Sunday, July 22, 2012

june’s retail sales, CPI, industrial production, housing starts, existing home sales, drought update, et al

Year-over-year change in Retail Salesthe week started with a pitiful report on retail sales from the commerce department (pdf), which showed that June retail sales, which includes food services sales, were at a seasonally adjusted $401.5 billion, which was down 0.5% (±0.5%)* from May but up 3.8% (±0.7%)*  from one year earlier...excluding the often volatile auto sector, retail sales in June were $328.5 billion, down 0.4% from May but up 3.0 percent from June 2011...even though falling gas prices contributed to the decline (sales ex-gasoline decreased 0.3%), weakness was across the board; we spent less on autos, furniture, appliances, at department stores, and for building materials...the only notable sales gains were by non-store retailers (internet & mail order) which increased to $35.886 billion from 35.540 billion...with May sales unrevised down 0.2% and April sales also down 0.5%, this is the first time retail sales have fallen 3 straight months since the implosion at the height of the financial crisis in 2008...as these reports are unadjusted for inflation, sales as reported are still up 21.2% from the early 2009 bottom, as you can see the relative depth of the 2009 collapse on the adjacent chart from bill mcbride, which shows year over year changes; however, adjusted for inflation and changes in population, retail sales are down 7.3% from the peak of January 2006, and are now at the same level first reached in November 1999..since noone else does, we should note the census footnote that goes with the ±0.5%* margin of error on these reports; that these reports result from a sampling of "approximately 5,000 retail and food services firms whose sales are then weighted and benchmarked to represent the complete universe of over three million" - in other words, the accuracy of these totals isnt much more accurate than the household employment survey of 60,000...nonetheless, since personal consumption expenditures account for over 70% of GDP, and retail sales are a sizable chunk of that, this report resulted in downward revisions to forecasts of 2nd quarter GDP by economists at several firms; Goldman lowered their estimate for the period 0.2% to 1.1%, as did Merrill Lynch; Deutsche Bank dropped theirs from 1.4% to 1%, MacroAdvisers is also forecasting 1%, while Roubini came in at an optimistic 1.2%; we're noted before the relationship between GDP and employment; at 2% we're just treading water; it generally takes a 3% increase in GDP to cut the unemployment rate 1%...

in a related report, the commerce department reported business inventories for May (pdf) were estimated at an end-of-month level of $1,578.4 billion, up 0.3% over April's level and 5.2% over levels of a year ago...the inventory/sales ratio remained steady at 1.27, which is still at the low end of the historical range (see pdf graph), so it shouldnt affect restocking...also this week, the Bureau of Labor Statistics released the Consumer Price Index summary for June, which they report as little changed overall, after a decline of 0.3 in May...the all items index has now increased 1.7% over the last year...the energy index fell 1.4% as the gasoline index declined for a third month in a row; but other energy indexes were mixed and the food index rose 0.2 percent after being unchanged last month...so the core CPI from the BLS, which removes prices for food and energy, was up 0.2%...for more detail, a post by doug short breaks down other components) ...coincidental with the BLS release of the CPI, the Cleveland Fed releases a median CPI and a trimmed-mean CPI, both of which were designed to remove some of the monthly volatility from the price indexes...the trimmed mean removes the 16% of the price changes at each extreme, highest and lowest, before computing the average..the median CPI is a bit more complex than a simple median because of the different weightings of the components (June detail here)...over the last 12 months, the median CPI rose 2.3%, the trimmed-mean CPI rose 2.2%, the CPI rose 1.7%, and the CPI less food and energy rose 2.2%...and not to be outdone, the Billion Prices Project at MIT reports daily online price index data which shows inflation has been tracking near a 1.25% annual rate...

Capacity Utilization

another important release this week was for June Industrial production and Capacity Utilization from the Fed; for industrial production, there was a rebound in June, as it increased at a seasonally adjusted rate of 0.4% after declining 0.2% in May; manufacturing output of 0.7% reversed a decline by the same amount in May, just as April's increase reversed a March decline; the production index for durable goods rose 0.8% in June after having declined 0.6% in May, it was led by a 1.6% increase in production of business equipment, which showed similarly sized gains in each of its major components: transit equipment, information processing, and industrial equipment; the output of consumer durables rose 0.9% after a decrease of 1.4% in May, with the index for automotive products increasing 1.5% and the index for home electronics decreasing 1.3%;  meanwhile, manufacturing of non-durables was up 0.5, after a 0.7% decline in May...in the other major industry groups, "mining", which includes oil & gas extraction, also showed a 0.7% gain in May, while the output of utilities declined 1.9% on a seasonally adjusted basis...for the second quarter, manufacturing rose at an annual rate of 1.4%, down from its increase of 9.8% in the first quarter; the second quarter increase was led by motor vehicles and parts, which climbed 18.2%; excluding motor vehicles and parts, manufacturing output edged up only 0.1%...the output of mining fell at an annual rate of 1.2% in the second quarter, while the output of utilities rose 14.9% for the quarter, apparently rebounding on a seasonally adjusted basis from the decreased usage caused by the mild winter...meanwhile, capacity utilization for total industry was up 0.2% in percentage point in June to 78.9 percent, with capacity utilization at 77.7% for manufacturing, 74.2% for utilities, and 89.4% for "mining"...the above graph from bill mcbride shows capacity utilization rates for manufacturing in red and total industry in blue over 40 years; although our industry is now operating at levels above the troughs of the recessions (horizontal bars), we're still well off the levels of plant & equipment usage seen during better times... with 27.5 million of us who arent working at the level they want to, it's clear our country's economy continues to run well below it's potential...

Total Housing Starts and Single Family Housing Starts there were also a couple major housing reports this week; we'll start with the "good news" first, which came from the census bureau, on "Permits, Starts and Completions”(pdf) for June, which is mostly watched for data on new housing starts,  and it didnt disappoint; new housing starts rose last month to an annual rate of 760,000, which was a new post-bubble high, 6.9% (±13.3%)* above the revised May estimate of 711,000 and 23.6 percent (±16.8%) above the June 2011 rate of 615,000 starts... single-family starts in June were at a rate of 539,000; which was 4.7% above the revised May figure of 515,000, while the annual start rate of units in buildings with five units or more was 213,000...the strength this month was again fairly regional, with gains of 22.2% in the northeast and 36.9% in the west, while the midwest saw a 7.3% month over month decrease, and housing starts in the south fell 4.2%...the jump also puts to rest fears that building activity had mostly been "pulled forward" by a warmer than normal spring...but since some of the cheering might be overdone (home builders’ confidence jumped the most in almost 10 years), we'll include bill mcbride's long term chart of housing starts to put it all in perspective - blue is single family starts, & red is the total...increasing population and foreclosed and older houses falling into ruin tell us eventually that home building must return to the trend, but as housing is general longer lived than other depreciating assets, it could be some time before that happens...this report also showed that building permits issued in June were at a seasonally adjusted annual rate of 755,000, which was 3.7%(±1.0%) below the revised May rate of 784,000, but still 19.3 percent (±1.8%) above the rate of a year ago, and that home completions in June were at a seasonally adjusted annual rate of 622,000, 2.6 % (±12.5%)* above the revised May estimate of 606,000 and 7.2% (±13.2%)* above the June 2011 rate of 580,000...

the other important housing report of the past week was for June completed sales of previously owned residences from the National Association of Realtors, generally referred to as "existing home sales"...NAR reported that existing home sales declined 5.4% to a seasonally adjusted annual rate of 4.37 million in June from an upwardly revised 4.62 million in May, which was an eight month low, but which was nonetheless still 4.5% higher than the 4.18 million annual sales rate of last June; of those sales, 3.90 million were single family homes, which was 5.1% less than the 4.11 million single families that sold in May...NAR claimed the lower home sales rate was due to low inventories constricting supplies, but other reports claim as much as 90% of foreclosed homes are being held off the market, in order to artificially boost home prices...if that's the case, then it seems to be working, as NAR reported that the median existing-home price was $189,400 in June, the 4th monthly price gain in a row, and up 7.9% from a year ago...that was the greatest year over year price gain reported by the NAR since February of 2006, when YoY prices were up 8.7%...during the period covered, the national average rate for a 30-year, conventional, fixed-rate mortgage fell to a record low 3.68% from 3.80% in May; which means buyers were committing to even lower monthly payments than last month for the same sales price; the 30 year rate was 4.51% in June 2011...NAR also reported reported inventory decreased 3.2% from May's 2.47 million units to 2.39 million units in June, which was 24.4% below the inventory of June 2011, and 10.8% lower than the pre-bust inventory level of June 2005...at June's sales pace, that reduced inventory represents a 6.6 month supply of homes on the market...first time home buyers accounted for 32% of June's home sales, down from 34% in May but still above the 31% share of sales they accounted for last June; all cash home sales remained fairly steady at 29% of the total, compared to 28% in May but still the same as last year..real-estate investors accounted for the bulk of the cash sales, as they purchased 19% of the homes sold in June, again the same percentage of homes that they purchased in June of last year...

the widespread drought continues to be a major economic story as well, with estimates from agricultural economists that it could cost us $50 billion by the time the effects play out...according to the most recent corn progress report from the USDA, corn conditions dropped by 9 percentage points and soybeans fell by 6 points last week, the 6th consecutive week of deteriorating conditions; indiana, kentucky and missouri all reported more than 70% of their corn crops in poor to very poor condition, while just over 30% of corn crops nationally were considered in good or excellent condition,..although crop areas of michigan, northern indiana and ohio had decent rainfall this week, most of iowa, illinois, & nebraska, which are the top three producers, saw none, and since 71% of the corn crop was past the silking stage at the beginning of the week, additional rainfall now would do little to effect yields (silks must be pollinated to produce kernels)…early in the week there was concern that the water levels in the mississippi and ohio rivers would disrupt barge traffic, as the lack of runoff had dropped water levels to five feet in some places, 50 feet below last years flood-stage level, forcing barge owners to reduce their loads to avoid running aground…however, many areas west of the Appalachians received twice normal rainfall this past week, with some of the tennessee watershed getting more than 5 inches, which would suggest that river conditions south of the tennessee-mississippi confuence should have improved…however, the latest outlook from the National Weather Service forecasts increasingly dry conditions over much of the nation’s breadbasket for the coming week, so there doesnt seem to be much relief in the offing for the crops…as a result, morgan stanley is forecasting the largest reduction in livestock herds in history, as livestock producers fight with ethanol producers over the reduced output….this will not only lead to higher food prices, but higher gas prices as well

(the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

1 comment:

  1. Thank You RJ for sharing your unique quality for details AND your commitment.

    I have some follow questions I'll address thru the week.


    A good head and good heart are always a formidable combination. But when you add to that a literate tongue or pen, then you have something very special.
    N.Mandela

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