Sunday, October 21, 2018

September's retail sales, industrial production, new housing construction, and existing home sales; August's business inventories and JOLTS

Major reports released this past week included Retail Sales for September and Business Sales and Inventories for August from the Census Bureau, Industrial production and Capacity Utilization for September from the Fed, the September report on New Residential Construction from the Census Bureau, the Existing Home Sales Report for September from the National Association of Realtors (NAR), and both the the Job Openings and Labor Turnover Survey (JOLTS) for August and the Regional and State Employment and Unemployment report for September from the Bureau of Labor Statistics...this week also saw the release of the first two regional Fed manufacturing surveys for October: the Empire State Manufacturing Survey for October from the New York Fed, which covers New York and northern New Jersey, reported their headline general business conditions index rose from +19.0 in September to +21.1 in October, suggesting that First District manufacturing was growing at a substantial pace, while the Philadelphia Fed Manufacturing Survey for October, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions slipped from +22.9 in September to +22.2 in October, also suggesting ongoing strong growth in that region's manufacturing...

Retail Sales Increased by 0.1% in September after July and August Sales were Revised Lower

Seasonally adjusted retail sales inched up 0.1% in September after retail sales for July and August were both revised 0.1% lower...the Advance Retail Sales Report for September (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $509.0 billion during the month, which was 0.1 percent (±0.5%) higher than August's revised sales of $508.5 billion and 4.7 percent (±0.5 percent) above the adjusted sales in September of last year...August's seasonally adjusted sales were revised from $509.0 billion to $508.5 billion, while July sales were also revised lower, from $508.6 billion to $508,230 million, with this release....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 7.5%, from $525,319 million in August to $485,752 million in September, while they were up 3.1% from the $471,043 million of sales in September a year ago...

Since it's the end of the quarter for retail sales, we'll include the entire table from this report showing retail sales by business type, including the quarter over quarter data...again, to explain what it shows, the first double column below shows us the seasonally adjusted percentage change in sales for each kind of business from the August revised figure to this month's September "advance" report figure in the first sub-column, and then the year over year percentage sales change since last September in the 2nd column; the second double column pair below gives us the revision of the August advance estimates (now called "preliminary") as of this report, with the new July to August percentage change under "Jul 2018 (r)" (revised) and the August 2017 to August 2018 percentage change as revised in the 2nd column of the pair; for your reference, the table of last month’s advance estimate of August sales, before this month's revisions, is here.... then, the third pair of columns shows the percentage change of the most recent 3 months of this year's sales (July, August and September) from the preceding three months of the 2nd quarter (April, May and June) and then from the same three months (July, August and September) of a year ago....that first column of that pair gives us a snapshot comparison of 2nd quarter sales to third quarter sales which, after adjustment for price changes, can be useful in estimating the impact of this report on 3rd quarter GDP:

September 2018 retail sales table

To compute the real personal consumption of goods data for national accounts from this September retail sales report, the BEA will used the corresponding price changes from the September consumer price index, which we reviewed last week..since the CPI report showed that the composite price index for all goods less food and energy goods was down 0.3% in September, we can thus figure that real retail sales excluding food and energy will on average be 0.3% higher than the core retail sales shown above, or show an increase of roughly 0.5%...however, the adjustment for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were up 0.8%, the price index for for transportation commodities other than fuel were down 1.2%, as prices for used cars and trucks fell 3.0% while new vehicle prices slipped 0.1%; that would mean that real unit sales at auto & parts dealers was actually on the order of 2.0% higher...on the other hand, while sales at clothing stores were 0.5% higher in September, the apparel price index was 0.9% higher, which means that real sales of clothing actually fell around 0.4%...similarly, since sales at furniture stores were up 1.1% while the price index for household furnishings and supplies increased by 0.2%, that would suggest that real sales at furniture stores only rose 0.9%…on the other hand, while nominal sales at sporting goods, hobby, music and book stores rose 0.7%, the price index for recreational commodities fell 0.6%, so real sales of recreational goods were up roughly 1.3%...

In addition to those core sales, adjusting food and energy retail sales for price changes must be done separately; the CPI report showed that the food price index was unchanged in September, with the price index for food purchased for use at home 0.1% lower, while prices for food bought for eating away from home were 0.2% higher... hence, with nominal sales at food and beverage stores 0.2 higher, real sales of food at groceries would also be roughly 0.3% higher.…on the other hand, the 1.8% decrease in nominal sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests that real sales at bars and restaurants fell 2.0%...meanwhile, while sales at gas stations were down 0.8%, there was a 0.2% decrease in the retail price of gasoline, which would suggest  real sales of gasoline were down on the order of 0.6%, with the caveat that gasoline stations do sell more than gasoline...averaging real sales computed thusly together, we'd estimate that the income and outlays report for August will show that real personal consumption of goods rose 0.4% in September, after rising by a revised 0.2% in August and a revised 0.4% in July... each single month of that metric will account for almost 8% of 3rd quarter GDP…

Business Sales and Business Inventories Both Rose 0.5% in August

After the release of the September retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for August (pdf), which incorporates the revised August retail data from that September report and the earlier published August wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,461.9 billion in August, up 0.5 percent (±0.1%) from July revised sales, and up 7.8 percent (±1.2 percent) from August sales of a year earlier....note that total July sales were concurrently revised up from the originally reported $1,454.1 billion to $1,455.246 billion, still a 0.2% increase from June....manufacturer's sales were 0.5% higher at $504,009 million in August, while retail trade sales, which exclude restaurant & bar sales from the revised August retail sales we reported earlier, were statistically unchanged at $446,798 million, while wholesale sales rose 0.8% to $511,138 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,960.8 billion at the end of August, also up 0.5 percent (±0.1%) from July, and 4.2 percent (±1.2%) higher than in August a year earlier...the value of end of July inventories were revised to $1,950.6 billion from the $1,950.0 billion reported last month...seasonally adjusted inventories of manufacturers were estimated to be valued at $675,610 million, down 0.1% from July, while inventories of retailers were valued at $642,458 million, 0.7% more than in July, and inventories of wholesalers were estimated to be valued at $642,706 million at the end of August, 1.0% higher than in July...

For GDP purposes, all inventories, including retail, are adjusted for inflation with appropriate component price indices of the producer price index...while we reviewed the September index last week, the producer price index for August indicated that aggregate prices for finished goods were unchanged in August, that prices for intermediate processed goods were also unchanged, and that prices for unprocessed goods were 5.8% lower....retail inventories are all finished goods, as are the majority of wholesale inventories, while factory inventories, which we looked at two weeks ago, are roughly evenly split between the three stages of production...a gross increase of 0.5% in nominal inventories thus implies a significant real increase in inventories at all stages, in addition to the real increase in inventories that was seen in July...since real 2nd quarter inventories were down by the most since the 4th quarter of 2009, these real inventory increases in the 3rd quarter will all substantially boost 3rd quarter GDP...

Job Openings at a Record High in August, Hiring and Layoffs Higher; Job Quitting Lower

The Job Openings and Labor Turnover Survey (JOLTS) report for August from the Bureau of Labor Statistics estimated that seasonally adjusted job openings increased by 59,000, from 7,077,000 in July to a record high of 7,136,000 in August, after July job openings were revised 138,000 higher, from 6,939,000 to 7,077,000...August jobs openings were also 18.1% higher than the 6,044,000 job openings reported in August a year ago, as the job opening ratio expressed as a percentage of the employed rose from 4.5% in July to 4.6% in August, which was also up from 4.0% a year ago...although job openings increased in many sectors, the largest percentage increase was the 30,000 job opening increase to 339,000 openings in the finance and insurance sector (see table 1 for more details)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are 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 August, seasonally adjusted new hires totaled 5,784,000, up by 71,000 from the revised 5,713,000 who were hired or rehired in July, as the hiring rate as a percentage of all employed rose from 3.8% to 3.9%, which was also up from 3.7% in August a year earlier (details of hiring by sector since March are in table 2)....meanwhile, total separations rose by 110,000, from 5,596,000 in July to 5,706,000 in August, while the separations rate as a percentage of the employed remained unchanged at 3.8%, which was still up from 3.6% in August a year ago (see table 3)...subtracting the 5,706,000 total separations from the total hires of 5,784,000 would imply an increase of 78,000 jobs in August, somewhat less than the revised payroll job increase of 270,000 for August reported by the September establishment survey last week, and outside of the expected +/-115,000 margin of error in these incomplete samplings, meaning one or both of those employment figures is in error by a statically significant amount...

Breaking down the seasonally adjusted job separations, the BLS finds that 3,577,000 of us voluntarily quit our jobs in August, down by 31,000 from the revised 3,608,000 who quit their jobs in July, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.4% of total employment, up from 2.2% a year earlier (see details in table 4)....in addition to those who quit, another 1,798,000 were either laid off, fired or otherwise discharged in August, up by 176,000 from the revised 1,622,000 who were discharged in July, as the discharges rate rose from 1.1% to 1.2% of all those who were employed during the month, same as the discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 332,000 in August, down from 365,000 in July, for an 'other separations rate’ of 0.2%, the same as in July and as in August of last year....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

Industrial Production Rose 0.3% in September

The Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production increased by 0.3% in September after rising by 0.4% in August; at the same time, the percentage change from June to July was revised from up 0.4% to up 0.3%....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose from 108.2 in August to 108.5 in September; at the same time, the index for June was revised from the previously reported 107.4 to 107.5, while the May index was revised from 106.7 to 106.8, and the April reading for the index was revised from 107.6 to 107.7, thus leaving the percentage increases on all of those months unchanged from the previous report....for the 3rd quarter as compared to the 2nd quarter, industrial production rose at a 3.3% annual rate, while total industrial production was 5.1% higher than in September a year earlier....

The manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.2, from 104.6 in August to 104.8 in September, after increasing by 0.3% in August and July and 0.7% in June, and is now 3.5% higher than a year ago...meanwhile, the mining index, which includes oil and gas well drilling, rose from 124.3 in August to 124.8 in September, after the August index was revised up from 124.1....the mining index is now 13.4% higher than it was a year ago, having risen every month this year....finally, the utility index, which often fluctuates due to above or below normal temperatures, was unchanged at 105.2 in September, after the August index was revised 105.4 to 105.2, now an increase of 1.1% from July...

This report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry was unchanged at 78.1% in September, as the utility and mining industries continued to add new capacity ...capacity utilization of NAICS durable goods production facilities rose from 76.0% in August to 76.3% in September, while capacity utilization for non-durables producers fell from 77.1% to 77.0%...capacity utilization for the mining sector fell to 92.1% in September from 92.2% in August, which was originally reported as 92.0%, while utilities were operating at 77.7% of capacity during September, down from their 77.9% of capacity during August, which was revised down from 78.0%...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 capacity utilization for a handful of other special categories.... 

Housing Starts, Building Permits Both Reported Lower in September

The September report on New Residential Construction (pdf) from the Census Bureau reported that their widely watched estimate of new housing units that were started during the month was at a seasonally adjusted annual rate of 1,201,000, which was 5.3 percent (±11.3 percent)* below the revised August estimated annual rate of 1,268,000 housing unit starts, but was 3.7 percent (±12.1 percent)* above last September's pace of 1,158,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month, or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, September's housing starts could have been up by 6.0% or down by as much as 16.6% from those of August, with even larger revisions possible after a number of months...in this report, the annual rate for August housing starts was revised from the 1,282,000 reported last month to 1,268,000, while July starts, which were first reported at a 1,168,000 annual rate, were revised up from last month's initial revised figure of 1,174,000 annually to a 1,184,000 annual rate with this report....

Those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 106,100 housing units were started in September, down from the 112,600 units started in August...of those housing units started in September, an estimated 74,200 were single family homes and 11,100 were units in structures with more than 5 units, down from the revised 79,600 single family starts in August, but up from the 8,400 units started in structures with more than 5 units in August...

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 housing starts data...in September, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,241,000 housing units, which was 0.6 percent (±1.2 percent) below the revised August rate of 1,249,000 permits, and was 1.0 percent (±1.2 percent)* below the rate of building permit issuance in September a year earlier...the annual rate for housing permits issued in August was revised from an annual rate of 1,229,000 to 1,249,000 annually, a rather large revision for permits....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 96,600 housing units were issued in September, down from the revised estimate of 116,900 new permits issued in August...the September permits included 64,700 permits for single family homes, down from 78,500 single family permits in August, and 7,800 permits for housing units in apartment buildings with 5 or more units, down from 9,000 such multifamily permits a month earlier...

for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts Decreased to 1.201 Million Annual Rate in September and Comments on September Housing Starts...

September Existing Home Sales Fall for 6th Straight Month

The National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales fell by 3.4% from August to September, the sixth consecutive decrease, projecting that 5.15 million homes would sell over an entire year if the September home sales pace were extrapolated over that year, a pace that was also 4.5% below the annual sales rate projected in September of a year ago; August sales at a 5.33 million annual rate were revised from the 5.34 million rate reported a month ago ...the NAR also reported that the median sales price for all existing-home types was $258,100 in September, down from $265,600 in August but 4.2% higher than in September a year earlier, which they say "marks the 79th straight month of year-over-year gains"...the NAR press release, which is titled "Existing-Home Sales Decline Across the Country in September", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 420,000 homes sold in September, down by 22.1% from the 539,000 homes that sold in August, and 9.1% fewer than the 462,000 homes that sold in September of last year, so we can see that the seasonal adjustment gave a considerable boost to the annualized figures published in the press release...that same pdf indicates that the median home selling price for all housing types fell 2.8%, from a revised $265,600 in August to $258,100 in September, while the average home sales price was $296,800, down 2.4% from the $304,000 average sales price in August, but up 2.5% from the $289,600 average home sales price of September a year ago, with the regional average home sales prices ranging from a low of $229,000 in the Midwest to a high of $407,700 in the West... for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Declined to 5.15 million in September and A Few Comments on September Existing Home Sales...

 

(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 picked from the aforementioned GGO posts, contact me…)      

Sunday, October 14, 2018

September's consumer price and producer price indexes; August's wholesale inventories

The key reports released this past week were the September Consumer Price Index, the September Producer Price Index, and the September Import-Export Price Index from the Bureau of Labor Statistics, which together give us most of the information needed to adjust other September data for inflation in order to determine the real level of economic activity for the month....in addition, the Census Bureau released the August report on Wholesale Trade, Sales and Inventories, which we watch for inventories...

Consumer Prices Rose 0.1% in September on Higher Rent and other Services

The consumer price index inched higher in September, as lower prices for groceries, energy and most goods were more than offset by higher prices for services...the Consumer Price Index  Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.1% in September after rising 0.2% in August, 0.2% in July, 0.1% in June, 0.2% in May, 0.2% in April but after falling 0.1% in March after it had risen by 0.2% in February, 0.5% in January, 0.1% in December, 0.4% in November, 0.1% in October, and by 0.5% last September...the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 252.146 in August to 252.439 in September, which left it statistically 2.277% higher than the 246.819 index reading in August of last year, which is reported as a 2.3% increase....however, even with lower prices for groceries and energy, seasonally adjusted core prices, which exclude food and energy, also rose by 0.1% for the month, with the unadjusted core price index rising from 258.012 to 258.429, which left the core index 2.170% ahead of its year ago reading of 252.941, which is reported as a 2.2% annual increase, same as last month's..

The volatile seasonally adjusted energy price index fell by 0.5% in September, after it had increased by 1.9% in August, decreased by 0.3% in July and by 0.3% in June, increased by 0.9% in May and by 1.4% in April, decreased by 2.8% in March, increased by 0.1% in February and by 3.0% in January, and hence is still 4.8% higher than in September a year ago...prices for energy commodities were 0.2% lower in September, while the index for energy services fell by 0.8%, after rising by 0.4% in August...the energy commodity index was lower due to a 0.2% decrease in price of gasoline, the largest component, while the index for fuel oils rose 0.3%, and prices for other energy commodities, such as propane, kerosene, and firewood, averaged 0.2% higher...within energy services, the index for utility gas service fell by 1.7% after rising by 0.9% in August and is now priced 1.2% lower than it was a year ago, while the electricity price index was down 0.5%, after it was up 0.3% in August....energy commodities are still 9.6% higher than their year ago levels, with gasoline prices averaging 9.1% higher than they were a year ago, while the energy services price index is now 1.2% lower than last September, as electricity prices have also decreased by 1.2% over that period…

The seasonally adjusted food price index was unchanged in September, after rising 0.1% in August, 0.1% in July, 0.2% in June, being unchanged in May, rising 0.3% in April, 0.1% in March, being unchanged in February, rising 0.2% in January, 0.2% in December, being unchanged in October and November, and rising 0.1% last September, as the index for food purchased for use at home fell 0.1% September, while prices for food bought for eating away from home were 0.2% higher, as prices at fast food outlets rose 0.3% and prices at full service restaurants rose 0.1%, while food prices at employee sites and schools were 1.4% lower...

In the food at home categories, the price index for cereals and bakery products was 0.6 higher even though bread prices fell 0.6%, because prices for flour and prepared flour mixes rose 1.2%, cookies prices rose 1.5%, and the index for frozen and refrigerated bakery products, pies, tarts and turnovers rose 1.9%...on the other hand, the price index for the meats, poultry, fish, and eggs group was 1.0% lower, as the fish and seafood price index fell 1.4% prices for beef roasts fell 1.7%, and egg prices were 4.1% lower....at the same time, the index for dairy products was 0.3% lower, on a 1.3% decrease in the price of fresh whole milk...in addition, the fruits and vegetables index was 0.5% lower on 0.6% decreases in both the price index for fresh fruits and the price index for fresh vegetables....meanwhile the beverages index was 0.6% higher, as noncarbonated juices and drink prices were priced 1.3% higher...lastly, the index for the ‘other foods at home’ category was up 0.2%, as the index for sugar and sweets rose 1.3% and the index for salt and other seasonings and spices rose 1.2%....among food at home line items, only prices for eggs, which are still up 10.1% since last September, have seen prices increase more than 10% over the past year, while no food item has fallen in price by more than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2 for this release, 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 0.1% in September after rising by 0.1% in August, 0.2% in July,0.2% in June, 0.2% in May, 0.1% in April, 0.1% in March, 0.2% in February, 0.3% in January, 0.3% in December, 0.1% in November, 0.2% in October, 0.1% in September, 0.2% in August and by 0.1% in each of the prior 4 months, the composite of all goods less food and energy goods was down 0.3% in September, while the more heavily weighted composite for all services less energy services was 0.2% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust September retail sales for inflation in national accounts data, the index for household furnishings and supplies increased by 0.2%, as the index for furniture and bedding rose 0.8% and the index for window and floor coverings was 1.1% higher...at the same time, the apparel price index was 0.9% higher, as prices for women's outerwear rose 9.8% and the index for men's and boy's apparel was 2.2% higher...on the other hand, prices for transportation commodities other than fuel were down 1.2%, as prices for used cars and trucks fell 3.0% while new vehicle prices slipped 0.1%...in addition, prices for medical care commodities were 0.1% lower as nonprescription drugs prices fell 0.8%, while the recreational commodities index fell 0.6% on 1.9% lower prices for televisions and 2.9% lower prices for recorded music and music subscriptions...however, the education and communication commodities index was 0.2% higher on a 1.1% increase in the index for personal computers and peripheral equipment...lastly, a separate price index for alcoholic beverages was 0.5% higher, while the price index for ‘other goods’ rose 0.1% on a 0.3% increase in prices for cigarettes...

Within core services, the price index for shelter rose 0.2% on a 0.2% increase in rents and a 0.2% increase in homeowner's equivalent rent, while prices for lodging away from home at hotels and motels fell 1.2%, the sub-index for water, sewers and trash collection rose 0.1%, and other household operation costs were on average unchanged....the price index for medical care services was also up by 0.2%, as dental services rose 0.3% and health insurance rose 1.2%...meanwhile, the transportation services index was up by 0.5% as car and truck rentals rose 2.2% and airline fares rose 1.0%...at the same time, the recreation services index rose 0.7% as rentals for video discs and other media rose 1.7%, pet services rose 2.2% and the index for admissions rose 0.9%.....in addition, the index for education and communication services rose 0.1%, as the price index for elementary and high school tuition rose 0.4% and the index for delivery services rose 1.1%...lastly, the index for other personal services was up 0.1% as laundry and dry cleaning services rose 0.5%...among core line items, prices for televisions, which are now 18.6% cheaper than a year ago, the price index for audio equipment, which has fallen 14.3% over the past year, and the price index for toys, which is down by 10.0% since last September, have all seen prices fall by more than 10% over the past year, while prices for laundry equipment, which have risen 10.6% over the past year, and checking account and other bank services, which are up 10.0% from a year ago, have seen prices rise by a double digit magnitude over that span..

Producer Prices Rose 0.2% in September on Higher Margins for Transportation Services

The seasonally adjusted Producer Price Index (PPI) for final demand was 0.2% higher in September, as prices for finished wholesale goods were 0.1% lower, while margins of final services providers increased by 0.3%...that followed an August report that showed the producer price index 0.1% lower, with prices for finished wholesale goods unchanged, while margins of final services providers decreased by 0.1%, a July report that indicated the PPI was unchanged, with prices for finished wholesale goods up 0.1%, while margins of final services providers decreased by 0.1%, and a June report that indicated the PPI rose 0.3%, as prices for finished wholesale goods averaged 0.1% higher, while margins of final services providers increased by 0.4%....on an unadjusted basis, producer prices are still 2.8% higher than a year ago, albeit down from the year over year increase of 3.3% that was indicated by last month's report...meanwhile, the core producer price index, which excludes food, energy and trade services, was up by 0.1% for the month, and is now 2.9% higher than in September a year ago...

As noted, the price index for final demand for goods, aka 'finished goods', was 0.1% lower in September, after being unchanged in August, rising by 0.1% in July, 0.1% in June and by 0.9% in May...the price index for wholesale energy was 0.8% lower in September after rising 0.4% in August, falling 0.5% in July, rising a revised 1.3% in June and a revised 3.7% in May, while the price index for wholesale foods fell 0.6%, and the index for final demand for core wholesale goods (excluding food and energy) was 0.2% higher....the largest wholesale energy price change was a 18.0% increase in the wholesale price for LP gas, but the index was lower nonetheless on a 3.5% decrease in wholesale prices for gasoline...the wholesale food price index, meanwhile, included a 13.9% decrease in wholesale prices for fresh eggs and an 6.1% decrease in wholesale prices for fresh and dry vegetables....among wholesale core goods, wholesale prices for light motor trucks rose 0.8%, wholesale prices for pharmaceutical preparations increased 0.7%, and wholesale prices for household appliances increased 1.3%…

At the same time, the index for final demand for services rose 0.3%, after falling 0.1% in August, 0.1% in July, rising 0.4% in June, 0.3% in May, 0.2% in April and 0.3% in March, as the August index for final demand for trade services rose 0.1%, the index for final demand for transportation and warehousing services rose 1.8%, and the core index for final demand for services less trade, transportation, and warehousing services rose 0.3%....among trade services, seasonally adjusted margins for lawn, garden, farm equipment, and supplies retailers rose 7.3%, margins for furnishings wholesalers rose 5.6%, and margins both for food and alcohol wholesalers and apparel wholesalers rose 3.2%... among transportation and warehousing services, margins for airline passenger services rose 5.5% and margins for rail transportation of freight and mail rose 1.4%...among the components of the core final demand for services index, the index for passenger car rental rose 5.6% while margins for deposit services (partial) rose 4.1%..

This report also showed the price index for intermediate processed goods was unchanged in September for the third month in a row, after rising a revised 0.8% in June, and a revised 1.2% in May....the price index for intermediate energy goods fell 0.2%, as refinery prices for gasoline fell 3.5% and producer prices for commercial natural gas fell 1.5%...prices for intermediate processed foods and feeds fell 1.4%, as the price index for processed poultry fell 4.9% and dairy prices fell 0.7%...meanwhile, the core price index for processed goods for intermediate demand less food and energy was 0.2% higher on a 1.9% increase in the index for primary basic organic chemicals and a 4.6% increase in the index for inedible fats and oils....prices for intermediate processed goods are still 5.8% higher than in September a year ago, now the 22nd consecutive year over year increase, after 16 months of negative year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016....

Meanwhile, the price index for intermediate unprocessed goods rose 1.7% in September, after falling 5.8% in August, rising 2.7% in July, falling a revised 1.6% in June, and rising a revised 2.2% in May....that was as the September price index for crude energy goods rose 4.7% as crude oil prices rose 8.7%, while the price index for unprocessed foodstuffs and feedstuffs rose 0.6%, as producer prices for slaughter cattle rose 2.4%, prices for slaughter hogs rose 2.8% and producer prices for raw milk rose 2.9%...at the same time, the index for core raw materials other than food and energy materials was 2.8% lower, as prices for iron and steel scrap fell 6.8% and prices for copper base scrap fell 5.3%...this raw materials index is now up by 4.3% from a year ago, up from the 2.9% year over year increase that we saw in August...

Lastly, the price index for services for intermediate demand rose 0.5% in September, after rising 0.1% in August, 0.2% in July, a revised 0.2% in June, and 0.3% in May...the price index for intermediate trade services was up 0.7%, as margins for intermediate food wholesalers rose 3.7% and margins for margins for machinery and equipment parts and supplies wholesalers rose 1.3%…the index for transportation and warehousing services for intermediate demand rose 1.0%, as the index for air transportation of passengers rose 5.6% and the index for non-postal air mail and package delivery services rose 1.3%...meanwhile, the core price index for intermediate services less trade, transportation, and warehousing was 0.3% higher, as the index for deposit services (partial) rose 4.1%, the index for accounting services (partial) rose 2.1%, and the index for internet advertising space sales, excluding ads sold by print publishers rose 4.1%....over the 12 months ended in September, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 3.3% higher than it was a year ago...  

August Wholesale Sales Up 0.8%, Wholesale Inventories Up 1.0% in Big Boost to Q3 GDP

The August report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $511.1 billion, up 0.8 percent (+/-0.4%) from the revised July level, and up 9.2 percent (±3.5 percent) from wholesale sales of August 2017... the July preliminary estimate was revised up to $506,874 million from the $505.6 billion in wholesale sales reported last month, which meant that the June to July change was revised from the preliminary estimate of virtually unchanged (±0.2 percent)* to up 0.2 percent (±0.4 percent)*...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

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 but not sold, and this August report estimated that wholesale inventories were valued at a seasonally adjusted $589.1 billion at month end, up 1.0 percent (+/-0.2%) from the revised July level,  5.3 percent (±3.7 percent) higher than in August a year ago, and the largest monthly increase since October 2013....July's inventory value was revised from $636,341 million to $636.339 billion, which left the July to August percentage change unchanged at +0.6 percent (+/-0.4%)...

August wholesale inventories would be deflated with the appropriate sub-indices of the August producer price index, which showed that aggregate prices for finished goods were unchanged in August, that prices for intermediate processed goods were also unchanged, while prices for unprocessed goods were 5.8% lower....hence, the real August wholesale inventories were at least 1.0% higher than in July, which themselves increased from the end of the second quarter...since real 2nd quarter inventories were down by the most since the 4th quarter of 2009, any real inventory increases in the 3rd quarter will substantially boost 3rd quarter GDP...

 

(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 picked from the aforementioned GGO posts, contact me…)      

Sunday, October 7, 2018

September’s jobs; August’s trade deficit, new construction, and factory inventories

In addition to the Employment Situation Summary for September from the Bureau of Labor Statistics, this week saw the release of three August reports from the Census Bureau that incorporate major contributions to 3rd quarter GDP: the August report on our International Trade, the August report on Construction Spending (pdf), and the Full Report on Manufacturers' Shipments, Inventories and Orders for August...in addition, the Fed released the Consumer Credit Report for August, which showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $20.1 billion, or at a 6.2% annual rate, as non-revolving credit expanded at a 6.4% rate to $2,893.6 billion and revolving credit outstanding rose at a 5.6% rate to $1,041.8 billion....

This week’s major privately issued reports included the ADP Employment Report for September and the September report on light vehicle sales from Wards Automotive, which estimated that vehicles sold at a 17.36 million annual rate in September, up from the 16.60 million annual pace in August, but down from the 18.47 million annual rate in September of last year, a month when insured vehicles damaged by Hurricane Harvey were being replaced ...both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM) were also released: the September Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 59.8% in September, down from 61.3% in August, suggesting a slightly slower expansion in manufacturing firms nationally, while the September Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to a 21 year high of 61.6% in September, up from 58.5% in August, indicating a considerably larger plurality of service industry purchasing managers reported expansion in various facets of their business in September...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally...

Employers Add 134,000 Jobs in September; Unemployment Rate Falls to 3.7%, a 49 Year Low

The Employment Situation Summary for September indicated relatively weak job creation, even as the unemployment rate fell 0.2% to a 49 year low.…the BLS notes that Hurricane Florence affected parts of the East Coast during the September reference period (Sept 10th - 14th), but that response rates for the two surveys were within normal ranges... employees who missed work because of the storm but who were paid anyway were counted as employed, but those who were not paid during that week were not counted as employed, even if they expected to return to work the next week...estimates extrapolated from the establishment survey data projected that employers added a seasonally adjusted 134,000 jobs in September, after the previously estimated payroll job increase for July was revised up from 147,000 to 165,000, while the payroll jobs increase for August was revised up from 201,000 to 270,000….thus, with revisions, that means that this report represents a total of 221,000 more seasonally adjusted payroll jobs than were reported last month, on net a bit more than the monthly average increase over the past year...the unadjusted data, meanwhile, shows that there were actually 350,000 more payroll jobs in September, largely due to job increases relating to the beginning of the school year, so the seasonal adjustment brought the headline jobs number down to a level where that normal September impact was negated...

Seasonally adjusted job increases in September were seen throughout the private goods producing and service sectors and in government, with only jobs in retail sales and food services seeing decreases of 20,000 and 18,200 jobs respectively, which were probably temporary job losses related to Florence...the broad professional and business services sector saw the addition of 54,000 jobs, with 17,700 more employed by employment services and 6,600 more positions in management and technical consulting services....the health care sector saw 27,500 additional jobs with the addition of 12,000 jobs in hospitals...in addition, there were 23,800 more jobs in transportation and warehousing, as 8,400 more found work in warehouses and 5,400 more were employed in ground transportation of passengers....there were also 23,000 more jobs in construction, as specialty contractors in both the residential and non-residential trades added 15,500 employees...manufacturing industries added 18,000 more employees, with 17,000 of those working for manufacturers of a variety of durable goods...in addition, the government sector saw a 13,000 seasonally adjusted increase, with 21,200 more employed than normally expected in state level education...meanwhile, the other major sectors, including wholesale trade, information, financial activities, resource exploitation, and utilities all saw increases of less than 10,000 in payroll employment over the month...

The establishment survey also showed that average hourly pay for all employees rose by 8 cents an hour to $27.24 an hour, after it had increased by a revised 9 cents an hour in August; at the same time, the average hourly earnings of production and non-supervisory employees increased by 6 cents to $22.81 an hour...employers also reported that the average workweek for all private payroll employees remained unchanged at 34.5 hours in  September, while hours for production and non-supervisory personnel was unchanged at 33.7 hours, after their August workweek figure was revised lower by a tenth of an hour...at the same time, the manufacturing workweek decreased by 0.1 hour to 40.8 hours after a downward August revision from 41.0 hours, while average factory overtime fell by 0.1 hour to 3.4 hours without an August revision...

meanwhile, the seasonally adjusted extrapolation from the September household survey indicated that indicated that the number of those who would self-report being employed rose by an estimated 420,000 to 155,962,000, while the similarly estimated number of those who would qualify as unemployed fell by 270,000 to 5,964,000; and hence the labor force increased by a net of 150,000...however, since the working age population had grown by 224,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 74,000 to 96,364,000, which was nonetheless not enough to change the labor force participation rate, which remained at 62.7%...however, the relatively large increase in number employed was enough to boost the employment to population ratio, which we could think of as an employment rate, as it rose from 60.3% to 60.4%...at the same time, the relatively large drop in the number unemployed was also enough to decrease the unemployment rate from 3.9% to 3.7%, which was the lowest unemployment rate since December 1969...meanwhile, the number of those who reported they were forced to accept just part time work rose by 263,000, from 4,379,000 in August to  4,642,000 in September, which caused the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", to increase from 7.4% to 7.5% of the labor force in September....

Like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports 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 tables 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..

August Trade Deficit Up 6.4% on Lower Exports of Soybeans & Oil, Higher Imports of Vehicles & Cellphones

Our trade deficit rose by 6.4% in August as the value of our exports decreased while the value of our imports increased....the Commerce Dept report on our international trade in goods and services for August indicated that our seasonally adjusted goods and services trade deficit rose by $3.2 billion to $53.2 billion in August from a revised July deficit of $50.0 billion, which had been reported at $50.1 billion last month...the value of our August exports fell by $1.7 billion to $209.4 billion on a $1.9 billion decrease to $138.9 billion in our exports of goods slightly offset by a $0.2 billion increase to $70.5 billion in our exports of services, while the value of our imports rose by $1.5 billion to $262.7 billion on a rounded $1.7 billion increase to $215.7 billion in our imports of goods while our imports of services fell $0.1 billion to $47.0 billion...prices for our exports were on average 0.1% lower in August,  so the relative real change in exports for the month was greater than the nominal change by that percentage, while import prices were 0.6% lower, meaning that relative real imports were similarly greater than the nominal dollar values reported here by that percentage...

The decrease in our August exports of goods resulted from lower exports of industrial supplies and farm products, which were partially offset by higher exports of consumer goods...referencing the Full Release and Tables for August (pdf), in Exhibit 7 we find that our exports of of industrial supplies and materials fell by $2,411 million to $44,126 million on a $946 million decrease in our exports of crude oil, a $666 million decrease in our exports of petroleum products other than fuel oil, and a $410 million decrease in our exports of non-monetary gold, while our exports of foods, feeds and beverages fell by $1,217 million to $12,028 million on a $1,014 million decrease in our exports of soybeans...in addition, our exports of automotive vehicles, parts, and engines fell by $280 million to $12,780 million on a $329 million decrease in our exports of vehicle parts other than engines, chassis, or tires, which was partially offset by a $217 million increase in our exports of trucks, buses, and special purpose vehicles...partially offsetting decreases in those categories, our exports of consumer goods rose by $1,642 million to $17,615 million on a $629 million increase in our exports of artwork, antiques, and other collectibles, a $424  million increase in our exports of pharmaceuticals, a $209 million increase in our exports of jewelry, and a $209 million increase in our exports of gem diamonds, while our exports of capital goods rose by $101 million to $46,417 million on a $516 million increase of in our exports of civilian aircraft, and while our exports of other goods not categorized by end use rose by $377 million to $5,455 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that higher imports of motor vehicles and consumer goods were responsible for the $1.7 billion increase in our imports of goods...our imports of automotive vehicles, parts and engines rose by $1,003 million to $31,711 million on a $455 million increase in our imports of passenger cars and a $217 million increase in our imports of trucks, buses, and special purpose vehicles, while our imports of consumer goods rose by $860 million to $53,472 million on a $861 increase in our imports of cellphones...in addition, our imports of industrial supplies and materials rose by $358 million to $49,660 million as a $443 million increase in our imports of petroleum products other than fuel oil,  a $238 million increase in our imports of chemical fertilizers, and a $219 million increase in our imports of fuel oil offset a $599 million decrease in our imports of crude, while the month also saw a $20 million increase to $5,211 million in our exports of other goods not categorized by end use...partially offsetting the increases in those categories, our imports of capital goods fell by $479 million to $57,677 million on a $438 million decrease in our imports of computer accessories and a $253 million decrease in our imports of civilian aircraft, and our imports of foods, feeds, and beverages fell by $135 million to $12,305 million...

To gauge the impact of July and August goods trade on 3rd quarter GDP growth figures, we use exhibit 10 in the full pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, except they are not annualized here....from that table, we can compute that 2nd quarter real exports of goods averaged 151,601.7 million monthly in 2012 dollars, while the similarly inflation adjusted July and August goods exports were at 149,572 million and 147,819 million respectively, in that same 2012 dollar quantity index representation...annualizing the change between the second and third quarter inflation adjusted averages, we find that the 3rd quarter's real exports of goods are running at a 7.54% annual rate below those of the 2nd quarter, or at a pace that would subtract about 0.63 percentage points from 3rd quarter GDP if it were continued through September...in a similar manner, we find that our 2nd quarter real imports averaged 229,085.3 million monthly in chained 2012 dollars, while inflation adjusted July and August imports were at 232,015 million and 234,100 million respectively...that would indicate that so far in the 3rd quarter, our real imports have grown at 7.12% annual rate from those of  the 2nd quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 7.12% rate would thus subtract another 0.85 percentage points from 3rd quarter GDP...hence, if our July and August trade deficit in goods remains at these same levels throughout September, our deteriorating balance of trade in goods would subtract a total of about 1.48 percentage points from the growth of 3rd quarter GDP....note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don't have easy access to all the relevant price changes...

Real Construction Contraction on Track to Subtract 18 Basis Points from Q3 GDP

The August report on construction spending (pdf) from the Census Bureau estimated that our seasonally adjusted construction spending construction spending for the month was at an annual rate of $1,318.5 billion, which was 0.1 percent (±1.6 percent)* above the revised annualized estimate of $1,317.4 billion in construction spending in July, and 6.5 percent (±2.0 percent) above the estimated annualized level of construction spending of August of last year....July construction spending was originally reported at a $1,315.4 billion annual rate, and it has thus been revised up to a $1,317.4 billion annual rate, while June construction spending was revised from the $1,314.2 billion annual rate reported last month to a $1,314.8 billion rate, which is not a large enough change to have a statistically significant impact on 2nd quarter GDP...

Quoting further details from the Census release: "Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,001.7 billion, 0.5 percent (±1.0 percent)* below the revised July estimate of $1,006.9 billion. Residential construction was at a seasonally adjusted annual rate of $548.9 billion in August, 0.7 percent (±1.3 percent)* below the revised July estimate of $553.0 billion. Nonresidential construction was at a seasonally adjusted annual rate of $452.9 billion in August, 0.2 percent (±1.0 percent)* below the revised July estimate of $453.9 billion. Public Construction: In August, the estimated seasonally adjusted annual rate of public construction spending was $316.7 billion, 2.0 percent (±2.8 percent)* above the revised July estimate of $310.5 billion. Educational construction was at a seasonally adjusted annual rate of $72.3 billion, 1.0 percent (±4.4 percent)* above the revised July estimate of $71.7 billion. Highway construction was at a seasonally adjusted annual rate of $99.0 billion, 1.7 percent (±6.9 percent)* above the revised July estimate of $97.3 billion.."

This construction spending report is used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local and Federal governments.... however, gauging the impact of revised July and August construction spending as reported here on 3rd quarter GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction spending....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed in order to make an estimate.

That producer price index showed that aggregate construction costs rose 0.1% in August after rising 0.4% in July, 0.2% in June and being unchanged from April to May...on that basis, we can estimate that construction costs for August were roughly 0.5% more than June, roughly 0.7% more than those of May and also 0.7% more than those of April, and obviously 0.1% more than those of July...we then use those percentages to inflate lower priced spending figures for each of those previous months, which is arithmetically the same as adjusting higher priced July and August construction spending downward, for comparison purposes... annualized construction spending in millions of dollars for the second quarter months is given as 1,314,788 for June, 1,324,347 for May, and 1,314,692 for April, while it was $1,317,434 million for July and $1,318,485 million for August...thus to compare July and August’s inflation adjusted construction spending to that of the second quarter, our formula becomes: ((1,318,485 + 1,317,434 * 1.001) / 2 ) / ((1,314,788 * 1.005 + 1,324,347 * 1.007 + 1,314,692 *1.007) / 3) = 0.994215, meaning real construction over July and August was down 0.5785% vis a vis the 2nd quarter...that means that after adjusting for inflation, real construction for the 3rd quarter fell at a 2.29% annual rate from that of the 2nd quarter...that's a contraction at a $7.67 billion annual rate, which means that if September shows no improvement, the contraction in construction would subtract a net of about 0.18 percentage points from 3rd quarter GDP across those components that it influences...

Factory Shipments Up 0.5% in August, Factory Inventories Down 0.1%

The August Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) for , from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $11.5 billion or 2.3 percent to $510.5 billion in August, following an decrease of 0.5% to $498.9 billion in July, which was revised from the 0.8% decrease to $497.8 billion reported last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only useful as revised updates to the August advance report on durable goods we reported on last week...on those revisions, the Census Bureau's own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we'll just quote directly from that summary here:

  • New orders for manufactured goods in August, up three of the last four months, increased $11.5 billion or 2.3 percent to $510.5 billion, the U.S. Census Bureau reported today. This followed a 0.5 percent July decrease. Shipments, up fifteen of the last sixteen months, increased $2.3 billion or 0.5 percent to $504.0 billion. This followed a virtually unchanged July increase. Unfilled orders, up nine of the last ten months, increased $10.4 billion or 0.9 percent to $1,176.5 billion. This followed a 0.1 percent July increase. The unfilled orders-to-shipments ratio was 6.68, down from 6.72 in July. Inventories, down following twenty one consecutive monthly increases, decreased $0.5 billion or 0.1 percent to $675.6 billion. This followed a 0.9 percent July increase. The inventories-to-shipments ratio was 1.34, down from 1.35 in July.
  • New orders for manufactured durable goods in August, up two of the last three months, increased $11.0 billion or 4.4 percent to $259.6 billion, down from the previously published 4.5 percent increase. This followed a 1.2 percent July decrease. Transportation equipment, also up two of the last three months, drove the increase, $11.1 billion or 13.1 percent to $95.4 billion. New orders for manufactured nondurable goods increased $0.6 billion or 0.2 percent to $250.9 billion.
  • Shipments of manufactured durable goods in August, up three of the last four months, increased $1.8 billion or 0.7 percent to $253.1 billion, down from the previously published 0.8 percent increase. This followed a 0.1 percent July decrease. Transportation equipment, up two of the last three months, led the increase, $1.7 billion or 2.0 percent to $86.2 billion. Shipments of manufactured nondurable goods, up fourteen of the last fifteen months, increased $0.6 billion or 0.2 percent to $250.9 billion. This followed a 0.1 percent July increase. Chemical products, up three of the last four months, led the increase, $0.3 billion or 0.4 percent to $65.4 billion.
  • Unfilled orders for manufactured durable goods in August, up nine of the last ten months, increased $10.4 billion or 0.9 percent to $1,176.5 billion, unchanged from the previously published increase. This followed a 0.1 percent July increase. Transportation equipment, up six of the last seven months, led the increase, $9.2 billion or 1.2 percent to $811.0 billion.
  • Inventories of manufactured durable goods in August, down following nineteen consecutive monthly increases, decreased $1.4 billion or 0.3 percent to $407.2 billion, up from the previously published 0.4 decrease. This followed a 1.3 percent July increase. Transportation equipment, down two of the last three months, drove the decrease, $1.8 billion or 1.4 percent to $129.4 billion. Inventories of manufactured nondurable goods, up fourteen consecutive months, increased $0.8 billion or 0.3 percent to $268.4 billion. This followed a 0.3 percent July increase. Petroleum and coal products, up four of the last five months, led the increase, $0.5 billion or 1.1 percent to $42.7 billion..

To gauge the effect of August factory inventories on 3rd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories was up 0.1% to $235,203 million; the value of work in process inventories was down 0.8% at $207,181 million, and materials and supplies inventories were valued 0.4% higher at $233,226 million...the producer price index for August indicated that prices for finished goods were on average unchanged, that prices for intermediate processed goods were also unchanged, while  prices for unprocessed goods were 5.8% lower....assuming similar valuations for like inventories, we could thus estimate that August's real finished goods inventories increased by 0.1%, that real inventories of intermediate processed goods were 0.8% smaller, and that real raw material inventory inventories were roughly 6.2% greater...those would be in addition to July’s inventories, which saw real factory inventories fairly flat overall…since real 2nd quarter inventories were down by the most since the 4th quarter of 2009, any real inventory increases in the 3rd quarter will substantially boost 3rd quarter GDP...

 

(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 picked from the aforementioned GGO posts, contact me…)      

Sunday, September 30, 2018

3rd estimate of 2nd quarter GDP; August’s income and outlays, durable goods, and new home sales

The key economic releases of the past week were the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, and the August report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence will account for more than 46% of 3rd quarter GDP....other widely watched releases included the August advance report on durable goods and the August report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for July, which is an index generated by comparing relative prices for May, June and July repeat home sales to their earlier selling prices, and which reported that home prices nationally for those 3 months averaged 6.0% higher than prices for the same homes that sold during the same 3 month period a year earlier, down from the 6.2% YoY increase shown in the prior report...the week also saw the release of the Chicago Fed National Activity Index (CFNAI) for August, a weighted composite index of 85 different economic metrics, which was unchanged at +0.18 in August, after the July index was revised from +0.13 to +0.18;  that left the 3 month moving average of the index at +0.24, up from +0.02 in July, which indicates national economic activity has been above the historical trend over the summer months...

This week also saw the release of the last three regional Fed manufacturing surveys for September: the Dallas Fed Texas Manufacturing Outlook Survey reported its general business activity index fell from +30.9 in August to +21.8 in September, still suggesting a strong expansion of the Texas oil patch economy; the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose from +24 in August to +29 in September, indicative of an ongoing robust expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index slipped to +13 in September, down from +14 in August and +23 in July, but still suggesting an ongoing expansion of that region's manufacturing...

Third Estimate of 2nd Quarter GDP Has Growth at a 4.2% Rate, Same as Second Estimate

The Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 4.2% annual rate in the quarter, revised but unchanged from from the 4.2% growth rate reported in the second estimate a month ago, largely because a big downward revision to inventory investment was completely offset by upward revisions to fixed investment, our trade balance, and state and local government consumption and investment...in current dollars, our second quarter GDP grew at a 7.6% annual rate, increasing from what would work out to be a $20,041.0 billion annual rate in the 1st quarter to a $20,411.9 billion annual rate in the 2nd quarter of this year, with the headline 4.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 3.0%, aka the GDP deflator, was applied to the current dollar change...

Remember that the GDP release 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 the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 2nd 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 the 3rd quarter of 2013; 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; and table 4, which shows the change in the price indexes for each of the components; and table 5...the pdf for the 2nd quarter second estimate, which this estimate revises, is here...

Growth of real personal consumption expenditures (PCE), the largest component of GDP, remained the same as the 3.8% growth rate reported last month in this estimate…that growth rate figure was arrived at by deflating the 5.9% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated that consumer inflation was at a 2.0% annual rate in the 2nd quarter, which was revised from the 1.9% PCE inflation rate reported a month ago...real (inflation adjusted) consumption of durable goods grew at a 8.6% annual rate, which was unrevised from the growth rate shown in the second estimate, and added 0.60 percentage points to GDP, as an increase in real consumption of recreational goods and vehicles at a 9.4% rate accounted for a third of the durables goods increase...real personal consumption of nondurable goods rose at a 4.0% annual rate, revised from the 3.7% rate shown in the 2nd estimate, and added 0.56 percentage points to 2nd quarter economic growth, as greater consumption of food at home accounted for 40% of the quarter's non-durable growth, while there was a modest contraction in consumption of energy goods….meanwhile, real consumption of services rose at a 3.0% annual rate, revised from the 3.1% growth rate reported last month, and added 1.42 percentage points to the final GDP tally, as real consumption of food services and accommodations rose at a 8.1% rate and accounted for nearly a third of the 2nd quarter growth in services...

Meanwhile, seasonally adjusted real gross private domestic investment contracted at a 0.5% annual rate in the 2nd quarter, revised from the 0.4% investment growth reported last month, as real private fixed investment grew at a 6.4% rate, rather than at the 5.2% rate reported in the second estimate, while the previously reported contraction in inventory growth was greater than previously reported.....real investment in non-residential structures was revised from growth at a 13.2% rate to growth at a 14.5% rate, while real investment in equipment was revised to show growth at a 6.4% rate, revised from the 6.2% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised lower, from growth at a 11.0% rate to growth at a 10.5% rate, while the contraction rate of residential investment was revised from -1.6% to -1.3% annually…after those revisions, the increase in investment in non-residential structures added 0.43 percentage points to the 2nd quarter's growth rate, the increase in investment in equipment added 0.27 percentage points to the quarter's growth, the growth in investment in intellectual property added 0.45 percentage points, while the decrease in investment in residential structures subtracted 0.05 percentage points from the 2nd quarter's GDP...

At the same time, investment in real private inventories contracted at an inflation adjusted $36.8 billion rate in the 2nd quarter, revised from the inventory shrinkage at a $26.9 billion rate that was reported a month ago...this came after inventories had grown at an inflation adjusted $30.3 billion rate in the 1st quarter, and hence the $67.2 billion decrease in the rate of real inventory growth subtracted 1.17 percentage points from the quarter's growth rate, revised from the 0.97 percentage point subtraction due to inventory contraction that was shown in the second estimate....however, since shrinkage of inventories indicates that less of the goods produced during the quarter were left ‘sitting on the shelf’ or in a warehouse, the $67.2 billion quarter over quarter decrease in their growth meant that real final sales of GDP were relatively greater by that much, or enough to boost 2nd quarter growth in real final sales of GDP to a 5.4% rate, revised from the 5.3% real final sales growth rate shown in the second estimate, and a big jump from the real final sales growth at a 1.9% rate in 1st quarter, when that quarter's increase in inventory growth meant that part of the increase in GDP had not been sold..

The previously reported increase in real exports was revised higher with this estimate, while at the same time the previously reported decrease in real imports was larger than was previously reported, so as a result our foreign trade was an even greater contributor to GDP than was reported in the second estimate...our real exports grew at a 9.3% rate rather than the 9.1% rate reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 1.12 percentage points to the 2nd quarter's growth rate, up from the 1.10 percentage point addition shown in the previous report....meanwhile, the previously reported 0.4% decrease in our real imports was revised to a 0.6% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their decrease conversely added 0.10  percentage points to 2nd quarter GDP, up from the 0.07 percentage points addition indicated last month....hence, our improving trade balance added a net 1.22 percentage points to 2nd quarter GDP, revised from the 1.17 percentage point addition that had been indicated in the second estimate…

Finally, there were also upward revisions to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 2.5% rate, revised from the 2.3% growth rate previously reported...real federal government consumption and investment was seen to have grown at a 3.7% rate from the 1st quarter in this estimate, which was unchanged from the growth rate shown in the 2nd estimate...real federal outlays for defense were revised to show growth at a 5.9% rate, rather than the 6.0% growth rate previously reported, and added 0.22 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 0.5% rate, unchanged from the previous report, and added 0.01 percentage points to 2nd quarter GDP.......meanwhile, real state and local consumption and investment grew at a 1.8% rate in the quarter, which was revised from the 1.6% growth rate reported in the 2nd estimate, and added 0.20 percentage points to 2nd quarter GDP....note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating there was an increase in the output of those goods or services...

August Personal Income up 0.3%; 2 Months PCE Would Add 2.13 Percentage Points to Q3 GDP

The August report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 3rd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and the PCE price index, the inflation gauge the Fed targets, and 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 August's personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if August’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from July to August....

Thus, when the opening line of this report tell us "Personal income increased $60.3 billion (0.3 percent) in August", they mean that the annualized figure for seasonally adjusted personal income in August, $17,679.5 billion, was $60.3 billion, or somewhat more than 0.3% greater than the annualized personal income figure of $17,619.2 billion for July; the actual, unadjusted change in personal income from July to August, which would be roughly one-twelfth the size, is not given...similarly, annualized disposable personal income, which is income after taxes, rose by more than 0.3%, from an annual rate of an annual rate of $15,566.0 billion in July to an annual rate of $15,617.4 billion in August....the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also thus annualized...in August, the largest contributors to the $60.3 billion annual rate of increase in personal income were a $41.4 billion increase in wages and salaries and a $11.9 billion increase in personal current transfer receipts…

For personal consumption expenditures (PCE), BEA reports that they increased at a $46.4 billion annual rate, or also by more than 0.3 percent, as the annual rate of PCE rose from $14,003.8 billion in July to $14,050.1 in August; that was after the July PCE figure was revised up from the originally reported $13,980.0 billion annually and prior months were revised as well, all of which were already included in the concurrent 3rd estimate of 2nd quarter GDP.....total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $47.1 billion to $14,585.1 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,032.3 billion annual rate in August, up just a bit from the revised $1,028.0 billion annualized personal savings in July... hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 6.6% in August, same as in July..

As you know, 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....the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, and which is included in Table 9 in the pdf for this report....that index rose from 108.353 in July to 108.470 in August, a month over month inflation rate that's statistically 0.1080%, which BEA reports as an increase of 0.1 percent, following the rounded +0.1% change in the PCE price index they reported for July...applying the August inflation adjustment to the nominal amount of August spending left real PCE up a rounded 0.2% in August, after a real PCE increase of 0.3% in July ...note that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in chained 2012 dollars, which are 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 we see that August's chained dollar consumption total works out to 12,953.5 billion annually, 0.222% more than July's 12,924.8 billion, a difference that the BEA rounds and reports as +0.2%...

  However, to estimate the impact of the change in PCE on the change in GDP,  month over month changes like that don't help us much, since GDP is reported quarterly...thus we have to compare July and August's real PCE to the the real PCE of the 3 months of the second quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 12,842.0 billion in chained 2012  dollars..(note that's also what's shown in table 3 of the pdf for the revised 2nd quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for July and August, 12,924.8 billion and 12,953.5 billion, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far....when we compare that average of 12939.15 to the 2nd quarter real PCE of 12,842.0, we find that 3rd quarter real PCE has grown at a 3.06% annual rate for the two months of the 3rd quarter we have...(note the math to get that annual growth rate: (((12,924.8 + 12,953.5) / 2 ) / 12,842.0) ^ 4 = 1.030605)...that's a pace that would add 2.13 percentage points to the growth rate of the 3rd quarter, should there be no improvement in September PCE from that average...

August Durable Goods: New Orders Up 4.5%, Shipments Up 0.8%, Inventories Down 0.4%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods grew by $11.1 billion or 4.5 percent to $259.6 billion in August, after falling by a revised 1.2% in July...July's new orders were revised from the $246.9 billion reported last month to $248.5 billion, with the month over month percentage decrease revised from 1.7% to 1.2%...with this month's increase and July's revision, year to date new orders are now 9.2% above those of 2017, up from the 8.6% year over year change we saw in this report last month....the volatile monthly change in new orders for transportation equipment drove the August headline change, as those transportation equipment orders rose $10.9 billion or 13.0 percent to $95.3 billion, on a 69.1% increase to $17,101 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were up 0.1% in August, as new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.5% to $69,475 million...

At the same time, the seasonally adjusted value of August's shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased by $1.9 billion or 0.8 percent to $253.1 billion, after July shipments were revised from $250.8 billion to $251,238 million, thus revising the previously reported shipments decrease of 0.2% to one of 0.1% from June....an increase in shipments of transportation equipment led the August increase, as transportation equipment rose $1.6 billion or 1.9 percent to $86.0 billion, while shipments of nondefense capital goods excluding aircraft rose 0.1% and all other shipments rose 0.2%...meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in 20 months, decreasing by $1.4 billion or 0.4 percent to $407.0 billion, after the increase in July inventories was revised from a 1.3% increase to a 1.2% increase...a  decrease in inventories of transport equipment was the cause of the August inventory decrease, as they fell $1.8 billion or 1.4 percent to $129.3 billion...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the 9th time in 10 months, increasing by $10.4 billion or 0.9 percent to $1,176.5 billion, after July's unfilled orders were revised from $1,164.7 billion to $1,166,073 million, now a 0.1% increase from June...unfilled orders for transportation equipment rose $9.3 billion or 1.2 percent to $811.0 billion on an increase in unfilled orders for transportation equipment other than motor vehicles or aircraft, while all other unfilled orders rose 0.3%....compared to a year earlier, the unfilled order book for durable goods is now 4.9% above the level of last August, with unfilled orders for transportation equipment 4.7% above their year ago level, partly on a 4.2% increase in the backlog of orders for commercial aircraft...

August New Home Sales Reported Higher After Prior 3 Months Sales Were Revised Lower

The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 629,000 new homes a year, which was 3.5 percent (±13.7 percent)* above the revised July rate of 608,000 new single family home sales a year and 12.7 percent (±20.7 percent)* above the estimated annual rate that new homes were selling at in August of last year....the asterisks indicates that based on their small sampling, Census could not be certain whether August new home sales rose or fell from those of July, or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in July were revised from the annual rate of 627,000 reported last month down to a 608,000 a year rate, while home sales in June, initially reported at an annual rate of 631,000 and revised to a 638,000 a year rate last month, were revised down to a 618,000 a year rate with this report, and while May's annualized home sale rate, initially reported at a 689,000 rate and revised from a 666,000 a year to a 654,000 rate last month, were revised down to a 653,000 rate with this release..

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 50,000 new single family homes sold in August, down from the estimated 52,000 new homes that sold in July and the 56,000 that sold in June....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in August was $320,200, down from the median sales price of $328,900 in July and but up from the median sales price of $314,200 in August a year ago, while the average August new home sales price was $388,400, down from the $389,000 average sales price in July, but up from the average sales price of $369,200 in August a year ago....a seasonally adjusted estimate of 318,000 new single family houses remained for sale at the end of August, which represents a 6.1 month supply at the August sales rate, up from the 5.9 months of supply reported for July...for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increase to 629,000 Annual Rate in August and A few Comments on August New Home Sales..

 

(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 picked from the aforementioned GGO posts, contact me…)