Sunday, January 29, 2017

4th quarter GDP; December durable goods, new home sales, existing home sales

the key economic release of the past week was the 1st estimate of 4th quarter GDP from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for December and the December report on new home sales, both from the Census bureau, and the Existing Home Sales Report for December from the National Association of Realtors (NAR)…we also saw the release of the Chicago Fed National Activity Index (CFNAI) for December, a weighted composite index of 85 different economic metrics, which rose to +0.14 in December, up from –0.33 in November, which was revised from the -0.27 reported last month....that brought the 3 month average of the index to -0.07 in December, up from a revised  -0.21 in November, which still indicates that national economic activity has been slightly below the historical trend over the 4th quarter...in addition, the BLS also released the Regional and State Employment and Unemployment for December on Friday, which breaks down the establishment survey and household survey data from the monthly jobs report released three weeks earlier by region and by state..

  this week also saw the release of two more regional Fed manufacturing surveys for January: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose to +12 in January from +8 in December, suggesting an ongoing expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey for January, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index remained unchanged at +9 in January, also indicating an ongoing expansion in that region's manufacturing...

4th Quarter GDP Up at 1.9% Rate as Trade Deficit Cuts Growth Nearly in Half

the Advance Estimate of 3rd Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 1.9% annual rate over the output of the 3rd quarter of 2016, when our real output grew at a 3.5% real rate, as our ballooning trade deficit subtracted 1.7 percentage points from 4th quarter growth...for the entire year, our economy grew at an anemic 1.6% rate, a full percent slower than the 2.6% growth we saw in 2015...in current dollars, our fourth quarter GDP grew at a 4.0% annual rate, increasing from what would work out to be a $18,675.3 billion a year output rate in the 3rd quarter to a $18,860.8 billion annual rate in the 4th quarter, with the headline 1.9% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.1%, aka the GDP deflator, was applied to the current dollar change... as usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have now averaged +/-0.7% in either direction for nominal GDP, and +/- 0.6% for real (inflation adjusted) GDP before the third estimate for the quarter is released, which will be two months from now...also note that December construction and inventory data have yet to be reported, and that the BEA assumed a small increase in nonresidential construction, a small decrease in residential construction, and a large increase in nondurable manufacturing inventories for December before they estimated 4th quarter output..

while we cover the details on the 4th quarter below, remember that the press release for GDP reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that they only use the prefix "real" to indicate that the change has been adjusted for inflation using prices chained from 2009, and then calculate all percentage changes in this report from those 2009 dollar figures, which we think would be better thought of as representing quantity indexes...given the misunderstanding evoked by the press release, all the data that we'll use in reporting here comes from the pdf for the advance estimate of 4th quarter GDP, which is linked to on the sidebar of the BEA’s press release, where there are also 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 the 4th quarter of 2012, table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years, table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components, table 4, which shows the change in the price indexes for each of the components, and table 5, which shows the quantity indexes for each of the GDP components, which are used to convert current dollar figures into units of output represented by chained dollar amounts...

personal consumption expenditures (PCE), which accounts for over 68% of GDP, grew at a 4.7% rate in current dollars in the 4th quarter, which became a 2.5% real growth rate of consumed goods and services for GDP purposes after an annualized PCE price index increase of 2.2% was used to adjust that consumer spending for inflation....consumer outlays for durable goods rose at a 7.9% rate while prices for those durable goods fell at a 4.1% rate, and thus the BEA found real growth in output of consumer durables rose at a 10.9% rate, as real consumption of recreational goods and vehicles grew at a 16.2% rate while real consumption of automobiles, furniture and other durable goods all increased as well...the BEA also found that real output of consumer non-durable goods grew at a 2.3% rate, after consumer spending for non-durables at a 7.1% rate was adjusted for non-durable goods prices that rose at a 4.7% rate, as growth in real consumption of food and other non-durable goods more than offset lower consumption of gasoline and other energy goods....meanwhile, the 3.5% nominal growth in consumer outlays for services was deflated by a 2.2% increase in prices for personal services to show real output of consumer services grew at a 1.3% annual rate, as a 2.0% decrease in the real growth rate for outlays for housing and utilities partially offset increased growth in all other services...as a result of these changes in growth from the 3rd to the 4th quarter, the increase in real outlays for durable goods added 0.79 percentage points to the GDP growth rate, increased consumption of non-durable goods added 0.32 percentage points, and increased consumption of services added 0.58 percentage points to the growth rate of the economy in the 4th quarter..

the change in other components of the change in GDP is computed by the BEA in the same manner that we have just shown for computing PCE; ie, the actual annualized increase in current dollar spending for the quarter is adjusted with an annualized inflation factor for that component, yielding the change in real units of goods or services produced in the quarter at an annual rate...thus, real gross private domestic investment, which had shrunk in the first two quarters of 2016 and grew at a modest 3.0% annual rate in the 3rd quarter, grew at a 10.7% annual rate from those levels in the 4th quarter...real growth in fixed investments grew at a 4.2% annual rate in the 4th quarter, after growing at a 0.1% rate in the 3rd quarter...among those fixed investments, real non-residential fixed investment grew at a 2.4% rate even though real investment in non-residential structures contracted at a 5.0% rate and subtracted 0.14 percentage points from 4th quarter GDP, as real investment in equipment grew at a 3.1% rate and added 0.18 percentage points to 4th quarter GDP, and real investment in intellectual property grew at 6.4% rate and added 0.26 percentage points to GDP, while real residential investment grew at 10.2% rate and added 0.37 percentage points to GDP....for an easy to read table as to what's included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3...

meanwhile, real private inventories grew by an inflation adjusted $48.7 billion in the 4th quarter, after growing at an inflation adjusted $7.1 billion in the 3rd quarter and as a result the $41.6 billion positive change in real inventory growth added 1.00 percentage points to the 4th quarter's growth rate, after $16.5 billion in real inventory growth in the 3rd quarter had added 0.49% to that quarter's GDP....however, since greater growth in inventories indicates that more of the goods produced during the quarter were left in storage or "sitting on the shelf”, their increase by $41.6 billion in turn means real final sales of GDP were actually smaller by that amount, and hence real final sales of GDP only rose at a 0.9% rate in the 4th quarter, down from the real final sales growth rate of 3.0% in the 3rd quarter, when the smaller increase in inventory growth meant growth in real final sales was reduced by less...

after an adjustment for a 2.2% growth rate in export prices and a 1.6% growth rate in import prices, our real exports of goods and services fell at a 4.3% rate in the third quarter, partially reversing their 10.0% 3rd quarter growth rate, as our exports of goods decreased at a 6.9% rate, while our real imports grew at a 8.3% rate in the 4th quarter after rising at a 2.2% rate in the 3rd quarter....as you'll recall, 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 elsewhere in this GDP calculation), 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 4th quarter decrease in real exports subtracted 0.53 percentage points from 4th quarter GDP, while the higher 4th quarter imports subtracted 1.17 percentage points from 3rd quarter GDP, and thus our deteriorating trade balance subtracted a total of 1.70 percentage points from our 4th quarter GDP, after our improved trade deficit had added 0.85 percentage points in the third quarter..

finally, real consumption and investment by government increased at a 1.2% annual rate in the 4th quarter, after growing at a 0.8% rate in the 3rd quarter, as federal government consumption and investment shrunk at a 1.2% rate, while state and local consumption and investment grew at a 2.6% rate....inflation adjusted federal spending for defense contracted at a 3.6% rate and subtracted 0.14 percentage points from 4th quarter GDP growth, while real non-defense federal consumption and investment rose at a 2.3% rate and added 0.06 percentage points to GDP....note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of goods or services....meanwhile, state and local government investment and consumption expenditures grew at a 2.6% annual rate and added 0.28 percentage points to the growth of 4th quarter GDP, as real growth in state and local consumption expenditures added 0.02 percentage points while real state and local investment grew at a 14.8% annual rate and added 0.26 percentage points...

we'll again include our FRED GDP graph, so you can get a picture of how these GDP components all come together...in our FRED bar graph below, each color coded bar shows the real change, expressed 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, they will appear above the line as an addition to GDP, and when they increase, as they have in the recent quarter, they'll appear below the zero line...it's clear that the drop in exports and the surge in imports were the major negatives in the 4th quarter, and that with increases in investment and inventories, the 4th quarter could have topped the third had our trade deficit merely remained flat..

4th quarter 2016 advance GDP

December Durable Goods: New Orders Down 0.4%, Shipments Up 1.2%, Inventories Unchanged

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $1.0 billion or 0.4 percent to $227.0 billion in December, after November's new orders were revised from the  $227.0 billion reported last month to $228.0 billion, now 4.8% less than October's new orders...for the year, 2016 new orders were 0.3% below those of 2015, identical to the year over year change we saw in this report last month....the volatile monthly new orders for transportation equipment were responsible for the drop, as new transportation equipment orders fell $1.7 billion or 2.2 percent to $73.7 billion, on a 63.9% decrease to $2,745 million in new orders for defense aircraft....excluding orders for transportation equipment, new orders rose 0.5%, while excluding just new orders for defense equipment, new orders rose 1.7%.... at the same time, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $521 million or 0.8% to $64,493 million...

meanwhile, the seasonally adjusted value of December shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, increased by $3.3 billion or 1.2 percent to $238.0 billion, after the value of November shipments was revised from from $234.2 billion to $234.75 billion, now up 0.3% from October...shipments of transportation equipment were up $2.0 billion or 2.5 percent to $82.3 billion on a 2.3% increase in shipments of motor vehicles and a 6.7% increase in shipments of commercial aircraft....at the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 5th time in the past 6 months, but only increased by $2 million to $384.351 billion, after November inventories were revised from $384.0 billion to $384.349 billion, statistically unchanged from October....a $0.4 billion or 0.5 percent increase to $66.4 billion in inventories of machinery was the largest inventory increase, while a $0.5 billion or 0.4 percent decrease to $123.5 billion in inventories of transportation equipment was the largest decrease...

finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, decreased for the sixth time in 7 months, falling by $7.2 billion or 0.6 percent to $1,119.4 billion, following a November decrease of 0.3%, which was revised from the previously reported 0.2% decrease...a $8.6 billion or 1.1 percent drop to $759.8 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment orders were up $1,485 million or 0.4% to $359,523 million...compared to the end of 2015, the unfilled order book for durable goods is 1.7% below the level of last December, with unfilled orders for transportation equipment now 3.4% below their year ago level, mostly on a 6.9% decrease in the backlog of orders for motor vehicles...   

December New Home Sales Reported Lower

the Census report on New Residential Sales for December (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 536,000 homes annually, which was 10.4 percent (±12.2%)* below the revised November annual rate of 598,000 new single family home sales and 0.4 percent (±11.7%)* below the estimated annual rate that new homes were selling at in December of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November, or even from December sales of 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....with this report; sales new single family homes in November were revised from the annual rate of 592,000 reported last month to an annual rate of 598,000, while home sales in October, initially reported at an annual rate of 563,000 and unrevised last month, were revised to a 571,000 a year rate with this report, and while September's annualized home sale rate, initially reported at an annual rate of 593,000 and revised from the initially revised 574,000 a year rate to a 571,000 a year rate last month, were further revised down to a 568,000 rate with this release...

the annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 38,000 new single family homes sold in December, down from the estimated 42,000 new homes that sold in November and the 46,000 that sold in October.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $322,500, up from the median sale price of $309,200 in November and up from the median sales price of $299,000 in December a year ago, while the average December new home sales price was $384,000, up from the $365,200 average sales price in November, and up from the average sales price of $358,100 in December a year ago....a seasonally adjusted estimate of 259,000 new single family houses remained for sale at the end of December, which represents a 5.8 month supply at the December sales rate, up from the reported 5.1 months of new home supply in November...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decrease to 536,000 Annual Rate in December and A few Comments on December New Home Sales... 

December Existing Home Down 2.8% After November Sales Revised Up

the National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales fell by 2.8% from November to December, projecting that 5.49 million existing homes would sell over an entire year if the December home sales pace were extrapolated over that year, a pace that was just 0.7% above the annual sales rate projected in December of a year ago...November sales are now shown at a 5.65 million annual rate, revised up from the 5.61 million annual rate indicated by last month's report, and total existing home sales for 2016 added up to 5.45 million...the NAR also reported that the median sales price for all existing-home types was $232,200 in December, down from $234,400 in November, but 4.0% higher than in December a year earlier, which they report as "the 58th consecutive month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Slide in December; 2016 Sales Best Since 2006", 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 like to look at the raw data overview (pdf) to see what actually transpired during the month...this unadjusted data indicates that roughly 437,000 homes sold in December, up by 4.5% from the 418,000 homes that sold in November, and up by only 0.2% from the 438,000 homes that sold in December of last year, so we can see that it was a seasonal adjustment that caused the annualized published figures to show a month over month decrease....that same pdf indicates that the median home selling price for all housing types fell 0.9%, from a revised $234,400 in November to $232,200 in December, while the average home sales price was $274,000, down 0.9% from the $276,600 average sales price in November, but up 3.0% from the $266,100 average home sales price of December a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: "Existing-Home Sales Slide in December; 2016 Sales Best Since 2006" and A Few Comments on December Existing Home Sales...

 

(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, January 22, 2017

December CPI and its effect on PCE; December industrial production and new home construction

the major reports released this week were the December Consumer Price Index from the Bureau of Labor Statistics, the December report on Industrial Production and Capacity Utilization from the Fed, and the November report on New Residential Construction, from the Census Bureau... the week also saw the release of the first two regional Fed manufacturing surveys for January: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index slipped from a revised +7.6 in December to 6.5 in January, still suggesting ongoing modest growth in First District manufacturing....meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from a revised reading of +19.7 in December to + 23.6 in January, indicating a large plurality of the region's manufacturing firms reported increases in their activity this month...

December Consumer Prices Rise 0.3% on Higher Gasoline, Shelter

the consumer price index increased by 0.3% in December, as higher prices for fuel and housing were only slightly offset by lower prices for groceries...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index for urban consumers rose 0.3% in December after it had risen 0.2% in November, 0.4% in October, 0.3% in September, and 0.2% in August....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 241.432 in December from 241.353 in November, which left it statistically 2.075% higher than the 236.525 index reading of last December, which is reported as a 2.1% YoY increase....regionally, prices for urban consumers have risen by 2.5% in the West, by 2.0% in the South, 1.9% in the Northeast and by 1.8% in the Midwest over the past year, with generally greater price increases within regions in cities of more than 1,500,000 people...with higher prices for gasoline partially responsible for the increase in the index, seasonally adjusted core prices, which exclude food and energy, rose by 0.2% for the month, with the unadjusted core index rising from 249.227 to 249.134, which left it 2.197% ahead of its year ago reading of 243.779...

the volatile seasonally adjusted energy price index increased by 1.5% in December, after it had risen by 1.2% in November, 3.5% in October, and 2.9% in September...as a result, energy prices are now 5.4% higher than a year ago, after seeing negative YoY comparisons through most of 2015 and 2016...prices for energy commodities were 3.0% higher while the index for energy services fell by 0.1%, same as in November ....the increase in the energy commodity index included a 3.0% increase in the price of gasoline, the largest component, and a 6.0% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, rose by an average of 2.0%…within energy services, the index for utility gas service fell by 0.4% for a second month, after increasing by 0.9% in October, 0.8% in September, 2.1% in August and by 3.1% in July, and hence utility gas is still priced 7.8% higher than it was a year ago, while the electricity price index was unchanged, as it was in November...energy commodities are now priced 9.0% above their year ago levels, with gasoline prices averaging 9.1% higher than they were a year ago.…meanwhile, the energy services price index is now 2.2% higher than last December, as even electricity prices have increased by 0.7% over that period..

the supposedly volatile seasonally adjusted food price index was unchanged in December, just as it was in July, in August, in September, in October and in November, as 0.2% lower prices for food purchased for use at home offset 0.2% higher prices for food bought to eat away from home, where we saw average prices at fast food outlets rise 0.1% while average prices at full service restaurants rose 0.3%...the food price index is still 0.2% lower than a year ago, as a 2.0% drop in the price of food at home has been mostly offset by a 2.3% increase in prices for food away from home, which included a 2.5% increase in prices of food at employee sites and schools...

in the food at home categories, the price index for cereals and bakery products decreased by 0.1% as 0.9% higher prices for cookies and a 0.8% increase in prices for fresh biscuits, rolls, muffins were more than offset by a 1.0% decrease in prices for rice and a 1.5% decrease in prices for flour and prepared flour mixes...the price index for the meats, poultry, fish, and eggs group fell by 0.4% as beef prices fell 0.8% and egg prices fell 3.9%, while the index for dairy products was 0.4% higher on a 1.3% increase in prices for milk....the fruits and vegetables index was 1.1% lower on a 2.2% drop in prices for fresh fruits, a 2.5% drop in prices for dried beans, peas, and lentils, and a 1.6% cut in prices for frozen vegetables...the beverages index was 0.3% lower as coffee prices saw a 1.0% average decrease...lastly, prices in the other foods at home category were on average 0.3% higher, as peanut butter prices rose 3.8% and salad dressings were priced 2.7% higher.....among food at home line items, only eggs, which are now priced 33.8% lower than a year ago, and lettuce, which is 16.9% lower than last year, have seen a price change greater than 10% over the past year...the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall...

among the seasonally adjusted core components of the CPI, which rose by 0.2% in December after rising by 0.2% in November, 0.1% in October, 0.1% in September, 0.3% in August, 0.1% in July and by 0.2% in April, in May and in June, the composite of all goods less food and energy goods was unchanged, while the more heavily weighted composite for all services less energy services was 0.3% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust December retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.4% as the index for window and floor coverings and other linens was down 2.2%, and dishes and flatware were 3.3% cheaper, while the appliances index fell 0.3% despite a 5.1% increase in prices for laundry equipment...the apparel price index was 0.7% lower on a 2.3% decrease in prices for women's outerwear, a 2.1% decrease in prices for boy's apparel, and a 1.5% decrease in prices for girl's apparel....prices for transportation commodities other than fuel were up 0.3%, as prices for new cars rose 0.1%, prices for used cars and trucks rose 0.5% and prices for motor oil, coolant, and fluids were 2.2% higher...meanwhile, prices for medical care commodities were 0.4% higher on a seasonal adjustment, as none of the unadjusted line items rose more than 0.2%...meanwhile, the recreational commodities index fell 0.2% on a 2.5% drop in TV prices, which more than offset a price increase of 1.5% for photographic equipment....on the other hand, the education and communication commodities index was 0.1% higher as a 0.9% cut in prices for computer software and accessories was more than offset by a 0.5% increase in prices for personal computers and peripheral equipment....lastly, a separate price index for alcoholic beverages was up 0.1% on 0.3% higher prices for distilled spirits other than whiskey bought for drinking at home, while the price index for ‘other goods’ was up 0.2% on a 1.1% increase in prices for tobacco products other than cigarettes...

within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.3% increase in owner's equivalent rent, and a 1.1% increase in lodging away from home at hotels and motels, while all household operation line items also increased....meanwhile, the index for medical care services was up 0.1% as prices for hospital outpatient services rose 0.3%...in addition, the transportation services index was 0.6% higher on a 6.5% increase in intercity train fare, a 5.8% increase in intercity bus fare, a 1.9% increase in airline fares, and a 0.8% increase for motor vehicle insurance...at the same time, the recreation services price index was up 0.1% as admissions to sporting events rose 1.2%, and the index for education and communication services rose 0.2% as delivery services increased prices 1.0% and college tuition and fees rose 0.5%...lastly, the index for other personal services was up 0.2% as prices for laundry and dry cleaning services were 0.5% higher...among core prices, only televisions, which are now 24.5% cheaper than a year ago, and computer software and accessories, which are down by 11.0% since last December, have seen prices drop by more than 10% over the past year, while only car and truck rental, which has seen a 10.5% increase, has seen prices rise by that double digit magnitude..

Estimating the Real Change in December Retail Sales Using the December CPI

with this CPI release for December, we can now attempt to estimate the economic impact of the December retail sales figures which were released last week, which saw nominal sales rise 0.6%...for the most accurate estimate, and the way the BEA will be figuring 4th quarter GDP at the end of this month, we would have to take each type of retail sales and adjust it with the appropriate change in price to determine real sales; for instance, December's clothing store sales, which were unchanged in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were down by 0.7%, which tells us that real retail sales of clothing were actually up by 0.7% December...then, to get a GDP relevant quarterly change, we'd have to compare such adjusted real clothing sales for October, November and December with the similarly adjusted real clothing consumption for the 3 months of the third quarter (July, August and September), and then repeat that process for each other type of retailer, obviously quite a tedious task to undertake manually.  The short cut we usually take to get a quick and dirty estimate of the change in real sales for the month is to apply the composite price index of all commodities less food and energy commodities, which was unchanged in December, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales… in dollars, those core sales were up by 0.9% in December, while their composite price index was unchanged, meaning that real retail sales excluding food and energy sales were up by around 0.9%.  then, for the rest of the retail aggregate, we find sales at food and beverage stores were down 0.3% in December, while prices for food at home were down 0.2%, suggesting a real decrease of around 0.1% in the quantity of food & beverages purchased for the month.  Next, sales at bars and restaurants were down 0.8% in dollars, while those dollars also bought 0.2% less “food away from home”, so real sales at bars and restaurants were actually down by around 1.0%.  And while gas station sales were up 2.0%, gasoline prices were up 3.0%, also suggesting a 1.0% real decrease in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and we don't have a detailed breakout on those sales.  Weighing the food and energy components at roughly 30% of total retail sales, and core sales at 70%, we can estimate that the aggregate of real retail sales in December were up by more than 0.4% from those of November, and closer to 0.5% if we omit the uncertain gas station sales decrease…

next, to see how the change in real December sales impacts the change in 4th quarter GDP, we have to compare those real December sales to those of the 3rd quarter...now, to get an approximation of the real adjusted changes for December vis a vis the 3 months of the third quarter, we should adjust the December percentage changes for the upward revision to October and November sales that were included in the December retail report, which saw October sales revised from $456.1 billion to $456.3 billion and November's sales revised from $465.5 billion to $466.2 billion...the increase in November sales would mean that real December sales are actually nearly 0.2% higher vis-a-vis previously published figures, while the aggregate $0.9 billion increase to those previously published figures would have to incorporated into our new estimates...so, using Table 7 from the pdf for the November personal income and outlays report, which gives us the most current inflation adjusted changes for the prior months, we find that real sales of goods were down 0.5% in August, up 1.0% in September, up 0.7% in October and up 0.1% in November....that means real December sales, up 0.4% from November, were up about 0.7% from October after the 0.2% upward revision is included, and then up 1.4% from September, 2.4% from August, and 1.9% from July, or up about 1.9% from the average of the 3rd quarter....finally, after adjusting annualized October and November sales that are shown on line 2 in Table 7 of the November income and outlays report for the aforementioned revisions, and aggregating them with real December goods sales as 100.4% of those in November, we compare the new 4th quarter average that we get from that calculation to real 3rd quarter goods sales shown in Table 8, and we find that real good sales grew 1.53% from the 3rd quarter to the 4th, or at a 6.25% annual rate, a pace that would add at approximately 1.38 (+/-10%) percentage points to 4th quarter GDP from the goods component of personal consumption expenditures alone.. 

Industrial Production Rises 0.8% in December After November Output Revised Lower

the Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production rose by 0.8% in December after falling by a revised 0.7% in November and after rising by a revised 0.2% in October, which nonetheless left it down at a 0.6% annual rate in the 4th quarter....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 104.6 in December from 103.7 in November, which was revised from the 102.9 reported last month, while at the same time the index for October was revised from 104.3 to 104.4....year over year industrial production is now up 0.5%, in contrast to last month's 0.6% year over year decrease....

the manufacturing index, which accounts for more than 77% of the total IP index, was unchanged at 103.2 in December but was reported 0.2% higher, after the November index was revised down to 103.0, while indices for prior months went statistically unrevised....meanwhile, the mining index, which includes oil and gas well drilling, rose from 107.0 in November to 107.1 in December after the November index was revised down from 107.4, which left the mining index 2.8% lower than it was a year earlier...finally, the utility index, which often fluctuates due to above or below normal temperatures, rose by 6.6% in December,  from 97.6 to 104.0, after the November utility index was revised from 97.7 to 97.6...since December 2015 was somewhat warmer, meaning less heating, the utility index is now 6.2% higher than it was a year ago...

this report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry rose to 75.5% in December from 74.9% in November, which was revised from the 75.0% reported last month ...capacity utilization of NAICS durable goods production facilities rose from a downwardly revised 75.8% in November to 76.2% in December, while capacity utilization for non-durables producers rose from an unrevised 74.5% to 74.2%...capacity utilization for the mining sector rose to 78.1% in December from 77.9% in November, which was originally reported as 78.2%, while utilities were operating at 79.1% of capacity during November, up from their 74.3% of capacity during November, which was previously reported at 74.4%...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.... 

December Housing Starts Up from November, Permits Little Changed

the December report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in December was at a seasonally adjusted annual rate of 1,226,000, which was 11.3 percent (±10.4%) above the revised November estimated annual rate of 1,102,000 housing units started, and was 5.7 percent (±12.0%)* above last December's rate of 1,160,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, December housing starts could have been down by 6.3% or up by as much as 17.7% from those of last December, with revisions of a greater magnitude in either direction possible...in this report, the annual rate for November housing starts was revised from the 1,090,000 reported last month to 1,102,000, while October starts, which were first reported at a 1,323,000 annual rate, were revised from last month's initial revised figure of 1,340,000 annually back down to a 1,320,000 annual rate 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 canvassing Census field agents, which estimated that 83,100 housing units were started in december, down from the 83,800 units that were started in November...of those housing units started in December, an estimated 52,100 were single family homes and 30,100 were units in structures with more than 5 units, down from the revised 60,600 single family starts in November but up from the 22,800 units started in structures with more than 5 units in November...

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in December, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,210,000, which was 0.2 percent (±1.8%)* below the revised November rate of 1,212,000 permits, but was 0.7 percent (±1.6%)* above the rate of building permit issuance in December a year earlier...the annual rate for housing permits issued in November was revised up from the originally reported 1,201,000....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 90,000 housing units were issued in December, down from the revised estimate of 91,300 new permits issued in November...the December permits included 54,600 permits for single family homes, down from 55,900 single family permits issued in November, and 32,600 permits for housing units in apartment buildings with 5 or more units, up from 32,400 such multifamily permits a month earlier... for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.226 Million Annual Rate in December and Comments on December 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, January 15, 2017

December retail sales and producer price index; November wholesale sales, business inventories, and JOLTS

reports released this past week included Retail Sales for DecemberWholesale Trade, Sales and Inventories for November, and Business Sales and Inventories for November, all from the Census Bureau, and the December Import-Export Price Index and the December Producer Price Index from the Bureau of Labor Statistics...in addition, the BLS also released the Job Openings and Labor Turnover Survey (JOLTS) for November and the Fed released the Consumer Credit Report for November...the later showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $24.6 billion, or at a 7.9% annual rate, as non-revolving credit expanded at a 5.9% rate to $2,757.6 billion and revolving credit outstanding rose at a 13.5% rate to $992.4 billion...the Mortgage Monitor for November (pdf) Black Knight Financial Services, a private report that we usually review, was also released this week..

Retail Sales Up 0.6% in December after Prior Months Revised Higher

seasonally adjusted retail sales increased in December after retail sales for October and November were revised higher...the Advance Retail Sales Report for December (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $469.1 billion during the month, which was up 0.6 percent (±0.5%) from November's revised sales of $466.2 billion and 4.1 percent (±0.9%) above the adjusted sales in December of last year...November's seasonally adjusted sales were revised up from $465.5 billion to $466.2 billion, while October's sales were also revised higher, from $456.1 billion to $456.3 billion; as a result, the October to November change was revised up from up 0.1 percent (±0.5%) to up 0.2 percent (±0.2%), and the year over year increase for the 4th quarter came in at 4.1%.....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales rose 15.5%, from $468,555 million in November to $541,175 million in December, while they were up 4.4% from the $518,253 million of sales in December a year ago, so we can see how the large seasonal adjustment to holiday sales brought the headline sales into line vis-a-vis the Holiday increase that would normally be expected in December...

since it's the end of the quarter and the end of the year 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 this table shows, the first double column below shows us the seasonally adjusted percentage change in sales for each kind of business from the November revised figure to this month's December "advance" report in the first sub-column, and then the year over year percentage sales change since last December in the 2nd column; the second double column pair below gives us the revision of the November advance estimates (now called "preliminary") as of this report, with the new October to November percentage change under "Oct 2016 r" (revised) and the November 2015 to November 2016 percentage change as revised in the 2nd column of the pair (for your reference, the table of last month’s advance estimate of November sales, before this month's revisions, is here).... then, the third pair of columns shows the percentage change of the most recent 3 months of this year's sales (October, November and December) from the preceding three months of the 3rd quarter (July, August and September) and then from the same three months (October, November and December) of a year earlier....that first column of the last pair thus gives us a snapshot comparison of 3rd quarter sales to fourth quarter sales, which will useful in estimating the impact of this report on 3rd quarter GDP after we get the December price data next week….

December 2016 retail sales table

from the above table, we can see that a 2.4% increase to $98,699 million in seasonally adjusted sales at motor vehicle and parts dealers was mostly responsible for the December sales strength, because without those automotive sales, retail sales were only up 0.2%...automotive sales for November were also revised higher, from the originally reported 0.5% decrease to a decrease of just 0.2%, and hence accounted for about half of the upward revision to that month's sales...also note the 2.0% increase to 35,858 million in sales at gas stations, which was likely the result of higher prices for gasoline...take gas station and automotive sales out, and December retail sales were statistically unchanged from November....still, without knowing the change in price for each of these components, it's difficult to ascertain the net economic impact of this month's retail sales, so we'll defer that judgment until we get the price data from the CPI next week…

Producer Prices Up 0.3% in December on Higher Food and Energy

the seasonally adjusted Producer Price Index (PPI) for final demand rose 0.3% in December as prices for finished wholesale goods increased 0.7%, while margins of final services providers increased by 0.1%...this followed a November report that indicated the overall PPI had increased 0.4%, with prices for finished goods up 0.2% while final demand for services rose 0.5%, and an October report that indicated the PPI was unchanged, with prices for finished goods up 0.4% while final demand for services fell 0.3%....producer prices are now up 1.6% from a year ago, a figure which is now rapidly increasing, since most of the price decreases relating to lower oil and commodity prices went by the boards in early 2015...

as noted, the price index for final demand for goods, aka 'finished goods', rose by 0.7% in December, after rising by 0.2% in November, 0.4% in October, 0.5% in September, but after falling by 0.4% in August, as the index for wholesale energy prices rose 2.6% from November to December while the price index for wholesale foods was 0.7% higher and the index for final demand for core wholesale goods (ex food and energy) rose 0.3%...major wholesale energy price increases in December included a 20.1% increase in wholesale prices for liquefied petroleum gas, a 9.6% increase for wholesale heat oil, and a 7.8% increase in wholesale gasoline prices, while among wholesale food prices, a 63.2% increase in the prices of eggs was partially offset by a 13.2% decrease for fresh fruits and melons...among wholesale core goods, prices for passenger cars increased 1.1%, prices for light trucks rose 1.3%, while wholesale prices for appliances were down 1.1%...

meanwhile, the index for final demand for services rose by 0.1% in December after rising 0.5% in November and falling by 0.3% in October, as the index for final demand for trade services rose 0.2%, the index for final demand for transportation and warehousing services fell 0.4% and the index for final demand for services less trade, transportation, and warehousing services was 0.2% higher....among trade services, seasonally adjusted margins for TV, video, and photographic equipment retailers increased 6.3% after rising 6.0% in November, margins for paper and plastics products wholesalers increased 4.6%, and margins for major household appliances retailers increased 2.4%, while margins for fuels and lubricants retailers fell 13.4%.. among transportation and warehousing services, margins for airline passenger services fell 2.4% and margins for air transport of freight fell 0.4% while all other transportation and warehousing services were higher.. in the core final demand for services index, margins for securities brokerage, dealing, and investment advisers rose 4.4%, margins for passenger car rentals were 5.7% higher, while margins for vehicle rental and lodging arrangement were 1.8% lower...

this report also showed the price index for processed goods for intermediate demand was 0.5% higher, after rising 0.3% in both October and November and by a revised 0.4% in September...prices for intermediate processed goods are now 1.8% higher than in December a year ago, only the second 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.... in November, the price index for intermediate energy goods rose 2.1% and prices for intermediate processed foods and feeds rose 0.8%, while the core price index for processed goods for intermediate demand less food and energy was just 0.1% higher, despite a 13.1% increase in intermediate wholesale prices for asphalt...

at the same time, the price index for intermediate unprocessed goods rose 8.3% in December, the largest increase since a 9.0% jump in February 2007, after being unchanged in November, and falling a 0.6% in October, 0.7% in September, and 2.0% in August....the index for crude energy goods rose 14.6% as prices for crude oil rose 18.9%, the price index for unprocessed foodstuffs and feedstuffs was rose 5.8%, as the index for slaughter steers and heifers rose 29.2 percent and raw milk prices rose 19.2%…moreover, the index for core raw materials other than food and energy materials rose 3.6%, on an 15.0% increase in wholesale prices for iron and steel scrap... this raw materials index is now up 13.2% from year ago, in contrast to its maximum year over year decrease of 26.4% that was seen 13 months ago, in November of 2015...

lastly, the price index for services for intermediate demand was 0.4% higher in December, after being 0.2% higher in November, 0.6% lower in October, 0.4% higher in September, and being unchanged in August... the index for trade services for intermediate demand was 1.1% higher as margins for intermediate paper and plastics products wholesalers rose 4.6% and margins for intermediate metals, minerals, and ores wholesalers rose 2.3%…the index for transportation and warehousing services for intermediate demand was up 0.1%, as pricing for intermediate air mail and package delivery services rose 1.4%, while the intermediate index for transportation of passengers (partial) fell 2.4%, and the core price index for services less trade, transportation, and warehousing for intermediate demand rose 0.4%, as a 9.0% increase in the index for prices for advertising space sales in newspapers accounted for much of the increase in intermediate services...over the 12 months ended in November, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.4% higher than it was a year ago...  

November Wholesale Sales Up 0.4%, Wholesale Inventories Up 1.0%

the November report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $452.6 billion, up by 0.4 percent (+/0.5%) from the revised October level of $446.1 billion, and 3.4 percent (±0.9 percent) above the value of wholesale sales of a year earlier...the October preliminary sales estimate was revised downward $1.3 billion, which now means October sales were 1.1% (±0.5%) more than those of September, rather than 1.4% as reported last month....wholesale sales of durable goods were up 0.4 percent (+/-0.7%) from last month and were up 2.5 percent (+/-1.4%) from a year earlier, with wholesale sales of furniture 5.2% higher than in October while wholesale sales of  electrical and electronic goods fell 2.4%...wholesale sales of nondurable goods were also up by 0.4 percent (+/-0.9%) from October, and were up 4.2 percent (+/-1.4%) from last November, with wholesale sales of drugs and druggist sundries up 2.1%, while wholesale sales of petroleum and petroleum products were down 3.5% for the month...as an intermediate activity, wholesale sales are not included in GDP except as a trade service, since they do not represent an increase in the output of the goods sold....

on the other hand, the monthly change in private wholesale inventories is a major factor in GDP, as additional goods “on the shelf” represent goods that were produced, and the Census estimated they were valued at $595.3 billion at the end of November, 1.0 percent (±0.2 percent) higher than the revised October level and 1.4 percent (+/-1.2%)* above the valuation of last November's inventories...October's preliminary inventory estimate was revised up from the previously reported $587.7 billion to $589.4 billion, and hence October wholesale inventories were down just 0.1% from September...wholesale durable goods inventories were up 1.0 percent (+/-0.4%)* from October but were 0.3 percent (+/-1.4%) lower than a year earlier, as the value of automotive inventories was 3.0% higher, while the value of inventories of computers and related equipment was up 2.0%...inventories of nondurable goods were also valued 1.0 percent (+/-0.7%) higher than in October and were valued 4.1 percent (+/-2.1%) higher than last November, as the value of inventories of petroleum and petroleum products was up 2.7% and the value of inventories of farm products was 5.0% higher than in October...with the November producer price index for finished goods up by 0.2% on 0.6% higher food prices, real wholesale inventories appear to be up on the order of 0.8% in November, more than reversing their revised September to October decrease of 0.5%...that follows a third quarter when real wholesale inventories were essentially flat, so this two month increase should add about 0.22 percentage points to 4th quarter GDP...

November Business Sales Up 0.1% Business Inventories Up 0.7%

after the release of the December retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for November (pdf), which incorporates the revised November retail data from that December report and the earlier published November 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 $1,326.7 billion in November, up 0.1 percent (±0.2%) from October's revised sales, and up 2.3 percent (±0.4%) from November sales of a year earlier...note that total October sales were concurrently revised up from the originally reported $1,326.8 billion to $1,325.1 billion, so gross sales in this report were actually little changed from what was reported last month ....manufacturer's sales fell 0.1% to $463,787 million in November; retail trade sales, which exclude restaurant & bar sales from the revised November retail sales reported earlier, were statistically unchanged at $410,284 million, and wholesale sales rose 0.4% to $452,622 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,827.5 billion at the end of November, up 0.7 percent (±0.1%)* from October, and 1.5 percent (±0.5%)* higher than in November a year earlier...at the same time, the value of end of October inventories was revised from the $1,813.0 billion reported last month to $1814.456 billion..seasonally adjusted inventories of manufacturers were estimated to be valued at $623,070 million, up 0.2% from October, while inventories of retailers were valued at $609,122 million, 1.0% more than in October, and inventories of wholesalers were estimated to be valued at $595,305 million at the end of November, also 1.0% higher than in October...

for GDP purposes, all inventories, including retail, will be adjusted for inflation with appropriate component price indices of the producer price index for November, which was up 0.2% for finished goods...last week, we looked at real factory inventories with price adjustments for goods at various stages of production, and judged that those inventories would would fractionally subtract from 4th quarter GDP....on the other hand, earlier we found that real wholesale inventories would likely add about 0.22 percentage points to 4th quarter GDP growth...this week's real retail inventories for November, after a 0.2% price adjustment of the 1.0% nominal value increase, thus would have increased by about 0.8% from October, after a real October decrease of 0.8% from September in real retail inventories...that followed a third quarter that saw producer price index decreases of 0.2% in both July and August help boost real retail inventories by 0.5%...thus it appears that slower growth in real retail inventories over October and November are on track to subtract about 0.37 percentage points from 4th quarter GDP growth, despite their large nominal increase..

Job Openings, Hiring, Layoffs and Quitting, All Increase In November

the Job Openings and Labor Turnover Survey (JOLTS) report for November from the Bureau of Labor Statistics estimated that seasonally adjusted job openings increased by 71,000, from 5,451,000 in October to 5,522,000 in November, after October job openings were revised 83,000 lower, from 5,534,000 to 5,451,000...October's jobs openings were 6.2% higher than the 5,198,000 job openings reported in October a year ago, as the job opening ratio expressed as a percentage of the employed at 3.7% was up from the revised 3.6% from October and from 3.5% November a year ago...the November increase in openings can be accounted for by the 99,000 job opening decrease to 1,069,000 openings in the health care and social assistance sector , while the accommodation and food services sector saw openings increase by 54,000 to 643,000 (see table 1 for more details)...like most BLS releases, the press release for this 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 November, seasonally adjusted new hires totaled 5,219,000, up by 59,000 from the revised 5,160,000 who were hired or rehired in October, as the hiring rate as a percentage of all employed remained unchanged at 3.6% in November, but was down from 3.7% in November a year earlier (details of hiring by sector since March are in table 2)....meanwhile, total separations rose by 62,000, from 4,966,000 in October to 5,028,000 in November, as the separations rate as a percentage of the employed rose from 3.4% to 3.5%, which was the same rate as in November a year ago (see table 3)...subtracting the 5,028,000 total separations from the total hires of 5,219,000 would imply an increase of 191,000 jobs in November, a bit less than the revised payroll job increase of 204,000 for November reported in the December establishment survey last week, but still within the expected +/-115,000 margin of error in these incomplete samplings...

breaking down the seasonally adjusted job separations, the BLS finds that 3,064,000 of us voluntarily quit our jobs in November, up from the revised 3,023,000 who quit their jobs in October, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.1% of total employment, while it was up from 2.0% a year earlier (see details in table 4)....in addition to those who quit, another 1,637,000 were either laid off, fired or otherwise discharged in November, up by 68,000 from the revised 1,569,000 who were discharged in October, as the discharges rate remained unchanged at 1.1% of all those who were employed during the month, which was down from the discharges rate of 1.2% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 326,000 in November, down from 373,000 in October, for an 'other separations rate’ of 0.2%, which was down from 0.3% in October and in November of last year....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, January 8, 2017

December jobs report; November trade deficit, construction spending, and factory inventories…

in addition to the Employment Situation Summary for December from the Bureau of Labor Statistics, this week also saw the release of three November reports from the Census Bureau that will input into 4th quarter GDP: the November report on our International Trade, the November report on Construction Spending (pdf), and the Full Report on Manufacturers' Shipments, Inventories and Orders for November....among the privately issued reports released this week were the ADP Employment Report for December and the December report on light vehicle sales from Wards Automotive, which estimated that vehicles sold at a 18.29 million annual rate in November, up 3.2% from the 17.73 million annual pace of vehicle sales in October and up 5.5% from the 17.34 million vehicle rate in December of 2015...as a result of those strong December sales, total vehicle sales in 2016 were at a record 17.465 million vehicles, up from the previous record of 17.396 million that was set in 2015...

in addition to those reports, the week saw the release of both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the December Manufacturing Report On Business reported that the manufacturing PMI (Purchasing Managers Index) rose to 54.7% in December, up from 53.2% in November, which suggests a stronger expansion in manufacturing firms nationally, and the December Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) come in at 57.2%, unchanged from November, indicating that the same plurality of service industry purchasing managers reported expansion in various facets of their business in December as did in November...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 156,000 Jobs in December, Unemployment Rate Rises to 4.7%

the Employment Situation Summary for December indicated another month of weak job creation, which was confirmed by even weaker figures from the household survey, leading to a 0.1% uptick in the unemployment rate…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers added 156,000 jobs in December, after the previously estimated payroll job increase for November was revised up from 178,000 to 204,000, while the payroll jobs increase for October was revised down from 142,000 to 135,000…that means that this report represents a total of 175,000 more seasonally adjusted payroll jobs than were reported last month, better than the 3 month average of 165,000 jobs per month, but below the 6 month average of 189,000 jobs per month...the unadjusted data, however, shows that there were actually 270,000 less payroll jobs extent in December than in November, as normal seasonal layoffs in areas such as construction and recreational services were smoothed over by the seasonal adjustments..

seasonally adjusted job increases in December, however, did show that construction was one of the two sectors that actually saw relative job losses as well, as construction employment fell by 3,000 as an 11,700 job increase in residential specialty trade contractors was offset by employment decreases in heavy and civil engineering construction and all kinds of building construction...2,000 jobs were also lost in resource extraction, with 1,300 of those coming out of the oil and gas fields...on the other hand, employment in health care and social assistance rose by 63,300 in December, with the addition of 29,700 jobs in ambulatory care services, of which 8,200 were in doctor's offices, and 21,100 jobs in individual and family social assistance services...another 34,500 seasonally adjusted jobs were added in accommodation and food services, with the addition of 29,600 jobs in bars and restaurants...17,000 jobs were added by manufactures, with factories producing fabricated metal products accounting for 5,800 of those...the broad professional and business services sector, which usually leads in monthly job gains, only added 15,000 jobs, as janitorial jobs increased by 10,600, while there were 13,200 fewer accounting and bookkeeping jobs and temporary help agencies employed 15,500 less than in November...other sectors with employment increases in December included transportation and warehousing, where 14,700 jobs were added, finance and insurance, which added 12,800 employees, and local governments, which added 11,000...meanwhile, employment in wholesale trade, retail, and information was little changed for the month...

even with a number of the job increases in generally poorer paying jobs, the establishment survey also showed that average hourly pay for all employees still rose by 10 cents an hour to $26.00 an hour in December, after it had decreased by a revised 2 cents an hour in November; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $21.80 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours in December, while hours for production and non-supervisory personnel was unchanged at 33.6 hours...at the same time, the manufacturing workweek increased by 0.1 hour to 40.7 hours, while average factory overtime was unchanged at 3.3 hours...

meanwhile, the December household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 63,000 to 152,111,000, while the estimated number of those unemployed rose by 120,000 to 7,520,000; which led to a 184,000 (rounded up) increase in the total labor force...since the working age population had grown by 202,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 18,000 to a record high of 95,102,000...however, with the increase in those in the labor force almost equal to the increase in the civilian noninstitutional population, the labor force participation rate ticked up from 62.7% in November to 62.8% in December....meanwhile, the increase in number employed as a percentage of the increase in the population was nearly stable and left the employment to population ratio, which we could think of as an employment rate, unchanged at 59.7%...at the same time, the increase in the number unemployed was also large enough to increase the unemployment rate from 4.6% to 4.7%...meanwhile, the number of those who reported they were forced to accept just part time work fell by 61,000, from 5,659,000 in November to 5,598,000 in December, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", down to 9.2% of the labor force in December, its lowest since April 2008....

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.. 

Further Deterioration of Trade Deficit in November Will Hit 4th Quarter GDP

our trade deficit rose by 6.8% in November as the value of our imports increased while the value of our exports was somewhat lower....the Census report on our international trade in goods and services for November indicated that our seasonally adjusted goods and services trade deficit rose by $2.88 billion to $45.24 billion in November from a revised October deficit of $42.36 billion...the value of our November exports fell by $0.4 billion to $185.8 billion on a $0.7 billion decrease to $122.4 billion in our exports of goods which was partially offset by a $0.3 billion increase to $63.5 billion in our exports of services, while our imports rose $2.4 billion to $231.1 billion on a $2.7 billion increase to $189.0  billion in our imports of goods which was slightly offset by a $0.3 billion decrease to $42.1 billion in our imports of services...export prices were on average 0.1% lower in November, so our real November exports would be greater than the nominal value by that percentage, while import prices were 0.3% lower, meaning real imports were greater than the nominal dollar values reported here by that percentage....

the drop in our November exports of goods resulted from lower exports of capital goods and automotive vehicles, which were partially offset by increases in our exports of industrial supplies and consumer goods...referencing the Full Release and Tables for November (pdf), in Exhibit 7 we find that our exports of capital goods fell by $1733 million to $41,936 million on a $1,256 million drop in our exports of civilian aircraft, a $285 million decrease in our exports of industrial engines, and a $207 million drop in our exports of engines for civilian aircraft, and our exports of automotive vehicles, parts, and engines fell by $300 million to $12,113 million on a $285 million decrease in our exports of trucks, buses, and special purpose vehicles...in addition, our exports of foods, feeds and beverages fell by $195 million to $11,049 million on a $313 million decrease in our exports soybeans, and our exports of other goods not categorized by end use fell by $691 million to $5,172 million...offsetting the decreases in those export categories, our exports of industrial supplies and materials rose by $1463 million to $35,176 million on a $362 million increase in our exports of fuel oil, a $339 million increase in our exports of nonmonetary gold, and a $206 million increase in our exports of other petroleum products, and our exports of consumer goods rose by $481 million to $16,401 million on a $297 million increase in our exports of pharmaceuticals...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of industrial supplies and materials accounted for the lions share of the November increase in our imports...our imports of those industrial supplies and materials rose by $2,246 million to $39,870 million as our imports of crude oil rose by $914 million, our imports of nonmonetary gold rose by $258 million and our imports of bauxite and aluminum rose by $208 million....in addition, our imports of foods, feeds, and beverages rose by $228 million to $11,163 million, our imports of automotive vehicles, parts and engines rose by $140 million to $29,272 million on a $248 million increase in our imports of parts and accessories which was offset by a $283 million decrease in our imports of trucks, buses, and special purpose vehicles, and our imports of other goods not categorized by end use rose by $130 million to $7,955 million....slightly offsetting those import increases, our imports of capital goods fell by $131 million to $49,404 million on a $241 million decrease in our imports of computers and a $221 million decrease in our imports of computer accessories, which were partially offset by a $131 million increase in our imports of civilian aircraft, and our imports of consumer goods fell by $85 million to $49,486 million on a $599 million decrease in our imports of artwork, antiques and other collectables, a $390 million decrease in our imports of gem diamonds, and a $209 million decrease in our imports of toys, games, and sporting goods which were mostly offset by a $292 million increase in our imports of pharmaceuticals and a $736 million increase in our imports of cellphones..

to gauge the impact of October and November goods trade on 4th quarter GDP growth figures, we use exhibit 10 in the full pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, albeit they are not annualized here....from that table, we can estimate that 3rd quarter real exports of goods averaged 122,746.7 million monthly in 2009 dollars, while inflation adjusted October and November exports were at 120,470 million and 119,353 million respectively, in that same 2009 dollar quantity index representation.... annualizing the change between the average of the two quarters, we find that the 4th quarter's real exports of goods are falling at a 8.9% annual rate from those of the 3rd quarter, or at a pace that would subtract about 0.67 percentage points from 4th quarter GDP if continued through December.....in a similar manner, we find that our 3rd quarter real imports averaged 179,347.3 million monthly in chained 2009 dollars, while inflation adjusted October and November imports were at 180,786 million and 182,935 million respectively...that would indicate that so far in the 4th quarter, real imports have been growing at annual rate of more than 5.7% from those of the 3rd 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 5.7% rate would in turn subtract another 0.72 percentage points from 4th quarter GDP....hence, if our October and November trade deficit in goods is maintained at these levels throughout December, our worsening balance of trade in goods would subtract about 1.39 percentage points from the growth of 4th quarter GDP....

Finally, note that we have not computed the impact on GDP of the usually less volatile change in services here, mostly because the Census does not provide inflation adjusted data on those, and we don't have easy source of all their price changes.  With changes in services trade usually small compared to volatile goods trade, that’s not usually a concern, but note that our services surplus did show a significant improvement that could partially ameliorate the losses to growth seen in trade in goods.  To quickly estimate the magnitude of that offset, we’ll note that the 3rd quarter average of our nominal services surplus was $20,421 million, while our services surplus rose by $525 million to $21,387 million in November.  Thus our unadjusted services surplus is rising at rising at an unusual 14.5% annual rate so far in the 4th quarter.  If that were to be maintained throughout December, it would add about 0.17 percentage points of the trade goods losses back to 4th quarter GDP.

Construction Spending Rose 0.9% in November After Prior Months Were Revised Lower

the Census Bureau's report on construction spending for November (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,182.1 billion annually if extrapolated over an entire year, which was 0.9 percent (±1.5%)* above the revised October annualized estimate of $1,166.5 billion and also 4.1 percent (±2.0%)* above the estimated annualized level of construction spending in November of last year...the annualized October construction spending estimate was revised 0.1% lower, from $1,172.6 billion to $1,171.4 billion, while the annual rate of construction spending for September was revised 0.2% lower, from $1,166.5 billion to $1,164.4 billion...the downward revision to September construction spending would imply that the 3rd estimate of 4th quarter GDP was overstated, but by less than 0.02 percentage points, not likely enough to change the published figure...

private construction spending was at a seasonally adjusted annual rate of $892.8 billion in November, 1.0 percent (±1.5%)* above the revised October estimate of $884.3 billion, which was revised down from the $885.9 billion reported for October last month...residential spending was at a $462.9 billion annual rate in November, 1.0 percent (±1.3%)* higher than the downwardly revised annual rate of $458.2 billion in October, while private non-residential construction spending rose 0.9 percent (±1.5%)* to $429.9 billion from the upwardly revised October level, led by a 7.0% increase in spending for construction of lodging facilities....at the same time, public construction spending was estimated to be at an annual rate of $289.3 billion, 0.8 percent (±2.5%)* above the revised October estimate of $287.1 billion, with public spending for education up 2.1% to an annual rate of $72.2 billion and spending for highways and streets up 1.1% to an annual rate of $94.6 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, getting an accurate read on the impact of November spending reported in this release on 4th quarter GDP is difficult because all the figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price... in lieu of the multiple price indexes for construction specified in the National Income and Product Accounts Handbook, Chapter 6 (pdf), we've opted to use the producer price index for final demand construction as an inexact shortcut to make that price adjustment and thereby get a rough estimate of the real change... that index showed that aggregate construction costs were up 0.1% in November after being up 0.7% in October, and up 0.1% in both August and September...on that basis, we can estimate that construction costs for October were up 0.7% from September, up 0.8% from August, and up 0.9% from July, while construction costs for November were up 0.8% from September, up 0.9% from August, and up 1.0% from July...we then use those percentages to inflate the lower cost spending figures for each of those 3rd quarter months, which is arithmetically the same as adjusting higher priced October and November construction spending downward, for purposes of comparison...annualized construction spending in millions of dollars for the third quarter months is given as 1,164,432 for September, 1,166,513 for August, and 1,160,407 for July, while it was at 1,171,436 in October and 1,182,097 in November...thus to compare the inflation adjusted construction spending of the 4th quarter months to those of the third quarter, our formula would be ((1,182,097 + 1.001* 1,171,436)/2 ) / ((1.008 * 1,164,432 + 1.009 *1,166,513 + 1.01 * 1,160,407)/3) = 1.002636, meaning real construction over October and November was only up 0.2636% vis a vis the 3rd quarter, despite being up quite a bit more in dollars...in GDP terms, that means real construction for the 4th quarter increased at an annual rate 1.059% over that of the 3rd quarter, or at a pace that would add about 0.08 percentage points to 4th quarter GDP, should December construction remain on the same trend…

Factory Shipments Down 0.1%, Inventories Inch Higher

the Full Report on Manufacturers' Shipments, Inventories, & Orders for November (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods decreased by $11.3 billion or 2.4 percent to $458.3 billion, the first decrease in five months, following an increase of 2.8% in October, which was revised from the 2.7% 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 November advance report on durable goods we reported on two weeks ago...this report showed that new orders for manufactured durable goods fell by $10.8 billion or 4.5 percent to $228.8 billion in November, revised from the previously published 4.6% decrease to $228.2 billion....

this report also indicated that the seasonally adjusted value of November factory shipments fell for the first time in 4 months, decreasing by $0.3 billion or 0.1 percent to $463.8 billion, following a 0.2% increase in October, revised from the previously published 0.4% increase...shipments of durable goods were down by $0.2 billion or 0.1 percent to $234.2 billion, essentially unrevised from the decrease that was published two weeks ago...meanwhile, the value of shipments (and hence of "new orders") of non-durable goods were down by $0.5 billion, or 0.2%, to $229.6 billion, as a $0.7 billion, 1.7% decrease in the value of shipments of petroleum and coal accounted for the increase...

meanwhile, the aggregate value of November factory inventories rose for the fourth time in five months, increasing by $1.4 billion or 0.2 percent to $623.1 billion, after an October increase of 0.1%... November inventories of durable goods increased in value by $0.7 billion to $383.7 billion, revised from the previously published 0.1% increase, following a revised 0.1% decrease in October durable inventories.....the value of non-durable goods' inventories increased by $0.7 billion or 0.3 percent to $239.0, following a revised 0.3% increase in October non-durable inventories...

to gauge the effect of November factory inventories on 4th 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 was up 0.3% to $222.46 billion in November; the value of work in process inventories was up 0.3% to $191.74 billion, and the value of materials and supplies inventories was virtually unchanged at $208.9 billion...the November producer price index reported prices for finished goods increased 0.2%, prices for intermediate processed goods inventories were 0.3% higher, while prices for unprocessed goods were unchanged, thus indicating that real finished goods inventories were 0.1% higher, while real inventories of intermediate processed goods and raw material inventory inventories were both essentially unchanged...the aggregate November change in real factory inventories is thus up less than 0.1%, following a full 0.1% decrease in October, and thus 4th quarter factory inventories are still fractionally lower, after increasing in the 3rd quarter, and thus would fractionally subtract from 4th 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…)