Sunday, June 30, 2019

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 two months of 2nd quarter 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, who reported that their national home price index was 3.5% 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 rose from a downwardly revised -0.48 in April to -0.05 in May; that left the 3 month average of the index at -0.17, indicating national economic activity has been modestly below 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, which also includes southeast New Mexico and northeast Louisiana as well as Texas, reported its broadest general business activity index fell from -5.3 in May to a three year low of -12.1 in June, indicating that Texas manufacturing activity is now contracting at an even faster pace; 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 +5 in May to +3  in June, indicating even more slowing in the already slow 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 fell to 0 in June from + 4 in May and +5 in April, indicating that an equal number of that region's manufacturers reported a slowdown as those who reported continuing growth...

1st Quarter GDP Growth Rate Remains at 3.1% in 3rd Estimate

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 3.1% annual rate in the quarter, revised but statistically unchanged from the 3.1% growth rate reported in the second estimate last month, as a downward revision to personal consumption was offset by an upward revision to domestic fixed investment...in current dollars, our first quarter GDP grew at a 3.79% annual rate, increasing from what would work out to be a $20,865.1 billion a year output rate in the 4th quarter of last year to a $21,060.1 billion annual rate in the 1st quarter of this year, with the headline 3.1% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 0.9%, aka the GDP deflator, was computed for and applied to the current dollar change of each of the GDP components...

As we review this month's revisions, remember 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 from one 3 month period to the next, 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 Full Release & Tables for the third estimate of 1st quarter GDP, which is linked to on the BEA's main GDP page...specifically, we’ll be using table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2012; 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; and table 4, which shows the change in the price indexes for each of the GDP components...the full pdf for the 1st quarter's 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 1.3% growth rate reported last month...that PCE growth figure was arrived at by deflating the 1.4% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 0.5% annual rate in the 1st quarter, revised from the 0.4% PCE inflation rate published a month ago....real consumption of durable goods fell at a 2.4% annual rate, which was revised from the 4.6% drop shown in the second estimate, and subtracted 0.17 percentage points from GDP, as a drop in real consumption of automobiles at a 17.2% rate more than offset modest increases in real consumption of recreational goods and vehicles and other durable goods.....real consumption of nondurable goods by individuals rose at a 2.3% annual rate, revised from the 2.0% increase rate reported in the 2nd estimate, and added 0.32 percentage points to 1st quarter economic growth, with decreased real consumption of food, clothing and energy more than offset by greater growth in real consumption of other nondurables….at the same time, consumption of services rose at a 1.0% annual rate, revised from the 2.1% growth rate reported last month, and added 0.48 percentage points to the final GDP tally, as real growth of health care at a 5.6% rate was mostly offset by a real 20.3% annualized decrease in consumption expenditures of nonprofit institutions serving households...

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 6.0% annual rate in the 1st quarter, revised from the 4.3% growth estimate reported last month, as real private fixed investment grew at a 3.0% rate, rather than at the 1.0% rate reported in the second estimate, while inventory growth was a bit less than previously estimated...real investment in non-residential structures was revised from growth at a 1.7% rate to growth at a 4.3% rate, while the contraction in real investment in equipment was unchanged from the 1.0% rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from growth at a 7.2% rate to growth at a 12.0% rate, while the contraction rate of residential investment was reduced, from being down at a 3.5% rate to down at a 2.0% rate annually…after those revisions, the increase in investment in non-residential structures added 0.13 percentage points to the 1st quarter's growth rate, the decrease in investment in equipment subtracted 0.06 percentage points from the quarter's growth, greater investment in intellectual property added 0.53 percentage points, while contraction in residential investment subtracted 0.08 percentage points from the increase in 1st quarter GDP...

At the same time, the growth in real private inventories was revised from the previously reported $125.5 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $122.8 billion rate...this came after inventories had grown at an inflation adjusted $96.8 billion rate in the 4th quarter, and hence the revised $26.0 billion increase in real inventory growth over that of the 4th quarter added 0.55 percentage points to the 1st quarter's growth rate, revised from the 0.60 percentage point addition from inventory growth shown in the second estimate....however, since growth in inventories indicates that more of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that increase by $26.0 billion meant that real final sales of GDP were actually smaller by that much, and therefore the BEA found that real final sales of GDP rose at a 2.6% rate in the 1st quarter, revised from the 2.5% real final sales rate shown in the second estimate...

The previously reported increase in real exports was revised higher, while the decrease in real imports was smaller than previously reported, and with those changes mostly offsetting one another, our net trade was a slightly smaller addition to GDP than was previously reported...our real exports grew at a 5.4% rate, revised from the 4.8% rate shown 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, and hence not included in those metrics, their increase added 0.65 percentage points to the 1st quarter's growth rate, revised from the 0.58 percentage point addition shown in the 2nd estimate....meanwhile, the previously reported 2.5% decrease in our real imports was revised to a 1.9% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their decrease conversely added 0.30 percentage points to 1st quarter GDP, revised from the 0.39 addition shown a month ago....thus, our improving trade balance added 0.94 percentage points to 1st quarter GDP, reduced from the rounded 0.96 percentage point addition resulting from our improving foreign trade balance that had been 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 2.8% rate, revised from the 2.5% growth rate for government indicated by the 2nd estimate....real federal government consumption and investment was seen to have been unchanged from the 4th quarter in this estimate, which was revised from the 0.1% contraction rate shown in the 2nd estimate, as real federal outlays for defense grew at an unrevised 4.0% rate and added 0.15 percentage points to 1st quarter GDP, while all other federal consumption and investment shrunk at a 5.8% rate and subtracted 0.15 percentage points from GDP, revised from the 0.16 percentage point subtraction shown last month...meanwhile, real state and local consumption and investment grew at a 4.6% rate in the quarter, revised from the 4.0% growth rate in the 2nd estimate, and added 0.48 percentage points to 1st quarter GDP, which was revised from the 0.42 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...

May Personal Income up 0.5%, Spending up 0.4%; 2 Months PCE Would Add 2.32 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 metrics is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if May’s change in seasonally 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 news release for this report tell us "Personal income increased $88.6 billion (0.5 percent) in May", they mean that the annualized figure for seasonally adjusted personal income in May, $18,183.5 billion, was $88.6 billion, or a bit less than 0.5% greater than the annualized  personal income figure of $18,094.9 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 0.5%, from an annual rate of an annual rate of $15,956.3 billion in April to an annual rate of $16,028.8 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 $43.8 billion increase to $2,851.2 billion in interest and dividend income, a $14.3 billion increase to $9,079.1 billion in wages and salaries, and a $14.0 billion increase to $3,184.6 billion in personal current transfer receipts from benefit programs; again, those are all annualized figures...

For the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $59.7 billion annual rate, or by a little more than 0.4 percent, as the annual rate of PCE rose from $14,408.7 billion in April to $14,468.4 in May; that happened after the April PCE figure was revised up from the originally reported $14,393.4 billion annually and March PCE was revised from an annual rate of $14,352.5 billion to an annual rate of $14,329.2 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier....the current dollar increase in May spending included a $24.9 billion or 1.7% increase to an annualized $1,515.4 billion in spending for durable goods, $3.3 billion or 0.1% decrease to an annualized $2,969.7 billion in spending for non-durable goods and a $38.1 billion or 0.4% increase to $9,983.3 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 $62.1 billion to a $15,043.4 billion annual rate, which left national personal savings, which is disposable personal income less total outlays, at a $985.4 billion annual rate in May, up from the revised $975.0 billion annualized personal savings in April... however, the personal saving rate, which is personal savings as a percentage of disposable personal income, was statistically unchanged at 6.1% in May, after April's savings rate was revised from 6.2% to 6.1%...

As you know, before those personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report....that index rose from 109.546 in April to 109.726 in May, a month over month inflation rate that's statistically 0.1643%, which BEA reports as an increase of 0.2 percent, following a similarly rounded PCE price index increase of 0.3% they reported for April...applying that inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 0.2% in May, after an April real PCE increase of 0.2%....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 2012 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 13,186.5 billion annually, 0.0249% more than April's 13,153.7 billion, a difference that the BEA reports as 0.2%, even as the full decimal 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 13,061.6 billion in chained 2012 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 2012 dollar figures for April and May, 13,153.7 billion and 13,186.5 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 13170.1 billion to the 1st quarter real PCE representation of 13,061.6 billion,we find that 2nd quarter real PCE has grown at a 3.364% annual rate for the two months of the 2nd quarter we have data for at this point...(note the math used to get that annual growth rate: (((13,153.7 + 13,186.5) /2 ) / 13,061.6 ) ^ 4  = 1.0336435)....that's a pace that would add 2.32 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 1.3%, Shipments Up 0.4%, Inventories Up 0.5%

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 $3.3 billion or 1.3 percent to $243.4 billion in May, following a revised decrease of 2.8% to $246.7 billion in April’s new orders, which had originally been reported as a 2.1% decrease to $248.4 billion...however, year to date new orders are still running 1.0% higher than they were a year ago, despite those back to back decreases....as is usually the case, the volatile monthly change in new orders for transportation equipment was the reason for the May headline change, as those transportation equipment orders fell $3.9 billion or 4.6 percent to $80.0 billion, on a 28.2% decrease to $5,338 million in new orders for commercial aircraft and a 15.3% decrease to $4,534 million in new orders for defense aircraft.... excluding new orders for transportation equipment, other new orders rose 0.3% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 0.4% to $68,950 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, rose for the first time in 3 months, increasing by $0.9 billion or 0.4 percent to $254.1 billion....shipments of machinery led the increase, as they rose $0.4 billion or 1.1  percent to $33.4 billion, and also led shipments of nondefense capital goods excluding aircraft to a 0.7% increase to $70,086 million…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 10th time in 11 months, increasing by $2.1 billion or 0.5 percent to $424.6 billion, after the value of end of April inventories were revised from $422.6 billion to $422.5 billion, still a 0.4% increase from March...a $2.1 billion or 1.6 percent increase to $138.4 billion in the value of inventories of transportation equipment accounted for the May inventory increase, as inventories other of goods were little changed...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the third time in four months, decreasing by $6.4 billion or 0.5 percent to $1,171.2 billion, following a April decrease of 0.2% to $1,177.6 billion, revised from the 0.1% decrease to $1,179.1 billion reported a month ago...a $5.8 billion or 0.7 percent decrease to $803.6 billion in unfilled orders for transportation equipment was responsible for most of the decrease, but unfilled orders excluding transportation equipment orders were also down 0.2% to $367,583 million....compared to a year earlier, the unfilled order book for durable goods is just 0.8% above the level of last May, with unfilled orders for transportation equipment just 0.3% above their year ago level, dragged down by a 2.9% decrease in the backlog of orders for commercial aircraft...

New Homes Sales Reported Lower in May; Prices Also 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 626,000 homes annually during the month, which was 7.8 percent (±14.7 percent)* below the revised April rate of 679,000 new single family homes a year and 3.7 percent (±15.0 percent)* below 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 673,000 reported last month to a 679,000 annual rate, March's annualized home sale rate, initially reported at 662,000, was revised from last months upwardly revised figure of 723,000 to a 705,000 rate, while the annual rate of February's sales, initially reported at an annual rate of 667,000 and revised from a revised annual rate of 662,000 to a rate of 669,000 last month, were again revised with this report but remained statistically unchanged from last month's revised 669,000 annual rate...

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 60,000 new single family homes sold in May, down from the 67,000 new homes that sold in April, and down from the estimated 69,000 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 $308,000, down from the median sales price of $335,100 in April, and down from the median sales price of $316,700 in May of last year, while the average May new home sales price was $377,200, down from a $386,500 average price in April, but up from the average home sales price of $372,600 in May a year ago, while down from the average home sales price of $378,400 in May of two years ago....a seasonally adjusted estimate of 333,000 new single family houses remained for sale at the end of May, which represents a 6.4 month supply at the May sales rate, up from a 5.9 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 decreased to 626,000 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…)       

Sunday, June 23, 2019

May's reports on new home construction and existing home sales

The only widely watched reports that were released over the past week were the May report on New Residential Construction from the Census Bureau and the May report on existing home sales from the National Association of Realtors (NAR)....this week also saw the release of the first two Fed regional manufacturing reports for June: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index fell to -6.8, down from +17.8 in May, the largest monthly decrease on record, indicating a sudden contraction of First District manufacturing... meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions fell from +16.6 in May to +0.3 in June, its lowest reading since February, suggesting virtual stagnation in that region's manufacturing during the month....

New Housing Starts, Permits Little Changed in May

The May report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,269,000 in May, which was 0.9 percent (±12.9 percent)* below the revised April estimated annual rate of 1,281,000 housing units started, and was  4.7 percent (±8.9 percent)* below last May's rate of 1,332,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell from April to May, or even from May of last year, with the figure in parenthesis the most likely range of the change indicated; in other words, May’s housing starts could have just as easily been up by 12.0% or down by 13.8% from those of April, with even larger revisions possible...in this report, the annual rate for April housing starts was revised from the 1,235,000 estimated last month to 1,281,000, while March housing starts, which were first reported at a 1,139,000 annual rate, were revised from last month's initial revised annualized figure of 1,168,000 up to 1,199,000 annually with this report....

The annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 118,700 housing units were started in May, up from the 117,900 units started in April and the 98,200 units started in March...of those housing units started in May, an estimated 78,300 were single family homes and 39,200 were units in structures with more than 5 units, down from the revised 83,100 single family starts in April, but up from the 32,900 units started in structures with more than 5 units at the same time...

The monthly data on new building permits, with a smaller margin of error and hence usually smaller revisions, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in May, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,294,000 housing units, which was 0.3 percent (±1.3 percent)* above the revised April permit rate of 1,290,000 but 0.5 percent (±1.4  percent)* below the rate of permit issuance in May a year earlier….the annual rate for housing permits issued in April was revised from the 1,296,000 reported a month ago to 1,290,000...quoting the report for the annualized figures on the types of permits:  “Single‐family authorizations in May were at a rate of 815,000; this is 3.7 percent (±1.2 percent) above the revised April figure of 786,000.  Authorizations of units in buildings with five units or more were at a rate of 442,000 in May.”

Again, the annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 124,000 housing units were issued in May, up from the revised estimate of 118,700 new permits issued in April... that included permits for an estimated 81,200 single family units in May, up from 75,700 in April, and permits for 39,400 units in structures with more than 5 units, up from 38,900 in April….for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts at 1.269 Million Annual Rate in May and Comments on May Housing Starts...

Existing Home Sales Rose 2.5% in May; Median Price at a Record High

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales rose by 2.5% from April to May, projecting that 5.34 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was still 1.1% slower than the annual sales rate projected in May of a year ago...that came after an annual sales rate of 5.21 million homes in April, which was revised from the originally reported 5.19 million annual sales rate, and also an annual home sales rate of 5.21 million in March, thus revising the April report to unchanged from the previously reported 0.4% decrease...the NAR also reported that the median sales price for all existing-home types in May was $277,700, which topped the prior record median price of $273,800 set last June, and was 4.8% higher than in May a year earlier, which they report is "the 87th straight month of year-over-year gains"....the NAR press release, which is titled Existing-Home Sales Ascend 2.5% in May, 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 data indicates that roughly 540,000 homes sold in May, up by 18.4% from the 456,000 homes that sold in April and 0.9% more than the 535,000 homes that sold in May of last year, so we can see the effect of the seasonal adjustment to correct for the typical large springtime increase in home sales...that same pdf indicates that the median home selling price for all housing types rose 4.0%, from a revised $266,900 in April to $277,700 in May, while the average home sales price was at $314,000, up 3.0% from the $305,000 average in April, and up 3.4% from the $303,700 average home sales price of May a year ago, with the regional average home sales prices ranging from a low of $248,200 in the Midwest to a high of $420,900 in the West...for additional details and long term graphs on this report, see "NAR: Existing-Home Sales Increased to 5.34 million in May" and "Comments on May 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, June 16, 2019

May’s consumer and producer prices, retail sales, industrial production; April’s business inventories and JOLTS

Major reports released during the past week included the May Consumer Price Index, the May Producer Price Index, and the May Import-Export Price Index, all from the Bureau of Labor Statistics; the reports on Retail Sales for May and Business Sales and Inventories for April, both from the Census bureau; the report on Industrial Production and Capacity Utilization for May from the Fed, and the Job Openings and Labor Turnover Survey (JOLTS) for April from the Bureau of Labor Statistics...

May Consumer Prices Up 0.1% on Higher Food Prices, Rent

The consumer price index rose 0.1% in May as higher prices for food and shelter were partially offset by lower prices for energy and used cars…. the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index for urban consumers rose 0.1% in May after it had risen 0.3% in April, 0.4% in March, 0.2% in February, been unchanged in January, in December and in November, and had risen 0.3% in October, 0.1% in September, 0.1% in August, and 0.2% last July...the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to 100, rose from 255.548 in April to 256.092 in May, which left it statistically 1.790% higher than the 251.588 index reading in May of last year, which is reported as a 1.8% year over year increase....with higher prices for food and lower prices for energy having offsetting impacts on the overall index, seasonally adjusted core prices, which exclude food and energy, also rose by 0.1% for the month, as the unadjusted core price index rose from 262.332 to 262.590, which left the core index 1.989% ahead of its year ago reading of 257.469, which is reported as a 2.0% year over year increase, down from 2.1% in April...

The volatile seasonally adjusted energy price index fell 0.6% in May, after rising 2.9% in April, 3.5% in March, 0.4% in February, falling 3.1% in January, falling 2.6% in December, falling 2.8% in November, rising by 2.1% in October, and falling by 1.0% in September, and is now 0.5% lower than in May a year ago...the price index for energy commodities was 0.4% lower in April, while the index for energy services fell 0.8%, after falling by 0.1% in April ...the energy commodity index was down 0.4% due to a 0.5% decrease in the price of gasoline, the largest component, and a 0.3% decrease in the index for fuel oils, while prices for other energy commodities, including propane, kerosene, and firewood, averaged 0.9% higher...within energy services, the price index for utility gas service fell 1.0% after falling 0.8% in April and is now 2.6% lower than it was a year ago, while the electricity price index fell 0.8%, after it was unchanged in April ....energy commodities are now 0.3% lower than their year ago levels, with gasoline prices averaging 0.2% lower than they were a year ago, while the energy services price index is 0.7% lower than last May, as electricity prices are now also 0.2% lower than a year ago…

The seasonally adjusted food price index was 0.3% higher in April, after falling 0.1% in April, but after rising 0.3% in March, 0.4% in February, 0.2% in January, 0.3 in December, 0.2% in November, being unchanged in October, rising 0.1% in September, 0.1% in August, and 0.1% in July, as the price index for food purchased for use at home rose 0.3% in April, while the index for food bought to eat away from home was 0.2% higher, as prices at fast food outlets rose 0.2% and prices at full service restaurants also rose 0.2%, while food from vending machines and mobile vendors were on average 1.2% higher...

In the food at home categories, the price index for cereals and bakery products was 0.4% higher even though average bread prices fell 0.1%, because the price index for cakes, cupcakes, and cookies rose 1.1%, the price index for fresh biscuits, rolls, & muffins rose 1.3%, and the price index for other bakery products rose 1.5%....at the same time, the price index for the meats, poultry, fish, and eggs group was 0.8% higher, even as egg prices fell 2.2%, because fresh fish & seafood prices averaged 1.9% higher and the pork price index rose 2.4%...in addition, the seasonally adjusted index for dairy products was 0.7% higher, as both ice cream and cheese prices rose 0.7% and the price index for other dairy products rose 0.9%...on the other hand, the fruits and vegetables index was 0.8% lower on a 1.3% decrease in the price index for fresh fruits, and a 0.7% decrease in the price index for fresh vegetables, led by a 7.9% drop in lettuce prices....but the beverages index was 1.2% higher, as the index for noncarbonated juices and drinks rose 1.2% and carbonated drink prices were 1.0% higher...lastly, the index for the ‘other foods at home’ category was unchanged, as the index for fats and oils other than butter and margarine rose 1.8% while the index for frozen and freeze dried prepared foods fell 0.7%....the itemized list for price changes of over 100 separate food items is included at the beginning of Table 2 for this release, which also gives us a line item breakdown for prices of more than 200 CPI items overall...since last May, only eggs, which are down 15.6% from a year ago, are the only ‘food at home’ line items that have seen prices change by more than 10% over the past year...

Among the seasonally adjusted core components of the CPI, which rose by 0.1% in April after rising by 0.1% in April, 0.1% in March, 0.1% in February, and by 0.2% for the five months prior to that, after rising by 0.1% in August 0.2% in July, 0.2% in June, and by 0.2% last May, the composite price index of all goods less food and energy goods was 0.1% lower, 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 April retail sales for inflation in national accounts data, the index for household furnishings and supplies was up 0.3%, as the price index for dishes and flatware rose 5.0%, the price index for living room, kitchen, and dining room furniture rose 1.2%, while the price index for appliances was 0.8% lower....at the same time, the apparel price index was unchanged as a 2.5% increase in the price index for women's dresses was offset by a 1.4% decrease in the price index for men's suits, sport coats, and outerwear and a 2.5% decrease in the price index for boys & girls footwear...meanwhile, the price index for transportation commodities other than fuel was 0.4% lower even as prices for new cars rose 0.2%, as prices for new trucks fell 0.1% and prices for used cars and trucks fell 1.4%...likewise, prices for medical care commodities also averaged 0.4% lower as prescription drugs prices fell 0.2%....on the other hand, the recreational commodities index was 0.1% higher despite a 1.5% decrease in TV prices, as the index for recorded music and music subscriptions rose 1.0%, the price index for sports equipment rose 1.6%, and the price index for newspapers and magazines rose 2.2%....however, the education and communication commodities index was 0.5% lower on a 0.8% decrease in the index for educational books and supplies and a 1.0% decrease in the index for telephone hardware, calculators, and other consumer information items...lastly, a separate price index for alcoholic beverages was 0.4% higher on a 1.5% increase in wine at home prices, while the price index for ‘other goods’ rose 0.3% on a 1.5% increase in the price index for miscellaneous personal goods...

Within core services, the price index for shelter rose 0.2% on a 0.3% increase in rents, a 0.3% increase in homeowner's equivalent rent, and a 0.1% decrease in lodging away from home at hotels and motels, while the shelter sub-index for water, sewers and trash collection rose 0.2%, and household operation costs were on average 0.6% lower....at the same time, the price index for medical care services was 0.5% higher, as inpatient hospital services rose 0.6% and health insurance rose 1.5%...meanwhile, the transportation services index was 0.1% higher as car and truck rentals and airfares both rose 2.0% while vehicle repairs fell 0.7% and motor vehicle insurance fell 0.4%...on the other hand, the recreation services price index was 0.5% lower as the index for rental of video discs and other media fell 1.2% and admissions to sporting events fell 3.1%....meanwhile, the index for education and communication services was 0.2% higher as child care and nursery school tuitions rose 0.6% and land-line telephone services rose 0.5%....lastly, the index for other personal services was up 0.3% as the price index for tax return preparation and other accounting fees rose 3.6%...among core line items, prices for televisions, which are still 18.6% cheaper than a year ago, and the price index for telephone hardware, calculators, and other consumer information items, which is down by 13.8% since last May, have both seen prices drop by more than 10% over the past year, while the cost of health insurance, which is up by 12.4% over the past year, and the price index for infants' furniture, which has now increased 12.3% year over year, are the only line items to have increased by a double digit magnitude over that span....

May Retail Sales Up 0.5% After April Sales Revised 0.5% Higher

Seasonally adjusted retail sales rose 0.5% in May after retail sales for April were revised 0.5% higher....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $519.0 billion for the month, which was an increase of 0.5 percent (±0.5%)* from April's revised sales of $516.2 billion and 3.2 percent (±0.7 percent) above the adjusted sales of May of last year...April's seasonally adjusted sales were revised from the $513.4 reported last month to $516.4 billion, while March sales were revised from $514.3 billion to $514.7 billion, which means that March to April percent change was revised from down 0.2 percent (±0.5 percent)* to an increase of 0.3 percent (±0.1 percent)....estimated sales before seasonal adjustments, which were extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 7.5% before adjustment, from $511,071 million in April to $549,391 million in May, while they were up 3.5% from the $531,011 million of sales in May 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 double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from April to May in the first sub-column, and then the year over year percentage change for those businesses since last May in the 2nd column; the second pair of columns gives us the revision of last month’s April advance monthly estimates (now called "preliminary") as revised in this report, likewise for each business type, with the March to April change under "Mar 2019 r" (revised) and the revised April 2018 to April 2019 percentage change in the last column shown...for your reference, our copy of the table of last month’s advance April estimates, before this month's revision, is here....

May 2019 retail sales table

To compute May's real personal consumption of goods data for national accounts from this May retail sales report, the BEA will use the corresponding price changes from the May consumer price index, which we reviewed earlier...to estimate what they will find, we’ll first separate out the usually volatile sales of gasoline from the other totals...from the third line on the above table, we can see that May retail sales excluding the 0.3% increase in sales at gas stations were up by 0.6%....then, pulling the 0.1% decrease in grocery & beverage sales and the 0.7% increase in food services sales out from that total, we find that core retail sales were up by nearly 0.7% for the month...since the May CPI report showed that the the composite price index of all goods less food and energy goods was 0.1% lower in April, we can thus figure that real retail sales excluding food and energy, or real core PCE, will show an increase of almost 0.8%...however, the actual adjustment in national accounts for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were up 0.7%, the April price index for transportation commodities other than fuel was 0.4% lower, which would suggest that real sales at auto & parts dealers were something on the order of 1.1% higher once price decreases are taken into account... on the other hand, while nominal sales at furniture stores were 0.1% higher in May, the furniture price index was 0.7% higher, which means that real sales of furniture likely fell around 0.6%...

In addition to figuring those core retail sales, to make an estimate we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the May CPI report showed that the food price index was 0.3% higher, as the price index for food purchased for use at home rose 0.3% while the index for food bought away from home was 0.2% higher...thus, while nominal sales at food and beverage stores were 0.1% lower, real sales of food and beverages would have been around 0.4% lower in light of the 0.3% higher prices…meanwhile, the 0.7% increase in nominal sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests that real sales at bars and restaurants only rose around 0.5% during the month...on the other hand, while sales at gas stations were up 0.3%, there was also a 0.5% decrease in the price of gasoline during the month, which would suggest that real sales of gasoline were up on the order of 0.8% higher, with a caveat that gasoline stations do sell more than gasoline…by averaging those real sales figures with an appropriate weighting, and excluding food services, we’d estimate that the income and outlays report for May will show that real personal consumption of goods rose by around 0.6% in May, after rising by a revised 0.6% in April and by a revised 2.1% in March, but after falling by a 0.7% in February and rising by 0.7% in January...at the same time, the 0.5% increase in real sales at bars and restaurants should have a small positive impact on May's real personal consumption of services...

Industrial Production Up 0.4% in May; Capacity Utilization Up 0.2%

Industrial production increased in May after production for prior months was revised lower...the Fed's G17 release on Industrial production and Capacity Utilization for April reported that industrial production increased 0.4% in May after falling by a revised 0.4% in April, which left total output 2.0% higher than a year ago, up from last month's 0.9% year over year figure...the industrial production index, with it now benchmarked for average 2012 production to be equal to 100.0, rose from an unrevised 109.2 in April to 109.6  in May, after the March reading for the index was revised down from 109.7 to 109.6 and the February index was revised from 109.6 to 109.5...

The manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.2, from 104.6 in April to 104,8 in May, after the April manufacturing index was revised from 104.7 to 107.6, leaving manufacturing output just 0.7% higher than a year ago...in addition, the manufacturing index for March was revised from 105.2 to 105.1, the manufacturing index for February was also revised from 105.2 to 105.1, and the manufacturing index for January was revised up from 105.7 to 105.8....meanwhile, the mining index, which includes oil and gas well drilling, increased from 132.8 in April to 132.9 in May, after the April index was revised up from from the originally reported 132.4, which left the mining index 10.0% higher than it was a year earlier....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, rose 2.1% to 105.7 in May, after decreasing by a revised 3.1% in a warmer than normal April, and is now 0.2% above it's year earlier level...

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 78.1% in May from an unrevised 77.9% in April, after capacity utilization for March was revised down from 78.5% to 78.4%....capacity utilization for all manufacturing industries rose from a downwardly revised 76.1% in April to 76.2% in May, as utilization of NAICS durable goods production facilities rose from 75.5% in April to 75.6% in May, while capacity utilization for non-durables manufactures was unchanged at 76.8%....capacity utilization for the mining sector actually fell to 91.3% in May, from 91.6% in April, which was originally reported as 91.4%, while utilities were operating at 77.5% of capacity during May, up from the revised 76.1% of capacity during April, which was was originally reported at 76.2% ....for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories.... 

Producer Prices up 0.1% in May on Higher Margins for Transportation and Core Services

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.1% in May as prices for finished wholesale goods averaged 0.2% lower while average margins of final services providers rose 0.3%...that followed that followed an April report that had the PPi 0.2% higher, when prices for finished wholesale goods averaged 0.3% higher, while average margins of final services providers rose 0.1%, a March report that showed the PPI had increased by 0.6%, with prices for finished wholesale goods up 1.0% and margins of final services providers up 0.3%, a revised February report that showed the PPI had increased by 0.3%, with prices for finished wholesale goods on average 0.3% higher, while margins of final services providers rose by 0.2%, and a revised January report that showed the PPI was 0.3% lower, with prices for finished wholesale goods on average 0.6% lower, while margins of final services providers had decreased by 0.1%...on an unadjusted basis, producer prices are 1.8% higher than a year ago, down from the 2.2% year over year increase that had been indicated by last month's report...meanwhile, the core producer price index, which excludes food, energy and trade services, was up 0.4% for the month, and is now also 2.3% higher than in May a year ago, up from the 2.2% YoY increase shown a month ago...

As we noted, the price index for final demand for goods, aka 'finished goods', was 0.2% lower in May, after being 0.3% higher in April, 1.0% higher in March, 0.3% higher in February, 0.6% lower in January, 0.6% lower in December, 0.5% lower in November, 0.8% higher in October, and 0.1% lower in September....the finished goods index fell in May because the price index for wholesale energy was 1.0% lower, after rising 1.8% in April and 5.6% in March, while the price index for wholesale foods fell 0.3% after falling 0.2% in April, and while the index for final demand for core wholesale goods (excluding food and energy) was unchanged for the third time in four months...wholesale energy prices fell on a 1.7% decrease in the wholesale price for gasoline, a 5.7% drop in wholesale prices for diesel fuel, and 7.6% lower wholesale prices for liquefied petroleum gas, while the wholesale food price index fell on a 28.3% decrease in wholesale prices for fresh eggs and a 6.8% decrease in wholesale prices for fresh fruits and melons....among wholesale core goods, the wholesale price index for sporting and athletic goods rose 5.8% while wholesale prices for iron and steel scrap fell 8.3%..

At the same time, the index for final demand for services rose 0.3% in May, after rising 0.1% in April, 0.3% in March, 0.2% in February, but after falling a revised 0.1% in January, as the May index for final demand for trade services fell 0.5% in May while the index for final demand for transportation and warehousing services rose 0.7% and the core index for final demand for services less trade, transportation, and warehousing services was 0.5% higher....among trade services, seasonally adjusted margins for TV, video, and photographic equipment and supplies retailers fell 4.5%, margins for computer hardware, software, and supplies retailers fell 4.2%, and margins for apparel, jewelry, footwear and accessories retailers fell 5.2%, while margins for fuels and lubricants retailers rose 5.9%... among transportation and warehousing services, margins for airline passenger services rose 1.7% and margins for rail transportation of freight and mail rose 0.7%...among the components of the core final demand for services index, margins for guestroom rental jumped 10.1%, margins for arrangement of cruises and tours rose 8.4% and margins for traveler accommodation services rose 9.2%..

This report also showed the price index for intermediate processed goods fell 0.2% in May, after falling 0.1% in April, rising 0.8% in March, being unchanged in February, and falling a revised 0.9% in January...the price index for intermediate energy goods fell 1.4%, as refinery prices for gasoline fell 1.7% and refinery prices for residual fuels fell 5.7%, while producer prices for liquefied petroleum gas fell 7.6%...at the same time, prices for intermediate processed foods and feeds fell 0.5%, as the producer price index for prepared animal feeds fell 1.9%...on the other hand, the core price index for intermediate processed goods less food and energy rose 0.1% as producer prices for primary basic organic chemicals increased 5.8% while producer prices for hardwood lumber fell 2.2% and prices for softwood lumber fell 1.3%... prices for intermediate processed goods are now 0.6% higher than in May a year ago, the first year over year decrease following 29 months of year over year increases, which had been preceded by 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 5.1% in May after rising 2.7% in April, 2.3% in March, but after falling a revised 4.7% in February and a revised 4.6% in January....that was as the May price index for crude energy goods fell 8.2% as producer prices for natural gas dropped 15.2% and crude oil prices fell 6.2%, and as the price index for unprocessed foodstuffs and feedstuffs  fell 1.9% on a 4.0% decrease in producer prices for slaughter steers and heifers and an 8.4% drop in producer prices for slaughter turkeys...at the same time, the index for core raw materials other than food and energy materials fell 4.5%, as wastepaper prices fell 16.8%, prices for aluminum base scrap fell 12.0% and prices for iron & steel scrap declined 8.3%...this raw materials index is now 8.9% lower than a year ago, the largest year over year decrease in nearly 3 years...

Lastly, the price index for services for intermediate demand was unchanged in May, after rising 0.3% in April, 0.4% in March, being unchanged in February, rising 0.2% in January, and rising 0.1% in December and in November...the price index for intermediate trade services was 0.6% lower, as margins for intermediate metals, minerals, and ores wholesalers fell 1.9% and margins for intermediate machinery and equipment parts and supplies wholesalers fell 1.2%…on the other hand, the index for transportation and warehousing services for intermediate demand rose 0.4%, as the intermediate index for transportation of passengers (partial) rose 1.7%...meanwhile, the core price index for intermediate services less trade, transportation, and warehousing was unchanged, as the index for credit intermediation, incl. trust services (partial) rose 4.3% and the index for traveler accommodation services rose 9.2%....over the 12 months ended in May, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is still 2.5% higher than it was a year ago...

April Business Sales Down 0.2%, Business Inventories Up 0.5%

Following the release of the May retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for April(pdf), which incorporates the revised April retail data from that May report and 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 $1,462.0 billion in April, down 0.2 percent (±0.2 percent)* from March revised sales, but up 2.8 percent (±0.3 percent) from April sales of a year earlier...note that total March sales were revised from the originally reported $1,470.1 billion to $1,465.4 billion, and as a result the March increase from February was lowered from 1.6% to 1.3%....manufacturer's sales were down 0.5% from March at $504,087 million in April, while retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, rose 0.3% to $454,781 million, while wholesale sales fell 0.4% to $503,115 million..

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,029.8 billion at the end of April, up 0.5 percent (±0.1%) from March, and 5.3 percent (±0.5 percent) higher than in April a year earlier...the value of end of March inventories was revised from the $2,018.1 billion reported last month to $2,019.0 billion with this release, still considered statistically unchanged from February...seasonally adjusted inventories of manufacturers were estimated to be valued at $692,949 million, 0.3% higher than in March, inventories of retailers were valued at $661,291 million, 0.5% more than in March, while inventories of wholesalers were estimated to be valued at $675,538 million at the end of April, up 0.8% from March.

With the release of the factory inventory data last week, we judged that the real change in April factory inventories would have a negative impact on the growth rate of 2nd quarter GDP; on the other hand, with the release of the wholesale inventory figures a few days later, we hedged on whether the impact would be positive or negative….since the April producer price index reported that prices for finished goods were on average 0.3% higher, that means that the real increase in retail inventories was only around 0.2% for the month…so it appears that real retail inventories are also not keeping up with the 1st quarter increase in real retail inventories that was indicated by the key source data and assumptions (xls) in the second estimate of 1st quarter GDP, and hence are on pace to be a negative for 2nd quarter GDP...

Job Openings and Job Quitting Little Changed in April; Hiring and Firing Rose

The Job Openings and Labor Turnover Survey (JOLTS) report for April from the Bureau of Labor Statistics estimated that seasonally adjusted job openings slipped by 25,000, from 7,474,000 in March to 7,449,000 job openings in April, after March job openings were revised a bit lower, from 7,488,000 to 7,474,000...April’s jobs openings were still 4.8% higher than the 7,106,000 job openings reported for April a year ago, as the job opening ratio expressed as a percentage of the employed remained unchanged at 4.7% in April, while it was up from 4.6% a year ago...the greatest increase in April job openings was in construction, where openings rose by 40,000 to 404,000, while job openings in professional and business services fell by 172,000 to 1,241,000... (details on job openings by industry and region can be viewed in Table 1)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked to 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 April, seasonally adjusted new hires totaled 5,937,000, up by 240,000 from the revised 5,697,000 who were hired or rehired in March, as the hiring rate as a percentage of all employed rose from 3.8% to 3.9%, which was also up from the 3.8% hiring rate in April a year earlier (details of hiring by industry since December are in table 2)....meanwhile, total separations also rose, by 70,000, from 5,508,000 in March to 5,578,000 in April, as the separations rate as a percentage of the employed remained at 3.7%, which was also the separations rate in April a year ago (see table 3)...subtracting the 5,578,000 total separations from the total hires of 5,937,000 would imply an increase of 359,000 jobs in April, quite a bit more than the revised payroll job increase of 224,000 for April reported by the May establishment survey last week, and outside the expected +/-115,000 margin of error in these incomplete samplings, so one or both of these surveys is off on job creation data by a statistically significant amount...

Breaking down the seasonally adjusted job separations, the BLS finds that 3,482,000 of us voluntarily quit our jobs in April, up by 21,000 from the revised  3,461,000 who quit their jobs in March, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.3% of total employment, which was up from 2.2% a year earlier (see details in table 4)....in addition to those who quit, another 1,752,000 were either laid off, fired or otherwise discharged in April, up by 59,000 from the revised 1,693,000 who were discharged in March, as the discharges rate rose from 1.1% to 1.2% of all those who were employed during the month, which brought it back up to the 1.2% level of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 344,000 in April, down from 354,000 in March, for an 'other separations' rate of 0.2%, the same as in March, and the same as in April a year ago....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

 

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

Sunday, June 9, 2019

May's job report; April’s trade deficit, construction spending, factory inventories, and wholesale sales, et al

With the first Friday of June, the Employment Situation Summary for May from the Bureau of Labor Statistics was the key report released this past week; other major monthly government issued reports released during the week included the Commerce Dept’s report on our International Trade in Goods and Services for Aprilthe April report on Construction Spending (pdf), the Full Report on Manufacturers' Shipments, Inventories and Orders for April and the April report on Wholesale Trade, Sales and Inventories, all from the Census Bureau...in addition, this week also saw the Consumer Credit Report for April from the Fed, which showed that overall consumer credit, a measure of non-real estate personal debt, expanded by a seasonally adjusted $17.5 billion, or at a 5.2% annual rate, as non-revolving credit expanded at a 4.2% rate to $3,005.4 billion and revolving credit outstanding rose at a 7.9% rate to $1,064.5 billion...

Privately issued reports released this week included the ADP Employment Report for May and the light vehicle sales report for May from Wards Automotive, which estimated that vehicles sold at a 17.31 million annual rate in May, up from the 16.43 million annual rate of sales in April, and up from the 16.81 million annual rate in May a year ago, and the Mortgage Monitor for April (pdf) from Black Knight Financial Services, which indicated that 3.47% of mortgages were delinquent in April, down from 3.65% delinquent in March, and down from the 3.67% delinquency rate in April 2018, and that 0.50% of mortgages remained in the foreclosure process in April, down from 0.51% of all mortgages in March and down from 0.61% a year ago....

In addition, the week saw both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the May Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 52.1% in May, down from 52.8% in April, which suggests quite sluggish expansion in manufacturing firms nationally, and the May Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 56.9%, up from 55.5% in April, indicating a somewhat larger plurality of service industry purchasing managers reported expansion in various facets of their business in April...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 75,000 Jobs in May After Job Additions of Prior Months Revised 75,000 Lower

The Employment Situation Summary for May indicated anemic payroll job growth, while the employment rate, the unemployment rate, & the labor force participation rate were all unchanged…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 75,000 jobs in May, after the previously estimated payroll job increase for March was revised down from 189,000 to 153,000, while the payroll jobs increase for April was revised down from 263,000 to 224,000…with those revisions, that means that there was no net change in the number of seasonally adjusted payroll jobs from the number that was reported last month...the unadjusted data shows that there were actually 687,000 more payroll jobs extant in May than in April, as typical seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were reduced to a normal level by the seasonal adjustments…

Seasonally adjusted job increases were largely concentrated in the private service sector, as private goods producing sectors saw little employment increase and net jobs in various branches of government fell by 15,000....the broad professional and business services sector added 33,000 jobs, as 8,400 found employment with computer systems design and related services and 7,900 jobs were added by employment services...the health care and social assistance sector saw an increase of 24,000 jobs, with 7,000 of those in individual and family services and 7,900 more in doctor's offices...in addition, the leisure and hospitality sector added 26,000 more jobs than their usual May increase, with the addition of 16,900 more jobs in bars and restaurants...otherwise, the other major employment sectors, including mining, manufacturing, construction, wholesale trade, retail trade, transportation and warehousing, utilities, information, financial activities, and private education, all saw statistically insignificant changes in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 6 cents an hour to $27.83 an hour in May, after it had increased by 6 cents an hour in April; at the same time, the average hourly earnings of production and non-supervisory employees increased by 7 cents to $23.38 an hour....employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours in May, while hours for production and non-supervisory personnel was down a tenth of an hour at 33.6 hours...meanwhile, the manufacturing workweek was unchanged at 40.6 hours, while average factory overtime was unchanged at 3.4 hours...

At the same time, the seasonally adjusted extrapolation from the May household survey estimated indicated that the number of those who were employed rose an estimated 113,000 to 156,758,000, while the similarly estimated number of those who were unemployed rose by 64,000 to 5,888,000; which thus meant a rounded increase of 176,000 in the total labor force...since the working age population had grown by 168,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 8,000 to 96,215,000....meanwhile, the increase of those in the labor force as a percentage of the increasing working population was not enough to change the labor force participation rate, which remained at 62.8%....likewise, the smallish increase in number employed vis a vis the increase in the population was not enough to change the employment to population ratio, which we could think of as an employment rate, as it remained at 60.6%...in addition, the increase in the number counted as unemployed was not large enough to change the unemployment rate, which remained at 3.6%....on the other hand, the number who reported they were involuntarily working part time fell by 299,000 to 4,355,000 in May, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.3% in April to 7.1% in May, the lowest since December 2000...

A few caveats on this month;s report are in order: April temperatures were well above normal nationally, so some construction & other spring work got an earlier than normal start…on the other hand, May saw half the country blown away or flooded out, as it was the 2nd wettest May on record, with US temperatures in the bottom third of the historical average…those factors do not show up in the seasonal adjusted jobs data, which assumes seasonal weather…also remember the establishment survey only counts "non-farm payrolls", and doesn’t count the hundreds of thousands in the Midwest who are sitting on their hands because the fields are too wet to work…

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..  

April Trade Deficit Decreases 2.1% After March Trade Deficit Revised 3.8% Higher

our trade deficit decreased by 2.1% in April, after our March trade deficit was revised 3.8% higher, as both imports and exports decreased in April, but imports decreased by a greater amount...the Commerce Dept report on our international trade in goods and services for April indicated that our seasonally adjusted goods and services trade deficit fell by a rounded $1.1 billion to $50.8 billion in April, from a March deficit that was revised from the originally reported $50.0 billion to $51.9 billion, a revision which should result in a downward revision of about 0.14 percentage points to 1st quarter GDP when the third estimate is released at the end of June ...in rounded numbers, the value of our April exports fell by $4.6 billion, or 2.2 percent, to $206.8 billion on a $4.4 billion decrease to $136.9 billion in our exports of goods and a $0.2 billion decrease to $69.9 billion in our exports of services, while our imports fell by $5.7 billion, or 2.2 percent, to $257.6 billion on a $5.4 billion decrease to $208.7 billion in our imports of goods and a $0.3 billion decrease to $49.0 billion in our imports of services...export prices averaged 0.2% higher in April, so real exports were smaller than their nominal value by that percentage, while import prices were 0.2% higher, meaning that our real imports were likewise smaller than than their nominal value by that percentage..

The decrease in our April exports of goods came about largely as a result of lower exports of capital goods, of automotive goods, and of consumer goods....referencing the Full Release and Tables for April (pdf), in Exhibit 7 we find that our exports of capital goods fell by $2,723 million to $44,696 million as a $2,296 million decrease in our exports of civilian aircraft, a $221 million decrease in our exports of industrial engines, a $203 million decrease in our exports of electrical apparatuses and a $200 million decrease in our exports of measuring, testing, control instruments was partly offset by a increase of $340 million in exports of civilian aircraft engines, while our exports of automotive vehicles, parts, and engines fell by $752 million to $13,172 million on $438 million lower exports of passenger cars, and a $255 million decrease in our exports of parts and accessories of vehicles other than engines, chassis, and tires...in addition, our exports of consumer goods fell by $562 million to $17,293 million on a $441 million decrease in our exports of pharmaceutical preparations, our exports of industrial supplies and materials fell by $33 million to $44,628 million on a $822 million decrease in our exports of petroleum products other than fuel oil, which was offset by a $835 million increase in our exports of fuel oil, a $835 million increase in our exports of crude oil, a $835 million increase in our exports of natural gas liquids, while our exports of other goods not categorized by end use fell by $529 million to $5,076 million....meanwhile, our exports of foods, feeds and beverages rose by $109 million to $11,208 million on higher exports of wheat, corn, and animal feeds in the only export category to see an increase...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and indicates that lower imports of all categories of goods contributed to the April decrease in our imports...our imports of capital goods fell by $1,739 million to $55,617 million on a $871 million decrease in our imports of semiconductors, a $399 million decrease in our imports of civilian aircraft engines, and a $295 million decrease in our imports of computer accessories, and our imports of consumer goods fell by $1,099 million to $54,295 million on a $666 million decrease in our imports of gem diamonds, a $403 million decrease in our imports of cellphones, and a $304 million decrease in our imports of cotton apparel and household goods...in addition, our imports of automotive vehicles, parts and engines fell by $981 million to $30,907 million on a $601 million decrease in our imports of new and used passenger cars and a $281 million decrease in our imports of parts and accessories of vehicles other than engines, chassis, and tires, and our imports of industrial supplies and materials fell by $612 million to $44,568 million on a $703 million decrease in our imports of organic chemicals, and a $353 million increase in our imports of natural gas, which was partially offset by a $414 million increase in our imports fuel oil...meanwhile, our imports of foods, feeds, and beverages fell by $142 million to $12,845 million and our imports of other goods not categorized by end use fell by $807 million to $8,756 million...

The Full Release and Tables pdf for this report also gives us surplus and deficit details on our goods trade with selected countries:

The April figures show surpluses, in billions of dollars, with South and Central America ($4.2), Hong Kong ($2.4), Brazil ($0.9), and Singapore ($0.6). Deficits were recorded, in billions of dollars, with China ($29.4), European Union ($15.1), Mexico ($7.9), Japan ($6.5), Germany ($5.4), Italy ($3.1), Taiwan ($2.0), France ($2.0), Canada ($1.8), South Korea ($1.5), India ($1.3), United Kingdom ($0.4), Saudi Arabia ($0.2), and OPEC (less than $0.1).

  • • The deficit with the European Union decreased $1.0 billion to $15.1 billion in April. Exports decreased $0.4 billion to $27.0 billion and imports decreased $1.4 billion to $42.1 billion.
  • • The deficit with Canada decreased $0.9 billion to $1.8 billion in April. Exports decreased $0.4 billion to $24.6 billion and imports decreased $1.3 billion to $26.4 billion.
  • • The deficit with China increased $2.1 billion to $29.4 billion in April. Exports decreased $1.8 billion to $8.5 billion and imports increased $0.3 billion to $37.9 billion.

to gauge the impact of April’s trade on 2nd quarter 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 for inflation in chained 2012 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized in the table here...from this table, we can figure that 1st quarter real exports of goods averaged 150,609 million monthly in 2012 dollars, while inflation adjusted April exports were at 145,993 million in that same 2012 dollar quantity index representation... annualizing the change between those two figures, we find that April's real exports of goods were falling at a 11.7% annual rate from those of the 1st quarter, or at a pace that would subtract about 0.91 percentage points from 2nd quarter GDP if it were continued through May and June.....from that same table, we can figure that our 1st quarter real imports averaged 233,326.3 million monthly in chained 2012 dollars, while inflation adjusted April imports were at 227,905 million in that same 2012 dollar representation...that would indicate that so far in the 2nd quarter, our real imports have decreased at a 9.0% 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 9.0% rate would conversely add 1.13  percentage points to 2nd quarter GDP....hence, if the April trade deficit is maintained at the same level throughout the 2nd quarter, our improving balance of trade in goods would add about 0.22 percentage points to the growth of 2nd quarter GDP....note that we have not estimated the impact of the less volatile change in services here because the Census does not provide handy inflation adjusted data on those, and we don't have easy access to the details on their price changes..

Construction Spending Little Changed in April; Real Construction Down at a 5.2% Rate from Q1

The Census Bureau's report on construction spending for April (pdf) estimated that the month's seasonally adjusted construction spending was at a $1,298.5 billion annual rate during the month, statistically unchanged (±1.3 percent)* from the revised March annualized rate of $1,299.2 billion, but 1.2 percent (±1.5 percent)* below the estimated annualized level of construction spending in April of last year...the annualized March construction spending estimate was revised 1.3% higher, from $1,282.2 billion to $1,299.2 billion, while the annual rate of construction spending for February was revised 0.7% lower, from $1,306.4 billion to $1,297.8 billion...taken together, those revisions would suggest an upward revision of around 0.21 percentage points to 1st quarter GDP when the third estimate is released at the end of June...

A further breakdown of the different subsets of construction spending is provided in a Census summary, which precedes the detailed spreadsheets:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $954.0 billion, 1.7 percent (±1.0 percent) below the revised March estimate of $970.4 billion. Residential construction was at a seasonally adjusted annual rate of $499.3 billion in April, 0.6 percent (±1.3 percent)* below the revised March estimate of $502.4 billion. Nonresidential construction was at a seasonally adjusted annual rate of $454.7 billion in April, 2.9 percent (±1.0 percent) below the revised March estimate of $468.0 billion.
  • Public Construction: In April, the estimated seasonally adjusted annual rate of public construction spending was $344.6 billion, 4.8 percent (±2.5 percent) above the revised March estimate of $328.7 billion. Educational construction was at a seasonally adjusted annual rate of $80.0 billion, 2.1 percent (±2.6 percent)* above the revised March estimate of $78.3 billion. Highway construction was at a seasonally adjusted annual rate of $114.3 billion, 6.8 percent (±8.6 percent)* above the revised March estimate of $107.0 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 as government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of April's construction spending reported in this release on 2nd quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...there are many different price indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf) that are used by the BEA to make those inflation adjustments, so in lieu of trying to adjust for price changes for all of those types of construction separately, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed for an estimate...that index showed that aggregate construction costs were up 1.6% from March to April, up 0.2% from February to March but down 0.1% from January to February....

On that basis, we can estimate that April construction costs were roughly 1.8% greater than those of February and 1.7% greater than those of January, and obviously 1.6% greater than those of March...we then use those percentages to inflate spending for each of those three months, which is arithmetically the same as deflating April construction spending against the first quarter, for comparison purposes...construction spending in millions of dollars for the first quarter is given as 1,299,161 for March, 1,297,819 for February, and 1,284,654 for January...thus to find the difference between April's inflation adjusted construction spending and the adjusted construction spending of the first quarter, our formula becomes: 1,298,547 / (( 1,299,161 * 1.016 + 1,297,819 * 1.018 + 1,284,654 * 1.017) / 3) = 0.98683, meaning real construction spending in April was actually down roughly 1.3% vis a vis the 1st quarter, or down at a 5.16% annual rate....to figure the potential effect of that change on 2nd quarter GDP,  we take the annualized difference between the first quarter average inflation adjusted construction spending and April's adjusted spending as a fraction of the real annualized 1st quarter GDP figure, and thus can estimate that real April construction spending was falling at a rate that would subtract about 0.42 percentage points from the growth of 2nd quarter GDP…

Factory Shipments Down 0.5% in April, Factory Inventories Up 0.3%

The April Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $4.0 billion or 0.8 percent to $499.3 billion in April, following an increase of 1.3% to $503.3 billion in March, which was revised from the 1.9% increase to $508.2 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 April advance report on durable goods we reported on two weeks ago...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 April, down two of the last three months, decreased $4.0 billion or 0.8 percent to $499.3 billion, the U.S. Census Bureau reported today.  This followed a 1.3 percent March increase.  Shipments, down following two consecutive monthly increases, decreased $2.7 billion or 0.5 percent to $504.1 billion.  This followed a 0.2 percent March increase.  Unfilled orders, down two of the last three months, decreased $0.6 billion or 0.1 percent to $1,179.3 billion.  This followed a 0.1 percent March increase.  The unfilled orders‐to‐shipments ratio was 6.69, up from 6.61 in March.  Inventories, up seven of the last eight months, increased $1.8 billion or 0.3 percent to $692.9 billion.  This followed a 0.4 percent March increase.  The inventories‐to‐shipments ratio was 1.37, up from 1.36 in March.
  • New orders for manufactured durable goods in April, down two of the last three months, decreased $5.2 billion or 2.1 percent to $248.6 billion, unchanged from the previously published decrease.  This followed a 1.7 percent March increase.  Transportation equipment, also down two of the last three months, drove the decrease, $5.3 billion or 5.9 percent to $85.5 billion.  New orders for manufactured nondurable goods increased $1.2 billion or 0.5 percent to $250.7 billion.
  • Shipments of manufactured durable goods in April, down three of the last four months, decreased $3.9 billion or 1.5 percent to $253.4 billion, up from the previously published 1.6 percent decrease.  This followed a 0.5 percent March decrease.  Transportation equipment, down four consecutive months, led the decrease, $3.7 billion or 4.1 percent to $85.9 billion.  Shipments of manufactured nondurable goods, up three consecutive months, increased $1.2 billion or 0.5 percent to $250.7 billion.  This followed a 0.9 percent March increase.  Petroleum and coal products, also up three consecutive months, led the increase, $1.1 billion or 2.0 percent to $56.2 billion.
  • Unfilled orders for manufactured durable goods in April, down two of the last three months, decreased $0.6 billion or 0.1 percent to $1,179.3 billion, unchanged from the previously published decrease.  This followed a 0.1 percent March increase.  Transportation equipment, also down two of the last three months, led the decrease, $0.4 billion or virtually unchanged to $810.7 billion. 
  • Inventories of manufactured durable goods in April, up nine of the last ten months, increased $1.7 billion or 0.4 percent to $422.4 billion, unchanged from the previously published increase.  This followed a 0.3 percent March increase.  Transportation equipment, also up nine of the last ten months, led the increase, $1.5 billion or 1.1 percent to $136.1 billion.   Inventories of manufactured nondurable goods, up four consecutive months, increased $0.2 billion or 0.1 percent to $270.5 billion.  This followed a 0.5 percent March increase.  Petroleum and coal products, also up four consecutive months, drove the increase, $0.5 billion or 1.3 percent to $42.2 billion.  By stage of fabrication, April materials and supplies increased 0.1 percent in durable goods and decreased 0.2 percent in nondurable goods.  Work in process increased 0.9 percent in durable goods and was virtually unchanged in nondurable goods.  Finished goods were virtually unchanged in durable goods and increased 0.3 percent in nondurable goods. 

To estimate the effect of those April 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 0.2% to $241,338 million; the value of work in process inventories rose 0.7% to $213,239 million, and the value of materials and supplies inventories was little changed at $238,372 million...the April producer price index reported that prices for finished goods were on average 0.3% higher, that prices for intermediate processed goods were on average 0.1% lower, while prices for unprocessed goods were 2.7% higher....assuming similar valuations for like types of inventories, that would suggest that April's real finished goods inventories were about 0.1% smaller, that real inventories of intermediate processed goods were roughly 0.8% greater, and real raw material inventory inventories were about 2.7% lower, with a caveat on the later that the entire raw material price increase in April was in food & energy goods; core raw materials prices were down 1.2%....still, since real NIPA factory inventories were somewhat larger in the 1st quarter, and this report seems to indicate a modest decrease in April’s real inventories, it appears that the real change in April factory inventories will have a noticeable negative impact on the growth rate of 2nd quarter GDP...

April Wholesale Sales Down 0.4%, Wholesale Inventories Up 0.8%

The April report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $503.1 billion, down 0.4 percent (+/-0.5%) from the revised March level, but up 2.7 percent (±0.7 percent) from wholesale sales of April 2016... the March preliminary sales estimate was revised from the $507.4 billion reported last month to $505,145 million, which meant the February to March percent change was revised from the preliminary estimate of an increase of 2.3 percent (±0.5 percent) to an increase of 1.8 percent (±0.5 percent)....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 on the shelf or in intermediate storage represent goods that were produced but not sold, and this April report estimated that wholesale inventories were valued at a seasonally adjusted $675.5 billion at month end, an increase of 0.8 percent (+/-0.4%) from the revised March level and 7.6 percent (±1.2 percent) higher than in April a year ago, with the March preliminary estimate revised from $669.9 billion to $670.1 billion at the same time, now statistically unchanged from February....

That small upward revision to March wholesale inventories is not likely to have a statistical impact on the coming 1st quarter GDP revision...meanwhile, April wholesale inventories, after an adjustment for price changes for each category of wholesale goods as indicated by the components of the April producer price index, appears to indicate a modest real wholesale inventory increase heading into the 2nd quarter, which still might fall short of the $10.7 billion increase in real wholesale inventories that was indicated by the key source data and assumptions (xls) in the second 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…)