Sunday, July 29, 2018

2nd quarter GDP and comprehensive 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 a benchmark revision to national accounts data over their entire history....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, and the June report on existing home sales from the National Association of Realtors (NAR)/..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 -0.45 in May to +0.43 in June...that boosted the 3 month average of the index to +0.16 in June, up from a revised +0.10 in May, indicating national economic activity has been slightly above 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, reported its broadest composite index fell from +21 in June to +20 in July, still 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 +23 in July, down from readings of +28 in June and +29 in May, but also still suggesting an solid expansion of 10th District's manufacturing...

Advance Estimate of 2nd Quarter GDP & Comprehensive Benchmark Revision to 1929

The Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included changes in definitions, in classifications, and in the presentation of the components of GDP, as well as an annual and a comprehensive (or benchmark) revision of the national income and product accounts going back to 1929, ie, from the beginning of that measure of our economic history.  Also with this benchmark revision, the reference year for the chain-type quantity and price indexes and for chained-dollar estimates of the GDP components has been updated to 2012 from 2009, which means that the quantity of goods and services produced in the US will now be represented by chained 2012 dollars, at least until the next benchmark revision, which is expected to be five years hence.  Despite the extensive revision of GDP data over time, the annual growth rate for the recent years was not much different than in previously published estimates.  In addition to reporting on the recent quarters of 2018, this report also showed that the GDP growth rate for 2012 was unrevised at 2.2%, that the GDP growth rate for 2013 was revised from 1.7% to 1.8%, that the GDP growth rate for 2014 was revised from 2.6% to 2.5%; that the GDP growth rate for 2015 was unrevised at 2.9%, that the GDP growth rate for 2016 was revised from 1.5% to 1.6%, and that the GDP growth rate for 2017 was revised from 2.3% to 2.2%. As a result of those revisions, the average annual growth rate of real GDP over the entire period from 2012–2017 was 2.2 percent, the same as it was in the previously published estimates. 

The first quarter of 2018, which had been revised down to a growth rate of 2.0% when we reviewed it a month ago, has now been revised back up to show growth at a 2.2% rate.  Major first quarter components that were revised higher included nonresidential fixed investment, which was revised from growth at a 7.6% rate to growth at a 8.0% rate, and growth in real private inventory investment, which was revised from growth at an inflation adjusted $13.9 billion rate to growth at $30.3 billion rate.  Those major positive revisions were partially offset by an downward revision to personal consumption expenditures (PCE), from a 0.9% growth rate to growth at a 0.5% rate, and a deeper contraction of real residential fixed investment, which was revised from shrinking at a 1.1% rate to shrinking at a 3.4% rate. First quarter growth of exports remained unchanged at 3.6%, growth of imports was revised from a 3.2% rate to 3.0%, and the growth of state and local government spending and investment remained at at a 1.5% rate.  Thus the estimates for the 1st quarter of 2018 GDP have gone from the initial estimate of growth at a 2.3% rate, to an 2.2% growth rate in the 2nd estimate, to a 2.0% rate of growth in the 3rd estimate, and finally back to growth at a 2.2% rate in this annual revision.

For the quarter just ended, the Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 4.1% annual rate over the output of the 1st quarter of this year, which we have just seen was revised to show growth at a 2.2% rate.  Contributing to the 2nd quarter advance were greater growth of personal consumption expenditures, nonresidential fixed investment, and government spending, which were partly offset by a contraction of private inventories.   In current dollars, our second quarter GDP grew at a 7.41% annual rate, increasing from what would work out to be a $20,041.0 billion a year rate in the 1st quarter to a $20,402.5 billion annual rate in the 2nd quarter, with the headline 4.1% annualized rate of increase in real output arrived at after an annualized GDP inflation adjustment averaging 3.0% was computed and applied to the current dollar change.  Note that 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 +/- 1.3% from the advance estimate to the latest reading.  Also note that June construction and some 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 an Excel file with key source data and assumptions..  We will update those assumptions when the actual data becomes available.

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 now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 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 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 since 2007 and quarterly since 2012, 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 in 2012 dollars of each of those components, and table 4, which shows the change in the price indexes for each of the GDP components....other intervening tables in this release, such as table 1a, give us the previously published data for each of the corresponding metrics going back to 2007, should anyone be interested in more details on this benchmark revision..

Personal consumption expenditures (PCE), which accounts for more than 69% of GDP, grew at a 5.9% rate in current dollars in the 2nd quarter, which worked out to a 4.0% real growth rate of consumed goods and services after an annualized 1.8% PCE price index increase was used to adjust that personal spending for inflation.  Consumer spending for durable goods rose at a 7.8% rate, on higher spending for automobiles, furniture and recreational goods and vehicles, but since weighted prices for those durable goods fell at a 1.4% rate, the real output of durable goods represented by that spending increased at a 9.3% rate.  Over the same period, consumer spending for non durables rose at a 5.7% rate, but since the PCE price index for non-durables increased at a 1.4% rate, that meant real growth in consumption of non durables was up at a 4.2% rate.  Meanwhile, the 5.7% current dollar growth in personal spending for services was reduced by a +2.5% inflation adjustment to show real 2nd quarter growth in consumer services was at a 3.1% rate.  Thus, with real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.64 percentage points to the change in 2nd quarter GDP, real growth in non-durable goods output for consumers added 0.59 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.46 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, all the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services.  Hence, real gross private domestic investment, which had grown at a 9.6% annual rate in the 1st quarter as both fixed investment and inventory investment rose, fell at a 0.5% annual rate in the 2nd quarter, as investment in inventories fell.  However, real non residential fixed investment still rose at a 7.3% annual rate, as real investment in non-residential structures rose at a 13.3% rate, real investment in equipment rose at a 3.9% rate, and investment in intellectual property grew at 8.2% rate.  As a result, investment in real non residential fixed investment added 0.98 percentage points to the change in 2nd quarter GDP as real investment in non-residential structures added 0.39 percentage points to the change in GDP, real investment in equipment added 0.23 percentage points, and investment in intellectual property added 0.35 percentage points to the change in GDP.   However, residential investment fell at a 1.1% rate and hence subtracted 0.04 percentage points from the 2nd quarter's GDP, which reduced the total fixed investment contribution to GDP to 0.94 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 1st quarter of 2017, investment in real private inventories fell by an inflation adjusted $27.9 billion in the 2nd quarter, the largest drop since the 4th quarter of 2009, after they had grown by an adjusted $30.3 billion in the 1st quarter, and as a result the $58.2 billion downward swing in inventory growth subtracted 1.00 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $14.2 billion increase in inventory growth in the 1st quarter had added 0.27 percentage points to that quarter's GDP growth rate.  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 $58.2 billion meant that real final sales of GDP were relatively greater by that much, or enough to boost 2nd quarter growth in real final sales of GDP to a 5.1% rate. That's compared to the real final sales growth at a 1.9% rate in 1st quarter, when the increase in inventory growth meant that part of the increase in GDP had not been sold...

After adjustment for 5.8% growth in export prices and 0.1% growth in import prices, both real exports and real imports increased in the 2nd quarter, as our real exports of goods and services rose at a 9.3% rate in the second quarter, after rising at a 3.6% rate in the 1st quarter, while our real imports rose at a 0.5% rate in the 2nd quarter after rising at a 3.0% 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 1.12 percentage points to 2nd quarter GDP, after the first quarter increase added 0.43 percentage points to first quarter GDP.   On the other hand, since imports subtract from GDP, their increase at a 0.5% rate subtracted 0.06 percentage points from 2nd quarter GDP, after first quarter imports had subtracted 0.45 percentage points from that quarter's growth. As a result, our improving trade balance added a total of 1.06 percentage points to 2nd quarter GDP, after a revised trade deficit had subtracted 0.02  percentage points from the first quarter's growth..

Finally, real consumption and investment by branches of government rose at a 2.1% annual rate in the 2nd quarter, after increasing at a 1.5% rate in the first quarter, as real federal government consumption and investment grew at a 3.5% rate and real state and local consumption and investment grew at a 1.4% rate.  Inflation adjusted federal spending for defense rose at a 5.5% rate and that added 0.21 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment grew at a 0.6% rate and added 0.02 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 those goods or services.  Meanwhile, real state and local government investment and consumption expenditures, which grew at a 1.4% annual rate, added 0.15 percentage points to the quarter's growth rate, as an increase in real state and local investment at a 4.8% rate accounted for three-fifths of that increase... 

June Durable Goods: New Orders Up 1.0%, Shipments Up 1.7% Inventories Down 0.1%

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 $2.5 billion or 1.0 percent to $251.9 billion, following a revised drop of 0.3% to $249.4 billion in May new orders, which had originally been reported as a 0.6% decrease to $248.8 billion...however, year to date new orders are now shown to be 8.4% higher than those of 2017, vs the 9.9% year over year change we saw in this report last month, as last June had seen an unusual 6.4% increase...as is usually the case, the volatile monthly change in new orders for transportation equipment led this month's headline change, as those transportation equipment orders rose $1.9 billion or 2.2 percent to $87.7 billion, on a 20.2% increase to $6,570 in new orders for defense aircraft and a 4.4% increase to $57,868 million in new orders for motor vehicles and parts....excluding new orders for transportation equipment, other new orders were up 0.4% in June, as the important new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 0.6% to $68,750 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, increased by $4.1 billion or 1.7 percent to $251.6 billion, after May shipments were revised from a 0.1% decrease to $246.9 billion to a 0.2% increase to $247.5 billion....a $3.1 billion or 3.8 percent increase to $85.3 billion in shipments of transportation equipment was the major contributor, as the value of shipments of motor vehicles rose 4.5% to $57,917 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.6%, as new orders for nondefense capital goods excluding aircraft were up 1.0% to $68,094 million, an increase 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, fell for the first time in 18 months, decreasing by $0.4 billion or 0.1 percent to $402.8 billion, after the value of May's inventories was revised from $403.0 billion to $403.3 billion, still a 0.3% increase from April...a decrease in inventories of transportation equipment was the major factor in the June inventory decrease, as they fell $1.8 billion or 1.4 percent to $126.9 billion on a 3.5% decrease in inventories of nondefense aircraft and parts...

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 seventh time in eight months, increasing by $4.4 billion or 0.4 percent to $1,165.1 billion, following a May increase of 0.5% to $1,160.7 billion, revised from the $1,160.6 billion reported last month... a $2.4 billion or 0.3 percent increase to $802.3 in unfilled orders for transportation equipment was responsible for more than half of the increase, but unfilled orders excluding transportation equipment were also up 0.5% to $362,779 million....compared to a year earlier, the unfilled order book for durable goods is now 3.8% above the level of last June, with unfilled orders for transportation equipment 2.9% above their year ago level, reflecting the impact of a 0.4% decrease in the backlog of orders for defense aircraft...  

New Home Sales Reported Lower in June; Prices at a 16 Month Low

the Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 631,000 homes annually, which was 5.3 percent (±17.1 percent)* below the revised May rate of 666,000 new single family home sales annually but still 2.4 percent (±24.0 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 689,000 annual rate reported last month to a 666,000 a year rate, April's annualized home sale rate, initially reported at 662,000, were revised from last months downward revision to 646,000 lower still to 641,000, while the annual rate of March's sales, initially reported at 694,000, and revised from a 672,000 rate to an annual rate of 671,000 last month, were now revised back to an annual rate of 672,000...

the annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated  that approximately 57,000 new single family homes sold in June, down from the 63,000 new homes that sold in May, the 62,000 new homes that sold in April, and the 66,000 new homes that sold in March....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in June was $302,100, the lowest since February 2017, down from the median sale price of $309,700 in May, and down from the median price of $315,200 in June of last year, while the average June new home sales price was $363,300, down from $365,100 average in May, and down from the average sales price of $370,600 in June a year ago....a seasonally adjusted estimate of 301,000 new single family houses remained for sale at the end of June, which represents a 5.7 month supply at the June sales rate, up from the 5.2 month supply originally reported in May....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales decrease to 631,000 Annual Rate in June and A few Comments on June New Home Sales...

Existing Home Sales Down 0.6% in June, Prices at a Record High

the National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 0.6% from May to June, projecting that 5.38 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was also 2.2% below the annual sales rate projected in June of a year ago...that came after an annual sales rate of 5.41 million homes in May, revised from the 5.43 rate reported a month ago, and an annual home sales rate of 5.45 million in April...the NAR also reported that the median sales price for all existing-home types was at a record high $276,900 in June, up from the prior record of $265,100 in May and 5.2% higher than in June a year earlier, which they report as "the 76th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Subside 0.6 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 570,000 homes sold in June, up by 6.5% from the 535,000 homes that sold in May, but down by 5.0% from the 600,000 homes that sold in June of last year, so we can see the effect of the seasonal adjustment of 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 $265,100 in May to $276,900 in June, while the average home sales price was at $314,900, up 3.7% from the $303,700 average in May, and up 3.8% from the $303,500 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $248,800 in the Midwest to a high of $424,200 in the West...for additional coverage with long term graphs on this report, see "NAR: Existing-Home Sales Decline in June, Inventory UP Year-over-year" 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 picked from the aforementioned GGO posts, contact me…)     

Sunday, July 22, 2018

June's retail sales, industrial production and new housing construction; May’s business inventories

major reports that were released this week included Retail Sales for June, the Business Sales and Inventories Report for May, and the June report on New Residential Construction, all from the Census Bureau, and the June report on Industrial Production and Capacity Utilization from the Fed...the week also saw the release of the Regional and State Employment and Unemployment Report 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 state, southwestern Connecticut, and northern New Jersey, saw their headline general business conditions index fall from +25.0 in June to +22.6 in July, still suggesting an ongoing strong 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 rose from +19.9 in June to +25.7 in July, suggesting a more robust expansion of that region's manufacturing...

June Retail Sales Up 0.5% After May Sales Revised Higher

seasonally adjusted retail sales rose 0.5% in June after retail sales in May rose 1.3%, revised from the 0.8% increase 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 $506.8 billion during the month, which was a increase of 0.5 percent (±0.4%) from May's revised sales of $504.3 billion, and 6.6 percent (±0.5 percent) above the adjusted sales of June of last year...May's seasonally adjusted sales were revised from the $502.0 billion reported last month to $504.34 billion, while April sales were revised a bit lower, from $497.9 billion to $497.776 billion...the combined increase of nearly $2.5 billion in sales revisions for those two months would add almost $10 billion at an annual rate to 2nd quarter PCE, which would in turn add roughly 23 basis points to our previous estimate of the contribution of April and May PCE to 2nd quarter GDP...estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 3.3% in June, from $531,045 million in May to $513,622 million in June, while they were up 6.3% from the $483,338 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 2017 to May 2018 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.... 

to generate real personal consumption of goods data from this retail sales report, the BEA uses corresponding price changes from the consumer price index, which we reviewed last week...since that report showed that the composite price index for all goods less food and energy goods was unchanged in June, the overall impact of price changes on real sales will generally be minimal; however, there will be some significant impacts for certain types of sales..for instance, while nominal sales at car dealers were up 1.0%, the price index for transportation commodities other than fuel was up 0.5%, with prices for new cars and trucks up 0.4% and prices for used cars and trucks up 0.7%; that means that real sales at auto dealers were only up around 0.5%...on the other hand, while sales at clothing stores were 2.5% lower in June, the apparel price index was down 0.9%, meaning a portion of that sales drop was due to lower prices, and that real sales of clothing probably only fell around 1.6%...in addition, adjusting food and energy sales for price changes must be done separately; the CPI report showed that the food price index rose 0.2% in June, with both the indexes for food purchased for use at home and food bought for eating away from home 0.2% higher in June...with nominal sales at food and beverage stores down 0.3% in June. that price increase means that real sales of food were down about 0.5%…likewise, the 1.5% nominal increase in sales at bars and restaurants would be reduced to a real sales increase of about 1.3%...meanwhile, while sales at gas stations were up 1.0%, there was a 0.5% increase in the retail price of gasoline, so real sales of gasoline were likely only up about 0.5%...

Industrial Production Up 0.6% in June After May's Output is Revised Lower

the Fed's G17 release on Industrial production and Capacity Utilization for June indicated that seasonally adjusted industrial production rose by 0.6% in June after falling by a revised 0.5% in May and rising by a revised 1.1% in April, and is now up 3.8% from a year ago, as it rose at a 6.0% annual rate in the 2nd quarter...to the extent that this report plays into GDP, that quarterly increase suggests a net addition to GDP of that magnitude across the components that this report covers...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 107.7 in June from 107.1 in May, which was originally reported at 107.3...at the same time, the April reading for the IP index was revised up from 107.4 to 107.6, which meant that the May industrial production decrease was revised from -0.1% to -0.5%...

the manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.8%, from 103.1 in May to 103.9 in June, after the May index was revised from 103.5 to 103.1, now down 1.0% from April...meanwhile, the mining index, which includes oil and gas well drilling, increased for the 5th consecutive month, rising from 122.2 in May to a record high of 123.7 in June, 12.9% higher than it was a year ago....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 1.5% to 106.2 in June, after falling by a revised 0.7% to 107.8 in May, while it still remains 5.0% above 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 78.0% in June from 77.7% in May, which had originally been reported at 77.9%, before estimates for industrial capacity for 2018 were revised for this release....capacity utilization by NAICS durable goods production facilities rose from 74.5% in May to 75.6 in June, while capacity utilization for non-durables was unchanged at 76.6%....capacity utilization for the mining sector rose to 92.7% in June, up from 92.1% in May, which was originally reported as 92.4%, while utilities were operating at 78.9% of capacity during June, down from a revised 80.2% May, which was originally published as 79.4%...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....   

New Housing Construction and Permits Down in June

the June report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units that were started in June was at a seasonally adjusted annual rate of 1,173,000, which was 12.3 percent (±8.3 percent) below the revised May estimated annual rate of 1,337,000 units started, and 4.2 percent (±10.2 percent)* below last June's pace of 1,225,000 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, June's housing starts could have been up by 6.0% or down by as much as 14.4% from those of a year ago, with correspondingly large revisions outside of that range possible...in this report, the annual rate for May housing starts was revised from the 1,350,000 reported last month to 1,337,000, while April starts, which were first reported at a 1,278,000 annual rate, were revised down from last month's initial revised figure of 1,286,000 annually to a 1,276,000 annual pace 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 111,500 housing units were started in June, down from the 123,800 units started in May and the 117,200 starts in April...of those housing units started in June, an estimated 83,800 were single family homes and 26,700 were units in structures with more than 5 units, down from the revised  89,000 single family starts and the 33,800 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 1,273,000 housing units, which was 2.2 percent (±1.2 percent) below the revised May rate of 1,301,000 permits, and 3.0 percent (±1.1 percent) below the rate of building permit issuance in June a year earlier...the "revised" annual rate for housing permits issued in May was unchanged from what 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 119.800 housing units were issued in June, down from the revised estimate of 125,000 new permits issued in May...the June permits included 81,300 permits for single family homes, down from 84,400 in May, and 35,000 permits for housing units in apartment buildings with 5 or more units, down from 37,600 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 decreased to 1.173 Million Annual Rate in June and Comments on June Housing Starts...

Business Sales Up 1.4% in May, Business Inventories Up 0.4%

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 $1,449.7 billion in May, up 1.4 percent (±0.2 percent) from April’s revised sales, and up 8.6 percent (±1.2 percent) from May sales of a year earlier...note that total April sales were revised from the originally reported $1,425.9 billion to $1,429.3 billion...manufacturer's sales were up 0.6% from April at $496,074 million in May, and retail trade sales, which exclude restaurant & bar sales from the revised May retail sales reported earlier, rose 1.1% to $444,614 million, while wholesale sales rose 2.5% to $508,990 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,936.9 billion at the end of May, up 0.4 percent (±0.1%) from April, and 4.4 percent (±1.2 percent) higher than in May a year earlier...the value of end of April inventories was revised down from the $1,930.0 billion reported last month to $1,929.4 billion...seasonally adjusted inventories of manufacturers were estimated to be valued at $668,435 million, 0.2% more than in April, while inventories of retailers were valued at $634,939 million, 0.4% more than in April, and inventories of wholesalers were estimated to be valued at $633,547 million at the end of May, up 0.6% from April...

in national accounts reports, the various categories of business inventories will be adjusted for price changes using item appropriate price indexes from the producer price index....the May producer price index reported that prices for finished goods were on average 1.0% higher, that prices for intermediate processed goods were 1.5% higher, and prices for unprocessed goods averaged 2.5% higher…together those price increases indicate that corresponding real inventories will be lower than the nominal amounts by those percentages...since 1st quarter real business inventories were modestly higher but still a small drag on GDP growth, any real inventory decreases in the 2nd quarter will subtract from the growth rate of 2nd quarter GDP in their entirety...

 

(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 picked from the aforementioned GGO posts, contact me…)     

Sunday, July 15, 2018

June’s consumer & producer prices; May’s wholesale inventories & JOLTS

major reports released this past week included the June Consumer Price Index, the June Producer Price Index, the June Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) for May, all of which came from the Bureau of Labor Statistics, and the May report on Wholesale Trade, Sales and Inventories from the Census Bureau....the week also saw the Consumer Credit Report for May from the Fed, which indicated that overall consumer borrowing expanded by a seasonally adjusted $24.5 billion, or at a 7.6% annual rate, as non-revolving credit expanded at a 6.2% rate to $2,858.4 billion while revolving credit outstanding grew at a 11.4% rate to $1,039.3 billion, and the Mortgage Monitor for May (pdf) from Black Knight Financial Services, which indicated that 3.64% of all mortgages nationally were delinquent in May, down from 3.67% in April and down from 3.79% in May a year ago, and that 0.59% of all mortgages remained in the foreclosure process, down from 0.61% in April and down from 0.83% in foreclosure a year ago...

Consumer Prices Up 0.1% in June as Lower Utility Prices Weigh on Index

the consumer price index was 0.1% higher in June, as lower prices for energy services and apparel partially offset modestly higher priced gasoline, housing and medical care...the Consumer Price Index  Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.1% in June after rising  0.2% in May, 0.2% in April but after falling 0.1% in March, and after it had risen by 0.2% in February, 0.5% in January, 0.1% in December, 0.4% in November, 0.1% in October, 0.5% in September, 0.4% in August, and 0.1% last July....the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose from 251.588 in May to 251.989 in June, which left it statistically 2.872% higher than the 244.955 index reading in June of last year, which is reported as a 2.9% increase....with lower prices for energy services a major drag on overall prices, seasonally adjusted core prices, which exclude food and energy, rose by 0.2% for the month, with the unadjusted core price index rising from 257.469 to 257.697, which left the core index 2.255% ahead of its year ago reading of 252.014, which is reported as a 2.3% annual increase....

the volatile seasonally adjusted energy price index fell by 0.3% in June, after it had increased by 0.9% in May, by 1.4% in April, fallen by 2.8% in March, risen by 0.1% in February, 3.0% in January, fallen by 0.2% in December, risen by 3.2% in November and by 2.0% in October, and is thus now 12.0% higher than in June a year ago...prices for energy commodities were 0.6% higher in June, while the index for energy services fell by 1.5%, after falling 0.1% in May and 0.5% in April....the increase in the energy commodity index was underpinned by a 0.5% increase in the retail price of gasoline, the largest component, while the price of fuel oil rose 2.9%, and prices for other fuels, including propane, kerosene and firewood, fell by an average of 0.2%…with that increase, the energy commodities index is now 24.3% above its year ago levels, with gasoline prices also averaging 24.3% higher than they were a year ago…within energy services, the index for utility (piped) gas service fell 1.7% after falling by 0.6% in May, which left utility gas priced 2.1% lower than it was a year ago, while the electricity price index was 1.4% lower, after rising 0.1% in May...the energy services price index is now 0.6% lower than last June, as even electricity prices have decreased by 0.1% over the past year...

the seasonally adjusted food price index rose 0.2% in June, after being unchanged in May, rising 0.3% in April, 0.1% in March, being unchanged in February, rising 0.2% in January, 0.2% in December, being unchanged in October and November, rising 0.1% in September, 0.1% in August, 0.2% in July, and being unchanged last June, as the index for food purchased for use at home was 0.2% higher in June, while prices for food bought for eating away from home were also 0.2% higher, as prices at fast food outlets rose 0.2% and prices at full service restaurants rose 0.1%, while food prices at at employee sites and schools were up 1.1%...

in the food at home categories, the price index for cereals and bakery products rose 0.6% despite a 0.3% drop in bread prices, as prices for rice, pasta and cornmeal rose 1.3%, prices for crackers rose 2.4% and prices for cookies rose 4.3%...on the other hand, the price index for the meats, poultry, fish, and eggs group was down 0.6% after falling 0.7% in May, as egg prices fell 7.1% and the pork index was 1.1% lower....at the same time the index for dairy products was 0.7% higher on a 0.8% increase in the price of fresh whole milk and 1.4% higher cheese prices...in addition, the fruits and vegetables index was 0.5% higher on a 1.6% increase in the price index for fresh fruits and a 3.5% increase in prices for tomatoes....meanwhile, the beverages index was 0.3% higher, as coffee prices rose 0.3% and carbonated drink prices were priced 0.7% higher...lastly, the index for the ‘other foods at home’ category was up 0.1%, as prices for sweets other than candy and sugar rose 0.8% and the index for olives, pickles, and relishes rose 2.3%....among food at home line items, only prices for eggs, which are still up 14.1% since last June, have seen price increase greater than 10% over the past year, while no food item has fallen in price by more 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 June after rising by 0.2% in May, 0.1% in April, 0.1% in March, 0.2% in February, 0.3% in January, 0.3% in December, 0.1% in November, 0.2% in October, 0.1% in September, 0.2% in August and by 0.1% in each of the prior 4 months, the composite of all goods less food and energy goods was unchanged in May, 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 floor coverings fell 1.5%, prices for dishes and flatware fell 8.2%, and prices for cookware and tableware were 2.6% lower...at the same time, the apparel price index was 0.9% lower, as prices for women's dresses fell 3.5% while the index for women's underwear, nightwear, sportswear and accessories was 3.4% lower...on the other hand, prices for transportation commodities other than fuel were up 0.5%, as prices for new cars and trucks rose 0.4% and prices for used cars and trucks rose 0.7%...in addition, prices for medical care commodities were 0.2% higher on a 0.4% increase in the index for drug prices...however, the recreational commodities index fell 0.2% on 1.3% lower prices for audio equipment and 5.7% lower prices for photographic equipment and supplies, while the education and communication commodities index was 0.9% lower on a 1.3% decrease in prices for college textbooks and a 0.7% decrease in prices for personal computers...lastly, a separate price index for alcoholic beverages was up 0.5% on 0.8% higher beer at home, while the price index for ‘other goods’ was down 0.4% on a 3.3% decrease in the index for infant's equipment...

within core services, the price index for shelter rose 0.1% on a 0.3% increase in rents, and a 0.3% increase in homeowner's equivalent rent, increases which were partially offset by a 4.1% decrease in costs for lodging away from home at hotels and motels, while the sub-index for water, sewers and trash collection rose 0.4%, and other household operation costs were on average 0.3% higher....at the same time, the index for medical care services was up 0.5%, as hospital services rose 0.8%, and the transportation services index was up 0.2 as car and truck rentals rose 1.5% while vehicle maintenance and servicing rose 0.3%....meanwhile, the recreation services index rose 0.4% as film processing rose 0.5% and admissions to sporting events rose 2.9%....in addition, the index for education and communication services rose 0.3%, as internet and electronic information services rose 1.3%...lastly, the index for other personal services was up 0.3% as haircuts rose 0.8% and apparel services other than laundry and dry cleaning rose 0.7%...among core line items, prices for televisions, which are now 19.1% cheaper than a year ago, the price index for audio equipment, which has fallen 14.5% over the past year, the price index for toys, games, hobbies and playground equipment, which is down by 10.4% from a year ago, and the price index for clocks, lamps, and decorator items, which is now 12.2% lower than last June, have all seen prices fall by more than 10% over the past year, while only laundry equipment, prices for which have risen 13.1 over the past year, has seen prices rise by a double digit magnitude over that span...

Producer Prices Up 0.3% in June on Higher Margins for Trade Services

the seasonally adjusted Producer Price Index (PPI) for final demand was up 0.3 in June, as prices for finished wholesale goods increased 0.1%, while margins of final services providers increased by 0.4%...this followed a May report that indicated the PPI was up 0.5%, with prices for finished wholesale goods up 1.0%, while margins of final services providers increased by 0.3%, and an April report that indicated the PPI rose 0.1%, as prices for finished wholesale goods averaged no change, while margins of final services providers increased by 0.1% ....on an unadjusted basis, producer prices are now 3.4% higher than a year ago, up from the year over year increase of 3.1% that was indicated in last month's report, and largest one year increase in the PPI since November 2011...meanwhile, the core producer price index, which excludes food, energy and trade services, was also up by 0.3% for the month, and is now 2.7% higher than in June a year ago...

as noted, the price index for final demand for goods, aka 'finished goods', was up 0.1% in June, after rising 1.0% in May, being unchanged in April, rising a revised 0.2% in March, and rising a revised 0.1% in February...the price index for wholesale energy was up 0.8% in June after rising 4.6% in May, 0.1% in April, falling 2.1% in March, and rising 0.1% in February and 2.9% in January, while the price index for wholesale foods fell 1.1%, and the index for final demand for core wholesale goods (ex food and energy) was 0.3% higher for the 6th month in a row....the largest wholesale energy price change was a 8.0% increase in wholesale prices for home heating oil, while wholesale prices for gasoline were 0.5% higher...the wholesale food price index, meanwhile, saw a 13.8% decrease in wholesale prices for fresh and dry vegetables and a 6.3% decrease in wholesale prices for oilseeds....among wholesale core goods, prices for commercial furniture increased 1.6%, while the index for trailers and campers moved up 0.9%…

at the same time, the index for final demand for services rose 0.4% in June, after rising 0.3% in May, 0.1% in April, 0.3% in March and a revised 0.2% in February, as the June index for final demand for trade services rose 0.7%, the index for final demand for transportation and warehousing services rose 0.5%, while the core index for final demand for services less trade, transportation, and warehousing services rose 0.3%....among trade services, seasonally adjusted margins for fuels and lubricants retailers rose 21.8% and margins for automobile and automobile parts retailers rose 4.5%... among transportation and warehousing services, margins for truck transportation of freight rose 1.3%...among the components of the core final demand for services index, the index for hospital outpatient care rose 1.0% while margins for tax preparation and planning services services rose 2.9%..

this report also showed the price index for intermediate processed goods was 0.7% higher in June, after rising 1.5% in May and 0.5% in April, falling 0.3% in March, but rising by 0.6% in February....the price index for intermediate energy goods rose 1.8%, as refinery prices for diesel fuel rose 6.4% and producer prices for LP gas rose 3.9%, while prices for intermediate processed foods and feeds fell 1.1%, as the index for processed poultry fell 4.0%...meanwhile, the core price index for processed goods for intermediate demand less food and energy was 0.7% higher on a 2.4% increase in the index for basic organic chemicals and a 4.0% increase in mill prices for softwood lumber, which are now up 23.2% from a year ago, after 20% tariffs were imposed on Canadian imports....prices for intermediate processed goods are now 6.8% higher than in June a year ago, now the 19th consecutive year over year increase, after 16 months of negative 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 fell 1.0% in June, after rising 2.5% in May, 0.9% in April, falling a revised 4.5% in March, and rising a revised 1.7% in February....that was as the price index for crude energy goods fell 2.1% as crude oil prices fell 9.5%, while the index for unprocessed foodstuffs and feedstuffs rose 0.2%, as producer prices for corn fell 7.5% and prices for oilseeds fell 6.3%...at the same time, the index for core raw materials other than food and energy materials was 0.2% lower, as prices for iron and steel scrap fell 1.8% and prices for nonferrous metal ores fell 1.0%...this raw materials index is now up by 5.8% from a year ago, the same year over year increase that we saw in June a year ago...

lastly, the price index for services for intermediate demand rose 0.1% in June, after rising 0.3% in May, 0.3% in April, 0.3% in March and a revised 0.3% in February...the index for trade services for intermediate demand was up 0.1%, as margins for intermediate hardware, building material, and supplies retailers rose 2.4% and margins for chemicals and allied products wholesalers fell 1.5%…the index for transportation and warehousing services for intermediate demand rose 0.2%, as the index for truck transportation of freight rose 1.3%...meanwhile, the core price index for services less trade, transportation, and warehousing for intermediate demand was unchanged, as the index for business loans (partial) rose 2.6% while the index for nonresidential real estate rents fell 2.4%....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... 

Job Openings and Firings Down in May, Hiring and Quitting at Record Highs

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 202,000, from 6,840,000 in April to 6,638,000 in May, after April’s record job openings were revised 142,000 higher, from 6,698,000 to 6,840,000...May jobs openings were still 16.7% higher than the 5,688,000 job openings reported in May a year ago, as the job opening ratio expressed as a percentage of the employed fell from 4.4% in April to 4.3% in May, while it was still up from 3.7% in May a year ago...the greatest drop in May job openings was in professional and business services, where openings fell by 64,000 to 1,190,000, while job openings in government rose by 25,000 to 602,000 (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 a record high of 5,754,000, up by 173,000 from the revised 5,581,000 who were hired or rehired in April, as the hiring rate as a percentage of all employed was rose from 3.8% to 3.9%, and was also up from the hiring rate of 3.7% in May a year earlier (details of hiring by industry since January are in table 2)....meanwhile, total separations also rose, by 44,000, from 5,424,000 in April to 5,468,000 in May, while the separations rate as a percentage of the employed remained at 3.7%, while it was up from the separations rate of 3.6% in May a year ago (see table 3)...subtracting the 5,468,000 total separations from the total hires of 5,754,000 would imply an increase of 286,000 jobs in May, somewhat more than the revised payroll job increase of 244,000 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 reports that a record 3,561,000 of us voluntarily quit their jobs in May, up by 212,000 from the revised 3,340,000 who quit their jobs in April, while the quits rate, widely watched as an indicator of worker confidence, rose from 2.3% to 2.4% of total employment, which was also up from 2.2% a year earlier (see details in table 4)....in addition to those who quit, another 1,588,000 were either laid off, fired or otherwise discharged in May, down by 143,000 from the revised 1,731,000 who were discharged in April, as the discharges rate fell from 1.2% to 1.1% of all those who were employed during the month, and was also down from 1.2% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 320,000 in May, down from 344,000 in April, for an 'other separations' rate of 0.2%, same as 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...

May Wholesale Sales Up 2.5%, Wholesale Inventories Up 0.6% in Hit to 2Q GDP

the May report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $509.0 billion, up 2.5 percent (+/-0.4%) from the revised April level, and up 11.8 percent (±3.3 percent) from the wholesale sales of May 2017... the April preliminary estimate was revised from the $493.3 billion reported a month ago to $496.4 billion...May's wholesale sales increase was the largest since March 2011 and was driven by an 8.3% increase in the value of oil and petroleum products, which was at least partially price related...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

on the other hand, the monthly change in private inventories is a major factor in GDP, as any goods left on the shelf or in intermediate storage represent goods that were produced but not sold, and this May report estimated that wholesale inventories were valued at a seasonally adjusted $633.5 billion at month end, an increase of 0.6 percent (+/-0.2%)* from the revised April level and 5.9 percent (±3.7 percent) higher than in May a year ago, with the April preliminary estimate revised from $630.2 billion to $629.865 billion at the same time, still a 0.1% increase from March...for national accounts purposes, May wholesale inventories will be adjusted for price changes by category with the appropriate components of the May producer price index, which indicated a 1.0% increase in prices for finished goods, a 1.5% increase in prices for intermediate goods, and a 2.5% increase in prices for unprocessed goods....therefore the modest 0.6% increase in the value of May inventories appears to indicate a real decrease of wholesale inventories so far in the 2nd quarter, which will be a major negative when compared to the $23.7 billion increase in real wholesale inventories that was indicated by the key source data and assumptions (xls) in the 3rd estimate of 1st 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 picked from the aforementioned GGO posts, contact me…)     

Sunday, July 8, 2018

June’s 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 economic 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 17.38 seasonally adjusted annual rate in June, up from the 16.81 million rate in May, and up from the 16.41 annual rate in June of 2017, 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 60.2% in June, up from 58.7% 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 59.1%, up from 58.6% 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 213,000 Jobs in June, Unemployment Rate Rises 0.2% as More Look for Work

the Employment Situation Summary for June indicated payroll job growth a bit above the average, while the unemployment rate rose because hundreds of previously uncounted individuals began to seek work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 213,000 jobs in June, after the payroll job increase for May was revised up from 223,000 jobs to 244,000, and the April increase was revised up from 159,000 jobs to 175,000, which means that the combined number of jobs created over those two months was 37,000 more than was previously reported....the unadjusted data shows that there were actually 646,000 more payroll jobs extant in June than in May, as large seasonal job increases that are 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 retail sector saw a seasonally adjusted loss of 21,600 jobs, on a decrease of 21,500 workers in general merchandise stores...the broad professional and business services sector added 50,000 jobs, as 9,300 more workers found work with temporary help services and 8,100 more were employed by services to buildings and dwellings....manufacturing industries added another 36,000 workers in June, with the addition of 12,000 jobs in the auto industry...meanwhile, employment in health care and social assistance rose by 34,700, with the addition of 10,600 jobs in hospitals and 6,800 in individual and family services....the leisure and hospitality sector added a seasonally adjusted 25,000 jobs, with the addition of 16,400 more jobs in bars and restaurants...in addition, the transportation and warehousing sector added 15,400 employees, led by an increase of 4,300 in ground passenger transportation services...also, after a downward seasonal adjustment of 147,000, the construction sector still saw 13,000 more jobs than normal, as heavy and civil engineering construction firms hired 6,100 more than worked in May....meanwhile, the other major sectors, including wholesale trade, information, financial activities, private education, and government all saw smaller increases in payroll employment over the month…

the establishment survey also showed that average hourly pay for all employees rose by 5 cents to $26.98 an hour, after it had increased by a revised 7 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $22.62 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.5 hours, while hours for production and non-supervisory personnel were also unchanged at 33.8 hours...meanwhile, the manufacturing workweek rose by 0.1 hour to 40.9 hours, while factory overtime rose by 0.1 hour to 3.5 hours..

Meanwhile, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 102,000 to 155,576,000, while the similarly estimated number of those unemployed rose by 499,000 to 6,564,000; which together meant that June saw a net increase of 601,000 in the total labor force...since the working age population had grown by 188,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 413,000 to 95,502,000....the big increase of those in the labor force was enough to raise the labor force participation rate by 0.2% to 62.9%....on the other hand, the increase in number employed vis-a-vis the increase in the population was not great enough to increase the employment to population ratio, which we could think of as an employment rate, as it remained unchanged at 60.4%...however, the increase in the number counted as unemployed was large enough to raise the unemployment rate from 3.8% to 4.0%....at the same time, even though the number who reported they were involuntarily working part time fell by 205,000 to 4,743,000 in June, the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", still rose from 7.6% in May to 7.8% in June, as 38,000 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 6.6% on Higher Exports of Soybeans and Aircraft

our trade deficit decreased by 6.6% in May as the value of both our exports and our imports increased, but our exports increased by a greater amount....the Commerce Department report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit fell by $3.0 billion to $43.1 billion in May, from a April deficit of $46.08 billion, which was revised down from the $46.2 billion deficit reported last month...the value of our May exports rose by $4.1 billion to $215.3 billion on a $3.7 billion increase to $144.9 billion in our exports of goods and a $0.4 billion increase to $70.4 billion in our exports of services, while our imports rose $1.1 billion to $258.4 billion on a rounded-up $1.1 billion increase to $210.7 billion in our imports of goods while our imports of services slipped $0.1 billion to $47.7 billion...export prices were on average 0.6% higher in May, so the real growth in exports for the month was less than the nominal dollar growth by that percentage, while import prices were also 0.6% higher, meaning real imports would be reduced from the nominal dollar values reported here by that percentage...

the increase in our May exports can mostly be accounted for by higher exports of capital goods and of foods, feeds, and beverages, which were partially offset by a decrease in exports of industrial supplies and materials....referencing the Full Release and Tables for May (pdf), in Exhibit 7 we find that our exports of capital goods rose by $2,032 million to $48,158 million on an increase of $1,892 million in our exports of civilian aircraft and an increase of $761 million in our exports of engines for civilian aircraft, and that our exports of foods, feeds and beverages rose by $1737 million to $14,097 million on a $1,956 million increase in our exports of soybeans....in addition, our exports of consumer goods rose by $580 million to $17,795 million on a $487 million increase in our exports of pharmaceuticals and a $300 million increase in our exports of jewelry, and our exports of other goods not categorized by end use rose by $888 million to $6,179 million....partially offsetting those increases, our exports of industrial supplies and materials fell by $1288 million to $44,368 million on a $907 million decrease in exports of petroleum products other than fuel oil and a $719 decrease in our exports of non-monetary gold, and our exports of automotive vehicles, parts, and engines fell by $362 million to $13,558 million on a $334 million decrease in our exports of trucks, buses, and special purpose vehicles...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that higher imports of capital goods was the major reason for the May increase in our imports...our imports of capital goods rose by $2,057 million to $58,980 million on increases of $648 million in our imports of telecommunications equipment, $410 million in our imports of computers, $251 million in our imports of parts for civilian aircraft, and $248 million in our imports of civilian aircraft engines...in addition, our imports of foods, feeds, and beverages rose by $105 million to $12,378 million....partially offsetting the increases in those two categories, our imports of consumer goods fell by $468 million to $51,423 million on a $613 million decrease in our imports of pharmaceuticals and a $303 million decrease in our imports of artwork and antiques, our imports of automotive vehicles, parts and engines fell by $301 million to $29,728 million on a $257 million decrease in our imports of parts and accessories other than chassis, engines and tires, and a $238 million decrease in our imports of automotive engines and engine parts, and our imports of other goods not categorized by end use fell by $412 million to $8,560 million, while our imports of industrial supplies and materials fell by $21 million to $47,853 million, as our imports of crude oil fell by $685 million while our imports of fuel oil rose by $496 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, with the only difference being that they are not annualized in this report....from that table, we can compute that 1st quarter real exports of goods averaged 146,834.3 million monthly in 2009 dollars, while inflation adjusted April and May exports were at 150,636 million and 153,240 million respectively in the same 2009 dollar quantity index representation...then, annualizing the change between the first quarter average and the April - May average, we find that the 2nd quarter's real goods exports are running at a 14.6% annual rate above those of the 1st quarter, or at a pace that would add about 1.20 percentage points to 2nd quarter GDP if maintained through June.....in a similar manner, we find that our 1st quarter real imports averaged 229,287.3 million monthly in chained 2009 dollars, while inflation adjusted April and May imports were at 228,116 million and 228,523 million in those same inflation adjusted dollars respectively....that would mean that so far in the 2nd quarter, our real imports of goods have decreased at a 1.68% 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 decrease at a 1.68% rate would conversely add another 0.21 percentage points to 2nd quarter GDP....hence, if our goods trade deficit at the April - May level is maintained through June, our improving balance of trade in goods would add about 1.41 percentage points to 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 Commerce Department does not provide inflation adjusted data on that trade, but that there was also a notable increase in our services surplus in May that will likely have an impact as well...

Construction Spending Rises 0.4% in May after April Spending Revised 0.4% Lower

the Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,309.5 billion annually if extrapolated over an entire year, which was 0.4 percent (±1.3 percent)* above the revised annualized estimate of $1,304.5 billion of construction spending in April and 4.5 percent (±1.6 percent) above the estimated annualized level of construction spending in May of last year...the April spending estimate was revised 0.45% lower, from $1,310.4 billion to $1,304.5 billion, while the annual rate of construction spending for March was revised higher, from $1,286.8 billion to $1,293.5 billion, and the annual rate of February construction spending was revised down from $1,309.2 billion to a $1,305.5 billion rate...combined, the net $3.0 billion upward revision to annualized February and March construction spending would suggest that 1st quarter GDP, which was released last week, will be revised about 0.07 percentage points higher when annual revisions to GDP are released in late July...construction spending tor the first 5 months of 2018 has now amounted to $497.06 billion, 4.3 percent (±1.3 percent) above the $476.66 billion in construction spending for the same 5 months of 2017…

Further details on different subsets of construction spending are provided by the Census release summary:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,005.4 billion, 0.3 percent (±0.8 percent)* above the revised April estimate of $1,002.3 billion. Residential construction was at a seasonally adjusted annual rate of $553.8 billion in May, 0.8 percent (±1.3 percent)* above the revised April estimate of $549.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $451.5 billion in May, 0.3 percent (±0.8 percent)* below the revised April estimate of $453.0 billion.
  • Public Construction: In May, the estimated seasonally adjusted annual rate of public construction spending was $304.1 billion, 0.7 percent (±2.6 percent)* above the revised April estimate of $302.1 billion. Educational construction was at a seasonally adjusted annual rate of $74.3 billion, 0.9 percent (±2.5 percent)* above the revised April estimate of $73.6 billion. Highway construction was at a seasonally adjusted annual rate of $94.6 billion, 0.2 percent (±8.1 percent)* below the revised April estimate of $94.8 billion."

this construction spending report is used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and 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 showed that aggregate construction costs were unchanged in May, after being up 1.1% from March to April, up 0.2% from February to March, and unchanged from January to February..

on that basis, we can estimate that May construction costs were roughly 1.1% greater than those of March, 1.3% greater than those of February and 1.3% greater than those of January, and obviously roughly the same as those of April...we then use those percentages to inflate spending 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...annualized construction spending in millions of dollars for the five months in question is given as 1,309,490 for May, 1,304,455 for April, 1,293,125 for March, 1,305,527 for February, and 1,276,260 for January....thus to figure the growth of  May's nominal construction spending figure of $1,309,490 and April's figure of $1,304,455 over that of inflation adjusted figures of the first quarter, our calculation becomes (((1,309,490 + 1,304,455) / 2) / (((1,293,125 * 1.011) + (1,305,527 * 1.013) + (1,276,260 * 1.013)) / 3)) ^ 4 = .998184, which means that after adjusting for inflation, construction spending has been shrinking at a 0.18% annual rate over the first 2 months of the second quarter...that's a contraction at a $594 million annual rate, which means that if June shows no improvement, that relatively tiny contraction in construction would subtract a net of about 0.01 percentage point from 2nd quarter GDP across those components that it influences...

Factory Shipments Up 0.6% May, Factory Inventories Up 0.2% in Big Hit to GDP

the May Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods increased by $1.8 billion or 0.4 percent to $498.2 billion in May, following a decrease of 0.4% to $496.4 billion in April, which was revised from the 0.8% decrease to $494.4 billion 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 May advance report on durable goods we reported on last week...on those revisions, the Census Bureau's summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we'll just quote directly from that here:

  • Summary: New orders for manufactured goods in May, up three of the last four months, increased $1.8 billion or 0.4 percent to $498.2 billion, the U.S. Census Bureau reported today. This followed a 0.4 percent April decrease. Shipments, up twelve of the last thirteen months, increased $2.8 billion or 0.6 percent to $496.1 billion. This followed a 0.1 percent April increase. Unfilled orders, up six of the last seven months, increased $6.2 billion or 0.5 percent to $1,160.8 billion. This followed a 0.6 percent April increase. The unfilled orders-to-shipments ratio was 6.68, down from 6.73 in April. Inventories, up nineteen consecutive months, increased $1.3 billion or 0.2 percent to $668.4 billion. This followed a 0.4 percent April increase. The inventories-to-shipments ratio was 1.35, unchanged from April.
  • New Orders: New orders for manufactured durable goods in May, down two consecutive months, decreased $0.9 billion or 0.4 percent to $249.2 billion, up from the previously published 0.6 percent decrease. This followed a 1.0 percent April decrease. Transportation equipment, also down two consecutive months, drove the decrease, $0.9 billion or 1.1 percent to $86.1 billion. New orders for manufactured nondurable goods increased $2.7 billion or 1.1 percent to $249.0 billion.
  • Shipments: Shipments of manufactured durable goods in May, up nine of the last ten months, increased $0.1 billion or virtually unchanged to $247.1 billion, up from the previously published 0.1 percent decrease. This followed a virtually unchanged April decrease. Machinery, up three of the last four months, drove the increase, $0.2 billion or 0.7 percent to $32.4 billion. Shipments of manufactured nondurable goods, up eleven of the last twelve months, increased $2.7 billion or 1.1 percent to $249.0 billion. This followed a 0.3 percent April increase. Petroleum and coal products, up ten of the last eleven months, led the increase, $1.8 billion or 3.4 percent to $55.5 billion.
  • Unfilled Orders: Unfilled orders for manufactured durable goods in May, up six of the last seven months, increased $6.2 billion or 0.5 percent to $1,160.8 billion, unchanged from the previously published increase. This followed a 0.6 percent April increase. Transportation equipment, also up six of the last seven months, led the increase, $3.9 billion or 0.5 percent to $800.2 billion.
  • Inventories: Inventories of manufactured durable goods in May, up eighteen of the last nineteen months, increased $1.3 billion or 0.3 percent to $403.3 billion, unchanged from the previously published increase. This followed a 0.4 percent April increase. Transportation equipment, up five of the last six months, led the increase, $0.5 billion or 0.4 percent to $129.0 billion. Inventories of manufactured nondurable goods, up eleven consecutive months, increased less than $0.1 billion or virtually unchanged to $265.1 billion. This followed a 0.4 percent April increase. Chemical products, up seven of the last eight months, drove the increase, $0.1 billion or 0.1 percent to $87.9 billion..

to estimate the effect of those May factory inventories on 2nd 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 rose by 0.1% to $233,967 million; the value of work in process inventories rose 0.2% to $206,668 million, and materials and supplies inventories were valued 0.3% higher at $227,800 million...the May producer price index reported that prices for finished goods were on average 1.0% higher, that prices for intermediate processed goods were 1.5% higher, while prices for unprocessed goods averaged 2.5% higher....assuming similar valuations for like types of inventories, that would suggest that May's real finished goods inventories were about 0.9% smaller, that real inventories of intermediate processed goods were 1.3% lower, and real raw material inventory inventories were about 2.2% lower...so even though real NIPA factory inventories were a bit smaller in the 1st quarter, this report seems to indicate a much larger real decrease in May, following a small decrease in April, suggesting that the real change in May factory inventories will have a significant negative impact on the growth rate of 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 picked from the aforementioned GGO posts, contact me…)     

Sunday, July 1, 2018

1st Quarter GDP Revision, May's Reports on Personal Income and Outlays, Durable Goods, and New Home Sales

the key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis, and the May report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP....other widely watched releases included the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the Case-Shiller house price indexes for April from S&P Case-Shiller, wherein their national home price index was reported as 6.4% higher than in the same month's report a year ago...this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which fell from a upwardly revised +0.42 in April to -0.15 in May; that left the 3 month average of the index at +0.18, indicating national economic activity has been slightly above the historical trend over these recent months...

in addition, this week also saw the results of the last three Fed manufacturing surveys for June; the Texas area manufacturing survey from the Dallas Fed reported its broadest general business activity index rose from +26.8 in May to +36.5 in June, indicating that Texas manufacturing activity is now expanding at an even more robust pace, while 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 from +16 in May to +20  in June, indicating a bit of a pickup in the growth rate of that region's manufacturing, and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index slipped to +28 in June from +29 in May, still indicating a strong expansion among that region's manufacturers...

1st Quarter GDP Revised to Show Growth at a 2.0% Rate as GDP Deflator is Revised Higher on Lower Import Prices

the Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services increased at a 2.0% annual rate in the quarter, revised from the 2.2% growth rate reported in the second estimate last month, as the GDP deflator was revised from 1.9% to 2.2%....in current dollars, our first quarter GDP grew at a 4.24% annual rate, actually a bit higher than the 4.2% current dollar growth shown in the 2nd estimate, increasing from what would work out to be a $19,754.1 billion a year output rate in the 4th quarter of last year to a $19,960.1 billion annual rate in the 1st quarter of this year, with the headline 2.0% annualized rate of increase in real output arrived at after that annualized GDP inflation adjustment averaging 2.2%, revised from 1.9%, was applied to the current dollar change...

recall that this 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 third estimate of 1st quarter GDP, which is linked to on the sidebar of the BEA press release...specifically, we cite the data from table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2014, from table 2, which shows the contribution of each of the components to the GDP figures for those months 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 components, which are used to convert current dollar figures into units of output represented by chained dollar amounts....the full pdf for the 1st quarter 2nd estimate, which this estimate revises, is here... 

real personal consumption expenditures (PCE), the largest component of GDP, were revised to show growth at a 0.9% annual rate in the 1st quarter, down from the 1.0% growth rate reported last month...that PCE growth figure was arrived at by deflating the 3.4% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 2.5% annual rate in the 1st quarter, which was revised from the 2.6% PCE inflation rate published a month ago....real consumption of durable goods fell at a 2.1% annual rate, which was revised from the 2.6% rate of decrease shown in the second estimate, and subtracted 0.16 percentage points from GDP, as a drop in consumption of automobiles & parts at a 12.4% rate more than offset an increase in real consumption of recreational goods and vehicles and other durable goods...real consumption of nondurable goods by individuals rose at a 0.5% annual rate, revised from the 0.4% increase reported in the 2nd estimate, and added 0.07 percentage points to 1st quarter growth, as increases in real consumption of food and other non-durables offset decreases in real consumption of clothing and energy goods ....meanwhile real consumption of services rose at a 1.5% annual rate, revised from the 1.8% rate reported last month, and added 0.69 percentage points to the final GDP tally, as relatively sluggish growth in consumption of housing and utilities and health care offset stronger growth in other services....

meanwhile, seasonally adjusted real gross private domestic investment grew at a 7.5% annual rate in the 1st quarter, revised from the 7.2% growth estimate reported last month, as real private fixed investment grew at a 7.6% rate, rather than at the 6.5% rate reported in the second estimate, while inventory growth was somewhat less than previously estimated...real investment in non-residential structures was revised from growth at a 14.2% rate to growth at a 16.2% rate, while real investment in equipment was revised to show growth at a 5.8% rate, up from the 5.5% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from growth at a 10.9% rate to growth at a 13.2% rate, while the contraction rate of residential investment was reduced, from being down at a 2.0% rate to down a 1.1% rate annually…after those revisions, the increase in investment in non-residential structures added 0.44 percentage points to the 1st quarter's growth rate, the increase in investment in equipment added 0.33  percentage points to the quarter's growth, greater investment in intellectual property added 0.51 percentage points, while contraction in residential investment subtracted 0.04 percentage points from the increase in 1st quarter GDP...

meanwhile, the growth in real private inventories was revised from the $20.2 billion in inflation adjusted dollars reported last month to show inventory grew at an inflation adjusted $13.9 billion rate in the 1st quarter...this came after inventories had grown at an inflation adjusted $15.6 billion rate in the 4th quarter, and hence the $1.7 billion smaller real inventory growth than in the 4th quarter subtracted 0.01 percentage points from the 1st quarter's growth rate, revised from the 0.13 percentage point addition to GDP due to the modest inventory growth shown in the second estimate....however, since slower growth in inventories ultimately indicates that less of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that decrease by $1.7 billion meant that real final sales of GDP were actually greater than GDP by that small bit, and therefore the BEA found that real final sales of GDP rose at a 2.0% rate in the 1st quarter, statistically unrevised from the second estimate, when inventory growth had subtracted from final sales...

the previously reported increase in real exports was revised lower, while the increase in real imports was revised higher, and as a result our net trade was a small subtraction from GDP, rather than the addition to GDP that was previously reported...our real exports grew at a 3.6% rate, revised from the 4.2% rate in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their increase added 0.44 percentage points to the 1st quarter's growth rate....meanwhile, the previously reported 2.8% increase in our real imports was revised to a 3.2% increase, largely due to a a revision of the imports deflator from 9.0% to 7.2%, and since imports subtract from GDP because they represent either consumption or investment that was not produced here, that increase subtracted 0.48 percentage points from 1st quarter GDP....thus, our deteriorating trade balance subtracted a net 0.04 percentage points from 1st quarter GDP, rather than the 0.08% percentage point addition to GDP resulting from an improving foreign trade balance that was indicated by the second estimate..

finally, there were also revisions to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown growing at a 1.3% rate, revised from the 1.1% growth rate for government indicated by the 2nd estimate....real federal government consumption and investment was seen to have grown at a 1.7% rate from the 4th quarter in this estimate, which was unrevised from the growth rate shown in the 2nd estimate, as real federal outlays for defense grew at a 1.8% rate and added 0.07 percentage points to 1st quarter GDP, and all other federal consumption and investment grew at a 1.6% rate and added 0.04 percentage points to GDP, all of which were unrevised...meanwhile, real state and local consumption and investment grew at a 1.0% rate in the quarter, revised from the 0.8% growth rate in the 2nd estimate, and added 0.11 percentage points to 1st quarter GDP, which was revised from the 0.08 addition shown in the second estimate...note that 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, thereby indicating an increase in the output of those goods or services...

lastly, we should clarify what happened with the various inflation adjustments in this revision...as previously noted, the reason GDP was revised lower was that the overall GDP deflator was revised higher, from 1.9% to 2.2%, thus reducing real GDP from the nominal amounts by a greater amount…that happened as the PCE deflator, which should be most heavily weighted, was revised down from 2.6% to 2.5%, the gross investment deflator was revised down from 2.9% to 2.8%, the exports deflator was unchanged, the imports deflator was revised down from 9.0% to 7.2%, while the government deflator was revised up from 3.2% to 3.4%… so why was the GDP deflator revised higher when most of its components were revised lower?   the large upward revision to GDP prices reflects a big downward revision to import prices, notably petroleum, based on newly updated International Transactions data…since oil prices were revised lower, that means we imported more of it for the same dollars…and since imports are a subtraction from GDP, any change in their price has an opposite effect on the GDP deflator…thus it was the large downward revision in the price of imported oil which caused the overall GDP inflation adjustment to rise, and hence caused reported GDP to fall, despite the slight upward revision to current dollar GDP…

May Personal Income up 0.4%, Spending up 0.2%; 2 Months PCE Would Add 1.63 Percentage Points to Q2 GDP

the May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for more than 69% of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this same report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase for a year if May's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from April to May....

thus, when the opening line of the press release for this report tell us "Personal income increased $60.0 billion (0.4 percent) in May", they mean that the annualized figure for seasonally adjusted personal income in May, $17,005.4 billion, was $60.0 billion, or somewhat less than 0.4% greater than the annualized  personal income figure of $16,945.4 billion for April; the actual, unadjusted change in personal income from April to May is not given...similarly, annualized disposable personal income, which is income after taxes, rose by less than 0.4%, from an annual rate of an annual rate of $14,418.5 billion in April to an annual rate of $14,447.8 billion in May....the contributors to the increase in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were led by a $26.1 billion increase to $8,688.8 billion annually wages and salaries and a $17.1 billion increase to $2,530.0 billion annually in interest and dividend income…

for the personal consumption expenditures (PCE) that we're most interested in, BEA reports that they increased at a $27.8 billion annual rate, or by about 0.2 percent, as the annual rate of PCE rose from $13,892.9 billion in April to $13,920.7 in May; that happened as the April PCE figure was revised down from the originally reported $13,906.9 billion annually and March PCE was revised from $13,827.1 billion to $13,824.8 billion, revisions that were already captured by the 3rd estimate of 1st quarter GDP we reported on earlier....the current dollar increase in May spending resulted from a $19.8 billion annualized increase to an annualized $4,474.6 billion in spending for goods and a $8.1 billion increase to $4,474.6 billion in annualized spending for services....total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $29.3 billion to $14,447.8 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $482.0 billion annual rate in May, up from the revised $448.0 billion annualized personal savings in April... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 3.2% in May from April's savings rate of 3.0%...

as you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....the BEA achieves that by computing a price index for personal consumption expenditures, which is a chained price index based on 2009 prices = 100, and which is included in Table 9 in the pdf for this report...that index rose from 114.521 in April to 114.764 in May, a month over month inflation rate that's statistically 0.2122%, which BEA reports as an increase of 0.2 percent, following the PCE price index increase of 0.2% they reported for April...applying that inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 0.0% in May, after an April real PCE increase of 0.3%....but notice that when those PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in those familiar chained 2009 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where we see that May's chained dollar consumption total works out to 12,130.5 billion annually, 0.0115% less than April's 12,131.9 billion, a difference that the BEA reports as 0.0%, even as the full fractions are used in all their computations...

  however, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare April and May's real PCE to the the real PCE of the 3 months of the first quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 12,061.0 billion in chained 2009 dollars..(note that's the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)....then, by averaging the annualized chained 2009 dollar figures for April and May, 12,131.9 billion and 12,130.5 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far....when we compare that average of 12,131.2 billion to the 1st quarter real PCE of 12,061.0 billion, we find that 2nd quarter real PCE has grown at a 2.35% annual rate for the two months of the 2nd quarter we have data for a this point...(note the math to get that annual growth rate: (((12,130.5 +12,131.9) / 2 ) / 12,061.0) ^4 = 1.0234857)....that's a pace that would add 1.63 percentage points to the growth rate of the 2nd quarter by itself, even if there is no improvement in June PCE from the April-May average... 

May Durable Goods: New Orders Down 0.6%, Shipments Down 0.1%, Inventories Up 0.3%

the Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods fell by $1.4 billion or 0.6 percent to $248.8 billion in May, following a revised decrease of 1.0% to $250.2 billion in April’s new orders, which had originally been reported as a 1.7% decrease to $248.5 billion...however, year to date new orders are still running 9.9% higher than they were a year ago, despite the back to back decreases....as is usually the case, the volatile monthly change in new orders for transportation equipment led the May headline change, as those transportation equipment orders fell $0.9 billion or 1.0 percent to $86.1 billion, on a 4.2% decrease to $55,555 million in new orders for motor vehicles and parts and a 7.0% decrease to $14,807 million in new orders for commercial aircraft....excluding new orders for transportation equipment, other new orders still fell 0.3% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, were down 0.2% to $67,865 million...

the seasonally adjusted value of May's shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, decreased by $0.2 billion or less than 0.1 percent to $246.9 billion, in their first decrease in 10 months...again, shipments of transportation equipment drove the change, as they fell $0.5 billion or 0.6 percent to $82.1 billion, as the value of shipments of motor vehicles fell 4.4% to $55,418 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.2%, and are now 7.9% higher year to date than a year ago.... meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 18th time in 19 months, increasing by $1.1 billion or 0.3 percent to $403.0 billion, after April inventories were revised from $401.7 billion to $401.861 billion, still a 0.3% increase from March...inventories of motor vehicles led the increase, rising $338 million or 0.9 percent to $35,989 million...

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 sixth time in seven months, increasing by $5.9 billion or 0.5 percent to $1,160.6 billion, following a April increase of 0.6% to $1,154.6 billion, revised from the $1,153.4 billion reported a month ago...a $4.0 billion or 0.5% decrease to $800.3 billion in unfilled orders for transportation equipment was responsible for most of the increase, but unfilled orders excluding transportation equipment orders were also up 0.5% to $360,213 million....compared to a year earlier, the unfilled order book for durable goods is now 4.7% above the level of last May, with unfilled orders for transportation equipment 4.4% above their year ago level, on a 5.9% increase in the backlog of orders for motor vehicles and parts...

New Homes Sales Reported Higher in May; Prices Lower

the Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 689,000 homes annually during the month, which was 6.7 percent (±14.1 percent)* above the revised April rate of 646,000 new single family homes a year and 14.1 percent (±19.9 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 May new home sales rose or fell from those of April or even from those in May 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 April were revised from the annual rate of 662,000 reported last month to a 646,000 annual rate, March's annualized home sale rate, initially reported at 694,000, was revised from last months downwardly revised figure of 672,000 to 671,000, while the annual rate of February's sales, initially reported at an annual rate of 618,000 and revised from a revised annual rate of 667,000 to a rate of 659,000 last month, were further revised to a 663,000 annual rate with this report...

the annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 65,000 new single family homes sold in May, up from the 62,000 new homes that sold in April, but unchanged from the estimated 65,000 new homes that sold in March....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was at $313,000, down from the median sales price of $318,500 in April, while the average May new home sales price was $368,500, down from a $394,600 average price in April, and down from the average home sales price of $378,400 in May a year ago....a seasonally adjusted estimate of 299,000 new single family houses remained for sale at the end of May, which represents a 5.2 month supply at the May sales rate, down from a 5.4 month supply in April....for more details and graphics on this report, see Bill McBride's two posts on this month's report, New Home Sales increase to 689,000 Annual Rate in May and A few Comments on May New 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 picked from the aforementioned GGO posts, contact me…)