Monday, August 24, 2015

oil industry pushes to end the ban on oil exports as imports hit high for the year

US crude oil output fell this week, but our oil imports were the highest since early April, and with a major refinery idled, that unexpectedly led to the largest increase in our inventories of oil in storage in 4 months, precipitating yet a further crash in the price of oil...US field production of crude oil fell for the third week in a row in the week ending August 14th, from 9,395,000 barrels per day last week to 9,348,000 barrels per day in this week's report...while that was down 2.7% from the modern record of 9,610,000 barrels per day set in the week ending June 5th, it was still 9.6% higher than our output of 8,556,000 barrels per day in the same week last year...our imports of crude oil, meanwhile, rose for the 3rd week in a row, jumping from 7,573,000 barrels per day in the week ending August 7th to 8,038,000 barrels per day in the current report...while that's 2.4% more than the same week last year, our 7.6 million barrels per day average crude imports of the last 4 weeks is still 0.9% lower than the same 4 week period of last year...

however, even with the increased oil supply brought about by that large increase in imports, that oil was not being put to use to the same degree as last week...due in large part to the unexpected August 8 outage at the BP refinery in Whiting, Indiana, the largest BP refinery and the largest in the US Midwest, U.S. crude oil refinery inputs dropped to 16,775,000 barrels per day, from the 17,029,000 barrel per day level of the week ending August 7th...so with greater supply and less refinery throughput, our crude oil inventories in storage rose by 2,620,000 barrels to 456,213,000 barrels in week ended August 14th, 24.3% more oil than the 367,019 ,000 barrels we had stored at the end of the 2nd week of August last year...that was, of course, more than was ever stored anytime in August in the 80 years that the EIA has records for, which had never seen the 400 million barrel inventory level breached before this year...that news of even higher inventories during the summer driving season when inventories usually fall sent oil prices down by 4.8% to a six and a half year low at $40.57 a barrel on Wednesday, and although the expiring September contract price inched up on Thursday on news of the first hurricane of the Atlantic season, oil prices for October delivery crashed again on Friday in the midst of a global market panic, briefly slipping below $40 a barrel, before closing the week at $40.45, capping the longest weekly losing streak for oil prices in 29 years...

so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil?  one reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future...at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit...but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December...so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader...they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts...

another reason for continued high imports of oil is that we're exporting more refined products than ever before...in the 2nd week of August, our total exports of refined petroleum products averaged 3,884,000 barrels per day, up 10.6% from the 3,512,000 barrels per day we were exporting in the same week last year...but that's also more than double the 1,851,000 barrels per day of refined products we were exporting in August 2009, and more than quadruple the 964,000 barrels per day of refined products we were exporting in August of 2004...we're also exporting more crude oil too, mostly mostly to Canada, where the lighter grades of distillates are blended with tar from the oil sands to produce diluted bitumen, or dilbit, which can then be delivered by pipeline...on a monthly basis, our total exports of crude and petroleum products hit a record 4,943,000 barrels per day in April, more than double the 2,432,000 total exports of April five years earlier...

but the week just ended was somewhat an anomaly, in that with the aforementioned refinery constraints, our total exports did not rise, and our total imports of refined products rose to 2,614,000 barrels per day, up from 1,927,000 barrels per day of refined product we imported just two weeks ago ...that was only the 2nd time in the past two years wherein our refined product imports topped 2.6 million barrels per day, and as a result our total imports of crude oil and petroleum products rose to 10,652,000 barrels per day, for our highest weekly total imports this year...subtracting the 4,460,000 barrels per day of crude and products that we exported this week means our net petroleum and product deficit was at 6,192,000 barrels per day for the week, which was also the greatest excess of crude and products imports over exports that we've seen this year...

but even with all the oil and products that we're importing, there's been an ongoing push by the frackers and their supporters to end the federal ban on crude oil exports, which was instituted in 1975, at a time when our production started to slip and domestic shortages developed...the reason the oil industry wants to export crude, even though we're importing so much, is simple; international oil prices have been running between $5 and $10 a barrel more than US oil prices...so if they're able to sell their crude overseas (Canada and Mexico are exempt from the ban), US prices for oil will quickly jump to the international price, and we'll be paying 10% to 20% more for our oil products than we otherwise would if our market remained protected...a bill to lift the ban has passed the U.S. House, and a similar bill cleared the U.S. Senate Energy Committee in July, and it will probably be taken up when the Congress returns from recess after Labor Day...a new report, published Friday by the Center for American Progress, predicted that US oil production will increase if the export ban ends, and that an average of 26,385 new oil wells would be drilled in the U.S. each year between 2016 and 2030 if the ban is lifted, 7,600 more wells per year than would be otherwise...as a result, an additional 137 square miles of land would be developed for oil each year...over 15 years, that would be 2055 more square miles of oil drilling sites than we'd otherwise see, or a total drilled out and fracked area more than 60% larger than the area of the state of Rhode Island...so if we want to save ourselves from that dystopian future, we'd better start pushing back against the frackers on that export issue now..

(above excerpted from Focus on Fracking)

Sunday, August 23, 2015

July consumer prices, new home construction, existing home sales, state jobs, et al

the key report released this week was the Consumer Price Index for July from the Bureau of Labor Statistics; other widely watched releases included the New Residential Construction report for July (pdf) from the Census Bureau, and the National Association of Realtors' report on July existing home sales...other Labor Department releases included the Regional and State Employment and Unemployment Summary for July and the July report on Real Average Hourly Earnings, which indicated that inflation adjusted and seasonally adjusted earnings for all employees increased by 0.1% from June to July as a 0.2% increase in average hourly earnings was partially offset by a 0.1% increase in the Consumer Price Index, while real average weekly earnings increased by 0.4% on a 0.1% increase in real average hourly earnings and a 0.3% increase in the average workweek....in addition, this week also saw the release of the first two regional Fed manufacturing indexes for August: 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 plummet nearly 19 points, from +3.9 to -14.9, its lowest reading since 2009, indicating the onset of a severe regional contraction, while the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from 5.7 in July to 8.3 in August, indicating an ongoing expansion in the area's manufacturing facilities....

Consumer Prices Moderate to a 0.1% increase in July

consumer inflation was subdued in July as prices for food, shelter, clothing, and gasoline saw the only significant increases...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose 0.1% in July after rising 0.3% in June and 0.4% in May, while lower energy costs held the year over year change to just 0.2%....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 238.654 in July from 238.638 in June, actually less than 0.2% higher than the 238.250 reading of July of last year....since increases in energy and food prices were both modest, core prices, which exclude food and energy, also rose by 0.1% in July, as the unadjusted core index rose from 242.354 to 242.436, to a level 1.80% ahead of its year ago reading of 238.138...regionally, prices for urban consumers rose 0.3% in the West, fell 0.1% in the South, 0.1% in the Northeast and were mostly unchanged in the Midwest for the month, while they've risen 1.3% in the West while falling slightly elsewhere over the past year, with a trend toward greater price increases within regions in cities of more than 1,500,000 people...

the seasonally adjusted energy price index rose by 0.1% in July after rising 1.7% in June and 4.3% in May; nonetheless, energy prices are still averaging 14.8% lower than they were in July a year ago...prices for energy commodities were 0.7% higher in July while the index for energy services saw a 0.6% decrease, its 4th drop in 5 months....the increase in the energy commodity index was driven by a 0.9% increase in the price of gasoline, the largest component, while fuel oil prices fell 3.4% and prices for other fuels, including propane, kerosene and firewood, averaged a 2.2% decrease…within energy services, the index for utility gas service fell by 1.4%, leaving utility gas priced 14.2% below a year ago, while the electricity price index fell by 0.4%, as prices for electricity turned negative by 0.7% from last year...energy commodities are still priced 22.4% below their year ago levels, with gasoline still 22.3% lower than a year ago, while the energy services price index is now 3.7% lower than last July...

the seasonally adjusted food index rose by 0.2% in July, after rising 0.3% in June and being statistically unchanged in April and May, as prices for food at home rose 0.3% while prices for food away from home were statistically unchanged, as a 0.3% average price increase at full service restaurants was offset by a 4.0% decrease in food prices at employee sites and schools...prices for all food at home categories rose in July, led by an 0.8% increase in prices for dairy and related products, which saw milk prices rise 1.4 and cheese prices 1.1% higher...the index for cereals and bakery products rose 0.2% on a 1.2% increase in prices for biscuits, rolls, muffins and a 1.5% increase in prices for frozen and refrigerated bakery products, while bread prices fell 0.5%....prices for the meat, poultry, fish, and egg group also rose 0.2% on a 3.3% increase in egg prices and and a 0.5% increase in pork prices, which were partially offset by a 0.6% decrease in chicken prices...the fruit and vegetable index rose 0.3% on a 1.1% increase in prices for canned fruits and vegetables and a 0.8% increase in citrus fruit prices, while lettuce prices fell 3.1% and apples price were 2.2% lower...lastly, the beverages index rose 0.4% as coffee prices rose 1.0% and carbonated drinks prices rose 0.9%, while the index for other foods at home rose 0.2% on 0.7% higher prices for sugar and 1.7% higher butter prices, which probably should be included in the dairy category...over the past year, egg prices are now up by 24.9% and average beef prices have risen by 10.0%, while bacon prices have declined 11.4%....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 July, the composite of all CPI commodities less food and energy commodities fell by 0.1%, while the composite for all services less energy services rose by 0.2% on 0.4% increase in the cost of shelter, which accounts for nearly more than half of the services index and one third of the total CPI...within the shelter components, both rent of one's primary residence and owner's equivalent rent rose by 0.3%, but the cost of lodging away from home rose 2.5% on a 3.0% increase in hotel and motel charges...other than shelter, prices for other services were subdued; medical care services rose 0.1% as a 0.1% decrease in prices for hospital services offset a 0.2% increase in doctor's fees, while transportation services fell 0.2% on a 5.6% drop in airfares...other services seeing a price change greater than 1% in July included intercity train fares, which were up 2.2%, ship fares, which were up 3.8%, car and truck rentals, which were up 1.8%, vehicle registration and license fees, which were up 2.3%, film processing, which was up 1.6%, video media rental, which was up 1.2%, and delivery services, which were up 1.5%..

the 0.1% lower prices for core commodities would suggest a greater increase in real personal consumption expenditures of goods for July than the 0.6% increase we saw in last week's retail report, with the caveats that retail sales of gasoline and food would need to be adjusted separately with their appropriate price change index, and that the 0.7% increase in consumption at bars and restaurants would be included with personal consumption of services...as sales of food were flat and gas station sales were up only 0.4%, the prices changes here suggest a pullback in real consumption of both of those...but prices for new cars were down 0.4%, suggesting at least a 1.8% increase in real consumption of automotive equipment, and other key components also saw real gains, so real personal consumption expenditures of goods should see an increase at least as great as the nominal sales increase...

major consumer commodities which saw prices decreases greater than 1% in July included laundry equipment, which was priced 2.9% lower, bedroom furniture, which was 1.5% lower, men's apparel, which was 1.2% lower, boys apparel, which was 2.2% lower, petfood, which was 2.0% lower. televisions, which were 1.5% lower, computer software and accessories, which were also 1.5% lower, and toys, games and playground equipment, which were priced an average of 1.0% lower than in June...meanwhile, prices for women's outerwear rose 2.5%, prices for women's footwear rose by 2.4%, and prices for newspapers & magazines rose by 1.2%...other than the aforementioned eggs, beef, bacon, and energy commodities, only telephones, which saw prices fall by 13.0%, and televisions, which were 12.3% cheaper, saw their prices change by more than 10% over the past year...

New Housing Starts Flat in July; New Permits Drop

the report on New Residential Construction for July (pdf) from the Census Bureau estimated that the widely watched count of new housing starts was at a seasonally adjusted annual rate of 1,206,000 in July, which was 0.2 percent (±15.2%)* above the revised June estimate of 1,204,000 annually and 10.1 percent (±10.8%)* above last July's rate of 1,095,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts 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; thus, July housing starts could have been down 15.0% or up 15.4% for all they know, with revisions further obscuring the change, as the June annual rate of starts was revised up from 1,174,000 to 1,204,000 units...those annual rates of starts indicated by the headline change are extrapolated from a survey of a small percentage of permit offices visited by Census field agents, which estimated that 112,300 housing units were started in July, down from 112,700 units started in June, which was initially estimated at 110,400 housing starts...the unadjusted estimates also show that housing starts were down in the Northeast and down slightly in the West, while they were up in the South and Midwest, with only the 28.5% decrease to 14,800 units started in the Northeast greater than the statistical margin of error for that region...

as we've noted previously, 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 starts data, but these have also presented us with an anomaly of late... in July, Census estimated new permits were issued at a seasonally adjusted annual rate of 1,119,000, which was 16.3 percent (±1.1%) below the revised June rate of 1,337,000 permits annually, the largest one month drop since 2008, but still 7.5 percent (±1.4%) above the rate of permit issuance a year earlier...the drop in permits was precipitated by the expiration of a New York tax break for multi-family construction, which resulted in builders bulking up on permits in the months prior to the expiration, only to stop seeking permits in July...not only did this result in this month's record drop, but the back to back 8 year record highs of new permits we reported on in May and June...the estimates for new permits reported here were extrapolated from the unadjusted estimate which showed permits for 100.900 housing units were issued in July, which was down from the estimated 134100 new permits issued in June...that change was driven by the change in permits in the Northeast, which dropped to 10,700 in July from 31,100 in June and 25,600 in May, an anomaly which we noted at the time but didn't understand until this week....permits were down in all other regions as well, though, so the July drop in permits was real even without that Northeast anomaly...

July Existing Home Sales Top June Post-Recession Sales Record

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales rose by 2.0% in July, projecting that 5.59 million homes would sell over an entire year if July sales were extrapolated over that year, a rate 10.3% higher than the annual rate projected in July of a year ago, and the greatest pace of existing home sales since February 2007…the annual rate of June home sales was revised from 5.49 million to 5.48 million....the NAR also says that the median existing-home price for all housing types in June was $234,000, which was up 5.6% from a year earlier and the 41st consecutive year over year increase in home prices...the NAR press release, which is titled Existing-Home Sales Maintain Solid Growth in July , is in easy to read plain English, so there's no point in our restating what they already clearly report...as sales of existing properties do not add to our national output, neither these 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 fairly meaningless annual rate, we'll take a look at the raw data overview (pdf), which shows that 552,000 homes actually sold in July, down 3.5% from the 572,000 homes that sold in June (which was revised from 573,000) but still up 11.7% from the 494,000 homes that sold in July last year...the regional change in July sales ranged from an increase of 11.1% to 80,000 home sales in the Northeast to a 12.4% decrease to 113,000 home sales in the West....that same pdf indicates that the median home selling price for all housing types fell from a revised $236,300 in June to $234,000 in July, while the average home sales price was $278,000, down 1.8% from the $273,000 average in May, and up 4.6% from the $268,100 average home sales price of June a year ago, with the regional averages ranging from a low of $223,300 in the Midwest to a high of $360,600 in the West...for additional coverage with long term graphs on this report, see Existing Home Sales Are On Fire by Robert Oak at The Economic Populist…

July State and Regional Employment Report

the Regional and State Employment and Unemployment Summary for June expands on the national employment situation summary of two weeks ago by breaking down the state and regional details...as with most BLS reports, the press release is very readable & self explanatory, with BLS referring to appropriate tables linked to at the bottom of the press release wherever relevant, and with tables and coverage of 50 states, it's more thorough than we can meaningfully cover in a short synopsis....the BLS table corresponding to household survey data, including the seasonally adjusted count of the unemployed and the unemployment rate for each state, is here....for graphics on that, David Cooper at the Economic Policy Institute includes current and long term interactive maps of the unemployment rates for the 50 states here: More of the Same in the July State Jobs Report....

the pdf version of this report also includes map graphics for both the employment rate and the year over year payroll jobs increase by state and region...for a breakdown of payroll employment by job type for each state over the past 3 months, and the change in employment since last July, see the following two BLS tables accompanying this release: Table 5. Employees on nonfarm payrolls by state and selected industry sector, seasonally adjusted and Table 6. Employees on nonfarm payrolls by state and selected industry sector, not seasonally adjusted ...the latter two tables are very detailed, giving you both actual and seasonally adjusted totals for jobs in each state and the District of Columbia in several categories, including construction, manufacturing, trade, transportation and utilities, financial, professional and business services, education and health services, leisure and hospitality and government....


(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 theglobal glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

Sunday, August 16, 2015

July’s retail sales, industrial production, and producer prices; June’s wholesale sales, business inventories, and job openings, et al

the past week brought the release of the first handful of major monthly reports for July: retail sales from the Census Bureau, Industrial production and capacity utilization from the Fed, and the producer price index from the Bureau of Labor Statistics; in addition, this week also saw the Import and Export Price Indexes for July from the BLS, which we'll use to adjust July's trade figures for price changes when they're released the first week of September, the June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau, and two reports that rap up the 2nd quarter data for their sectors: Manufacturing and Trade: Inventories and Sales for June, covered in the financial press as the business inventories report, and the June Job Openings and Labor Turnover Survey (JOLTS), providing the details behind the payroll jobs report of the month before last...

in addition, this week also saw the release of three major quarterly reports: the 2nd Quarter Report on Household Debt and Credit Report (pdf) from the NY Fed, which covered mortgages, auto loans, student debt, revolving credit and other forms of credit with 15 large national graphs and 15 state level graphics; the 2nd quarter National Mortgage Delinquency Survey from the Mortgage Bankers Association (MBA), which reported the delinquency rate on mortgage loans fell to a seasonally adjusted rate of 5.30% of all loans outstanding, down from 5.54% in the first quarter, and the 2nd quarter report on Labor Productivity and Costs from the BLS, which indicated that labor productivity, or real output divided by man hours, rose at a 1.3% annual rate in the quarter, while unit labor costs rose 0.5%, reflecting a 1.8% increase in hourly pay and the 1.3% increase in productivity; Robert Oak has a detailed explainer on that report in his post Labor Productivity Grows By Just 1.3% in Q2 2015 with 13 FRED graphs...

July Retail Sales More Than 1% Higher Than Reported for June

seasonally adjusted retail sales rose more than expected in July, and revisions to May and June sales added another 0.4% to the running total.....the Advance Retail Sales Report for July (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $446.5 billion, which was an increase of 0.6 percent (±0.5%) from June's revised sales of $443.9 billion and 2.4 percent (±0.7%) above the sales of July of last year...June's seasonally adjusted sales were revised from the $442.0 billion first reported to $443.9 billion, while May's sales, which were revised down to $443.3 billion from the originally reported $444.9 billion last month, were revised back up to $443.9 billion with this report....annualized, those revisions would add $10.6 billion to the previously reported second quarter personal consumption expenditures, and assuming no change in the price indices for May and June, 0.14 percentage points to real 2nd quarter growth....estimated unadjusted sales in July, extrapolated from surveys of a small sampling of retailers, indicated unadjusted sales rose 1.8%, from $447,712 million in June to $455,846 million in July , while they were up 2.0% from the $443,153 million of sales in July a year ago...

as usual, we'll include the table of monthly and yearly percentage changes in sales by business type taken from the Census pdf, as you should all be familiar with this view.....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business type from June to July in the first sub-column, and then the year over year percentage change for those businesses since last July in the 2nd column; the second pair of columns gives us the revision of last month’s June advance monthly estimates (now called "preliminary") as revised in this report, likewise for each business type, with the May to June change under "May 2015 revised" and the revised June 2014 to June 2015 percentage change in the last column shown...for your reference, the table of last month’s advance June estimates before this month's revision is here....

July 2015 retail sales

as you can see from the above, the 1.4% increase to $92,753 million in sales at vehicle and parts dealers gave a major boost to July sales, but even excluding automotive sales from the total, other retail sales were still up 0.4% to $353,724 million...other types of retailers that saw major sales increases in July included non-store and online retailers, who saw sales increase 1.5% to $40,493 million, specialty stores, such as sporting goods, book and music stores, where sales rose 0.9% to $7,404 million, and furniture stores, where sales rose 0.8% to $8,666 million; on the other hand, electronics and appliance store sales saw sales fall 1.2% to $8,610 million, while department store sales fell 0.8% to $13,769 million... for the past year, the 9.0% increase in sales at restaurants and bars was the largest of any group, while the 15.2% drop in gasoline stations sales was the worst result and obviously due to lower gasoline prices...

there were also major changes to June sales, shown in the 2nd pair of columns above...comparing that data to our copy of sales as originally reported last month, we first find that sales at car dealers, which were originally reported as down 1.0%, have been revised to show a worse June sales decline of 1.6%...offsetting that, we find that several types of retailers saw their June sales revised up by more than a half a percent; the change in June sales at building material and garden supply stores saw a 1.5% improvement, as they were revised from a decrease of 1.3% to an increase of 0.2%; gasoline station sales were revised from an increase of 0.8% to an increase of 1.8%; furniture store sales were revised from a decrease of 1.6% to a decrease of 1.0%; clothing store sales were revised from a decrease of 1.5% to a decrease of 0.9%, and sales at drug stores in June are now shown to have increased 0.8%, rather than the 0.2% increase reported in the advance estimate..

July industrial Production Sees Largest Increase in 8 Months on Jump in Auto Output

industrial production rose 0.6% in July after increasing by a revised 0.1% increase in June as the data and indexes provided by this report have undergone an annual revision and a major overhaul since the last time we reviewed this report...notably for us, the base year for the indexes was advanced from 2007 to 2012, which raised the level of each of the indexes by the difference between the two periods...what this means is that we cannot directly compare current data to previous data that we have recorded, but only note revisions as they're reported here...the net of this revision was that industrial production throughout the recovery years was lower than had previously been reported, increasing at a rate less than 2.5% from 2011 through 2013, and not achieving the pre-recession level until May 2014, seven months later than was previously published..

for July, the Fed's G17 release on Industrial production and Capacity Utilization showed that the 0.6% increase in seasonally adjusted industrial production came after the increase in June production was revised from 0.3% to 0.1%, with the June increase seeing an intermediate revision to 0.2% with the annual revision; while a previously recorded decrease of 0.2% in May production was revised to a decrease of 0.3%... the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 107.5 in July after the June index was revised from 107.1 to 106.9 and the indexes for April and May were both revised 0.1 lower.....to the extent that this report plays into GDP, the downward revision to April, May and June output would suggest a weaker than originally reported 2nd quarter growth rate when the 2nd estimate of GDP is released two weeks from now...

in July, the manufacturing index increased by 0.8%, the largest monthly increase since November, as the index for manufacturing rose from 104.9 to 105.7, after the the June index was revised down from 105.1...even with the strong increase, however, the revised manufacturing index is now just 1.5% higher than a year ago, vs the 1.8% year over year increase reported last month...the mining index, which is dominated by oil and gas drilling, rose 0.2% in July after rising a revised 0.7% in June; that had originally been reported as a 1.0% increase, and at 117.1, the mining index is now 2.0% below its year ago reading...the utility index, meanwhile, fell 1.0% in July after rising 2.3% in June, as although July was warmer than normal, it was less so than June, and the corresponding seasonal adjustment thus reduced the index, as air conditioning usage was less above normal in July than in June...at 103.4, the utility index was 4.6% higher than last year, when AC usage was closer to normal...

production for the major market groups was mixed in July, with production of consumer goods rising 1.2% in July as output of consumer durable goods rose 5.6% on a 10.9% increase in production of automotive products, while production of non-durables fell by 0.1% on a 1.3% drop in the output of consumer energy products...production of business equipment rose 0.1%, while production of defense and space equipment fell 0.9%; production of construction materials rose 0.2% and production of business supplies fell 0.2% while output of intermediate materials rose 0.6%.... further details for industrial production by market group, including the changes for each of the last 6 months, 3 quarters and 3 years, can be found on Table 1 and Table 4 of the report, with table 1 showing the percentage change from the prior month, quarter or year, and table 4 giving the new index and subindex values for the same...

as you know, this report also gives us capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which rose from 77.7% in June to 78.0% in July...seasonally adjusted capacity utilization for all manufacturing industries was up 0.5% to 76.2% after the annual revision reduced historical manufacturing capacity utilization from 3/4 percentage points to 2 percentage points lower...capacity utilization for mining fell from 84.5% in June to 84.4% in July, while utilities were operating at 79.1% of capacity during July, down from 79.9% in June...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 a handful of other special categories....

Producer Prices Rise 0.2% on Services

wholesale prices moderated in July as the seasonally adjusted Producer Price Index (PPI) for Total Final Demand increased by 0.2%, as final demand for services rose 0.4% while wholesale goods prices slipped 0.1%; that followed a June index increase of 0.4% that was propelled by higher prices for wholesale eggs and energy...the year over year change in producer prices still remains negative, however, as the annual change in the index fell from a negative 0.7% in June to a negative 0.8% in July....

the index for final demand for goods, aka 'finished goods', fell by 0.1% in July after rising 0.7% and in June 1.3% in May, as the index for energy prices fell by 0.6% as wholesale prices for home heating oil fell 9.5% and offset a 1.5% increase in wholesale gasoline prices...the price index for final demand for foods was 0.1% lower, as wholesale fresh egg prices fell by 24.8% after rising by 69.6% in June and 42.9% in May, while wholesale grain prices rose 9.1% (see table 4).....excluding food and energy, the index for final demand for wholesale core goods was unchanged in July after an increase of 0.4% in June, as a 2.4% increase in wholesale industrial chemicals was offset by small decreases in wholesale prices several other goods..

as we noted, the index for final demand for services rose 0.4% in July after rising 0.2% in June, as the index for final demand for trade services rose by 0.4%, the index for final demand for transportation and warehousing services rose 0.2%, and the index for final demand for services less trade, transportation, and warehousing services was up 0.4%....margins for computer hardware, software, and supplies retailers increased by 11.6%, and margins for traveler accommodation services rose 8.9%, while margins on recreational activity instruction fees fell 7.3% and the margins of major appliances retailers fell 7.2%...

this month's report also showed the price index for processed goods for intermediate demand fell by 0.2% after rising 0.7% in June and 1.0% in May, while the index for intermediate processed goods slipped to 6.6% lower than in July a year ago....the decrease was precipitated by a 1.5% drop in prices for intermediate energy goods, while the index for processed foods and feeds rose 0.9% and the price index for processed goods for intermediate demand less food and energy rose 0.1%...in addition, the price index for intermediate unprocessed goods fell by 2.9% in July after rising 1.2% in June and 3.3% in May, as prices for crude energy materials were 6.2% lower, the index for unprocessed foodstuffs and feedstuffs fell 1.2%, and the index for other raw materials fell 0.5%…this left the raw materials index 22.7% lower than it was a year ago, as it saw prices fall 10 out of the 11 months prior to April, only eking out a 0.1% increase in September of last year...

finally, the price index for services for intermediate demand rose by 0.2% in July following a 0.4% increase in June, as the index for trade services for intermediate demand rose 0.6%, the index for transportation and warehousing services for intermediate demand rose 0.5%, while the price index for services less trade, transportation, and warehousing for intermediate demand was unchanged...over the 12 months ended in July, the price index for services for intermediate demand has risen 1.1%...  

June Wholesale Sales Rose 0.1%, Wholesale Inventories Rose 0.9%

the June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that seasonally adjusted wholesale sales were at $449.9 billion, an increase of 0.1 percent (+/-0.7)* from the revised May level, while they still remained 3.8 percent (+/-1.2%) lower than wholesale sales of a year earlier...the May preliminary estimate was revised down by $0.5 billion, or 0.1%, meaning that the value of wholesale sales reported in June is virtually the same as the $449.8 billion that was reported last month for May...wholesale sales of durable goods fell 1.1 percent (+/-1.1%)* from May and were down 1.5 percent (+/-1.6%)* from a year earlier as wholesale sales of automotive products dropped 2.8% and wholesale sales of machinery and equipment were 2.2% lower than in May...wholesale sales of nondurable goods were up 1.2 percent (+/-0.7%) from May, but were down 5.7 percent (+/-1.8%) from last June, with wholesale sales of petroleum and petroleum products up 3.7%, and wholesale sales of farm products up 3.6% on the month, mostly on higher prices...as an intermediate activity, wholesale sales are not included in GDP except as a trade service, since they do not represent an increase in the output of the goods 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, and the Census estimated they were valued at $586.2 billion at the end of June, 0.9 percent (+/-0.4%) higher than the revised May level and 5.4 percent (+/-1.4%) above the valuation of last June's inventories, while May's preliminary inventory estimate was revised down by $1.1 billion or 0.2%....wholesale durable goods inventories were up were up 0.1 percent (+/-0.4%)* from May and were 5.4 percent (+/-1.8%) higher than a year earlier, as the value of inventories of vehicles and parts were 2.0% higher than May, while inventories of computers, peripheral equipment and software were down 2.1%...inventories of nondurable goods were valued 2.3 percent (+/-0.5%) higher than in May and 5.5 percent (+/-1.8%) above last June, as the value of inventories of raw farm products were 15.5% higher and inventories of petroleum and petroleum products were up 3.6%...the June change in inventories was only estimated when the GDP advance report was released two weeks ago, and the large jump recorded here has led to widespread speculation that an upward revision to GDP would be in the offing, some guessing by as much as 0.5%...however, the producer price index for goods rose by 0.7% in June on 2.4% higher energy prices, while intermediate food prices rose 1.4%...combined with the 0.2% downward revision to May inventories, this suggests virtually no improvement in real inventories, and maybe even a decrease in the change in GDP...

Total Business Sales Up 0.2% in June, Business Inventories Up 0.9%

following the release of retail sales report, Census released the composite Manufacturing and Trade Inventories and Sales report for June, which incorporates the revised June retail data and gives us a complete picture of the business contribution to the economy for the month...according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,325.5 billion in June, 0.2% (±0.2%) higher than May revised sales, but still down 2.5 percent (±0.4%) from June a year earlier...total May sales were revised down less than 0.1%, from $1,323.6 billion to $1,322,962 million....manufacturer's sales rose by 0.45% to $483,530 million, retail trade sales, which exclude restaurant & bar sales from the retail sales reported earlier, fell by less than 0.1% to $392,010 million, and wholesale sales rose by 0.1% to $449,920 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be at a seasonally adjusted $1,812.5 billion at the end of June, 0.9 percent (±0.1%) higher than May and up 3.0 percent (±0.5%) from June a year earlier...seasonally adjusted inventories of manufacturers were estimated to be valued at $653,560 million, a 0.6% million increase over May, inventories of retailers were valued at $572,740 million, 0.9% greater than May, and as we noted earlier, inventories of wholesalers were estimated to be valued at $586,156 million at the end of June, up 0.9% from May...this sharp increase in the nominal value of business inventories led many to speculate that the previously published inventory contribution to GDP would be revised higher; however, as we noted last week, the factory inventory growth was driven by higher prices for refined products, and as we noted earlier, most of the growth in wholesale inventories was also due to higher prices...that leaves only the unexpected 0.9% increase in retail inventories, which will be adjusted for the 0.4% retail commodity price inflation reported with the June CPI, to add any sizable increment to 2nd quarter GDP real inventories...given that inventories are notoriously hard to value (as the portion valued in previous months is unknown), we wouldn't specurate how much, but nonthelsss feel it's less than the consensus estimates..

Job Openings Drop in June; Hiring and Firing Rises

the number of job openings reported by private businesses and government agencies in June fell from the record high that was set in May...the June Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 108,000 to 5,249,000 in June after May job openings were revised from 5,363,000 to 5,357,000...nonetheless, June's jobs openngs were still 11.4% higher than the 4,710,000 job openings reported in June a year ago...decreases in openings were spread across most industries, as only job openings in prrofessional and business services and health care and social assistance saw increases for the month (see table 1)...like most BLS releases, the press release for report is very readable and also refers us to the associated table for the data cited, linked at the end of the release...

the JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in June, seasonally adjusted new hires totaled 5,177,000, up 117,000 from the revised 5,060,000 hired or rehired in May, as the hiring rate as a percentage of all employed rose from 3.6% to 3.7%, up from a hiring rate of 3.5% in June a year earlier (details of hiring by industry are in table 2)....total separations also rose, from 4,799,000 in May to 4,931,000 in June, as the separations rate as a percentage of the employed rose from 3.4% to 3.5%, up from a separations rate of 3.3% a year ago (see table 3)...subtracting the 4,931,000 total separations from the total hires of 5,177,000 would imply an increase of 246,000 jobs in May, a bit more than the revised payroll job increase of 231,000 for June reported by the July establishment survey last week, not an unexpected difference considering the large margins of error in both surveys...

breaking down the seasonally adjusted job separations, the BLS finds that 2,748,000 quit their jobs in June, up 18,000 from the revised 2,730,000 who quit their jobs in May, while the quits rate, widely watched as an indicator of worker confidence, was unchanged at 1.9% of total employment (see details in table 4)....in addition to those who quit, another 1,791,000 were either laid off, fired or otherwise discharged in June, up 131,000 from the 1,660,000 who were discharged in May, as the discharges rate rose from 1.2% to 1.3% of all those who were employed during the month....meanwhile, other separations, which includes retirements and deaths, were at 392,000 in June, down from 409,000 in May, 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...


(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 theglobal glass onion…if you’d be interested in receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

Sunday, August 9, 2015

July jobs report, June reports on income and spending, international trade, factory orders, & construction spending

  in addition to the Employment Situation Summary for July from the Bureau of Labor Statistics, this week also saw the release of four reports that together made up a large part of the June contribution to last week's estimate of 2nd quarter GDP: the June release on Personal Income and Spending from the Bureau of Economic Analysis, the Census report on our International Trade for June, the Full Report on Manufacturers' Shipments, Inventories and Orders for June and the June report on Construction Spending, both also from the Census Bureau...in addition, this week brought the Consumer Credit Report for June from the Fed, which showed that overall credit expanded by a seasonally adjusted $20.7 billion, or at a 7.3% annual rate, as non-revolving credit expanded at a 7.3% rate to $2,515.6 billion and revolving credit outstanding rose at a 7.4% rate to $906.5 billion...the week also saw the report on light vehicle sales for July from Wards Automotive, which estimated that vehicles sold at a 17.74 million annual rate in July, up from the 16.90 million annual sales rate in May, and the 2nd highest monthly rate of auto sales since July 2005.....in addition, the week also saw the release of the two widely watched diffusion indexes from the Institute for Supply Management (ISM), the July Manufacturing Report On Business, which saw the manufacturing PMI (Purchasing Managers Index) slip from 53.5 in June to 52.7 in July, still indicative of slow manufacturing growth, and the July Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise from 56.0% in June to 60.3% in July, the highest reading in the short history of this index, and indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business...both of those 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 215,000 Jobs in July While Labor Force Participation Remains at a 38 Year Low

the Employment Situation Summary for July was barely passable, with the weakest job creation since March and no improvement from June's dismal labor force data, which had seen the lowest labor force participation rate in 38 years....the establishment survey data indicated that employers added a seasonally adjusted 215,000 jobs, while the payroll job increase in June was revised from 223,000 to 231,000 and the job increase for May was revised from 254,000 to 260,000, after last months revision down from 280,000.....job gains were again largely in the service sector, led by 35,900 additional jobs in retail, 27,900 in health care, 26,600 in professional and technical services, and 17,000 in the financial sector...manufacturers added 15,000 jobs as food manufacturers added 9,100, but otherwise goods producing job growth was soft, with 6,000 added in construction while 5,100 were cut in support activities for mining, which includes gas and oil extraction...in addition, employers reported the average workweek rose by 0.1 hour to 34.6 hours and the average hourly earnings for all non-farm employees rose by 5 cents to $24.99... 

the June household survey estimated that the seasonally adjusted count of those employed rose by 101,000 to 148,840,000, while the number of unemployed fell by 33,000 to 8,266,000, which was not enough to change the unemployment rate, which remained at 5.3%, or either of the other metrics we follow; the employment to population ratio remained unchanged at 53.9%, while the labor force participation rate was at 62.6%, essentially the same as the 38 year low for that metric that we saw in June...however, since the civilian working age population increased by 213,000 while the labor force only increased by 69,000, the long form fraction of the labor force participation rate actually fell, from 62.648655% in June to 62.6229691% in July...moreover, since the increase in the labor force was smaller than the increase in the working age population, the total of those of us not counted in the labor force rose by 144,000 to a record 93,770,000...the only major improvement in the household survey was that the number reporting being stuck in part time work who wanted a full time job fell by 180,000, from 6,505,000 in June to 6,325,000 in July; as a result of that, the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", fell from 10.5% to 10.4%...

the BLS employment situation press release itself is very readable, so you can get more details 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....thus, when you encounter a line in the report such as "In July, 1.9 million persons were marginally attached to the labor force, down by 251,000 from a year earlier.  They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey (See table A-16.)"  you can quickly open Table A-16, where you will the classifications and the details for the men and women marginally attached to the labor force..

June Personal Income Rose 0.4%, Personal Spending Up 0.2%

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 it gives us the monthly data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, the important personal income and disposable personal income data, our savings and savings rate, and the PCE price index, the inflation gauge the Fed targets....like the GDP report last week, the June Income and Outlays report also went through an annual revision with backward revisions to 2012 for all elements reported here, while personal income and personal current taxes were revised from January 1976 through May 2015, due to incorporation of a new classification of federal refundable tax credits...since all the revisions made to personal consumption expenditures had already being incorporated into the GDP revisions that we looked at last week, today we'll only consider those revisions from recent months that are relevant to putting this month's change in perspective...

like the GDP report, all the dollar values reported here are at an annual rate and seasonally adjusted, ie, they tell us what income, spending and saving would be for a year if June's adjusted income and spending were extrapolated over an entire year...confusingly, however, the percentage changes are computed monthly, from one annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from May to June....thus, when the opening line of the press release for this report tell us "Personal income increased $68.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $60.6 billion, or 0.5 percent, in June", they mean that the annualized figure for all types of personal income in June, $15,287.1 billion, was $68.1 billion or 0.4% greater than the annualized personal income figure for May; the actual increase in personal income in June over May is not given....similarly, disposable personal income, which is income after taxes, rose by 0.5%, from an annual rate of $13,304.6 billion in May to an annual rate of $13,353.4 billion in June...with this release, the increases in both personal income and disposable personal income for May were both revised lower, from the originally reported 0.5% increases to increases of 0.4%...

the contributors to the June increase in personal income, listed under "Compensation" in the press release, are also annualized amounts, all of which can be seen in the Full Release & Tables (pdf) for this release, the document we'll be referencing here...so when the press release says, "Wages and salaries increased $18.3 billion in June" that really means wages and salaries would rise by $18.3 billion in a year’s time if June's seasonally adjusted rate of increase were extrapolated over an entire year, just as interest and dividend income, the largest contributor to the personal income increase, rose at a $20.2 billion annual rate in June...likewise annualized are the other sources of June income that add up to the $68.1 billion increase in personal income annually cited in the opening line: business proprietors' income increased at a $6.7 billion annual rate, farmer's incomes increased at a $4.3 billion rate, rental incomes increased at a $7.4 billion annual rate, supplements to wages and salaries, such as employer contributions to pension plans, increased at a $4.4 billion annual rate, personal current transfer receipts from government programs increased at a $8.6 billion rate, and individual contributions for government social insurance, which subtract from the total income figure, increased at a $1.8 billion annual rate in June...

meanwhile, seasonally adjusted personal consumption expenditures (PCE) for June, which were included in the change in real PCE in 2nd quarter GDP, rose at a $25.9 billion annual rate to a level of $12,255.3 billion in consumer spending annually, 0.2% higher than in May, which itself was revised from the originally reported 0.9% increase to an increase of 0.7%...that current dollar increase in June spending was driven by a $33.0 billion annualized increase to an annualized $8,266.1 billion spending for services and a $10.1 billion increase to $2,671.1 billion in annualized spending for non-durable goods, while outlays for durable goods fell at an annualized $17.2 billion rate to an annualized $1,318.1 billion ...total personal outlays for June, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $30.5 billion to $12,706.2 billion, which left personal savings, which is disposable personal income less total outlays, at $646.3 billion in June, up from the revised $616.2 billion in personal savings in May, which was originally reported at $685.5 billion, on higher income and outlays...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 4.8%, from 4.6% in May, which was originally reported at 5.1%..

while our personal consumption expenditures accounted for 68.4% of our second quarter GDP, before they were included in the measurement of the change in our output they were first adjusted for inflation, to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption.....that's done with the price index for personal consumption expenditures, which is included in this report, which is a chained price index based on 2009 prices = 100....from Table 9 in the pdf, we find that that index rose from 109.405 in May to 109.658 in June, giving us a month over month inflation rate of 0.231%, which BEA reports as an increase of +0.2%, while Table 11 gives us a year over year PCE price index increase of 0.3%, and a core price increase of 1.3% for the year, both well below the Fed's inflation target...applying the June inflation adjustment to the change in June PCE shows that real PCE was down 0.02%, which BEA reports as a 0.0% change in the tables...note that when those price indexes are applied to a given month's annualized PCE, it yields that month's annualized real PCE in chained 2009 dollars, which aren't really dollar amounts at all, but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....those results are shown in tables 7 and 8 of the PDF, where the quarterly figures given are identical to those shown in table 3B in the GDP report, and which are used to compute the contribution of real personal consumption of goods and services to GDP...

Trade Deficit Rises 7.1% to $43.8 Billion in June

our trade deficit increased by 7.1% in June as the value of our exports fell and the value of our imports rose...the Census report on our international trade in goods and services for June indicated that our seasonally adjusted goods and services trade deficit rose by $2.9 billion to $43.8 billion in June from an May deficit which was revised from $41.9 billion to $40.9 billion....the value of our June exports fell $0.1 billion to $188.6 billion as a $0.2 billion decrease to $127.6 billion in our exports of goods was partially offset by an increase of $0.1 billion to $61.0 billion in our exports of services, while our imports rose $2.8 billion to $232.4 billion on a $2.7 billion increase to $191.1 billion in our imports of goods and a $0.1 billion increase to $41.4 billion in our imports of services...export prices averaged 0.2% lower in June, so the real growth in exports was higher by that much, while import prices were 0.1% lower, similarly incrementally increasing growth in real imports...

our exports of capital goods fell by $769 million to $44,114 million in June on a $310 million decrease in our exports of telecommunication equipment and a $272 million decrease in our exports of commercial vessels including scrap ships; our exports of industrial supplies and materials fell by $617 million to $37,135 million on a $283 million decrease in exports of finished metal fabrications, a $197 million decrease in exports of organic chemicals, and a $182 million decrease in exports of crude oil, and our exports of foods, feeds and beverages fell $460 million to $10,495 million, led by a $135 million decrease in soybean exports...meanwhile, our exports of consumer goods rose by $795 million to $16,750 million on a $361 million increase in our exports of jewelry and a $283 million increase in our exports of gem diamonds, our exports of automobiles, parts and engines rose by $62 million to $12,702 million, and our exports of goods not categorized by end use rose $538 million to $5,433 million...

import categories seeing increases in June included a $1,733 million increase to $50,603 million in our imports of consumer goods, largely on a $1,344 million increase in our imports of pharmaceuticals and a $454 million increase in our imports of cell phones; we also saw a $1,178 million increase to $41,919 million in our imports of industrial supplies and materials, on a $921 million increase in our imports of crude oil and a $465 million increase in our imports of petroleum products other than fuel oil, a $663 million increase to $11,140 million in our imports of foods, feeds and beverages, led by a $383 million increase in our imports of fish and shellfish, a $332 million increase to $29,758 million in our imports of automobiles, parts and engines, and an $8 million increase to $6,792 million in our imports of goods not categorized by end use...partially offsetting those increases was a $1,316 million decrease to $49,057 million in our imports of capital goods, as we imported $574 million less computers and $448 million less of other industrial machines not listed separately in June...for more details, two itemized lists of the value of more than 200 export and import line items, both monthly and year to date, can be viewed in table form in exhibit 7 and exhibit 8 of the full pdf for this release...

while the trade report that is usually released about a week after the release of an advance estimate of GDP has typically resulted in major revisions to GDP, the technical notes for last week's estimate of 2nd quarter GDP indicated that they made use of a new monthly release from the Census, "Advance Report: U.S. International Trade in Goods," which has some basic tables on just trade in goods, but not the details of this full report...in computing GDP, then, the BEA assumed June goods exports were valued at $126,558 million and goods imports were valued at $188,814 million for a net goods trade deficit of $62,256 million...this week's full report on our trade in goods and services for June indicates that June exports of goods were valued at $126,630 million, and imports were valued at $189,268 million, for a net goods trade deficit of $62,639 million, $283 million greater than was used in the GDP computation...assuming that the deflators to these revised figures were applied in the same proportion that they were in the GDP report, this would result in a small decrease in the 2nd quarter's improvement in trade, from a decrease in the trade deficit at an annual rate of 3.7% as reported in the advance 2nd quarter GDP report to a decrease at a annual rate of 3.5% seen here...the subtraction from 2nd quarter GDP from this revision would be a negligible 0.01 percentage points in 2nd quarter growth…

Value of June Factory Orders Up 2.1%, Value of Shipments Up 0.5%, Inventories Up 0.6%

the Full Report on Manufacturers’ Shipments, Inventories, & Orders for June (pdf), also from the Census Bureau, reported that the value of new orders for durable goods rose in June by a seasonally adjusted $8.7 billion or 1.8% to $478.5 billion, largely because of the jump in commercial aircraft orders that we saw with with the advance report on durable goods last week, which was little revised with this week's report...the 65.4% increase in non-defense aircraft orders led to a 9.3% increase in orders for transportation equipment, without which new factory orders rose 0.5%, as orders for non-durable goods rose 0.4% in June...this June increase followed revised decreases of 1.1% in May and 0.7% in April, and the value of June new orders still remains 5.9% less than in June a year ago, leading some to even forecast a recession...however, nearly 2/3rds of new orders for non-durables, which were down by 9.3% last year, are for production of goods at lower prices, such as the output of refineries, commodity food producers, and chemical plants, which more than account for the lower year over year decrease there...the year over year value of new orders for durable goods are up 2.9%, despite lower prices for primary metals and fabricated metal products...

this report also showed that the value of factory shipments rose by $2.2 billion or 0.5% to $483.5 billion, which followed a decrease of 0.2% in May...shipments of transportation equipment rose 1.3% on a 21.9% increase in shipments of defense aircraft, without with factory shipments rose 0.3%, as the value of shipments of non-durable goods rose 0.4% on a 1.7% increase in shipments from refineries, which saw somewhat higher product prices in June...meanwhile, the aggregate value of June factory inventories, which have been up four of the last five months, increased $3.6 billion or 0.6% to $653.6 billion, following a 0.5% decrease in May...inventories of durable goods rose 0.6% while inventories of non-durable goods rose 0.4% in value...you may recall that in estimating 2nd quarter GDP last week, the BEA assumed no change in nondurable manufacturing inventories in June; since 3/4th of the non-durables inventory increase reported here is a 2.4% increase in higher priced refinery inventories, the addition to the revised change in real GDP should be minor...

finally, the value of unfilled orders rose by a statistically insignificant $5 million to $1,194.7 billion, on the heels of a 0.5% decrease in May...a 0.5% increase to $611,718 million in the order book for commercial aircraft led to a 0.1% increase in unfilled orders for transportation equipment, which now account for more than 2/3rds of all unfilled factory orders....without that increase in unfilled orders for transportation equipment, the overall factory order book was down $510 million to $395,554 million, or a bit more than 0.1%...with shipments higher, the widely watched unfilled orders-to-shipments ratio was at 6.94 in June, down from 6.99 in May, although as we've pointed out in the past, that ratio has lost much of its relevance in the current period of collapsing commodity prices...

Construction Spending Rises 0.1% in June after April and May See Upward Revisions of 2.7%

in the report on June construction spending (pdf), the Census Bureau estimated that our seasonally adjusted construction spending would work out to $1,064.6 billion annually if extrapolated over an entire year, which was 0.1 percent (±1.5%)* above the revised May estimate of spending at a $1,063.5 billion annual rate, 12.0 percent (±2.1%) above the estimated adjusted and annualized level of construction spending of June of last year, and the fastest annual rate in nearly a decade ...the May construction spending estimate was revised from $1,035.8 billion annually to $1,063.5 billion, the April estimate was revised from $1,027.0 billion to $1,044,641 billion annually, so while most media coverage focused on the small 0.1% headline print, construction spending was actually at a rate 2.8% higher than last reported once those revisions are taken into account...this should also imply a substantial upward revision to 2nd quarter GDP...

in June, private construction spending was at a seasonally adjusted annual rate of $766.4 billion, 0.5 percent (±0.8%)* below the revised May estimate, with residential spending rising to a seasonally adjusted annual rate of $371.6 billion in June, 0.4 percent (±1.3%)* above the revised May estimate of $370.0 billion, while private non-residential construction spending fell 1.3 percent (±0.8%) to $394.8 billion, a drop which was entirely due to the upward May revision to $399.975 billion, as May non-residential construction had previously been reported at a $392.8 billion rate..notably, spending for manufacturing facilities was 62.1% higher than last June, while outlays for lodging rose 42.2% year over year and construction for recreation and amusement rose 39.2% from a year ago....meanwhile, public construction spending was estimated at a rate of $298.2 billion annually, 1.6 percent (±2.6%)* above the revised revised May estimate of $293.5 billion in spending, with water supply construction up 13.3%, public recreation up 11,0%, and highway and street spending 1.2% (±6.3%)* higher than the May level…


(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, August 2, 2015

2nd quarter GDP and annual revisions, June durable goods, May Case-Shiller home price indices, et al

the key report that we'll review this week is the advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which included revisions of previously published GDP data back to 2012…other widely watched reports included the June advance report on durable goods and the May Case-Shiller Home Price Index, while the week also saw the BLS releases of the Metropolitan Area Employment and Unemployment Summary for June and the 2nd Quarter Employment Cost Index, which indicated that total wages and benefits grew at the slowest pace in 33 years in the 2nd quarter, as the index rose by just 0.2%...the week also saw the last two regional Fed manufacturing surveys for July: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index rose to 13, following last month's reading of 7 and the May reading of 1, indicating an accelerating expansion of manufacturing activity in the 5th District, and the Texas area manufacturing survey from the Dallas Fed, which saw their general business activity index improve to -4.6 in July, from -7.0 in June and -20.8 in May, indicating a moderating recession in the district’s manufacturing....we also saw the July Chicago Business Barometer, a privately issued manufacturing diffusion index issued by the Chicago ISM, which increased 5.3 points to 54.7 in July, only the 2nd expansionary reading from that index this year in this index where readings above 50 indicate a plurality of regional purchasing managers saw their businesses growing...

Advance Estimate of 2nd Quarter GDP & Revisions From 2012 to Present

the Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis included an annual revision to the past 3 years of GDP data, which on net indicated that economic growth over the period from 2012 to 2014 was at a 2.0% annual rate, revised from the 2.3% composite annual growth previously published for that period of the recovery, making what was already the weakest economic expansion since World War II even weaker; GDP growth for 2012 was revised from 2.3% to 2.2%; our growth rate for 2013 was revised from 2.2% to 1.5%, and our growth rate for 2014 was unrevised at 2.4%, although many 2014 components were revised in arriving at the unchanged composite result...

in addition to the annual revisions, the BEA undertook to correct seasonal adjustments applied to GDP components since the recession began; the reason this was deemed necessary was that seasonal adjustments are made by a program that blindly looks at seasonal data going back several years and adjusts the current data based on what are seen by the program as seasonal patterns, such as to smooth out the effects of seasonal changes in economic activity, such as around Christmas or at the end of the school year...however, since the great recession was so abrupt and deep, it skewed the subsequent automatic adjustments such as to generally make the winter months appear worse than they were and generally show corresponding better growth during the summer months...hence, in 2012, the annual rate of change in GDP was revised up 0.4 percentage points for the first quarter, up 0.3 percentage points for the 2nd quarter, down 2.0 percentage points for the third quarter, while the growth rate for the fourth quarter was unrevised; for 2013, downward revisions of 0.8 percentage points for the first quarter, 0.7 percentage points for the second quarter, and 1.5 percentage points for the third quarter were partly offset by an upward revision of 0.3 percentage point for the fourth quarter, while in 2014 the annual rate of change in GDP was revised up 1.2  percentage points for the first quarter, down 0.7 percentage points for the 3rd quarter, down 0.1 percentage points for the fourth quarter, while the 2nd quarter growth rate remained unchanged..

finally, for the first quarter of 2015, which had been most recently reported with a contraction of 0.2% in the 3rd estimate which we reviewed a month ago, growth has been revised to a positive 0.6% rate; major components that were revised higher included an upward revision to nonresidential fixed investment, from a contraction at a 2.0% rate to growth at a 1.6% rate, a revision to growth in real private inventory investment, from growth at a $99.5 billion rate in 2009 dollars, $19.5 billion greater than the 4th quarter, to real growth at $112.8 billion rate, $34.6 billion greater than the revised 4th quarter, a revision to growth in real residential fixed investment from growth at a 6.5% rate to growth at a 10.1% rate, a revision to real federal government consumption from unchanged to growth at a 1.1% rate, all of which were partly offset by a downward revision to personal consumption expenditures from growth at a 2.1% rate to growth at a 1.8% rate....thus the figures for the 1st quarter of 2015 have gone from the initial estimate of growth at a 0.2% rate, to a 0.7% rate of contraction in the 2nd estimate, to a 0.2% rate of contraction in the 3rd estimate, and finally back to growth at a 0.6% rate in this annual revision...

all of those revisions should leave you with the sense to take the advance estimates of 2nd quarter growth which were made this week, with some June reports still missing, with a grain of salt...the Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 2.3% annual rate over the output of the 1st quarter of this year, which we have just seen was revised to show growth at a 0.6% rate...the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.6% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate is released, which will be two months from now, and ultimately +/- 1.2% and +/-1.3% respectively before the final revision on each is filed....note that June trade and inventory data have yet to be reported, and that the BEA assumed no change in nondurable manufacturing inventories, and that real wholesale and retail inventories had increased in June...

while we cover the details below, remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that they only use the prefix "real" to indicate that the change has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those nonsense 2009 dollar figures, which we think would be better thought of as a quantity indexes...given the misunderstanding evoked by the text of the press release, all the data that we'll use in reporting here comes from the pdf for the 1st estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release, which also offer links to just the tables on Excel and other technical notes...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those months and years, table 3a, which shows the current dollar value of each of the GDP components, table 3b, which shows the inflation adjusted value of each of those components, and table 4, which shows the change in the price indexes for each of the components, and which is used to convert current dollar figures into units of output represented by chained dollar amounts...the intervening tables (ie, 1a, 1b, 2a, 2b,etc) give us the previously published data for each of those metrics going back to 2012, should anyone be interested in the finer details of the annual revision...

personal consumption expenditures (PCE), which accounts for over 68% of GDP, grew at a 5.1% rate in current dollars in the 2nd quarter, in contrast to the first quarter decrease at a 0.1% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE rose 2.9% in the 2nd quarter after rising 1.8% in the first...consumer spending for durable goods rose at a 7.2% rate, mostly on higher automobile purchases, but prices for those durable goods fell by 0.1%, meaning real output of durable goods represented by that spending increased at a 7.3% rate...consumer spending for non durables rose at a 7.5% rate, but the PCE price index for non-durables was up 3.8%, mostly on higher energy prices, reducing real growth in consumption of non durables to a 3.6% rate...in a like manner, personal outlays for services were reduced by a 2.0% deflator to show real 2nd quarter growth in services was at a 2.1% rate...thus, with real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0. 53 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.52 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 0.95 percentage points to the change in 2nd quarter GDP...

just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the quantity indexes shown in table 5 of the GDP pdf to yield the real change in the output of goods or services.....hence, real gross private domestic investment, which had grown at a 8.6% annual rate in the 1st quarter due to an inventory buildup, just grew at a 0.3% annual rate in the 2nd quarter, as investment growth was slower and real non-residential fixed investment fell at a 0.6% rate...of that, real investment in non-residential structures fell at a 1.6% rate and real investment in equipment fell at a 4.1% rate as the pullback in energy investment moderated, while investment in intellectual property grew at 5.5% rate as investment in software grew at a 7.8% rate and accounted for 2/3rd of the intellectual property contribution...so while real investment in intellectual property added 0.22 percentage points to the GDP growth rate, the decrease in real investment in non-residential structures and real investment in equipment subtracted 0.04 and 0.25 percentage points respectively...it was thus only real residential investment, growing at a 6.6% rate, that turned the contribution of investment to GDP positive in the quarter, as it added 0.21 percentage points to the the 2nd quarter's GDP...for an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

meanwhile, investment in real private inventories grew by an inflation adjusted $110.0 billion in the 2nd quarter after they grew by an adjusted $112.8 billion in the 1st quarter, and as a result the $2.8 billion slower inventory growth subtracted 0.08 percentage points from the 2nd quarter's growth rate, in contrast to the $34.6 billion increase in inventory growth in the 1st quarter that added 0.88 percentage points to that quarter's GDP growth...however, slower growth of inventories means that less of the goods produced during the quarter ended up ‘sitting on the shelf”, so their decrease by $2.8 billion means real final sales of GDP during the quarter were greater by that much, and hence real final sales of GDP increased at a 2.4% rate in the 2nd quarter, in contrast to the real final sales decrease at a 0.2% rate in the 1st quarter, when the change in the increase in inventories was much higher..

after adjustment for lower prices, both real imports and exports increased in the 2nd quarter, as our real exports of goods and services rose at a 5.3% rate in the second quarter, after falling at a 6.0% rate in the 1st quarter, while our real imports rose at a 3.5% rate in the 2nd quarter after rising at a 7.1% rate in the 1st quarter...as you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....thus the 2nd quarter increase in real exports added .67 percentage points to 2nd quarter GDP in contrast to the first quarter export decrease which subtracted 0.81 percentage points from that quarter's GDP, while the 3.5% increase in real imports subtracted .54 percentage points from GDP, less than half of the 1.12 percentage points that imports subtracted in the 1st quarter...thus, our improving trade balance added a net 0.13% percentage points to 2nd quarter GDP, after a greater trade deficit subtracted 1.93 percentage points in the first quarter, and thus trade balance improvement by itself accounts for more than the entire improvement in the second quarter over the first..

finally, real consumption and investment by branches of government increased at a 0.8% annual rate after falling at a 0.1% rate in the first quarter as federal government consumption and investment fell at a 1.1% rate while state and local consumption and investment rose at a 2.0% rate.....inflation adjusted federal spending for defense fell at a 1.5% rate and subtracted 0.06 percentage points from 2nd quarter GDP growth, while real non-defense federal consumption and investment fell at a 0.5% rate and subtracted 0.01 percentage points from 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 goods or services....meanwhile, state and local government investment and consumption expenditures, which rose at a 2.0% annual rate, added 0.21 percentage points to the quarter's growth rate, asreal state and local investment rose at a 10.2% rate and accounted for 0.18 percentage points of that GDP addition...

our FRED bar graph below has been updated to include 2nd quarter GDP as well as the revisions to each of the GDP components from prior years resulting from this week's annual revision...each color coded bar shows the real change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2012...in each quarterly grouping of seven bars on this graph, the quarterly changes in real (ie, inflation adjusted) 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 private inventories is 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...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 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, as they did in the recent quarter, they'll appear below the zero line...it’s fairly clear that our personal consumption expenditures has underpinned GDP growth over this period, while increasing imports has been the major negative…

2nd qtr 2015 advance GDP

New June Orders for Durable Goods Rise 3.4% on Aircraft Orders

June new orders for durable goods showed the largest increase since March on a big increase in Boeing jet orders booked at the Paris Air Show...the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders (pdf) from the Census Bureau reported that the widely watched new orders for manufactured durable goods rose in June by a seasonally adjusted $7.7 billion or 3.4% to $235.3 billion, following a May drop of 2.1% that was revised from the 1.8% decrease reported last month, and a 1.7% decrease in April's orders, which was revised the reported 1.5% drop...the value of new orders remained 2.0% below the level of a year earlier, but part of that decrease is likely due to falling prices in some durable goods, such as primary metals and fabricated metal products...as is usually the case, the monthly change in new orders for transportation equipment drove the headline changes, as they rose 8.9% to $78,364 million on a 66.1% increase to $17,211 million in new orders for commercial aircraft...excluding new orders for transportation equipment, new orders were up 0.8% to $156,973 million, as the important new new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 1.0% to $69,136 million, after falling a revised 0.4% in May and 0.7% in April..

the seasonally adjusted value of June shipments of durable goods, which were inputs into 2nd quarter GDP after being adjusted for price changes, rose for the first time in 3 months, increasing $0.3 billion or 0.1 percent to $239.4 billion...again, higher shipments of transportation equipment drove the change, rising $0.4 billion or 0.5% to $77.5 billion, as shipments of defense aircraft rose 7.6%; excluding that volatile sector, other shipments of durable goods slipped by a statistically insignificant $48 million....meanwhile, the value of seasonally adjusted inventories of durable goods, also a GDP contributor, rose by $1.6 billion or 0.4% to $402.3 billion, after May's 0.2% drop in durable inventories was the first decrease in 24 months...$0.7 billion of the June inventory increase was a 0.5% increase to $130,804 million in inventories of transportation equipment, driven by an 0.8 increase in inventories of commercial aircraft; without that, other inventories rose 0.3% to $271,461 million.....

finally, unfilled orders for manufactured durable goods, which we consider a better measure of industry conditions than the widely watched but volatile new orders, rose for the first time in 3 months, increasing by $1.0 billion or 0.1 percent to $1,195.8 billion, again largely due to the increased backlog in orders for commercial aircraft, which rose 0.5% to $611,823, which you'll note is more than half the order backlog total...without the transportation equipment sector, unfilled orders were essentially unchanged in June, rising by $142 million to $396,333 million...nonetheless, unfilled orders for durable goods remained 4.7% higher than a yearago, with only orders for primary metals, machinery and defense goods seeing a year over year decrease in their order backlog...

May Case Shiller National Home Price Index is 4.4% Higher Than a Year Ago

the Case-Shiller house price indexes for May, released as usual on the last Tuesday of the month, indicated a 4.7% year overyear increase in prices on repeat home sales in the original ten cities covered, a 4.9% annual increase in the 20 city Composite, and a 4.4% increase in home prices nationally since the May report of last year....they also report a 'monthly' increase of 1.1% increase in all three of their major indices, but since the month over month figures for this report are comparing prices of houses sold in March, April and May to those sold in February, March, and April, the change in the month over month indexes is in effect equal to 1/3rd the difference between May prices and February prices, logically a seasonal increase at this time of year, which they acknowledge in indicating that with seasonal adjustment, the national index would be unchanged, and the 10 and 20 city indices would be down 0.2% from the previous report...thus, while all 20 cities showed an increase in home prices from last month's report, after seasonal adjustment, 10 were down, eight were up, and two were unchanged...the full pdf of the release is here and it includes full unadjusted and adjusted tables for all 20 cities and the 3 indexes, as well as graphs and commentary....for coverage of this Case-Shiller report on the web, Bill McBride has two posts, which include several graphs: Case-Shiller: National House Price Index increased 4.4% year-over-year in May, followed by his analysis in Real Prices and Price-to-Rent Ratio in May, while Robert Oak has several excellent graphics in his thorough post titled Case-Shiller Indices Show Home Prices Clearly Outpace Inflation….

(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…)