Sunday, July 23, 2017

June New Housing Construction, etal

the June report on New Residential Construction from the Census Bureau was the only major monthly economic release of this week...the week also saw the release of the Regional and State Employment and Unemployment for June from the Bureau of Labor Statistics and the first two regional Fed manufacturing indexes for July: the Empire State Manufacturing Survey from the New York Fed, which covers New York and northern New Jersey, saw their headline general business conditions index fall from + 19.8 in June to +9.8 in July, suggesting somewhat slower expansion of First District manufacturing, and the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions fell from +27.6 in June to +19.5 in July, still suggesting an ongoing strong expansion of that region's manufacturing...

New Housing Construction, Permits Reportedly Up in June

the June report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units started in June was at a seasonally adjusted annual rate of 1,215,000, which was 8.3 percent (±15.8 percent)* above the revised May estimated annual rate of 1,122,000 units started, and 2.1 percent (±14.0 percent)* above last June's pace of 1,213,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, June's housing starts could have been down by 7.5% or up by as much as 23.1% from those of May, with even larger revisions possible...in this report, the annual rate for May housing starts was revised from the 1,092,000 reported last month up to 1,122,000, while April starts, which were first reported at a 1,172,000 annual rate, were revised down from last month's initial revised figure of 1,056,000 annually to 1,154,000 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 Census field agents, which estimated that 116,800 housing units were started in June, up from the 105,100 units started in May and 105,200 starts in April...of those housing units started in June, an estimated 83,100 were single family homes and 33,100 were units in structures with more than 5 units, up from the revised 77,300 single family starts but down from the 26,700 units started in structures with more than 5 units in May...

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and broadly revised housing starts data...in June, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,254,000 housing units, which was 7.4 percent (±1.1 percent) above the revised May rate of 1,168,000 permits, and 5.1 percent (±1.4 percent) above the rate of building permit issuance in June a year earlier...the "revised" annual rate for housing permits issued in May was the same as was reported last month....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 125,400 housing units were issued in June, up from the revised estimate of 113,000 new permits issued in May...the June permits included 81,700 permits for single family homes, up from 78.300 in May, and 40,200 permits for housing units in apartment buildings with 5 or more units, up from 31,300 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.215 Million Annual Rate in June and Comments on June Housing Starts...

 

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

Sunday, July 16, 2017

June’s retail sales, consumer & producer prices, & industrial production; May’s wholesale & business inventories, & JOLTS

most of the past week's important reports were released on Friday, including Retail Sales for June and Business Sales and Inventories for May, both from the Census bureau, the June Consumer Price Index from the Bureau of Labor Statistics, and the report on Industrial Production and Capacity Utilization for June from the Fed...before those, Thursday saw the June Producer Price Index from the BLS, while earlier in the week the BLS also released the June Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) for May, while the Census Bureau released the May report on Wholesale Trade, Sales and Inventories leading up to the composite business inventories report of Friday...the week also saw the Consumer Credit Report for May from the Fed, which indicated that overall credit expanded by a seasonally adjusted $18.4 billion, or at a 5.8% annual rate, as non-revolving credit expanded at a 4.7% rate to $2,824.1 billion and revolving credit outstanding grew at a 8.7% rate to $1,018.5 billion, and the Mortgage Monitor for May (pdf) from Black Knight Financial Services, which indicated that 3.79% of all mortgages nationally were delinquent in May, down from 4.08% in April and down from 4.25% in May a year ago, and that 0.83% of all mortgages remained in the foreclosure process, down from 0.85% in April and down from 1.13% in foreclosure a year ago...

Consumer Prices Unchanged in June as Lower Energy Costs Pulls Down Index

the consumer price index was unchanged in June, as lower prices for energy offset modestly higher priced housing and medical care...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices were statistically unchanged in June, after falling 0.1% in May but after rising 0.2% in April....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 244.733 in May to 244.955 in June, which left it statistically 1.633% higher than the 241.018 index reading in June of last year...with lower prices for energy a major reason for the decrease in the overall index, seasonally adjusted core prices, which exclude food and energy, rose by 0.1% for the month, with the unadjusted core index rising from 251.835 to 252.014, which left the core index 1.703% ahead of its year ago reading of 247.794...

the volatile seasonally adjusted energy price index decreased by 1.6% in June, after it had dropped 2.7% in May, risen 1.1% in April, fell by 3.2% in March and by 1.0% in February, but after it had risen by 4.0% in January, 1.5% in December, 1.2% in November, 3.5% in October, and by 2.9% in September...thus, energy prices are still averaging 2.3% higher than a year ago, after seeing negative year over year comparisons through most of 2015 and 2016...prices for energy commodities were 2.7% lower in June, while the index for energy services fell by 0.5%, after rising 0.7% in May....the decrease in the energy commodity index included a 2.8% drop in the price of gasoline, the largest component, and a 3.7% seasonally adjusted decrease in the index for fuel oils, while prices for other energy commodities, such as propane, kerosene, and firewood, averaged 0.6% lower...within energy services, the index for utility gas service fell by 0.2% after rising by 1.9% in May and by 2.2% in April, and hence utility gas is still priced 12.8% higher than it was a year ago, while the electricity price index was down 0.6%, after it rose 0.3% in May....energy commodities are now unchanged from their year ago levels, with gasoline prices averaging 0.4% lower than they were a year ago, while the energy services price index is 4.6% higher than last June, as electricity prices have also increased by 2.5% over that period…

the seasonally adjusted food price index was unchanged in June, after rising 0.2% in May, 0.2% in April, 0.3% in March, 0.2% in February, and 0.1% in January, but after being unchanged in each of the prior 6 months, as prices for food purchased for use at home fell 0.1% in June while prices for food bought to eat away from home was unchanged, despite 0.2% higher prices at fast food outlets, as food prices at elementary and secondary schools fell 3.6%...in the food at home categories, the price index for cereals and bakery products decreased by 0.1% as prices for flour and mixes were 1.4% higher...the price index for the meats, poultry, fish, and eggs group was up 0.6% as beef and veal prices rose 2.9%, and fresh fish and seafood prices rose 1.1%, while the index for dairy products was 0.5% lower on 1.7% decrease in the price of ice cream....the fruits and vegetables index was 0.1% lower as a 1.1% increase in prices for fresh fruits was offset by a 1.6% decrease in prices for fresh vegetables, with lettuce down 8.2%...the beverages index was 0.6% lower as coffee was down 1.2% and carbonated drink prices fell 0.7%....lastly, prices in the ‘other foods at home’ category were on average 0.3% lower, even as sugar prices rose 1.1%, as soup prices were 1.3% lower.....among food at home line items, only eggs, which are still priced 10.0% lower than a year ago, have seen price changes 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 June and in May and in April after falling by 0.1% in March, the composite of all goods less food and energy goods was down 0.1% in June, while the more heavily weighted composite for all services less energy services was 0.2% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust June retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.2%, as the index for window and floor coverings fell 1.5%...the apparel price index was 0.1% lower, as prices for boy's apparel fell 4.4%....prices for transportation commodities other than fuel were down 0.4%, as prices for new vehicles fell 0.3% and prices for used cars and trucks fell 0.7%...on the other hand, prices for medical care commodities were 0.7% higher on a 1.0% increase in prices for prescription drugs...but the recreational commodities index fell 0.2% on 1.5% lower prices for audio equipment and 1.1% lower priced toys...however, the education and communication commodities index was 0.6% higher on 0.7% increases in prices personal computers and peripheral equipment and for computer software and accessories...lastly, a separate price index for alcoholic beverages was up 0.2%, while the price index for ‘other goods’ was unchanged as a 0.3% increase in the index for personal care products was offset by a 0.4% decrease in the index for tobacco and smoking products...

within core services, the price index for shelter rose 0.2% as a 0.3% increase in rents and a 0.3% increase in homeowner's equivalent rent were offset by a 0.1% decrease in the household operations services index....the index for medical care services was up 0.3% as hospital prices rose 0.9% and nursing home prices rose 1.1%, while the transportation services index was 0.2% higher on a 9.9% increase in car and truck rental....meanwhile, the recreation services price index was unchanged as the index for rentals of video discs and other media fell 2.1%, and the index for education and communication services was also unchanged as college tuition and fees rose 0.4% while wireless telephone services services were 0.8% lower...lastly, the index for other personal services was 0.3% higher as legal services were 1.2% higher...among core prices, only televisions, which are still 11.4% cheaper than a year ago, and wireless phone services, which have now dropped 13.2% from a year ago, have seen prices drop by more than 10% over the past year, while nothing has seen prices rise by a double digit magnitude..  

June Retail Sales Down 0.2% After May Sales Revised Higher

seasonally adjusted retail sales fell 0.2% in June after retail sales in May fell 0.1%, revised from the 0.3% drop reported a month ago....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $473.5 billion for the month, which was a decrease of 0.2 percent (±0.5%)* from May's revised sales of $474.2 billion, but still 2.8 percent (± 0.9 percent) above the adjusted sales of June of last year...May's seasonally adjusted sales were revised from the $473.8 billion originally reported to $474.2 billion, while April sales were revised lower, from $474.9 billion, to $474.55 billion, with this release....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 3.2%, from $496,904 million in May to $481,015 million in June, while they were up 3.2% from the $465,901 million of sales in June a year ago...

included below is the table of the monthly and yearly percentage changes in sales by business type taken from the Census pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each type of retail business from May to June and the year over year percentage change for those businesses since last June; the second pair of columns gives us the revised figures for May's report, with April to May and the May 2016 to May 2017 change shown; for your reference, our copy of this table as it appeared in the May report, before this month's revisions, is here....lastly, the third pair of columns shows the percentage change of the recent 3 months of sales (April, May and June) from the preceding three months (January, February and March) and from the same three months of a year ago....

June 2017 retail sales table

as we saw in our review of the consumer price index, the composite price index for all goods less food and energy goods was down 0.1% in May, which suggests that real retail sales will be down by about 0.1% month over month...the 2.8% drop in the price of gasoline more than accounts for the 1.3% decrease in sales at gas stations, but both of the food sales categories are problematic; note that sales at grocery stores were down 0.5% and sales at bars and restaurants were down 0.6%; with the overall food price index unchanged, as prices for food purchased for use at home slipped 0.1% and prices for food at full services restaurants were up by 0.1% and prices for fast food were up 0.2%, there will be real decreases in personal consumption expenditures for both of those major food sales categories... meanwhile, the upward revision to May retail sales was almost completely offset by the downward revision to April sales, so the revisions, on net, will have a negligible effect on previously published 2nd quarter personal consumption expenditures covering those months...

Industrial Production Up 0.4% in June After Prior Months Revised Lower

the Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production rose by 0.4% in June after rising by a revised 0.1% in May and 0.8% in April...industrial production is now up 2.0% from a year ago, as it rose at a 4.7% annual rate in the 2nd quarter, the 3rd consecutive quarterly increase...to the extent that this report plays into GDP, that quarterly increase suggests a net addition to GDP of that magnitude in the components that this report influences...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 105.2 in June from 104.8 in May, which was originally reported at 105.0...at the same time, the April reading for the index was revised down from 105.0 to 104.7, and the index for March was revised from 103.9 to 103.8...

the manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.2%, from 103.1 in May to 103.3 in June, after the May index was revised from 103.3 to 103.1, the April manufacturing index was revised from 103.7 to 103.5, the March manufacturing index was revised from 102.6 to 102.5, and the February manufacturing index was revised from 103.4 to 103.3....meanwhile, the mining index, which includes oil and gas well drilling, increased for the 4th time in 5 months, rising from 109.2 in May to 111.0 in June, and is now 9.9% higher than it was a year ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, was unchanged at 102.5 in June, after rising a revised 0.8% in May, while it still remains 2.2% below its year earlier reading...

this report also includes capacity utilization figures, which are expressed as the percentage of our  plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 76.6% in June from 76.4% in May, which had originally been reported at 76.6%....capacity utilization by NAICS durable goods production facilities rose from 74.6% in May to 74.8 in June, while capacity utilization for non-durables was unchanged at 77.1%....capacity utilization for the mining sector rose to 84.8% in June, up from 83.7% in May, which was originally reported as 84.3%, while utilities were operating at 74.6% of capacity during June, unchanged from the revised May figure, which was originally published as 76.6%...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 Up 0.1% in June as Higher Margins for Core Services Offset Lower Wholesale Energy Prices

the seasonally adjusted Producer Price Index (PPI) for final demand was up 0.1 in June, as prices for finished wholesale goods increased 0.1%, while margins of final services providers increased by 0.2%...this followed a May report that indicated the PPI was unchanged, with prices for finished wholesale goods down 0.5%, while margins of final services providers increased by 0.3%, and an April report that indicated the PPI was 0.5% higher, with prices for finished wholesale goods up 0.5%, while margins of final services providers increased by 0.4%....on an unadjusted basis, producer prices are now 2.0% higher than a year earlier, down from the 2.4% YoY increase indicated a month ago, and the 2.5% YoY increase seen in April, which had been the largest year over year increase in the PPI since February 2012...

as noted, the price index for final demand for goods, aka 'finished goods', rose by 0.1% in June, after falling by 0.5% in May, rising by 0.5% in April, falling by 0.2% in March, and rising by 0.4% in February, and 1.0% in January... the index for wholesale energy prices fell 0.5%, while the price index for wholesale foods rose 0.6% and the index for final demand for core wholesale goods (ex food and energy) rose 0.1%...the largest wholesale energy price change was a 5.9% decrease in the wholesale price of LP gas, while the wholesale food price index moved up on increases of 7.0% for beef and veal and of 5.1% for pork....among wholesale core goods, the index for pharmaceutical preparations was up 0.9%, while wholesale prices for industrial chemicals were 2.8% lower…

at the same time, the index for final demand for services rose by 0.2% in June, after rising by 0.3% in May, 0.4% in April, 0.4% in March but after after falling by a revised 0.3% in February, as the June index for final demand for trade services was down 0.2%, while the index for final demand for transportation and warehousing services rose 0.1%, and the index for final demand for services less trade, transportation, and warehousing services was 0.3% higher....among trade services, seasonally adjusted margins for TV, video, and photographic equipment retailers decreased 7.1% while margins for RVs, trailers, and campers retailers rose 3.4%...among transportation and warehousing services, margins for air transportation of freight were 2.6% higher...in the core final demand for services index, margins for securities brokerage, dealing, investment advice, and related services rose 4.0% and margins for arrangement of vehicle rentals and lodging fell 4.0%..

this report also showed the price index for processed goods for intermediate demand was 0.2% lower, after rising 0.1% in May, 0.5% in April, 0.1% but falling by a revised 0.3% in March....the price index for intermediate energy goods fell 0.6%, while prices for intermediate processed foods and feeds rose 1.2%, and the core price index for processed goods for intermediate demand less food and energy was 0.2% lower, as prices for primary basic organic chemicals fell 2.3%...prices for intermediate processed goods are still 3.8% higher than in May a year ago, now the eighth consecutive year over year increase, after 16 months of lower year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016....

meanwhile, the price index for intermediate unprocessed goods rose 1.5% in June, after falling 3.0% in May, rising 3.3% in April, falling 4.2% in March and 0.2% in February, but after rising 4.0% in January and 7.3% in December...the index for crude energy goods rose 3.6%, as crude oil prices rose 8.9%, while the price index for unprocessed foodstuffs and feedstuffs rose 0.3%, as unprocessed wheat prices rose 10.3% and the index for slaughtered hogs rose 6.5%...in addition, the index for core raw materials other than food and energy materials rose 0.5%, as the index for logs, bolts, timber, pulpwood, and woodchips rose 1.1% and wholesale prices for paper scrap rose 8.0% ... however, this raw materials index is now up just 6.3% from a year ago, in contrast to the year over year increase of 19.3% that we saw in February, just 4 months ago..

lastly, the price index for services for intermediate demand rose 0.6% in June, after being unchanged in May, 0.9% higher in April, 0.2% lower in March, and a revised 0.4% higher in February and in January.. the index for trade services for intermediate demand was 0.3% higher, as margins for metals, minerals, and ores wholesalers rose 3.3 percent…the index for transportation and warehousing services for intermediate demand was unchanged, as intermediate prices for air transportation of freight rose 2.6% while the intermediate warehousing and storage index fell 1.6%...meanwhile, the core price index for services less trade, transportation, and warehousing for intermediate demand was 0.8% higher, as margins for intermediate services related to securities brokerage and dealing rose 4.0%...over the 12 months ended in June, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.9% higher than it was a year ago...  

May Wholesale Sales Down 0.5%, Wholesale Inventories Up 0.4%

in advance of the composite business inventories release on Friday, the Census released their report on Wholesale Trade, Sales and Inventories for May (pdf) on Tuesday, which indicated that seasonally adjusted sales of wholesale merchants fell 0.5 percent (+/-0.5%)* to $460.8 billion from the revised April estimate of $463.1 billion, but were still up 6.2 percent (±1.1 percent) from sales in May a year earlier...April's preliminary wholesale sales estimate was revised upward $0.8 billion or more than 0.1 percent, which caused the March to April percent change to be revised from down 0.4 percent (±0.5 percent)* to down 0.3 percent (±0.5 percent)*...at the same time, this release reported that seasonally adjusted wholesale inventories were valued at $593.9 billion at the end of May, 0.4% (+/-0.4%)* higher than the revised April level and 1.9 percent (+/-0.7%)* above last May's level...at the same time, April's preliminary inventory estimate was revised upward $0.6 billion or 0.1% to $591.6 billion, now 0.4% lower than March...

May Business Sales Down 0.2%, Business Inventories Up 0.3%

on Friday, following the release of the June retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for May (pdf), which incorporates the revised May retail data from that June report and the earlier published wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,350.2 billion in May, down 0.2 percent (±0.2%)* from April revised sales, but up 5.1 percent (±0.4 percent) from May sales of a year earlier...note that total April sales were revised from the originally reported $1,352.0 billion to $1,350.2 billion...manufacturer's sales were up 0.1% from April at $471,513 million in May, while retail trade sales, which exclude restaurant & bar sales from the revised May retail sales reported earlier, fell 0.1% to $417,911 million, and wholesale sales fell 0.5% to $460,776 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,859.7 billion at the end of May, up 0.3 percent (±0.1%) from April, and 2.4 percent (±0.3%) higher than in May a year earlier...the value of end of April inventories was revised up from the $1,854.2 billion reported last month to $1,854.65 billion...seasonally adjusted inventories of manufacturers were estimated to be valued at $648,904 million, 0.1% lower than in April, while inventories of retailers were valued at $616,938 million, 0.5% more than in April, and inventories of wholesalers were estimated to be valued at $593,874 million at the end of May, up 0.4% from April...

all categories of business inventories are adjusted for price changes for national accounts data using item appropriate price indexes from the producer price index....the May producer price index indicated that prices for finished goods decreased 0.5%, prices for intermediate processed goods were 0.1% higher, while prices for unprocessed goods were 3.0% lower, which together generally indicate that real inventories will be higher than the nominal amounts by those percentages...since 1st quarter business inventories were virtually unchanged and a large drag on GDP, any inventory increases in the 2nd quarter will boost 2nd quarter GDP almost in their entirety...

Job Openings Down, Hiring and Firing Up in May

the Job Openings and Labor Turnover Survey (JOLTS) report for May from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 301,000, from 5,967,000 in April to 5,666,000 in May, after April job openings were revised lower, from 6,044,000 to 5,967,000...May jobs openings were still 1.5% higher than the 5,582,000 job openings reported in May a year ago, as the job opening ratio expressed as a percentage of the employed fell from 3.9% in April to 3.7% in May, while it was unchanged from a year ago...the greatest drop in job openings was in finance, where openings fell by 66,000 to 332,000, while job openings in retail rose by 72,000 to 638,000 (see table 1 for more details)...like most BLS releases, the press release for report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

the JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in May, seasonally adjusted new hires totaled 5,472,000, up by 429,000 from the revised 5,043,000 who were hired or rehired in April, as the hiring rate as a percentage of all employed was rose from 3.5% to 3.7%, and was also up from the hiring rate of 3.6% in May a year earlier (details of hiring by industry since January are in table 2)....meanwhile, total separations also rose, by 251,000, from 5,008,000 in April to 5,259,000 in May, while the separations rate as a percentage of the employed rose from 3.4% to 3.6%, which was was also up from the separations rate of 3.5% in May a year ago (see table 3)...subtracting the 5,259,000 total separations from the total hires of 5,472,000 would imply an increase of 213,000 jobs in May, somewhat more than the revised payroll job increase of 152,000 for May reported by the June establishment survey last week, but still not an unusual difference and within the expected +/-115,000 margin of error in these incomplete samplings...

breaking down the seasonally adjusted job separations, the BLS finds that 3,221,000 of us voluntarily quit their jobs in May, up by 187,000 from the revised 3,044,000 who quit their jobs in April, while the quits rate, widely watched as an indicator of worker confidence, rose from 2.1% to 2.2% of total employment, which was also up from 2.1% a year earlier (see details in table 4)....in addition to those who quit, another 1,661,000 were either laid off, fired or otherwise discharged in May, up by 56,000 from the revised 1,605,000 who were discharged in April, as the discharges rate remained at 1.1% of all those who were employed during the month, down from 1.2% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 377,000 in May, down from 359,000 in April, for an 'other separations' rate of 0.3%, which was up from 0.2% in April and in May a year ago....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

 

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

Monday, July 10, 2017

The Great US Natural Gas Exports Myth

Mr Trump was in Europe this week for the annual meeting of the G-20, the heads of government for the world's 20 largest economies.  Part of Trump/'s agenda on that trip was to promote exports of US natural gas in Europe, with the apparent intention of undermining Russian dominance of natural gas markets on the continent.  The groundwork for this natural gas scheme was laid in late June, when the US Senate voted 98 to 2 to impose further sanctions on Russia, with the intention of waylaying the construction of the Nord-Stream 2, a subsea natural gas pipeline planned from Russia to Germany, which international energy firms are involved in.  To an extent, the Europeans went along with that scheme, extending their own energy sanctions against Russia to January 31st, 2018.  Nonetheless, i found this entire stratagem bizarre and self-defeating; as you may recall, I've previously pointed out that our natural gas supplies are a lot tighter than they appear to be, and there's no way that additional supplies can be developed at the prices that are being promised for these exports.  What I'm going to do today is show you the natural gas data that I'm looking at, so you can see how I've come to that conclusion.

The first screenshot below is from the EIA table of US dry natural gas production monthly, which I've lopped off at 8 years because the long history of US natural gas output is not an issue here.  We can see that US natural gas production rose each year between 2010 and 2015 as fracking brought on new supplies.  But look at the 2016 data starting in March; US natural gas production is lower each month of 2016 after that than the equivalent month of 2015.  Likewise, for the first four months of 2017 for which there is confirmed production data, our natural gas production was again lower.   That means our natural gas production had been falling year over year for 14 months in a row going into April, and since recent natural gas drilling and fracking remains far below that of the boom years, we have every reason to believe that decrease in output has continued to the present.  Yet even the Reuters article on the Trump promotion of our natural gas exports refers to "fast-growing supplies of U.S. natural gas", a myth that every one in the media seems to believe without question.  Here's the data; you can see our production is clearly falling:

July 4 2017 natural gas monthly production

Next, we'll include excerpts of a few tables on US natural gas exports.  First, like the above, is a truncated excerpt of the EIA table of US natural gas exports.  No surprise here, they've been rising, and now at a much more rapid pace since Cheniere's Sabine Pass natural gas natural gas liquefaction facilities started exporting LNG in May of last year..

July 8 2017 natural gas exports

Just to put those exports into perspective, we'll include the top of the table of US natural gas exports by country.  While you can see which countries our exports are going by looking at the entire table, we dont particularly care where they're going to, as we're including this table because it shows exports by pipeline (which obviously can only go to Canada and Mexico) and LNG exports by vessel, which are going all over the world...

July 2017 US natural gas exports by country

Next, we have a truncated excerpt of the EIA table of US natural gas imports.  Looking closely at the numbers, you'll see that our natural gas imports generally fell between 2010 and 2014 when our production was rising, but that our imports of natural gas started increasing again as our production fell and our exports rose. Comparing this table to the export table above, you'll see that during the winter months, when much of the US is using natural gas for heat, our imports of natural gas exceed our exports of it.  For instance, in December 2016, we exported over 250 billion cubic feet of natural gas, and imported over 280 billion cubic feet of it.  On the other hand, in April, when the US consumption of gas for heating and cooling is moderate, our natural gas exports did exceed our imports by around 9 billion cubic feet.  The EIA projects that we will still be a net importer of natural gas in 2017, and not become a net exporter of natural gas until 2018.

July 8 2017 natural gas imports

Next, to put our imports in perspective we have the top of the EIA's table of US natural gas imports by country.  What you see here is that almost all of our imported natural gas is now coming from Canada.  Since we are still importing more natural gas than we're exporting, that means that we are, in effect, importing natural gas from Canada to export it through Texas and Louisiana.  Without Canadian gas coming in to replace what we export, a shortage of natural gas would develop in the US.  It should also be clear from what we've shown so far that for us to export any more natural gas to Europe, much less replace what they get from Russia, we'd have to first import more of it from Canada..

July 2017 US natural gas imports by country

Next, let's look at a graph of natural gas supplies that we have stored underground:

July 8 2017 natural gas stocks as of June 30

The above graph comes from the twitter feed of John Kemp, senior energy analyst and columnist with Reuters, wherein the red line shows our natural gas supplies in billions of cubic feet from January 2015 to June 30th of this year.  The yellow line, for the year prior to the one shown by the red line, thus shows our natural gas supplies in billions of cubic feet from January 2014 to the end of 2016, thus retracing some of what the red line shows. The light blue band then shows the prior 5 year range of our natural gas supplies, and thus from the left shows the range of our natural gas supplies from January 2010 through January 2014, extending to the right where it ends with the range of our natural gas supplies from the end of 2012 through the end of 2016. Lastly, the blue dashes show the average of that 5 year range of our natural gas stocks that's indicated by the light blue shading.  Note the obvious seasonal pattern; surplus natural gas is injected into storage each spring and summer, then withdrawn for use during the heating season...

Just from looking at that graph, it appears that our natural gas supplies remain near normal, slightly above the average of the 5 year range.  But next, we're going to pull out an old graph from the heating season that will call that simple visual analysis into question....this is a graph we posted on March 26th, showing heating demand for this past winter in red and heating demand for the winter before that in yellow, and the long term average heating demand as a light dashed line.  A detailed explanation of what heating degree days are and what this chart shows is included with the original post, but suffice it to say that what this chart shows is that demand for natural gas for heating was 17% below normal in each of the last two winters.  With that in mind, look back at the above graph of our natural gas supplies.  By following the red line, we can see that our natural gas supplies were at least at a 5 year high for the time of year from October 2015 through November 2016, with October 2016 being the first time in our history that natural gas supplies topped 4 trillion cubic feet.   That's normal, we'd expect a record glut of natural gas with demand for heating 17% below normal.  But notice that since December of 2016 our natural gas supplies were falling at a faster rate than normal, despite another warmer than normal winter, and by the end of January had returned to merely average.  Our supplies then recovered to above average because of a record warm period that led to the first weekly injection of gas into storage in February history, but as of this date they're still nearly 300 billion cubic feet below where they were at the same time in June a year ago.  What that means is that at the current pace of natural gas production, we were unable to maintain our surplus from production at a the same pace as last year, even while demand remained below normal.  What that suggests is that should domestic demand for natural gas jump to above average levels, either due to increased electrical generation or due to a colder than normal winter, our production plus Canada's imports will be inadequate to meet our export contracts and our own needs at the same time.

March 23 2017 heating demand as of March 17

 

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

Sunday, July 9, 2017

June jobs report; May’s trade deficit, construction spending and factory inventories..

in addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, this week's major releases included three May reports that will input into 2nd quarter GDP: the BEA report on our International Trade for May, and the May report on Construction Spending, and the Full Report on Manufacturers' Shipments, Inventories and Orders for May, both from the Census Bureau....privately issued reports released this week included  the ADP Employment Report for June, the light vehicle sales report for June from Wards Automotive, which estimated that vehicles sold at a 16.41 annual rate in March, down from the 16.58 million rate in May, and the lowest since October 2014, and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 57.8% in June, up from 54.9% in May, which suggests a stronger expansion in manufacturing firms nationally, and the June Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 57.4%, up from 56.9% in May, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in June...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally...  

Employers Add 222,000 Jobs in June, Unemployment Rate Up 0.1% as More Look for Work

the Employment Situation Summary for June indicated moderate payroll job growth, while the employment rate, the unemployment rate, and the labor force participation rate all rose …seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 222,000  jobs in June, after the payroll job increase for May was revised up from 138,000 jobs to 152,000, and the April increase was revised up from 174,000 jobs to 207,000, which meant that the combined number of jobs created over those two months was 47,000 more than was previously reported....the unadjusted data shows that there were actually 599,000 more payroll jobs extant in June than in May, as large seasonal job increases typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…

seasonally adjusted job increases were spread through throughout government and the private goods producing and service sectors, while only the information sector saw a loss of 4,000 jobs...employment in health care and social assistance rose by 59,100, with the addition of 11,700 jobs in hospitals and 11,500 in individual and family services....the leisure and hospitality sector added a seasonally adjusted 36,000 jobs, with the addition of 29,300 more jobs in bars and restaurants....the broad professional and business services sector added 35,000 jobs, as 14,400 more workers found work with employment services....the government sector also added 35,000 jobs, with 13,600 of those in local education systems and 22,200 more in other local government jobs....financial activities employed another 17,000, with 9,500 of those in real estate...and, after adjustment, the construction sector still saw 16,000 more jobs, as specialty trade contractors hired 18,500 more than in May...meanwhile, the other major sectors, including manufacturing, mining, wholesale and retail, transportation and warehousing, utilities, and private education, all saw smaller increases in payroll employment over the month…

the establishment survey also showed that average hourly pay for all employees rose by 4 cents to $26.25 an hour, after it had increased by a revised 3 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.03 an hour...employers also reported that the average workweek for all private payroll employees increased 0.1 hour to 34.5 hours, while hours for production and non-supervisory personnel rose by 0.1 hour to 33.7 hours...similarly, the manufacturing workweek rose by 0.1 hour to 40.8 hours, while factory overtime was unchanged at 3.3 hours..

at the same time, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 245,000 to 153,168,000, while the similarly estimated number of those unemployed rose by 116,000 to 6,977,000; which together meant that June saw a net increase of 361,000 in the total labor force...since the working age population had grown by 190,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 170,000 (rounded) to 94,813,000....the increase of those in the labor force was enough to raise the labor force participation rate 0.1% to 62.8%....at the same time, the increase in number employed vis-a-vis the increase in the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.1% to 60.1%...in addition, the increase in the number counted as unemployed was also large enough to raise the unemployment rate from 4.3% to 4.4%....meanwhile, the number who reported they were involuntarily working part time rose by 107,000 to 5,326,000 in June, which was also enough to raise the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 8.4% in May to 8.6% in June, as 204,000 more reported "slack work or business conditions" than in May..

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..

May Trade Deficit Down 2.3% on Improved Balance in Autos and Consumer Goods

our trade deficit decreased by 2.3% in May as the value of our exports increased and our imports decreased....the Census report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services trade deficit fell by $1.1 billion to $46.5 billion in May from a April deficit of $47.59 billion, which was slightly revised from the $47.62 billion reported last month...the value of our May exports rose by $0.9 billion (rounded) to $192.0 billion on a $0.2 billion increase to $127.2 billion in our exports of goods and a $0.6 billion increase to $64.8 billion in our exports of services, while our imports fell $0.2 billion to $238.5 billion on a $0.6 billion decrease to $194.7 billion in our imports of goods while our imports of services rose $0.4 billion to $43.8 billion...export prices were on average 0.7% lower in May, so the relative real amount of May exports would be higher than the nominal amount by that percentage, while import prices were 0.2% lower, meaning real imports were on average greater than the nominal dollar values reported here by that percentage....

the increase in our May exports could be accounted for by higher exports of consumer goods and of automotive vehicles, parts, and engines, which were partially offset by a decrease in exports of foods, feeds, and beverages.... referencing the Full Release and Tables for May (pdf), in Exhibit 7 we find that our exports of  of consumer goods rose by $885 million to $16,741 million on a $456 million increase in our exports of cellphones, a $271 million increase in our exports of pharmaceuticals, and a $257 million increase in our exports of jewelry....in addition, our exports of automotive vehicles, parts, and engines rose by $619 million to $13,179 million on a $437 million increase in our exports of new and used passenger cars...offsetting those increases, our exports of foods, feeds and beverages fell by $711 million to $11,195 million on a $577 million decrease in our exports of soybeans, our exports of capital goods fell by $450 million to $43,117 million on a decrease of $292 million in exports of civilian aircraft, our exports of industrial supplies and materials fell by $118 million to $37,442 million on a $627 million decrease in exports of petroleum products other than fuel oil, and our exports of other goods not categorized by end use fell by $116 million to $5,108 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that lower imports of consumer goods was the major reason for the May decrease in our imports and trade deficit...our imports of consumer goods fell by $1,466 million to $49,473 million on a $937 million decrease in our imports of cellphones, a $564 million decrease in our imports artwork and antiques, and a $241 million decrease in our imports of inorganic textiles... in addition, our imports of automotive vehicles, parts and engines fell by $722 million to $29,173 million on a $1,267 million decrease in our imports of new and used passenger cars, and our imports of foods, feeds, and beverages fell by $65 million to $11,383 million...offsetting the decreases in those categories, our imports of capital goods rose by $1251 million to $52,783 million on increases of $460 million in our imports of computers, $333 million in our imports of civilian aircraft, $293 million in our imports of semiconductors, and $228 million in our imports of civilian aircraft engines, and our imports of industrial supplies and materials rose by $104 million to $42,276 million, as our imports of crude oil rose by $456 million and our imports of fuel oil rose by $302 million, and our imports of other goods not categorized by end use rose by $225 million to $8,020 million....

to gauge the impact of April and May's international trade on 2nd quarter domestic growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit they are not annualized here.....from that table, we can compute that 1st quarter real exports of goods averaged 124,616 million monthly in 2009 dollars, while inflation adjusted April and May exports were at 123,760 million and 117,626 million respectively in the same 2009 dollar quantity index representation... annualizing the change between the first quarter and the April - May average, we find that the 2nd quarter's real exports are running at a 0.8% annual rate below those of the 1st quarter, or at a pace that would subtract about 0.09 percentage points from 2nd quarter GDP if maintained through June.....in a similar manner, we find that our 1st quarter real imports averaged 186,836 million monthly in chained 2009 dollars, while inflation adjusted April and May imports were at 187,579 million and 187,787 million in inflation adjusted dollars respectively....that would indicate that so far in the 2nd quarter, our real imports have increased at a 1.8% annual rate from those of the 1st quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 1.8% rate would thus subtract about 0.24 percentage points from 2nd quarter GDP....hence, if the trade deficit at the April - May level is maintained through June, our deteriorating balance of trade in goods would subtract about 0.33 percentage points from the growth of 2nd quarter GDP....note that we have not attempted to compute the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on that trade, but that there were unusually large increases in both imports and exports of services trade in May that will likely have an impact as well...

Construction Spending Flat in  May after Prior Months Revised Higher

the Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,230.1 billion annually if extrapolated over an entire year, which was statistically unchanged from the revised annualized estimate of $1,230.4 billion of construction spending in April and 4.5 percent (±2.5 percent) above the estimated annualized level of construction spending in May of last year...the April spending estimate was revised 1.0% higher, from $1,218.5 billion to $1,230.4 billion, while the annual rate of construction spending for March was revised from $1,235.5 billion to $1,239.6 billion, and the annual rate of February construction spending was revised up from $1,221.7 billion to a $1,235.7 billion rate...combined, the revisions to February and March construction spending would suggest that 1st quarter GDP, which was released last week, will be revised higher when annual revisions to GDP are released in early August...construction spending tor the first 5 months of 2017 has now amounted to $469.2 billion, 6.1 percent (±1.3 percent) above the $442.4 billion in construction spending for the same 5 months of 2015…

the Census release gives us the following summary: "Spending on private construction was at a seasonally adjusted annual rate of $943.2 billion, 0.6 percent (±0.7 percent) below the revised April estimate of $949.3 billion. Residential construction was at a seasonally adjusted annual rate of $509.6 billion in May, 0.6 percent (±1.3 percent) below the revised April estimate of $512.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $433.6 billion in May, 0.7 percent (± 0.7 percent) below the revised April estimate of $436.7 billion. In May, the estimated seasonally adjusted annual rate of public construction spending was $286.9 billion, 2.1 percent (±5.3 percent) above the revised April estimate of $281.0 billion. Educational construction was at a seasonally adjusted annual rate of $74.3 billion, 5.1 percent (±3.3 percent) above the revised April estimate of $70.7 billion. Highway construction was at a seasonally adjusted annual rate of $90.6 billion, 0.9 percent (±16.9 percent) below the revised April estimate of $91.5 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, gauging the impact of revised April and May construction spending as reported here on GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..

that index indicated that aggregate construction costs were up 0.1% in the month of May, up 0.4% in April, up 0.2% in March, down 0.1% in February and up 0.3% in January....on that basis, we can estimate that May construction costs were roughly 0.5% greater than those of March, 0.7% greater than those of February and 0.6% greater than those of January, and obviously 0.1% greater than those of April...we then use those percentages to inflate spending for April and for each of the months of the first quarter, which is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter for comparison purposes, and then compare the inflation adjusted average of the 1st quarter months to the inflation adjusted average of the 2nd quarter months...construction spending in millions of dollars for the five months in question is given as 1,230,094 for May, 1,230,381 for April, 1,239,564 for March, 1,235,700 for February, and 1,223,501 for January, which we can see is going to result in a quarter over contraction...since we want to know the inflation adjusted rate of contraction, then, our calculation becomes  (((1,230,094 + (1,230,381 *1.001))/2 ) / ( ( (1,239,564 *1.005) +(1,235,700 *1.007) + (1,223,501 *1.006))/3)) ^ 4 = .96982, which means that construction spending has been shrinking at a 3.0% annual rate over the first 2 months of the second quarter...if June shows no improvement, that contraction in construction would be enough to subtract roughly 0.20 percentage points from 2nd quarter GDP in those components that it influences...

Factory Shipments Up 0.1% May, Factory Inventories Down 0.1% in Plus to GDP

the Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $3.7 billion or 0.8 percent to $464.9 billion in May, following an decrease of 0.3% to $468.6 billion in April, which was revised from the 0.2 percent decrease to $469.0 billion increase reported last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only useful as a revised update to the advance report on durable goods we reported on last week...this report showed that new orders for manufactured durable goods fell by $1.9 billion or 0.8 percent to $229.1 billion, revised from the previously published 1.1% decrease to $228.2 billion...

this report also indicated that the seasonally adjusted value of May factory shipments rose for the fifth month out of the last six, increasing by $0.6 billion or 0.1 percent to $471.5 billion, following statistically insignificant increase in April, which was essentially unrevised...shipments of durable goods were down by $0.6 billion or 0.2 percent to $231.6 billion, revised but virtually unchanged from what was published two weeks ago...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods fell $1.8 billion or 0.8 percent to $235.7 billion, as a 3.4% decrease in the value of shipments from refineries drove the decrease...

meanwhile, the aggregate value of May factory inventories fell for the 1st time in the past seven months, decreasing by $0.3 billion or 0.1 percent to $648.9 billion, following a April increase of 0.1% that was virtually unrevised from the previously published figure....inventories of durable goods increased in value by $0.9 billion or 0.2 percent to $395.8 billion, virtually unchanged from the increase that was reported was reported in the advance report....the value of non-durable goods' inventories decreased by decreased $1.3 billion or 0.5 percent to $253.1 billion, following a decrease of 0.4% in April....

to gauge the effect of these May factory inventories on 1st quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories fell by 0.4% to $226,342 million; the value of work in process inventories was little changed at $200,050 million, and materials and supplies inventories were valued 0.3% higher at $222,512 million...the May producer price index reported that prices for finished goods decreased 0.5%, prices for intermediate processed goods were 0.1% higher, while prices for unprocessed goods were 3.0% lower....assuming similar valuations for inventories, that would suggest that May's real finished goods inventories were roughly 0.1% higher, real inventories of intermediate processed goods were 0.1% lower, while real raw material inventory inventories were 3.3% higher...since 1st quarter inventories were virtually unchanged, a large drag on GDP, any inventory increases in the 2nd quarter will boost 2nd quarter GDP...

 

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

Sunday, July 2, 2017

1st Quarter GDP revision, Reports on May's Personal Income and Outlays and Durable Goods

the key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis, and the May report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP....other widely watched releases included the May advance report on durable goods and the Case-Shiller house price indexes for April from S&P Case-Shiller, who saw their national home price index rise 5.5% from the same month's report a year ago...this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which fell from a upwardly revised +0.57 in April to -0.26 in May...that left the 3 month average of the index at +0.04, indicating national economic activity has been pretty close to the historical trend over these recent months...in addition, this week also saw the results of the last two Fed manufacturing surveys for June;  the Texas area manufacturing survey from the Dallas Fed reported its broadest general business activity index slipped from +17.2 in May to +15.0 in June, indicating that Texas manufacturing activity continued to expand, but at a slightly slower pace, while the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index rose from +1 in May to +7 in June, indicating a modest pickup in that region's manufacturing...

1st Quarter GDP Revised to Show Growth at a 1.4% Rate on Deflator Revision

the Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 1.4% annual rate in the quarter, revised from the 1.2% growth rate reported in the second estimate last month, as personal consumption of services was revised higher and the GDP deflator was revised lower....in current dollars, our first quarter GDP grew at a 3.4% annual rate, same as was reported in the 2nd estimate, increasing from what would extrapolate to $18,869.4 billion annually in the 4th quarter to an annualized $19,027.1 billion in the 1st quarter, with the headline 1.4% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging more than 1.9%, revised from 2.2%, was applied to the current dollar change...

recall that this release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the third estimate of 1st quarter GDP, which we find linked to on the sidebar of the BEA press release...specifically, we cite the data from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2013; from table 2, which shows the contribution of each of the components to the GDP figures for those months and years; from table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; from table 4, which shows the change in the price indexes for each of the components; and from 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 full pdf for the 1st quarter second estimate, which this estimate revises, is here...

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 1.1% annual rate in the 1st quarter, up from the 0.6% growth rate reported last month, as a 3.5% increase in the rate of personal spending in the quarter was deflated with an annualized 2.4% increase in the PCE price index, an inflation adjustment which was essentially unrevised from the second estimate....real consumption of durable goods fell at a 1.6% annual rate, which was revised from the 1.4% decrease shown in the second estimate, and subtracted 0.11 percentage points from GDP, as a drop in consumption of automobiles & parts at a 14.4% rate more than offset an increase in real consumption of recreational goods and vehicles and other durable goods...real consumption of nondurable goods by individuals rose at a 1.6% annual rate, revised from the 1.2% increase reported in the 2nd estimate, and added 0.23 percentage points to 1st quarter growth, as relatively large increases in real consumption of food and other non-durables more than offset small decreases in real consumption of clothing and energy goods ....meanwhile real consumption of services rose at a 1.4% annual rate, revised from the 0.8% rate reported last month, and added 0.64 percentage points to the final GDP tally, as the growth in consumption of both health care and financial services were revised to more than double that shown in the 2nd estimate....

on the other hand, seasonally adjusted real gross private domestic investment grew at a 3.7% annual rate in the 1st quarter, revised from the 4.8% growth estimate reported last month, as real private fixed investment grew at a 11.0% rate, rather than at the 11.9% rate reported in the second estimate, while the contraction in inventory growth was somewhat larger than previously estimated...real investment in non-residential structures was revised from growth at a 28.4% rate to growth at a 22.6% rate, while real investment in equipment was revised to show growth at a 7.8% rate, up from the 7.2% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from growth at a 6.7% rate to growth at a 6.4% rate, and the growth rate of residential investment was also revised lower, from 13.8% to 13.0% annually…after those revisions, the increase in investment in non-residential structures added 0.56 percentage points to the 1st quarter's growth rate, the increase in investment in equipment added 0.42 percentage points to the quarter's growth, greater investment in intellectual property added 0.26 percentage points, while growth in residential investment added 0.48 percentage points to the increase in 1st quarter GDP...

meanwhile, the growth in real private inventories was revised from the $4.3 billion in inflation adjusted dollars reported last month to show inventory grew at an inflation adjusted $2.6 billion rate in the 1st quarter...this came after inventories had grown at an inflation adjusted $49.6 billion rate in the 4th quarter, and hence the $47.0 billion smaller real inventory growth than in the 4th quarter subtracted 1.11 percentage points from the 1st quarter's growth rate, revised from the 1.07 percentage point subtraction due to slower inventory growth shown in the second estimate....however, since slower growth in inventories ultimately indicates that less of the goods produced during the quarter were left "sitting on the shelf”, that decrease by $47.0 billion meant that real final sales of GDP were actually greater than GDP by that much, and therefore the BEA finds that real final sales of GDP rose at a 2.6% rate in the 1st quarter, revised from 2.2% rate shown in the second estimate...

the previously reported increases in both real exports and in real imports were both revised higher, but exports saw the larger increase, and as a result our net trade was a slightly larger addition to GDP rather than was previously reported...our real exports grew at a 7.0% rate, revised from the 5.8% rate in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their increase added 0.82 percentage points to the 1st quarter's growth rate....meanwhile, the previously reported 3.8% increase in our real imports was revised to a 4.0% increase, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, that increase subtracted 0.59 percentage points from 1st quarter GDP....thus, our improving trade balance added a net 0.23% percentage points to 1st quarter GDP, rather than the 0.13% percentage point addition resulting from our improving foreign trade balance that was indicated by the second estimate..

finally, there were also small revisions to real government consumption and investment in this 3rd estimate, as the entire government sector shrunk at a 0.9% rate, revised from the 1.1% shrinkage of government indicated by the 2nd estimate....real federal government consumption and investment was seen to have shrunk at a 2.0% rate from the 4th quarter in this estimate, which was unrevised from the 2nd estimate...real federal outlays for defense showed shrinkage at a 3.9% rate, same as the rate previously reported, still subtracting 0.16% percentage points from 1st quarter GDP, while all other federal consumption and investment grew at a 0.9% rate and added 0.02 percentage points to 1st quarter GDP....note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services...meanwhile, real state and local consumption and investment contracted at a 0.2% rate in the quarter, which was revised from the 0.6% shrinkage shown in the 2nd estimate, and subtracted 0.02 percentage points from 1st quarter GDP, as real growth in state and local consumption expenditures added 0.05 percentage points, while real state and local investment shrunk at a 3.7% rate and subtracted 0.07 percentage points from the quarter's growth...

our FRED bar graph below has been updated with these latest GDP revisions...each color coded bar shows the real inflation adjusted change, expressed in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in real private inventories is shown in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and  investment is shown in pink, and the real change in Federal government spending and investment is shown in grey...then, those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are therefore shown on this chart as a negative, so that when imports shrink, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line...it’s fairly clear from this graph that the weak growth in the first quarter was due to the smallest increase in real personal consumption expenditures since the 2nd quarter of 2013, but it's also worth noting that fixed private investment in red was a greater contributor to GDP than PCE, with its greatest growth since the first quarter of 2012…  

3rd estimate 1st quarter 2017 GDP

May Personal Income up 0.4%, Spending up 0.1%; 2 Months PCE Would Add 1.84 Percentage Points to Q2 GDP

the May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for more than 69% of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this same report also gives us monthly 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 May'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 April to May....

thus, when the opening line of the press release for this report tell us "Personal income increased $67.1 billion (0.4 percent) in May", they mean that the annualized figure for seasonally adjusted personal income in May, $16,487.9 billion, was $67.1 billion, or a bit more than 0.4% greater than the annualized  personal income figure of $16,420.8 billion for April; the actual, unadjusted change in personal income for April to May is not given...similarly, annualized disposable personal income, which is income after taxes, rose by nearly 0.5%, from an annual rate of an annual rate of $14,418.4 billion in April to an annual rate of $14,490.1 billion in May....the contributors to the increase in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were led by a $39.8 billion increase to $2,345.6 billion annually in interest and dividend income, while wages and salaries rose by just $6.6 billion annually to $8,383.9 billion in May…

for the personal consumption expenditures (PCE) that we're most interested in, BEA reports that they increased at a $7.3 billion annual rate, or by less than 0.1 percent, as the annual rate of PCE rose from $13,206.7 billion in April to $13,214.0 in May; that happened as the April PCE figure was revised up from the originally reported $13,108.4 billion annually and March PCE was revised up from $13,008.9 billion to $13,157.5 billion, a change that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier....the current dollar increase in May spending resulted from a $27.1 billion increase to $8,988.5 billion in annualized spending for services, which was offset by $19.8 billion annualized decrease to an annualized $4,225.5 billion annualized in spending for goods....total personal outlays for May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $9.8 billion to $13,699.1 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $791.0 billion annual rate in May, up from the revised $728.8 billion annualized personal savings in April... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 5.5% in May from April's savings rate of 5.1%...

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....the BEA achieves that by computing a price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, and which is included in Table 9 in the pdf for this report...that index fell from 112.198 in April to 112.127 in May, a month over month deflation rate that's statistically -0.0633%, which BEA reports as an decrease of 0.1 percent, following the PCE price index increase of 0.2% they reported for April...applying that inflation adjustment to the nominal amounts of spending left reported real PCE up 0.1% in May, after an April real PCE increase of 0.2% ...notice that when those 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 May's chained dollar consumption total works out to 11,785.0 billion annually, 0.1189% more than April's 11,771.0 billion, a difference that the BEA reports as 0.1%, even as full fractions are used in all the computations...

however, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare April and May's real PCE to the the real PCE of the 3 months of the first quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 11,701.3 billion in chained 2009 dollars..(note that's the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)....then, by averaging the annualized chained 2009 dollar figures for April and May, 11,771.0 billion and 11,785.0  billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far....when we compare that average of 11,778.0 to the 1st quarter real PCE of 11,701.3, we find that 2nd quarter real PCE has grown at a 2.65% annual rate for the two months of the 2nd quarter we have data for...(note the math to get that annual rate: (((11,785.0  + 11,771.0)/ 2)/11,701.3) ^ 4 = 1.02648....that's a pace that would add 1.84 percentage points to the growth rate of the 2nd quarter by itself, even if there is no improvement in June PCE from that average... 

May Durable Goods: New Orders Down 1.1%, Shipments Up 0.8%, Inventories Up 0.2%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $2.5 billion or 1.1 percent to $228.2 billion in May, following a revised decrease of 0.9% in April’s new orders, which had originally been reported as a 0.7% decrease...however, year to date new orders are still 2.8% higher than they were a year ago.....as is usually the case, the volatile monthly change in new orders for transportation equipment drove the May headline change, as those transportation equipment orders fell $2.7 billion or 3.4 percent to $75.4 billion, partly on a 30.8% decrease to $3,719 million in new orders for defense aircraft....excluding new orders for transportation equipment, other new orders were up 0.1% in May, but the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were still down 0.2% at $62,885 million...

the seasonally adjusted value of May's shipments of durable goods, which represent inputs into various components of 2nd quarter GDP before adjusting for changes in prices, increased by $1.8 billion or 0.8 percent to $234.9 billion, after April shipments decreased by 0.3%...again, shipments of transportation equipment drove the change, as they rose $1.5 billion or 1.9 percent to $78.8 billion, as the value of shipments of motor vehicles rose 1.3% to $54,257 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.2%, and are now 2.5% higher year to date than a year ago.... meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 10th time in 11 months, increasing by $0.7 billion or 0.2 percent to $395.4 billion, after April inventories were revised from $649.7 billion to $650.0 billion, a 0.2% increase from March...inventories of motor vehicles led the increase, rising $274 million or 0.8 percent to $34,476 million...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the first time in three months, decreasing by $2.3 billion or 0.2 percent to $1,120.1 billion, following a April increase of 0.2% to $1,122.4 billion, revised from $1,123.0 billion...a $3.4 billion or 0.4% decrease to $762.8 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment were up 0.3% to $357,317 million....compared to a year earlier, the unfilled order book for durable goods is still 1.4% below the level of last May, with unfilled orders for transportation equipment 3.5% below their year ago level, on a 4.7% decrease in the backlog of orders for commercial aircraft...

 

(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…)