note on the graphs used here

in March a year ago the St Louis Fed, home to the FRED graphs, changed their graphs to an interactive format, which apparently necessitated eliminating some of the incompatible options which we had used in creating our static graphs before then...as a result, many of the FRED graphs we've included on this website previous to that date, all of which were all created and stored at the FRED site and which we'd always hyperlinked back there, were reformatted, which in many cases changed our bar graphs to line graphs, and some cases rendered them unreadable... however, you can still click the text links we've always used in referring to them to view versions of our graphs as interactive graphs on the FRED site, or in the case where an older graph has gone missing, click on the blank space where it had been in order to view it in the new format....

Sunday, March 29, 2015

3rd estimate 4th quarter GDP; February consumer prices, durable goods, new and existing home sales, et al

the major economic releases of this past week were the Consumer Price Index for February, released by the BLS on Tuesday, and the 3rd estimate of 4th quarter GDP, released by the BEA on Friday; other widely watched reports included the February advance report on durable goods, and the two monthly reports on housing sales; the February report on existing home sales from the National Association of Realtors (NAR) and the the Census Bureau report on new home sales for February...other reports we saw this week included the Regional and State Employment and Unemployment Summary for February, and the Chicago Fed National Activity Index for February, a weighted composite index of 85 different economic metrics which fell to −0.11 in February, down from −0.10 in January, while the index for January was revised from +0.13 to -0.10...that index is constructed so a zero value indicates economic growth at the historical trend rate, so the negative readings for January and February indicate growth below trend...the week also saw the results of two regional Fed manufacturing surveys for March; the Fifth District Survey of Manufacturing Activity from the Richmond Fed, covering Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported their composite index fell to −8 in March from a reading of 0 in February on a collapse of shipments and new orders, while the March Kansas City Fed manufacturing survey, covering a region that includes western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, saw its broadest composite index fall from +1 in February to -4 in March, the lowest since January 2013, with the negative reading indicating slight contraction...

4th Quarter Growth Unchanged in 3rd Estimate

the 3rd estimate of 4th quarter GDP indicated that our output of goods and services in the last three months of the year grew at a 2.2% annual rate from the 3rd quarter, which was unchanged from the 2nd estimate...that means our economic output grew at a 2.4% rate over the whole of 2014, a bit better than the 2.2% growth we saw in 2013 or the 2.3% growth we saw in 2012...our growth rate in current dollars in the 4th quarter was revised up from 2.3% in the 2nd estimate to 2.4% in this estimate as the inflation adjustment, aka the GDP deflator, which had initially been reported negative, was revised from 0.1% to 0.2% with this estimate...even while overall growth was unrevised for the quarter, our exports,  imports, and all of the components of personal consumption expenditures were revised higher, while inventories and several components of fixed private investment were revised lower...since the press release for this report isn't very useful in understanding what transpired, as it assumes to reader knows that the prefix "real" indicates inflation adjusted data, and because it assumes the reader knows that all figures reported as quarterly are really at an annual rate, we'll refer you to the Full Release & Tables (pdf) and specifically the first 4 tables therein, in explaining what changed...

in the GDP pdf, Table 1 shows the real (inflation adjusted) percentage change in output for each component of GDP year over year and quarter over quarter since 2011; Table 2 shows how much the real change in each of those components of GDP added to or subtracted from the final GDP reading for each of those quarterly and annual periods going back to 2011; Table 3 is in 3 sections; the left body of that table, headed "billions of dollars" is the current dollar value of each of the GDP components listed; the remaining two sections are in chained 2009 dollars, from which all the annual change figures are computed; the 4th quarter of 2013 and each quarter of 2014 are shown, seasonally adjusted and at an annual rate...then the last 3 columns show the change from the preceding period in fictional 2009 dollars for each item; note those are not real dollar amounts; they're used for computational purposes only...finally, Table 4 shows the percentage change from the preceding period in the price index for each of those components...this percentage change is applied to the change in current dollars to give the real, inflation adjusted change in output for each component shown...

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 4.4% annual rate rather than the 4.2% growth rate reported last month, making it the greatest quarterly growth in real PCE since the first quarter of 2006 and the largest chained dollar increase in PCE since the 3rd quarter of 2003...consumption of durable goods rose at a 6.2% annual rate, revised from the 6.0% rate reported last month, and added 0.45% to GDP; consumption of nondurable goods rose at a 4.1% annual rate, revised from the 3.8% growth rate reported in the second estimate, and added 0.61% to 4th quarter growth, and consumption of services rose at a 4.3% annual rate, revised from the 4.1% rate reported last month, and added 1.98% to the final GDP tally...all types of consumer services made a positive contribution, with an increase in the amount of health care delivered accounting for more than 40% of the growth in services; increases in output all types of consumer durable goods also added to 4th quarter growth, with outlays for recreational goods and vehicles accounting for over 40% of the durable goods growth, and only a 0.3% decrease in consumption of food subtracted from the overall non-durables increase...

seasonally adjusted real gross private domestic investment grew at a 3.7% annual rate in the 4th quarter, revised from the 5.1% estimate of last month, while the growth rate of private fixed investment was unchanged at 4.5% and added .72% to the 4th quarter's growth rate...real non-residential fixed investment grew at a 4.7% rate, rather than the 4.8% previously estimated, as investment in non-residential structures was revised up from a growth rate of 5.0% to a 5.9% growth rate, investment in equipment grew at a 0.6% rate, not the 0.9% rate previously reported, and the quarter's investment in intellectual property products was revised down, from growth at a 10.9% rate to growth at a 10.3% rate, while growth in residential investment was revised from 3.4% to 3.8%…after these revisions, investment in non-residential structures added 0.17% to the GDP's growth rate, investment in equipment added 0.04%, investment in intellectual property added 0.39%, while growth in residential investment added 0.12% to 4th quarter GDP...

meanwhile, a decrease in the quarter over quarter change in the growth of inventories subtracted from investment and hence from GDP, as the increase in real private inventories was revised from the $88.4 billion reported last month to show real inventory growth at an inflation adjusted $80.0 billion in the 4th quarter, after they grew by $82.2 billion in the 3rd quarter, and hence the $2.2 billion smaller inventory growth subtracted 0.10% from the 4th quarter's growth rate, in contrast to the 0.12% addition from inventory growth reported in the second estimate...since inventories indicate that some of the goods produced goods during the quarter are still 'sitting on the shelf', their decrease by $2.2 billion means real final sales of GDP must have been higher by that much, hence increasing at a 2.3% annual rate, revised up from the real final sales of GDP increase of 2.1% reported last month...

both the increase in real exports and the increase in real imports were revised higher with this release, where increasing exports add to gross domestic product because they represent that part of our production that was not consumed or added to investment in our country, while increased imports subtract from GDP because they represent either consumption or investment that was not produced here....our real exports grew at a 4.5% rate rather than the 3.2% rate reported in the second estimate, and as a result added 0.59% to GDP...however, our real imports growth was revised to 10.4% from the previously reported 10.1% growth and hence subtracted 1.62% from the 4th quarter's growth rate...hence, the increase in our imports in the 4th quarter was greater than the 4th quarter increase of our consumption of durable goods, non-durable goods and equipment investment combined, and was largely responsible for the weak showing in 4th quarter growth..
finally, there were also minor revisions to real government consumption and investment in this 3rd estimate...real federal government consumption and investment contracted at a 7.3% rate, which was revised from the 7.5% contraction reported in the 2nd estimate, and subtracted 0.53% from 4th quarter GDP...real federal spending for defense was revised to show contraction at a 12.2% rate rather than the 12.4% contraction previously reported, while all other federal consumption and investment grew at a 1.5% rate, revised from the 1.4% growth rate reported last month...real state and local outlays, on the other hand, were revised lower, from the 2.0% growth rate previously reported to growth at a 1.6% rate, which only added 0.18% to GDP..

Consumer Prices Rise 0.2% in February; Core Prices also Up 0.2%

after 5 months of generally lower prices, February saw a broad-based increase in the CPI that suggests retail sales were even weaker than the 0.9% downturn reported...the Consumer Price Index for All Urban Consumers (CPI-U) for February from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.2% after falling 0.7% in January and 0.3% in December, leaving the index statistically unchanged from a year ago ...the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 234.722 in February from 233.707 in January, a reading 0.02% lower than the 233.069 reading from February of last year....core prices, which exclude food and energy, also rose by 0.2%, as the unadjusted core index rose to 240.083, 1.70% ahead of its year ago level of 236.075... 

energy prices were mostly higher, as the energy index rose by 1.0%, the first increase in 8 months...prices for energy commodities rose 2.1% on a 1.9% increase in fuel oil prices and a 2.4% increase in gasoline prices, while energy services were 0.2% lower on a  2.0% decrease in prices from natural gas utilities, while electricity costs were 0.3% higher...the food price index rose 0.2% as prices for food at home were 0.1% higher while prices for food away from home were 0.3% higher than January...Table 1 gives us prices by expenditure category, including six categories for food at home, where we see that the index for dairy products fell 1.0% in February, while Table 2 gives us a line item breakdown for prices of roughly 100 food items and more than 200 items overall...as you scroll down, the column headings scroll off the top of the page, so in reading price changes for each item off that table it's useful to keep in mind that the monthly price change is in the far right column, whereas the year over year change is the leftmost price change indicated...thus we can see that while most meat prices were generally higher in February, pork prices fell 1.3% in February with breakfast sausage prices and pork chop prices both down 2.4%...

prices changes for "All items less food and energy" are also included on both of those tables, with price changes for commodities (aka durable and non-durable goods) preceding price changes for services...it's here we learn that prices for all commodities less food and energy rose 0.2% (actually 0.21%) in February, the first time since September 2011 that index rose as much as 0.2%...this suggests a similar deflator will be used on retail sales for February when computing personal consumption expenditures of goods for the month, and since retail sales ex groceries and gas stations fell by 0.93% in February, that implies real personal consumption expenditures of all other goods would be down by more than 1.1% for the month...on the other hand, the index for services less energy services was up by just 0.1%, with the 0.3% increase in rent of shelter counting for more than half that index, so the deflator for other February services should be negative...

February Durable Goods Orders Much Weaker than Expected

against a Bloomberg consensus estimate of a 0.7% increase, the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau indicated that new orders for manufactured durable goods fell in February by a seasonally adjusted $3.2 billion, or 1.4%, to $231.3 billion, the 3rd drop in the last 4 months, while the 2.8% increase first reported for January was revised to 2.0%...new orders for transportation equipment, down 3.5% to $69,484 million, drove the change, as new orders for commercial aircraft fell 8.9%, but even excluding transportation equipment orders, other new orders were still down 0.4%...the widely watched new new orders for nondefense capital goods fell by $2.1 billion or 2.6% to $77.3 billion, and even excluding aircraft order, new orders for nondefense capital goods were down 1.4%...

February's seasonally adjusted shipments of durable goods were nominally weak, falling $0.5 billion or 0.2 percent to $244.0 billion, after a revised 1.4% decrease of shipments in January; however, $0.3 billion of that decrease was a 1.1% decrease in shipments of primary metals, which were down in price by 0.7% to 1.1%, meaning actual physical shipments were close to unchanged...meanwhile, seasonally adjusted inventories of durable goods, which have been up 22 out of the last 23 months, rose another $1.1 billion or 0.3% to a new record at $413.0 billion, as inventories of  transportation equipment, up 0.9% to $135,407 billion, were the major factor in this month's increase; excluding transports inventories, all other inventories were statistically unchanged...finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, fell by $5.6 billion or 0.5% to $1,156.9 billion, the 3rd consecutive monthly decrease, with the 0.6% decrease in the large order book of the transportation sector accounting for half the decrease, as unfilled orders for defense aircraft fell 3.1% to $60,257 billion...nonetheless, unfilled orders for durable goods remained 8.4% higher than they were last February, with every industry except defense seeing a year over year increase in their backlog...

New and Existing Home Sales Continue Year over Year Uptrend

the National Association of Realtors (NAR) reported that existing home sales rose a seasonally adjusted 1.2% in February, as they project 4.88 million homes would sell over a year if February sales were extrapolated over an entire year, 4.7% higher than the annual rate projected in February of a year ago... the NAR press release, which is titled Existing-Home Sales Slightly Improve in February, Price Growth Gains Steam, is in easy to read plain English, so there's no point in our restating what they already report...however, since the report is entirely seasonally adjusted and at a meaningless annual rate, we'd also want to look at the raw data overview (pdf), which shows that 294,000 homes actually sold in February, up from 281,000 in January and up from 282,000 in February last year, as even 36,000 homes sold in the cold and snowy northeast, up 9.1% from January and 5.9% higher than the 34,000 that sold in January last year...that same pdf indicates that the median home selling price for all housing types was $202,600 in February, up from $197,600 in January, and 7.5% higher than the $188,400 median home sales price in February of last year, while the average home sales price was $248,400, up 1.0% from the $245,900 average in January, and up 5.0% from the $236,600 average sales price of February a year ago...for additional information on this report, Robert Oak has thorough coverage with graphs for sales and prices, and Bill McBride has two posts, first with a summary of the data, and the second with commentary, and both with multiple graphs...

the Census report on New Residential Sales for February estimated that new single family homes were selling at a seasonally adjusted annual rate of 539,000, 7.8 percent (±15.2%)* above the revised January rate of 500,000 a year, and 24.8 percent (±20.4%) above the annual rate that new homes were selling at in February of last year...as you know, the asterisks after the figure reported for February indicate that based on their small sampling, Census could not be certain whether February's new home sales rose or fell from those of January, and the figures in parenthesis represent the 90% confidence range for reported data in this report, which has the largest margin of error of any census construction series...the unadjusted data from Census field reps estimated that 44,000 homes sold in February, up from 37,000 in January, which was revised from the 36,000 reported last month, and that home sales in the Northeast rose from 1,000 to 3,000, with a margin of error on that of ±111.2%…their raw data further indicated that the median sales price of new houses sold was $275,500 while the average sales price was $341,000....for more details and graphics, see Bill McBride's two posts, New Home Sales at 539,000 Annual Rate in February and Comments on 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 from the aforementioned GGO posts, contact me…)

Sunday, March 22, 2015

February industrial production and new home construction

consistent with the weak reports of the previous two weeks, the two widely followed releases of February data this past week, Industrial Production and New Housing Construction, both came in well below economist's forecasts, with colder than normal February weather a factor in both...this week also saw the release of the Regional and State Employment and Unemployment Summary for January, breaking down the employment summary of six weeks ago by state, and the first two regional Fed manufacturing surveys for March, both of which indicated not much change from February; the Empire State Manufacturing Survey from the New York Fed, covering New York and northern New Jersey, reported its broadest business index at 6.9, while the Philadelphia Fed March Manufacturing Survey, covering eastern Pennsylvania, southern New Jersey, and Delaware also indicated ongoing slow growth as their broadest diffusion index of current manufacturing activity was virtually unchanged at 5.2..

Industrial Production Up 0.1% on Record Jump in Utility Output

the Fed's G17 release on Industrial production and Capacity Utilization for February showed that industrial production eked out a 0.1% increase in February due to the cold weather in the eastern US, after January's industrial production was revised from an increase of 0.2% to a decrease of 0.3%...the industrial production index, which is benchmarked to 2007 production being equal to 100.0, rose to 105.8 in February , while the industrial production index for January was revised from 106.2 to 105.7 and the December index was revised from 106.0 to 106.1...the manufacturing index, which accounts for roughly 70% of the industrial composite, accounted for most of the downward revision, as it fell 0.2% in February to 101.3 from a January reading which was revised from 102.1 to 101.5, while the manufacturing index for December was revised from 102.0 to 101.9, the index for November was revised from 102.0 to 101.9, the index for October was revised from 100.8 to 100.7, and the manufacturing index for September was revised from 100.7 to 100.6...after these revisions and this month's decrease, the February manufacturing index is now just 3.4% higher than the level of February 2014.... in addition, the mining index, which includes oil & gas production, fell 2.5% to 129.5 in February, after falling by 1.3% in January, as the index for oil and gas well drilling fell by 17.3% in February after falling 10% in January, even as the mining index remains 9.3% higher than a year ago...meanwhile, the seasonally adjusted index for utility output jumped 7.3% to 108.3, the largest one month increase in at least 50 years, as natural gas production rose by 10.0% and output of electric utilities rose 6.9%, as record cold temperatures in the population centers of the Midwest and Northeast increased demand for heating...

as we've mentioned previously, the bottom of the page of this G17 release from the Fed has links to 3 charts and 14 tables, which break the report down into detail...two of those tables, Table 1 and Table 4, give the details on industrial production by market group for the recent months, quarters and years, with table 1 giving the index change and table 4 showing the percentage change from the prior period...so in table 4 we can see that among final products and industrial products, which account for 51.62% of the overall industrial production index, production of consumer goods was up 1.0% in February, after falling 0.1% in January; then under that we can see that production of durable goods was down 1.4% in February, with automotive products, which account for more than half of durable goods, down 2.6%....and while we see that output of non-durable goods rose 1.7%, the reason for that was a 7.6% increase in consumer energy products, and that without those, non-energy nondurables fell by 0.2%, largely on a 2.3% drop in the output of clothing...

next, right at the top of table 4, we can see that the industrial production index for both January and February is lower than that of both November and December, and not much higher than October....that certainly indicates a poor start to the first quarter, whatever March will bring...scrolling down farther, we can see that the 2 recent months for most main categories of production except for energy and business supplies are generally lower than the last two months of the 4th quarter, with particular weakness in "materials", which are raw and intermediate materials that would input into other production processes...that suggests a weaker than expected contribution from inventories in 1st quarter GDP..

this report also covers capacity utilization, which is the percentage of our plant and equipment that was in use during the month, and which fell from 79.1% in January to 78.9% percent in February...capacity utilization for manufacturing industries fell to 77.3% after manufacturing utilization for January was revised down from 78.1% to 77.6% and manufacturing utilization for each of the 4 prior months was revised down 0.1% to 77.4%, 77.3%, 78.1%, and 77.9% respectively...capacity utilization for mining fell from 87.2% in January to 84.6% in February as drilling rigs were idled at a record pace even as mining capacity was up 8.9% over a year earlier on heavy equipment investment by the oil industry during the summer and fall...finally, utilities were operating at 84.5% of capacity during February, up from an operating rate of 78.7% in January, as utilities added 0.9% to their output over the past year..for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities...for broader coverage of this report, see Robert Oak's post February 2015 Industrial Production Shows Manufacturing's Downtrodden Decline, which includes nine FRED graphs of the most important data sets covered here..

Housing Construction Slows in February on Bad Weather

the February report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing starts were at a seasonally adjusted annual rate of 897,000 in February, which was 17.0 percent (±9.5%) below the revised January estimate of 1,081,000 annually and 3.3 percent (±12.5%)* below the February 2014 rate of 928,000...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts rose or fell since last year, but as you see, the 17% drop in month over month starts is clearly outside of the error margin, a decrease that can be attributed to the colder and snowier than normal for the month in the heavily populated eastern half of the US...the annual rates given here are extrapolated from a survey of a small percentage of permit offices visited by Census field agents which estimated that 62,400 housing units were started in February, down from 73,500 in January, of which 40,700 were single family houses and 21,100 were units in apartment buildings with 5 or more units...

as we mentioned, this drop in housing starts was weather related, and should not be seen as a change in the otherwise stagnant pattern of new home construction; this can first be discerned from the regional data, which shows a 56.5% (±18.1%) seasonally adjusted drop in starts in the Northeast and a 35.0% (±25.0%) seasonally adjusted drop in housing starts in the Midwest, while housing starts only fell by 2.5% (±13.8%) in the South...furthermore, the number of housing units completed also fell by 13.8 percent (±9.0%) from the revised January estimate of 986,000 annually to a seasonally adjusted annual rate of 850,000 completions in February, again outside of the margin of error...and again, completions fell by 29.3% (±24.0%) in the Northeast, and while they also fell by 7.4% (±28.6%) in the Midwest, by 14.0% (±14.2%) in the South, and 12.5% (±16.8%) in the West, the change for all of those regions include a margin of error greater than the estimated drop....and since the number of housing units completed was less than the count of those started, the seldom cited data on new homes under construction indicated a small 0.4% (±1.0%) increase, with the unadjusted data showing 815,000 homes under construction in February, up from 810,300 in January...that small increase in homes under construction also explains the ongoing increase in construction jobs, which was called into question by Zero Hedge with the release of this report...

a few other analysts cited housing permit data to show that intentions for new home construction had not changed significantly last month…in February, Census estimated new permits were issued at a seasonally adjusted annual rate of 1,092,000, which was 3.0 percent (±1.7%) above the revised January annual rate of 1,060,000 and was 7.7 percent (±2.0%) above the annual rate of 1,014,000 new permits estimated in February of last year... those estimates were extrapolated from the unadjusted estimate of 76,800 new permits issued in February, which was up from the estimated 70,000 new permits issued in January... issuance of new permits was down by 17.4% ( ±10.5%) in the Northeast, but up in every other region of the country, with the greatest increase of 7.3% ( ±2..2%) in new permits occurring in the South...the increase by 8.9% ( ±3.7%) in housing units authorized by a permit but not yet started in February is another indication that rather than a slowdown in planned construction, builder's intentions were simply waylaid by the weather..

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

Sunday, March 15, 2015

February’s retail sales and producer prices, January’s wholesale sales, business inventories and Mortgage Monitor

the most widely watched release this past week was on retail sales for February from the Census Bureau; but there were also two Census reports on January inventories which will contribute to that major component of first quarter GDP: January wholesale trade and January business inventories...furthermore, we also saw the release of 2 price indexes that will be used in computing the deflators for 1st quarter GDP; the import and export price index for February and the producer price index for February, both from the Bureau of Labor Statistics...this week also saw and the Job Openings and Labor Turnover Survey (JOLTS) for January from the BLS, which indicated the most seasonally adjusted job openings in 14 years, and the Mortgage Monitor for January from Black Knight Financial Services (formerly LPS data & analytics) which we'll also look at today...

February Retail Sales Down 0.6% on a 2.6% in Auto Sales

retail sales fell for the 3rd month in a row in February, but unlike the past two months, sales of lower priced gasoline wasn't the major factor...the Advance Retail Sales Report for February (pdf) from the Census Bureau estimated that our total seasonally adjusted retail and food services sales were at $437.0 billion for the month, which was a decrease of 0.6 percent (±0.5%) from the January sales of $439.5 billion, but 1.7 percent (±0.9%) above sales in February of last year...January's sales were revised down by less than 0.1%, from $439.8 billion, but the reported percentage decline from December to January remained unchanged at 0.8% lower...estimated unadjusted sales in January, extrapolated from surveys of a small sampling of retailers, indicated actual sales fell 2.8%, from $401,097 million in January to $389,679 million in February, but were up 1.2% from the $384,985 million of sales in February a year ago...

once again we'll include the table of monthly and yearly percentage changes in sales by business type taken from the Census pdf.....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business type from January to February in the first sub-column, and then the year over year percentage change for those businesses since last February in the 2nd column; the second pair of columns gives us the revision of last month’s January’s advance monthly estimates (now called "preliminary") as revised in this report, likewise for each business type, with the December to January change under "Dec 2014 revised" and the revised January 2014 to January 2015 percentage change in the last column shown...for reference, here is what those January percentage changes looked like before this month's revision....

February 2015 retail sales

looking at the details for February sales in the first column above, it's fairly clear that the seasonally adjusted 2.5% decrease in motor vehicle and parts sales to $88,636 million was a major reason for the unexpected decrease in sales for the month, and when that's excluded, the overall decrease was just 0.1%...then what's left was likely boosted a bit artificially by the 1.5% increase in gas station sales, undoubtedly due at least in part by somewhat higher gasoline prices...take those gas station sales away from the total, and all other retail sales are down 0.24%...but the three other business types seeing the largest declines, building materials and garden supply stores, which saw sales drop 2.3%, and general merchandise and electronic and appliance stores, where sales fell 1.2%, may well have been effected by the colder and snowier than normal February in a large portion of the eastern US...and while such weather may impact retail, spending may have been directed into other sectors, such as utilities and snow removal...and with a 0.2% decline overall, we can't tell if real retail sales have fallen or not until the February consumer price index is released; it may be that even though consumers spent less, they might have bought more goods...and if they bought more goods, that means more goods were produced, which would add to GDP...

January Wholesale Sales Drop 3.1%, Wholesale Inventories Rise 0.3%

the first release we saw on sales and inventories this week was the Wholesale Trade, Sales and Inventories Report for January (pdf) from the Census Bureau, which estimated that seasonally adjusted sales of wholesale merchants fell 3.1 percent (+/-0.5%) to $433.7 billion from the revised December estimate of $447.4 billion, and was down 1.0 percent (+/-0.9%) from January a year earlier...the December preliminary sales estimate was revised down $2.4 billion or 0.5%, and hence is now 0.9% lower than November...wholesale sales of durable goods were down 1.4 percent (+/-0.9%) from December but were up 5.2 percent (+/-1.2%) from January a year ago, as wholesale sales of electrical equipment and appliances, metals and minerals, and miscellaneous durable were all down by more than 4%, while wholesale sales of automotive equipment rose 2.5%...seasonally adjusted wholesale sales of nondurable goods were down 4.6 percent (+/-0.9%) from December and down 6.7 percent (+/-1.2%) from last January, as wholesale sales of petroleum and petroleum products fell by 13.5% for the month and 37.1% year over year, largely due to lower prices...however, even excluding oil sales, wholesale sales of non durable goods were still down 2.2% in January, as all wholesale sales of nondurable goods other than paper and alcohol were lower....

this release also reported that seasonally adjusted wholesale inventories were valued at $548.7 billion at the end of January, 0.3% (+/-0.4%)* higher than the revised December level and 6.2% (+/-0.7%) above last January's level, while December's preliminary inventory estimate was revised down by $0.7 billion, or 0.1%...wholesale durable goods inventories were up 0.6 percent (+/-0.4%)  from December and up 7.7 percent (+/-1.1%) from a year earlier, as inventories of electrical equipment and appliances rose 2.4% and automotive inventories rose 1.6%....inventories of nondurable goods were down 0.1 percent (+/-0.4%)* from December while they were up 3.7% (+/-1.1%) from last January, as wholesale inventories of farm products fell 4.6% while wholesale inventories of paper and paper products were 3.0% higher and drugs and drugstore sundries inventories were up by 1.7%....note that the asterisks where included here indicate that Census does not yet have sufficient statistical evidence to determine whether inventories actually rose of fell for the periods indicated...due in part to the distortion caused by lower petroleum prices, the closely watched inventory to sales ratio of merchant wholesalers rose to 1.27, up from 1.22 in December and up from the inventory to sales ratio of 1.18 in January of last year, as the inventory to sales ratio for petroleum and petroleum products, which was originally about 12% of wholesale sales but just 3% of wholesale inventories, rose from 0.34 to 0.39...

in judging how this report might affect GDP, we have to remember that GDP only includes adjusted final sales and inventory as a means of measuring of our output of goods and services, so the value of wholesale products exchanged is not a GDP factor itself, but only insofar as the value of the trading margin extracted, which would be included in PCE under "other services"....however, the change in private inventories is a major factor, but that has proven to be not as easy to compute as we have done in the past...the problem is that some inventories may be "on the shelf", so to speak, for more than one month, the value of which is not changed for GDP accounting purposes while it sits there...in addition, different companies use a wide variety of accounting methods in valuing their inventories, such as LIFO, FIFO, average cost or weighted average cost, all of which the BEA adjusts for before including that in the their totals (see the National Income and Product Accounts Handbook, Chapter 7 (22 pp pdf), for details)..so our blanket deflating of wholesale inventories with an appropriate index from the producer price index does not capture all of these adjustments, which led us to a big miss when we tried to gauge the impact of December inventories on 4th quarter GDP revisions...so while an increase of 0.3% in January wholesale inventories deflated with the 2.1% decrease in prices for January wholesale goods would seem to imply a 2.4% monthly increase in real inventories, or growth at a 33% annual rate, we now know that an undetermined amount of those inventories were accounted for in prior months, and adjusted for accounting methods and inflation appropriately at that time, and the information we'd need to mimic the same calculation is not available to us on any BEA site we know about..

January Business Sales Fall 2.0%, Business Inventories Unchanged

following the release of retail and wholesale reports, Census released the composite Manufacturing and Trade Inventories and Sales report for January, which is covered in the media as the "business inventories" report, and which includes the wholesale sales and inventory report we just reviewed, the factory shipments and inventories we reviewed last week, and retail sales and inventories, the later of which is also available as an excel file here...this report estimated the combined value of seasonally adjusted distributive trade sales and manufacturers' shipments was at $1,302.5 billion in January, down 2.0% (±0.2%) from December, and down 0.3% (±0.3%) from the total monthly sales of January of last year...to recap, manufacturers sales were estimated at $479,126 million, down 2.0%, retailer's sales were estimated down 0.9% at $389,684 million and, as previously noted, sales of merchant wholesalers were down 3.1% and accounted for $433,730 million of the overall total....once again, much of the drop in business sales was associated with January’s lower oil prices, as even manufacturer's sales are more than 10% shipments from refineries...

meanwhile, total manufacturer's and trade inventories were estimated to have been unchanged (±0.2%)* from December to a seasonally adjusted $1,761.7 billion at the end of December, which was up 3.9 percent (±0.5%) from January a year earlier...seasonally adjusted inventories of manufacturers were estimated to be valued 0.4% lower at $650,469 million, inventories of retailers were estimated to be valued at $562,520 million, statistically unchanged from December's $562,601 million, and inventories of wholesalers were estimated to be valued at $548,720 million at the end of January, up 0.3% from December...the month end total business inventories to total sales ratio, the metric which is widely watched to determine if inventories are becoming excessive, was at 1.35, up from 1.33 December and up from 1.30 in January a year ago, again likely distorted by record high petroleum inventories... nonetheless, many are becoming excited about the historical trend of this ratio shown below:

January 2015 inventory to sales ratio

now, as we've pointed out, the dynamic of this ratio changes when oil and oil products fall in price precipitously, because much more oil products are sold than are inventoried, and hence overall business sales go down more than inventories do when oil prices drop...if we look at retail inventories, however, we note that this ratio is actually falling year over year for every business type except for food stores, clothing stores and gas stations, which means most retail inventories are lower than last year...the ratio for types of wholesalers is more mixed, with hardware and metal wholesalers seeing relatively large inventory to sales increases, but again price might play a role in the later..a similar mixed situation exists with factory inventories, but the overall inventory to shipments ratio for manufactures has only risen to 1.36 from 1.34 a year ago, despite the distortion caused by the rising ratio for refineries...

Producer Prices Turn Negative Year over Year in February on Largest Ever Drop in Demand for Services

the Producer Price Index for February from the Bureau of Labor Statistics now indicates that producer prices have fallen by 0.6% from a year earlier, the first negative year over year reading since the depth of the recession, as the seasonally adjusted producer price index for final demand fell 0.5% in February, after falling 0.8% in January, 0.2% in December, and 0.3% in November...unlike those previous months, however, the price of oil & oil products was not a major factor, as lower prices for final demand for services, down 0.5%, accounted for 70% of the February drop, while final demand for energy was unchanged...

the price index for final demand for goods, aka 'finished goods', fell by 0.4% in February, moderating after falling 2.1% in January and 1.1% in December, as the price index for final demand for foods fell 1.6%, in part due to a 17.1% drop in prices for wholesale fresh and dry vegetables while only wholesale fresh eggs, up 12.5%, saw a double digit price increase...the index for energy prices was unchanged as a 1.5% increase in wholesale gasoline prices was offset by a 1.5% drop in wholesale diesel fuel, while wholesale home heating oil rose 9.9% and residential natural gas fell 2.1%...the index for final demand for core goods also fell by 0.1% in February, as producer prices for mens and boys clothing fell 3.0% while wholesale women's and girls clothing prices rose 1.7%...

meanwhile, the index for final demand for services fell by 0.5%, as both the margins for final demand for trade services and the index for final demand for transportation and warehousing services dropped 1.5%, while the index for final demand for services less trade, transportation, and warehousing services rose 0.3%...big swings in the services included a 16.2% increase in margins for TV, video, and photographic equipment retailers and a 13.4% drop in margins for fuels and lubricants retailers such as gas stations...

this report also showed the price index for processed goods for intermediate demand fell by 0.6% in February, after a 2.8% drop in January, leaving intermediate processed goods 6.4% lower priced than a year ago....that included a 1.9% drop in the index for processed foods and feeds, a 0.6% decrease in prices for intermediate energy goods, and a 0.4% decrease in the price index for processed goods for intermediate demand less food and energy...in addition, the price index for intermediate unprocessed goods fell by 3.9%, after falling 9.4% in January and 6.4% in December and is now 25.0% below the level of a year ago, on a 6.7% drop in the index for unprocessed foodstuffs and feedstuffs  led by a 21.9% drop in prices for slaughter hogs, while even the index for other raw materials fell 1.6% on a 19.3% drop in scrap iron and steel prices and a 11.2% drop in raw natural gas prices.....

finally, the price index for services for intermediate demand rose 0.1% in February, as a 0.8% decrease in the index for transportation and warehousing services for intermediate demand was offset by a 0.2% increase in prices for intermediate services less trade, transportation, and warehousing and a 0.1% increase in the index for trade services for intermediate demand…over the 12 months ended in February, the price index for services for intermediate demand has risen 1.2%...

Foreclosure Starts Rise 5.5% in January; Foreclosure Pipeline Still Well Over 4 Years

the Mortgage Monitor for January (pdf) from Black Knight Financial Services (BKFS, formerly LPS Data & Analytics) reported that there were 814,513 home mortgages, or 1.61% of all mortgages outstanding, remaining in the foreclosure process at the end of January, which was down from 820,177, which was also 1.61% of all active loans that were in foreclosure at the end of December, as the active loan count fell by a like percentage; nonetheless, this was still down 31.42% from the 1,175,470, or 2.35% of all mortgages that were in foreclosure in January of last year...these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and this recent "foreclosure inventory" remains the lowest percentage of homes that were in the foreclosure process since early 2008... new foreclosure starts, however, rose to 94,347 in January, the highest level since December 2013. up from 89,357 the prior month and from 73,862 in November, and up from the 94,075 foreclosures started in January a year ago...

in addition to homes in foreclosure, January BKFS data showed that 5.56% of all mortgages, or 2,813,257 mortgage loans, were at least one mortgage payment overdue but not in foreclosure, down from 5.64% of homeowners with a mortgage who were more than 30 days behind in December, and down from the mortgage delinquency rate of 6.27% a year earlier...of those who were delinquent in January, 1,111,816 home owners, or 2.20% of those with a mortgage, were considered seriously delinquent, which means they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month...thus, a total of 7.17% of homeowners with a mortgage were either late in paying or in foreclosure at the end of January, and 3.81% of them were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end... 

as you know, the Mortgage Monitor (pdf) is a mostly graphics presentation that covers a variety of mortgage related issues each month; today we'll pull a few of the graphics from this month's section on foreclosures...

the first graph below, from page 6 of the mortgage monitor, shows the count of foreclosure starts as they occurred in each month since the beginning of 2008, wherein each bar represents a month and within each bar we have foreclosure starts on mortgages that have never been in trouble previously in blue, and in red foreclosure starts on mortgages that had been in foreclosure at least once before, resolved that prior to a completed foreclosure sale either through a modification, or by making a payment to get caught up on their loan, only to fall behind on payments again and end up in foreclosure yet another time...the green line on the graphs then shows repeat foreclosures as a percentage of total foreclosure starts for the month, which has once again risen to more than half of all foreclosures, as a large number of those who've had their mortgage modified are in foreclosure again...as the callout on the graph notes, repeat foreclosures, being up 11% over December's level, was the primary reason that January foreclosure starts rose...nonetheless, both new and repeat foreclosures were at a 12 month high..

January 2015 LPS new and repeat foreclosures

the next graph, from page 8 of the mortgage monitor, shows us the difference between first time foreclosures and repeat foreclosures in the average length of a mortgage delinquency for each until a foreclosure is initiated, again since early 2008...the blue line shows the average number of months that a previously foreclosed home had been delinquent before a second (or additional) foreclosure was initiated over that period; the red line shows the average number of months that a previously unencumbered home mortgage was delinquent before the first foreclosure was started on it over that same time span, and the black line shows the average number of months the total universe of foreclosed homes was delinquent over the period from 2008 to the present...you can see that prior to 2013, the time of delinquency until the first foreclosure was averaging 6 or 7 months, then, after the issuance of dual tracking regulation by the CFPB, which prohibited the industry practice of foreclosing on homeowners while a mortgage modification was being worked out, after which time it jumped to 14.6 months...however, the time the industry will work with homeowners for a solution has now dropped back to 9.1 months as of this report....

January 2015 LPS average days delinquent of foreclosure start

the next graph, also from page 8 of the mortgage monitor, shows on the left margin the number of mortgages that had a foreclosure initiated against them for each month over the same time period covered by the previous graphs, with the foreclosures starts occurring over that period divided into the number of months delinquent for each indicated by a color coded line...thus, the brown line show the number of 2 month delinquent mortgages that had a foreclosure started on them each month, the purple line show the number of 3 month delinquent mortgages that had a foreclosure started on them each month, the teal blue line show the number of 4 month delinquent mortgages that had a foreclosure started, the orange line show the number of 5 month delinquent mortgages that had a foreclosure started, and the darker blue line show the number of mortgages that were delinquent for 6 months or more before they had a foreclosure started against them...here we can see that prior to 2010, the large majority of foreclosures were being initiated after 3 months of delinquency, with only a few homeowners going 5 or 6 months before a foreclosure notice was delivered, but that after 2010, the lion's share of mortgages were delinquent for 6 months or more before they had a foreclosure started...also note that after dual tracking legislation was put in place, the number of 3 month delinquent mortgages that saw foreclosure fell precipitously, and mortgages being foreclosed after just 2 months without a house payment virtually stopped...

January 2015 LPS months delinquent at foreclosure start

the next graph, as its heading indicates, shows the foreclosure pipeline ratio over time, in this case going back to 2005...you might recall that the pipeline ratio is a mortgage industry metric indicating how many months the average troubled home loan typically remains in the foreclosure process in each state, and it is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that sum by the average number of completed foreclosures per month in each state over the previous 6 months....what that results in is the average number of months a problem home loan would be in the "foreclosure pipeline" at the current pace of foreclosure in each state, before the foreclosure process on all seriously delinquent homes would be completed....so the graph below, from page 10 of the Mortgage Monitor, shows the historical pipeline ratio for judicial states, where a court proceeding is necessary to complete a foreclosure, in blue, and the same ratio in non-judicial states, where such a proceeding isn't necessary for the banks to take possession of the home, in red....obviously, early on in the crisis, the process was much longer for judicial states, with their average reaching 118 months and the foreclosure pipeline ratios reaching 50 years for New York and New Jersey, but as we can see on the graph, the difference between the types of states has closed, as judicial states have moved to speed up the process...even so, the pipeline ratio now averages more than 4 years for both types of states; 58 months for judicial states, and 53 months for non-judicial states, and the time has generally rising for both types of foreclosure process over the last year...the reason for the increase in the foreclosure pipelines recently is not so much delays in court anymore, but procrastination on the part of the mortgage servicers and banks, possibly because of defective titles, but also possibly because they've experienced quite a bit of deterioration in the properties they've already seized, and would rather leave them occupied by delinquent homeowners than vacant and ravaged by vandals...

January 2015 LPS pipeline ratio over time

last, we'll again include part of the Mortgage Monitor table showing the monthly count of active home mortgage loans and their delinquency status, which comes from page 15 of the pdf....the columns here show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month the past year and for each January shown going back to January 2008….in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…notice that the average length of delinquency for those who have been more than 90 days delinquent without foreclosure has begun to increase slightly and is now at 515 days, while the average time for those who’ve been in foreclosure without a resolution is off its record high but still nearly three years at 1009 days…  

January 2015 LPS loan counts and days delinquent table B
NB: a copy of the full version of the above table, which also shows the monthly loan counts for 30 and 60 day delinquencies, is here..

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

Sunday, March 8, 2015

gauging the impact of January personal consumption, trade, construction spending and factory inventories on 1st quarter GDP

as it was the first week of the month, the key report was obviously the Employment Situation Summary for February from the Bureau of Labor Statistics...but this week also saw the release of four reports that together will make up the lion's share of January's contribution to 1st quarter GDP: the January release on Personal Income and Spending from the Bureau of Economic Analysis, the January Report on our International Trade, the Full Report on Manufacturers' Shipments, Inventories and Orders for January and the January report on Construction Spending, all from the Census Bureau...today, we will look at those four reports with an eye to how they might affect first quarter economic growth figures...

other reports released this week included Consumer Credit for January from the Fed, which showed that overall credit expanded at a 4.2% rate in January, the slowest growth since November 2013, as non-revolving credit expanded at a 6.3% rate while revolving credit fell by 1.6%, Light vehicle sales for February from Wards Automotive, which indicated US vehicles sold at a 16.16 million annual rate in February, down from down 2.4% from the 16.55 million annual sales rate in January, and the two widely watched diffusion indexes from the Institute for Supply Management (ISM), the February Manufacturing Report On Business, and the February Non-Manufacturing Report On Business; both of those reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in these surveys nationally...

Establishments Add 295,000 Jobs, Jobless Quit Looking

the Employment Situation Summary for January from the BLS indicated that employers added a seasonally adjusted 295,000 jobs in February, continuing to increase payroll employment at a pace not seen since the 1990s...some bloggers continue to complain that wages are only up 2.0% year over year, but what can you expect when nearly a fifth of the new jobs - 58,700 to be precise, are as waitresses and bartenders...meanwhile, the unemployment rate fell from 5.7% to 5.5% for the wrong reason again...although the official count of the unemployed fell by 274,000, the count of those not counted rose by 354,000 to a record tying 92,898,000 of us not in the labor force....so the drop in the unemployment rate was basically because the jobless quit looking..

the BLS press release itself is very readable, so you can get further details from there...note that most every paragraph in that release points to one or more of the tables that are linked on the bottom of the release, and also on a separate html page here that you can open along side the press release to avoid the need to scroll up and down the page....thus, when you encounter a line such as "The jobless rates for adult men (5.2 percent), adult women (4.9 percent), whites (4.7 percent), blacks (10.4 percent), Asians (4.0 percent), and Hispanics (6.6 percent) showed little or no change. (See tables A-1, A-2, and A-3.)" you can quickly open Table A-1,Table A-2, and Table A-3 to get the details on what the changes really were....for fairly thorough coverage in a blog post, see Job Growth Remains Strong in February by Dean Baker, and for the household survey see Unemployment Rate Drops on Those Dropping Out Again by Robert Oak...for thorough coverage with 9 graphs, see February Employment Stays Strong by Bethune, Cooley, and Rupert (who normally post on Sundays) or the WSJ's February’s Jobs Report in 10 Charts

January Starts 1st Quarter Real PCE Growth at a 1.8% Rate

other than the employment reports and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important release of the month, as it gives us important personal income data, the monthly data on our personal consumption expenditures (PCE), the major component of GDP, and the PCE price index, the inflation gauge the Fed targets...but contrary to what you might think, the January report on Income & and Outlays from the BEA does not give us details on personal income or spending for January, as all the dollar amounts given in this report are seasonally adjusted and at an annual rate, ie, they tell us what income and spending would be for a year if January's adjusted income and spending were extrapolated over an entire year...confusingly, however, the percentage changes are computed monthly, and in this case they give us the change in each metric from December to January...and of course the price index changes are also reported on both a month over month and year over year basis..

so to unwrap the opening line, which reads "Personal income increased $50.8 billion, or 0.3 percent, and disposable personal income (DPI) increased $52.6 billion, or 0.4 percent, in January" ..that refers to the computed $50.8 billion annualized rate of personal income increase, from $15,011.0 billion annually in December to $15,061.8 billion annually in January (see pdf); the actual monthly increase in personal income is not given...similarly, disposable personal income, which is income after taxes, rose at by 0.4%, from an annual rate of $13,207.4 billion in December to an annual rate of $13,260.0 billion in January...the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts...so when they say, "Wages and salaries increased $42.4 billion in January" that really means wages and salaries would rise by $42.4 billion over an entire year if January's increase were extrapolated over an entire year...so you can see what's written here is nearly inscrutable, and often leads to misreporting the data the same way the BEA describes it...

now, there's a reason for this, in that this report is one of the wonky reports making up BEA's reports on U.S. National Income and Product Accounts, which ultimately inputs into the gross domestic product and gross domestic income reports, which are all reported in the same manner, and are the primary macroeconomic overviews of the US economy....and that's where our interests lie today, too; we want to see how this January report fits into 1st quarter GDP...to do that, we start with the change in personal consumption expenditures, which you all know as the largest component of GDP, accounting for over two-thirds of real GDP growth...so when this report tells us that personal consumption expenditures (PCE) decreased $18.9 billion, or 0.2 percent in January, they're referring to the decrease from an seasonally adjusted annual rate of $12,106.8 billion in personal consumption expenditures in December to the $12,087.9 billion annual rate of personal consumption in January...while the decrease in annualized PCE for December was revised from the originally reported $40.0 billion to $35.7 billion, but that change was already reflected in last Friday's GDP revision (this report was released Monday)..

now, some reported this decline in PCE as a sign of a slowing economy, but as we 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...that's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100....looking at Table 9 in the pdf, we see that that index fell to 108.281 in January from 108.771 in December, giving us a negative month over month inflation rate of 0.045%, which BEA reports as -0.5%, and a year over year PCE price index increase of 0.22%, down from a year over year inflation rate of 0.77% in December…this decrease was largely due to a 1.6% price decline for goods, as the cost of services still rose 0.1% in January...hence, because of the decrease in prices, the inflation adjusted or real personal consumption expenditures actually increased 0.3% (0.29%) in January after falling 0.1% in December, when the PCE price index was reported down 0.2%...so despite the lower dollar value of personal spending in January, those fewer dollars bought 0.3% more stuff than they did in December...and since the growth rate in PCE for all of 2014 was 2.5%, that means the real January growth in PCE was stronger than its growth in 2014...

however, it's not the change in PCE from December to January that we're interested in in our attempt to assess the impact of January PCE on GDP, but the change from the 4th quarter to January...now we could compute that using the October, November, & December inflation adjusted annual PCE spending rates found in Table 7 of the pdf for this release, but the easiest way is to just go back to the GDP revisions from last Friday, where we find the seasonally adjusted annual PCE was $11,113.6 billion in chained 2009 dollars in the 4th quarter (Table 3, pdf)...from that, we find that January's 11,163.6 billion in inflation adjusted PCE was 0.045% higher than the $11,113.6 billion in chained 2009 dollars reported for the 4th quarter...converting that to an annual rate, we thus find that the annual rate of real PCE growth in January to be 1.8% over that of the 4th quarter...

We Estimate Real Exports Fell 1.02% in January While Real Imports Rose 0.93%

the January report on trade showed that our goods and services deficit fell by $3.8 billion to $41.8 billion, down from the revised December deficit of $45.6 billion, as our January exports fell $5.6 billion to $189.4 billion, and our January imports fell $9.4 billion to $231.2 billion...however, since crude oil accounts for roughly 10% of our imports and prices of other imported and exported commodities were also down, these dollar denominated figures may not reveal the real state of our balance of trade...while the value of oil imports fell from $18,164 million in December to $13,626 million in January, the average price of our oil imports fell to $58.96 a barrel in January, down from $73.64 in December (and down from $90.21 in January 2014)....hence, we imported 231,106 barrels of oil in January, not down quite as much from the 246,659 barrels we imported in December...a similar calculation could be made with our exports of fuel oil, the value of which fell from $4,049 million in December to $3,224 million in January, or our exports of other refined products, which fell from $4,495 million to $4,161 million

so, it's obvious that to find the real change in our January imports and exports in order to apply them to 1st quarter GDP, they must be adjusted for these changes in price...that's done with the prices from the Import and Export Price Indexes for January, which were published 3 weeks ago by the BLS...now while the BEA will adjust the price of each of the several hundred items in the trade report (see Exhibit 7 and Exhibit 8 in the pdf) with the appropriate price index, we dont have the computing power to do that here, so we'll just apply the overall change in the price indexes to the overall amounts of imports and exports...

the Import Price Index indicates that overall prices for our imports were down 2.8% in January; applying that to our January imports of $231.2 billion would give us real imports of $237.7 billion in January, at least vis a vis December (understand that these adjusted dollar values are for comparison purposes only, and have no more connection to reality than the chained 2009 dollars that are used by the BEA when they compute GDP)...that means our real imports were only $2.9 billion lower than in December...in the same manner, applying the 2.0% lower prices of January exports to the January export value of $189.4 billion, we'd find that real January exports rose to $193.2 billion when compared to December, and therefore our real exports only fell by $1.8 billion...and hence, our real trade deficit only rose by $1.1 billion in January...

however, to gauge the impact of January trade on GDP, it must be compared to the 4th quarter trade, not just December's...the difficulty in doing that is that the GDP report gives trade data quarterly at a seasonally adjusted annual rate, both in current dollars and in chained 2009 dollars, and moreover some components that are included in the trade report, such as non-monetary gold, are not included in GDP...so the best we can do is estimate from what comparable trade figures we have available in here... according to this revised trade report, the value of our unadjusted exports for October, November and December were $197,496 million, 196,896 million, and $196,836 million respectively; to get real values from those to compare to our real January trade, which is already adjusted to December, we'd have to adjust November for the 1.0% December change in export prices, and October for both the 0.9% November and 1.0% December change in export prices...when we do that, we get an inflation adjusted $195.2 billion monthly average of exports for the 4th quarter to compare to our inflation adjusted January exports of $193.2 billion, indicating real January exports were $2.0 billion lower than the 4th quarter...similarly, our unadjusted imports for October, November and December were $239,223 million, $238,495 million, and $239,178 million respectively...to index those to December, November's would have to be adjusted with the 1.9% decrease in December import prices, and October's would have to be adjusted for that as well as November's 1.8% decrease in import prices...hence, our inflation adjusted monthly imports chained to December prices averaged $235.5 billion in the 4th quarter, lower than the imports of $237.7 billion in January that we adjusted for the January price change...thus, we'd estimate real imports rose by $2.2 billion or by 0.93% in January, or quarterly at an annual rate of 3.8%, a pace that if continued would take more than 0.6% off first quarter GDP, while the 1.02% decrease in real exports could take another 0.5% off GDP...

Lower January Construction Spending on Track to Subtract 0.42% from 1st Quarter GDP

construction spending inputs into 3 components of GDP; investment in private non-residential structures, investment in residential structures, and into government investment, for both state and local and Federal governments...but unlike personal consumption and trade, where negative deflators contributed to growth in the metrics, the deflators used for construction spending are going to reduce growth because prices for construction have continued to rise...looking at the National Income and Product Accounts Handbook, Chapter 6 (pdf), we find that the deflators used for residential investment are the Census Bureau price indexes for new one-family houses under construction and for new multi-family homes under construction; while a multitude of indexes are used to deflate other components of construction spending, ie, the Turner Construction building-cost index for several types of buildings, the PPI for new school construction, the Engineering News Record construction cost index for utilities construction, and so forth....since we can't do all of that today, we'll simply this computation by making our estimates of January construction inflation based on 4th quarter deflators, figuring most construction prices have not seen a major change over one month..

so, in January, the Census Bureau estimated (pdf) that our seasonally adjusted construction spending would work out to $971.4 billion annually if extrapolated over an entire year, which was 0.4 percent (±1.3%)* above the revised December annual rate and 2.2 percent (±1.6%) above above last December's adjusted and annualized level of construction spending....December's spending estimate was revised from $982.1 billion to  $982.0 billion, probably not statistically significant enough to impact 4th quarter GDP much....private construction spending was at a seasonally adjusted annual rate of $697.6 billion, 0.5 percent (±1.0%)*  lower than the revised December estimate, with residential spending falling to $351.7 billion, 0.6 percent (±1.3%) below the revised December estimate and non-residential construction falling 1.6 percent (±1.0%) to $345.9 billion, while public construction spending was estimated at $273.8 billion annually, 2.6 percent (±2.0%) below the revised December estimate, largely on a downturn in public school construction...

Table 4 in the GDP report indicates that prices for residential construction grew at an annual rate of 4.5% in the 4th quarter, and that inflation for non-residential structures was at a 1.1% annual rate...to simplify our calculation, we'll use a one month deflator of 0.4% on January residential construction, and a 0.1% deflator on non-residential construction...furthermore, because the GDP categories for construction spending include brokers’ commissions, title insurance, state and local taxes, attorney fees, title escrow fees, fees for surveys and engineering services, and remodeling not captured by this report, the data here is not directly comparable to the data in the 4th quarter GDP report; so we'll have to generate our own comparable 4th quarter spending from the October, November and December data reported here...thus we find that 4th quarter residential construction spending was at a seasonally adjusted annual rate of $353,520 billion, and hence January's $351.7 billion spending deflated by 0.4% was .91% lower, decreasing at a 3.6% annual rate on a quarterly basis…we also find that non residential spending at $345.9 billion deflated by 0.1% in January was 1.2% lower than than 4th quarter non residential spending at a $349,800 billion rate and hence fell at an annual rate of 4.8%; and that public construction spending of $273.8 billion in January deflated by 0.1% was 2.7% lower than 4th quarter public construction spending at a $281,012 annual rate and hence fell at a 10.2% annual rate in January...eyeballing the percentages of GDP that each of these account for, we find that if January's level of construction spending continues throughout the 1st quarter, reduced investment in residential structures could subtract 0.12% from 1st quarter growth, lower investment in nonresidential structures could subtract 0.13% from 1st quarter growth, and lower construction investment by governments could reduce 1st quarter GDP by 0.17%.

Real Equipment Investment and Inventories Rise in January

the Census Bureau also released the Full Report on Manufacturers’ Shipments, Inventories, & Orders for January (pdf), which showed new orders for manufactured goods fell by $0.9 billion or 0.2% to $470.0 billion, after falling a revised 3.5% in September, making this the 6th consecutive decrease in monthly factory orders...in addition, this report showed that unfilled orders also fell 0.2%, falling by $2.2 billion to $1,163.4 billion, on the heels of a 0.9% December decrease...the drop in January new orders was entirely due to a 3.1% drop in new orders for non-durable goods, which were clearly impacted by lower prices for refinery products and other oil-based chemicals and fertilizers...

while factory shipments are all included in GDP, most of those reported here will be included in one of the other components of GDP....for instance, some factory shipments are destined for export, some are destined for personal or government consumption, and so forth, and those factory shipments will be included in the pertinent component of GDP....investment in equipment is the one category of factory shipments in this report that a GDP component can be estimated from, as investment is non-defense capital goods is often used as a proxy for equipment in GDP...although shipments of non-defense capital goods grew at a 1.0% rate in January, finding a deflator for that is difficult, as each of the various categories of such capital goods would in turn, have to be deflated by the appropriate sub-index of the producer price index...nonetheless, the greatest price rise in that category appears to be 0.9% for heavy motor trucks, while some such as railroad equipment fell by 0.8%, so equipment investment looks firmly positive for January...

the change in all factory inventories, on the other hand, are included directly in GDP, along with other business and farm inventories, and we want to know if the change in inventories in the 1st quarter is greater than or less than the change in inventories was in the 4th quarter...as we explained when gauging the impact of December inventories on 4th quarter GDP, a difficulty here is that a portion of the factory inventories have been severely depressed in price, such as inventories at petroleum refineries, and others with oil inputs such as chemicals and textiles were likely priced lower for the same reason...so while inventories for all manufacturing industries fell 0.4% in January, inventories for durable goods rose 0.4%, slightly less than the 0.5% inventory increases of each month in the fourth quarter...it was inventories of nondurable goods, which fell by 1.7%, that dragged down the total, but on a current dollar basis 13% of nondurable inventory was inventories at oil refineries, which were 11.3% lower in January after falling 11.4% in December...but prices for refinery products were down even more, with producer prices for gasoline off 24.0%, and prices for diesel fuel, home heating oil, and other distillates all falling more than 19%...hence, we can say that real inventories at refineries were probably up 8%, and maybe more...and if we subtract refinery inventories from other non-durable goods, we find other inventories were only down a bit over 0.1%...however, factory prices for most of those non-durable goods fell as well, as producer prices for food were down 1.1% in January, while core producer prices were down 0.2%...since food and beverage inventories, which increased by 0.1% in current dollars, account for roughly 30% of non-durable inventories, and chemical inventories, which fell by 1.3% but were down 9.2% in price, account for another 34% of the total, we can confidentially say there was a substantial build of real non-durable inventories in January as well...

(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

Monday, March 2, 2015

60% of new US oil output is being refined and exported; 200 of us will die by bomb train so that can continue

before we get to this weeks news, we're going to add a postscript to last week's coverage of the oil bomb trains....in all the excitement of reporting about trains & refineries blowing sky high in various parts of the country and Canada, we forgot to point out that a lot of that fuel being hauled cross country isn't even intended for our use; it's for export...in tracking the monthly trade report for years, i've noticed that while fracking increased, our exports of refined products have been increasing, but because the data in the trade reports from the Commerce Dept is reported in dollars and prices change continuously, it's been difficult to get a handle on how much...however, the reports from the energy Department give us the data on production and exports in barrels of oil and refined product, so we can check their records and discover exactly what has been going on under the guise of drilling our way to energy independence...

as you may recall from our discussion of the Obama administration's ruling allowing exports of ultralight oils originating from US oil shale wells, exports of US crude are prohibited by the Energy Policy and Conservation Act of 1975, except in the cases of special licenses given by the Commerce Dept, or in trade with Canada and Mexico, where NAFTA specifically mandates that trade...hence our exports of crude oil itself aren't too significant, and have generally been well less than 2% of total output until recent months, probably rising now as our exports of light Bakken crude to Canada have increased as a blender for the much heavier Canadian crude...a screenshot of an interactive graph from the EIA of our monthly crude exports since 1920 is shown below, which indicates that we exported 13,692,000 barrels of crude in December, a bit less than 2% of our 286,003,000 barrels of crude production for the month...

December 2014 crude exports

on the other hand, our total exports of refined products has continued to increase as fracking increased...the graph below, also from the EIA, shows our total exports of finished refined products since 1980...in December of 2014, US based oil companies exported 96,368,000 barrels of finished products, about in line with recent US refinery exports of 97,570,000 barrels , 92,803,000 barrels, and 98,373,000 barrels in December 2011, 2112 and 2013 respectively, but more than twice the 42,032,000 barrels of product US refiners exported in December 2007...in 2013, the last year the EIA (Energy Information Administration) has complete annual data for, the output of US refineries and fuel blending facilities totaled 6,746,361 barrels of various finished refinery products; in that same year, 970,997,000 barrels, or 14.4% of our total refinery output, was shipped out of the country...

2014 total refined products exports

NB: so we all have a sense of what kind of fuels we're exporting, we'll include a few graphs of those exports here...but for the remainder of this discussion we'll use 2013 totals, because although the EIA published December 2014 data on Friday, they have not updated their annual data and graphs, and monthly data is too noisy to easily use to accurately show the trend...when they update their annual stats, we'll update the remainder of the data and graphs we use here and repost it...

the next graph from the EIA shows 70 years of total US exports of various grades of distillate fuel oils, the majority of which are most often used as home heating oil and diesel fuel...in 2013, US refiners exported 413,888,000 barrels of fuel oil, or about 24% of our total 2013 distillate fuel oil production of 1,727,493,000 barrels...that's more than a 10 fold increase from the 40,101,000 barrels of fuel oils we exported in 2004, and clearly US exports of fuel oil continue to accelerate...

2013 fuel oil exports

the next graph from the EIA shows 80 years of US exports of various blends of gasoline; in 2013, we exported 136,146,000 barrels of gasoline, a little more than 4% of our total 2013 production of 3,370,460,000 barrels of gasoline...while that was down from the 174,776000 barrels of gasoline US refiners exported in 2011, it's still almost 3 times as much as the 46,369,000 barrels of gasoline we exported in 2007...

2013 gasoline exports

you'll recall that one of the trains that exploded into flames last week was carrying ethanol; the EIA also shows that 14,737,000 barrels of ethanol were exported in 2013, which would work out to about 4.7% of our 2013 ethanol production of 316,493,000 barrels..but new data out this week from the renewable fuels association shows that US ethanol exports increased to 836 million gallons in 2014, nearly 6% of our 2014 production...that's quite remarkable considering the amount of ethanol we are compelled to use ourselves in our gasoline, and the environmental damage done by pressing marginal farmland into use for it...nearly 40% of our corn crop goes to produce ethanol, and if you didnt know already, more than 89% of US corn is now generically engineered to allow for use of herbicides...

we'll include one more export graph showing US exports of jet fuel annually since 1980...in 2013, US refiners exported 56,989,000 barrels of jet fuel, or about 10.4% of our total 2013 jet fuel production of 547,275,000 barrels...those exports represent nearly a 4 fold increase from the 15,010,000 barrels of jet fuel we exported in 2007, as shown in the interactive screenshot, and once again we can see these exports are nearly rising exponentially..

2013 jet fuel exports

next, we're going to look at a graph that includes total US crude oil production over roughly the same time span...although the EIA graph below shows US crude oil production since 1860, you can see that recent oil output clearly bottomed in 2007 and 2008, at 1,853,166,000 barrels and 1,830,002,000 barrels respectively, and that US crude production had increased by more than 50%, to 2,717,876,000 barrels by 2013...of course, given that we’re fracking half the country, that's not a surprise, but notice that the pickup in production coincides with the increase in exports we saw in the earlier graphs...lets take a closer look at that relationship next...

2013 total domestic production

using 2007 as a common baseline, our field production of crude oil rose by 864,710,000 barrels over the period from 2007 to 2013, from 1,853,166,000 barrels in 2007 to 2,717,876,000 barrels of crude in 2013...over the same period, our exports of refined products more than doubled, from 455,240,000 barrels in 2007 to 970,997,000 barrels in 2013...that's an increase in our refined products exports of 515,757,000 barrels, or on a purely number of barrels basis, nearly 60% of the increase in production that we had over the same period...now, we understand comparing crude to refined products is an apples to oranges comparison, and that one barrel of crude might produce just 16 gallons of gasoline; 8 gallons of diesel fuel, a gallon of tar and a multitude of other refined products...in addition, we know we haven't even considered oil imports, some of which are also refined and exported...but oil is fungible, so just on a quantity of liquids basis, we can still say that it's as if well over half of the new oil production brought about by hydraulic fracking has not gone to benefit Americans in terms of lower priced fuel and heat oil, but has, in effect, been shipped out of the country to enrich the oil companies...and it's not the lower quality bi-products of petroleum, like asphalt, that are being exported; it's the high grade fuels like gasoline, diesel and jet fuel...and we're not talking about supporting a lot of jobs here either; the ongoing strike of 6,500 refinery workers is said to account for 20% of US refining capacity, so by extrapolation there wouldn't be many more than 35,000 non-management refinery employees in the entire US..

which brings us to the 200 deaths that we have headlined this missive about...in the wake of the 3 exploding oil trains that headlined last weeks news, an AP exclusive brought to light a previously unreported analysis by the Department of Transportation that forecasts that an average of 10 oil or ethanol carrying trains will derail and catch fire every year over the next 20 years, causing between $4.5 billion and $6 billion in damages, and probably killing around 200 people when one of those trains eventually derails in a populated area...8% of us now live in an oil train’s expected blast zone, and the government expects that 15 such trains will probably derail this year, and presumably as safety improvements are made, the number of derailments and could be reduced to 5 a year by the year 2034...but remember, those railcars involved in last week's conflagration in West Virginia were already the safer new model cars, and the track and the train that derailed in Canada had just passed a state of the art inspection check...as we've just seen, many of these trains are now traversing the country, from North Dakota to east coast refineries (up to 80 a week through Philadelphia alone), not for our betterment, but for the purpose of delivering profits to the oil companies...and as a dozen or more trains derail this coming year and dozens of us are likely killed, it will serve as an acknowledgement that to the government-energy nexus, dead Americans are now no more than the expected cost of doing business, collateral damage in the eternal war to make profits from oil, whose lives are just as expendable as a wedding party on their way to a contested village in the Mideast...

(first posted at Focus on Fracking)