for 0.1% monthly inflation would give us a rate of $388,821 in chained first quarter dollars, an increase in real non-residential construction at a 31.3% annual rate...lastly, using just the monthly data in this report, we find that public construction averaged at a $274,383 million annual rate over the 1st quarter, while public construction for April and May adjusted for inflation works out to a $282,431 million annual rate...hence, real government investment spending for construction was up at a 12.3% annual rate in April and May over the first quarter...finally, for the rate of construction growth we have for these two months, we find that real residential construction would add 0.42 percentage points to 2nd quarter GDP growth, real private non-residential would add .63 percentage points to 2nd quarter growth, and real public construction would add .19 percentage points to 2nd quarter GDP in the various government investment components...

May Factory Orders Fall 1.0%; Factory Shipments Down 0.1%; Factory Inventories Flat

the Census Bureau also released the Full Report on Manufacturers’ Shipments, Inventories, & Orders for May (note, pdf shows February; Census has been notified; see Excel link), which showed new orders for manufactured goods fell by $4.5 billion or 1.0 percent to $470.5 billion, after falling a revised 0.7% in April, as new orders for durable goods fell 2.2% on a 35.3% decrease in orders for commercial aircraft while new orders for non-durables rose 0.2%...this report also showed factory shipments fell by $0.3 billion or 0.1 percent to $482.1 billion, after they were virtually unchanged in April, and that May factory inventories rose by increased $0.1 billion to $649.7 billion, which was statistically unchanged from April, when inventories rose 0.2% over March...in addition, Census showed that unfilled factory orders decreased by $6.4 billion or 0.5 percent to $1,194.6 billion, following a 0.2% April decrease, the 5th decrease out of the last 6 months...remember, though, that this release reports the current value of shipments, inventories and orders and does not adjust for price, and since it includes output of refineries and food producers, is necessarily lower for those commodity producers because of the drop in price of their products..

April Case-Shiller Shows National Home Prices up 4.2% Since Last Year

lastly, the Case-Shiller house price indexes for April were released Tuesday and indicated a 4.6% year over year increase in prices on repeat home sales in the original ten cities covered, a 4.9% annual increase in the 20 city Composite, and a 4.2% increase in home prices nationally since the April report of last year....they also report a 'monthly' increase of 1.0% in the ten city index and a 1.1% increase in the 20 city index and in home prices nationally from the index readings of the March report; but since the month over month figures for this report are comparing prices of houses sold in February, March, and April to those sold in January, February and March, the change in the month over month indexes is in effect equal to 1/3rd the difference between April prices and January prices, logically a seasonal increase at this time of year...the full pdf of the release is here and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary....for coverage of this Case-Shiller report on the web, Bill McBride has two posts, which include several graphs: Case-Shiller: National House Price Index increased 4.2% year-over-year in April, followed by his analysis in Real Prices and Price-to-Rent Ratio in April, while Robert Oak has several excellent graphs in his thorough post titled Case-Shiller Index Shows Home Prices Continue to Rise….


(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…)

Sunday, June 28, 2015

1st Quarter GDP revision; May’s income and outlays, durable goods, new and existing home sales, et al

the key reports this past week were the 3rd estimate of 1st quarter GDP, which was released on Wednesday, and the May report on Personal Income and Spending, which was released on Thursday....other reports released this week included the May advance report on durable goods, the two monthly reports on housing sales; the May report on existing home sales from the National Association of Realtors (NAR) and the Census Bureau report on new home sales for May, and the Chicago Fed National Activity Index for May, a weighted composite index of 85 different economic metrics which rose to −0.17 in May, up from −0.19 in April., while the index for April was revised from −0.15 to−0.19...that index is constructed such that a zero value indicates economic growth at the historical trend rate, so the negative readings for April and May indicate growth below trend...the week also saw the release of two regional Fed manufacturing indexes for June: the Kansas City Fed manufacturing survey, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to -9 in June, up from -13 in May, but down from -7 in April, indicating a ongoing regional contraction, mostly in the energy industry, and the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index rose to 6, following last month's reading of 1, indicating a return to modest grow after several sluggish months...

3rd Estimate of 1st Quarter GDP Shows Contraction at a 0.2% Rate

the Third Estimate of 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services contracted at a 0.2% annual rate in the 1st quarter, revised from the 0.7% contraction rate reported in the second estimate last month, as fixed investments, exports, and government outlays decreased less than previously estimated, while personal consumption expenditures (PCE) and imports increased more than was reported last month...the GDP deflator, or inflation adjustment, was also revised, from a negative 0.18% to a negative 0.04%, which is reported as unchanged, and as a result current dollar GDP also shrunk at the same 0.2% rate as real GDP did, falling from what would be $17,703.7 billion a year in the 4th quarter to $17,693.3 billion annually in the 1st quarter...although this 3rd estimate is usually thought of as the final reading on the quarter's GDP, it will again be subject to revision on July 30th with the Annual Revision of the National Income and Product Accounts which will be released at that time..

while we cover the details below, remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that they only use the prefix "real" to indicate that the data or the change in it has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those nonsense 2009 dollar figures, which would be better thought of as a quantity indexes...given the misunderstanding evoked by the press release, all the data that we'll use in reporting on this estimate comes from the pdf for the 3rd estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...for comparison purposes, the pdf for the 2nd estimate is here..

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 2.1% annual rate rather than the 1.8% growth rate reported last month, and since the 1st quarter deflator for PCE was negative 2.0%, that means personal spending in current dollars increased at a 0.1% rate rather than decreased....consumption of real durable goods rose at a 1.3% annual rate, which was revised from a 1.1% rate in the 2nd estimate, and added 0.10 percentage points to GDP, as real output of automotive products consumed fell at a 4.1% rate and offset 4.0% growth in recreational goods and vehicles...real consumption of nondurable goods rose at a 0.8% annual rate, revised from the 0.1% increase reported in the 2nd estimate, and added 0.12 percentage points to 1st quarter growth, as real consumption of food and clothing both decreased, offsetting a 5.7% increase in consumption of gasoline & other fuel...in addition, real consumption of services rose at a 2.7% annual rate, revised from the 2.5% rate reported last month, and added 1.21 percentage points to the final GDP tally...almost all of that was in the increases posted by real consumption of health care and utilities in the colder than normal winter, while recreation services, consumption expenditures of nonprofit institutions serving households, and 'other' consumer services all shrunk during the quarter..

in part due to the upward revision of real private inventories, seasonally adjusted real gross private domestic investment grew at a 2.4% annual rate in the 1st quarter, revised from the 0.7% growth estimate made last month, while the contraction in private fixed investment was revised from -1.3% to -0.3% and hence only subtracted 0.05 percentage points from the quarter's growth rate, rather than 0.21 percentage points subtraction estimated last month...real non-residential fixed investment fell at a 2.0% rate, rather than the 2.8% decrease previously estimated, as the contraction in investment in non-residential structures was revised up from a drop at a 20.8% rate to a drop at a 18.8% rate, which was still largely due to a near 50% pullback in oilfield drilling over the quarter; by itself, that decrease in structures subtracted 0.60 percentage points from the 1st quarter change in GDP...meanwhile, investment in equipment grew at a 2.6% rate, revised from the 2.7% rate previously reported, while growth in investment in intellectual property products was revised up, from growth at a 3.6% rate to growth at a 4.9% rate...growth in residential investment was also revised up from a 5.0% rate to 6.5% growth…after those revisions, investment in equipment added 0.15 percentage points to the 1st quarter growth rate, investment in intellectual property added 0.19 percentage points, while growth in residential investment added 0.21 percentage points to 1st quarter GDP...

meanwhile, real private inventories were revised from the $95.0 billion real growth rate estimated last month to now show inventory growth at an inflation adjusted $99.5 billion rate, which comes after inventories had grown at a $80.0 billion rate in the 4th quarter...hence the $19.5 billion greater inventory growth added 0.45 percentage points to the 1st quarter's growth rate, in contrast to the 0.33 percentage point addition from inventory growth that was reported in the 2nd estimate...since inventories indicate that some of the goods produced during the quarter are still sitting on the shelf, their increase by $19.5 billion means real final sales of GDP were lower by that much, and hence decreased at a 0.6% annual rate in this report, revised from the real final sales decrease at a 1.1% annual rate that was reported with the lower GDP estimate of last month....

the previously reported decrease in real exports was revised lower while the increase in real imports was revised higher by nearly the same amount, and hence the impact from trade figures was little changed in the revision; remember, our exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increased imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....our real exports fell at a 5.9% rate rather than the 7.6% contraction reported in the 2nd estimate, but still subtracted 0.79 percentage points from 1st quarter GDP growth, down from 1.03 percentage points in the previous estimate.... meanwhile, the real growth rate of our imports was revised to 7.1% from the previously reported 5.6% growth rate and subtracted 1.10 percentage points from the quarter's growth rate, an increase from the 0.87.percentage points subtracted in the 2nd estimate...hence the 1.89 percentage points subtracted as a result of our increased  trade imbalance were greater than the additions in the other GDP components, and were largely responsible for the 0.2% contraction in 1st quarter GDP reported here...

finally, there were also minor revisions to real government consumption and investment in this 3rd estimate...real federal government consumption and investment was revised to unchanged from the 0.1% growth rate reported in the 2nd estimate, and hence added nothing to 1st quarter GDP...real federal spending for defense was revised to show contraction at a 1.2% rate rather than the 1.0% contraction previously reported, while all other federal consumption and investment grew at a 2.0% rate, which was unrevised from last month...the contraction in real state and local outlays, on the other hand, was revised lower, from the 1.8% shrinkage rate previously reported to contraction at a 1.0% rate, which subtracted 0.12 percentage points from GDP, down from the 0.21 percentage point subtraction indicated by the 2nd estimate..

Estimating the Contribution of May Personal Consumption to 2nd Quarter GDP

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...this 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, in today’s case they tell us what income and spending would be for a year if May's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, and in this case of this month's report they give us the percentage change in each annual metric from April to May..

thus, when the opening line of the press release for this report tell us "Personal income increased $79.0 billion, or 0.5 percent, and disposable personal income (DPI) increased $65.5 billion, or 0.5 percent, in May", they mean that the annualized figure for all types of personal income in May, $15,307.0 billion, was $79.0 billion or 0.5% greater than the annualized personal income figure for April; the actual May increase in personal income over April is not given...similarly, disposable personal income, which is income after taxes, rose by 0.5%, from an annual rate of $13,363.8 billion in April to an annual rate of $13,429.3 billion in May...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, which is the document we're referencing...so when the press release says, "Wages and salaries increased $37.1 billion in May" that really means wages and salaries would rise by $37.1 billion over an entire year if May's seasonally adjusted increase were extrapolated over an entire year, just as proprietor's income rose at a $10.5 billion annual rate and interest and dividend income rose at a $22.8 billion annual rate over the month...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 May personal consumption expenditures (PCE) that will be included in 2nd quarter GDP, BEA reports that they increased by $105.9 billion, or 0.9%, which means the annual rate of PCE rose from $12,189.2 billion in April to $12,295.1 in May; in addition, the April PCE figure was revised up from the originally reported $12,158.9 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 108.693 in April to 109.032 in May, giving us a month over month inflation rate of 0.31%, which BEA rounds to 0.3%, following the negligible increase in the April PCE price index...applying that inflation adjustment to PCE leaves real PCE up 0.6% in May, following a statistically insignificant increase in April..

however, in estimating the change in PCE that applies to GDP, we have to compare April and May real PCE to the real PCE of the 3 months making up the first quarter...that's done by applying the monthly PCE price index, from Table 9 in the pdf, to the current dollar values of each month's annualized PCE; that gives us monthly 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 annualized chained dollar consumption works out to 11,214.7 million and May's annualized chained dollar consumption is 11,276.9, which we can then compare to the 1st quarter's annualized chained dollar PCE of 11,177.9 shown in Table 8, which is identical to the inflation adjusted first quarter PCE from table 3 in the first quarter GDP report we just reviewed...since we dont yet know real PCE for June, one method of estimating the 2nd quarter change in real PCE is to average the two months we do have and compare them to the 1st quarter...when we do that, we find that 2nd quarter real PCE has grown at a 2.5% annual rate for the two months we do have; note the math to get that annual rate: (((11,214.7 +11,276.9 ) / 2) / 11,177.9 ) ^ 4 = 1.02452... given that real PCE is about 68% of GDP, we could thus estimate that growth in real PCE would add 1.67 percentage points to 2nd quarter GDP...and that has to be considered the low end estimate; even if June's PCE is unchanged from May, our equation becomes (((11,214.7 + 2 * 11,276.9 ) / 3) / 11,177.9 ) ^ 4 = 1.02830, meaning PCE growth at a 2.8% annual rate, which would add 1.92 percentage points to 2nd quarter GDP...

Shipments, Inventories and Orders of Durable Goods All Down in May

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau indicated that new orders for manufactured durable goods fell in May by a seasonally adjusted $4.1 billion or 1.8%, to $228.9 billion, the 3rd drop in the last 4 months, while the 0.5% decrease first reported for April has been revised to a drop of 1.5%...new orders for transportation equipment, down 3.5% to $69,484 million, drove the change, as new orders for commercial aircraft fell 8.9%, but even excluding transportation equipment orders, other new orders were still down 0.4%...the widely watched new new orders for nondefense capital goods fell by $5.2 billion or 6.6% to $74.3 billion, but excluding those aircraft orders, new orders for nondefense capital goods were rose 0.4%...

May's seasonally adjusted shipments of durable goods, which will input into 2nd quarter GDP after an inflation adjustment, fell $0.2 billion or 0.1 percent to $239.9 billion, the 4th decrease this year; again, that was due to $0.7 billion or 0.9% lower shipments of transportation equipment, with shipments of commercial aircraft off 4.6%; excluding that volatile sector, other shipments of durables rose 0.5%....meanwhile, the value of seasonally adjusted inventories of durable goods, also a GDP contributor, fell for the first time in 24 months, shrinking $0.8 billion or 0.2 percent to $400.6 billion, as the $0.3 billion drop to $129.9 billion in inventories of transportation equipment was only a minor factor...finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, fell by $5.7 billion or 0.5 percent to $1,195.5 billion, the 5th monthly decrease in the past 6 months, as a 0.6% decrease to $798,770 million in the large order book of the transportation sector accounted for more than half the decrease, as unfilled orders for nondefense aircraft fell 0.7% to $608,477 million...nonetheless, unfilled orders for durable goods remained 5.7% higher than they were last May, with only defense durables, machinery and primary metals manufacturers seeing a year over year decrease in their order backlog, with the latter probably due to lower metal prices...

Existing Homes Sales and Prices Rise 5% in May

the National Association of Realtors (NAR) reported that existing home sales rose a seasonally adjusted 5.1% in May, projecting that 5.35 million homes would sell over a year if May sales were extrapolated over an entire year, a rate 9.2% higher than the annual rate projected in May of a year ago... the NAR press release, which is titled Existing-Home Sales Bounce Back Strongly in May as First-time Buyers Return, is in easy to read plain English, so there's no point in our restating what they already report; note though, that at 32%, the percentage of first time home buyers is still well below the 40% pre-housing bust norm...also, since the report is entirely seasonally adjusted and at a fairly meaningless annual rate, we'll take a look at the raw data overview (pdf), which shows that 497,000 homes actually sold in May, up 9.9% from 449,000 in April (which was revised from 445,000) and up 5.1% from the 473,000 homes that sold in May last year, ranging from an increase of 4.6% to 113,000 home sales in the West to a 20.2% increase to 125,000 home sales in the Midwest....that same pdf indicates that the median home selling price for all housing types was $228,700 in May, up from $218,700 in April, and 7.9% higher than the $212,000 median home sales price in May of last year, while the average home sales price was $272,800, up 3.2% from the $256,300 average in April, and up 5.2% from the $259,400 average home sales price of May a year ago...for additional coverage of this report, Bill McBride has two posts with graphs: Existing Home Sales in May: 5.35 million SAAR, Inventory up 1.8% Year-over-year and A Few Random Comments on May Existing Home Sales

New Homes Selling at Annual Rate of 546,000 in May, Give or Take 91,000

the Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 546,000 new home sales a year, 2.2 percent (±16.7%)* above the revised April rate of 534,000 new single family homes a year, and 19.5 percent (±19.7%)* above the annual rate that new homes were selling at in May of last year...as you know, the asterisks indicate that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of April or from those of May a year ago, and the figures in parenthesis represent the 90% confidence range for reported data in this report, which has the largest margin of error of any census construction series...the unadjusted data from Census field reps estimated that 51,000 new homes sold in May, unchanged from April's 51,000, which was revised up from 49,000 reported a month ago....the raw Census data further estimated that the median sales price of new houses sold was $282,800, down from $291,100 in April, while the average sales price was $337,000, up from $333,900 last month, as the number of homes selling for more than $750,000 rose from ~1,000 to ~2,000.... a seasonally adjusted estimate of 206,000 new houses remained for sale at the end of May , which represents a 4.5 month supply at the May sales rate...for more details and graphics about this report, see Bill McBride's two posts, New Home Sales increased to 546,000 Annual Rate in May and Comments on New Home Sales and Prices..

(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…)