Sunday, October 25, 2015

September reports on new housing construction, existing home sales, and regional & state employment

  with most of the monthly economic reports released during the last half of last week, this week was a fairly light one for economic releases, with two just widely watched reports on housing to note:  New Residential Construction report for September (pdf) from the Census Bureau, and the National Association of Realtors' report on September existing home sales...other national releases included the Regional and State Employment and Unemployment Summary for September from the BLS and the Chicago Fed National Activity Index (CFNAI) for September, a weighted composite index of 85 different economic metrics, constructed such that a zero value indicates economic growth at the historical trend rate; the CFNAI inched up to –0.37 in September from –0.39 in August, which left the 3 month average at –0.09, indicating national economic activity has been slightly below above its historical trend...the week also saw the Kansas City Fed manufacturing survey for October, which covers western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, and which reported its broadest composite index rose to -1 in October, up from -8 in September and -9 in August, indicating that the regional contraction, mostly in the energy industry, has slowed...

Census Reports New Housing Starts Increased in September, New Permits Fell

the September report on New Residential Construction (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 September, which was 6.5 percent (±16.4%)* above the revised August estimate of 1,132,000 housing starts annually and 17.5 percent (±18.0%)* above last September's rate of 1,026,000 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, September housing starts could have been down 9.9% or up 22.9% for all they know, with subsequent large revisions likely...in this report, the annual rate for August housing starts was revised from 1,126,000 to 1,132,000, while July starts, which were first reported at 1,206,000 annually, were revised from last month's 1,161,000 annually to 1,152,000 annually.....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 111,000 housing units were started in September, down from 100,300 units started in August, which was initially estimated at 99,900 housing starts...of those housing units started in September, an estimated 64,800 were single family homes and 45,000 were units in structures with more than 5 units....the unadjusted estimates also show that housing starts were down in the Midwest, while they were up in the Northeast, South and West, but none of those indicated regional changes were greater than the statistical margin of error for that region...

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...in September, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,170,000 housing units, which was 5.0 percent (±1.4%) below the revised August rate of 1,161,000 permits annually but still 4.7 percent (±2.0%) above the rate of permit issuance a year earlier...again,.the estimates for new permits reported here were extrapolated from the unadjusted estimate, which showed permits for 96,800 housing units were issued in September, which was down from the estimated 97,200 new permits issued in August, with increases in permits issued in the Northeast and Midwest regions...those September permits included 59,700 permits for single family homes, down from 61,100 single family permits in August, and 33,800 permits for housing units in apartment buildings with 5 or more units, up from 33,400 such permits a month earlier...for more details and graphics on this report, see Bill McBride's two posts, Housing Starts increased to 1.206 Million Annual Rate in September and Comments on September Housing Starts

Existing Home Sales Rise 4.7% in September

in the other housing related release this week, the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales rose by 4.7% in September, projecting that 5.55 million homes would sell over an entire year if September sales were extrapolated over that year, a rate 8.8% higher than the annual rate projected in September of a year ago, and the 2nd highest monthly pace of existing home sales since February 2007...the annual rate of August home sales was revised down slightly, from 5.31 million to 5.30 million...the NAR also reports that the median existing-home price for all housing types in September was $221,900, which was up 6.1% from a year earlier and the 43rd consecutive year over year increase in home prices...the NAR press release, which is titled Existing-Home Sales Regain Momentum in September, is in easy to read plain English, so if you're interested in more details you can find them there...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 annual rate, we'll take a look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this indicates that roughly 471,000 homes sold in September, down 6.5% from the 504,000 homes that sold in August (which was revised from 505,000) but still up 8.0% from the 436,000 homes that sold in September last year...the regional change in September sales ranged from a decrease of 9.7% to 65,000 home sales in the Northeast to a 4.7% decrease to 102,000 home sales in the West....that same pdf indicates that the median home selling price for all housing types fell 2.9% from a revised $228,500 in August to $221,900 in September, while the average home sales price was $265,000, down 2.3% from the $271,300 average in August, but up 3.9% from the $255,000 average home sales price of September a year ago, with the regional averages ranging from a low of $207,000 in the Midwest to a high of $352,700 in the West...for additional coverage with long term graphs on this report, see Existing Home Sales in September: 5.55 million SAAR and A Few Random Comments on September Existing Home Sales by Bill McBride at Calculated Risk… 

State and Regional Employment Report for September

the Regional and State Employment and Unemployment Summary for September expands on the national employment situation summary of three 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 all 50 states, it's more detailed 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....North Dakota at 2.8% has replaced Nebraska as the state with the lowest unemployment rate, largely through a reduction of their labor force, while West Virginia had the highest unemployment rate at 7.3%...

for a breakdown of payroll employment by job type for each state over the past 3 months, and the change in employment since last September, 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 21 page pdf version of this report has even more detail also includes map graphics for both the employment rate and the year over year payroll jobs increase by state and region...


(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, October 18, 2015

September consumer and producer prices, retail sales, and industrial production; August business inventories and job openings, et al

there were several major monthly reports that were all released in a 50 hour span of this past week: Wednesday brought retail sales for September and the business inventories report for August from the Census bureau and the September Producer Price Index from the Bureau of Labor Statistics; the BLS followed that with the September Consumer Price Index on Thursday and the Job Openings and Labor Turnover Survey (JOLTS) for August on Friday, the same morning the Fed released the September report on Industrial Production and Capacity Utilization...in addition, Thursday also saw the release of the first two regional Fed manufacturing indexes for October: the Empire State Manufacturing Survey from the New York Fed, which covers New York and northern New Jersey, saw their headline general business conditions index rise from -14.7 to -11.4, the third month in a row below minus ten, indicating an ongoing recession in First District manufacturing, 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 -6.0 in September to -4.5 in October, also indicating an ongoing slowdown in the region's manufacturing....

September Consumer Price Index Down 0.2% on Lower Energy Prices

despite higher prices for food and shelter, the consumer price index fell in September on significantly lower energy costs...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices fell 0.2% in September after falling 0.1% in August and rising monthly since March...the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, fell to 237.945 in September from 238.316 in August, which left it statistically unchanged from the 238.031 reading of September of last year...regionally, prices for urban consumers have risen 1.0% in the West, while they have fallen 0.4% in the South, 0.8% in the Midwest and 0.1% in the Northeast over the past year, with greater increases within regions in cities of more than 1,500,000 people...since lower energy prices were the major reason for the drop in the overall CPI index, core prices, which exclude food and energy, rose by 0.2% in September, as the unadjusted core index rose from 242.651 to 243.359, a level 1.89% ahead of its year ago reading of 238.841...

the seasonally adjusted energy price index fell by 4.7% in September after falling by 2.0% in August and the energy index is now 18.4% lower than it was in September a year ago...prices for energy commodities were 8.6% lower in September while the index for energy services saw a 0.4% decrease, the 4th drop for services in the last five months....the decrease in the energy commodity index was driven by a 9.0% drop in the price of gasoline, the largest component, while fuel oil prices fell 2.4% and prices for other fuels, including propane, kerosene and firewood, averaged a 1.1% decrease…within energy services, the index for utility gas service fell by 0.3%, leaving utility gas priced 12.1% below a year ago, while the electricity price index fell by 0.5%, after it rose by 0.3% in August...energy commodities are now priced 29.5% below their year ago levels, with gasoline now 29.6% lower than it was a year ago, while the energy services price index is now 3.0% lower than last September, as electricity prices have also fallen 0.4% over that period... 

the seasonally adjusted food index rose by 0.4% in September, after rising 0.2% in both July and in August, as prices for food at home rose 0.3% while prices for food away from home rose 0.5% on a 7.2% increase in school lunches, while average prices at fast food outlets rose 0.4% and rose 0.2% at full service restaurants...the increase in prices for food at home was driven by 0.7% increases in dairy products and fruits and vegetables, while the miscellaneous "other food at home" index rose 0.8%...the dairy products index increase appears to be a seasonal adjustment artifact, as only milk prices rose as much as 0.6%, while the fruit and vegetable index increase was caused by a 0.9% increase in prices for fresh fruit including a 2.8% increase in apple prices and a 1.0% increase in prices for fresh vegetables including a 4.7% increase in lettuce prices while the price index for processed fruit and vegetable was unchanged...in the 'other food at home' category, soup prices were up 1.6%, sauces and gravies rose 2.5%, prepared salads rose 2.1% and peanut butter prices were 1.3% higher...meanwhile, the index for cereals and bakery products was 0.2% lower as rice prices fell 1.8% and breakfast cereals averaged 1.7% lower while white bread prices were up 1.4%, and the index for meat, poultry, fish and eggs fell 0.3% on a 3.0% drop in chicken prices and 1.3% lower beef roasts while bacon prices rose 3.5%....while egg prices were 0.6% lower in September, they remain 36.2% higher than a year ago, while ham prices are now down 11.1% year over year...and in the last food category, the index for beverages and beverage materials was down 0.1% as tea prices fell 1.4% while non-carbonated juices rose 0.5%...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.2% in September, the composite of all commodities less food and energy commodities was unchanged, while the composite for all services less energy services rose by 0.3%....among the commodity components, the index for household furnishings and supplies rose 0.3% on a 1.9% increase in infant's furniture and a 1.3% increase in laundry equipment, apparel prices were down 0.3% on a 3.7% lower prices for girls apparel and 0.9% lower prices for women's apparel including 2.9% lower prices for dresses; transportation commodities were down 0.1% on 0.2% lower prices for new and used cars while car parts other than tires rose 0.8%; medical care commodities were down 0.2% on 0.2% lower prices for both drugs and medical supplies; recreational commodities were 0.3% higher on a 0.6% increase in prices for pets and pet supplies; education and communication commodities rose 0.1% despite 3.2% lower prices for phone hardware as personal computers cost 0.8% more and prices for college textbooks rose 0.7%, and the indices for both alcoholic beverages and for other goods both rose 0.1%...

within services, the price index for shelter rose 0.3% on a 0.4% increase in rents and an 0.8% increase in lodging away from home; medical care services rose 0.3% on 0.3% higher doctor bills and 0.4% higher glasses and eye care; transportation services rose 0.1% on 0.5% higher vehicle insurance while car and truck rentals fell 3.3%; recreation services fell 0.1% despite a 2.3% increase in video rentals as admission to sporting events was 1.8% lower; education and communication services were 0.3% higher on 0.4% higher postage and 0.3% higher tuition and telephone services, and other personal services rose 0.3% on a 0.9% increase in legal fees...other than the aforementioned ham and eggs and energy prices, only telephones, which are now down 15.8%, and televisions, which are 13.6% cheaper, saw their prices change by more than 10% over the past year...

September Producer Price Index Down 0.5% on Widespread Lower Prices

meanwhile, wholesale prices fell more than expected in September as none of the component indices indicated an increase…the seasonally adjusted Producer Price Index (PPI) for Total Final Demand came in with a 0.5% decrease as prices for finished wholesale goods fell by 1.2% while margins for final services providers were 0.4% lower...this follows an August report that showed the overall PPI unchanged, with final demand for goods down 0.6% while final demand for services rose 0.4%....producer prices are now down 1.1% over the past 12 months, as the PPI has fallen 6 times over that span, with the index for final demand for goods down 9 of the 12 months and the index for final demand for services down 4 times the past year...

the index for final demand for goods, aka 'finished goods', fell by 1.2% in September after falling 0.6% in August, as the index for wholesale energy prices fell by 5.9% as wholesale gasoline prices fell 16.6% and wholesale diesel fuel prices fell 12.8%...the price index for final demand for foods was 0.8% lower, as wholesale fresh egg prices, which were up 32.3% in August, fell 18.2% in September and wholesale beef prices fell 7.9%, while wholesale fresh vegetable prices rose 7.2% and wholesale fresh fruit rose 8.6% (see table 4)...excluding food and energy, the index for final demand for wholesale core goods was unchanged in September, as it was in 5 months this year, as a 4.4% decrease in industrial chemical prices was the only core producer price change greater than 1%....core prices are now up just 0.2% for the year, with finished consumer nondurable goods up 3.4% while core wholesale goods for export prices fell 3.6%..

as we previously noted, the index for final demand for services fell 0.4% in September after rising 0.4% in August, as the index for final demand for transportation and warehousing services fell 0.7%, the index for final demand for trade services fell 0.4%, and the index for final demand for services less trade, transportation, and warehousing services was up down by 0.3%.....seasonally adjusted margins for apparel, footwear, and accessories retailing fell 1.9% as did margins for airline passenger services, while margins for automotive fuels and lubricants retailing rose 8.1%....of core services, margins for securities brokerage and investment advice fell 4.3%, portfolio management services fell 2.7%, and recreational activity instruction fees were 8.0% lower, while margins for deposit services rose 2.8% and margins for arrangement of vehicle rentals and lodging rose 3.8%...

in addition, this report showed the price index for processed goods for intermediate demand fell by 1.5% in September after a 0.6% decrease in August as intermediate processed goods prices have now been down 12 our of the last 14 months and are now 8.2% lower than in September a year ago....the September decrease was driven by a 4.8% drop in prices for intermediate energy goods, and a 2.3% decrease in the index for processed foods and feeds, while the price index for processed goods for intermediate demand less food and energy fell 0.6%...in addition, the price index for intermediate unprocessed goods fell 3.1% after falling 4.4% in August, on a 5.7% drop in the index for unprocessed foodstuffs and feedstuffs, a 1.1% decrease in the price of crude energy materials and a 1.1% drop in producer prices for other raw materials…this raw materials index still remains 26.1% lower than it was a year ago, and is now more than 30% below the level of February of 2014...

finally, the price index for services for intermediate demand fell by 0.7% in September following a 0.7% increase in August, as the index for trade services for intermediate demand fell by 0.6%, the index for transportation and warehousing services for intermediate demand fell 0.1%, and the price index for services less trade, transportation, and warehousing for intermediate demand was 0.7% lower...over the 12 months ended in September, the price index for services for intermediate demand has still risen 1.2%...  

September Retail Sales Up 0.1% on Autos; Would Add 0.09 Percentage Points to 3rd Quarter Growth

seasonally adjusted headline retail sales rose just 0.1% in September while August sales were revised 0.2% lower and July's sales were revised 0.1% higher, resulting in an advance sales figure statistically unchanged from last month's report...the Advance Retail Sales Report for September (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $447.7 billion, which was an increase of 0.1 percent (±0.5%) from August's revised sales of $447.2 billion and 2.4 percent (±0.7%) above the sales of September of last year...August's seasonally adjusted sales were revised from the $447.7 billion first reported to $447.2 billion, while July's sales, which were revised up to $446.9 billion from the originally reported $446.5 billion last month, were revised up again, to $447.1 billion with this report...estimated unadjusted sales in August, extrapolated from surveys of a small sampling of retailers, indicated unadjusted sales fell 5.6%, from $456,513 million in August to $430,925 million in September, while they were up 2.8% from the $420,516 million of sales in September a year ago, indicating a substantial seasonal and holiday weekend adjustment in this month’s report...

since it's the end of the quarter for retail sales, we'll include the entire table from this report showing retail sales by business type, including the quarter over quarter data...again, to explain what it shows, the first double column shows us the seasonally adjusted percentage change in sales for each kind of business from the August revised figure to this month's September "advance" report in the first sub-column, and then the year over year percentage sales change since last September in the 2nd column; the second double column pair below gives us the revision of the August advance estimates (now called "preliminary") as of this report, with the new July to August percentage change under "July 2015 r" (revised) and the August 2014 to August 2015 percentage change as revised in the 2nd column of the pair....then, the third pair of columns shows the percentage change of the most recent 3 months of this year's sales (July, August and September) from the preceding three months of the 2nd quarter (April, May and June) and from the same three months (July, August and September) of a year ago....that pair of columns gives us a snapshot comparison of 2nd quarter sales to third quarter sales, which is useful in estimating the impact of this report on 3rd quarter GDP….for reference, the table of last month’s advance estimate of August sales, before this month's revisions is here....

September 2015 retail sales table

as we can see from the above table, it was once again the 1.7% increase to $94,684 million in sales at automobile and parts dealers that drove the September headline change; without those automotive sales, month over month retail sales actually fell by 0.3% to $353,002 million...however, that drop of sales ex-autos was driven by a 3.2% decrease in sales at gasoline stations which was due to lower prices; excluding autos and gasoline, retail sales were relatively unchanged from August...and we see some retail sectors still saw relatively large increases; sales at clothing stores were up 0.9% to $21,620 million, sales at specialty shops such as sporting goods and book stores were also up by 0.9% to $7,444 million, and sales at restaurants and bars again rose 0.7% to $52,691 million....meanwhile, building material and garden supply stores at $27,708 million and groceries at $50,597 both saw 0.3% sales decreases, while sales at electronic and appliance stores and non-store (ie, online) retailers both fell 0.2%...

as you know, to gauge the impact of retail sales on real GDP, we must first adjust the dollar value of those sales for any price changes to give us the quantity of goods sold... one way of doing that would be to adjust the changes in retail sales shown in the 5th column above with appropriate price changes from the consumer price index we looked at earlier...to simply that, most types of retail business sales could be adjusted with the index for commodities less food and energy commodities, which was unchanged in September after being down 0.1% in both July and August...however, grocery store sales would be adjusted with the index for food at home, which was up 0.3% in each month this quarter, meaning real food consumption has declined...then food service sales would be adjusted with the index for food away from home, which was up 0.5% in September after being down 0.2% in August and unchanged in July, and gas station sales could be adjusted with the price index for gasoline, up 0.9% in July, down 4.1% in August and down 9.0% in September, although we've seen that's inexact, because gas stations sell other products...

another way of computing the impact of these sales on GDP would be to use the BEA's own computations from the personal income and outlays report of August, adjust that with this month's revisions to July and August, and add or subtract the change in real personal consumption of goods for September which we can compute from this weeks reports...when we looked at the personal income and outlays two weeks ago, we determined that over July and August, real growth in PCE had been at a 3.0% annual rate and would add 2.03 percentage points to the growth rate of the 3rd quarter...in today's retail report, July's sales were revised up about $230 million, while August sales were revised down almost $500 million...so a total of $270 million annualized, or about $4.4 billion, would have to be subtracted from previously published annualized PCE for July and August...then to add September PCE to that, we need to adjust the increase in September sales for price changes to get the real quantity of goods sold...the core goods sales are roughly 2/3rds of sales, which as mentioned we'd deflate with the CPI index for commodities less food and energy commodities for September, which was unchanged...removing food and gas sales from total retail we find real core sales were up about $1,200 million in September...then, adjusting food store sales for a 0.3% increase in prices, we find real food sales fell by $350 million in chained August dollars, and adjusting food service sales with the 0.5% increase in prices for food away from home, we find a real increase in food service sales of about $140 million...meanwhile, since gas prices were down 9.0% while margins of fuels and lubricant retailers rose 8.1%, we have no idea on how to properly adjust the 3.2% decrease in gas station sales...so ex gas, real sales were up by just about $990 million in September, which we'll estimate to be about $12 billion at an annual rate...plugging the $4.4 billion annualized downward revision to July and August and the $12 billion annualized increase in September real PCE into our original August 3rd quarter PCE growth rate computation, we can thus estimate that real PCE has grown at an annual rate of 3.14% in the 3rd quarter, excluding September services data not yet published...that suggests that with the data we have available, real growth in PCE would add 2.12 percentage points to the growth rate of the 3rd quarter, a 0.09 percentage point increase from our previous estimate...that is in contrast to the impact figured by the Atlanta Fed, who saw this report take 40 basis points off GDP....

August Business Inventories Flat, Looks to be a Big Hit to 3rd Quarter GDP

following the release of retail sales report, Census released the composite Manufacturing and Trade Inventories and Sales report for August (pdf), which incorporates the revised August retail data and thus gives us a final picture of the business contribution to the economy for that month...according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,320.5 billion in August, 0.6% (±0.2%) lower than July revised sales, and 3.1 percent (±0.5%) lower than August a year earlier...note that total July sales were revised up less than 0.1%, from $1,328.0 billion to $1,328.2 billion....manufacturer's sales fell by 0.7% from July to $480,143 million, retail trade sales, which exclude restaurant & bar sales from the retail sales reported earlier, fell by 0.1% to $394,874 million, and wholesale sales fell by 1.0% to $445,433 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be at a seasonally adjusted $1,811.0 billion at the end of August, statistically unchanged from July's total 1,810.3 billion inventory, but up 2.4 percent (±0.5%) from last August...seasonally adjusted inventories of manufacturers were estimated to be valued at $648,385 million, 0.3% lower than July, inventories of retailers were valued at $578,702 million, 0.3% higher than July, and inventories of wholesalers were estimated to be valued at $583,865 million at the end of August, up 0.1% from July...

to compute the impact of inventories on GDP, each component must be adjusted for price changes with an appropriate price index; Chapter 7 of the NIPA handbook (pdf) gives us 22 pages on how that is done...in general, most inventories, even retail, are adjusted with components of the producer price index, and determining the value of the inventories that remain at the end of a month is complicated by the fact that inventories from remaining from previous months are valued at the time they entered the inventory, so a gross adjustment to a given month's inventories based on the current month's price change cannot be made...nonetheless, with a 0.1% increase in the nominal value of July business inventories and essentially no change in the August value, we can easily see the 3rd quarter growth in inventories will be much less than the 7.0% annualized increase in the value of inventories from the 1st quarter to the 2nd, and thus this pullback in inventory growth will have a substantial negative impact on 3rd quarter GDP growth...

September Industrial Production Down 0.2% After August Revised Up 0.2%

the Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production fell by 0.2% in September after a 0.4% drop in August was revised to a 0.1% decrease and the 0.9% July increase was revised down to 0.8%, resulting in little change from last month's report...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, thus fell to 107.1 in September from an revised reading of 107.3 in August, which had originally been reported at 107.1, after the July index was revised from 107.5 to 107.4 while the index for June was unrevised at 106.6...the industrial production index, a measure of real output, is now only 0.4% higher than it was a year ago...however, to the extent that this report plays into GDP, the relatively large increase in July, the only increase in the last 9 months, meant that industrial production for the 3rd quarter increased at a 1.8% rate from the level of the 2nd quarter...

the manufacturing index fell by 0.1% in September after the 0.5% August decrease was revised to 0.4%, the previously reported 0.9% increase in July was revised to a 1.0% increase, and the May 0.1% decrease was revised to unchanged...thus the September manufacturing index is now at 105.5, up from last month's reported 105.3, which has now been revised to 105.7, while the May manufacturing index was revised from 105.0 to 105.2, the June index was revised from 104.9 to 105.0, and the July index was revised from 105.8 to 106.1...however, even with the de facto increase in September, the manufacturing index still remains just 1.4% higher than a year ago, same as last month's year over year increase...meanwhile, the mining index, which includes output of oil and gas wells, came in at 114.1 in September, down 2.0% from August, as the August mining index was revised from 116.7 to 116.5...that now leaves it 5.7% below the year ago level, down from the YoY reading last month....lastly, the utility index, which often fluctuates wildly due to above or below normal temperatures, rose 1.3% in September after rising an upwardly revised 1.3% in August...downward revisions to July and other months, however, left the utility index at 104.4, up from the 103.6 reported last month, and up just 1.0% from a year ago...

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 fell from 77.8 in August to 77.5 in September...seasonally adjusted capacity utilization for all manufacturing industries was down 0.2% to 75.9% in September as manufacturing capacity utilization for August was revised up 0.3% to 76.1%...after a similar upward revision, utilization of durable goods production facilities fell from 76.2% in August to 75.9% in September, while capacity utilization for non-durables fell from 77.5% to 77.4%....capacity utilization for mining fell from 83.7% in August to 81.9% in September, while utilities were operating at 79.8% of capacity during September, up from the revised 78.8% in August...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....

August Job Openings Fall 298,000; Labor Turnover Little Changed

the Job Openings and Labor Turnover Survey (JOLTS) report for August from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 298,000 to 5,370,000 in August after July job openings were revised from 5,753,000 to 5,668,000...August's jobs openings were still 9.0% higher than the 4,925,000 job openings reported in August a year ago, as the ratio of the unemployed to openings rose to 1.47 from 1.44 in July...job openings decreased across every employment sector except durable goods manufacturing, which saw an increase of 19,000 job openings in August (see table 1 for more details)...like most BLS releases, the press release for report is easily 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 August, seasonally adjusted new hires totaled 5,078,000, up 13,000 from the revised 5,065,000 who were hired or rehired in July, as the hiring rate as a percentage of all employed remained unchanged at 3.6%, which was up from the hiring rate of 3.4% in August a year earlier (details of hiring by industry since May are in table 2)....meanwhile, total separations rose by 50,000, from 4,796,000 in July to 4,846,000 in August, as the separations rate as a percentage of the employed remained unchanged at 3.4%, but was up from the separations rate of 3.3% a year ago (see table 3)...subtracting the 4,846,000 total separations from the total hires of 5,078,000 would imply an increase of 232,000 jobs in August, quite a bit higher than the revised payroll job increase of 136,000 for August reported by the September establishment survey last week, suggesting one or both of these surveys is off by nearly the margin of error expected from these incomplete samplings ..

breaking down the seasonally adjusted job separations, the BLS finds that 2,741,000 quit their jobs in August, up 4,000 from the revised 2,737,000 who quit their jobs in July, 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 1,688,000 were either laid off, fired or otherwise discharged in August, up 42,000 from the 1,646,000 who were discharged in July, as the discharges rate also remained unchanged at 1.2% of all those who were employed during the month....meanwhile, other separations, which includes retirements and deaths, were at 417,000 in August, up from 413,000 in July, 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 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, October 11, 2015

August’s trade deficit, wholesale trade, and Mortgage Monitor; a note on factory orders

it was a fairly light week for economic releases, with the report on our International Trade for August from the Commerce Dept really the only important report....other reports released this week included the August report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau and and the Consumer Credit Report for August from the Fed, which showed that overall credit expanded by a seasonally adjusted $16.0 billion, or at a 5.6% annual rate, as non-revolving credit expanded at a 5.3% rate to $2,551.2 billion and revolving credit outstanding rose at a 5.7% rate to $918.5 billion...in addition, this week also saw the Import and Export Price Indexes for September from the BLS, which we'll use to adjust that month's trade figures for price changes when they're released the first week of November… privately issued reports this week included the release of the Mortgage Monitor for August (pdf) from Black Knight Financial Services, which we'll take a look at shortly, and the September Non-Manufacturing Report On Business, from the Institute for Supply Management (ISM), who reported that their NMI (non-manufacturing index) dropped from 59.0% in August to 56.9% in September, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business last month than did so in August...

Census Says New Orders for Non-Durable Goods are Equal to Shipments of the Same

before we start with this week's reports, i want to revisit the Full Report on Manufacturers’ Shipments, Inventories, & Orders for August (pdf) that was released last week and which we deferred detailed coverage of because we thought it was in error, as we noticed that the totals in the table for new orders for non durable goods were identical to the totals in the table for shipments of non durable goods...upset by what i thought was an error in that report which was still apparent on Monday, i called the Census Bureau department that handles factory orders that morning on the direct line to the woman who is responsible for the report...while she was not in, i told the person who answered the phone of my concern, as was told by that employee that the Census Bureau does not collect data on new orders for non durable goods, "because of the quick turnaround time", meaning that they figure that non-durables such as food are shipped the same day they’re ordered, so they just use the shipments data as a proxy for new orders..hence, the new factory orders they report monthly are equal to new orders of durable goods plus shipments of non-durable goods, and the report is not in error; for non-durables, shipments = new orders...

although we can't change what the Census reports, we'll go on record that these widely watched new orders reports are thus inaccurate for what they allege to report...while we can see that non-durable factory output such as a skid of Cheerios or a tanker load of gasoline may well be shipped the same day that it's ordered, other non-durable factory output such as printing almost certainly has to have a lag time between the time it's ordered and the time that it's shipped to the customer...furthermore, by using shipments data as a proxy for new orders, which is considered a forward looking economic indicator, we're open to having delays in shipments, such as might arise from major dock strike or a east coast winter storm, interpreted as a downturn in orders and hence in demand...knowing how this report is constructed thus devalues it in our judgement, and while we'll continue to report on it, we'll probably have to insert that caveat in each report, just as we do with several other reports where the data is less than reliable...

August Trade Deficit Jumps by 15.6%, on Pace to Subtract 0.68 Percentage Points from 3rd quarter GDP

our August trade deficit rose by 15.6% from July 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 August indicated that our seasonally adjusted goods and services trade deficit rose by $6.5 billion to $48.3 billion in August from a July deficit which was revised from $41.9 billion to $41.8 billion....the value of our August exports fell $3.7 billion to $185.1 billion as our exports of goods fell by $4.0 billion to $124.5 billion and our exports of services increased by less than $0.4 billion to $60.6 billion, while our imports rose $2.8 billion to $233.4 billion as our imports of goods rose by $2.5 billion to $192.4 billion and our imports of services increased by $0.3 billion to $41.1 billion...export prices averaged 1.4% lower in August, so the real growth in exports was higher by that percentage, while import prices were 1.8% lower, thus incrementally increasing real growth in imports by that percentage from the nominal dollar amounts reported here...hence, in July dollars, our August trade deficit rose to $49.9 billion, and was thus 19.3% greater than July's in real term...

referencing the Full Release and Tables for August (pdf), Exhibit 7 reveals that a $2,189 million decrease to $35,218 million in the value of our exports of industrial supplies and materials accounted for more than half of the August decrease in our exports; that in turn was caused by a $566 million decrease in our exports of fuel oil, a $244 million decrease in our exports of plastics, a $216 million decrease in our exports of petroleum, and a $155 million drop in our exports of raw cotton, all of which saw lower prices for the month...other end use categories of exports that contributed to the August decrease included exports of consumer goods, which fell by $571 million to $15,755 million on a $274 million drop in our exports of jewelry and a $177 million decrease in our exports of art and antiques; exports of vehicles, parts, and engines, which were down by $499 million to $12,791 million, exports of foods feeds and beverages, which were down $269 billion to $10,403 million on a $228 million drop in our exports of soybeans; and exports of goods not categorized by end use, which were down by $592 million to $5,206 million...the only end-use category of exports that saw an increase in August was capital goods, which were up by $139 million to $44,465 million on a $1,372 million increase in our exports of civilian aircraft, which were mostly offset by a $296 million decrease in our exports of semiconductors and decreases greater than $100 million in our exports of medicinal equipment, measuring and control devices, electrical apparatuses, computers and other industrial machines not listed separately....

Exhibit 8 in the Full Release and Tables gives us details on our imports and shows us that a $4,028 million increase to $51,850 million in our imports of consumer goods was responsible for our increased August imports, as we imported $2,103 million more cellphones, $336 million more toys, games, and sporting goods, and $283 million more inorganic textiles than we did in July; our imports of furniture, televisions, gem diamonds, pharmaceuticals, jewelry, footwear, and cotton apparel all also increased by more than $100 million each...August also saw a $1,075 million increase to $50,339 million in our imports of capital goods, as we imported $403 million more telecommunications equipment, $214 million more generators, $213 million more computer accessories, and more than $100 million more in electrical apparatuses, medical equipment, computers and photo finishing equipment than we did in July...our imports of foods feeds and beverages also rose, by $166 million to $10,729 million, on a $138 million increase in our imports of meat products, as did our imports of goods not categorized by end use, which were up by $693 million to $7,719 million...partially offsetting those increases, our imports of industrial supplies and materials fell by $2,237 million to $40,080 million on a $1,177 decrease in our imports of crude oil, a $349 million decrease in our exports of fuel oil, a $437 million decrease in our imports of other petroleum products, a $266 million decrease in our imports of finished metal shapes, and $204 million decrease in our imports of gold, a $201 million decrease in our imports of copper, and large decreases in our imports of bauxite and aluminum and iron and steel mill products...we also imported automotive vehicles, parts, and engines valued at $29,721 million, which was $386 million less automotive equipment than we imported in July...

to gauge the impact of our July and August trade figures on 3rd quarter growth, the value of July and August imports and exports must first be adjusted for price changes and then compared to the similarly adjusted 2nd quarter figures... while the BEA would do this on an item by item basis with prices from the import export price index for those months, exhibit 10 in the pdf for this report gives us monthly goods trade figures by end use category and in total in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for the GDP report, albeit they are not annualized here....from that table, we find that 2nd quarter real exports averaged 120,343 million monthly in chained 2009 dollars, while the inflation adjusted average of July and August exports was at 120,160 million using the same 2009  dollar quantity index...annualizing the change between the two figures, we find that 3rd quarter real exports are running at a 0.61% annual rate below those of the 2nd quarter, or at a pace that would subtract 0.08 percentage points from 3rd quarter GDP...in a similar manner, we find that our 2nd quarter real imports averaged 178,201 million monthly in chained 2009 dollars, while inflation adjusted July and August imports averaged at 179,929 million in those same 2009 dollars...that would indicate that so far in the 3rd quarter, our real imports are risng at a 3.9% annual rate over those of the 2nd quarter...since imports subtract from GDP because they represent that portion of our consumption or investment that occurred during the quarter that was not produced domestically, that 3.9% rate of decline would subtract 0.60 percentage points from 3rd quarter GDP....hence, if our September trade figures are similar to those of July and August thus far in the 3rd quarter, our worsening balance of trade would subtract 0.68 percentage points from the growth of 3rd quarter GDP...that is a 126 basis point reversal of our prior 3rd quarter estimate that was based on July trade data alone..

Wholesale Sales Down 1.0% in August; Inventories Rise 0.1%

wholesale sales were somewhat lower in August, in part due to lower prices, while inventories inched up...the August report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $445.4 billion, 1.0 percent (+/-0.7) lower than the revised July level, and was 4.7 percent (+/-1.6%) lower than wholesale sales of a year earlier...the July preliminary estimate was revised upward $0.2 billion to $449.5 billion or less than a percent from the previously reported figure and hence remains 0.3% below the June level...August wholesale sales of durable goods fell 1.2 percent (+/-0.7%) from last month and are now down 1.9 percent (+/-1.9%)* from a year earlier, with wholesale sales of computers, peripheral equipment and software 5.1% lower than in July while wholesale sales of furniture rose 1.6%...wholesale sales of nondurable goods were down 0.7 percent (+/-0.7%)* from July and were down 8.0 percent (+/-1.9%) from last August, with wholesale sales of petroleum and petroleum products down 4.6% on lower prices while wholesale sales of apparel rose 1.9%...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods sold....

on the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold, and this August report estimated that wholesale inventories were valued at $583.9 billion at month end, an increase of 0.1 percent (+/-0.2%)* from the revised July level and 4.1 percent (+/-1.6%) higher than August a year ago, with the July preliminary estimate revised downward $0.9 billion or more than 0.1 percent...inventories of durable goods were up 0.3 percent (+/-0.4%)* from July and were up 4.2 percent (+/-2.1%) from a year earlier, with inventories of computers, peripheral equipment and software up 1.9% while inventories of metals and minerals were down 1.7% on lower commodity prices...meanwhile, the value of wholesale inventories of nondurable goods were down 0.2 percent (+/-0.4%)* from July, but were up 4.0 percent (+/-1.8%) from last August, as the value of inventories of raw farm products was 3.1% lower while inventories of beer, wine, and distilled spirits were up 1.1%...

as you know, to approximate the contribution of wholesale inventories, valued here in current dollars, to the change in GDP, we must first convert these figures into an approximation of the change in the quantity of goods that were inventoried...the BEA does that by deflating the value of each of the categories of inventories with the appropriate sub-index from the producer price index for the same month, but since inventories are notoriously difficult to estimate without knowing the month that each subset of the total was inventoried, and since the BEA does not break out wholesale inventories from other business inventories in the GDP report, we'll simply our approximation by using the producer price index for finished goods....so, in August, producer prices for finished goods fell 0.6%, largely on a 3.3% decrease in wholesale energy prices, after July's producer prices for finished goods fell 0.1%, again on a 0.6% drop in wholesale energy prices...that suggests that the July change in real wholesale inventories was negative by about 0.2%, after which real wholesale inventories rose by about 0.7% in August...meanwhile, our previously computed real changes in 2nd quarter inventories were +0.8% in April, -0.2% in May and + 0.2% in June, suggesting a comparable growth rate of 0.8% in the 2nd quarter...since the GDP calculation looks at the change in the growth of inventories, the slower real growth in wholesale inventories in July and August appears it will be a significant subtraction from the 3rd quarter growth computation..

Mortgage Delinquencies and Foreclosures Increase in August; Mean Time in Foreclosure at 1015 Days

the Mortgage Monitor for August (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 695,548 home mortgages, or 1.37% of all mortgages outstanding, remaining in the foreclosure process at the end of August, which was down from 711,265, or 1.40% of all active loans that were in foreclosure at the end of July, and down from 1.80% of all mortgages that were in foreclosure in August of last year...these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the August "foreclosure inventory" remains the lowest percentage of homes that were in the foreclosure process since late 2007... new foreclosure starts rose, however, from 75,404 in July to 80,500 in August, and while they were a bit lower than the 81,612 new foreclosures started in August of 2014, they've been volatile from month to month, and they have remained in a range from 73,500 to 95,000 monthly since the beginning of 2014, which is still in a range about twice the monthly number of new foreclosures we saw in the precrisis year of 2005...

in addition to homes in foreclosure, BKFS data showed that 2,446,900 mortgages, or 4.83% of all mortgage loans, or were at least one mortgage payment overdue but not in foreclosure in August, up from 4.71% of homeowners with a mortgage who were more than 30 days behind in July and the highest delinquency rate since May, but still down 18.2% from the mortgage delinquency rate of 5.64% in August a year earlier...of those who were delinquent in August, 865,435 home owners, or 1.71% of those with a mortgage, were considered seriously delinquent, meaning they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month...combining these totals, we find a total of 6.20% of homeowners with a mortgage were either late in paying or in foreclosure at the end of August, and 3.08% of them were in serious trouble, ie, either "seriously delinquent" or already in foreclosure at month end...

as you should recall, the Mortgage Monitor (pdf) is a mostly graphics presentation from what was once the Analytics division of Lender Processing Services that covers a variety of mortgage related issues each month...in addition to the summary data on delinquencies and foreclosures, this August monitor also includes graphics examining the potential impact of new guidelines from Fannie Mae and Freddie Mac that extended allowable foreclosure timelines and an analysis of refinance transactions vis a vis their prior loan counterparts in terms of interest rates, payment changes, term extensions, cash-out levels and servicer retention of refinance transactions over time...some explanation of what those graphics reveal can be found in the BKFS press release that introduces the August Mortgage Monitor titled Black Knight’s August Mortgage Monitor: Cash-Out Refinances Up 68 Percent Year-Over-Year...however, since those topics are outside of our normal purview, we'll just include one graph below and that part of the Mortgage Monitor summary table showing the monthly count of active home mortgage loans and their delinquency status..

the graph that we'll include here, from page 5 of the mortgage monitor, shows the count of foreclosure starts as they occurred in each month since the beginning of 2008, wherein each bar represents monthly foreclosure starts, and within each bar foreclosure starts on mortgages that have never been in foreclosure previously are indicated in blue, and foreclosure starts on mortgages that had been in foreclosure at least once before are in red...the latter therefore represent mortgages that were in foreclosure, resolved that earlier foreclosure prior to a completed foreclosure sale either through a modification, or by making payments to get caught up on their loan, only to fall behind on payments again and end up in foreclosure yet another time...the green line on the graph then shows such repeat foreclosures as a percentage of total foreclosure starts for the month, which has now risen to a record 57% of all foreclosure starts, as a large number of those who've had their mortgages modified previously are now in foreclosure again...such repeat foreclosures were up 13% in August and were the sole reason for the increase in foreclosure starts...notice how the blue portion of the bars below continues to shrink; of the 80,500 foreclosure starts in August, only about 35,000 were first time foreclosures, which except for April, was the lowest level of first time foreclosures since the crisis began....

August 2015 LPS new and repeat foreclosure starts

last, in the table below from page 15 of the pdf, the columns show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month the past year and a half and for each January shown going back to January 2008….in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…the average length of delinquency for those who have been more than 90 days delinquent without foreclosure, now at 525 days, is down from the April record of 544 days, while the average time for those who’ve been in foreclosure without a resolution is also off its record high of 1024 days reached in last October, but is still nearly three years at 1015 days…

August 2015 LPS loan counts days delinquent table


(the above is the synopsis that accompanied my regular sunday morning links emailing, which in turn was mostly selected from my weekly blog post on 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, October 4, 2015

September jobs report; August personal income and outlays, construction spending, factory orders, et al

in addition to the Employment Situation Summary for September from the Bureau of Labor Statistics, this week also saw the release of three reports that together make up a large part of the August contribution to 3rd quarter GDP; the August report on Personal Income and Spending from the Bureau of Economic Analysis, and the Full Report on Manufacturers' Shipments, Inventories and Orders for August and the August report on Construction Spending, both from the Census Bureau...also impacting GDP, the Commerce Dept previewed the Advance International Trade in Goods report, which showed our deficit in goods increased to $67.2 billion in August from $59.1 billion in July; the full international trade report will be released Tuesday...the week also saw the release of the Case-Shiller house price indexes for July from S&P Case-Shiller, and light vehicle sales for September from Wards Automotive, which estimated that vehicles sold at a 18.07 annual rate in September, up 2.0% from the 17.72 million annual sales rate in August, and the highest vehicle sales rate in 10 years..in addition, the week also saw the release of several widely watched diffusion indexes for September, with indexes generated from business growth surveys that weigh the positive responses of executives against the negative ones...those included the Texas area manufacturing survey from the Dallas Fed, which reported its broadest general business activity index rose more than 6 points, from -15.8 to -9.5, while their production index inched above zero at +0.9, suggesting output had steadied at a lower level after several months of declines, the September Chicago Business Barometer from the ISM Chicago (pdf) which turned negative, falling 54.4 in August 48.7 in September, indicating return to contraction after two months of positive readings, and the September Manufacturing Report On Business from national the Institute for Supply Management (ISM), which saw the manufacturing PMI (Purchasing Managers Index) fall to 50.2 from a two year low at 51.1 in August, indicating that manufacturing purchasing managers saw stagnation in the various facets of their business they were polled on...

The Lousy September Jobs Report

the Employment Situation Summary for September showed weak job creation, lower wages, large downward revisions to July and August jobs, a record number of us not in the labor force, and a major drop in the labor force participation rate, which was already at a 38 year low...the establishment survey data indicated that employers added a seasonally adjusted 142,000 jobs in September, while the payroll job increase for July was revised from the previously reported 245,000 to 233,000, and while August's jobs number was revised from 173,00 to 136,000, making the combined number of jobs going into September 59,000 less than previously reported ….September job increases were entirely in the private service sector and in government, as 13,000 fewer of us were employed by goods producers than in August, with the loss of 9,000 jobs in manufacturing and another 12,000 in resource extraction...the leisure and hospitality sector added 35,000 jobs, with 20,700 of those in restaurants and bars, while the health care and social assistance sector added 34,400 jobs, with 12,900 of those in ambulatory services and another 15,500 jobs in hospitals...the broad professional and business services category accounted for another 31,000 additional jobs, with 17,700 of those spread in a variety of professional and technical service positions, while another 23,700 jobs were added in retail, with 10,000 of those in general merchandise stores...meanwhile, the government sector added a total of 24,000 jobs, with 13,600 of those in state government education...in addition, employers reported that average hourly earnings for all employees fell a penny to $25.09, and with a 0.1 hour decrease 34.5 hours in the average workweek, national average weekly earnings actually declined from $868.46 to $865.61...

the September household survey estimated that the seasonally adjusted count of those employed fell by 236,000 to 148,800,000, while the number of unemployed also fell, by 114,000 to 7,915,000, which left the unemployment rate statistically unchanged at 5.1%...with the reduction of the unemployed and the employed thus totaling 350,000 and the civilian working age population increasing by 229,000 new entrants, the count of those not in the labor force rose by 579,000 to a new record at 94,610,000, and as a result the labor force participation rate fell from 62.6% in August to 62.4% in September, near a 40 year low ...with the large decrease in the employed, the employment to population ratio, which we could think of as an employment rate, fell from 59.4% to 59.2%...while the number who reported they were voluntarily working part time rose by 211,000 to 19,971,000, those who reported being stuck in just part time work involuntarily fell by 447,000 to 6,036,000, and hence the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", fell by 0.3% to 10.0%...

the BLS employment situation press release itself is easy to read and understand, so you can get more details on this report 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 such as "The number of persons unemployed for less than 5 weeks increased by 268,000 to 2.4 million in September, partially offsetting a decline in August...(See table A-12.)"  you can quickly open Table A-12 where you will find a table with the count of the unemployed by duration and the distribution thereof, and where you'd see that 2,104,000 of us have been unemployed for more than 26 weeks, accounting for 26.6% of all those unemployed...

August Personal Income up 0.3%; PCE on Track to Add 2.03 Percentage Points to GDP

other than the employment report and the GDP report itself, the monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is probably the most important economic release we see monthly, as it gives us the monthly data on our personal consumption expenditures (PCE), which accounts for more than 2/3rds of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, the dollar change reported for each of those are not the current monthly change; rather, they're seasonally adjusted and at an annual rate, ie, they tell us how much income and spending would increase for a year if August'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 July to August.. 

thus, when the opening line of the press release for this report tell us "Personal income increased $52.5 billion, or 0.3 percent, and disposable personal income (DPI) increased $47.1 billion, or 0.4 percent, in August", they mean that the annualized figure for all types of personal income in August, $15,403.8 billion, was $52.5 billion or 0.3% greater than the annualized personal income figure of $15,351.3 billion for July; the actual August increase in personal income over July is not given...similarly, disposable personal income, which is income after taxes, rose by 0.4%, from an annual rate of $13,408.8 billion in July to an annual rate of $13,456.0 billion in August...the contributors to the 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...so when the press release says, "Wages and salaries increased $35.6 billion in August", that really means wages and salaries would rise by $35.6 billion over an entire year if August's seasonally adjusted increase were extrapolated over an entire year, just as interest and dividend income, another contributor to the income increase, rose at a $5.2 billion annual rate in August...so you can see what's written in the press release is somewhat confusing, which is why we reference the pdf... 

for the personal consumption expenditures (PCE) that we're most interested in today, BEA reports that they increased by $54.9 billion, or more than 0.4 percent, which means the annual rate of PCE rose from $12,333.9 billion in July to $12,388.8 in August; in addition, the July PCE figure was revised up from the originally reported $12,305.4 billion annually, and prior months were revised up as well...the current dollar increase in August spending was driven by a $39.0 billion annualized increase to an annualized $8,342.3 billion in spending for services and a $11.7 billion increase to $1,346.7 billion annualized in spending for durable goods...outlays for non durable goods also increased at a $4.1 billion annual rate to an annualized $2,699.8 billion ...total personal outlays for August, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $55.2 billion to $12,840.4 billion, which left total personal savings, which is disposable personal income less total outlays, at $615.6 billion in August, down from the revised $623.6 billion in personal savings in July... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 4.6% from July's savings rate of 4.7%... 

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that adjustment is done with the price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, also included in this report....looking at Table 9 in the pdf, we see that that index rose from 109.765 in July to 109.769 in August, a month over month inflation rate that's statistically 0.002%, which BEA reports as an increase of “less than 0.1 percent”, following the PCE price index increase of 0.1 percent in July...since the inflation adjustment to PCE is effectively zero, that leaves real PCE up more than 0.4%, after a revised 0.3% increase in July...note that when those price indexes are applied to a given month's annualized PCE, it yields that month's annualized real PCE in our familiar chained 2009 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where August's chained dollar consumption total works out to 11,286.6 billion annually, 0.4% more than July's 11,237.1 billion...

however, in estimating the impact of the change in PCE on change in GDP, the month over month change doesn't buy us much, since GDP is reported quarterly...thus we have to compare real PCE from July and August to the the real PCE of the 3 months of the second quarter...while this report shows those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in the GDP report, as revised last Friday...in table 3 of the pdf for the GDP report, we see that the annualized real PCE for the 2nd quarter was represented by 11,178.9 million in chained 2009 dollars...by averaging the annualized chained 2009 dollar figures for July and August,  11,237.1 billion and 11,286.6 billion, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have so far...when we compare that average to the 2nd quarter real PCE, we find that 3rd quarter real PCE has grown at a 3.0% annual rate for the two months we do have (note the math to get that annual rate:  (((11,237.1 + 11,286.6 ) / 2) / 11,178.9 ) ^ 4 = 1.03001)...this means that even if September real PCE does not improve from the average of July and August, growth in PCE would still add 2.03 percentage points to the growth rate of the 3rd quarter...

real disposable personal income, or the purchasing power of disposable income, is arrived at in the same manner as we found real PCE; disposable personal income figures are adjusted for inflation using the PCE price index...even though that index was effectively unchanged in August, disposable personal income was only shown as up 0.4% by virtue of upward rounding from a 0.352% increase...hence, in a statistical oddity, when the 0.002% increase in the PCE index was applied to that, it reduced real disposable personal income to a rounded increase of 0.3%, following a 0.4% increase in July...our FRED graph below shows monthly real disposable personal income in blue and real personal consumption expenditures in red since January 2000, with the annualized scale in chained 2009 dollars for both shown in the current data box and on the lower left; also shown on this same graph in green is the monthly personal savings rate over the same period, with the scale of savings as a percentage of disposable income on the right...the spike in income and savings at the end of 2012 was mostly the result of income manipulation before the year end fiscal cliff; the earlier spikes were as a result of the tax rebates enacted as a fiscal stimulus under George Bush…. 

August 2015 income and outlays

August Construction Spending Rises by 0.7% after July Revised Lower

in the August report on construction spending (pdf), the Census Bureau estimated that our seasonally adjusted construction spending would work out to a post-recession high of $1,086.2 billion annually if extrapolated over an entire year, which was 0.7 percent (±1.5%)* above the revised July estimate of $1,079.1 billion in construction spending annually, and 13.7 percent (±2.1%) above the estimated adjusted and annualized level of construction spending of August last year....the July construction spending estimate was revised from $1,083.4 billion annually to $1,079.1 billion, the June estimate was revised from $1,075.9 billion to $1,074.3 billion annually, while the May estimate was unrevised at $1,068.4 billion, which suggests that 2nd quarter GDP growth was around 0.1 percentage point less than was reported last week...private construction spending was at a seasonally adjusted annual rate of $788.0 billion in August, 0.7 percent (±0.7%)* above the revised July estimate of $782.3 billion, with residential spending rising 1.3 percent (±1.3%)* to a seasonally adjusted annual rate of  $383.3 billion, from the revised July estimate of $378.5 billion, while private non-residential construction spending rose 0.2 percent (±0.7%)* to $404.7 billion...meanwhile, public construction spending was estimated at a rate of $298.2 billion annually, 0.5 percent (±2.6%)* above the revised July estimate of $296.8 billion, with public power spending 10.0% higher than in July while highway and street spending was off 0.4% for the month, while it remained 7.0% higher than last year...

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...to see how this report of two month's construction spending might impact 3rd quarter GDP, we must first adjust those varied categories of spending for inflation to give us the quantity of construction in real terms....the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators for the various components of non-residential investment, such as the Turner Construction building-cost indices for several types of buildings and the Engineering News Record construction cost index for utilities construction, while specifies use of the Census Bureau construction price indexes for new one-family houses under construction and for new multi-family homes under construction for residential investment...the later indicates that prices for residential construction rose by 0.5% in July and by 0.1% in August, but more appropriately for our purposes, their average is up by 0.9% from the 2nd quarter average; for the other types of construction, we'll simplify our computation and just use the producer price index for final demand for construction, which showed a 0.4% increase in July but a 0.1% decrease in August, but again more importantly a quarter over quarter increase of 0.5%...note that because the GDP categories for construction spending include brokers’ commissions, title insurance, state and local taxes, attorney fees, title escrow fees, fees for surveys and engineering services, and remodeling not captured by this report, our estimate will be limited to the data included in this report...

using the revised monthly annualized construction spending data for April, May and June from Table 1 of this report, we find that 2nd quarter private residential construction spending was at a seasonally adjusted annual rate of $371,985 million, and that the comparable value of July and August residential spending adjusted for inflation would be at a $377,442 million rate, which would mean that real residential construction rose at a 6.0% annual rate so far in this quarter, vis a vis the 2nd quarter...for private non-residential construction, we find that 2nd quarter non-residential construction was at a $397,065 million annual rate, while July and August non-residential spending adjusted for 0.5% quarterly inflation would give us a non-residential spending rate of $402,234 in chained second quarter dollars, an increase in real non-residential construction at a 5.3% annual rate...lastly, using just the monthly data in this report, we find that public construction averaged at a $293,409 million annual rate over the 2nd quarter, while public construction for July and August adjusted for 0.5% inflation works out to a $296,034 million annual rate thus far in the 3rd quarter...hence, real government investment spending for construction was up at a 3.6% annual rate in July and August over the second quarter...finally, translating those increases in the rate of construction growth we have for these two months, we estimate that real residential construction growth would add 0.19 percentage points to 3rd quarter GDP growth, real private non-residential growth would add .15 percentage points to 3rd quarter growth, and real public construction growth would add .07 percentage points to 3rd quarter GDP in the various government investment components...

Factory Orders Report is in Error; Factory Inventories Shrink

in attempting to write about the Full Report on Manufacturers' Shipments, Inventories and Orders for August (pdf) for August from the Census Bureau i noticed that the line listing the totals for new orders for non-durable goods and the line listing shipments of non-durable goods were identical, ie, all the amounts for June, July, August and year to date were identical, as were the percentage changes shown...those numbers are then carried through to the totals...i downloaded the excel files for both and they also showed non-durable data for shipments and new orders to be identical...i called the Census bureau before 5PM on Friday and left a message notifying them of this error, but as of this writing on Saturday it has not been corrected...i suspect the error is with the new orders, but it’s hard to tell for sure, since the monthly dollar difference between orders and shipments has been less than 1% (0.6% in July)...given that, it doesn't make sense to review data that we suspect is a posting error...assuming the durables portion of the report is accurate, new orders for durable goods shows a $5.5 billion, 2.3% decrease from July, revised from the 2.0% decrease reported in the advance report last week, while August shipments of durables are now shown to have decreased $0.5 billion or 0.2 percent to $242.7 billion, down from the last week's report showing them unchanged...

this report also shows that August factory inventories, a major GDP component, decreased $1.6 billion or 0.3 percent to $648.4 billion, following a 0.3% decrease in July....the value of durables were also marked down from last week, when they were reported as unchanged; they're now shown to be down $0.1 billion to $401.2 billion, with inventories of primary metals, down $0.5 billion or 1.3 percent to $36.5 billion, responsible for the decrease....inventories of non durables were thus down 1.5 billion or 0.6% to $247.2 billion, following a 0.4% decrease in July, but here again it was inventories of petroleum and coal products, which we know to have dropped in price, which are shown down 4.9% to $34,669 on a 5.7% drop in the value of inventories at refineries...to access the impact of these factory inventories on GDP they must be adjusted for inflation, and the best broad index we have for doing that is the producer price index for industrial commodities, which was down 0.2% in August after rising by the same amount in July...without doing the fractional math, that suggests that there will be little inflation adjustment over the two months, and that end of August real factory inventories will be close to the nominal value of $648.4 billion, down from June inventories which were valued at $653.56 billion...it goes without saying that a decrease in inventories in the 3rd quarter, after factory inventories had increased from $650.96 billion at the end of the 1st quarter, would have a major negative impact on GDP...assuming no major inflation adjustment, the $7.76 billion swing in factory inventories would take 0.21 percentage points off 3rd quarter GDP...

if the misposting noted above affected the data on new orders as we suspect, it would have in like manner have screwed up the data on unfilled orders...Census reports unfilled factory orders decreased $2.4 billion or 0.2 percent to $1,195.0 billion, following a 0.2 percent July increase...this report also left unfilled orders for durable goods down $2.4 billion or 0.2 percent to $1,195.0 billion, which was virtually unchanged from the decrease published in the advance report for durable goods we covered last week...we'll refrain from commenting further until we see a corrected version of this report, or can otherwise verify the accuracy of the unfilled orders data provided here..

July Case Shiller National Home Price Index is 4.7% Higher Than a Year Ago

the Case-Shiller house price indexes for July indicated a 4.5% year over year increase in prices on repeat home sales in the ten cities of the original index, a 5.0% annual increase in the 20 city Composite, and a 4.7% increase in home prices nationally since the July report of last year, with home prices in San Francisco and Denver up more than 10%...they also report a 'monthly' increase of 0.6% the 10 city index and in the 20 city and a 0.7% increase in the national index, which compares prices of houses sold in April, May and June to those sold in May, June and July, and hence the change in the month over month indexes are equal to 1/3rd the difference between April home prices and July home prices...seasonally adjusting these so called month over month indexes show that national index 0.4% higher while the 10 and 20 city indices would be down 0.2% from the previous report...thus, while home prices in all 20 cities showed an increase in July when compared to April, after seasonal adjustments, home prices in 10 cities were down, 9 cities were up, and one city was unchanged....the full pdf of the release, titled July Home Price Gains Concentrated in the West, 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 thorough posts, which include several graphs: Case-Shiller: National House Price Index increased 4.7% year-over-year in July, followed by his analysis in Real Prices and Price-to-Rent Ratio in July...

(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…)