Sunday, July 28, 2019

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

The key economic release of the past week was the 1st, or advance estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which was accompanied by an annual revision to national accounts data over the prior five years.....the other widely watched releases of the past week included the June advance report on durable goods and the June report on new home sales, both from the Census bureau, and the June report on existing home sales from the National Association of Realtors (NAR)..in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for June, a weighted composite index of 85 different economic metrics, which rose from a upwardly revised -0.03 in May to -0.02 in June...that bumped the 3 month average of the index to -0.26 in June, up from a downwardly revised -0.27 in May, indicating national economic activity has been somewhat below the historical trend during the 2nd quarter...

This week also saw the release of two more regional Fed manufacturing surveys for July: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell from +2 in June to −12 in  July, its lowest reading since January 2013 and suggesting a contraction of that region's manufacturing; and the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index fell to  -1 in July, down from readings of 0 in June and +4 in May, suggesting continued stagnation of the 10th District's manufacturing...

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

The Advance Estimate of 2nd Quarter GDP from the Bureau of Economic Analysis released on Friday included an annual revision over the past 5 years of GDP releases, revising previously published data from the first quarter of 2014 through the first quarter of 2019, which on net indicated that economic growth over the period from 2014 to 2019 was at a 2.4% annual rate, the same net growth over the period that was previously published....in addition to revisions to the first quarter of 2019, this report showed that the GDP growth rate for 2014 was unchanged from the previously reported 2.5%; that the growth rate for 2015 was unchanged from the previously reported 2.9%, that the GDP growth rate for 2016 was unchanged from the previously reported 1.6%, that the growth rate of 2017 was revised from the previously reported 2.2% to 2.4%, and that the growth rate for 2018 was unchanged from the previously reported 2.9%...although those annual numbers seem to show little revision, there was still considerable revision on a quarter to quarter basis; for instance, the 4th quarter of 2018, which had previously been recorded with a 2.2% growth rate, was revised to show that it had now only grown at a 1.1% rate….that revision led some media outlets who calculate yearly GDP from 4th quarter to 4th quarter to report that 2018’s GDP had been revised from 3.0% to 2.5%, which we feel is an inaccurate representation of year over year GDP because it omits the output of the first 3 quarters of both years...

Over the 2014  to 2018 period, personal consumption grew at a 3.0% rate, statistically unchanged from what was previously reported...private investment, on the other hand, saw its five year growth rate revised lower, from 3.9% to 3.6%, and exports only grew at a 1.6% over the period, also revised down from 1.8%...meanwhile, imports grew at a 4.4% annual rate over those 5 years, statistically unchanged from previously reports, while the growth of government investment and consumption was revised to a 1.3% rate from the 1.0% rate that had been indicated by reports prior to this revision...

The growth rate of first quarter of 2019, which had been reported at 3.1% when we reviewed it a month ago, remained the same as previously published, as downward revisions to exports, state and local government spending, and private inventory investment were offset by upward revisions to personal consumption expenditures and federal government spending...the first quarter PCE growth rate was revised from 0.9% to 1.1%, the growth rate of first quarter exports was revised from 5.4% to 4.1%, the first quarter growth rate of the federal government was revised to 2.2% from unchanged, while the growth rate of state and local governments was revised from 4.6% to 3.3%...first quarter growth in current dollar spending was revised from a 3.8% rate to a 3.9% rate, while the PCE price index for the first quarter was revised from +0.5% to +0.4%...

All those revisions should leave you with the sense to take this initial advance estimate of 2nd quarter growth, which was released on Friday with some of June's data still not reported, with a grain of salt...the BEA cautions that the 2nd quarter source data is incomplete and also subject to revisions, which have historically averaged +/-0.6% in either direction from the advance to the third estimate, and +/- 1.2% from the advance estimate to the final reading...note that June construction and non-durables inventory data have yet to be reported, and that information on the assumptions used for those reports and unavailable source data for this advance estimate is explained in a technical note that is posted with the news release, and references an Excel file with key source data and assumptions...

The Advance Estimate of 2nd Quarter GDP indicated that the real output of goods and services produced in the US grew at a 2.1% annual rate over the output of the 1st quarter of this year, which we have just seen grew at a 3.1% rate...the slower 2nd quarter growth was due to downturns in inventory investment, exports, and nonresidential fixed investment, which were partly offset by greater grown in PCE and federal government spending.  In current dollars, our second quarter GDP grew at a 4.61% annual rate, increasing from what would work out to be a $21,098.8 billion a year rate in the 1st quarter to a $21,337.9  billion annual rate in the 2nd quarter, with the headline 2.1% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.4% were applied to the current dollar change of the components, as we will illustrate below...

While we cover the details on the 2nd quarter, remember that the GDP news release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts.   For our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the 1st estimate of 2nd quarter GDP, which we find linked to on the BEA's GDP page, which also links to just the tables on Excel and other technical notes.  Specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually since 2007 and quarterly since 2012, table 2, which shows the contribution of each of the components to the GDP figures for those 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...

Personal consumption expenditures (PCE), which accounts for roughly 69% of GDP, grew at a 6.7% rate in current dollars in the 2nd quarter, up from the first quarter’s spending increase at a revised 1.5% rate, but once the inflation adjustments were made with the PCE price indices for each quarter, real PCE rose 4.3% in the 2nd quarter after rising 1.1% in the first...consumer spending for durable goods rose at a 11.0% rate on big increases in spending for both motor vehicles and recreational goods and vehicles, but since the weighted prices for those durable goods fell at a 1.6% rate, the real output of durable goods represented by that spending increased at a 12.9% rate...at the same time, current dollar consumer spending for non durable goods rose at 9.5% rate, but the PCE price index for non-durable goods rose by 3.3%, meaning real growth in consumption of non durable goods was at a 6.0% rate...similarly, the 5.3% current dollar growth in personal spending for services was reduced by a 2.7% PCE services deflator to show real 2nd quarter growth in services was at a 2.5% rate...thus, with strong real growth in all components of personal consumption expenditures, real growth in output of consumer durable goods added 0.86 percentage points to the change in GDP, real growth in non-durable goods output for consumers added 0.81 percentage points to 2nd quarter GDP growth, and real growth in services provided to consumers added 1.17 percentage points to the change in 2nd quarter GDP...

Just as personal consumption expenditures are adjusted for inflation using the PCE price indices to arrive at real PCE, the other current dollar components of GDP are also adjusted for inflation with the price indexes shown in table 4 of the GDP pdf to yield the real change in the output of goods or services.....hence, real gross private domestic investment, which had risen at a 6.2% annual rate in the 1st quarter as investment in inventories soared, shrunk at a 5.5% annual rate in the 2nd quarter, as both fixed investment and inventory growth contracted...real non residential fixed investment shrunk at a 0.8% annual rate as real investment in non-residential structures fell at a 10.6% rate, real investment in equipment grew at a 0.7% rate, and investment in intellectual property grew at 4.7% rate...hence, investment in real non residential fixed investment subtracted 0.08 percentage points from the growth in 2nd quarter GDP as real investment in non-residential structures subtracted 0.34 percentage points, real investment in equipment added 0.04 percentage points to the change in GDP, and investment in intellectual property added 0.22 percentage points to the change in GDP....in addition, residential investment fell at a 1.5% rate and subtracted 0.06 percentage points from the 2nd quarter's GDP, leaving the total fixed investment contribution at minus 0.14 percentage points...for an easy to read table as to what's included in each of those investment categories, see the NIPA Handbook, Chapter 6, page 3...

Meanwhile, slower growth in inventories also reduced gross investment and hence GDP, as real private inventories grew by an inflation adjusted $71.7 billion in the quarter, down from the revised $116.0 billion of inflation adjusted inventory growth now reported for the first quarter, and as a result the $44.3 billion reduction in real inventory growth subtracted 0.86 percentage points from the 2nd quarter's growth rate, after an inflation adjusted $23.0 billion increase in inventory growth in the 1st quarter had added 0.53 percentage points to that quarter's GDP growth rate...however, smaller inventories indicate that less of the goods produced during the quarter were left "sitting on the shelf”, so their quarter over quarter decrease by $48.7 billion meant that real final sales of GDP were relatively greater by that much, and hence real final sales of GDP grew at a 3.0% rate in the 2nd quarter, after real final sales had increased at a 2.6% rate in the 1st quarter, when the increase in inventories had a negative impact on real final sales of GDP…

After adjustment for higher export and import prices, real exports decreased in the 2nd quarter, while real imports eked out an increase... our real exports of goods and services decreased at a 5.2% rate in the second quarter, after rising at a 4.1% rate in the 1st quarter, while our real imports rose at a 0.1% rate in the 2nd quarter after falling at a 1.5% rate in the 1st quarter...as you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted in GDP elsewhere), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced here....thus the 2nd quarter decrease in real exports subtracted 0.63 percentage points to 2nd quarter GDP, after exports had added 0.49 percentage points to first quarter GDP...at the same time, since imports subtract from GDP, their increase at a 0.1% rate subtracted 0.01 percentage points from 2nd quarter GDP, after the decrease in first quarter imports had added 0.23 percentage points to that quarter's growth...as a result, our deteriorating trade balance subtracted a rounded total of 0.65 percentage points from 2nd quarter GDP growth, after an improved trade deficit had added 0.73 percentage points to GDP growth in the first quarter..

Finally, real consumption and investment by branches of government rose at a 5.0% annual rate in the 2nd quarter, after increasing at a 2.9% rate in the first quarter, as federal government consumption and investment grew at a 7.9% rate and state and local consumption and investment grew at a 3.2% rate...inflation adjusted federal spending for defense rose at a 2.8% rate and that added 0.11 percentage points to 2nd quarter GDP growth, while real non-defense federal consumption and investment grew at a 15.9% rate and added 0.40 percentage points to GDP....note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services....meanwhile, state and local government investment and consumption expenditures, which grew at a 3.2% annual rate, added 0.35  percentage points to the quarter's growth rate, as an increase in real state and local investment at a 14.1% rate accounted for most of the increase...

June Durable Goods: New Orders Up 2.0%, Shipments Up 1.4% Inventories Up 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for June (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $4.9 billion or 2.0 percent to $246.0 billion, following a revised drop of 2.3% to $241.0 billion in May's new orders, which had originally been reported as a 1.3% decrease to $243.4 billion...however, year to date new orders are now shown unchanged from those of 2018, vs the 1.0% year over year change we saw in this report last month, as last June’s orders were 2% higher...as is usually the case, the volatile monthly change in new orders for transportation equipment led this month's headline change, as those transportation equipment orders rose $3.0 billion or 3.8 percent to $80.5 billion, on a 75.5% increase to $6,236 million in new orders for commercial aircraft and supported by a 3.1% increase to $62,561 million in new orders for motor vehicles and parts....still, excluding new orders for transportation equipment, other new orders were up 1.2% in June, as the important new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, were up 1.9% to $70,146 million...

The seasonally adjusted value of June's shipments of durable goods, which were inputs into various components of 2nd quarter GDP after their nominal value was adjusted for price changes, increased by $3.5 billion or 1.4 percent to $258.2 billion, after the value of May shipments were revised from a 0.4% increase to $254.1 billion to a 0.5% increase to $254.6 billion....a $2.6 billion or 3.1 percent increase to $88.8 billion in shipments of transportation equipment was the major contributor, as the value of shipments of commercial aircraft rose 6.0% to $11,130 million and the value of shipments of motor vehicles motor vehicles rose 3.1% to $57,917 million...excluding that volatile sector, the value of other shipments of durable goods rose 0.5%, as new orders for nondefense capital goods excluding aircraft were up 0.6% to $70,389 million, an increase which was reflected in the otherwise weak 2nd quarter GDP equipment investment figures....

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the eleventh time in 12 months, increasing by $1.3 billion or 0.3 percent to $425.8 billion, after the value of May's inventories was revised from $424.6 billion to $424.5 billion, still a 0.5% increase from April...an increase in inventories of transportation equipment was the major factor in the June inventory decrease, as they rose $1.1 billion or 0.8 percent to $139.6 billion, on a 1.2% increase in inventories of nondefense aircraft and parts...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, fell for the 4th time in five months, decreasing by $7.8 billion or 0.7 percent to $1,160.4 billion, following a May decrease of 0.8% to $1,168.2 billion, which was revised from the 0.5% decrease to $1,171.2 billion reported last month... a $8.3 billion or 1.0 percent decrease to $792.6 billion in unfilled orders for transportation equipment was responsible for the June decrease, as unfilled orders excluding transportation equipment were up 0.1% to $367,807million....compared to a year earlier, the unfilled order book for durable goods is now 0.5% below the level of last June, with unfilled orders for transportation equipment 1.3% below their year ago level, reflecting the impact of a 3.9% decrease in the backlog of orders for commercial aircraft...  

New Home Sales Reported Higher in June After Prior Month's Sales Revised Lower

The Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 646,000 homes annually, which was 7.0 percent (±15.2 percent)* above the revised May rate of 604,000 new single family home sales annually and 4.5 percent (±21.8 percent)* above the estimated annual rate that new homes were selling at in May of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May or even from those in June a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in May were revised from the 626,000 annual rate reported last month to a 604,000 a year rate, April's annualized home sale rate, initially reported at 673,000, were revised from last months upward revision to 679,000 down to 658,000, while March's sales, at initially reported at an annual rate 662,000, and revised from a 723,000 rate to an annual rate of 705,000 last month, were now revised back to an annual rate of 693,000...

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 57,000 new single family homes sold in June, down from the 58,000 new homes that sold in May, the 64,000 new homes that sold in April, and the 68,000 new homes that sold in March....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in June was $310,400, up from the median sale price of $303,500 in May, but down from the median price of $310,500 in June of last year, while the average June new home sales price was $368,600, down from the $371,200 average in May, and down from the average sales price of $370,100 in June a year ago....a seasonally adjusted estimate of 336,000 new single family houses remained for sale at the end of June, which represents a 6.3 month supply at the June sales rate, down from the 6.7 month supply in May, which was originally reported as a 6.4 month supply....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 646,000 Annual Rate in June and A few Comments on June New Home Sales...

Existing Home Sales Down 1.7% in June, Prices at a Record High

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell by 1.7% from May to June, projecting that 5.27 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was also 2.2% below the annual sales rate projected for June of a year ago...that came after an annual sales rate of 5.36 million homes in May, revised from the 5.34 million rate reported a month ago, and an annual home sales rate of 5.21 million in April...the NAR also reported that the median sales price for all existing-home types was at a record high $285,700 in June, up from the prior record of $278,200 set in May and 4.3% higher than in June a year earlier, which they report as "the 88th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Falter 1.7% in June", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process..

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 527,000 homes sold in June, down by 2.7% from the 542,000 homes that sold in May, and down by 7.5% from the 570,000 homes that sold in June of last year...that same pdf indicates that the median home selling price for all housing types rose 2.7%, from a revised $278,200 in May to a record $285,700 in June, while the average home sales price was at a record $321,600, up 2.2% from the $314,600 average price in May, and up 3.1% from the $311,900 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $258,600 in the Midwest to a high of $422,500 in the West, both of which are also record highs...for additional coverage with long term graphs on this report, see "NAR: Existing-Home Sales Decreased to 5.27 million in June" and "Comments on June Existing Home Sales" from Bill McBride at Calculated Risk...

 

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

Sunday, July 21, 2019

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

Major reports that were released this week included Retail Sales for June, the Business Sales and Inventories Report for May, and the June report on New Residential Construction, all from the Census Bureau, and the June report on Industrial Production and Capacity Utilization from the Fed...the week also saw the release of the the June Import-Export Price Index, and the Regional and State Employment and Unemployment Report for June from the Bureau of Labor Statistics, and the first two regional Fed manufacturing indexes for July: the Empire State Manufacturing Survey from the New York Fed, which covers New York state, southwestern Connecticut, and northern New Jersey, reported their headline general business conditions index rose from to -6.8 in June to +4.3 in July, suggesting a return to slow growth for First District manufacturing, while the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from +0.3 in June to +21.8 in July, suggesting a suddenly robust expansion of that region's manufacturing...

June Retail Sales Up 0.4% After May Sales Revised 0.3% Lower

Seasonally adjusted retail sales rose 0.4% in June after retail sales for April and May were revised lower....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $519.9 billion during the month, which was a increase of 0.4 percent (±0.5%)* from May's revised sales of $517.7 billion, and 3.4 percent (±0.7 percent) above the adjusted sales of June of last year...May's seasonally adjusted sales were revised from the $519.0 billion reported last month to $517.7 billion, while April sales were also revised lower, from $516.2 billion to $515.545 billion, and hence the change from April to May was revised to an increase of 0.4% from the 0.5% increase reported a month ago...the downward revision of nearly $2.0 billion in sales for those two months would subtract almost $8 billion from the reported annual rate of 2nd quarter PCE, which would in turn subtract roughly 17 basis points to our previous estimate of the contribution of April and May PCE to 2nd quarter GDP...estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 5.1% in June, from $547,255 million in May to $519,429 million in June, while they were up just 1.8% from the $510,029 million of sales in June a year ago...

Included below is the table of the monthly and yearly percentage changes in sales by business type taken from the retail Census pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each type of retail business from May to June and the year over year percentage change for those businesses since last June; the second pair of columns gives us the revised figures for May's report, with April to May and the May 2018 to May 2019 change shown; for your reference, our copy of this table as it appeared in the May report, before this month's revisions, is here....lastly, the third pair of columns shows the percentage change of the recent 3 months of sales (April, May and June) from the preceding three months (January, February and March) and from the same three months of a year ago....

June 2019 retail sales table

To compute June's real personal consumption of goods data for national accounts from this June retail sales report, the BEA will use the corresponding price changes from the June consumer price index, which we reviewed last week….to estimate what they will find, we’ll first pull out the usually volatile sales of gasoline from the other totals...from the third line on the above table, we can see that June retail sales excluding the 2.8% drop in sales at gas stations were up by 0.7%....then, separating out the 0.5% increase in grocery & beverage sales and the 0.9% increase in food services sales out from that total, we find that core retail sales were also up by 0.7% for the month...since the June CPI report showed that the the composite price index of all goods less food and energy goods was 0.4% higher in June, we can thus figure that real retail sales excluding food and energy, or real core PCE, will show an increase of about 0.3% for the month...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 0.8%, the June price index for transportation commodities other than fuel was 0.6% higher, which would suggest that real sales at auto & parts dealers were only 0.2% higher once price increases are taken into account... similarly, while nominal sales at clothing stores were 0.5% higher in June, the apparel price index was 1.1% higher, which means that real sales of clothing likely fell around 0.6%...

In addition to figuring those core retail sales, to make a complete estimate of real June PCE, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the June CPI report showed that the food price index was unchanged, as the price index for food purchased for use at home fell 0.2% while the index for food bought away from home was 0.3% higher...thus, while nominal sales at food and beverage stores were 0.5% higher, real sales of food and beverages would have been around 0.7% higher in light of the 0.2% decrease in prices…meanwhile, the 0.9% increase in nominal sales at bars and restaurants, once adjusted for 0.3% higher prices, suggests that real sales at bars and restaurants only rose around 0.6% during the month...at the same time, while sales at gas stations were down 2.8%, there was concurrently a 3.6% decrease in the price of gasoline during the month, which would suggest that real sales of gasoline were actually on the order of 0.8% higher, with a caveat that gasoline stations sell more than gasoline, and we haven’t accounted for those other sales…by averaging those estimated real sales figures with a sales appropriate weighting, and excluding food services, we’d estimate that the income and outlays report for June will show that real personal consumption of goods rose by around 0.4% in June, after rising by a revised 0.2% in May and by a revised 0.2% in April, after rising 2.1% in March, falling by 1.0% in February and rising by 1.1% in January...at the same time, the 0.6% increase in real sales at bars and restaurants should have a modest positive impact on June's real personal consumption of services...

Industrial Production Unchanged in June on Cool Temperatures

The Fed's G17 release on Industrial production and Capacity Utilization for June indicated that seasonally adjusted industrial production was unchanged in June after rising by 0.4% in May but falling by a revised 0.5% in April, and is now up just 1.3% from a year ago, as it fell at a 1.2% annual rate in the 2nd quarter, after falling at a 1.9% rate in the first quarter...to the extent that this report plays into GDP, that 2nd quarter decrease suggests a net subtraction from GDP of that magnitude across the components that this report covers...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, was at 109.6 in both May and June, up from an unrevised 109.2 in April, after the March reading for the IP index was revised up from 109.6 to 109.7, and the February index was revised from 109.5 to 109.6...

The manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.4%, from 104.8 in May to 105.2 in June, after the March index was revised from 105.1 to 105.2, and the February manufacturing index was revised from 105.1 to 105.3...meanwhile, the mining index, which includes oil and gas well drilling, increased for the 3rd consecutive month, rising from 133.7 in May to a record high of 134.0 in June, after the May index was revised up from the originally reported 132.9, which means it's now 8.7% higher than it was a year ago....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 3.6% to 101.9 June, after rising by a revised 2.4% to 105.7 in May, which means it's now 2.6% below its year earlier reading...

This report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry fell to 77.9% in June from an unrevised 78.1% in May....capacity utilization for all manufacturing industries rose from 75.6% to 75.9%, as capacity utilization by NAICS durable goods production facilities rose from 75.6% in May to 75.8 in June, while capacity utilization for NAICS non-durables rose from 76.6% to 76.9%....capacity utilization for the mining sector slipped to 91.5% in June, from 91.7% in May, which was originally reported as 91.3%, while utilities were operating at 74.6% of capacity during June, down from a revised 77.6% May, which was originally published as 77.5%...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....

Business Sales Up 0.2% in May, Business Inventories Up 0.4%

Following the release of the June retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for May(pdf), which incorporates the revised May retail data from that June report and the earlier published wholesale and factory data for May 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 $1,461.4 billion in May, up 0.2  percent (±0.2 percent) from April’s revised sales, and up 1.5 percent (±0.4 percent) from May sales of a year earlier...note that total April sales were revised from the originally reported $1,462.0 billion to $1,459.04 billion but the decrease from March remained unchanged at -0.2%...manufacturer's sales were up 0.1% from April at $504,263 million in May, and retail trade sales, which exclude restaurant & bar sales from the revised May retail sales reported earlier, rose 0.3% to $453,738 million, while wholesale sales rose 0.1% to $503,388 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,036.4 billion at the end of May, up 0.3 percent (±0.1%) from April, and 5.3 percent (±0.4 percent) higher than in May a year earlier...the value of end of April inventories were revised but statistically unchanged from the $2,029.8 billion reported last month...seasonally adjusted inventories of manufacturers were estimated to be valued at $694,136 million, 0.2% more than in April, while  inventories of retailers were valued at $664,117 million, 0.4% more than in April, and inventories of wholesalers were estimated to be valued at $678,142 million at the end of May, also up 0.4% from April...

In national accounts reports, the various categories of business inventories will be adjusted for price changes using item appropriate price indexes from the producer price index....with the release of wholesale inventories data last week, we figured there would be at least a 0.6% real increase in May wholesale inventories after such an adjustment, following a small increase in April, while the adjusted factory inventory data from the prior week also indicated a real increase of a similar magnitude, following a decrease in April...with prices for finished goods on average 0.2% lower in May, this report suggests that real retail inventories also increased at a rate near 0.6%...however, since 1st quarter real business inventories had seen the largest jump since the second quarter of 2015, it still seems 2nd quarter inventory growth is unlikely to meet that pace and hence would have a modest negative impact on 2nd quarter GDP...

New Housing Construction and Building Permits Down in June

The June 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 1,253,000 in June, which was 0.9 percent (±7.9  percent)* below the revised May estimated annual rate of 1,265,000 units started, but  6.2 percent (±7.8 percent)* above last June's pace of 1,225,000 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 a month ago, or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, June's housing starts could have been down by 1.6% or up by as much as 14.0% from those of a year ago, with eventual revisions outside of that range also possible...in this report, the annual rate for May housing starts was revised from the 1,269,000 units reported last month to 1,265,000, while April starts, which were first reported at a 1,235,000 annual rate, were revised down from last month's initial revised figure of 1,281,000 annually to a 1,270,000 annual pace 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 Census field agents, which estimated that 117,500 housing units were started in June, down from the 118,400 units started in May but up from the 116,600 starts in April...of those housing units started in June, an estimated 81,600 were single family homes and 35,000 were units in structures with more than 5 units, up from the revised 78,100 single family starts but down from the the 39,300 units  started in structures with more than 5 units in May...

The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and broadly revised housing starts data...in June, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,220,000 housing units, which was 6.1 percent (±1.2 percent) below the revised May rate of 1,299,000 permits, and 6.6 percent (±1.1 percent) below the rate of building permit issuance in June a year earlier...the annual rate of housing permits issued in May was revised from the 1,294,000 reported last month to 1,299,000....

Again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 110,100 housing units were issued in June, down from the revised estimate of 124,300 new permits issued in May...the June permits included 74,100 permits for single family homes, down from 80,600 in May, and 36,100 permits for housing units in apartment buildings with 5 or more units, down from 40,600 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts at 1.253 Million Annual Rate in June and Comments on June Housing Starts...

 

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

Sunday, July 14, 2019

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

Major reports released this past week included the June Consumer Price Index, the June Producer Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) for May, all of which came from the Bureau of Labor Statistics, and the May report on Wholesale Trade, Sales and Inventories from the Census Bureau....the week also saw the Consumer Credit Report for May from the Fed, which indicated that overall consumer borrowing expanded by a seasonally adjusted $17.1 billion, or at a 5.0% annual rate, as non-revolving credit expanded at a 3.9% rate to $3,016.2 billion while revolving credit outstanding grew at a 8.2% rate to $1,071.7 billion...

Consumer Prices Up 0.1% in June on Higher Housing & Clothing Costs

The consumer price index was 0.1% higher in June, as lower prices for groceries and energy partially offset higher prices for housing, clothing, used vehicles, and most services ...the Consumer Price Index  Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.1% in June after rising 0.1% in May, 0.3% in April, 0.4% in March, 0.2% in February, and after it had 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 256.092 in May to 256.143 in June, which left it statistically 1.648% higher than the 251.989 index reading of June of last year, which is reported as a 1.6% year over year increase....with flat prices for food and lower prices for energy offsetting the overall index, seasonally adjusted core prices, which exclude food and energy, rose by 0.3% for the month, as the unadjusted core price index rose from 262.590 to 263.177, which left the core index 2.127% ahead of its year ago reading of 257.697, which is reported as a 2.1% year over year increase, up from the 2.0% year over year increase shown in May...

The volatile seasonally adjusted energy price index fell 2.3% in June, after falling 0.6% in May, rising 2.9% in April, rising 3.5% in March, rising 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 3.4% lower than in June a year ago...the price index for energy commodities was 3.5% lower in June, while the index for energy services fell 0.7%, after falling by 0.8% in May....the energy commodity index was down 3.5% due to a 3.6% decrease in the price of gasoline, the largest component, and a 2.3% decrease in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, averaged 1.7% lower...within energy services, the price index for utility gas service fell 0.3% after falling 1.0% in May and is now 2.1% lower than it was a year ago, while the electricity price index fell 0.8% for the second month in a row....energy commodities are now 5.4% lower than their year ago levels, with gasoline prices also averaging 5.4% lower than they were a year ago, while the energy services price index is 0.7% lower than last June, as electricity prices are now also 0.3% lower than a year ago…

The seasonally adjusted food price index was unchanged in June, after rising 0.3% in May, 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% last July, as the price index for food purchased for use at home fell 0.2% in June, while the index for food bought to eat away from home was 0.3% higher, as prices at fast food outlets were unchanged while prices at full service restaurants rose 0.6% and food  at employee sites and schools were on average 0.9% higher...

In the food at home categories, the price index for cereals and bakery products was 0.6% lower as average bread prices fell 1.0%, the price index for sweetrolls, coffeecakes, doughnuts fell 1.3%, and the price index for fresh biscuits, rolls, & muffins fell 1.5%...at the same time, the price index for the meats, poultry, fish, and eggs group was 0.7% lower, as beef and veal prices fell 1.3%, ham prices fell 4.0%, egg prices fell 2.0%, and fresh fish & seafood prices averaged 1.1% lower...on the other hand, the seasonally adjusted index for dairy products was 0.3% higher, even as ice cream prices fell 2.2%, as milk prices rose by an average of 0.5% on a 1.4% increase in prices for fresh whole milk...meanwhile, the fruits and vegetables index was 0.5% lower on a 1.4% decrease in the price index for fresh vegetables, led by a 3.0% drop in potato prices....in addition, the beverages index was 0.6% lower, even though roast coffee prices rose 2.2%, as carbonated drink prices were 2.0% lower and the index for other beverage materials including tea fell 1.3%...lastly, the index for the ‘other foods at home’ category was 0.7% higher, as the index for sugar and sweets rose 1.3%, peanut butter prices rose 3.2%, and the snack food index rose 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 June, just prices for eggs, which are down 12.4% from a year ago, is the only line item in the ‘food at home’ category with a price change of more than 10% over the past year...

Among the seasonally adjusted core components of the CPI, which rose by 0.3% in June after rising by 0.1% in May, 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, and by 0.2% last June, the composite price index of all goods less food and energy goods was 0.4% higher, while the more heavily weighted composite for all services less energy services was 0.3% higher....among the goods components, which will be used by the Bureau of Economic Analysis to adjust June retail sales for inflation in national accounts data, the price index for household furnishings and supplies was up 0.3%, as the price index for dishes and flatware rose 6.1%, the price index for living room, kitchen, and dining room furniture rose 1.3%, while the price index for laundry equipment was 0.7% lower....at the same time, the apparel price index was 1.1% higher on a 6.3% increase in the price index for women's outerwear, a 6.8% increase in the index for girl's apparel and a 2.0% increase in the price index women's footwear... in addition, the price index for transportation commodities other than fuel was 0.6% higher as prices for new cars rose 0.2%, prices for used cars and trucks rose 1.6%, and the index for motor oil, coolant, and fluids rose 0.7%...on the other hand, prices for medical care commodities averaged 0.2% lower as prescription drugs prices fell 0.6%....meanwhile, the recreational commodities index was 0.1% lower on a 2.4% decrease in TV prices, even as the index for photographic equipment and supplies rose 1.1% and the price index for sports vehicles including bicycles rose 1.0%....in addition, the education and communication commodities index was 0.8% lower on a 1.6% decrease in the index for computers, peripherals, and smart home assistant devices and a 0.8% decrease in the index for telephone hardware, calculators, and other consumer information items...lastly, a separate price index for alcoholic beverages was 0.3% higher, while the price index for ‘other goods’ fell 0.3% on a 1.7% decrease in the price index for miscellaneous personal goods...

Within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.3% increase in homeowner's equivalent rent, and despite a 0.7% decrease in lodging away from home at hotels and motels, as the shelter sub-index for water, sewers and trash collection rose 0.3%, and household operation costs were on average 2.8% higher on a 6.1% increase in gardening and lawncare services....at the same time, the price index for medical care services was 0.4% higher, as dental services rose 1.1% and health insurance rose 1.3%...meanwhile, the transportation services index was unchanged as car and truck rentals rose 4.0% while ship fares fell 2.9% and airline fares fell 0.9%....the recreation services price index was 0.2% lower as the index for photo processing fell 1.8% and the index for entertainment admissions fell 0.9%....on the other hand, the index for education and communication services was 0.2% higher as child care and nursery school tuitions rose 0.4% and technical and business school tuition and fees rose 0.5%....lastly, the index for other personal services was up 0.1% as the price index for apparel services other than laundry and dry cleaning rose 1.0%...among core line items, prices for televisions, which are now 19.7% cheaper than a year ago, and the price index for telephone hardware, calculators, and other consumer information items, which is down by 14.0% since last June, have both seen prices drop by more than 10% over the past year, while the cost of health insurance, which is now up by 13.7% over the past year, and the price index for infants' furniture, which has increased 11.3% year over year, are the only line items to have increased by a double digit magnitude over that span....

Producer Prices Up 0.1% in June on Higher Margins for Trade Services

the seasonally adjusted Producer Price Index (PPI) for final demand was up 0.1% in June, as prices for finished wholesale goods decreased 0.4%, while margins of final services providers increased by 0.4%...this followed a May report that indicated the PPI was 0.1% higher, as prices for finished wholesale goods averaged 0.2% lower while average margins of final services providers rose 0.3%, an April report that had the PPI 0.2% higher, as prices for finished wholesale goods averaged 0.3% higher, while average margins of final services providers rose 0.1%, a revised 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%, and a revised February report that showed the PPI had increased by 0.2%, with prices for finished wholesale goods on average 0.3% higher, while margins of final services providers rose by 0.2%....on an unadjusted basis, producer prices are 1.7% higher than a year ago, down from the 1.8% 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 unchanged for the month, and is now 2.1% higher than in June a year ago, down from the 2.3% YoY increase shown for May...

As we noted, the price index for final demand for goods, aka 'finished goods', was 0.4% lower in June, after being 0.2% lower in May, 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 June because the price index for wholesale energy was 3.6% lower, after falling 1.0% in May, rising 1.8% in April and 5.6% in March, while the price index for wholesale foods rose 0.6% after falling 0.3% in May, and while the index for final demand for core wholesale goods (excluding food and energy) was unchanged for the third month in a row....wholesale energy prices fell on a 5.0% decrease in wholesale prices for gasoline, a 13.3% drop in wholesale prices for diesel fuel, and 22.2% lower wholesale prices for liquefied petroleum gas, while the wholesale food price index rose on a 24.7% increase in wholesale prices for fresh eggs, a 19.9% increase in wholesale corn, and a 13.7% increase in wholesale prices for fresh fruits and melons....among wholesale core goods, the wholesale price index for industrial chemicals rose 0.6% while wholesale prices for iron and steel scrap fell 8.9%..

At the same time, the index for final demand for services rose 0.4% in June, after rising 0.3% in May, 0.1% in April, 0.3% in March, and 0.2% in February, as the index for final demand for trade services rose 1.3% in June and the index for final demand for transportation and warehousing services rose 0.3%, while the core index for final demand for services less trade, transportation, and warehousing services was unchanged.... among trade services, seasonally adjusted margins for fuels and lubricants retailers rose 12.2%, margins for health, beauty, and optical goods retailers rose 4.0%, margins for computer hardware, software, and supplies retailers rose 2.2%, and margins for automobile retailers rose 3.1%, while margins for cleaning supplies and paper products retailers fell 2.6%... among transportation and warehousing services, margins for truck transportation of freight rose 1.0% and margins for airline passenger services  fell 0.6%...among the components of the core final demand for services index, margins for consumer loan services (partial) rose 2.5% while margins for traveler accommodation services fell 4.0%..

This report also showed the price index for intermediate processed goods fell 1.1% in June, after falling 0.2% in May, 0.1% in April, rising a revised 0.7% in March, and rising a revised 0.1% in February...the price index for intermediate energy goods fell 4.9%, as refinery prices for gasoline fell 5.0% and refinery prices for residual fuels fell 14.8%, while producer prices for liquefied petroleum gas fell 22.2%...at the same time, prices for intermediate processed foods and feeds fell 0.3%, as the producer price index for meats fell 2.6%... in addition, the core price index for intermediate processed goods less food and energy fell 0.1% as producer prices for steel mill products decreased 2.0% and producer prices for softwood lumber fell 1.7%... prices for intermediate processed goods are now 2.7% lower than in June a year ago, the second 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 3.3% in June, after falling 5.1% in May, rising 2.7% in April, but after the previously reported 2.3% March increase was revised to unchanged, while the February decrease was revised from 4.7% to 2.5%....that was as the May price index for crude energy goods fell 7.2% as crude oil prices fell 14.7%, and as the price index for unprocessed foodstuffs and feedstuffs fell 0.1% as an 18.5% decrease in producer prices for slaughter hogs and a 10.1% drop in producer prices for slaughter chickens were mostly offset by a 19.9% increase in producer prices for corn...at the same time, the index for core raw materials other than food and energy materials fell 0.5%, as wastepaper prices fell 15.8% and prices for iron & steel scrap declined 8.9%...this raw materials index is now 11.0% lower than a year ago, the largest year over year decrease in more than 3 years...

Lastly, the price index for services for intermediate demand rose 0.2% in June, after being unchanged in May, 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 1.1% higher, as margins for intermediate paper and plastic product wholesalers rose 1.3% and margins for intermediate machinery and equipment parts and supplies wholesalers rose 2.5%…at the same time, the index for transportation and warehousing services for intermediate demand rose 0.1%, as the intermediate index for truck transportation of freight rose 1.0% while the intermediate index for air transportation of freight fell 0.6%...meanwhile, the core price index for intermediate services less trade, transportation, and warehousing also rose 0.1%, as the index for radio advertising time sales rose 2.2% and the intermediate index for loan services rose 2.1% while the index for portfolio management dropped 1.8%....over the 12 months ended in June, the year over year  price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.6% higher than it was a year ago...

Job Openings, Hiring, Firings, and Job Quitting All Down in May

The Job Openings and Labor Turnover Survey (JOLTS) report for May from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 49,000, from 7,372,000 in April to 7,323,000 in May, after April’s record job openings were revised 126,000 lower, from 7,449,000 to 7,323,000...May jobs openings were still 2.8% higher than the 7,126,000 job openings reported in May a year ago, while the job opening ratio expressed as a percentage of the employed fell from 4.7% in April to 4.6% in May, which is the same as it was in May a year ago...the greatest drop in May job openings was in the transportation, warehousing, and utilities sector, where openings fell by 60,000 to 295,000, while job openings in health care and social assistance rose by 87,000 to 1,194,000 (see table 1 for more details)...like most BLS releases, the press release for report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in May, seasonally adjusted new hires totaled 5,725,000, down by 266,000 from the revised 5,991,000 who were hired or rehired in April, as the hiring rate as a percentage of all employed fell from 4.0% to 3.8%, and was also down from the hiring rate of 3.9% in May a year earlier (details of hiring by industry since January are in table 2)....meanwhile, total separations also fell, by 192,000, from 5,687,000 in April to 5,495,000 in May, while the separations rate as a percentage of the employed fell from 3.8% to 3.6%, while it was also down from the separations rate of 3.7% in May a year ago (see table 3)...subtracting the 5,495,000 total separations from the total hires of 5,725,000 would imply an increase of 230,000 jobs in May, quite a bit more than the revised payroll job increase of 72,000 for May reported by the June 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 for the 2nd month in a row...

Breaking down the seasonally adjusted job separations, the BLS reports that a record 3,425,000 of us voluntarily quit their jobs in May, down by 91,000 from the revised 3,516,000 who quit their jobs in April, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.3% of total employment, while it was still up from 2.2% a year earlier (see details in table 4)....in addition to those who quit, another 1,760,000 were either laid off, fired or otherwise discharged in May, down by 70,000 from the revised 1,830,000 who were discharged in April, as the discharges rate remained at 1.2% of all those who were employed during the month, same as the 1.2% discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 310,000 in May, down from 341,000 in April, for an 'other separations' rate of 0.2%, same as in April and as in May a year ago....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

May Wholesale Sales Up 0.1%, Wholesale Inventories Up 0.4%

The May report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $503.4 billion in May, up 0.1 percent (+/-0.4%) from the revised April level, and up 0.4 percent (±0.9 percent)* from the value of wholesale sales in May 2018... the April preliminary estimate of wholesale sales was revised from the $503.1 billion reported a month ago to $502.9 billion, which left the March to April percent change unrevised from the preliminary estimate of down 0.4 percent (±0.5%)* ...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

On the other hand, the monthly change in private inventories is a major factor in GDP, as any goods left on the shelf or in intermediate storage represent goods that were produced but not sold, and this May report estimated that wholesale inventories were valued at a seasonally adjusted $678.1 billion at month end, an increase of 0.4 percent (+/-0.2%) from the revised April level and 7.7 percent (±1.1 percent) higher than in May a year ago, with the April preliminary estimate revised from $675.5 billion to $675.7 billion at the same time, still a 0.8% increase from March...

For national accounts purposes, May wholesale inventories will be adjusted for price changes by category with the appropriate components of the May producer price index, which indicated a 0.2% decrease in prices for finished goods, a 0.2% increase in prices for intermediate goods, and a 5.1% decrease in prices for unprocessed goods....thus there will be at least a 0.6% real increase in May wholesale inventories, following the modest real increase we had figured for April...nonetheless, those increases do not appear to be enough to exceed the increase in real first quarter inventories, which had been the largest jump since the second quarter of 2015, and hence it still seems that slower growth in inventories will have a negative impact on 2nd quarter GDP...

 

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

Sunday, July 7, 2019

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

In addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, this week's economic releases included three major May reports that will input into 2nd quarter GDP: the BEA's report on our International Trade for May, and the May report on  Construction Spending, and the Full Report on Manufacturers' Shipments, Inventories and Orders for May, both from the Census Bureau....

Privately issued reports released this week included the ADP Employment Report for June and the light vehicle sales report for June from Wards Automotive, which is the source data for the BEA report and which estimated that vehicles sold at a 17.21 seasonally adjusted annual rate in June, down from the 17.31 million rate in May, and down from the 17.38 annual rate in June of 2018....this week also saw the Mortgage Monitor for May (pdf) from Black Knight Financial Services, which indicated that 3.36% of mortgages were delinquent in May, down from 3.47% delinquent in April, and down from the 3.64% delinquency rate in May 2018, and that 0.49% of mortgages remained in the foreclosure process in May, down from 0.50% of all mortgages in April and down from 0.59% a year ago, and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 51.7% in June, down from 52.1% in May, which suggests slightly slower growth in manufacturing firms nationally, and the June Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) fall to 55.1%, down from 56.9% in May, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their businesses in June...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally... 

Employers Add 224,000 Jobs in June, Unemployment Rate Rises 0.1% to 3.7%

The Employment Situation Summary for June indicated payroll job growth a bit above the past year's average, while the unemployment rate rose because more previously uncounted individuals began to look for work…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 224,000 jobs in June, after the payroll job increase for May was revised down from 75,000 jobs to 72,000, and the April increase was revised down from 224,000 jobs to 216,000, which means that the combined number of jobs created over those two months was 11,000 less than was previously reported....the unadjusted data shows that there were actually 707,000 more payroll jobs extant in June than in May, as large seasonal job increases that are typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…

Seasonally adjusted job increases were spread through throughout government and the private goods producing and service sectors, while only the retail sector saw a seasonally adjusted loss of 5,800 jobs, on a decrease of 5,500 workers in clothing stores...the broad professional and business services sector added 51,000 jobs, as 7,200 more were employed by computer systems design services and 5,100 more found work in services to buildings and dwellings.... employment in health care and social assistance rose by 50,500, with the addition of 11,200 jobs in hospitals and 8,900 in child day care services...various branches of government hired an additional 33,000 in June, with 26,400 of those added by local governments outside of school districts....in addition, the transportation and warehousing sector added 23,900 employees, led by an increase of 6,500 couriers and messengers....and even after a downward seasonal adjustment of 133,000 jobs, the construction sector still saw 21,000 more jobs than normal, as nonresidential specialty trade contractors hired 11,900 more than they would in a normal June...also, after four months of little change, manufacturing industries added 17,000 workers in June, with the addition of 6,500 in the manufacture of computer and electronic products....meanwhile, the other major sectors, including wholesale trade, leisure and hospitality, information, financial activities, and private education all saw smaller increases in payroll employment over the month…

The establishment survey also showed that average hourly pay for all employees rose by 6 cents to $27.90 an hour in June, after it had increased by an upwardly revised 9 cents an hour in May; at the same time, the average hourly earnings of production and non-supervisory employees increased by 4 cents to $23.43 an hour...employers also reported that the average workweek for all private payroll employees was unchanged at 34.4 hours, while hours for production and non-supervisory personnel were also unchanged at 33.6  hours...meanwhile, the manufacturing workweek rose by 0.1 hour to 40.7 hours, while factory overtime was unchanged at 3.4 hours..

At the same time, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 247,000 to 157,005,000, while the similarly estimated number of those unemployed rose by 87,000 to 5,975,000; which together meant that June saw a rounded net increase of 335,000 in the total labor force...since the working age population had grown by 176,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 158,000 to 96,057,000....the increase of those in the labor force was enough to raise the labor force participation rate by 0.1% to 62.9%....on the other hand, the increase in number employed vis-a-vis the increase in the population was not great enough to increase the employment to population ratio, which we could think of as an employment rate, as it remained unchanged at 60.6%...however, the increase in the number counted as unemployed was apparently large enough to bump the unemployment rate up from 3.6% to 3.7%....meanwhile, even though the number who reported they were involuntarily working part time fell by 8,000 to 4,347,000 in June, the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", still rose from 7.1% in May to 7.2% in June, in another case of a fractional statistical change resulting in a reported increase..

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

May Trade Deficit Rose 8.4% on Higher Imports of Crude, Automotives, et al

Our trade deficit increased by 8.4% in May as the value of both our exports and our imports increased, but our imports increased by more than twice as much....the Commerce Department report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit rose by $4.3 billion to $55.5 billion in May, from a April deficit of $51.2 billion, which was revised up from the $50.8 billion deficit reported for April last month...the value of our May exports rose by $4.2 billion to $210.6 billion on a $3.9 billion increase to $140.8 billion in our exports of goods and a $0.3 billion increase to $69.8 billion in our exports of services, while our imports rose $8.5 billion to $266.2 billion on a $8.3 billion increase to $217.0 billion in our imports of goods and a $0.2 billion increase to $49.2 billion in our imports of services...export prices were on average 0.2% lower in May, so the month's change in real exports was greater than their nominal change by that percentage, while import prices were 0.3% lower, meaning that our real imports were likewise greater than their nominal value by that percentage..

The increase in our May exports can be accounted for by higher exports of capital goods, consumer goods, automotive products, and of foods, feeds, and beverages, while there was a relatively smaller decrease in exports of industrial supplies and materials....referencing the Full Release and Tables for the May trade report (pdf), in Exhibit 7 we find that our exports of capital goods rose by $1,351 million to $46,075 million, led by an increase of $479 million in our exports of civilian aircraft and an increase of $364 million in our exports of telecommunications equipment, and that our exports of consumer goods rose by $816 million to $18,106 million, led by a $268 million increase in our exports of gem diamonds and a $254 million increase in our exports of jewelry...in addition, our exports of foods, feeds and beverages rose by $728 million to $11,940 million on a $727 million increase in our exports of soybeans, our exports of automotive vehicles, parts, and engines rose by $625 million to $13,798 million on $476 million greater exports of passenger cars, and our exports of other goods not categorized by end use rose by $641 million to $5,718 million....slightly offsetting those increases, our exports of industrial supplies and materials fell by $206 million to $44,396 million on a $622 million decrease in exports of fuel oil and a $303 decrease in our exports of non-monetary gold, which were partially offset by a $275 million increase in our exports of crude oil...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that greater imports of everything except food and pharmaceuticals contributed to the big increase in our May imports...our imports of automotive vehicles, parts and engines rose by $2,326 million to $33,234 million on a $1517 million increase in our imports of new and used passenger cars and a $567 million increase in our imports of parts and accessories of vehicles other than engines, chassis, and tires, and our imports of industrial supplies and materials rose by $1,800 million to $46,392 million on a $1,267 million increase in our imports of crude oil, a $467 million decrease in our imports of organic chemicals, and a $364 million increase in our imports of petroleum products other than fuel oil...in addition, our imports of capital goods rose by $1637 million to $57,251 million on increases of $507 million in our imports of semiconductors,  $422 million in our imports of computers, and $325 million in our imports of computer accessories, and our imports of consumer goods rose by $1350 million to $55,646 million on a $634 million increase in our imports of cell phones, a $266 million increase in our imports of clothing and textiles other than those of wool and cotton, a $234 million increase in our imports of furniture and household goods and a $233 million increase in our imports of artwork and antiques, even as our imports of pharmaceuticals fell by $1,273 million...meanwhile, our imports of other goods not categorized by end use rose by $1,018 million to $9,773 million, while our imports of foods, feeds, and beverages fell by $58 million to $12,786 million....

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

The May figures show surpluses, in billions of dollars, with South and Central America ($4.1), Hong Kong ($2.6), Singapore ($0.6), Brazil ($0.5), Saudi Arabia (less than $0.1), and United Kingdom (less than $0.1). Deficits were recorded, in billions of dollars, with China ($30.1), European Union ($16.9), Mexico ($9.1), Japan ($6.0), Germany ($5.8), Canada ($3.6), Italy ($2.6), France ($2.1), India ($1.9), Taiwan ($1.5), South Korea ($1.4), and OPEC ($0.1).

  • The deficit with Canada increased $1.8 billion to $3.6 billion in May. Exports decreased $0.3 billion to $24.3 billion and imports increased $1.5 billion to $27.9 billion.
  • The deficit with the European Union increased $1.8 billion to $16.9 billion in May. Exports increased $0.2 billion to $27.2 billion and imports increased $2.0 billion to $44.1 billion.

To gauge the impact of April and May trade on 2nd quarter GDP 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 here being that the amounts are not annualized...from that table, we can figure that 1st quarter real exports of goods averaged 150,609 million monthly in chained 2012 dollars, while inflation adjusted April and May exports were at 145,925 million and 150,486 million respectively in that same 2012 dollar quantity index representation.... after averaging inflation adjusted April and May goods exports and then computing the annualized change between that average and the average of the first quarter, we find that the 2nd quarter's real exports of goods are running at a 6.23% annual rate below those of the 1st quarter, or at a pace that would subtract 0.49 percentage points from 2nd quarter GDP if continued at the same rate through June.....

In a similar manner, we find that our 1st quarter real imports averaged 233,326.3 million monthly in chained 2012 dollars, while inflation adjusted April and May imports were at 228,153 million and 237,481 million in those same inflation adjusted dollars respectively....that would mean that so far in the 2nd quarter, our real imports of goods have decreased at a 0.87% 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 0.87% rate would conversely add  0.11 percentage points back to 2nd quarter GDP....hence, if our goods trade deficit at the April - May level is maintained through June, our deteriorating balance of trade in goods would subtract a net of roughly 0.38 percentage points from the growth of 2nd quarter GDP....

Note that we have not figured the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, but that the month’s increase in exports of services was greater than the increase in imports of services, which thus suggests that May’s trade in services would make a small positive contribution to 1st quarter GDP...

Construction Spending Falls 0.8% in May after April Spending Revised 0.4% Higher

The Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,293.9 billion annually if extrapolated over an entire year, which was 0.8 percent (±1.2 percent)* below the revised annualized estimate of $1,304.0 billion of construction spending in April and 2.3 percent (±1.5 percent) below the estimated annualized level of construction spending in May of last year...the April spending estimate was revised 0.4% higher, from $1,298.5 billion to $1,304.0 billion, while the annual rate of construction spending for March was revised fractionally lower, from $1,299.2 billion to $1,298.5 billion... that downward revision to annualized March construction spending would have a negligible impact on first quarter GDP when the annual revisions to GDP are released in late July...construction spending tor the first 5 months of 2019 has now amounted to $498.78 billion, 0.3 percent (±1.3 percent) less than the $500.265 billion in construction spending for the same 5 months of 2018…

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 $953.2 billion, 0.7 percent (±0.7 percent)* below the revised April estimate of $960.3 billion. Residential construction was at a seasonally adjusted annual rate of $498.9 billion in May, 0.6 percent (±1.3 percent)* below the revised April estimate of $501.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $454.3 billion in May, 0.9 percent (±0.7 percent) below the revised April estimate of $458.5 billion.
  • Public Construction: In May, the estimated seasonally adjusted annual rate of public construction spending was $340.6 billion, 0.9 percent (±2.1 percent)* below the revised April estimate of $343.7 billion. Educational construction was at a seasonally adjusted annual rate of $79.3 billion, nearly the same as (±2.6 percent)* the revised April estimate of $79.3 billion. Highway construction was at a seasonally adjusted annual rate of $111.6 billion, 3.2 percent (±6.1 percent)* below the revised April estimate of $115.4 billion.

This construction spending report will be used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local and Federal governments.... however, gauging the impact of revised April and May construction spending as reported here on GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..,that index showed that aggregate construction costs were unchanged in May, after being up 1.6% from March to April, up 0.2% from February to March, and down 0.2% from January to February..

On that basis, we can estimate that May construction costs were roughly 1.6% greater than those of March, 1.8% greater than those of February and 1.6% greater than those of January, and obviously roughly the same as those of April...we then use those percentages to inflate spending for each of the months of the first quarter, which is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter for comparison purposes, and then we'll compare the 'inflation adjusted' average of the 1st quarter months to the spending average of the 2nd quarter months...annualized construction spending in millions of dollars for the five months in question is given as 1,293,872 for May, 1,304,007 for April, 1,298,528 for March, 1,297,819 for February, and 1,284,654 for January....thus to figure the rate of change of May's nominal construction spending figure of $1,293,872 and April's figure of $1,304,007 from those of  the 'inflation adjusted'  figures of the first quarter, our calculation becomes (((1,293,872 + 1,304,007) / 2) / (((1,298,528 * 1.016) + (1,297,819 * 1.018) + (1,284,654 * 1.016)) / 3)) ^ 4 = .951366, which means that after adjusting for inflation, construction spending has been shrinking at a 4.86% annual rate over the first 2 months of the second quarter...that would be a contraction at a $16.3 billion annual rate, which means that if June shows no improvement, that contraction in real construction would subtract a net of about 0.31 percentage points from 2nd quarter GDP across those components that it influences...

    Factory Shipments Up 0.1% May, Factory Inventories Up 0.2%

    The May Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods decreased by $3.6 billion or 0.7 percent to $493.6 billion in May, following a decrease of 1.2% to $497.2 billion in April, which was revised from the 0.8% decrease to $499.3 billion reported for April last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only useful as a revised update to the May advance report on durable goods we reported on last week...on those revisions, the Census Bureau's summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we'll just quote directly from that here:

    • Summary: New orders for manufactured goods in May, down three of the last four months, decreased $3.6 billion or 0.7 percent to $493.6 billion, the U.S. Census Bureau reported today.  This followed a 1.2 percent April decrease.  Shipments, up three of the last four months, increased $0.4 billion or 0.1 percent to $504.3 billion.  This followed a 0.6 percent April decrease.  Unfilled orders, down three of the last four months, decreased $6.3 billion or 0.5 percent to $1,171.1 billion.  This followed a 0.2 percent April decrease.  The unfilled orders‐to‐shipments ratio was 6.64, down from 6.69 in April.  Inventories, up eight of the last nine months, increased $1.4 billion or 0.2 percent to $694.1 billion.  This followed a 0.2 percent April increase.   The inventories‐to‐shipments ratio was 1.38, up from 1.37 in April.
    • New orders for manufactured durable goods in May, down three of the last four months, decreased $3.1 billion or 1.3 percent to $243.5 billion, unchanged from the previously published decrease.  This followed a 2.8 percent April decrease.  Transportation equipment, also down three of the last four months, drove the decrease, $3.8 billion or 4.6 percent to $80.0 billion.  New orders for manufactured nondurable goods decreased $0.5 billion or 0.2 percent to $250.1 billion.
    • Shipments of manufactured durable goods in May, up following two consecutive monthly decreases, increased $0.9 billion or 0.3 percent to $254.2 billion, down from the previously published 0.4 percent increase.  This followed a 1.6 percent April decrease.  Machinery, up four of the last five months, led the increase, $0.3 billion or 1.0 percent to $33.4 billion.  Shipments of manufactured nondurable goods, down following three consecutive monthly increases, decreased $0.5 billion or 0.2 percent to $250.1 billion.  This followed a 0.4 percent April increase.  Petroleum and coal products, also down following three  consecutive monthly increases, drove the decrease, $1.3 billion or 2.4 percent to $54.7 billion.
    • Unfilled orders for manufactured durable goods in May, down three of the last four months, decreased $6.3 billion or 0.5 percent to $1,171.1 billion, unchanged from the previously published decrease.  This followed a 0.2 percent April decrease.  Transportation equipment, also down three of the last four months, led the decrease, $5.7 billion or 0.7 percent to $803.7 billion.
    • Inventories of manufactured durable goods in May, up ten of the last eleven months, increased $2.0 billion or 0.5 percent to $424.6 billion, unchanged from the previously published increase.  This followed a 0.4 percent April increase.  Transportation equipment, also up ten of the last eleven months, drove the increase, $2.2 billion or 1.6 percent to $138.5 billion.  Inventories of manufactured nondurable goods, down two consecutive months, decreased $0.6 billion or 0.2 percent to $269.6 billion.  This followed a 0.1 percent April decrease.  Petroleum and coal products, down following four consecutive monthly increases, drove the decrease, $0.6 billion or 1.5 percent to $41.3 billion. 

    To estimate the effect of those May factory inventories on 2nd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories rose by 0.1% to $241,578 million; the value of work in process inventories rose 0.7% to $214,541 million, while the value of materials and supplies inventories fell 0.2% to $238,017 million...the May producer price index reported that prices for finished goods were on average 0.2% lower, that prices for intermediate processed goods were also 0.2% lower, while prices for unprocessed goods averaged 5.1% lower....assuming similar valuations for like types of inventories, that would suggest that May's real finished goods inventories were about 0.3% greater than April's, that real inventories of intermediate processed goods were about 0.9% higher, and that real raw material inventories were about 4.9% higher...those increases more than reverse the real inventory decreases seen in April, but probably not by enough to overcome the high bar set by the big increase in real first quarter inventories, which had seen the largest jump since the second quarter of 2015...

     

    (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…)