Sunday, August 12, 2018

July’s consumer and producer prices, June’s wholesale inventories & JOLTS

Government agency issued reports released this past week included the the July Consumer Price Index and the July Producer Price Index from the Bureau of Labor Statistics, and the June report on Wholesale Trade, Sales and Inventories from the Census Bureau...the BLS also released the Job Openings and Labor Turnover Survey (JOLTS) for June, while the Fed released the Consumer Credit Report for June, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $10.2 billion, or at a 3.1% annual rate, as non-revolving credit expanded at a 4.4% rate to $2,868.8 billion and revolving credit outstanding contracted at a 0.2% rate to $1,038.8 billion....

Consumer Prices Up 0.2% in July on Higher Prices for Shelter, Vehicles

The consumer price index was 0.2% higher in July, as higher prices for shelter, new & used cars and trucks, and most services were only partially offset by lower prices for energy and apparel...the Consumer Price Index  Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.2% in July after rising 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, 0.5% in September, 0.4% in August, and 0.1% last July....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 251.989 in June to 252.006 in July, which left it statistically 2.9495% higher than the 244.786 index reading in July of last year, which is reported as a 2.9% increase....with lower prices for energy offsetting somewhat higher prices for food, seasonally adjusted core prices, which exclude food and energy, also rose by 0.2% for the month, with the unadjusted core price index rising from 257.697 to 257.867, which left the core index 2.354% ahead of its year ago reading of 251.936, which is reported as a 2.4% annual increase, the largest YoY core price index increase since September 2008....

The volatile seasonally adjusted energy price index fell by 0.3% in July, after it had decreased 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 is now 12.1% higher than in July a year ago...prices for energy commodities were 0.6% lower in July, while the index for energy services fell by 0.4%, after falling 1.5% in June...the energy commodity index was lower despite a 1.2% increase in the index for fuel oils because the price of gasoline, the largest component, was down 0.6%, while prices for other energy commodities, such as propane, kerosene, and firewood, averaged 0.1% higher...within energy services, the index for utility gas service fell by 0.5% after falling by 1.7% in June and is now priced 1.3% lower than it was a year ago, while the electricity price index was down 0.4%, after it fell 1.4% in June....energy commodities are now 25.4% higher than their year ago levels, with gasoline prices also averaging 25.4% higher than they were a year ago, while the energy services price index is now 1.0% lower than last July, as even electricity prices have decreased by 0.8% over that period…

The seasonally adjusted food price index rose 0.1% in July, after rising 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, rising 0.1% in September, 0.1% in August, and 0.2% last July, as the index for food purchased for use at home was 0.2% higher in July, while prices for food bought for eating away from home were 0.1% higher, as prices at fast food outlets were unchanged while prices at full service restaurants rose 0.2% and food prices at at employee sites and schools were up 1.8%...

In the food at home categories, the price index for cereals and bakery products fell 0.2% as cookies prices fell 1.7%, prices for rice fell 0.7%, and prices for breakfast cereals fell 0.4%...at the same time, the price index for the meats, poultry, fish, and eggs group was up 0.3%, after falling 0.6% in June, as beef and veal prices rose 0.5% and the poultry index was 0.6% higher....meanwhile, the index for dairy products was 0.6% lower on a 0.8% decrease in the price of fresh whole milk and 1.0% lower cheese prices...on the other hand, the fruits and vegetables index was 1.0% higher on a 1.9% increase in the price index for fresh vegetables and a 1.7% increase in prices for apples....at the same time, the beverages index was unchanged, as frozen juice and drink prices rose 0.7% while carbonated drink prices were priced 1.1% lower...lastly, the index for the ‘other foods at home’ category was up 0.1%, as the index for fats and oils rose 0.6% and prices for salad dressing rose 0.8%....among food at home line items, only prices for eggs, which are still up 16.7% since last July, have seen prices increase greater 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 0.2% in July after rising by 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 up 0.1% in July, while the more heavily weighted composite for all services less energy services was 0.3% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust June retail sales for inflation in national accounts data, the index for household furnishings and supplies increased by 0.3%, as the index for major appliances rose 3.5%, and the index for housekeeping supplies was 0.6% higher...on the other hand, the apparel price index was 0.3% lower, as prices for women's suits and separates fell 2.9% and the index for boy's apparel was 3.0% lower...at the same time, prices for transportation commodities other than fuel were up 0.7%, as prices for new cars and trucks rose 0.3% and prices for used cars and trucks rose 1.3%...however, prices for medical care commodities were 1.1% lower as prescription drugs prices fell 1.0%...meanwhile, the recreational commodities index rose 0.2% on 0.6% higher prices for audio equipment and 2.2% higher prices for sports vehicles including bicycles, while the education and communication commodities index was 0.9% lower for the second month in a row on a 2.0% decrease in prices for personal computers...lastly, a separate price index for alcoholic beverages was down 0.1% on 0.3% lower priced beer at home, while the price index for ‘other goods’ was unchanged...

Within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.3% increase in homeowner's equivalent rent, and a 0.4% increase in costs for lodging away from home at hotels and motels, while the sub-index for water, sewers and trash collection rose 0.2%, and other household operation costs were on average 0.4% higher....at the same time, the index for medical care services was up by 0.1%, as hospital services rose 0.4%, while the transportation services index was up by 0.5% as car and truck rentals rose 1.7% and airline fares rose 2.7%....meanwhile, the recreation services index rose 0.1% as cable and satellite television service rose 0.2% and video disc rentals rose 0.4%....in addition, the index for education and communication services rose 0.4%, as internet and electronic information services rose 1.3%...lastly, the index for other personal services was up 0.1% as tax return preparation and other accounting fees rose 0.6%...among core line items, prices for televisions, which are still 18.4% cheaper than a year ago, the price index for audio equipment, which has fallen 12.7% over the past year, the price index for toys, games, hobbies and playground equipment, which is down by 10.4% from a year ago, and the price index for dishes and flatware, which is now 11.2% lower than last June, have all seen prices fall by more than 10% over the past year, while only prices for laundry equipment, which have risen 15.4% over the past year, have seen prices rise by a double digit magnitude over that span...

Producer Prices Flat in July As Lower Margins for Trade Services Offset Higher Core Prices

The seasonally adjusted Producer Price Index (PPI) for final demand was unchanged in July, as prices for finished wholesale goods increased 0.1%, while margins of final services providers decreased by 0.1%...that followed 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%, and a May report that indicated the PPI was up 0.5%, with prices for finished wholesale goods up 1.0%, while margins of final services providers increased by 0.3% ....on an unadjusted basis, producer prices are still 3.3% higher than a year ago, down from the year over year increase of 3.4% that was indicated in last month's report, which had been the largest one year increase in the PPI since November 2011...meanwhile, the core producer price index, which excludes food, energy and trade services, was up by 0.3% for the month, and is now 2.8% higher than in July a year ago...

As noted, the price index for final demand for goods, aka 'finished goods', was up 0.1% in July, after rising by 0.1% in June and by 1.0% in May, but after falling a revised 0.1% in April, and rising a revised 0.3% in March....the price index for wholesale energy was down 0.5% in July after rising 0.8% in June, 4.6% in May, being unchanged in April, and falling 2.0% in March, while the price index for wholesale foods fell 0.1%, and the index for final demand for core wholesale goods (ex food and energy) was 0.3% higher for the 6th month out of the last seven....the largest wholesale energy price change was a 5.3% increase in wholesale prices for LP gas, which was more than offset by wholesale price decreases of 3.9% home heating oil and 0.8% for residential electricity, while wholesale gasoline prices were 0.1% lower...the wholesale food price index, meanwhile, saw a 49.3% increase in wholesale prices for fresh eggs offset by a 15.0% decrease in wholesale prices for oilseeds....among wholesale core goods, wholesale prices for pharmaceutical preparations increased 0.7%, as did wholesale prices for passenger cars…

At the same time, the index for final demand for services fell 0.1% in July, after rising 0.4% in June, 0.3% in May, and a revised 0.2% in April and 0.3% in March, as the July index for final demand for trade services fell 0.8%, while the index for final demand for transportation and warehousing services rose 0.3%, as did the core index for final demand for services less trade, transportation, and warehousing services....among trade services, seasonally adjusted margins for fuels and lubricants retailers fell 12.7% and margins for machinery and equipment parts and supplies wholesalers fell 4.6%... among transportation and warehousing services, margins for truck transportation of freight rose 0.7% and margins for air transportation of freight rose 2.8%...among the components of the core final demand for services index, the index for guestroom rental rose 3.9% while margins for tax preparation and planning services services rose 2.6%..

This report also showed the price index for intermediate processed goods was unchanged in July, after rising 0.7% in June, 1.5% in May and a revised 0.3% in April....the price index for intermediate energy goods fell 1.3%, as refinery prices for jet fuel fell 3.2% and producer prices for commercial electric power fell 2.4%, while prices for intermediate processed foods and feeds fell 0.9%, as the intermediate price index for meats fell 3.0%...meanwhile, the core price index for processed goods for intermediate demand less food and energy was 0.3% higher on a 2.1% increase in the index for basic organic chemicals and a 3.9% increase in prices for building paper and board....prices for intermediate processed goods remain 6.8% higher than in July a year ago, now the 20th 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 2.7% in July, after falling 1.0% in June, rising 2.5% in May, falling a revised 0.1% in April, and falling a revised 3.5% in March....that was as the July price index for crude energy goods rose 8.6% as crude oil prices rose 14.1%, while the index for unprocessed foodstuffs and feedstuffs fell 2.0%, as producer prices for oilseeds fell 15.0%, prices for wheat fell 9.1%, and producer prices for alfalfa hay fell 9.0%...at the same time, the index for core raw materials other than food and energy materials was 1.2% lower, as prices for aluminum base scrap fell 3.5% and prices for copper base scrap fell 2.1%...this raw materials index is now up by 8.2% from a year ago, up from the 5.8% year over year increase that we saw in June...

lastly, the price index for services for intermediate demand rose 0.2% in July, after rising 0.1% in June, 0.3% in May, 0.3% in April, 0.3% in March and 0.3% in February...the price index for intermediate trade services was down 0.7%, as margins for intermediate machinery and equipment parts and supplies wholesalers fell 4.6% and margins for chemicals and allied products wholesalers fell 0.4%…the index for transportation and warehousing services for intermediate demand rose 0.2%, as the index for air transportation of freight rose 2.8% and the index for water transportation of freight rose 1.9%...meanwhile, the core price index for intermediate services less trade, transportation, and warehousing was 0.3% higher, as the index for securities brokerage, dealing, investment advice rose 1.5% while the index for intermediate traveler accommodation services rose 3.5%....over the 12 months ended in July, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 3.0% higher than it was a year ago... 

June Wholesale Sales Down 0.1%, Inventories Up 0.1%

The June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $506.7 billion, down 0.1 percent (+/-0.4%) from the revised May level, but still up 10.2 percent (±3.3%) from wholesale sales of June 2017... the May preliminary estimate was revised down $2.0 billion or 0.4% to $507.0 billion from the $509.0 billion sales reported last month, which is still 2.1% more than April's sales ... since June wholesale sales were down across a broad array of non-durable goods, the June decrease, the first since January, does not appear to be price related, but rather a pullback from the unusually elevated sales activity in May...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 or in intermediate storage represent goods that were produced but not sold, and this June report estimated that wholesale inventories were valued at a seasonally adjusted $632.4 billion at month end, an increase of 0.1 percent (+/-0.2%)* from the revised May level and 5.1 percent (±3.9 percent) higher than in June a year ago, with the May preliminary estimate revised lower, from $633.5 billion to $632.0 billion at the same time, now just a 0.3% increase from April....

In the advance report on 2nd quarter GDP of two weeks ago, wholesale inventories were estimated based on the sketchy Advance Report on Wholesale and Retail Inventories which was released the day before the GDP release...that report estimated that our seasonally adjusted wholesale inventories were valued at $632.54 billion at the end of June, up from $632.45 billion in May....that's $0.14 billion more than the $632.40 billion that this report shows, which would imply that the quarterly change in 2nd quarter inventories was overestimated at roughly a $0.6 billion annual rate...assuming there's no revision in the inflation adjustment to those inventories, that would mean that the growth rate of 2nd quarter GDP was overestimated by a bit more than 0.01 percentage point based on what this report shows...

We'd also note that Reuters made a common mistake in their coverage of this report, which was headlined US June wholesale inventories revised higher...what they did was look at the percentage change from May to June in the Advance Report on Wholesale and Retail Inventories, which showed a 0.0% percentage increase in June inventories, and assumed that because this report showed a 0.1% increase, June inventories had been revised higher....but as we have just illustrated, once the downward revision to May inventories was accounted for, June inventories were actually revised lower...

Job Openings Little Changed in June, Hiring and Job Quitting Down, Layoffs Up

The Job Openings and Labor Turnover Survey (JOLTS) report for June from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 3,000, from 6,659,000 in May to 6,662,000 in June, after May job openings were revised higher, from 6,638,000 to 6,659,000...June jobs openings were also 8.7% higher than the 6,125,000 job openings reported in June a year ago, as the job opening ratio expressed as a percentage of the employed remained unchanged at 4.3% in June, but was up from 4.0% a year ago...while job openings in some sectors such as financial activities increased by 35,000 or 10% to 385,000, those were mostly offset by decreased openings in sectors such as transportation, warehousing, and utilities, where the number of openings fell from 332,000 to 248,000 (see table 1 for more details)...like most BLS releases, the press release for 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 June, seasonally adjusted new hires totaled 5,651,000, down by 96,000 from the revised 5,747,000 who were hired or rehired in May, as the hiring rate as a percentage of all employed fell from 3.9% to 3.8%, while it remained higher than the 3.7% hiring rate in June a year earlier (details of hiring by industry since January are in table 2)....meanwhile, total separations increased by 83,000, from 5,419,000 in May to 5,502,000 in June, as the separations rate as a percentage of the employed rose from 3.6% to 3.7%, which was also up from the 3.6% separations rate of June a year ago (see table 3)...subtracting the 5,502,000 total separations from the total hires of 5,651,000 would imply an increase of 149,000 jobs in June, somewhat less than the revised payroll job increase of 248,000 for June reported by the July establishment survey last week, but still within the expected +/-115,000 margin of error in these incomplete samplings...

Breaking down the seasonally adjusted job separations, the BLS finds that 3,402,000 of us voluntarily quit their jobs in June, down from the revised 3,480,000 who quit their jobs in May, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.3% of total employment, up from the 2.2% quits rate of a year earlier (see details in table 4)....in addition to those who quit, another 1,723,000 were either laid off, fired or otherwise discharged in June, up by 105,000 from the revised 1,618,000 who were discharged in May, as the discharges rate rose from 1.1% to 1.2% of all those who were employed during the month, which was the same as the discharges rate of 1.2% a year earlier (see table 5)...meanwhile, other separations, which includes retirements and deaths, were at 378,000 in June, up from 321,000 in May, for an 'other separations rate’ of 0.3%, which was up from 0.2% in May and also up from 0.2% in June 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...

 

(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, August 5, 2018

July’s jobs report; June’s income and outlays, trade deficit, construction spending and factory inventories

The major economic releases from the past week included the Employment Situation Summary for July from the Bureau of Labor Statistics and four June reports that included metrics which were either estimated or included in last week's release of 2nd quarter GDP: the June report on Personal Income and Spending from the Bureau of Economic Analysis, the BEA report on our International Trade for June, and the June report on Construction Spending (pdf) and the Full Report on Manufacturers' Shipments, Inventories and Orders for June, both from the Census Bureau...the week’s privately issued reports included the ADP Employment Report for July, the light vehicle sales report for July from Wards Automotive, which estimated that vehicles sold at a 16.68 million annual rate in July, down from the 17.38 million annual rate in June, but not much changed from the 16.69 million annual rate in July a year ago, and the Case-Shiller house price indexes for May from S&P Case-Shiller, wherein their national home price index was reported as 6.4% higher than in the same month's report a year ago...

This week also saw both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the July Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 58.1% in July, down from 60.2% in June, suggesting a somewhat slower expansion in manufacturing firms nationally, and the July Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 55.7% in July, from 59.1% in June, also indicating a somewhat smaller plurality of service industry purchasing managers reported expansion in various facets of their business in July...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 157,000 Jobs in July, Unemployment Rate Down 0.1% on Employment Increase

The Employment Situation Summary for July from the Bureau of Labor Statistics indicated that payroll job growth was somewhat below average, while the unemployment rate fell because hundreds of the unemployed found work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 157,000 jobs in July, after the payroll job increase for May was revised up from 244,000 jobs to 268,000, and the June jobs increase was revised up from 213,000 jobs to 248,000, and hence the combined number of jobs created over those two months was 59,000 more than was previously reported....the unadjusted data shows that there were actually 1,156,000 fewer payroll jobs extant in July than in June, as the large seasonal job cutbacks associated with the end of the school year were normalized by the seasonal adjustments…

Seasonally adjusted job increases were widespread through throughout the private goods producing and service sectors, with only the government sector seeing a significant loss of 13,000 jobs, as both local government and school districts shed more employees than they normally do at this time of year...the broad professional and business services category added 51,000 jobs, as 27,900 more workers found work with temporary employment services and 8,300 were added in computer systems design and related services....the leisure and hospitality sector added a seasonally adjusted 40,000 jobs, with the addition of 26,200 more jobs in bars and restaurants....meanwhile, employment in manufacturing increased by 37,000, mostly in the manufacture of durable goods, with 13,100 of those jobs in transportation equipment factories....employment in health care and social assistance rose by 33,500, with the addition of 15,900 jobs in Individual and family social services and 6,800 jobs in hospitals....construction employment was higher by 19,000 in July, with the addition of 8,600 jobs with nonresidential specialty trade contractors....in addition, the retail sector added 7,000 jobs despite the loss of 31,800 in sporting goods, hobby, book, and music stores, reflecting job losses in hobby, toy, and game stores associated with the Toys R Us bankruptcy, due to the addition of 14,200 jobs in general merchandise stores, 10,000 jobs in clothing stores, and 8,200 jobs in foods stores...meanwhile, the other major sectors, including mining and logging, wholesale sales, transportation and warehousing, utilities, financial activities, and information all saw smaller changes in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 7 cents an hour to $27.05 an hour, after it had increased by a revised 4 cents an hour in June; at the same time, the average hourly earnings of production and non-supervisory employees increased by 3 cents to $22.65 an hour...employers also reported that the average workweek for all private payroll employees decreased by a tenth of an hour to 34.5 hours, while hours for production and non-supervisory personnel remained at 33.8 hours for the fourth consecutive month....meanwhile, the average manufacturing workweek was unchanged at 40.9 hours, while factory overtime was also unchanged at 3.5 hours..

Meanwhile, the seasonally adjusted extrapolation from the July household survey estimated that the number of those employed rose by an estimated 389,000 to 155,965,000, while the similarly estimated number of those unemployed fell by 284,000 to 6,280,000; which therefore meant that July saw a net increase of 105,000 in the total labor force...however, since the working age population had grown by 201,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 96,000 to 95,598,000....therefore, the 105,000 increase of those in the labor force was not enough to raise the labor force participation rate, which remained unchanged at 62.9%....at the same time, the increase in number employed vis-a-vis the increase in the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.5%...in addition, the increase in the total labor force combined with the drop in those unemployed was enough to lower the unemployment rate from 4.0% to 3.9%....meanwhile, the number who reported they were involuntarily working part time fell by 176,000 to 4,567,000 in July, which was enough to change the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.8% in June to 7.5% in July, the lowest since May 2001..

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.. 

June Personal Income and Personal Spending Both Up 0.4%; Savings Doubles

Like the GDP report last week, the June Income and Outlays report also went through a Comprehensive Update, with revisions from 1929 through May 2018 for all of the metrics it reports, including personal consumption expenditures (PCE), the personal income and disposable personal income data, our savings and savings rate, and the PCE price index, the inflation gauge the Fed targets....since all the revisions made to personal consumption expenditures had already been incorporated into the GDP revisions that we looked at last week, today we'll only consider those revisions from recent months that are relevant to putting the June change in perspective...

Also like the GDP report, all the dollar values reported in this release are seasonally adjusted and at an annual rate, ie, they tell us what income, spending and saving would be for an entire year if June's adjusted income and spending were extrapolated over a whole year...however, the percentage changes are computed monthly, from one 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  May to June....thus, when the opening line of the press release for this report tell us "Personal income increased $71.7 billion (0.4 percent) in June..", they mean that the annualized figure for all types of personal income in June, $17,572.4 billion, was $71.7 billion, or bit more than 0.4% more than the $17,500.7 billion annualized personal income figure for May; the actual increase in personal income in June over May is not given....similarly, disposable personal income, which is income after taxes, also increased by more than 0.4%, from an annual rate of $15,455.1 billion in May to an annual rate of $15,520.4 billion in June...the contributors to the June increase in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were led by a $31.5 billion increase to $8,834.9 billion annually wages and salaries and a $19.5 billion increase to $2,768.9 billion annually in interest and dividend income….with the comprehensive revision, the annualized figure for May personal income was revised from $17,005.4 billion up to $17,500.7 billion, and disposable personal income was revised from the originally reported $14,929.8 billion annually to $15,455.1 billion...

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in 2nd quarter GDP, rose at a $57.1 billion annual rate to a level of $13,937.1 billion in consumer spending annually, an increase of a bit more than 0.4% from May's PCE, which itself was revised from the previously reported annual rate of $13,920.7 billion to $13,880.0  billion....total personal outlays for June, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $62.7 billion to $14,470.8 billion, which left personal savings, which is disposable personal income less total outlays, at a $1,049.7 billion annual rate in June, up from the revised $1,047.1 billion in personal savings in May...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, was at 6.8% in June, same as in May...we should note that as a result of the large upward revision to personal income and the slight downward revision to personal consumption expenditures, that savings rate has more than doubled from what had previously been published....in May's report (pdf), before the rebenchmarking, personal savings were at a $482.0 annual rate, and the savings rate was at 3.2%..

While our personal consumption expenditures accounted for 69.4% of our second quarter GDP, before they were included in the national measurement of the change in our output they were first 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 2012 prices = 100....from Table 9 in the pdf for the June release, we find that that index rose from 108.049 in May to 108.160 in June, giving us a month over month inflation rate of 0.10273%, which BEA reports as an increase of +0.1%; at the same time, Table 11 gives us a year over year PCE price index rounded to an increase of 2.2%, and a core price increase, excluding food and energy, of 1.9% for the past year, both pretty close to the Fed's inflation target....applying the June inflation adjustment to the change in June PCE shows that real PCE was up 0.308% in June, which BEA reports as a 0.3% change in their rounded tables...note that when those PCE price indexes are applied to a given month's annualized current dollar PCE, it yields that month's annualized real PCE in chained 2012 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’s....those results are shown in tables 7 and 8 of the PDF, where you'll see the quarterly figures given are identical to those shown in table 3B of last week's GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP.. 

June Trade Deficit Up 7.3% on Rising Imports of Oil & Pharmaceuticals, Falling Exports

Our trade deficit increased by 7.3% in June as the value of our exports decreased and the value of our imports increased....the Commerce Department report on our international trade in goods and services for June indicated that our seasonally adjusted goods and services trade deficit rose by $3.2 billion (rounded) to $46.3 billion in June from a revised May deficit of $43.2 billion, which had previously been reported as $43.1 billion...the value of our June exports fell by $1.5 billion to $213.8 billion on a $1.7 billion decrease to $143.2 billion in our exports of goods offset by a $0.2 billion increase to $70.6 billion in our exports of services, while our imports rose $1.6 billion to $260.2 billion on a $1.4 billion increase to $212.0 billion in our imports of goods and a $0.2 billion increase to $48.1 billion in our imports of services...export prices were on average 0.3% higher in June, so the relative real growth in exports for the month was less than the nominal dollar growth by that percentage, while import prices were 0.4% lower, meaning growth in real imports would be that percentage higher that the nominal dollar growth reported here...

The decrease in our June exports resulted from lower exports of consumer goods, capital goods, and automotive vehicles, which were partially offset by an increase in our exports of industrial supplies and materials....referencing the Full Release and Tables for June (pdf), in Exhibit 7 we find that our exports of consumer goods fell by $1433 million to $16,362 million on a $619 million decrease in our exports of pharmaceuticals, a $436 million decrease in our exports of jewelry, and a $276 million decrease in our exports of gem diamonds, that our exports of capital goods fell by $893 million to $47,280 million on decreases of $361 million in our exports of civilian aircraft engines and $209 million in our exports of civilian aircraft, and that our exports of automotive vehicles, parts, and engines fell by $709 million to $12,850 million on a $864 million decrease in our exports of new and used passenger cars...in addition, our exports of foods, feeds and beverages fell by $43 million to $14,063 million, and our exports of other goods not categorized by end use fell by $205 million to $5,399 million....partially offsetting those decreases, our exports of industrial supplies and materials rose by $1,961 million to $46,335 million on a $535 million increase in our exports of petroleum products other than fuel oil, a $472 million increase in our exports of nonmonetary gold, a $453 million increase in our exports of fuel oil, and a $385 million increase in our exports of crude oil...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of pharmaceuticals and crude oil were the major reasons for the June increase in our imports...our imports of consumer goods rose by $1,966 million to $53,390 million on a $1,511 million increase in our imports of pharmaceuticals, a $319 million increase in our imports of cellphones, and a $209 million increase in our imports of toys, games, and sporting goods, while our imports of industrial supplies and materials increased by $896 million to $48,751 million on a $1,199 million increase in our imports of crude oil and a $363 million increase in our imports of organic chemicals...in addition, our imports of automotive vehicles, parts and engines rose by $510 million to $30,211 million on a $343 million increase in our imports of trucks, buses, and special purpose vehicles....partially offsetting the increases in those three categories, our imports of capital goods fell by $1482 million to $57,494 million on $835 million lower imports of computers and $477 million lower imports of telecommunications equipment, our imports of foods, feeds, and beverages fell by $205 million to $12,175 million, and our imports of other goods not categorized by end use fell by $180 million to $8,380 million..

In the advance report on 2nd quarter GDP released last week, our June trade deficit was estimated based on the Advance Report on our International Trade in Goods which was also released last week, just before the GDP release...that report estimated that our June goods trade deficit was at $68,332 million on a Census basis, up from the $64,767 million goods deficit reported in May...this report revises those figures and shows that our actual goods trade deficit in June was $68,813 million on a balance of payments basis, and $67,920 million on a Census basis..at the same time, the May goods deficit was revised to $64,688 million on a Census basis...together, those revisions from the previously published data mean that the 2nd quarter goods trade deficit was roughly $491 million less than was included in last week's GDP report, or roughly $2.0 billion more at an annual rate, which would indicate a upward revision of roughly 0.04 percentage points to 2nd quarter GDP when the 2nd estimate is released at the end of August, assuming there is no revision to the price adjustment...

Construction Spending Fell 1.1% in June after Prior Months Were Revised Higher

The Census Bureau report on construction spending for June (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,317.2 billion annually if extrapolated over an entire year, which was 1.1 percent (±1.0 percent) below the revised annualized estimate of $1,332.2 billion of construction spending for May but still 6.1 percent (±1.6 percent) above the estimated annualized level of construction spending in June of last year...the May annualized construction spending estimate was revised nearly 1.0% higher, from $1,309.5 billion to $1322.2 billion, while the annual rate of construction spending for April was revised nearly 0.8% higher, from $1,304.5 billion to $1,314.7 billion....

Further details on different subsets of construction spending are provided by the Census release summary:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,019.8 billion, 0.4 percent (±0.8 percent)* below the revised May estimate of $1,023.9 billion. Residential construction was at a seasonally adjusted annual rate of $568.3 billion in June, 0.5 percent (±1.3 percent)* below the revised May estimate of $570.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.5 billion in June, 0.3 percent (±0.8 percent)* below the revised May estimate of $453.0 billion.
  • Public Construction: In June, the estimated seasonally adjusted annual rate of public construction spending was $297.4 billion, 3.5 percent (±2.0 percent) below the revised May estimate of $308.3 billion. Educational construction was at a seasonally adjusted annual rate of $67.9 billion, 11.0 percent (±2.1 percent) below the revised May estimate of $76.3 billion. Highway construction was at a seasonally adjusted annual rate of $93.9 billion, 1.3 percent (±5.6 percent)* below the revised May estimate of $95.1 billion.

Construction spending for April and May was higher than what was reported by the BEA in the advance report for 2nd quarter GDP last week, while construction spending for June was lower...as we saw above, annualized construction spending for April was revised $10.2 billion higher, and annualized construction spending for May was revised $12.7 billion higher...in reporting 2nd quarter GDP, the Excel file with key source data and assumptions accompanying the report indicated on line 84 that they had estimated that the value of June nonresidential construction would be $0.1 billion greater than that of the previously reported May figure, that June residential construction on lines 110 and 111 would be $1.4 billion greater than that of the reported May figure, and that the value of June public construction shown on line 200 would be $0.7 billion lower than the previously published May figure...hence, the figures used by the BEA for total June construction in the 2nd quarter GDP report were $0.8 billion greater than the previously published May figure...with June construction now reported down $15.0 billion from a May figure which was revised $12.7 billion higher, that means that they had overestimated annualized June construction spending by $3.1 billion...thus, after averaging the revision to the three months, the total revised annualized figure for 2nd quarter construction spending would thus be $6.6 billion more than the figures used by the BEA when computing 2nd quarter GDP, implying an upward revision of roughly 0.15 percentage points to 2nd quarter GDP when the 2nd estimate is released at the end of August..

Factory Shipments Up 1.0% in June, Factory Inventories Up 0.1%

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $3.3 billion or 0.7 percent to $501.7 billion in June, following an increase of 0.4% to $498.4 billion in May, which was revised from the 0.4 percent increase to $498.2 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 a revised update to the advance report on durable goods we reported on last week...for those revisions, the Census Bureau's summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we'll just quote directly from that here:

  • Summary: New orders for manufactured goods in June, up four of the last five months, increased $3.3 billion or 0.7 percent to $501.7 billion, the U.S. Census Bureau reported today. This followed a 0.4 percent May increase. Shipments, up thirteen of the last fourteen months, increased $4.9 billion or 1.0 percent to $501.4 billion. This followed a 0.6 percent May increase. Unfilled orders, up seven of the last eight months, increased $4.4 billion or 0.4 percent to $1,165.2 billion. This followed a 0.5 percent May increase. The unfilled orders-to shipments ratio was 6.64, down from 6.67 in May. Inventories, up twenty consecutive months, increased $0.7 billion or 0.1 percent to $669.3 billion. This followed a 0.2 percent May increase. The inventories-to shipments ratio was 1.33, down from 1.35 in May.
  • New orders for manufactured durable goods in June, up following two consecutive monthly decreases, increased $2.1 billion or 0.8 percent to $251.5 billion, down from the previously published 1.0 percent increase. This followed a 0.3 percent May decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $1.8 billion or 2.1 percent to $87.7 billion. New orders for manufactured nondurable goods increased $1.2 billion or 0.5 percent to $250.2 billion.
  • Shipments of manufactured durable goods in June, up ten of the last eleven months, increased $3.7 billion or 1.5 percent to $251.1 billion, down from the previously published 1.7 percent increase. This followed a 0.2 percent May increase. Transportation equipment, up following two consecutive monthly decreases, led the increase, $3.1 billion or 3.7 percent to $85.3 billion. Shipments of manufactured nondurable goods, up twelve of the last thirteen months, increased $1.2 billion or 0.5 percent to $250.2 billion. This followed a 1.1 percent May increase. Chemical products, up three of the last four months, led the increase, $0.5 billion or 0.8 percent to $65.4 billion.
  • Unfilled orders for manufactured durable goods in June, up seven of the last eight months, increased $4.4 billion or 0.4 percent to $1,165.2 billion, unchanged from the previously published increase. This followed a 0.5 percent May increase. Transportation equipment, also up seven of the last eight months, led the increase, $2.4 billion or 0.3 percent to $802.3 billion.
  • Inventories of manufactured durable goods in June, down following seventeen consecutive monthly increases, decreased $0.5 billion or 0.1 percent to $402.9 billion, unchanged from the previously published decrease. This followed a 0.3 percent May increase. Transportation equipment, down following two consecutive monthly increases, drove the decrease, $1.9 billion or 1.4 percent to $126.9 billion. Inventories of manufactured nondurable goods, up twelve consecutive months, increased $1.1 billion or 0.4 percent to $266.3 billion. This followed a virtually unchanged May increase. Chemical products, up eight of the last nine months, led the increase, $0.7 billion or 0.8 percent to $88.7 billion.

The BEA's key source data and assumptions (xls) for the advance estimate of second quarter GDP indicates on line 130 that they had estimated that the value of non-durable goods inventories would increase by $2.1 billion before any inflation adjustment in June, while this report indicates that total non-durable goods inventories actually increased in value by $1.1 billion, and since the June inventory change is one-third of the quarterly change, that would indicate that they overestimated the change in the 2nd quarter GDP inventory component by about $1.3 billion on an annualized basis, which would seem to imply that 2nd quarter GDP would have to be revised downwards by 0.03 percentage points to account for what this report shows..

 

(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, July 29, 2018

2nd quarter GDP and comprehensive revision; June’s durable goods, new home sales, existing home sales

the key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by a benchmark revision to national accounts data over their entire history....the other widely watched releases of the past week included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, and the June report on existing home sales from the National Association of Realtors (NAR)/..in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised -0.45 in May to +0.43 in June...that boosted the 3 month average of the index to +0.16 in June, up from a revised +0.10 in May, indicating national economic activity has been slightly above the historical trend during the 2nd quarter...

this week also saw the release of two more regional Fed manufacturing surveys for July: 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 fell from +21 in June to +20 in July, still suggesting an ongoing expansion in that region's manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to +23 in July, down from readings of +28 in June and +29 in May, but also still suggesting an solid expansion of 10th District's manufacturing...

Advance Estimate of 2nd Quarter GDP & Comprehensive Benchmark Revision to 1929

The Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included changes in definitions, in classifications, and in the presentation of the components of GDP, as well as an annual and a comprehensive (or benchmark) revision of the national income and product accounts going back to 1929, ie, from the beginning of that measure of our economic history.  Also with this benchmark revision, the reference year for the chain-type quantity and price indexes and for chained-dollar estimates of the GDP components has been updated to 2012 from 2009, which means that the quantity of goods and services produced in the US will now be represented by chained 2012 dollars, at least until the next benchmark revision, which is expected to be five years hence.  Despite the extensive revision of GDP data over time, the annual growth rate for the recent years was not much different than in previously published estimates.  In addition to reporting on the recent quarters of 2018, this report also showed that the GDP growth rate for 2012 was unrevised at 2.2%, that the GDP growth rate for 2013 was revised from 1.7% to 1.8%, that the GDP growth rate for 2014 was revised from 2.6% to 2.5%; that the GDP growth rate for 2015 was unrevised at 2.9%, that the GDP growth rate for 2016 was revised from 1.5% to 1.6%, and that the GDP growth rate for 2017 was revised from 2.3% to 2.2%. As a result of those revisions, the average annual growth rate of real GDP over the entire period from 2012–2017 was 2.2 percent, the same as it was in the previously published estimates. 

The first quarter of 2018, which had been revised down to a growth rate of 2.0% when we reviewed it a month ago, has now been revised back up to show growth at a 2.2% rate.  Major first quarter components that were revised higher included nonresidential fixed investment, which was revised from growth at a 7.6% rate to growth at a 8.0% rate, and growth in real private inventory investment, which was revised from growth at an inflation adjusted $13.9 billion rate to growth at $30.3 billion rate.  Those major positive revisions were partially offset by an downward revision to personal consumption expenditures (PCE), from a 0.9% growth rate to growth at a 0.5% rate, and a deeper contraction of real residential fixed investment, which was revised from shrinking at a 1.1% rate to shrinking at a 3.4% rate. First quarter growth of exports remained unchanged at 3.6%, growth of imports was revised from a 3.2% rate to 3.0%, and the growth of state and local government spending and investment remained at at a 1.5% rate.  Thus the estimates for the 1st quarter of 2018 GDP have gone from the initial estimate of growth at a 2.3% rate, to an 2.2% growth rate in the 2nd estimate, to a 2.0% rate of growth in the 3rd estimate, and finally back to growth at a 2.2% rate in this annual revision.

For the quarter just ended, the Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 4.1% annual rate over the output of the 1st quarter of this year, which we have just seen was revised to show growth at a 2.2% rate.  Contributing to the 2nd quarter advance were greater growth of personal consumption expenditures, nonresidential fixed investment, and government spending, which were partly offset by a contraction of private inventories.   In current dollars, our second quarter GDP grew at a 7.41% annual rate, increasing from what would work out to be a $20,041.0 billion a year rate in the 1st quarter to a $20,402.5 billion annual rate in the 2nd quarter, with the headline 4.1% annualized rate of increase in real output arrived at after an annualized GDP inflation adjustment averaging 3.0% was computed and applied to the current dollar change.  Note that the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.3% from the advance estimate to the latest reading.  Also note that June construction and some inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is provided in a technical note that is posted with the news release, and an Excel file with key source data and assumptions..  We will update those assumptions when the actual data becomes available.

While we cover the details on the 2nd quarter below, 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 now 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 1st estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release, which also links to just the tables on Excel and other technical notes.  Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually since 2007 and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years, table 3a, which shows the current dollar value of each of the GDP components, table 3b, which shows the inflation adjusted value in 2012 dollars of each of those components, and table 4, which shows the change in the price indexes for each of the GDP components....other intervening tables in this release, such as table 1a, give us the previously published data for each of the corresponding metrics going back to 2007, should anyone be interested in more details on this benchmark revision..

Personal consumption expenditures (PCE), which accounts for more than 69% of GDP, grew at a 5.9% rate in current dollars in the 2nd quarter, which worked out to a 4.0% real growth rate of consumed goods and services after an annualized 1.8% PCE price index increase was used to adjust that personal spending for inflation.  Consumer spending for durable goods rose at a 7.8% rate, on higher spending for automobiles, furniture and recreational goods and vehicles, but since weighted prices for those durable goods fell at a 1.4% rate, the real output of durable goods represented by that spending increased at a 9.3% rate.  Over the same period, consumer spending for non durables rose at a 5.7% rate, but since the PCE price index for non-durables increased at a 1.4% rate, that meant real growth in consumption of non durables was up at a 4.2% rate.  Meanwhile, the 5.7% current dollar growth in personal spending for services was reduced by a +2.5% inflation adjustment to show real 2nd quarter growth in consumer services was at a 3.1% rate.  Thus, with real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.64 percentage points to the change in 2nd quarter GDP, real growth in non-durable goods output for consumers added 0.59 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.46 percentage points to the change in 2nd quarter GDP...

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, all the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services.  Hence, real gross private domestic investment, which had grown at a 9.6% annual rate in the 1st quarter as both fixed investment and inventory investment rose, fell at a 0.5% annual rate in the 2nd quarter, as investment in inventories fell.  However, real non residential fixed investment still rose at a 7.3% annual rate, as real investment in non-residential structures rose at a 13.3% rate, real investment in equipment rose at a 3.9% rate, and investment in intellectual property grew at 8.2% rate.  As a result, investment in real non residential fixed investment added 0.98 percentage points to the change in 2nd quarter GDP as real investment in non-residential structures added 0.39 percentage points to the change in GDP, real investment in equipment added 0.23 percentage points, and investment in intellectual property added 0.35 percentage points to the change in GDP.   However, residential investment fell at a 1.1% rate and hence subtracted 0.04 percentage points from the 2nd quarter's GDP, which reduced the total fixed investment contribution to GDP to 0.94 percentage points.   For an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3.

Meanwhile, in the first real drop since the 1st quarter of 2017, investment in real private inventories fell by an inflation adjusted $27.9 billion in the 2nd quarter, the largest drop since the 4th quarter of 2009, after they had grown by an adjusted $30.3 billion in the 1st quarter, and as a result the $58.2 billion downward swing in inventory growth subtracted 1.00 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $14.2 billion increase in inventory growth in the 1st quarter had added 0.27 percentage points to that quarter's GDP growth rate.  However, smaller inventories indicate that less of the goods produced during the quarter were being left "sitting on the shelf”, so their quarter over quarter decrease by $58.2 billion 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 5.1% rate. That's compared to the real final sales growth at a 1.9% rate in 1st quarter, when the increase in inventory growth meant that part of the increase in GDP had not been sold...

After adjustment for 5.8% growth in export prices and 0.1% growth in import prices, both real exports and real imports increased in the 2nd quarter, as our real exports of goods and services rose at a 9.3% rate in the second quarter, after rising at a 3.6% rate in the 1st quarter, while our real imports rose at a 0.5% rate in the 2nd quarter after rising at a 3.0% rate in the 1st quarter.   As you'll recall, increases in 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 increases in 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.   Thus the 2nd quarter increase in real exports added 1.12 percentage points to 2nd quarter GDP, after the first quarter increase added 0.43 percentage points to first quarter GDP.   On the other hand, since imports subtract from GDP, their increase at a 0.5% rate subtracted 0.06 percentage points from 2nd quarter GDP, after first quarter imports had subtracted 0.45 percentage points from that quarter's growth. As a result, our improving trade balance added a total of 1.06 percentage points to 2nd quarter GDP, after a revised trade deficit had subtracted 0.02  percentage points from the first quarter's growth..

Finally, real consumption and investment by branches of government rose at a 2.1% annual rate in the 2nd quarter, after increasing at a 1.5% rate in the first quarter, as real federal government consumption and investment grew at a 3.5% rate and real state and local consumption and investment grew at a 1.4% rate.  Inflation adjusted federal spending for defense rose at a 5.5% rate and that added 0.21 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment grew at a 0.6% rate and added 0.02 percentage points to GDP.   Note that federal 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, indicating an increase in the output of those goods or services.  Meanwhile, real state and local government investment and consumption expenditures, which grew at a 1.4% annual rate, added 0.15 percentage points to the quarter's growth rate, as an increase in real state and local investment at a 4.8% rate accounted for three-fifths of that increase... 

June Durable Goods: New Orders Up 1.0%, Shipments Up 1.7% Inventories Down 0.1%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $2.5 billion or 1.0 percent to $251.9 billion, following a revised drop of 0.3% to $249.4 billion in May new orders, which had originally been reported as a 0.6% decrease to $248.8 billion...however, year to date new orders are now shown to be 8.4% higher than those of 2017, vs the 9.9% year over year change we saw in this report last month, as last June had seen an unusual 6.4% increase...as is usually the case, the volatile monthly change in new orders for transportation equipment led this month's headline change, as those transportation equipment orders rose $1.9 billion or 2.2 percent to $87.7 billion, on a 20.2% increase to $6,570 in new orders for defense aircraft and a 4.4% increase to $57,868 million in new orders for motor vehicles and parts....excluding new orders for transportation equipment, other new orders were up 0.4% in June, as the important new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 0.6% to $68,750 million...

the seasonally adjusted value of June's shipments of durable goods, which were inputs into various components of 2nd quarter GDP after adjusting for changes in prices, increased by $4.1 billion or 1.7 percent to $251.6 billion, after May shipments were revised from a 0.1% decrease to $246.9 billion to a 0.2% increase to $247.5 billion....a $3.1 billion or 3.8 percent increase to $85.3 billion in shipments of transportation equipment was the major contributor, as the value of shipments of motor vehicles rose 4.5% to $57,917 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.6%, as new orders for nondefense capital goods excluding aircraft were up 1.0% to $68,094 million, an increase which was reflected in the 2nd quarter GDP equipment investment figures....meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in 18 months, decreasing by $0.4 billion or 0.1 percent to $402.8 billion, after the value of May's inventories was revised from $403.0 billion to $403.3 billion, still a 0.3% increase from April...a decrease in inventories of transportation equipment was the major factor in the June inventory decrease, as they fell $1.8 billion or 1.4 percent to $126.9 billion on a 3.5% decrease in inventories of nondefense aircraft and parts...

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 seventh time in eight months, increasing by $4.4 billion or 0.4 percent to $1,165.1 billion, following a May increase of 0.5% to $1,160.7 billion, revised from the $1,160.6 billion reported last month... a $2.4 billion or 0.3 percent increase to $802.3 in unfilled orders for transportation equipment was responsible for more than half of the increase, but unfilled orders excluding transportation equipment were also up 0.5% to $362,779 million....compared to a year earlier, the unfilled order book for durable goods is now 3.8% above the level of last June, with unfilled orders for transportation equipment 2.9% above their year ago level, reflecting the impact of a 0.4% decrease in the backlog of orders for defense aircraft...  

New Home Sales Reported Lower in June; Prices at a 16 Month Low

the Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 631,000 homes annually, which was 5.3 percent (±17.1 percent)* below the revised May rate of 666,000 new single family home sales annually but still 2.4 percent (±24.0 percent)* above the estimated annual rate that new homes were selling at in May of last year....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 or even from those in June 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 May were revised from the 689,000 annual rate reported last month to a 666,000 a year rate, April's annualized home sale rate, initially reported at 662,000, were revised from last months downward revision to 646,000 lower still to 641,000, while the annual rate of March's sales, initially reported at 694,000, and revised from a 672,000 rate to an annual rate of 671,000 last month, were now revised back to an annual rate of 672,000...

the annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated  that approximately 57,000 new single family homes sold in June, down from the 63,000 new homes that sold in May, the 62,000 new homes that sold in April, and the 66,000 new homes that sold in March....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in June was $302,100, the lowest since February 2017, down from the median sale price of $309,700 in May, and down from the median price of $315,200 in June of last year, while the average June new home sales price was $363,300, down from $365,100 average in May, and down from the average sales price of $370,600 in June a year ago....a seasonally adjusted estimate of 301,000 new single family houses remained for sale at the end of June, which represents a 5.7 month supply at the June sales rate, up from the 5.2 month supply originally reported in May....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales decrease to 631,000 Annual Rate in June and A few Comments on June New Home Sales...

Existing Home Sales Down 0.6% in June, Prices at a Record High

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 0.6% from May to June, projecting that 5.38 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was also 2.2% below the annual sales rate projected in June of a year ago...that came after an annual sales rate of 5.41 million homes in May, revised from the 5.43 rate reported a month ago, and an annual home sales rate of 5.45 million in April...the NAR also reported that the median sales price for all existing-home types was at a record high $276,900 in June, up from the prior record of $265,100 in May and 5.2% higher than in June a year earlier, which they report as "the 76th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Subside 0.6 Percent in June", 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 usually 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 570,000 homes sold in June, up by 6.5% from the 535,000 homes that sold in May, but down by 5.0% from the 600,000 homes that sold in June of last year, so we can see the effect of the seasonal adjustment of in the annualized published figures to correct for the typical early summer increase in home sales...that same pdf indicates that the median home selling price for all housing types rose 4.5%, from a revised $265,100 in May to $276,900 in June, while the average home sales price was at $314,900, up 3.7% from the $303,700 average in May, and up 3.8% from the $303,500 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $248,800 in the Midwest to a high of $424,200 in the West...for additional coverage with long term graphs on this report, see "NAR: Existing-Home Sales Decline in June, Inventory UP Year-over-year" and "A Few Comments on June Existing Home Sales" from Bill McBride at Calculated Risk...

 

(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, July 22, 2018

June's retail sales, industrial production and new housing construction; May’s business inventories

major reports that were released this week included Retail Sales for June, the Business Sales and Inventories Report for May, and the June report on New Residential Construction, all from the Census Bureau, and the June report on Industrial Production and Capacity Utilization from the Fed...the week also saw the release of the Regional and State Employment and Unemployment Report for June from the Bureau of Labor Statistics and the first two regional Fed manufacturing indexes for July: the Empire State Manufacturing Survey from the New York Fed, which covers New York state, southwestern Connecticut, and northern New Jersey, saw their headline general business conditions index fall from +25.0 in June to +22.6 in July, still suggesting an ongoing strong expansion of First District manufacturing, and the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions rose from +19.9 in June to +25.7 in July, suggesting a more robust expansion of that region's manufacturing...

June Retail Sales Up 0.5% After May Sales Revised Higher

seasonally adjusted retail sales rose 0.5% in June after retail sales in May rose 1.3%, revised from the 0.8% increase reported a month ago....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $506.8 billion during the month, which was a increase of 0.5 percent (±0.4%) from May's revised sales of $504.3 billion, and 6.6 percent (±0.5 percent) above the adjusted sales of June of last year...May's seasonally adjusted sales were revised from the $502.0 billion reported last month to $504.34 billion, while April sales were revised a bit lower, from $497.9 billion to $497.776 billion...the combined increase of nearly $2.5 billion in sales revisions for those two months would add almost $10 billion at an annual rate to 2nd quarter PCE, which would in turn add roughly 23 basis points to our previous estimate of the contribution of April and May PCE to 2nd quarter GDP...estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 3.3% in June, from $531,045 million in May to $513,622 million in June, while they were up 6.3% from the $483,338 million of sales in June a year ago...

included below is the table of the monthly and yearly percentage changes in sales by business type taken from the Census pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each type of retail business from May to June and the year over year percentage change for those businesses since last June; the second pair of columns gives us the revised figures for May's report, with April to May and the May 2017 to May 2018 change shown; for your reference, our copy of this table as it appeared in the May report, before this month's revisions, is here....lastly, the third pair of columns shows the percentage change of the recent 3 months of sales (April, May and June) from the preceding three months (January, February and March) and from the same three months of a year ago.... 

to generate real personal consumption of goods data from this retail sales report, the BEA uses corresponding price changes from the consumer price index, which we reviewed last week...since that report showed that the composite price index for all goods less food and energy goods was unchanged in June, the overall impact of price changes on real sales will generally be minimal; however, there will be some significant impacts for certain types of sales..for instance, while nominal sales at car dealers were up 1.0%, the price index for transportation commodities other than fuel was up 0.5%, with prices for new cars and trucks up 0.4% and prices for used cars and trucks up 0.7%; that means that real sales at auto dealers were only up around 0.5%...on the other hand, while sales at clothing stores were 2.5% lower in June, the apparel price index was down 0.9%, meaning a portion of that sales drop was due to lower prices, and that real sales of clothing probably only fell around 1.6%...in addition, adjusting food and energy sales for price changes must be done separately; the CPI report showed that the food price index rose 0.2% in June, with both the indexes for food purchased for use at home and food bought for eating away from home 0.2% higher in June...with nominal sales at food and beverage stores down 0.3% in June. that price increase means that real sales of food were down about 0.5%…likewise, the 1.5% nominal increase in sales at bars and restaurants would be reduced to a real sales increase of about 1.3%...meanwhile, while sales at gas stations were up 1.0%, there was a 0.5% increase in the retail price of gasoline, so real sales of gasoline were likely only up about 0.5%...

Industrial Production Up 0.6% in June After May's Output is Revised Lower

the Fed's G17 release on Industrial production and Capacity Utilization for June indicated that seasonally adjusted industrial production rose by 0.6% in June after falling by a revised 0.5% in May and rising by a revised 1.1% in April, and is now up 3.8% from a year ago, as it rose at a 6.0% annual rate in the 2nd quarter...to the extent that this report plays into GDP, that quarterly increase suggests a net addition to GDP of that magnitude across the components that this report covers...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 107.7 in June from 107.1 in May, which was originally reported at 107.3...at the same time, the April reading for the IP index was revised up from 107.4 to 107.6, which meant that the May industrial production decrease was revised from -0.1% to -0.5%...

the manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.8%, from 103.1 in May to 103.9 in June, after the May index was revised from 103.5 to 103.1, now down 1.0% from April...meanwhile, the mining index, which includes oil and gas well drilling, increased for the 5th consecutive month, rising from 122.2 in May to a record high of 123.7 in June, 12.9% higher than it was a year ago....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 1.5% to 106.2 in June, after falling by a revised 0.7% to 107.8 in May, while it still remains 5.0% above its year earlier reading...

this report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 78.0% in June from 77.7% in May, which had originally been reported at 77.9%, before estimates for industrial capacity for 2018 were revised for this release....capacity utilization by NAICS durable goods production facilities rose from 74.5% in May to 75.6 in June, while capacity utilization for non-durables was unchanged at 76.6%....capacity utilization for the mining sector rose to 92.7% in June, up from 92.1% in May, which was originally reported as 92.4%, while utilities were operating at 78.9% of capacity during June, down from a revised 80.2% May, which was originally published as 79.4%...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....   

New Housing Construction and Permits Down in June

the June report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units that were started in June was at a seasonally adjusted annual rate of 1,173,000, which was 12.3 percent (±8.3 percent) below the revised May estimated annual rate of 1,337,000 units started, and 4.2 percent (±10.2 percent)* below last June's pace of 1,225,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, June's housing starts could have been up by 6.0% or down by as much as 14.4% from those of a year ago, with correspondingly large revisions outside of that range possible...in this report, the annual rate for May housing starts was revised from the 1,350,000 reported last month to 1,337,000, while April starts, which were first reported at a 1,278,000 annual rate, were revised down from last month's initial revised figure of 1,286,000 annually to a 1,276,000 annual pace 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 Census field agents, which estimated that 111,500 housing units were started in June, down from the 123,800 units started in May and the 117,200 starts in April...of those housing units started in June, an estimated 83,800 were single family homes and 26,700 were units in structures with more than 5 units, down from the revised  89,000 single family starts and the 33,800 units started in structures with more than 5 units in May...

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 broadly revised housing starts data...in June, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,273,000 housing units, which was 2.2 percent (±1.2 percent) below the revised May rate of 1,301,000 permits, and 3.0 percent (±1.1 percent) below the rate of building permit issuance in June a year earlier...the "revised" annual rate for housing permits issued in May was unchanged from what was reported last month....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 119.800 housing units were issued in June, down from the revised estimate of 125,000 new permits issued in May...the June permits included 81,300 permits for single family homes, down from 84,400 in May, and 35,000 permits for housing units in apartment buildings with 5 or more units, down from 37,600 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts decreased to 1.173 Million Annual Rate in June and Comments on June Housing Starts...

Business Sales Up 1.4% in May, Business Inventories Up 0.4%

following the release of the June retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for May (pdf), which incorporates the revised May retail data from that June report and the earlier published 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 $1,449.7 billion in May, up 1.4 percent (±0.2 percent) from April’s revised sales, and up 8.6 percent (±1.2 percent) from May sales of a year earlier...note that total April sales were revised from the originally reported $1,425.9 billion to $1,429.3 billion...manufacturer's sales were up 0.6% from April at $496,074 million in May, and retail trade sales, which exclude restaurant & bar sales from the revised May retail sales reported earlier, rose 1.1% to $444,614 million, while wholesale sales rose 2.5% to $508,990 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,936.9 billion at the end of May, up 0.4 percent (±0.1%) from April, and 4.4 percent (±1.2 percent) higher than in May a year earlier...the value of end of April inventories was revised down from the $1,930.0 billion reported last month to $1,929.4 billion...seasonally adjusted inventories of manufacturers were estimated to be valued at $668,435 million, 0.2% more than in April, while inventories of retailers were valued at $634,939 million, 0.4% more than in April, and inventories of wholesalers were estimated to be valued at $633,547 million at the end of May, up 0.6% from April...

in national accounts reports, the various categories of business inventories will be adjusted for price changes using item appropriate price indexes from the producer price index....the May producer price index reported that prices for finished goods were on average 1.0% higher, that prices for intermediate processed goods were 1.5% higher, and prices for unprocessed goods averaged 2.5% higher…together those price increases indicate that corresponding real inventories will be lower than the nominal amounts by those percentages...since 1st quarter real business inventories were modestly higher but still a small drag on GDP growth, any real inventory decreases in the 2nd quarter will subtract from the growth rate of 2nd quarter GDP in their entirety...

 

(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…)