Sunday, June 26, 2016

May’s durable goods, new and existing homes sales reports

the only widely watched releases of the past week were the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the May report on existing home sales from the National Association of Realtors (NAR)....in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which fell from a downwardly revised +0.05 in April to -0.51 in May...that left the 3 month average of the index at a 4 year low of –0.36, indicating national economic activity has been well below the historical trend over these recent months....we also saw the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to 2 in June, up from -5 in May and -4 in April, it's first positive reading in 16 months, suggesting that the regional contraction, mostly in energy related industries, may be ending...

May Durable Goods: New Orders Down 2.2%, Shipments Down 0.2%, Inventories Down 0.3%

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 $5.3 billion or 2.2% to $230.7 billion in May, following a revised increase of 3.3% in April new orders, which had been originally reported as a 3.4% increase...since an annual benchmark revision has been applied since the last release, year to date new orders are nonetheless 1.7% higher than they were a year ago, vs the 0.8% year over year change we saw last month...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 $4.8 billion or 5.6 percent to $81.9 billion, partly on a 34.1% decrease to $3,713 million in new orders for defense aircraft....excluding new orders for transportation equipment, other new orders were still down 0.3% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 0.7% at $62,407 million...

the seasonally adjusted value of May's shipments of durable goods, which will be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, fell by $0.5 billion or 0.2 percent to $231.7 billion, after April shipments were revised from an increase of 1.5% to an increase of 0.4%...again, a downturn in shipments of transportation equipment drove the change, as they fell $0.4 billion or 0.5 percent to $80.0 billion, as the value of shipments of motor vehicles fell 3.4% to $53,675 million...excluding that volatile sector, the value of other shipments of durable goods still fell 0.1%, and are still 1.5% lower year to date than a year ago....

meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 10th time in 11 months, decreasing by $1.1 billion or 0.3 percent to $382.5 billion, after April inventories were revised from a 0.2% decrease to a 0.4% decrease...the $0.4 billion, 0.3% decrease in inventories of transportation equipment was not the biggest factor in the decrease, however, despite the 1.1% decrease in motor vehicle inventories, as inventories of machinery fell $0.5 billion or 0.8 percent to $65.4 billion...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the fourth time in five months, increasing by $2.0 billion or 0.2 percent to $1,139.4 billion, following a April increase of 0.6% which was essentially unrevised...a $1.9 billion or 0.2% increase to $785.2 billion in unfilled orders for transportation equipment was responsible for the increase, as unfilled orders excluding transportation equipment were statistically unchanged at $354,172 million....compared to a year earlier, the unfilled order book for durable goods is still 0.8% below the level of last May, with unfilled orders for transportation equipment 1.2% below their year ago level, on a 5.5% decrease in the backlog of orders for motor vehicles...

May’s New Homes Sales and Prices Appear Lower Than April’s

the Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 551,000 new homes a year, which was 6.0 percent (±12.8%)* below the revised April rate of 491,000 new single family homes a year but 8.7 percent (±14.6%)* above the estimated annual rate that new homes were selling at in May of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of April or even from those in May a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in April were revised from the annual rate of 619,000 reported last month to a 586,000 a year rate, March's annualized home sale rate, initially reported at 512,000, was revised from last months upward revision of 531,000 back down to 522,000, while the annual rate of February's sales, revised from 519,000 to an annual rate of 538,000 last month, were now also revised lower, to an annual rate of 525,000...

the annual rates of sales reported here are extrapolated from the estimates of Census field reps, which showed that approximately 51,000 new single family homes sold in May, down from the 57,000 new homes that sold in April....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was $290,400, down from the median of $320,200 in April, while the average May new home sales price was $358,900, down from $378,200 average in April, but up from the average sales price of $340,800 in May a year ago....a seasonally adjusted estimate of 244,000 new single family houses remained for sale at the end of May, which represents a 5.3 month supply at the May sales rate, up from a 4.9 month supply in April....for more details and graphics on this report, see Bill McBride's post, New Home Sales decreased to 551,000 Annual Rate in May...

Existing Home Sales Rise 1.8% in May

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales rose 1.8% from April to May, projecting that 5.53 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was also 4.5% greater than the annual sales rate projected in May of a year ago, and the highest monthly annual rate since February 2007...that came after an annual sales rate of 5.43 million homes in April, which was revised from the originally reported 5.45 million annual sales rate, and an annual home sales rate of 5.36 million in March...the NAR also reported that the median sales price for all existing-home types in May was $239,700, which topped the record $236,300 median price set last June and was 4.7% higher than a year earlier, which they report is "the 51st consecutive monthly year over year increase in home prices"......the NAR press release, which is titled Existing-Home Sales Grow 1.8 Percent in May; Highest Pace in Over Nine Years, 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…

since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this data indicates that roughly 526,000 homes sold in May, up by 11.9% from the 470,000 homes that sold in April and 6.3% more than the 495,000 homes that sold in May of last year, so we can see there was again a seasonal adjustment in the annualized published figures of over 10% to correct for the typical springtime increase in home sales...that same pdf indicates that the median home selling price for all housing types rose 3.8%, from a revised $230,900 in April to $239,700 in May, while the average home sales price was $281,700, up 3.0% from the $273,600 average in April, and up 3.2% from the $273,000 average home sales price of May a year ago, with the regional average home sales prices ranging from a low of $220,800 in the Midwest to a high of $373,000 in the West...for additional coverage with long term graphs on this report, see "Existing Home Sales increased in May to 5.53 million SAAR" and "A Few Comments on May Existing Home Sales" from Bill McBride at Calculated Risk...

 

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

Sunday, June 19, 2016

May retail sales, consumer and producer prices, industrial production and home construction; April business inventories

after the dearth of major reports last week, this week saw a number of them, including Retail Sales for May and Business Sales and Inventories for April, both released by the Census bureau, the May Consumer Price Index and the May Producer Price Index, both from the Bureau of Labor Statistics, the report on Industrial Production and Capacity Utilization for May from the Fed, and the May report on New Residential Construction from the Census Bureau...in addition, this week also saw the release of the Regional and State Employment and Unemployment for May from the BLS, and the release of the first two regional Fed manufacturing indexes for June: 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 rise from -9.02 to + 6.01, its third positive reading in the past 4 months after 7 negatives, suggesting a return to expansion in First District manufacturing, and the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions rose from -1.8 in May to +4.7 in June, its second positive reading in 10 months, also suggesting an end to the contraction in that region's manufacturing...

May Retail Sales up 0.5%, Boosted by 2.1% Increase at Gas Stations

seasonally adjusted retail sales rose 0.5% in May after retail sales for March and April were revised slightly higher....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $455.6 billion for the month, which was an increase of 0.5 percent (±0.5%)* from April's revised sales of $453.6 billion and 2.5 percent (±0.7%) above the adjusted sales of May of last year...April's seasonally adjusted sales were revised from the $453.4 billion originally reported to $453.6 billion, while March sales were also revised higher, from $447.8 billion, to $447.9 billion, with this report....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated unadjusted sales rose 4.5%, from $412,328 million in April to $471,421 million in May, while they were up 3.6% from the $462,615 million of sales in May 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 double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from April to May in the first sub-column, and then the year over year percentage change for those businesses since last May in the 2nd column; the second pair of columns gives us the revision of last month’s April advance monthly estimates (now called "preliminary") as revised in this report, likewise for each business type, with the March to April change under "Mar 2016 revised" and the revised April  2015 to April 2016 percentage change in the last column shown...for your reference, our copy of the table of last month’s advance April estimates, before this month's revision, is here....

May 2016 retail table

from the above table, we can see that a 2.1% increase to $39,999 million in seasonally adjusted sales at gas stations, largely due to higher prices, helped boost May sales...without those, May's retail sales would have just been up 0.3%...similarly, without sales at motor vehicle and parts dealers, which were up more than 0.5% to $96,973 million, other retail sales would have only been up a bit more than 0.4%...meanwhile, retailers showing well above average increases in May sales included non-store retailers, including catalog and online, which saw sales rise by 1.3% to $45,238 million, and specialty stores, such as sporting goods, book & music stores, where sales were also up 1.3% to $7,901 million...on the other hand, sales at building material and garden supply stores fell 1.8% to $28,365 million, sales at miscellaneous store retailers fell 1.2% to $10,515 million, and sales at department stores fell 0.9% to $12,349 million..

May Consumer Prices Up 0.2% on Higher Rents, Energy

the consumer price index rose 0.2% in May, as price increases for fuels and core services were partially offset by lower prices for food and core commodities...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.2% in May after rising 0.4% in April and 0.1% in March....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 240.236 in May from 239.261 in April, which left it statistically 1.02% higher than the 237.805 index reading of last May....regionally, prices for urban consumers have risen 1.5% in the West, 0.9% in the South, 0.8% in the Midwest, and 0.9% in the Northeast over the past year, with generally greater price increases within regions in cities of more than 1,500,000 people...with lower food prices offsetting higher energy prices, seasonally adjusted core prices, which exclude food and energy, also rose by 0.2% for the month, with the unadjusted core index rising from 246.992 to 247.554, which is now 2.24% ahead of its year ago reading of 242.119...

the volatile seasonally adjusted energy price index rose by 1.2% in May after rising by 3.4% in April and 0.9% in March, while falling by 6.0% in February and by 2.8% in both December and January, and thus the energy price index still remains 10.1% lower than it was in May a year ago....prices for energy commodities were 2.4% higher while the index for energy services rose by 0.2%, after falling 0.1% in April....the increase in the energy commodity index included a 2.3% increase in the price of gasoline, the largest component, and a 6.2% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, averaged a 1.9% increase…within energy services, the index for utility gas service rose by 1.7% after rising by 0.6% in April, even as utility gas was still priced 4.7% lower than it was a year ago, while the electricity price index fell by 0.2%, after falling by 0.3% in April...energy commodities are still priced 16.9% below their year ago levels, with gasoline prices also averaging 16.9% lower than they were a year ago...meanwhile, the energy services price index is 2.0% lower than last May, as even electricity prices have fallen 1.3% over that period..

the seasonally adjusted food price index fell 0.2% in May, after it rose by 0.2% in April, as prices for food purchased for use at home fell 0.5% while prices for food away from home rose 0.2%, as average prices at fast food outlets rose 0.1% while average prices at full service restaurants rose 0.3%...for food at home, all six major grocery store food group price indexes declined...the price index for cereals and bakery products was 0.4% lower as prices for bakery products other than bread, biscuits, cakes and cookies fell 1.3%....the price index for the meats, poultry, fish, and eggs group fell by 0.5% as poultry prices fell 3.2%, prices for eggs were 2.8% lower and a 2.4% decrease in ham prices dragged the pork index down....the index for dairy products was 0.6% lower, as cheese prices fell 0.6%, prices for whole milk were 0.2% lower, while average prices for other dairy products fell 1.5%... the fruits and vegetables index fell 0.7% in May after falling by 0.5% in April and 1.9% in March as prices for fresh fruits were 0.6% lower on a 3.0% drop in orange prices and 2.5% cheaper apples, the index for fresh vegetables averaged a 0.4% decrease, led by a 7.0% drop in tomato prices, while prices for processed fruits and vegetables fell 1.4% on a 2.4% decrease in prices for frozen vegetables...in addition, the index for beverages and beverage materials was 0.1% lower as carbonated drinks prices fell 1.5% while coffee was priced 0.8% higher... lastly, prices in the other foods at home category averaged a 0.5% decrease as prices for butter fell 3.3% and olives, pickles and relishes were priced 3.8% lower....among food line items, only bacon, which is now priced 10.3% higher than a year ago, has 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 0.2% in May after rising 0.2% in April, 0.1% in March and 0.3% in both February and January, the composite of all commodities less food and energy commodities fell by 0.2%, while the composite for all services less energy services was 0.3% higher....among the commodity components, which will be used by the Bureau of Economic Analysis to adjust May retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.4% on a 1.2% decrease in prices for laundry equipment, a 1.3% decrease in prices for cookware and tableware, and a 1.0% decrease in prices for living room, kitchen, and dining room furniture...meanwhile, the apparel price index was 0.8% higher on 2.9% increases for men's suits, sport coats, and outerwear and for men's furnishings, a 3.4% increase in prices for women's outerwear, and a 4.1% increase in prices for watches and jewelry...on the other hand, prices for transportation commodities other than fuel were down 0.5%, as prices for used cars and trucks were down 1.3% while tire prices were 0.8% lower....prices for medical care commodities were 0.2% lower on 0.4% lower prescription drug prices, while the recreational commodities index fell 0.3% as TV prices fell 1.9% and prices for toys, games, hobbies and playground equipment fell 1.5%.....in addition, the education and communication commodities index was 0.8% lower as prices for computer software and accessories fell 4.3%...lastly a separate index for alcoholic beverages fell 0.1% on a 2.7% decrease in prices for whiskey bought for use at home, while the index for ‘other goods’ was down 0.1% on a 0.7% decrease in prices 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 and a 0.3% increase in owner's equivalent rent while costs for lodging away from home at hotels and motels rose 0.7%, and costs for water, sewers and trash collection were 0.6% higher....medical care services rose 0.5% as physicians' services rose 1.0% and and services by other medical professionals rose 1.1%...meanwhile, the transportation services index rose 0.3% on a 4.8% increase in car and truck rentals and the recreation services index rose 0.2% as video & audio rental services rose 1.9% and film processing rose 1.1%... on the other hand, the index for education and communication services was unchanged in May for the 2nd month in a row as a 0.6% decrease in wireless telephone services offset 0.3% higher college tuition......lastly, other personal services were up 0.6% on a 2.9% increase in checking account and other bank services and a 1.4% increase in legal fees...among core prices, a 13.9% increase in ship fares and a 10.3% year over year increase in moving and storage expenses were the only line items with annual increases greater than 10%, while only telephones, which were priced 10.0% lower, and televisions, which are now 17.5% cheaper, saw their prices drop by more than 10% over the past year...

Estimating May Real Retail Sales Using May CPI Data

with this May CPI release, we can now attempt to estimate the economic impact of the May retail sales figures we covered earlier, which saw nominal sales rise 0.5%...for the most accurate estimate, and the way the BEA will be figuring 2nd quarter GDP at the end of July, 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, May's clothing store sales, which rose by 0.8% in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were also up by 0.8%, which tells us that real retail sales of clothing were actually unchanged in May.  Then, to get a GDP relevant quarterly change, we'd have to compare such adjusted real clothing sales for April and May with the similarly adjusted real clothing consumption for the 3 months of the first quarter, January, February and March, 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 real sales is to apply the composite price index of all commodities less food and energy commodities, which was down 0.2%, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales.  Those sales were up by just about 0.3% in April, while their composite price index was down 0.2%, meaning that real retail sales excluding food and energy sales were up by roughly 0.5%.  Then, for the rest of the retail aggregate, we find sales at grocery stores were up 0.3% in May, while prices for food at home were down 0.5%, suggesting a real increase of around 0.8% in the quantity of food purchased for the month.  Next, sales at bars and restaurants were up 0.8% in dollars, but those dollars bought 0.2% less, so real sales at bars and restaurants were only up by about 0.6%.  And while gas station sales were up 2.2%, gasoline prices were up 2.3%, suggesting a real decrease in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and we don't have the detailed info on that.  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 May were up slightly more than 0.5% from those of April…

next, to get an approximation of the real adjusted changes for April and May to the 3 months of the first quarter, we use Table 7 in the pdf for the April personal income and outlays report, which shows real sales of goods were up 0.2% in February, up 0.4% in March, and up 1.2% in April.  Normally, we'd have to adjust those figures for any revisions in the retail sales figures for those months, but since this months retail revisions are small fractions of 0.1%, we'll forgo that step today...thus, without compounding, that leaves real inflation adjusted May retail sales roughly 1.7% higher than those of March, 2.1% higher than those of February, and 2.3% higher than those of January, or, on average, more than 2.0% above the real retail sales of the first quarter....in national accounts terms, that's real growth in consumption of goods at an annual rate of over 8.1%, a pace that would add at least one-third of 1.92 percentage points to 2nd quarter GDP (ie, since May is one-third of the 2nd quarter)...that follows an April contribution to GDP from real goods consumption equivalent to one-third of 1.35 percentage points, which we incorporated into our calculation of the impact of the April incomes and outlays report of two weeks ago...thus, even if June retail sales are flat, personal consumption of goods would add 1.73 percentage points to 2nd quarter GDP...

Producer Prices Rise 0.4% in May on Higher Energy, Trade Margins

the seasonally adjusted Producer Price Index (PPI) for final demand increased by 0.4% in May as prices for finished wholesale goods rose by 0.7%, while margins of final services providers rose by 0.2%...this followed a April report that showed the overall PPI had increased 0.2%, with prices for finished goods up 0.2% while final demand for services rose 0.1%....producer prices are still down 0.1% from a year ago, and down 1.2% from two years ago, as most of the price reductions relating to lower oil and commodity prices were seen in early 2015...

as we noted, the index for final demand for goods, aka 'finished goods', was up 0.7% in May, after rising by 0.2% in both March and April, and falling by 1.8% over the December thru February period, as the index for wholesale energy prices rose 2.8% from April to May, the price index for wholesale foods was 0.3% higher, and the index for final demand for core wholesale goods (ex food and energy) also rose by 0.3% in May...major wholesale price changes included a 20% increase for diesel fuel, an 18.7% increase for home heating oil, a 14.8% increase for oilseeds, and a 10.2% increase in wholesale fresh and dry vegetables, which was partially offset by a 5.2% decrease in wholesale prices for beef and veal....a 1.3% increase in prices for metal forming machine tools and a 1.3% decrease in wholesale floor coverings were the largest price changes among core goods...

meanwhile, the index for final demand for services rose by 0.2% in May after rising 0.1% in April and falling 0.2% in March, as the index for final demand for trade services rose 1.2%, the index for final demand for transportation and warehousing services fell 0.6%, while the core services index for final demand for services less trade, transportation, and warehousing services was 0.2% lower....noteworthy among trade services, seasonally adjusted margins for apparel, jewelry, footwear, and accessories retailers were 4.7% higher, while margins for RVs, trailers, and campers retailers were 4.4% lower...among transportation and warehousing services, margins for air transportation of freight rose 3.2% while margins for airline passenger services fell 2.6%...in the core final demand services index, margins for passenger car rentals rose 3.6% and margins for arrangement of vehicle rentals and lodging services were 2.9% lower..

this report also showed the price index for processed goods for intermediate demand increased by 0.8%, after rising 0.3% in April but falling in each of the prior nine months, as intermediate processed goods prices still remain 4.6% lower than in May a year ago.... the price index for processed foods and feeds rose 1.1%, while prices for intermediate energy goods rose by 2.7% and the price index for processed goods for intermediate demand less food and energy was 0.5% higher...meanwhile, the price index for intermediate unprocessed goods was up by 1.3% in May after rising by 2.6% in April and 2.5% in March, in the only increases in that index since June of last year...driving that May increase was a 4.2% increase in the index for core raw materials other than food and energy materials, while the index for unprocessed foodstuffs and feedstuffs rose 0.1%, and producer prices for crude energy goods were 0.9% higher.. this raw materials index remains 13.7% lower than it was a year ago, as almost half of the year over year decrease of 26.4% seen in November has now been retraced...

lastly, the price index for services for intermediate demand was 0.2% lower in May after rising 0.1% in April, on a 0.4% decrease in the core price index for services less trade, transportation, and warehousing for intermediate demand, while the index for trade services for intermediate demand rose 0.3% and the index for transportation and warehousing services for intermediate demand was unchanged...driving the drop in prices for services for intermediate demand was a 3.0% decrease in the index for business loans (partial)...over the 12 months ended in May, the year over year price index for services for intermediate demand, which has never turned negative, remains 0.9% higher than it was a year ago...   

Industrial Production Down 0.4% in May on Drop in Auto Output

a large drop in the output of motor vehicles and parts led to a decline in manufacturing, which combined with lower utility output led industrial production lower in May...the Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production fell by 0.4% in May after rising by a revised 0.6% in April...industrial production is now down 1.4% from a year ago, compared to last month's year over year decrease of 1.1%...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, fell to 103.6 in May from 104.0 in April, which was originally reported at 104.1...at the same time, the March reading for the index was revised down from 103.5 to 103.4.....the average of the April and May production indexes is now more than 0.3% below the average of the 1st quarter months, so to the extent that this report plays into GDP, this report suggests a net subtraction from GDP of that magnitude in the components that this report influences...

the manufacturing index, which accounts for more than 77% of the total IP index, decreased by 0.4, from 103.2 in April to 102.8 in May, after the manufacturing index for April was revised down from 103.4, the manufacturing index for March was revised down from 103.1 to 103.0, and the manufacturing index for January was revised up from 103.4 to 103.5...the May decrease was driven by a 4.2% drop in the production of motor vehicles and parts and left the manufacturing index 0.1% lower than a year earlier, which was the first year over year decrease in manufacturing since the January of 2014.... meanwhile, the mining index, which includes oil and gas well drilling, saw its first increase in 9 months, as it rose from 102.2 in April to 102.4 in May, although it remains 11.8% lower than it was a year ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, fell1.0% in May after increasing a revised 6.1% in April, as the utility index fell from 102.5 in April to 104.1 in May...that dropped the utility index back to 0.8% below its year earlier reading, after rising above the level of a year earlier in April for the first time since September 2015...

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, and which indicated that seasonally adjusted capacity utilization for total industry fell to 74.9% in May from 75.3% in April, after April was revised from 75.4%....capacity utilization for all manufacturing industries rose from a downwardly revised 75.2% in April to 75.3 in May; utilization of NAICS durable goods production facilities fell from 76.0% in April to 75.4% in May, while capacity utilization for non-durables was unchanged at 75.0%....capacity utilization for the mining sector rose to 73.1% in May, from 72.7% in April, which was originally published as 72.5%, while utilities were operating at 77.5% of capacity during May, down from the revised 78.4% of capacity during April, which was originally reported as 78.6%...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....  

April Business Sales Up 0.9%, Business Inventories Up 0.1%

following the release of the May retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for April (pdf), which incorporates the revised April retail data from that May report and 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 $1,290.2 billion in April, up 0.9 percent (±0.2%) from March revised sales, but down 1.3 percent (±0.5%) from April sales of a year earlier...note that total March sales were revised from the originally reported $1,289.2 billion as part of an annual benchmark revision....manufacturer's sales rose by 0.5% from March to $456,785 million in April, while retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, rose 1.4% to $399,195 million, and wholesale sales rose 1.0% to $434,170 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,807.1 billion at the end of April, up 0.1 percent (±0.1%) from March, and 1.0 percent (±0.5%) higher than in April a year earlier...the value of end of March inventories was revised from the $1,818.6 billion reported last month to $1,804.5 billion in the annual revision...seasonally adjusted inventories of manufacturers were estimated to be valued at $620,782 million, 0.1% lower than in March, inventories of retailers were valued at $598,415 million, also 0.1% less than in March, while inventories of wholesalers were estimated to be valued at $587,901 million at the end of April, up 0.6% from March...all categories of business inventories are adjusted for price changes for national accounts data using item appropriate price indexes from the producer price index...since April producer prices averaged a 0.2% increase, real business inventories for April will thus be lower than the end of the 1st quarter by an average of 0.1%...if inventories should hold at that level through May and June, the change from the $69.6 billion real increase in the 1st quarter could subtract as much as 2.00 percentage points from second quarter GDP...

New Housing Construction Little Changed in May

the May report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units started was at a seasonally adjusted annual rate of 1,164,000, which was 0.3 percent (±14.0%)* below the revised April estimated annual rate of 1,167,000 housing units started, but which was still 9.5 percent (±16.0%)* above last May's rate of 1,063,000 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, May housing starts could have been up by 13.7% or down by as much as 14.3% from those of April, with even larger revisions possible...in this report, the annual rate for April housing starts was revised from the 1,172,000 reported last month to 1,176,000, while March starts, which were first reported at a 1,089,000 annual rate, were revised up from last month's initial revised figure of 1,099,000 annually up to 1,113,000 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 109,200 housing units were started in May, up from the 107,300 units started in April...of those housing units started in May, an estimated 73,200 were single family homes and 35,600 were units in structures with more than 5 units, up from the revised 72,200 single family starts and 33,900 units started in structures with more than 5 units in April (there was an odd drop of units in buildings with 2 to 4 units, from 1,200 to 400)....

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 May, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,138,000 housing units, which was 0.7 percent (±1.3%)* above the revised April rate of 1,130,000 permits, but still 10.1 percent (±1.8%) below the rate of permit issuance in May a year earlier...the annual rate for housing permits issued in April was revised from 1,116,000 to 1,130,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by travelling census agents, which showed permits for 107,800 housing units were issued in May, up from the revised estimate of 99,700 new permits issued in April...those May permits included 69,600 permits for single family homes, up from 68,000 in April, and 35,400 permits for housing units in apartment buildings with 5 or more units, up from 29,100 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts decreased to 1.164 Million Annual Rate in May and Comments on May 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, June 12, 2016

April's job openings, wholesale sales and inventory, and Mortgage Monitor

it's been a slow week for regular reports, with only the Job Openings and Labor Turnover Survey (JOLTS) for April from the BLS, the April report on Wholesale Trade, Sales and Inventories from the Census, and the Mortgage Monitor for April (pdf) from Black Knight Financial Services released among the reports we regularly cover on a monthly basis...the week also saw the release of the Consumer Credit Report for April, which showed that overall consumer credit, a measure of non-real estate personal debt, expanded by a seasonally adjusted $13.4 billion, or at a 4.5% annual rate, as non-revolving credit expanded at a 5.4% rate to $2,650.0 billion and revolving credit outstanding rose at a 2.1% rate to $951.5 billion...that represented the slowest monthly consumer credit growth rate since March 2014, and it followed a March report that showed the greatest credit expansion rate since November 2001, so we suspect the seasonal adjustment for those two months has gone awry....the Fed also released the 1st Quarter Flow of Funds report, a 196 page pdf report that tracks the flow of money throughout the economy as it moves between households, businesses, and government, and which is usually reported on for household net worth, which tends to fluctuate with the stock market and the value of homes, as measured by the CoreLogic Home Price Index…this report showed that household net worth rose from $87.2 trillion in the 4th quarter of 2015 to a record $88.1 trillion in the 1st quarter of 2016, as the value of real estate owned by households rose by $498 billion while the value of corporate stock owned by households decreased by $160 billion…..

Job Openings Up in April, Hiring and Firing Down

the Job Openings and Labor Turnover Survey (JOLTS) report for April from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 118,000, from 5,670,000 in March to 5,788,000 in April, after March job openings were revised lower, from 5,757,000 to 5,670,000...April jobs openings were also just 3.7% higher than the 5,580,000 job openings reported in April a year ago, as the job opening ratio expressed as a percentage of the employed rose to 3.9% in April from 3.8% in March, also up from 3.8% a year ago...the greatest increase in job openings was in the trade, transportation, and utilities category, where openings rose by 155,000 to 1,120,000, while job openings in professional and business services fell by 274,000 to 871,000 (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 April, seasonally adjusted new hires totaled 5,092,000, down by 198,000 from the revised 5,290,000 who were hired or rehired in March, as the hiring rate as a percentage of all employed fell from 3.7% to 3.5%, which was also down from the hiring rate of 3.6% in April a year earlier (details of hiring by industry since December are in table 2)....meanwhile, total separations also fell, by 108,000, from 5,098,000 in March to 4,988,000 in April, while the separations rate as a percentage of the employed remained at 3.5%, which was also the same separations rate as in April a year ago (see table 3)...subtracting the 4,988,000 total separations from the total hires of 5,092,000 would imply an increase of 104,000 jobs in April, a bit less than the revised payroll job increase of 123,000 for April reported by the May 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 2,912,000 of us voluntarily quit their jobs in April, down by 36,000 from the revised 2,948,000 who quit their jobs in March, while the quits rate, widely watched as an indicator of worker confidence, slipped from 2.1% to 2.0% of total employment, which was still up from 1.9% a year earlier (see details in table 4)....in addition to those who quit, another 1,646,000 were either laid off, fired or otherwise discharged in April, down by 122,000 from the revised 1,768,000 who were discharged in March, as the discharges rate fell to 1.1% of all those who were employed during the month, from 1.2% in March and from 1.3% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 430,000 in April, up from 380,000 in March, for an 'other separations' rate of 0.3%, which was unchanged....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...

April Wholesale Sales Up 1.0%, Wholesale Inventories Up 0.6%

the April report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $434.2 billion, up 1.0 percent (+/-0.5%) from the revised March level, but still down 2.6% percent (+/-1.2%) from wholesale sales of April 2015... the March preliminary estimate was revised down $0.7 billion or almost 0.2% from the $430.7 level reported last month ... April wholesale sales of durable goods were up 0.4 percent (+/-0.7%)* from last month but were down 1.4 percent (+/-1.8%)* from a year earlier, with a 1.6% increase in wholesale sales of vehicles and vehicle parts leading the increase for the month, while the value of wholesale sales of electrical and electronic goods fell 2.7%....wholesale sales of nondurable goods were up 1.5 percent (+/-0.5%) from March but were down 3.8 percent (+/-1.6%) from last April, with wholesale sales petroleum and petroleum products up 9.0% on higher prices...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

on the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold, and this April report estimated that wholesale inventories were valued at a seasonally adjusted $587.9 billion at month end, an increase of 0.6 percent (+/-0.4%)* from the revised March level and 0.9 percent (+/-1.4%)* higher than in April a year ago, with the March preliminary estimate revised upward $0.7 billion, or more than 0.1%, at the same time....inventories of durable goods were up 0.2 percent (+/-0.4%)* from March, but down 1.8 percent (+/-1.4%) from a year earlier, with inventories of lumber and other construction materials up 1.3%, while inventories of computers and peripheral equipment were down 3.0%...at the same time, the value of wholesale inventories of nondurable goods were up 1.3 percent (+/-0.5%) from March and were up 5.5 percent (+/-1.9%) from last April, as the value of inventories of raw farm products rose 7.5% while wholesale inventories of drugs and drug store supplies rose 2.2%...the upward revision to March wholesale inventories implies an upward revision of about 0.02 percentage points to 1st quarter GDP, while April wholesale inventories, after an adjustment for a modest rise in the April producer price index, will likely also underpin an real inventory increase in the 2nd quarter as well...

A Record Low for New Foreclosures, Another Record High for Mean Time in Foreclosure

the Mortgage Monitor for April (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 595,235 home mortgages, or 1.17% of all mortgages outstanding, remaining in the foreclosure process at the end of April, which was down from 630,766, or 1.25% of all active loans, that were in foreclosure at the end of March, and down from 1.63% of all mortgages that were in foreclosure in April of last year.....these are homeowners who at least had a foreclosure notice served but whose homes had not yet been seized, and the April "foreclosure inventory" now represents the lowest percentage of homes that were in the foreclosure process since the summer of 2007... new foreclosure starts, which have been volatile from month to month, fell to 58,728 in April from 72,762 in March and from 70,400 in April a year ago; this was the lowest level of new foreclosures since April 2005, before the mortgage crisis began...

in addition to homes in foreclosure, BKFS data also showed that 2,145,589 mortgages, or 4.24% of all mortgage loans, were at least one mortgage payment overdue but not in foreclosure at the end of April, up from the 4.08% of homeowners with a mortgage who were more than 30 days behind in March, but down from the mortgage delinquency rate of 4.72% in April a year earlier...of those who were delinquent in April, 730,179 home owners, or 1.45% 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 from 732,765 such "seriously delinquent" mortgages in March...combining the total number of delinquent mortgages with those in foreclosure, we find that a total of 2,740,824 mortgage loans, or 5.41% of homeowners with a mortgage, were either late in paying or in foreclosure at the end of April, and that 1,325,141, or 2.62% of all homeowners, were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

the graph below, from page 5 of the mortgage monitor pdf, shows the monthly historical counts of both foreclosure starts and of new 90 day delinquencies...the new 90 day delinquencies are tracked by the red line, with an obvious seasonal pattern wherein homeowners tend to fall behind on their mortgage payments as the holiday shopping season ensues, while the seasonal low for such serious defaults typically occurs in March...monthly foreclosure starts are shown below as smoky blue bars, which are further divided into new first time foreclosures, shown as the darker portion of each bar, and repeat foreclosures shown in light blue, which are mortgages where the homeowner had been foreclosed on previously and either caught up on his payments or got a loan modification at that time, only to fall behind on payments another time and subsequently be foreclosed on again...foreclosure starts usually hit their seasonal low in April, a month after the seasonal low for the 90 day defaults...and while it's fairly clear that total foreclosure starts in April were the lowest since April of 2005, if you look close you'll also notice that new foreclosure starts are the lowest on record, dating back to at least 2000...

April 2016 LPS 90 day delinquencies vs foreclosure starts

for the details of the historical mortgage crisis metrics covered by the Mortgage Monitor, we're including below that part of the monthly table showing the monthly count of active home mortgage loans and their delinquency status, which comes from page 16 of the pdf....the columns in the table below show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month over the past 4 months and for each January shown going back to January 2005…in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…with the slowdown in new foreclosures, the average length of delinquency for those who have been more than 90 days delinquent without foreclosure has now climbed back up to 520 days, but it’s is still down from the April 2015 record of 536 days, while the average time of delinquency for those who’ve been in foreclosure without a resolution has increased again and at 1088 days has again topped the record set last month…that means that the average homeowner who is in foreclosure now has been there roughly three years, which, considering that this year's new foreclosure starts were all less than 120 days old, suggests that many foreclosures started early in the crisis are still not yet completed…  

April 2016 LPS loan counts and days delinquent table


(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, June 5, 2016

May jobs report; April income and outlays, trade deficit, construction spending, and factory inventories, et al

with the first Friday of the month, the Employment Situation Summary for May from the Bureau of Labor Statistics was obviously the most widely watched release of the week...but this week also saw the release of four reports for April that give us the lion's share of that months's contribution to 2nd quarter GDP, and in some cases suggest revisions to 1st quarter GDP...those reports were the April report on Personal Income and Spending from the Bureau of Economic Analysis, the Commerce Dept report on our International Trade for April, the Full Report on Manufacturers' Shipments, Inventories and Orders for April and the April report on Construction Spending (pdf), both from the Census Bureau...other regular reports issued this week included the report on light vehicle sales for May from Wards Automotive, which estimated that vehicles sold at a 17.37 million annual rate in May, up from the 17.23 million annual pace in April, but down from 17.6 million rate in May of 2015, and the March Case-Shiller Home Price Index, which is a relative average of January, February & March home prices; Case Shiller reported that home prices nationally for those 3 months averaged 5.2% higher than prices for the same homes that sold during the same 3 month period a year earlier...

among the diffusion indexes released this week were the Dallas Fed Texas Manufacturing Outlook Survey, which indicated its general business activity index fell from -13.9 to -20.8, the seventeenth consecutive negative reading for that index, indicating a still deepening recession in the Texas oil patch economy, and both of the widely followed reports from the Institute for Supply Management (ISM): the May Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) increased from 50.8% in April to 51.3% in May, which still suggests a sluggish expansion in manufacturing firms nationally, and the May Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 52.9%, from 55.7% in April, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business...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... 

May Report Shows 21,000 Fewer Jobs than Last Report, ‘Not In Labor Force’ at a Record High

the Employment Situation Summary for May showed the weakest monthly job creation since September 2010 and a drop in both the labor force participation rate and the unemployment rate, while the employment rate was unchanged....estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 38,000 jobs in May, after the payroll job increase for March was revised down from 208,000 to 186,000 and the April jobs increase was revised down from 160,000 to 123,000, meaning the combined number of jobs created over those two months was 59,000 less than was previously reported, and hence payroll jobs indicated by this report are actually down by 21,000 from the previous report…as a result, fewer additional jobs have been created in the first 5 months of this year than in the same period of any year since 2009...

seasonally adjusted job increases in May were mostly in the health care service, retail, hospitality and government sectors with widespread job losses through most other sectors...the health care and social assistance sector added 55,400 jobs in May, with 16,500 of those in hospitals and 9,000 working in doctor's offices...the retail sector added 11,400 jobs, with 10,300 of those in general merchandise stores other than department stores...the leisure and hospitality sector added 11,000 jobs by virtue of 22,200 additional jobs in bars and restaurants, while jobs in arts, entertainment, and recreation fell by 10,400, and there were 13,000 new government jobs, with 9,700 of those in the postal service...job losses included 11,000 in the resource extraction sector, 15,000 in construction, 18,000 in durable goods manufacturing, 21,000 in temporary help employment services and 34,000 in the information sector...the later was impacted by a strike of Verizon workers during the reference week, which showed up as a loss of 37,200 jobs in telecommunications....

the establishment survey also showed that average hourly pay for all employees rose by 5 cents to $25.59 an hour, after it had increased by a revised 9 cents an hour in April; at the same time, the average hourly earnings of production and non-supervisory employees increased by 3 cents to $21.49 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours, meaning the increase to 34.5 hours shown in April was revised away, while hours for production and non-supervisory personnel was also unchanged from a similarly downwardly revised 33.6 hours...meanwhile, the manufacturing workweek rose 0.2 hours to 40.8 hours, after the April manufacturing workweek was also revised down a tenth of an hour, while factory overtime was at 3.3 hours for the sixth month in a row...

the data extrapolation from the May household survey estimated that the seasonally adjusted number of those who were employed rose by 26,000 to 151,030,000; while the estimated number of unemployed fell by 484,000 to 7,436,000; and thus the labor force decreased by a total of 458,000...since the working age population grew by 205,000 at the same time, that meant the number of employment aged individuals not in the labor  force increased by 664,000 to a record 94,708,000, which was enough to clip the labor force participation rate by another 0.2%, as it has now fallen from 63.0% in March to 62.6% in May...with the number employed relatively unchanged, the employment to population ratio, which we could think of as an employment rate, was unchanged at 59.7%...meanwhile, with the large decrease in the unemployed, most of whom just quit looking for work, the unemployment rate fell by 0.3% to 4.7%...at the same time, there was a large 468,000 increase in the number who reported they were involuntarily working just part time, from 5,962,000 in April to 6,430,000 in May, which meant the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons" remained unchanged at 9.7% of the labor force 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....

April Personal Incomes Up 0.4%, Spending Up 1.0%, On Track to add 2.05 Percentage Points to 2nd Quarter GDP

other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important economic release we see monthly; as each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of GDP by itself...in addition, this report also includes 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, 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 April'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 March to April..

thus, when the opening line of the press release for this report tell us "Personal income increased $69.8 billion, or 0.4 percent, and disposable personal income (DPI) increased $63.5 billion, or 0.5 percent, in April", they mean that the annualized figure for seasonally adjusted personal income in April, $15,697.9 billion, was $69.8 billion, or actually somewhat more than 0.4% greater than the annualized personal income figure of $15,788.9 billion extrapolated for March; the actual, unadjusted change in personal income from March to April is not given...at the same time, annualized disposable personal income, which is income after taxes, rose by almost 0.5%, from an annual rate of an annual rate of $13,792.0 billion in March to an annual rate of $13,855.4 billion in April...likewise, all the contributors to the increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be more clearly seen in the Full Release & Tables (PDF) for this release...so when the press release, or a news account copying from it says, "Wages and salaries increased $38.6 billion in April, compared with an increase of $30.7 billion in March", that really means wages and salaries would increase by $38.6 billion over an entire year if April's seasonally adjusted increase in wages and salaries were extrapolated over that year, just as personal current transfer payments from government agencies rose at a $12.5 billion annual rate and interest and dividend income, sometimes the largest contributor to the monthly personal income increase, rose at a $7.2 billion annual rate in April....so you can see what's written in the press release is misleading, and often leads to media reports that parrot those lines the same way the BEA wrote them, and why we favor referencing the pdf in reviewing this report...

for the personal consumption expenditures (PCE) that we're most interested in today, BEA reports that they increased at a $119.2 billion rate, or a bit less than 1.0% from March, as the annual rate of PCE rose from $12,526.5 billion in March to $12,645.8 in April....March PCE was revised from $12,526.6 billion annually to $12,526.5 billion, while February PCE was revised higher, from $12,513.9 billion annual to $12,522.9 billion, which reduced the February to March change to 0.0%, which some cited as a downward revision....the current dollar increase in April spending resulted from a $68.6 billion annualized increase to an annualized $4,041.5 billion in spending for goods and a $50.6 billion increase to an annualized $8,604.3 billion in spending for services, so we can see the unusually large contribution from April retail sales....total personal outlays for April, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $121.7 billion to $13,104.3 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $751.1 billion annual rate in April , down from the revised $809.4 billion in annualized personal savings in March... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 5.4% in April from the March savings rate of 5.9%...

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 rose from 109.939 in March to 110.276 in April, a month over month inflation rate that's statistically 0.3065%, which BEA reports as an increase of 0.3 percent, following the PCE price index increase of 0.1% in March...applying that inflation adjustment to the nominal amounts left real PCE up 0.6% in April, after the March real PCE increase was revised to statistically unchanged ...note that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in 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 April's chained dollar consumption total works out to 11,467.7 billion annually, 0.6433% more than March's 11,394.4 billion, a difference that the BEA reports as 0.6%...

however, to estimate the impact of the change in PCE on the change in GDP, the month over month change doesn't help us much, since GDP is reported quarterly...thus we have to compare April'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 11,330.7 billion in chained 2009 dollars..(ie, the same as is shown in table 3 of the pdf for the 1st quarter GDP report)....when we compare April PCE of 11,467.7 to the 1st quarter real PCE of 11,384.2, we find that April real PCE has grown at a 2.97% annual rate compared to the 1st quarter....this means that even if April real PCE does not improve during May and June, growth in PCE would still add 2.05 percentage points to the growth rate of the 2nd quarter...

Trade Deficit Increases 5.4% in April after Downward Revisions to Past 3 Years

the Census report on our international trade in goods and services for April release included an annual revision which revised statistics on trade in goods and services for the January 2013 to March 2016 period; as a result, our goods and services deficit was revised downward 3.5 percent for 2013, downward 3.6 percent for 2014, and downward 7.3 percent for 2015, and hence all changes in this month's report are from those revised figures, as if previously published monthly reports never existed....thus, from those revised figures, this report indicated that our seasonally adjusted goods and services trade deficit rose by $1.9 billion to $37.4 billion in April from a March deficit which was effectively revised from the previously reported $40.4 billion down to $35.5 billion...the value of our April exports rose from the revised figures by $2.6 billion to $182.8 on a $2.9 billion increase to $120.1 billion in our exports of goods and a $0.3 billion decrease to $62.7 billion in our exports of services, while our imports rose $4.5 billion to $220.2 billion on a $4.3 billion increase to $178.9 billion in our imports of goods and a $0.3 billion increase to $41.4 billion in our imports of services (totals dont add due to rounding)...export prices averaged a 0.5% increase in April, so real exports will be reduced from the nominal amounts by 0.5% in national accounts data, while import prices were 0.3% higher, meaning real imports were smaller than the nominal dollar values reported here by that percentage....

most of the increase in our April exports could be accounted for by higher exports of industrial supplies and materials and of automotive vehicles parts, and engines....referencing the Full Release and Tables for October (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $1,792 million to $32,475 million on increases in excess of $200 million in our exports of fuel oil, petroleum products other than fuel oil and organic chemicals...our exports of automotive vehicles, parts, and engines rose by $839 million to $12,937 million on a $363 million increase in our exports of automotive parts other than tires and engines...in addition, our exports of foods, feeds and beverages rose by $420 million to $9,835 million on a $114 million increase in our exports of corn, our exports of consumer goods rose by $188 million to $15,830 million on a $298 million increase in our exports of gem diamonds, and our exports of capital goods rose by $109 million to $43,524 million on increases in excess of $200 million in exports of computer accessories, aircraft parts, and electric apparatuses, which were partially offset by a $375 million decrease in our exports of oilfield drilling equipment...at the same time, our exports of other goods not categorized by end use fell by $583 million to $5,025 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that our imports of most end use categories increased, led by a $2,507 million increase to $49,589 million in our imports of capital goods, mostly due to a $796 million increase in our imports of civilian aircraft, a $394 million increase in our imports of computers, and a $321 million increase in our imports of electrical apparatuses...our imports of industrial supplies and materials rose by $1131 million to $33,971 million on a $288 million increase in our imports of petroleum products other than fuel oil and a $171 million increase in our imports of crude oil, and smaller increases in our imports of other materials... our imports of consumer goods rose by $509 million to $46,757 million on a $431 million increase in our imports of cotton apparel and household goods, a $382 million increase in our imports of toys, games, and sporting goods, and a $316 million increase in our imports of televisions and video equipment and increases in a number of other consumer goods which were partially offset by a $1256 million decrease in our imports of cellphones and a $786 million decrease in our imports of pharmaceutical preparations....in addition, our imports of automotive vehicles, parts and engines rose $498 million to $28,772 million on a $712 million increase in our imports of automotive parts other than tires and engines, and our imports of foods, feeds, and beverages rose by $222 million to $10,723 million on higher imports of most foodstuffs, while our imports of goods not categorized by end use fell by $530 million to $7,361 million...

obviously, with the smaller than previously reported trade deficit over the past three years, GDP for each of those years will have to be revised higher, but that won't happen until the annual revisions to GDP are prepared later this summer...i'm not sure how the BEA will handle these revisions as they impact first quarter trade when the third estimate of 1st quarter GDP is released later this month...to gauge the impact of April trade on 2nd quarter growth figures, we'll 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 estimate that 1st quarter real exports of goods averaged 117,576.3 million monthly in 2009 dollars, while inflation adjusted April exports were at 119,462 million in the same 2009 dollar quantity index representation... annualizing the change between the two figures, we find that April's real exports are running at a 6.6% annual rate above those of the 1st quarter, or at a pace that would add about 0.51 percentage points to 1st quarter GDP if continued through May and June.....in a similar manner, we find that our 1st quarter real imports averaged 178,034 million monthly in chained 2009 dollars, while inflation adjusted April imports were at 177,996 million...that would indicate that so far in the 1st quarter, our real imports have decreased at a 2.1% 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 decrease at a 2.1% rate would thus add about 0.27 percentage points to 2nd quarter GDP....hence, if the April trade deficit is maintained throughout the 1st quarter, our improving balance of trade in goods would add about 0.78 percentage points to the growth of 2nd quarter GDP....note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on those and we don't have easy access to all their price changes...

Construction Spending Falls 1.8% in April after February and March are Revised Higher

the April report on construction spending (pdf) from the Census Bureau estimated that our seasonally adjusted construction spending for the month would work out to $1,133.9 billion annually if extrapolated over an entire year, which was 1.8 percent (±1.3%) below the revised annualized estimate of $1,155.1 billion in construction spending in March and 4.5 percent (±1.6%) above the estimated annualized level of construction spending of April last year......March construction spending was originally reported at $1,137.5 billion annually, and it has now been revised up to $1,155.1 billion annually, while February construction spending was revised up from a $1,133.6 billion annual rate to a $1,137.9 billion rate...the combined revisions to February and March construction spending should add about 0.18 percentage points to first quartet GDP when the third estimate is released the last week of June...

private construction spending was at a seasonally adjusted annual rate of $843.1 billion in April, 1.5 percent (±0.8%) below the revised March estimate of $855.9 billion, with residential spending of $439.7 billion 1.5 percent (±1.3%) below the upwardly revised annual rate of $446.3 billion in March, while private non-residential construction spending fell 1.5 percent (±0.8%) to $403.5 billion from the revised March level on 3.6% decreases in private spending for construction of both commercial and health care facilities and a 7.2% decrease in communication construction spending...at the same time, public construction spending was estimated to be at an annual rate of $290.8 billion, 2.8 percent (±2.5%) below the revised March estimate of $299.2 billion, with spending for highway construction down 6.6 percent (±7.2%)* to an annual rate of $89,384 billion, which was still 4.0% higher than a year earlier...

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 April spending reported in this release on 2nd 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, and the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment....so to quickly come up with rough estimate on real construction over the period in question, we've decided to use the producer price index for final demand construction as an inexact shortcut... that index showed that aggregate construction costs were up 0.8% in April, up 0.1% in March and down 0.1% in February and down 0.5% in January....on that basis, we can estimate that April construction costs were roughly 0.9% greater than those of February and 0.8% greater than those of January...we then use those percentages to inflate spending for each of those months, which is arithmetically the same as deflating April construction spending, for comparison purposes...construction spending in millions of dollars for the first quarter is given as 1,155,122 for March, 1,137,868 for February, and 1,121,975 for January ...thus to compare April's inflation adjusted construction spending to that of the first quarter, our formula becomes: 1,133,932 / ((1,155,122*1.008 +  1,137,868 *1.009 + 1,121,975 * 1.008)/3) = 0.98791, meaning real construction spending in April was down roughly 1.2% vis a vis the 1st quarter, or down at a 4.75% annual rate...to figure the effect of that change on GDP,  we annualize the difference between the first quarter average and April and take the result as a fraction of 1st quarter GDP and find that April construction spending is falling at a rate that would subtract 0.34 percentage points from 2nd quarter GDP…

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

the Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $8.7 billion or 1.9 percent to $460.5 billion in March, following an increase of 1.7% in March, which was revised from the 1.1% 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 showed that new orders for manufactured durable goods increased by $7.7 billion or 3.4% to $236.2 billion in April, virtually unchanged from what was reported then...

this report also indicated that the seasonally adjusted value of April factory shipments rose for the second month in a row after being down 8 straight months, increasing by $2.2 billion or 0.5 percent to $456.8 billion, following a 0.3 percent increase in March, which had previously been reported as an 0.5% increase...shipments of durable goods were up by $1.3 billion or 0.5 percent to $232.5 billion, down from the 0.6% increase that was reported last week...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods rose by $1.0 billion, or 0.4%, to $224.3 billion, as a 1.8% increase in the value of shipments from refineries was offset by lower shipments of other nondurables...

meanwhile, the aggregate value of April factory inventories fell for the 9th time in the past ten months, decreasing by $0.5 billion or 0.1 percent to $620.8 billion, following a March increase of 0.1% that was reported as a 0.2% increase last month....inventories of durable goods decreased $0.6 billion to $384.5, revised from the $0.2 billion decrease that was reported was reported last week....the value of non-durable goods' inventories was statistically unchanged at $236.3 billion, following a decrease of 0.1% in March....producer prices for finished goods were up 0.2% in April, with producer prices for energy goods also up 0.2%, so after non-durable factory inventories are adjusted for inflation, non-durable inventories will show a real decrease on the order of 0.3% for the month...with only this month of factory inventory data to go on, then, it looks like this decrease will contribute to a modest subtraction from 2nd quarter GDP figures, although a lot can change between now and the end of July when the first estimate for the 2nd quarter will be released…



(note: 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, May 29, 2016

Coral Bleaching - The Canary We’re All Ignoring

(contributed by Emma Seddon)

Carbon monoxide gathers deadly force slowly [1]. So slowly that you don’t realise anything is happening. You get a bit irritable, then a bit woozy, then a bit lethargic. By the time you start feeling nauseous, it’s too late. All you want to do is lie down and have a little rest, to clear your head. You never wake up.

Carbon monoxide, among other gases, was (and still is) a big problem down mines. Before sophisticated technologies to both detect noxious gases and to remove the risk from them, miners used to take caged canaries into mines with them. Why? Because if toxic, undetectable gases like carbon monoxide were present, the canary would succumb before the miners [2]. A dead or suffering canary would give the miners enough warning time to get out of the shaft before the gaseous effects took hold of them. Cruel, but effective. So effective, in fact, that mine canaries were only phased out in the UK in 1986 [3].

The world at large is currently in very real danger from carbon dioxide and other greenhouse gases. We’ve got a form of canary which is currently warning us strongly that things are imminently about to get deadly for us. Unlike the miners of old, however, we’re completely ignoring it. I speak of coral bleaching [4]. Hundreds of kilometers of coral are dying, and it’s undoubtedly due to human action. We’ve had, in all fairness, multitudes of natural warnings about the danger we’re putting the planet in through our actions - but coral bleaching is one of the clearest (and deadliest) signs yet. It indicates in the strongest manner possible that our actions are not sustainable, that the planet cannot tolerate them - and that the consequences of our wholescale environmental disregard are about to catch up to us with deadly force. Yet we’re turning a blind eye. Our coral canary is lifeless in the cage, and we’re continuing to mine.

Coral bleaching is essentially the death of a coral reef. It occurs when corals are stressed, and jettison the symbiotic algae within their tissues. In human terms, this is akin to them sloughing off their skins, leaving them skeletally vulnerable. Unsurprisingly, they die swiftly thereafter, leaving behind only their white, bone-like structures. Coral stress is caused by many things, including changes in light levels and the availability of food - but scientists are 99% certain that the recent, wholescale coral bleaching phenomenon is caused by rising water temperatures [5].

Coral bleaching is not just the death of the poor corals. It also spells disaster for the many, many species which live in and around coral reefs. Coral reefs are complex habitats [6], providing sustenance and shelter for an astonishing 25% of marine life. They’re enormously important for the preservation of more oceanic species than we may think. Without the coral reefs, it is likely that a chain reaction would cause mass oceanwide extinctions - and that’s without taking into account the widespread impact of the climatic conditions causing the coral bleaching. Coral bleaching is extremely serious. So it’s very, very worrying for marine biologists that the coral bleaching we’re currently seeing is far and away the biggest and most serious bleaching event ever seen.

Thousands upon thousands of kilometers of the Great Barrier Reef are now bleached - an estimated (and horrific) 93% [7]. Many entire colonies have been obliterated [8], leaving the species which rely upon them extremely vulnerable [9]. Marine biologists - openly devastated by and angry about the phenomenon [10] - state that the coral are unlikely to recover even if action is taken on climate change, and if no action is taken, we could see the complete extinction of coral within our lifetimes. And this would not only mean the extinction of coral, but the extinction of an incomprehensibly enormous swathe of marine life.

Horrible, undoubtedly, for the oceans - but why should this bleaching be a ‘canary’ for humans? Well, scientists are more or less unanimous in stating that coral bleaching is caused by a rise in oceanic temperatures (itself caused by anthropogenic global warming). Warmer water means less oxygen, which means that not only coral (and all which relies upon it) is under threat, but everything else in the warming oceans as well. From a lesser economic point of view, coral bleaching is going to deliver a pretty hard blow to the Australian tourist industry (for which coral diving draws in millions of dollars each year). From a more serious, human life point of view, the loss of ocean species spells wholesale disaster for human communities around the globe. We rely more heavily than we realise upon oceanic resources. Over 100 million people are directly dependent upon coral reefs in one way or another for their survival [11], and many hundreds of millions more depend upon the sea for sustenance. Mass marine life extinctions spell bankruptcy at best and starvation at worst for millions of human communities worldwide. No amount of contingency plans and personal cover [12] can help you when the food and resources simply aren’t there any more. Clearly we should be concerned about coral bleaching for its impacts upon the wildlife and planet - but if we can’t muster any sympathy for that, then surely we can generate a little concern for our own impending predicament?

Apparently not, if the Australian government’s reaction is anything to go by. Although paying lip service to the problem, Australia remains committed to coal mining. Fossil fuels and the like are directly responsible for the death of the Great Barrier Reef - yet Australia recently wholeheartedly approved plans for the world’s largest thermal coal mine to be created in Queensland’s Galilee Basin [13]. The Carmichael coal mine is estimated to ultimately produce more fossil fuel emissions per year than New York city [14]. To push a not inappropriate metaphor, that’s an awful lot of dead canaries. And that’s before we’ve even touched upon the ocean dredging and spoil contamination the mining itself would create. The government only reluctantly agreed not to dump dredge spoil on the dying Great Barrier Reef itself after intense pressure from conservation groups - demonstrating the kind of astonishing, pig-headed blindness we’re up against.

How can we save the Great Barrier Reef? Sadly, we probably can’t. It’s too late for that particular canary. But we can take action now to prevent things from getting any worse. By cutting fossil fuel consumption and generally taking a bit more care of the planet, we could see the oceans beginning to recover for our children and our children’s children in a few decades. Unfortunately, if the actions of the Australian and other governments are anything to go by, it looks like we may all shortly be succumbing to carbon monoxide - both metaphorically and literally.

Sources: