Sunday, December 4, 2016

OPEC agrees to cut production back to March levels, oil prices spike 14%

At their meeting in Vienna on Wednesday, the member nations of OPEC agreed to cut their oil production by 4.5% for a period to run 6 months, effective January 1st.  The amount of oil output each member is expected to forgo is generally based on their October production, although for some countries, such as Iran, the baseline for the output cut has been adjusted for special factors.   Libya and Nigeria, whose recent production has been disrupted by civil conflict, will be exempt from the cuts.  Indonesia, an OPEC oil importer who would not agree to a cut, was suspended from OPEC, and what they would have cut was to be absorbed by other member.  Figures released by OPEC indicate they want a cut of almost 1.2 million barrels per day, or roughly in line with what we previewed last week.  In addition, OPEC announced that non-OPEC oil producers, who were not represented at the meeting, will contribute an additional output cut of 600,000 barrels per day.  Presumably, details on those non-OPEC oil production cuts will be worked out at a December 9th meeting at Doha, but since Russia is on board with a cut of 300,000 barrels per day, achieving that target should not be difficult.  Oil traders apparently believe that OPEC and other producers will be able to achieve what they've set out, because since the announcement of the deal, oil prices have risen 14%...

As you may recall, last week i was skeptical that such an agreement could be worked out, and thought that even if it were, it would quickly fall apart...i'm now of the opinion that their production cut will hold, and that it will be at least partially if not completely effective in reducing the global oil glut, and thereby push up the price of oil.  One factor i hadn't counted on was the direct involvement of Vladimir Putin in the deal.  Originally, the Russian oil companies had only committed to give up the increase in production they planned for next year; now it appears they've also been pressured into participating in an actual 300,000 barrels per day cut in their own production.  Moreover, Putin himself acted as an intermediary between Saudi Prince Mohammed bin Salman and Iran's Ayatollah Ali Khamenei and President Hassan Rouhani to grease the skids for the deal that was eventually made, that allowed Iran's production figures to be overstated such that their "cut" actually amounts to a small increase from their current production.  With the Saudis and Iranians waging proxy wars in both Syria and Yemen, that Putin could convince them to put their animosity aside and agree to a deal was the breakthrough that made this deal.  Moreover, their strategy has already resulted an instant success, which will now convince all parties to hold the line regardless of their personal differences.  After agreeing to cut their production by 4.5%, oil prices immediately rose 14%, so they already have a gain of 9.5% on the oil that they will be producing over what they would have had otherwise.

To put this production cutback in perspective, we'll next include a series of graphics which should give you a decent idea how big this production cut is relative to OPEC's recent and earlier oil production, and relative to the global oil supply.  First, we'll start with a graph of OPEC's monthly oil production over the past dozen years...

December 3 2016 OPEC oil production as of October

The above graph, taken from the 'OPEC oil charts" page at the Peak Oil Barrel blog, shows total oil production, in thousands of barrels per day, for the 14 members of OPEC for the period from January 2005 to October 2016.  As we pointed out last week, OPEC production has been spiking the past few months as member states pumped what they could to be better positioned for any percentage cutback resulting from this earlier planned meeting, and had reached 33.643 million barrels per day as of the October report.  The agreed to production cuts will reduce their output to approximately 32.5 million barrels per day, which you should notice is about what they were producing in March and April of this year.

Next, we have a table of oil production by each of the members of OPEC for the recent months, quarters, and years, which comes from the November OPEC Monthly Oil Market Report, which was released on November 11th.  Here you can see that the total oil output for the first quarter of 2016 (1Q16) was 32,500,000 barrels per day, exactly what these "cutbacks in production" hope to get back to.  For the Persian Gulf OPEC members, much of cut that will be close to their normal seasonal reduction anyhow, since they usually ramp up their oil production during the summer months to generate electricity for air conditioning, then slow production in the fall.

December 3 2016 OPEC production table

note that the numbers shown in the October column above are close to the reference production levels on which the 4.5% production cuts are based...for instance, the Saudis will be cutting from 10,544,000 barrels per day back to 10,058,000 barrels per day, the Iraqis will be cutting from the 4,561,000 barrels per day shown above to 4,351,000 barrels per day, and the Kuwaitis will be cutting from 2,838,000 barrels per day to 2,707,000 barrels per day.  The exception is for Iran, whose cuts are based on their production from Table 5.8: OPEC crude oil production based on direct communication in that same OPEC monthly report, wherein Iran reported oil production of 3,920,000 barrels per day in October...thus, when Iran cuts 4.5% from that level, their allowed production will be 3,797,000 barrels per day, actually 90,000 barrels per day more than their OPEC reference production...

The next graphic, as the heading tells us, shows both OPEC and world oil production monthly on the same graph, from November 2014 to October 2016, and it also comes from the November OPEC Monthly Oil Market Report. The pale blue bars represent OPEC oil production in millions of barrels per day as shown on the left scale, while the green graph represents global oil production in millions of barrels per day, and that's shown on the right scale. Global oil production reached 96.32 million barrels per day in October, just short of last year's November record, and OPEC production represented 34.9% of what was produced globally.  We’ll also note that the June OPEC Monthly Oil Market Report indicates global production in May was at 94.51 million barrels per day, so if OPEC is successful in cutting their production by 1.2 barrels per day from October levels, and the non-OPEC producers cut another 600,000 barrels per day, global oil production will be reduced all the way back to the level that we saw in May of this year, when there was an acceleration of rebel attacks on oil facilities and pipelines in Nigeria and Canadian oil production was interrupted by the Alberta wildfires.

December 3 2016 world oil supply

Lastly, instead of explaining in detail how oil prices moved this week, we'll just include a chart which shows oil prices for every hour, every day, for the 5 trading days in question. The graph below is a Saturday afternoon screenshot of the oil price graph at DailyFX, a trading news and analytics platform which specializes in foreign exchange (FX) trading.  Each bar on this graph represents oil prices for one hour of trading; when oil prices went up during a given hour, the bar will be green, with the starting price at the bottom of the bar and the price at the end of the hour at the top of the bar.  During those hours when the price of oil fell, the bar will be red, with the starting price at the top of the bar and the price at the end of the hour at the bottom of the bar.  This variety of graph is called a candlestick, and the range of oil prices outside of the opening and closing price for any given period is indicated by a thin 'wick' above or below the "candlestick" part of the graph.  Thus we can see that in the wee hours of Wednesday morning, when it appeared neither Iran or Iraq would agree to a cut, oil prices fell below $45 a barrel, as some were even forecasting that oil prices would fall to $20 a barrel after the presumed OPEC meeting failure.  Oil prices then ran up to as high as $51.75 a barrel during the day on Thursday, before sliding back to close at $51.06. But the rally picked up steam again on Friday and oil closed the week with another gain at $51.68 a barrel, up 14.2% in the three days after the OPEC meeting..

December 3 2016 hourly oil prices

Oil prices above $50 a barrel will likely accelerate the return of US drillers and frackers to the field, as we've already seen 5 months of steadily rising rig counts with oil prices stuck between $42 and $50 a barrel.  Also recall that two weeks ago, the Drilling Productivity Report for November showed that the count of drilled but uncompleted wells rose to 5,155 in October, with more than half of those in the Permian and the Eagle Ford, the two big shale oil fields of Texas.  We would expect a pickup in completion of those wells, and an attendant increase in US oil production as prices rise, partially ameliorating the OPEC production cuts. And should oil prices top $60 a barrel, the Dallas Fed 3rd quarter energy survey of American oil and gas executives indicates that between 65% and 70% of oil execs would then pull out all the stops and start drilling everywhere again.

 

note: the above was excerpted from my weekly synopsis at Focus on Fracking

November employment; 3rd quarter GDP revision, October income and outlays and construction spending

in an oddity of the economic calendar, the three most important monthly reports were all released this week: the Employment Situation Summary for November from the Bureau of Labor Statistics, the 2nd estimate of 3rd quarter GDP from the Bureau of Economic Analysis, and the October report on Personal Income and Spending, also from the Bureau of Economic Analysis...in addition, the week brought us the October report on Construction Spending (pdf), and the Dallas Fed Texas Manufacturing Outlook Survey, the last of the regional Fed manufacturing surveys for November, which reported their general business activity composite index rose to +10.2 from last month's -1.5, the first expansionary reading from that survey in 22 months, suggesting an end to the recession in the Texas oil patch economy...

the week’s privately issued reports included the ADP Employment Report for November, the Case-Shiller Home Price Index for September from S&P Case-Shiller, the light vehicle sales report for November from Wards Automotive, which estimated that vehicles sold at a 17.75 million annual rate in November, down 0.9% from the 17.91 million annual rate in October, and down 2.1% from November a year ago, and the widely followed manufacturing survey from the Institute for Supply Management (ISM): the November Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 53.2% in November, up from 51.9% in October, which suggesting a modest expansion in manufacturing firms nationally...

Employers Add 178,000 Jobs, Unemployment Rate Falls to 4.6% as 226,000 Quit Looking

the Employment Situation Summary for November reported fairly average job creation coupled with the first drop in average wages this year, while the unemployment rate fell to the lowest since August 2007 because of a drop in participation rate…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers added 178,000 jobs in November, after the previously estimated payroll job increase for September was revised up from 191,000 to 208,000, while the payroll jobs increase for October was revised down from 176,000 to 142,000…that means that this report represents a total of 176,000 more seasonally adjusted payroll jobs than were reported last month, which just happens to be the average payroll job gain over those three month...the unadjusted data, however, shows that there were actually 479,000 more payroll jobs extent than in October, 371,500 of which were seasonal jobs added in the retail sector...

seasonally adjusted job increases in November, however, indicated that retail was one of the few sectors to see relative job losses, with retail employment falling by 8,300 on a 17,600 job drop in clothing store employment, which basically means that seasonal retail hiring by those stores was below established norms by that amount; overall, seasonal retail hiring is the weakest it's been since 2009...other sectors seeing seasonally adjusted weakness were jobs in information and communication, which fell by 10,000, and durable goods manufacturing, which employed 6,000 less than last month...on the other hand, the broad professional and business services sector added 63,000 jobs, with 17,700 more positions in accounting and bookkeeping services and 14,300 more jobs in temporary help agencies...another 29,0000 were employed in the leisure and hospitality sector, with the addition of 18,900 jobs in bars and restaurants.. the health care sector saw the addition of 28,400 jobs with the addition of 22,200 jobs in ambulatory care services, of which 7,400 were in doctor's offices...branches of government added 22,000 more employees, with 15,400 of those employed by local governments, not including those working in schools...another 19,000 jobs were added in construction, with 14,400 of those working for residential specialty trade contractors...otherwise, employment in other major sector, including mining, manufacturing, wholesale trade, transportation and warehousing, and financial activities was little changed over the month...

with most of the job increases in generally poorer paying jobs, the establishment survey also showed that average hourly pay for all employees fell by 3 cents an hour to $25.89 an hour in November, after it had increased by a revised 11 cents an hour in October; at the same time, the average hourly earnings of production and non-supervisory employees increased by 2 cents to $21.73 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours in November, while hours for production and non-supervisory personnel was unchanged at 33.6 hours...at the same time, the manufacturing workweek decreased by 0.2 hour to 40.6 hours, while average factory overtime was unchanged at 3.3 hours...

meanwhile, the November household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 160,000 to 152,085,000, while the estimated number of those unemployed fell by 387,000 to 7,400,000; and hence the total labor force decreased by a total of 226,000, which represents the number of unemployed who quit looking for work....since the working age population had grown by 219,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 446,000 to a record high of 95,055,000, which was enough to reduce the labor force participation rate from 62.8% in October to 62.7% in November....meanwhile, the increase in number employed as a percentage of the increase in the population was stable and left the employment to population ratio, which we could think of as an employment rate, unchanged at 59.7%...at the same time, the relatively large drop in the number unemployed was also enough to cut the unemployment rate from 4.9% to 4.6%...meanwhile, the number of those who reported they were forced to accept just part time work fell by 222,000, from 5,889,000 in October to 5,669,000 in November, which combined with the lower unemployment rate, cut the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", down to 9.3% of the labor force in November, its lowest since April 2008....

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.. 

3rd Quarter GDP Revised to Indicate Growth at a 3.2% Rate

the Second Estimate of our 3rd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.2% rate in the quarter, revised up from the 2.9% growth rate reported in the advance estimate last month, as personal consumption of both goods and services and investment in non-residential structures were revised higher, the decrease in residential investment was less than previously reported, while investment in equipment and state & local government shrunk more than was previously reported, and private inventory investment increased less than was previously estimated...in current dollars, our third quarter GDP grew at a 4.6% annual rate, increasing from what would work out to be a $18,450.1 billion a year rate in the 2nd quarter to a $18,657.9 billion annual rate in the 3rd quarter of this year, with the headline 3.2% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was applied to the current dollar change...

as we review the changes, recall that the press release for the GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that which actually occurred over the 3 month period, and that the prefix "real" is used to indicate that the change has been adjusted for inflation using prices chained from 2009, from which all percentage changes in this report are calculated, as they thus represent the change in quantity of goods and services output...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting the changes here comes directly from the pdf for the 2nd estimate of 3rd quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2012; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; table 4, which shows the change in the price indexes for each of the components; and table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...the pdf for the 3rd quarter advance estimate, which this estimate revises, is here...

growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.1% growth rate reported last month to a 2.8% rate in this 2nd estimate…that growth rate figure was arrived at by deflating the 4.24% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation at a 1.4% annual rate in the 3rd quarter, which was unrevised from the PCE inflation rate reported a month ago...real consumption of durable goods grew at a 11.6% annual rate, which was revised from the 9.5% growth rate shown in the advance report, and added 0.83 percentage points to GDP, as an increase in real consumption of motor vehicles and parts at a 20.1% rate accounted for more than half the durables goods increase...real consumption of nondurable goods by individuals shrunk at at a 0.6% annual rate, revised from the 1.4% decrease rate reported in the 1st estimate, and subtracted 0.09 percentage points from 3rd quarter economic growth, as higher consumption of food and beverages at home was more than offset by lower consumption of clothing, energy goods, and other non-durables ….at the same time, consumption of services rose at a 2.5% annual rate, revised from the 2.1% growth rate reported last month, and added 1.15  percentage points to the final GDP tally, as real consumption of housing and utilities rose at a 3.0% rate while all other services increased as well...

meanwhile, seasonally adjusted real gross private domestic investment grew at a 2.1% annual rate in the 3rd quarter, revised from the 3.1% growth estimate reported last month, as real private fixed investment shrunk at a 0.9% rate, rather than at the 0.6% rate reported in the advance estimate, while inventory growth was somewhat less than previously estimated...investment in non-residential structures was revised from growth at a rate of 5.4% to growth at a 10.1% rate, while real investment in equipment was revised to show contraction at a 4.8% rate, worse than the 2.7% contraction rate previously reported, and the quarter's investment in intellectual property products was revised from growth at a 4.0% rate to growth at a 1.0% rate...on the other hand, real residential investment was shown to be shrinking at a 4.4% annual rate, rather than the 6.2% contraction rate previously reported…after those revisions, the increase in investment in non-residential structures added 0.26 percentage points to the 3rd quarter's growth rate, the decrease in investment in equipment subtracted 0.28 percentage points from growth, lower residential investment subtracted 0.17 percentage points from GDP, while growth in investment in intellectual property added just 0.04 percentage points to 3rd quarter GDP...

in addition, investment in real private inventories grew by an inflation adjusted $7.6 billion in the 3rd quarter, revised from the originally reported $12.6 billion of inventory growth...this came after inventories had shrunk at an inflation adjusted $9.5 billion rate in the 2nd quarter, and hence the $17.0 billion (rounded) increase in real inventory growth added 0.49 percentage points to the quarter's growth rate, in contrast to the 0.61 percentage point addition from inventory growth that was indicated in the advance estimate....since growth in inventories indicates that more of the goods produced during the quarter were left in warehouses or "sitting on the shelf”, their increase by $17.0 billion meant that real final sales of GDP were relatively smaller by that much, and hence real final sales of GDP increased at a 2.7% rate in the 3rd quarter, little changed from the real final sales increase at a 2.6% rate in the 2nd quarter, when the change in inventories was negative, raising real final sales…

the previously reported increase in real exports was revised slightly higher with this estimate, while the reported increase in real imports was revised slightly lower, and as a result the change in our net trade was a larger addition to GDP rather than was previously reported...our real exports grew at a 10.1% rate rather than the 10.0% rate reported in the first estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 1.18 percentage points to the 3rd quarter's growth rate, up a bit from the 1.17 percentage point addition shown in the previous report....meanwhile, the previously reported 2.3% increase in our real imports was revised to a 2.1% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, their increase subtracted 0.31 percentage points from 3rd quarter GDP, rather than the 0.34 percentage point subtraction shown last month....thus, our improving trade balance added a net 0.87 percentage points to 3rd quarter GDP, rather than the 0.83 percentage point addition that had been indicated by the advance estimate…

finally, the entire government sector grew at a 0.2% rate, revised from the growth at a 0.5% rate previously reported, as there were negative revisions to real state & local government consumption and investment, while federal government consumption and investment was statistically unrevised...real federal government consumption and investment was seen to have grown at a 2.5% rate from the 2nd quarter in this estimate, which was unrevised, as real federal outlays for defense grew at a 2.1% rate and added 0.12% percentage points to 3rd quarter GDP, while all other federal consumption and investment grew at a 3.0% rate and added 0.10% percentage points to 2nd quarter GDP....meanwhile, real state and local consumption and investment shrunk at a 1.1% rate in the quarter, which was revised from the 0.7% contraction rate reported in the 1st estimate, and subtracted 0.25% percentage points from 2nd quarter GDP....note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services...

Personal Income up 0.6% in October, Personal Spending up 0.3%, PCE Price Index up 0.2%

the October report on Personal Income and Outlays from the Bureau of Economic Analysis includes the month's data for our personal consumption expenditures (PCE), which accounts for roughly 69% of the month's GDP, and with it the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated...in addition, this release reports our personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if October's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from September to October....

thus, when the opening line of the press release for this report tell us "Personal income increased $98.6 billion (0.6 percent) in October", they mean that the annualized figure for seasonally adjusted personal income in October, $16,260.0 billion, was $98.6 billion, or a bit more than 0.6% greater than the annualized personal income figure of $16,161.3 billion extrapolated for September; the actual, unadjusted change in personal income from September to October is not given...at the same time, annualized disposable personal income, which is income after taxes, also rose by more than 0.6%, from an annual rate of $14,164.8 billion in September to an annual rate of $14,251.3 billion in October...the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in October, the largest contributors to the $98.6 billion annual rate of increase in personal income were a $45.2 billion increase in wages and salaries and a $27.8 billion increase in dividend and interest income…

for the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $38.1 billion rate, or a bit more than 0.3%, as the annual rate of PCE rose from $12,886.9 billion in September to $12,924.9 in October....September PCE was revised from $12,844.0 billion annually to $12,886.9 billion, a revision that was already included in the 2nd estimate of 3rd quarter GDP which we just reviewed (this report, although usually released a business day later than the GDP release, is computed concurrently)....the current dollar increase in October spending resulted from a $52.2 billion annualized increase to an annualized $4,189.0 billion in spending for goods, which was offset by a $14.1 billion decrease to an annualized $8,735.9 billion in spending for services...total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $40.4 billion to $13,391.2 billion annually in October, which left total personal savings, which is disposable personal income less total outlays, at a $860.2 billion annual rate in October, up from the revised $814.1 billion in annualized personal savings in September... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 6.0% in October from the September savings rate of 5.7%...

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, which is included in Table 9 in the pdf for this report...that index was at 111.394 in October, up from 111.124 in September, giving us a PCE price index change and an inflation adjustment of 0.0243% in October, which the BEA rounded to +0.2% in the press release...note that when the PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where we see that October's chained dollar consumption total works out to 11,603.2 billion annually, 0.0526% more than September's 11,527.3 billion, a difference that the BEA reports as +0.1%...

however, to estimate the impact of the change in October PCE on the change in GDP, the month over month change in PCE doesn't help us much, since GDP is reported quarterly...thus we have to compare October's real PCE to the the real PCE of the 3 months of the third quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the quarterly annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3rd quarter was represented by 11,563.5 billion in chained 2009 dollars..(ie, that's the same as is shown in table 3 of the pdf for the 3rd quarter GDP report)....when we compare October PCE of 11,603.2 to the 3rd quarter real PCE of 11,563.5, we find that October real PCE has grown at a 1.38% annual rate compared to the 3rd quarter....that would mean that even if October real PCE does not improve during November and December, growth in PCE would still add 0.95 percentage points to the growth rate of the 4th quarter...

Construction Spending Rose 0.5% in October after Prior Months Were Revised Much Higher

the Census Bureau's report on construction spending for October (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,172.6 billion annually if extrapolated over an entire year, which was 0.5 percent (±1.5%)* above the revised annualized September estimate of $1,166.5 billion and also 3.4 percent (±1.8%)* above the estimated annualized level of construction spending in October of last year...the annualized September construction spending estimate was revised 1.4% higher, from $1,150.0 billion to $1,166.5 billion, while the annual rate of construction spending for August was revised 1.0% higher, from $1,154.4 billion to $1,166.5 billion...the combined upward revisions to August and September construction spending would increase annualized 3rd quarter construction by more than $9.5 billion and would thus imply a further upward revision of about 0.24 percentage points to third quarter GDP when the third estimate is released on December 22nd....

private construction spending was at a seasonally adjusted annual rate of $885.9 billion in October, 0.2 percent (±1.8%)* below the revised September estimate of $887.4 billion, which was revised up from the $879.7 billion reported last month...residential spending at a $466.2 billion rate in October was 1.6 percent (±1.3%)* higher than the upwardly revised annual rate of $458.8 billion in September, while private non-residential construction spending fell 2.1 percent (±1.0%) to $419.6 billion from the revised September level, led by a 4.3% decrease in spending for construction of power facilities....at the same time, public construction spending was estimated to be at an annual rate of $286.8 billion, 2.8 percent (±2.8%) above the revised September estimate of $279.1 billion, with public spending for education up 4.1 percent (±3.0%) to an annual rate of $72.2 billion...

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of October spending reported in this release on 4th quarter GDP is difficult because all figures given here are nominal and as you know, data used to compute the change in GDP must be adjusted for changes in price... there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for all of those, we've opted to use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment... that index showed that aggregate construction costs were up 0.7% in October, after being unchanged in August and rising 0.1% in September...on that basis, we can estimate that October construction costs were roughly 0.8% more than those of July and August, and 0.7% more than September...we then use those percentages to inflate higher priced spending figures for each of those months, which is arithmetically the same as deflating October construction spending, for purposes of comparison...annualized construction spending in millions of dollars for the third quarter months is given as 1,166,509 in September, 1,166,513 in August, and 1,160,407 in July...thus to adjust October's nominal construction spending of $1,172,638 million for inflation compared to that of the third quarter, our formula becomes: 1,172,638 / (((1,166,509 * 1.007) + ( 1,166,513 *1.008) + (1,160,407* 1.008)) / 3) = 0.999348, meaning real construction spending in October was down 0.065% vis a vis the 3rd quarter, or down at a 0.26% annual rate...to figure the effect of that small change on GDP,  we annualize the difference between the third quarter average and October and take the result as a fraction of 3rd quarter GDP, and find that October construction spending is falling at a rate that would subtract 0.02 percentage points from 4th quarter GDP, if there is no improvement over the next two months…

 

(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, November 27, 2016

October durable goods, new and existing home sales

there were just a few widely watched reports released this week, with no releases on Thanksgiving or Friday....Tuesday saw the Existing Home Sales Report for October from the National Association of Realtors (NAR), and Wednesday saw the advance report on durable goods for October and the October report on new home sales, both from the Census bureau...on Monday we had the release of the Chicago Fed National Activity Index (CFNAI) for October, a weighted composite index of 85 different economic metrics, which rose to -0.08 in October from -0.23 in September, revised from the -0.14 that had been reported for September last month....that left the 3 month average of the index at –0.27 in October, down from a revised –0.20 in September, which indicates that national economic activity remains somewhat below the historical trend over recent months....in addition, Tuesday also saw the release of the Richmond Fed Survey of Manufacturing Activity for November, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index rose to +4 in November from -4 in October, the first positive reading in 3 months, suggesting a return to expansion for that region's manufacturing...

October Durable Goods: New Orders Up 4.8%, Shipments Up 0.1%, Inventories Unchanged

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for October (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $11.0 billion or 4.8 percent to $239.4 billion in October, after September's new orders were revised from the $227.3 billion reported last month to $228.4 billion, now 0.4% greater than August's orders, which had originally been reported as down 0.1%...year to date new orders are still 0.2% below those of 2015, vs the -0.4% year over year change we saw in this report last month....the volatile monthly change in new orders for transportation equipment was responsible for the big jump, as new transportation equipment orders rose $9.5 billion or 12.0 percent to $88.2 billion, on a 94.1% increase to $21,819 million in new orders for commercial aircraft....excluding orders for transportation equipment, new orders still rose 1.0%, and excluding just new orders for defense equipment, new orders increased 5.2%.... at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $234 million or 0.4% to $63,053 million...

meanwhile, the seasonally adjusted value of October shipments of durable goods, which will be included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by  $0.2 billion or 0.1 percent to $234.6 billion, after September shipments were revised from from $234.5 billion to $234.4 billion, still up 0.8% from August...shipments of transportation equipment were down 1.4% on a 0.7% decrease in shipments of motor vehicles, a 3.6% decrease in shipments of commercial aircraft, and a 4.4% decrease in shipments of defense aircraft, while a $0.3 billion or 1.1% increase to $30.5 billion in shipments of fabricated metal products led the overall shipments increase...at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 4th month in a row, after being down the prior 6 months, increasing by $0.1 billion or less than 0.1 percent to $383.7 billion, after September inventories were revised from $384.0 billion to $383.6 billion, statistically unchanged from August...a $0.2 billion or 0.2 percent to $123.8 billion in inventories of transportation equipment accounted for the increase, as without them other inventories were down by $0.1 billion...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, increased for the first time in 5 months, rising by $8.2 billion or 0.7 percent to $1,128.6 billion, following a September decrease of 0.2%, which was revised from the previously reported 0.4% decrease...a $7.5 billion or 1.0 percent to $773.1 billion increase in unfilled orders for transportation equipment was responsible for most of the increase, as unfilled orders excluding transportation equipment orders were up $753 million or 0.2% to $355,527 million...compared to a year earlier, the unfilled order book for durable goods is still 1.1% below the level of last October, with unfilled orders for transportation equipment still 1.9% below their year ago level, largely on a 6.7% decrease in the backlog of orders for motor vehicles...  

Recent New Home Sales Revised Lower, Still Ahead of Last Year’s Pace

the Census report on New Residential Sales for October (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 563,000 homes annually, which was 1.9 percent (±13.1%)* below the revised September rate of 574,000 new single family home sales a year but 17.8 percent (±16.9%) above the estimated annual rate that new homes were selling at in October of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether October new home sales rose or fell from those of September, 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....with this report; sales new single family homes in September were revised from the annual rate of 593,000 reported last month to a 574,000 a year rate, while home sales in August, initially reported at an annual rate of 609,000 and revised to a 575,000 a year rate last month, were revised to a 567,000 a year rate with this report, and while July's annualized home sale rate, initially reported at an annual rate of 654,000 and revised from a 659,000 a year rate to a 652,000 a year rate last month, were further revised down to a 622,000 rate with this release..

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 45,000 new single family homes sold in October, approximately the same as the estimated 45,000 new homes that sold in September but down from the 47,000 that sold in July.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in October was $304,500, down from the median sale price of $314,100 in September but up from the median sales price of $298,700 in October a year ago, while the average October new home sales price was $354,900, down from the $364,100 average sales price in September, and down from the average sales price of $366,900 in October a year ago....a seasonally adjusted estimate of 246,000 new single family houses remained for sale at the end of October, which represents a 5.2 month supply at the October sales rate, up from the reported 4.8 months of new home supply in September...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales at 563,000 Annual Rate in October and A few Comments on October New Home Sales..

October Existing Home Sales Up 2.0% from September

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 2.0% from September to October, projecting that a post recession record 5.60 million existing homes would sell over an entire year if the October home sales pace were extrapolated over that year, a pace that was also 5.9% above the annual sales rate projected in October of a year ago...September sales, now shown at a 5.49 million annual rate, were revised up from the 5.47 million annual rate indicated by last month's report...the NAR also reported that the median sales price for all existing-home types was $232,200 in October, down from $235,300 in September but 6.0% higher than in October a year earlier, which they report as "the 56th consecutive month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Jump Again in October", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 446,000 homes sold in October, down by 8.2% from the 486,000 homes that sold in September, and up by less than a half percent from the 471,000 homes that sold in October of last year, so we can see that it was just a seasonal adjustment that caused the annualized published figures to show an increase......that same pdf indicates that the median home selling price for all housing types fell 1.3%, from a revised $235,300 in September to $232,200 in October, while the average home sales price was $274,300, down 1.0% from the $277,100 average sales price in September, but up 4.4% from the $262,700 average home sales price of October a year ago...regionally, average home sales prices ranged from a low of $212,000 in the Midwest to a high of $372,900 in the West, with only the West seeing average home prices rise by a modest $500... for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: Existing Home Sales increased in October to 5.60 million SAAR and A Few Comments on October Existing Home Sales...

 

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

Sunday, November 20, 2016

October’s retail sales, consumer prices, industrial production, producer prices, and new housing; September’s business inventories..

agency reports released this week included Retail Sales for October and Business Sales and Inventories for September from the Census Bureau, the October Import-Export Price Index, the October Producer Price Index and the October Consumer Price Index from the Bureau of Labor Statistics, the October report on Industrial Production and Capacity Utilization from the Fed, and the October report on New Residential Construction, also from the Census Bureau...in addition, the BLS also released the Regional and State Employment and Unemployment for October on Friday, which breaks down the establishment survey and household survey data from the monthly jobs report released two weeks ago by region and by state..

this week also saw the release of three regional Fed manufacturing surveys for November: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index rose from -6.8 in October to +1.5 in November, it's first positive reading in 4 months, suggesting that the contraction in First District manufacturing may be ending...the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions edged down, from a reading of +9.7 in October to +7.6 in November, suggesting that the region's manufacturing continues to expand, albeit at a more moderate pace, while the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to +1 in September, down from +6 in both September and October, suggesting weak expansion in that region for the third month in a row, following 18 months of contraction mostly in energy related industries...

Retail Sales Rise 0.8% in October after September Increase Revised up to 1.0%

seasonally adjusted retail sales increased in October after retail sales for August and September were both revised higher...the Advance Retail Sales Report for October (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $465.9 billion during the month, which was up 0.8 percent (±0.5%) from September's revised sales of $462.1 billion and 4.3 percent (±0.7%) above the adjusted sales in October of last year...September's seasonally adjusted sales were revised from $459.8 billion to $462.1 billion, while August's sales were also revised a bit higher, from $457.0 billion to $457.2 billion, with this release....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales rose 1.5%, from $447,774 million in September to $454,520 million in October, while they were up 2.2% from the $444,959 million of sales in October a year ago...the total $2.5 billion upward revision to August and September sales should boost previous estimates of the personal consumption expenditures contribution to 3rd quarter GDP by about 0.22 percentage points...

included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the October Census Marts pdf....the first double column below gives us the seasonally adjusted percentage change in sales for each kind of business from the September revised figure to this month's October "advance" report in the first sub-column, and then the year over year percentage sales change since last October in the 2nd column...the second double column pair below gives us the revision of the September advance estimates (now called "preliminary") as of this report, with the new August to September percentage change under "Aug 2016 r" (revised) and the September 2015 to September 2016 percentage change as revised in the last column shown...for your reference, the table of last month’s advance estimate of September sales, before this month's revisions, is here.….

October 2016 retail sales table

from the above table, we can see that the 1.1% increase to $94,683 million in seasonally adjusted sales at motor vehicle and parts dealers was not a major factor in the October sales increase, because without automotive sales, retail sales were still up 0.8%...car sales for September, however, were revised higher, from $92,862 million to $93,681 million, and were responsible for most of the upward revision to that month's sales...also note that there was an 2.4% increase to $33,860 million in sales at gas stations, which we figure to be mostly due to higher prices....however, if we take out both gas station sales and motor vehicles and parts sales, retail sales were still up 0.7%...we'll be able to ascertain the net economic impact of this nominal jump in retail sales once we adjust them for the price data from the CPI..

October CPI up 0.4% on Higher Priced Gasoline

the consumer price index increased by 0.4% in October, as higher prices for energy and housing were only partially offset by lower prices for groceries...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index rose 0.4% in October after it had risen 0.3% in September, 0.2% in August, been unchanged in July, and rose 0.2% in both May and June....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 241.428 in September to 241.729 in October, which left it statistically 1.636% higher than the 237.838 index reading of last October, which is reported as a 1.6% YoY increase....regionally, prices for urban consumers have risen 2.3% in the West, 1.6% in the Northeast, 1.5% in the South, and 1.0% in the Midwest over the past year, with greater price increases within regions in cities of more than 1,500,000 people everywhere except in the Northeast, where the largest cities averaged just a 1.5% price increase...with higher prices for gasoline alone accounting for more than half the gain in the overall index, seasonally adjusted core prices, which exclude food and energy, rose by just 0.1% for the month, with the unadjusted core index rising from 248.731 to 249.218, which put it 2.144% ahead of its year ago reading of 243.985...

the volatile seasonally adjusted energy price index increased by 3.5% in October, after it had risen 2.9% in September, been unchanged in August and fell by 1.6% in July...that October increase was also enough to push the year over year energy index into positive territory at +0.1% for the first time in almost 2 years....prices for energy commodities were 6.7% higher while the index for energy services rose by 0.5%, after rising by 0.7% in September....the increase in the energy commodity index included a 7.0% hike in the price of gasoline, the largest component, and a 5.9% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, fell by an average of 0.2%…within energy services, the index for utility gas service rose by 0.9% after increasing by 0.8% in September, 2.1% in August and by 3.1% in July, and hence utility gas is now priced 4.8% higher than it was a year ago, while the electricity price index rose by 0.4%, after increasing by 0.7% in September...however, energy commodities are still priced 0.9% below their year ago levels, with gasoline prices also averaging 0.9% lower than they were a year ago.…meanwhile, the energy services price index is now 1.3% higher than last October, as even electricity prices have increased by 0.4% over that period..

the seasonally adjusted food price index was unchanged in October, just as it was in July, August and in September, as 0.2% lower prices for food purchased for use at home offset 0.1% higher prices for food bought to eat away from home, where average prices at fast food outlets rose 0.2% while average prices at full service restaurants was unchanged...the food price index is now 0.4% lower than a year ago, as a 2.3% decrease in the price of food at home has been mostly offset by a 2.4% increase in prices for food away from home, which included a 1.9% increase in prices of lunches at elementary and secondary schools...

in the food at home categories, the price index for cereals and bakery products was unchanged as 2.7% higher prices for rice and a 0.5% increase in prices for bread were offset by a 2.7% decrease in prices for fresh sweetrolls, coffeecakes, doughnuts and a 1.0% decrease in flour and prepared flour mixes...the price index for the meats, poultry, fish, and eggs group fell by 0.7% as beef prices fell 1.5%, egg prices fell 1.2%, and pork prices fell 1.1%, while the index for dairy products was 0.3% higher as a 0.9% increase in prices for milk was offset by 0.2% drop in prices for other dairy products...the fruits and vegetables index was 0.2% higher, as a 2.2% increase in prices for frozen fruits and vegetables and a 0.9% increase for canned fruits and vegetables more than offset 1.5% lower prices for oranges and 2.0% lower priced lettuce....the beverages index was 0.4% lower as a 1.1% drop in the price of roast coffee more than offset 0.7% higher prices for carbonated drinks...lastly, prices in the other foods at home category were on average 0.1% lower, as 2.0% lower priced butter and 1.0% lower salad dressings were offset by higher prepared frozen foods and 0.5% higher peanut butter......among food at home line items, only eggs, which are now priced 35.5% lower than a year ago, and lettuce, which is 11.9% lower than last year, have seen a price change greater 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, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.1% in October after rising by 0.1% in September, 0.3% in August, 0.1% in July and by 0.2% in April, in May and in June, the composite of all goods less food and energy goods increased by 0.1%, while the composite for all services less energy services was 0.2% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust October retail sales for inflation in national accounts data, the index for household furnishings and supplies was unchanged as a 2.5% drop in prices for laundry equipment was offset by 2.5% higher prices for living room, kitchen, and dining room furniture, while the apparel price index was 0.3% higher on a 1.0% increase in prices for footwear and a 0.3% increase in prices for women's apparel...prices for transportation commodities other than fuel were up 0.1%, as prices for new cars rose 0.2%, prices for new trucks rose 0.3%, while prices for used cars and trucks were down 0.1% after falling 0.3% in September, 0.6% in August,1.0% in July, 1.1% in June and 1.3% in May...meanwhile, prices for medical care commodities were 0.1% higher on a 0.2% increase in prescription drug prices...on the other hand, the recreational commodities index fell 0.4% on a 1.2% drop in TV prices and 1.3% lower toy prices, and the education and communication commodities index was 0.6% lower as a 2.1% cut in prices for personal computers and a 1.8% price drop for telephone hardware more than offset a 0.3% increase in prices for college textbooks....lastly, a  separate price index for alcoholic beverages was up 0.4% on 0.6% higher prices for beer and 0.9% higher prices for distilled spirits at home, while the price index for ‘other goods’ was down 0.1% as a 0.4% increase in cigarette prices was more than offset by 0.3% decreases in prices for cosmetics, perfume, bath, nail preparations and implements and for hair, dental, shaving, and miscellaneous personal care products...

within core services, the price index for shelter rose 0.4% on a 0.4% increase in rents, a 0.3% increase in owner's equivalent rent, and a 1.8% increase in costs for lodging away from home at hotels and motels, while costs for water, sewers and trash collection rose 0.1% and other household operation costs were 0.3% higher....meanwhile, the index for medical care services was unchanged as prices for hospital services rose 0.2% while prices for both physicians' services and health insurance were 0.1% lower...at the same time, the transportation services index was 0.2% lower on a 2.2% drop in airfares and 0.5% lower car and truck leasing...the recreation services index was unchanged as pet services rose 0.4% while video & audio rental services fell 2.4%, and the index for education and communication services was also unchanged as internet services providers cut prices 1.0%, wireless telephone services were 0.5% lower, while elementary and high school tuition and fees rose 0.8% and college tuitions rose 0.4%...lastly, the index for other personal services was also unchanged as tax return services fell 0.2% while apparel services other than laundry and dry cleaning were 0.5% higher...among core prices, televisions, which are now 21.7% cheaper than a year ago, internet services, which are down by 10.1% since last October, wireless telephone services, which are 10.2% lower, and automobile service club membership fees, which are now down 10.8% from a year ago, all saw prices drop by more than 10% over the past year, while no line item showed an increase of that magnitude...

Estimating the Real Change in October Retail Sales Using the October CPI

with this CPI release for October, we can now attempt to estimate the economic impact of the October retail sales figures which we reviewed earlier, which saw nominal sales rise 0.8%...for the most accurate estimate, and the way the BEA will be figuring 4th quarter GDP at the end of January, we would have to take each type of retail sales and adjust it with the appropriate change in price to determine real sales; for instance, October's clothing store sales, which were up by 0.6% in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were up by 0.3%, which tells us that real retail sales of clothing were only up by 0.3% October...then, to get a GDP relevant quarterly change, we'd have to compare such adjusted real clothing sales for October with the similarly adjusted real clothing consumption for the 3 months of the third quarter (July, August and September), and then repeat that process for each other type of retailer, obviously quite a tedious task to undertake manually.  The short cut we usually take to get a quick and dirty estimate of the change in real sales for the month is to apply the composite price index of all commodities less food and energy commodities, which was up 0.1%, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales…in dollars, those sales were up by roughly 0.9% in October, while as we noted their composite price index was up 0.1%, meaning that real retail sales excluding food and energy sales were up by around 0.8%.  then, for the rest of the retail aggregate, we find sales at food and beverage stores were up 0.9% in September, while prices for food at home were down 0.2%, suggesting a real increase of around 1.1% in the quantity of food & beverages purchased for the month.  Next, sales at bars and restaurants were down 0.7% in dollars, but those dollars also bought 0.2% less “food away from home”, so real sales at bars and restaurants were really down by about 0.9%.  And while gas station sales were up 2.2%, gasoline prices were up 7.0%, suggesting a 4.8% real decrease in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and since we don't have a detailed breakout on that, we'll just zero out that obviously wrong decrease in gasoline consumption from our calculation...thus, weighing the food and energy components at roughly 30% of total retail sales, and core sales at 70%, we can estimate that the aggregate of real retail sales in October were up about 0.6% from those of September…

next, to see how the change in real October sales impacts the change in 4th quarter GDP, we have to compare those October sales to those of the 3rd quarter...first, to get an approximation of the real adjusted changes for October vis a vis the 3 months of the third quarter, we also have to adjust the October percentage change for the upward revision to September and August sales that were included in the October retail report, which saw September's seasonally adjusted sales revised from $459.8 billion to $462.1 billion and August's sales revised from $457.0 billion to $457.2 billion...percentage-wise, those revisions increased the September sales increase over August from 0.6% to 1.0%, while it left the August percentage change statistically unchanged at 0.1% below July...next, we access Table 7 in the pdf for the September personal income and outlays report, which gives us already inflation adjusted changes for the prior months, where we find that real sales of goods were up 0.6% in July, down 0.8% in August and up 0.5% in September (month over month)...after adjusting those real sales with the blunt instrument of the October retail revisions, we could then estimate that revised real goods would be up 0.6% in July, down 0.8% in August and up 0.9% in September...that means that October real sales, up 0.6% from September, were hence up about 1.5% from August and up 0.7% from July, or up more than 0.9% from the average of the 3rd quarter...that works out to growth in real goods consumption at a 3.75% annual rate, a pace that would add at approximately .82 (+/-10%) percentage points to 4th quarter GDP in the goods portion of personal consumption expenditures alone, even should November and December show no improvement...

Industrial Production Unchanged in October, Capacity Utilization Slips 0.1%

the Fed's G17 release on Industrial production and Capacity Utilization reported that industrial production was unchanged in October by after falling by a revised 0.2 percent in September, as revisions to the index for utilities raised the rate of change in total industrial production in August from down 0.5% to down 0.1%, while it lowered the September change from up 0.1 to down 0.2%….the June to July percentage increase was also revised, from up 0.5% to up 0.4%....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 104.3 in October from 104.2 in September, which was statistically unrevised after the August index was revised from 104.2 to 104.5, and the July index was revised from 104.7 to 104.6...year over year industrial production remains down 0.9%, slightly better than last month's 1.0% decrease....

the manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.2, from 103.0 in September to 103.2 in October, after September's manufacturing index was revised down from 103.1 to 103.0, August's index was revised down from 102.9 to 102.8, and July's index was revised down from 103.5 to 103.4....meanwhile, the mining index, which includes oil and gas well drilling, rose from 104.2 in September to 106.1 in October, after the September index was revised down from 104.3, leaving the mining index 7.0% lower than it was a year ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, fell 2.6% in September, from 104.9 to 102.2, after the September utility index was revised up from 103.8 and the August utility index was revised up from 104.9 to 108.1; as a result of those revisions, the utility index is only 0.1% lower than it was a year earlier..

this report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry fell to 75.3% in October from 75.4% in September, which was recalculated but unchanged from last month’s report ...capacity utilization of NAICS durable goods production facilities rose from 76.0% in September to 76.2% in October, after September's figure was revised up from 75.8%, while capacity utilization for non-durables producers was unchanged from a downwardly revised 74.3%...capacity utilization for the mining sector rose to 77.0% in October from 75.2% in September, which was originally reported as 75.5%, while utilities were operating at 77.8% of capacity during October, down from their 79.9% of capacity during September, which was revised up from the previously reported 79.1%...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.... 

Producer Prices Flat in October as Higher Energy Prices are Offset by Lower Trade and Core Services

the seasonally adjusted Producer Price Index (PPI) for final demand was unchanged in October as prices for finished wholesale goods increased 0.4%, while margins of final services providers fell by 0.3%...this followed a September report that indicated the overall PPI had increased by 0.3%, with prices for finished goods up 0.7% while final demand for services rose 0.1%, and a August report that indicated the PPI was statistically unchanged, with prices for finished goods down 0.4% while final demand for services rose 0.1%....producer prices are now up 0.8% from a year ago, since most of the price decreases relating to lower oil and commodity prices went by the boards in early 2015...

as noted, the price index for final demand for goods, aka 'finished goods', rose by 0.4% in October, after rising 0.7% in September but falling by 0.4% in both July and August, as the index for wholesale energy prices rose 2.5% from September to October while the price index for wholesale foods was 0.8% lower and the index for final demand for core wholesale goods (ex food and energy) rose 0.1%...major wholesale price changes for September included a 20% increase for liquefied petroleum gas and a 9.7% increase for gasoline, while wholesale prices for eggs fell 21.1%, after rising 24.2% in September..

meanwhile, the index for final demand for services fell by 0.3% in October after rising by 0.1% in both August and September, falling by 0.3% in July and rising 0.4% in June, as the index for final demand for transportation and warehousing services rose 0.2% while the index for final demand for trade services fell 0.3% and the core services index for final demand for services less trade, transportation, and warehousing services was also 0.3% lower....among transportation and warehousing services, margins for air transport of freight rose 0.5% and margins for truck transport of freight rose 0.3% ..among trade services, seasonally adjusted margins for fuels and lubricants retailers were down 7.4%, margins for TV, video, and photographic equipment and supplies retailers were down 5.1%, and margins for food and alcohol retailers were 3.0% lower, while margins for major household appliances retailers were up 10.2%.. in the core final demand services index, 5.7% lower margins for securities brokerage, dealing, investment advice, and related services was the major factor in the October drop in the index…

this report also showed the price index for processed goods for intermediate demand was 0.3% higher, after rising 0.5% in September, falling 0.1% in August, and rising 0.2% in July, 0.9% in June, and 0.8% in May...however, prices for intermediate processed goods still remain 0.5% lower than in October a year ago, as they fell every month from last July through March....the price index for intermediate energy goods rose by 1.2% in October, while prices for intermediate processed foods and feeds fell 0.7%, and the core price index for processed goods for intermediate demand less food and energy was 0.2% higher...

at the same time, the price index for intermediate unprocessed goods was 0.6% lower in October, after rising by 1.3% in September, falling by 2.8% in August and 0.4% in July but after rising by 2.8% in June, 1.3% in May, 3.0% in April and 1.6% in March, in the only increases in that index since June of last year...contributing to the October decrease was a 5.7% drop in the price index for unprocessed foodstuffs and feedstuffs, as slaughter livestock prices fell 11.5%, and a 1.1% decrease in the index for core raw materials other than food and energy materials, while the index for crude energy goods rose 5.8% as prices for crude oil rose 10.4%... this raw materials index is still 4.2% lower than it was a year ago, but most of the year over year decrease of 26.4% that was seen in November 2015 has now been retraced...

lastly, the price index for services for intermediate demand was 0.6% lower in October, after being 0.4% higher in September, unchanged in August but after rising 0.3% higher in July and 0.8% in June, in only the second decrease for this index in the past year... the index for trade services for intermediate demand was 0.5% lower and the core price index for services less trade, transportation, and warehousing for intermediate demand was down 0.8%, while the index for transportation and warehousing services for intermediate demand was 0.2% higher...a major factor in the decrease in prices for core services for intermediate demand was a 3.1% decrease in the index for intermediate services related to business loans (partial); in addition, the indexes for securities brokerage, dealing, investment advice, and related services and marketing consulting services were also lower…margins for minerals and ores wholesaling, chemicals and allied products wholesaling, and fuels and lubricants retailing pulled the intermediate trade services down, while a 0.4% increase in prices for courier, messenger, and U.S. postal services led the intermediate transportation and warehousing services higher…over the 12 months ended in October, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.3% higher than it was a year ago...

October Housing Starts Jump Most in 34 Years, New Permits Rise

the report on New Residential Construction for October (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,323,000 units during the month, which was 25.5 percent (±12.6%) above the revised September estimated annual rate of 1,154,000 housing unit starts, and was 23.3 percent (±14.4%) above last October's pace of 1,073,000 housing starts a year...the figures in parenthesis are the most likely range of the change indicated; in other words, October's housing starts could have been up by as little as 12.9% or by as much as 38.1% from those of September, with even larger revisions possible after a number of months...in this report, the annual rate for September housing starts was revised up more than 10%, from the 1,047,000 reported last month to 1,154,000, while July starts, which were first reported at a 1,142,000 annual rate, were revised up from last month's initial revised figure of 1,150,000 annually to 1,164,000 annually with this report....

those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 114,900 housing units were started in October, up from the 94,800 units that were started in September...of those housing units started in October, an estimated 73,500 were single family homes and 40,500 were units in structures with more than 5 units, up from the revised 67,700 single family starts in September, and up from the 25,700 units started in structures with more than 5 units in September...

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in October, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,229,000 housing units, which was 0.3 percent (±2.0%)* above the September rate of 1,225,000 permits, and was 4.6 percent (±1.4%) above the rate of building permit issuance in October a year earlier...the annual rate for housing permits issued in September was unrevised at 1,225,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 97,900 housing units were issued in October, actually down from the revised estimate of 107,700 new permits issued in September...the October permits included 60,500 permits for single family homes, down from 63,300 single family permits issued in September, and 35,000 permits for housing units in apartment buildings with 5 or more units, down from 41,000 such multifamily permits a month earlier... for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.323 Million Annual Rate in October and Comments on October Housing Starts... 

September Business Sales Up 0.7% Business Inventories Up 0.1%

after the release of the October retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for September (pdf), which incorporates the revised September retail data from that October report and the earlier published September 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 $1,314.6 billion in September, up 0.7 percent (±0.2%) from August's revised sales, and up 0.8 percent (±0.4%) from September sales of a year earlier...note that total August sales were concurrently revised up from the originally reported  $1,304.1 billion to $1,305.9 billion....manufacturer's sales were up 0.8% to $463,012 million in September, and retail trade sales, which exclude restaurant & bar sales from the revised September retail sales reported earlier, rose 1.0% to $406,691 million, while wholesale sales rose 0.2% to $444,945 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,818.7 billion at the end of September, up 0.1 percent (±0.1%)* from August, and 0.6 percent (±0.6%)* higher than in September a year earlier...the value of end of August inventories, although recalculated, remained statistically unrevised at the $1,816.9 billion reported last month...seasonally adjusted inventories of manufacturers were estimated to be valued at $621,350 million, statistically unchanged from August, inventories of retailers were valued at $607,205 million, 0.2% more than in August, while inventories of wholesalers were estimated to be valued at $590,176 million at the end of September, 0.1% higher than in August...

in assessing the impact of the components of this report on 3rd quarter GDP, we looked at the September factory inventories reported two weeks ago and now included herein and judged that 3rd quarter GDP would have to be adjusted upwards by 0.09 percentage points to account for the differences between that factory report and GDP estimates; conversely, last week we judged that September wholesale inventories were over-estimated at a $2.06 billion rate, implying an downward revision of 0.06 percentage points to 3rd quarter GDP...for retail inventories, the BEA's technical note for 3rd quarter GDP indicates that they had estimated that the value of June retail inventories in September to be $607.6 billion, up from $605.8 billion in August...this report thus revises that and reports that September retail inventories were actually at $607.2 billion, meaning the end of 3rd quarter retail inventories were lower, at a $1.6 billion annual rate, than the BEA had estimated in the advance report of 3rd quarter GDP, thus suggesting a downward revision of 0.04 percentage points to 3rd quarter GDP, based on those overestimated retail inventories....together, the BEA's net overestimation of 3rd quarter business inventories would thus imply a 0.01 percentage point reduction to 3rd quarter GDP when the 2nd estimate is released at the end of November...

 

(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, November 13, 2016

September job openings, wholesale sales, and Mortgage Monitor

it's been an unusually uneventful week; the only agency reports released this week were the Job Openings and Labor Turnover Survey (JOLTS) for September from the Bureau of Labor Statistics, the September report on Wholesale Trade, Sales and Inventories from the Census Bureau, and the Consumer Credit Report for September from the Fed...the later showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $19.3 billion, or at a 6.3% annual rate, as non-revolving credit expanded at a 6.7% rate to $2,728.0 billion and revolving credit outstanding rose at a 5.8% rate to $978.8 billion....for more details on that report, including 5 graphs, see Robert Oak’s post at the Economic Populist: Consumer Credit Increases By $19.3 Billion... this week also saw the release of the Mortgage Monitor for September (pdf) Black Knight Financial Services, which we'll briefly review today...

Job Openings Increase in September; Hiring and Firing Fall

the Job Openings and Labor Turnover Survey (JOLTS) report for September from the Bureau of Labor Statistics estimated that seasonally adjusted job openings increased by 33,000, from 5,453,000 in August to 5,486,000 in September, after August job openings were revised 10,000 lower, from 5,443,000 to 5,453,000...September's jobs openings were 2.3% higher than the 5,360,000 job openings reported in September a year ago, as the job opening ratio expressed as a percentage of the employed rose from 3.6% in August to 3.7% in September, which was also up from 3.6% a year ago...all of the September increase in openings can be accounted for by the 33,000 job opening increase to 1,055,000 openings in the broad professional and business services sector, while the leisure and hospitality sector saw openings by decrease 48,000 to 701,000 (see table 1 for more details)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

the JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in September, seasonally adjusted new hires totaled 5,081,000, down by 187,000 from the revised 5,268,000 who were hired or rehired in August, as the hiring rate as a percentage of all employed fell to 3.5% from 3.6% in August, the same as at was in September a year earlier (details of hiring by sector since March are in table 2)....meanwhile, total separations fell by 148,000, from 5,052,000 in August to 4,914,000 in September, while the separations rate as a percentage of the employed fell from 3.5% to 3.4%, which was also down from 3.5% in September a year ago (see table 3)...subtracting the 4,914,000 total separations from the total hires of 5,081,000 would imply an increase of 168,000 jobs in September, a bit less than the revised payroll job increase of 191,000 for September reported in the October 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 3,070,000 of us voluntarily quit our jobs in September, up from the revised 3,009,000 who quit their jobs in August, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.1% of total employment, while it was up from 1.9% a year earlier (see details in table 4)....in addition to those who quit, another 1,474,000 were either laid off, fired or otherwise discharged in September, down by 165,000 from the revised 1,639,000 who were discharged in August, as the discharges rate fell from 1.2% to 1.0% of all those who were employed during the month, a record low that was also down from the discharges rate of 1.3% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 370,000 in September, up from 351,000 in August, for an 'other separations rate’ of 0.3%, which was up from 0.2% in August, but the same as the 'other separations rate' of 0.3% in September of last year....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

September Wholesale Sales Up 0.2%, Wholesale Inventories Up 0.1%

the September report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $444.9 billion, up 0.2 percent (+/-0.4%) from the revised August level, and up 0.4 percent (+/-1.1%) from wholesale sales of September 2015... the August preliminary estimate was revised down to $444.1 billion from the $444.3 billion in wholesale sales reported last month, which nonetheless left the July to August change statistically unchanged at +0.7%.... September wholesale sales of durable goods were up 0.2 percent (+/-0.7%) from last month and were up 0.2 percent (+/-1.8%) from a year earlier, with a 1.5% increase in wholesale sales of electrical and electronic goods leading the increase for the month, partially offset by 2.4% lower wholesale sales of hardware, plumbing and heating equipment and supplies....wholesale sales of nondurable goods were up 0.1 percent (+/-0.7%) from August and were up 0.5 percent (+/-1.2%) from last September, with a 5.0% increase in wholesale sales of petroleum and petroleum products offsetting a 12.0% decrease in wholesale sales of farm product raw materials...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 left in a warehouse represent goods that were produced but not sold, and this September report estimated that wholesale inventories were valued at a seasonally adjusted $590.2 billion at month end, up 0.1 percent (+/-0.2%) from the revised August level but 0.1 percent (+/-1.9%)* lower than in September a year ago....August's inventory value was revised from $589.1 billion to $589.45 billion, which meant that the August to September percent change was revised from the advance estimate of down 0.2 percent (+/-0.4%) to down 0.1 percent (+/-0.4%)...wholesale inventories of durable goods were down 0.4 percent (+/-0.4%) from August, and were down 1.9 percent (+/-1.6%) from a year ago, with 1.7% lower wholesale inventories of motor vehicle and motor vehicle parts driving the September decrease...at the same time, the value of wholesale inventories of nondurable goods were up 0.9 percent (+/-0.4%) from August and were up 2.7 percent (+/-3.3%) from last September, as the value of wholesale inventories of petroleum and petroleum products were up 3.8% and inventories of drugs and druggists' sundries were up 3.3%..

the BEA's technical note for 3rd quarter GDP indicates that they had estimated that the value of wholesale inventories to be at $590.7 billion in September, up from 589.5 billion in August, which they based on the new Advance Economic Indicators Report from the Census Bureau, a sketchy report which had been released before the advance GDP report...this report thus revises that advance report and thus reports that end of September wholesale inventories were actually $0.5 billion less than had been indicated in the GDP report, or a revision to annualized nominal growth in inventories at $2.06 billion annual rate, thus implying an downward revision of 0.06 percentage points to 3rd quarter GDP...note that we are not adjusting these GDP revision estimates for inflation because we have assumed that the same deflators that were used in the advance report on 3rd quarter GDP will be used in the GDP revisions…

Mortgage Delinquencies Up Slightly in September, New Foreclosures Down 10.3%

the Mortgage Monitor for September (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 509,047 home mortgages, or 1.04% of all mortgages outstanding, remaining in the foreclosure process at the end of September, which was down from 527,298, or 1.04% of all active loans, that were in foreclosure at the end of August, and down from 1.46% of all mortgages that were in foreclosure in September of last year.....these are homeowners who at least had a foreclosure notice served, but whose homes had not yet been seized, and the September "foreclosure inventory" now represents the lowest percentage of homes that remained in the foreclosure process since the spring of 2007... new foreclosure starts, which have been volatile from month to month, fell to 61,664 in September from 68,820 in August and were down from the 79,900 new foreclosures we saw in September a year ago...as foreclosure starts in April of this year were at the lowest level in over ten years, new foreclosures for the year have remained close to the levels of foreclosure starts we saw during 2005 and 2006, before the mortgage crisis began...

in addition to homes in foreclosure, Mortgage Monitor data also showed that 2,164,820 mortgages, or 4.27% of all mortgage loans, were at least one monthly mortgage payment overdue but not in foreclosure at the end of September, up from the 4.24% of homeowners with a mortgage who were more than 30 days behind in August, but down from the mortgage delinquency rate of 4.87% in September a year earlier, while also up from the mortgage crisis low of 4.08% of all mortgages that were delinquent in March ...of those who were delinquent in September, 668,114 home owners, or 1.32% of those with a mortgage, were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month, which was down a bit from the 669,173 such "seriously delinquent" mortgages in August...combining the total number of delinquent mortgages with those in foreclosure, we find that a total of 2,673,867 mortgage loans, or 5.28% of homeowners with a mortgage, were either late in paying or in foreclosure at the end of September, and that 1,177,161, or 2.32% of all homeowners, were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

 

(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…)