Sunday, July 30, 2017

2nd quarter GDP and annual revision; June’s durable goods, new home sales, existing home sales

the key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by an annual revision to national accounts data over the prior three years....the other widely watched releases of the past week included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, the June report on existing home sales from the National Association of Realtors (NAR), and the Case-Shiller house price indexes for May from S&P Case-Shiller, which saw their national home price index remain 5.6% higher than the same month's report a year ago...in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised -0.30 in May to +0.13 in June...that boosted the 3 month average of the index to +0.06 in June, up from -0.04 in May, still indicating national economic activity has been near the historical trend during the 2nd quarter... this week also saw the release of two more regional Fed manufacturing surveys for July: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, which reported its broadest composite index rose to +14 in July from +11  in June, suggesting an ongoing expansion in that region's manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to +10 in July, down from +11 in June but up from +8 in May, also suggesting an ongoing expansion in the 10th District's manufacturing...

Advance Estimate of 2nd Quarter GDP & Revisions From 2014 to Present

the Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included an annual revision to the past 3 years of GDP releases, revising previously published data from the first quarter of 2014 through the first quarter of 2017, which on net indicated that economic growth over the period from 2014 to 2016 was at a 2.3% annual rate, revised from the 2.2% composite annual growth previously published for that period of the current expansion....in addition to the recent quarters of 2017, this report showed that the GDP growth rate for 2014 was revised from 2.4% to 2.6%; that the growth rate for 2015 was revised from 2.6% to 2.9%, and that the GDP growth rate for 2016 was revised from 1.6% to 1.5%...

the first quarter of 2017, which had been revised up to a growth rate of 1.4% when we reviewed it a month ago, has now been revised back down to show growth at a 1.2% rate…major first quarter components that were revised lower included nonresidential fixed investment, which was revised from growth at a 11.0% rate to growth at a 8.1% rate, growth in real private inventory investment, which was revised from growth at a inflation adjusted $4.3 billion rate to growth at $1.2 billion rate, residential fixed investment, which was revised from 13.0% growth to 11.1% growth, and to federal government spending, which was revised from shrinking at a 2.0% rate to shrinking at a 2.4% rate...in addition, growth in first quarter imports, which subtract from GDP, was revised from a 4.0% growth rate to a 4.3% rate....those negative revisions were partially offset by an upward revision to personal consumption expenditures (PCE), from a 1.1% growth rate to growth at a 1.9% rate, an upward revision to growth in exports, from a 7.0% rate to a 7.3% rate, and an upward revision to state and local government spending, from shrinking at a 0.2% rate to growth at a 0.5% rate...thus the estimates for the 1st quarter of 2017 GDP have gone from the initial estimate of growth at a 0.7% rate, to an 1.2% growth rate in the 2nd estimate, to a 1.4% rate of growth in the 3rd estimate, and finally back to growth at a 1.2% rate in this annual revision...

all of those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Friday with some June data still not reported, with a grain of salt...the Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 2.6% annual rate over the output of the 1st quarter of this year, which we have just seen was revised to show growth at a 1.2% rate...the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.2% from the advance estimate to the final reading...note that June construction and inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is provided in a technical note that is posted with the news release, and references an Excel file with key source data and assumptions...

while we cover the details on the 2nd quarter below, remember that the GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes chained from 2009, and then that all percentage changes in this report are calculated from those 2009 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 1st estimate of 2nd quarter GDP, which is linked to on the sidebar of the BEA press release, which also offer links to just the tables on Excel and other technical notes...specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since 2013, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years, table 3a, which shows the current dollar value of each of the GDP components, table 3b, which shows the inflation adjusted value of each of those components, table 4, which shows the change in the price indexes for each of the components; and to table 5, which shows the quantity indexes for each of the components, which are used to convert current dollar figures into units of output represented by chained dollar amounts....the intervening tables in this release (ie, 1a, 1b, 2a, 2b,etc) give us the previously published data for each of those metrics going back to the 3rd quarter of 2013, should anyone be interested in the finer details of the annual revision..

personal consumption expenditures (PCE), which accounts for nearly 69% of GDP, grew at a 3.1% rate in current dollars in the 2nd quarter, actually down from the first quarter’s spending increase at a revised 4.1% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE rose 2.8% in the 2nd quarter after rising 1.9% in the first...consumer spending for durable goods rose at a 2.9% rate, mostly on a jump in spending for recreational goods and vehicles, but since weighted prices for those durable goods fell at a 3.4% rate, real output of durable goods represented by that spending increased at a 6.3% rate...in a like manner, consumer spending for non durables rose at less than a 0.2% rate, but the PCE price index for non-durables was down more than 3.6%, mostly on lower energy prices, meaning real growth in consumption of non durables was at a 3.8% rate...meanwhile, the 4% growth in personal spending for services was reduced by a +2.1% deflator to show real 2nd quarter growth in services was at a 1.9% rate...thus, with real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.47 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.55 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 0.91 percentage points to the change in 2nd quarter GDP...

just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the quantity indexes shown in table 5 of the GDP pdf to yield the real change in the output of goods or services.....hence, real gross private domestic investment, which had risen at a 8.2% annual rate in the 1st quarter as investment in residential and non-residential structures soared, rose at a 2.2% annual rate in the 2nd quarter, as investment in residential property fell...real non residential fixed investment rose at a 5.2% annual rate as real investment in non-residential structures rose at a 4.9% rate, real investment in equipment rose at a 8.2% rate, and investment in intellectual property grew at 1.4% rate...as a result, investment in real non residential fixed investment added 0.62 percentage points to the change in 2nd quarter GDP as real investment in non-residential structures added 0.14 percentage points, real investment in equipment added 0.44 percentage points to the change in GDP, and investment in intellectual property added 0.06 percentage points to the change in GDP...however, residential investment fell at a 6.8% rate and hence subtracted 0.27 percentage points from the 2nd quarter's GDP, leaving the total fixed investment contribution at 0.36 percentage points...for an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

meanwhile, in the first real drop since the 3rd quarter of 2011, investment in real private inventories fell by an inflation adjusted $0.3 billion in the 2nd quarter, after they had grown by an adjusted $1.2 billion in the 1st quarter, and as a result the $1.5 billion downward swing in inventory growth subtracted 0.02 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $61.9 billion decrease in inventory growth in the 1st quarter had subtracted 1.46 percentage points from that quarter's GDP growth...however, smaller inventories indicate that less of the goods produced during the quarter were being left "sitting on the shelf”, so their quarter over quarter decrease by $1.5 billion meant that real final sales of GDP were relatively greater by that much, which was still not enough to significantly boost real final sales of GDP, which increased at a 2.6% rate in the 2nd quarter...that's compared to the real final sales growth at a 2.7% rate in 1st quarter, when the change in the decrease in inventory growth was much greater..

after adjustment for higher export and import prices, both real exports and real imports increased in the 2nd quarter, as our real exports of goods and services rose at a 4.1% rate in the second quarter, after rising at a 7.3% rate in the 1st quarter, while our real imports rose at a 2.1% rate in the 2nd quarter after rising at a 4.3% rate in the 1st quarter...as you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....thus the 2nd quarter increase in real exports added 0.48 percentage points to 2nd quarter GDP, after adding 0.85 percentage points to first quarter GDP...on the other hand, since imports subtract from GDP, their increase at a 2.1% rate subtracted 0.31 percentage points from 2nd quarter GDP, after first quarter imports had subtracted 0.63 percentage points from that quarter's growth...as a result, our improving trade balance added a total of 0.18 percentage points to 2nd quarter GDP, after a revised improved trade deficit added 0.22  percentage points in the first quarter..

finally, real consumption and investment by branches of government rose at a 0.7% annual rate in the 2nd quarter, after decreasing at a 0.6% rate in the first quarter, as federal government consumption and investment grew at a 2.3% rate and state and local consumption and investment fell at a 0.2% rate...inflation adjusted federal spending for defense rose at a 5.2% rate and that added 0.20 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment fell at a 1.9% rate and subtracted 0.05 percentage points from GDP...note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services....meanwhile, state and local government investment and consumption expenditures, which fell at a 0.2% annual rate, subtracted 0.02 percentage points from the quarter's growth rate, as a decrease in real state and local investment at a 5.9% rate accounted for the decrease...

our FRED bar graph below has been updated to include 2nd quarter GDP as well as the revisions to each of the GDP components from prior years resulting from this week's annual revision...each color coded bar below shows the real change, in billions of chained 2009 dollars, in one of the major components of GDP over each quarter since the beginning of 2013...in each quarterly grouping of seven bars on this graph, the quarterly changes in real (ie, inflation adjusted) personal consumption expenditures are shown in blue, the changes in real gross private investment, including structures, equipment and intangibles, are shown in red, the quarterly change in private inventories is in yellow, the real change in imports are shown in green, the real change in exports are shown in purple, while the real change in state and local government spending and  investment is shown in pink, and the real change in Federal government spending and investment is shown in grey...those components of GDP that contracted in a given quarter are shown below the zero line and subtract from GDP, those that are above the line grew during that quarter and added to GDP; the exception to that is imports in green, which subtract from GDP, and which are shown on this chart as a negative, so that when imports shrink, as they did in the recent quarter, they will appear above the line as an addition to GDP, and when they increase, they'll appear below the zero line...it’s fairly clear that our personal consumption expenditures has underpinned GDP growth over this period, while increasing imports, and more recently falling inventory investment, have been the major negatives…in the 2nd quarter, on the far right, we see that the major reason for the decent growth in the 2nd quarter was that there were no major negatives except for the increase in imports, which itself was offset by the increase in exports…generally, the quarters with the poorest GDP growth are those where one or more of the major GDP components substantially contracts, subtracting from the growth added by the others..

2nd quarter 2017 advance GDP

June Durable Goods: New Orders Up 5.6%, Shipments Unchanged, Inventories Up 0.4%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $14.9 billion or 6.5 percent to $245.6 billion, following a revised drop of 0.1% in May new orders, which had been originally reported as a 1.1% decrease...year to date new orders are now 5.0% higher than  those of 2016, vs the 2.8% year over year change we saw in this report last month...as is usually the case, the volatile monthly change in new orders for transportation equipment drove the June headline change, as those transportation equipment orders rose $14.6 billion or 19.0 percent to $91.6 billion, on a 131.2% increase to $25,328 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders were up 0.2% in June, even as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 0.1% to $63,416 million...

the seasonally adjusted value of June's shipments of durable goods, which were inputs into various components of 2nd quarter GDP after adjusting for changes in prices, were little changed at $236.0 billion, after May shipments were revised from an increase of 0.8% to $234.9 billion to a 1.2% increase to $235.9 billion....a 0.6% decrease in shipments of transportation equipment was the cause of weakness, as the value of shipments of motor vehicles fell 0.7% to $54,181 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.2%, as new orders for nondefense capital goods excluding aircraft were up 0.2% to $63,049 million, a figure which was reflected in the 2nd quarter GDP equipment investment figures....meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 11th time in 12 months, increasing by $1.6 billion or 0.4 percent to $397.0 billion, after the change in May's inventories was revised from a 0.2% increase to a 0.1% increase...increased inventories of machinery was a major factor in the June inventory increase, as they rose $0.8 billion or 1.2 percent to $68.3 billion...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the third time in four months, rising by $14.2 billion or 1.3 percent to $1,135.6 billion, following a May decrease that was revised from 0.2% to 0.1%...unsurprisingly, a $12.8 billion or 1.7 percent increase to $776.8 billion in unfilled orders for transportation equipment was responsible for most of the increase, but unfilled orders excluding transportation equipment were also up 0.4% to $358,829 million....compared to a year earlier, the unfilled order book for durable goods is now 0.7% above the level of last June, with unfilled orders for transportation equipment 3.6% above their year ago level, largely on a 5.7% increase in the backlog of orders for defense aircraft...  

New Home Sales Little Changed in June

the Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 610,000 new homes annually, which was 0.8 percent (±12.1 percent)*  above the revised May rate of 605,000 new single family home sales annually and 9.1 percent (±14.4 percent)* above the estimated annual rate that new homes were selling at in May of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May or even from those in June a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in May were revised from the annual rate of 610,000 reported last month to a 605,000 a year rate, April's annualized home sale rate, initially reported at 569,000, were revised from last months upward revision of 593,000 back down to 577,000, while the annual rate of March's sales, initially reported at 621,000 revised from 642,000 to an annual rate of 644,000 last month, were now revised lower, to an annual rate of 638,000...

the annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated  that approximately 55,000 new single family homes sold in June, down from the 57,000 new homes that sold in May but virtually the same as the 55,000 new homes that sold in April....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in June was $310,800, down from the median sale price of $324,300 in May, and down from the median price of $321,600 in June of last year, while the average June new home sales price was $379,500 , down from $381,400 average in May, but up from the average sales price of $364,300 in June a year ago....a seasonally adjusted estimate of 272,000 new single family houses remained for sale at the end of June, which represents a 5.4 month supply at the June sales rate, up from the reported 5.3 month supply in May....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increase to 610,000 Annual Rate in June and A few Comments on June New Home Sales...

Existing Home Sales Down 1.8% in June

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 1.8% from May to June, projecting that 5.52 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was still 0.7% greater than the annual sales rate projected in June of a year ago...that came after an annual sales rate of 5.62 million homes in May, and an annual home sales rate of 5.56 million in April...the NAR also reported that the median sales price for all existing-home types in June was $263,800 in June, up from $252,500 in May and 6.5% higher than in June a year earlier, which they report as "the 64th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Retreat 1.8 Percent in June", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process..

since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 601,000 homes sold in June, up by 8.3% from the 555,000 homes that sold in May, and 3.3% more than the 572,000 homes that sold in June of last year, so we can see there was again a seasonal adjustment of over 10% in the annualized published figures to correct for the typical early summer increase in home sales...that same pdf indicates that the median home selling price for all housing types rose 4.5%, from a revised $252,500 in May to $263,800 in June, while the average home sales price was $303,900, up 3.3% from the $294,300 average in May, and up 4.9% from the $289,800 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $243,800 in the Midwest to a high of $396,100 in the West...for additional coverage with long term graphs on this report, see "NAR: "Existing-Home Sales Retreat 1.8 Percent in June"" and "A Few Comments on June Existing Home Sales" from Bill McBride at Calculated Risk...

 

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

Sunday, July 23, 2017

June New Housing Construction, etal

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

New Housing Construction, Permits Reportedly Up in June

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

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

 

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

Sunday, July 16, 2017

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

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

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

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

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

the seasonally adjusted food price index was unchanged in June, after rising 0.2% in May, 0.2% in April, 0.3% in March, 0.2% in February, and 0.1% in January, but after being unchanged in each of the prior 6 months, as prices for food purchased for use at home fell 0.1% in June while prices for food bought to eat away from home was unchanged, despite 0.2% higher prices at fast food outlets, as food prices at elementary and secondary schools fell 3.6%...in the food at home categories, the price index for cereals and bakery products decreased by 0.1% as prices for flour and mixes were 1.4% higher...the price index for the meats, poultry, fish, and eggs group was up 0.6% as beef and veal prices rose 2.9%, and fresh fish and seafood prices rose 1.1%, while the index for dairy products was 0.5% lower on 1.7% decrease in the price of ice cream....the fruits and vegetables index was 0.1% lower as a 1.1% increase in prices for fresh fruits was offset by a 1.6% decrease in prices for fresh vegetables, with lettuce down 8.2%...the beverages index was 0.6% lower as coffee was down 1.2% and carbonated drink prices fell 0.7%....lastly, prices in the ‘other foods at home’ category were on average 0.3% lower, even as sugar prices rose 1.1%, as soup prices were 1.3% lower.....among food at home line items, only eggs, which are still priced 10.0% lower than a year ago, have seen price changes greater than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.1% in June and in May and in April after falling by 0.1% in March, the composite of all goods less food and energy goods was down 0.1% in June, while the more heavily weighted composite for all services less energy services was 0.2% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust June retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.2%, as the index for window and floor coverings fell 1.5%...the apparel price index was 0.1% lower, as prices for boy's apparel fell 4.4%....prices for transportation commodities other than fuel were down 0.4%, as prices for new vehicles fell 0.3% and prices for used cars and trucks fell 0.7%...on the other hand, prices for medical care commodities were 0.7% higher on a 1.0% increase in prices for prescription drugs...but the recreational commodities index fell 0.2% on 1.5% lower prices for audio equipment and 1.1% lower priced toys...however, the education and communication commodities index was 0.6% higher on 0.7% increases in prices personal computers and peripheral equipment and for computer software and accessories...lastly, a separate price index for alcoholic beverages was up 0.2%, while the price index for ‘other goods’ was unchanged as a 0.3% increase in the index for personal care products was offset by a 0.4% decrease in the index for tobacco and smoking products...

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

June Retail Sales Down 0.2% After May Sales Revised Higher

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

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

June 2017 retail sales table

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

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

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

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

this report also includes capacity utilization figures, which are expressed as the percentage of our  plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 76.6% in June from 76.4% in May, which had originally been reported at 76.6%....capacity utilization by NAICS durable goods production facilities rose from 74.6% in May to 74.8 in June, while capacity utilization for non-durables was unchanged at 77.1%....capacity utilization for the mining sector rose to 84.8% in June, up from 83.7% in May, which was originally reported as 84.3%, while utilities were operating at 74.6% of capacity during June, unchanged from the revised May figure, which was originally published as 76.6%...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....   

Producer Prices Up 0.1% in June as Higher Margins for Core Services Offset Lower Wholesale Energy Prices

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

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

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

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

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

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

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

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

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

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

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

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

Job Openings Down, Hiring and Firing Up in May

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

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

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

 

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

Monday, July 10, 2017

The Great US Natural Gas Exports Myth

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

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

July 4 2017 natural gas monthly production

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

July 8 2017 natural gas exports

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

July 2017 US natural gas exports by country

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

July 8 2017 natural gas imports

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

July 2017 US natural gas imports by country

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

July 8 2017 natural gas stocks as of June 30

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

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

March 23 2017 heating demand as of March 17

 

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

Sunday, July 9, 2017

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

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

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

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

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

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

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

like most reports from the Bureau of Labor Statistics, the employment situation press release itself is easy to read and understand, so you can get more details on these two reports from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page..

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

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

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

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

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

Construction Spending Flat in  May after Prior Months Revised Higher

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

the Census release gives us the following summary: "Spending on private construction was at a seasonally adjusted annual rate of $943.2 billion, 0.6 percent (±0.7 percent) below the revised April estimate of $949.3 billion. Residential construction was at a seasonally adjusted annual rate of $509.6 billion in May, 0.6 percent (±1.3 percent) below the revised April estimate of $512.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $433.6 billion in May, 0.7 percent (± 0.7 percent) below the revised April estimate of $436.7 billion. In May, the estimated seasonally adjusted annual rate of public construction spending was $286.9 billion, 2.1 percent (±5.3 percent) above the revised April estimate of $281.0 billion. Educational construction was at a seasonally adjusted annual rate of $74.3 billion, 5.1 percent (±3.3 percent) above the revised April estimate of $70.7 billion. Highway construction was at a seasonally adjusted annual rate of $90.6 billion, 0.9 percent (±16.9 percent) below the revised April estimate of $91.5 billion."

construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments.... however, gauging the impact of revised April and May construction spending as reported here on GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..

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

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

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

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

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

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

 

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