Sunday, September 29, 2019

3rd estimate of 2nd quarter GDP; August’s income and outlays, durable goods, and new home sales

The key economic releases of the past week were the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, and the August report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence will account for more than 46% of 3rd quarter GDP....other widely watched releases included the August advance report on durable goods and the August report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for July, which is an index generated by comparing relative prices for May, June and July repeat home sales to their earlier selling prices, and which reported that home prices nationally for those 3 months averaged 3.2% higher than prices for the same homes that sold during the same 3 month period a year earlier, same as the year over year increase shown in the prior report...the week also saw the release of the Chicago Fed National Activity Index (CFNAI) for August, a weighted composite index of 85 different economic metrics, which rose to +0.10 in August from -0.41 in July, after the July index was revised from -0.36 to -0.41;  that left the 3 month moving average of the index at –0.06 in August, up from -0.14 in July, which still indicates that national economic activity has been a bit below the historical trend over the summer months...

This week also saw the release of two more regional Fed manufacturing surveys for September: 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 +1 in August to -9 in September, indicative of a contraction of that region's manufacturing, while the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to -2 in September, up from -6 in August but down slightly from -1 in July, still suggesting stagnation of that region's manufacturing...

Third Estimate of 2nd Quarter GDP Has Growth at a 2.0% Rate, Same as Second Estimate

The Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services increased at a 2.0% annual rate in the quarter, revised but unchanged from from the 2.0% growth rate reported in the second estimate a month ago, as small downward revisions to personal consumption and fixed investment were offset by upward revisions to our trade balance and state and local government consumption and investment...in current dollars, our second quarter GDP grew at a 4.66% annual rate, increasing from what would work out to be a $21,098.8 billion a year rate in the 1st quarter to a $21,340.3 billion annual rate in the 2nd quarter, with the headline 2.0% annualized rate of increase in real output arrived at after annualized inflation adjustments averaging 2.4% were applied to the current dollar change of each of the GDP components... 

Recall that the GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit more than 4 times of the change that 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 pdf for the 3rd estimate of 2nd quarter GDP, which you may have to access using 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 3rd quarter of 2015; table 2, which shows the contribution of each of the components to the GDP change 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 major GDP components...the pdf for the 2nd quarter second estimate, which this estimate revises, is here...

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 4.7% growth rate reported last month to a growth rate of 4.6% in this estimate…that growth rate figure was arrived at by deflating the 7.0% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated dollar weighted consumer inflation grew at a 2.4% annual rate in the 2nd quarter, which was revised from the 2.3% PCE inflation rate reported a month ago...real (inflation adjusted) consumption of durable goods grew at a 13.0% annual rate, which was unrevised from the growth rate shown in the second estimate, and added 0.87 percentage points to GDP, as real consumption of both motor vehicles and recreational goods and vehicles grew at rates in excess of 16% to boost durables consumption...real personal consumption of nondurable goods rose at a 6.5% annual rate, revised from the 6.8% growth rate shown in the 2nd estimate, and also added 0.87 percentage points to 2nd quarter economic growth, as real growth in clothing & footwear consumption at a 14.5% annual rate accounted for nearly a third of the non-durables growth….meanwhile, real consumption of services rose at a 2.8% annual rate, unrevised from last month, and added 1.29 percentage points to the final GDP tally, with a 3.2% real growth rate in health care services providing the largest contribution to the 2nd quarter growth in services...

Meanwhile, seasonally adjusted real gross private domestic investment contracted at a 6.3% annual rate in the 2nd quarter, revised from the 6.1% contraction in investment reported last month, as real private fixed investment shrunk at a 1.4% rate, revised from the 1.1% shrinkage rate reported in the second estimate, while the change in real inventories was little changed from what was previously reported.....real investment in non-residential structures was revised from contraction at a 9.4% rate to contraction at a 11.1% rate, while real investment in equipment is now shown growing at a 0.8% rate, revised from the 0.7% growth rate previously reported...at the same time, the quarter's investment in intellectual property products was revised lower, from growth at a 3.7% rate to growth at a 3.6% rate, while the contraction rate of residential investment was revised from -2.9% to -3.0% annually…after those revisions, the decrease in investment in non-residential structures subtracted 0.36 percentage points from the 2nd quarter's growth rate, the increase in investment in equipment added 0.05 percentage points to the quarter's growth, the growth in investment in intellectual property added 0.17 percentage points, while the decrease in investment in residential structures subtracted 0.11 percentage points from the 2nd quarter's GDP...

At the same time, the growth in real private inventories was revised from the previously reported $69.0 billion in inflation adjusted dollars to show inventories grew at an inflation adjusted $69.4 billion rate...this came after inventories had grown at an inflation adjusted $116.0 billion rate in the 1st quarter, and hence the revised $46.6 billion decrease in real inventory growth from that of the 1st quarter subtracted 0.91 percentage points from the 2nd quarter's growth rate, unrevised from the subtraction from lower inventory growth shown in the second estimate....since any growth in inventories would indicate that more of the goods produced during the quarter were left sitting on a shelf or in a warehouse, the decrease in their growth by $46.6 billion conversely meant that real final sales of GDP were actually greater by that much, and hence the BEA found that real final sales of GDP grew at a 3.0% rate in the 2nd quarter, same as the real final sales growth rate shown in the second estimate..

The previously reported decrease in real exports was revised to a slightly smaller decrease with this estimate, while at the same time the previously reported small increase in real imports was revised to statistically unchanged, and as a result the net of our foreign trade was a slightly smaller subtraction from GDP than was reported in the advance estimate...our real exports shrunk at a 5.7% rate rather than the 5.8% rate reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their shrinkage conversely subtracted 0.69 percentage points from the 2nd quarter's growth rate, a bit less than the 0.71 percentage point subtraction shown in the previous report....meanwhile, the previously reported 0.1% increase in our real imports was revised to indicate no change even as there was a statistically insignificant $0.2 billion decrease in the inflation adjusted import figure....since 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 domestically, their revision from an increase to a decrease thus added 0.01 percentage point to 2nd quarter GDP, rather than the 0.1% subtraction shown in the 2nd estimate...thus, our deteriorating trade balance subtracted a net 0.68 percentage points from 2nd quarter GDP, revised from the rounded 0.72 percentage point subtraction that had been indicated in the second estimate…

Finally, there were modest upward revisions to real government consumption and investment in this 2nd estimate, as the entire government sector grew at a 4.8% rate, revised from the 4.5% growth rate previously reported...real federal government consumption and investment was seen to have grown at a 8.3% rate from the 1st quarter in this estimate, which was revised from the 8.1% growth rate shown in the 2nd estimate...real federal outlays for defense were revised to show growth at a 3.3% rate, rather than the 3.1% growth rate previously reported, and added 0.13 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 16.1% rate, revised from the 16.0% growth shown in the previous report, and added 0.40 percentage points to 2nd quarter GDP....meanwhile, real state and local consumption and investment grew at a 2.7% rate in the quarter, which was revised from the 2.3% growth rate reported in the 2nd estimate, and added 0.29 percentage points to 2nd quarter GDP, which in total means that growth of government accounted for 0.82 percentage points of the 2nd quarter's growth.... 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, thus indicating there was an increase in the output of those goods or services...

August Personal Income up 0.4%; 2 Months PCE Would Add 1.50 Percentage Points to Q3 GDP

The August report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 3rd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% 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 August’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from July to August....

Thus, when the opening line of this report tell us "Personal income increased $73.5  billion (0.4 percent) in August", they mean that the annualized figure for seasonally adjusted personal income in August, $18,773.3 billion, was $73.5  billion, or a bit less than 0.4% greater than the annualized personal income figure of $18,699.8 billion for July; the actual, unadjusted change in personal income from July to August, which would be on the order of one-twelfth the size, is not given...similarly, annualized disposable personal income, which is income after taxes, rose by nearly 0.5%, from an annual rate of an annual rate of $16,495.2 billion in July to an annual rate of $16,572.9 billion in August....the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are thus also annualized...in August, the largest contributors to the $73.5 billion annual rate of increase in personal income were a $56.7 billion annual rate of increase in wages and salaries and a $9.9 billion annual rate of increase in personal current transfer receipts..…

For personal consumption expenditures (PCE), BEA reports that they increased at a $20.1 billion annual rate, or by more than 0.1 percent, as the annual rate of PCE rose from $14,637.6 billion in July to $14,657.7 in August; that was after the July PCE figure was revised down from the originally reported $14,661.1 billion annually and prior months were revised as well, all of which were already included in the concurrent 3rd estimate of 2nd quarter GDP.....total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $22.3 billion to $15,225.9 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,347.0 billion annual rate in August, up from the revised $1,291.6 billion annualized personal savings in July... hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 8.1% in August, up from 7.8% in July..

As you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, and which is included in Table 9 in the pdf for this report....that index rose from 109.914 in July to 109.950 in August, a month over month inflation rate that's statistically 0.03275%, which BEA reports as unchanged, following the rounded +0.2% change in the PCE price index they reported for July...applying the August inflation adjustment to the nominal amount of August spending left real PCE up a rounded 0.1% in August, after a real PCE increase of 0.3% in July ...note that when those price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in 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 August's chained dollar consumption total works out to 13,331.8 billion annually, 0.10437% more than July's 13,317.9 billion, a difference that the BEA rounds and reports as +0.1%...

  However, to estimate the impact of the change in real PCE on the change in GDP,  month over month changes like that don't help us much, since GDP is reported quarterly...thus we have to compare July and August's real PCE to the the real PCE of the 3 months of the second quarter....while this report shows real PCE for each of those months separately, the BEA also provides the annualized chained dollar PCE for those three months quarterly in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 13,250.0 billion in chained 2012  dollars..(note that's also what's shown in table 3 of the pdf for the revised 2nd quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for July and August, 13,317.9 billion and 13,331.8 billion respectively, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far....when we compare that average of 13324.85 to the 2nd quarter real PCE of 13,250.0, we find that 3rd quarter real PCE has grown at a 2.28% annual rate for the two months of the 3rd quarter that we have...{note the math we've used to get that annual growth rate: (((13,331.8 + 13,317.9) / 2) / 13,250.0) ^ 4 = 1.0227884 }...that's a pace that would add 1.50 percentage points to the growth rate of the 3rd quarter, even if there should be no improvement in September's real PCE from that July & August average... 

August Durable Goods: New Orders Up 0.2%, Shipments Up 0.1%, Inventories Up 0.3%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods grew by $0.5 billion or 0.2 percent to $250.7 billion in August, after rising by a revised 2.0% in July...July's new orders were revised from the $250.4 billion reported last month to $250.2 billion, with the month over month percentage increase thus revised from 2.1% to 2.0%...however, even after three consecutive increases, year to date new orders are now 0.4% below those of 2018, actually a decrease from the +0.3% year over year change we saw in this report last month....

The volatile monthly change in new orders for transportation equipment limited the August new orders increase, as those transportation equipment orders fell $0.39 billion or 0.4 percent to $86.14  billion, due to a 17.1% decrease to $9,066 million in new orders for commercial aircraft, which are now running 37.3% below those of 2018 year to date....excluding new orders for transportation equipment, other new orders were up 0.5% in August, led by a 1.3% or $0.4 billion increase $34.4 billion in new orders for fabricated metal products, while new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, fell 0.2% to $69,296 million...

At the same time, the seasonally adjusted value of August's shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased by $0.3 billion or 0.1 percent to $254.2 billion, after July shipments were revised from $254.0 billion to $253,868 million, thus revising the previously reported shipments decrease of 1.1% to one of 1.2% from June....an increase in shipments of machinery was responsible for the August increase, rising $0.5 billion or 1.6 percent to $33.4 billion, while shipments of transportation equipment fell 0.6 to $85.95 billion...meanwhile, shipments of nondefense capital goods excluding aircraft rose 0.4% to $ 69,789, after falling 0.6% in July...

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the thirteenth time in the last fourteen months, increasing by $1.3 billion or 0.3 percent to $428.6 billion, with the revised increase in July inventories remaining statistically unchanged at up 0.4% to $427.3 billion...a  increase in inventories of transport equipment was the cause of the August inventory increase, as they rose $1.7 billion or 1.2 percent to $143.2 billion...excluding transportation, other durable goods inventories fell 0.1%..

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for a 2nd time in 5 months, increasing by $0.7 billion or 0.1 percent to $1,162.3 billion, after July's unfilled orders were up 0.1% to $1,161.6 billion from June...a $0.6 billion or 0.7 percent increase to $87.2 billion in unfilled orders for fabricated metal products led the August increase, while unfilled orders for transportation equipment were statistically unchanged at $793.5 billion....compared to a year earlier, the unfilled order book for durable goods is now 1.0% below the level of last August, with unfilled orders for transportation equipment 1.8% below their year ago level, largely on a 3.8% decrease in the backlog of orders for commercial aircraft...

August New Home Sales Reported Higher After July Sales Were Revised Higher

The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 713,000 new homes a year, which was 7.1 percent (±20.3 percent)* above the revised July rate of 666,000 new single family home sales a year and 18.0 percent (±19.9 percent)* above the estimated annual rate that new homes were selling at in August of last year....the asterisks indicates that based on their small sampling, Census could not be certain whether August new home sales rose or fell from those of July, or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....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 July were revised from the annual rate of 635,000 reported last month up to a 666,000 a year rate, while home sales in June, initially reported at an annual rate of 646,000 and revised to a 728,000 a year rate last month, were revised up to a 729,000 a year rate with this report, and while May's annualized home sale rate, initially reported at a 626,000 rate and revised from a 604,000 a year to a 602,000 rate last month, were revised down to a 598,000 rate with this release...

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 57,000 new single family homes sold in August, up from the estimated 56,000 new homes that sold in July but down from the 66,000 that sold in June....the raw numbers from Census field agents further allowed for estimates that the median sales price of new houses sold in August was $328,400, up from the median sales price of $305,400 in July and up from the median sales price of $321,400 in August a year ago, and that the average August new home sales price was at a record $404,200, up from the $372,700 average sales price in July, and up from the average sales price of $380,900 in August a year ago....a seasonally adjusted estimate of 318,000 new single family houses remained for sale at the end of August, which represents a 5.7 month supply at the August sales rate, down from the revised 5.9 month supply of unsold homes in July, 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 713,000 Annual Rate in August and A few Comments on August New Home Sales..

 

(the above is the synopsis that accompanied my weekly 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, September 22, 2019

August’s industrial production, new home construction and existing home sales

The widely watched monthly reports that were released this past week were the August Industrial Production and Capacity Utilization report from the Fed, the August report on New Residential Construction from the Census Bureau and the Existing Home Sales Report for August from the National Association of Realtors (NAR)...in addition, the Bureau of Labor Statistics released the Regional and State Employment and Unemployment report for August, which breaks down the two surveys of the monthly employment report by state and region...and the week also saw the release of the first two regional Fed manufacturing surveys for September: the Empire State Manufacturing Survey from the New York Fed, which covers New York, northern New Jersey and Puerto Rico, reported their headline general business conditions index fell from +4.8 in August to +2.0 in September, suggesting even slower growth of First District manufacturing, while the Philadelphia Fed Manufacturing Survey for September, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions fell from +16.8 in August to +12.0 in September, suggesting a more modest growth rate for that region's manufacturing...   

Industrial Production Up 0.6% in August

The Fed's G17 release on Industrial production and Capacity Utilization report indicated that industrial production rose by 0.6% in August, after falling by a revised 0.1% in July...however, even with that increase, industrial production is now up just 0.4% from a year ago, down from last month's 0.5% year over year increase....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 109.9 in August from 109.2 in July, which was unchanged from what was reported for July a month ago...similarly, the June reading for the index was reported as unchanged at 109.4... however, the June to July decrease was revised from 0.2% to 0.1%, indicating fractional changes in the June & July indexes that aren't apparent as they're reported...

The manufacturing index, which accounts for more than 75% of the total IP index, rose by 0.5%, from 104.5 in July to 105.2 in August, after July's manufacturing index was revised but unchanged at 104.7, June's manufacturing index was revised but unchanged at 105.1, and April and May's manufacturing indexes were both revised but also unchanged from the previous report...with the August increase, the manufacturing index has improved to down by 0.4% from a year ago....meanwhile, the mining index, which includes oil and gas well drilling, rose from 131.7 in July to 133.6 in August, after the July index was revised up from 131.2....however, the year over year change in the mining index declined to 5.1% from the 5.5% increase reported a month ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, rose by 0.6%, from 104.6 in July to 105.2 in August, after the July utility index was revised down from 104.9 in July, and after the June utility index was revised from 101.7 to 100.9...however, since last August was generally warmer than this one, the utility index is 0.4% below its year ago reading of 106.0..

This report also provides capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry rose from 77.5% in July to 77.9% in August...capacity utilization of NAICS durable goods production facilities rose from 75.7% in July to 76.0% in August, after July's figure was revised up from 75.6%, while capacity utilization for non-durables producers rose from an downwardly revised 76.0% to 76.3%...capacity utilization for the mining sector rose to 90.5% in August from 89.6% in July, which was originally reported as 89.1%, while utilities were operating at 76.7% of capacity during August, up from their 76.4% of capacity during July, which was revised down from 76.6%...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories.... 

New Housing Construction and New Building Permits at a 12 Year Highs in August

The August report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units that were started during the month was at a seasonally adjusted annual rate of 1,364,000, which was the highest reported in 12 years, 12.3  percent (±10.2 percent) above the revised July estimated annual rate of 1,215,000 housing unit starts, and 6.6 percent (±11.6 percent)* above last August's pace of 1,279,000 housing starts a year...however, the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, August's housing starts could have been down by 5.0% or up by as much as 18.2% from those of last August, with a 10% chance that the actual change could have even been outside of that wide range...in this report, the annual rate for July housing starts was revised from the 1,191,000 reported last month  to 1,215,000, while June starts, which were first reported at a 1,253,000 annual rate, were revised down from last month's initial revised figure of 1,241,000 annually to 1,233,000 annually with this report....

Those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by Census field agents, which estimated that 121,100 housing units were started in August, up 4.8% from the 115,500 units started in July...of those housing units started in August, an estimated 82,500 were single family homes and 36,700 were units in structures with more than 5 units, down from the revised 84,900 single family starts in July, but up from the 29,600 units started in structures with more than 5 units in July...

The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in August, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,419,000 housing units, a 12 year high, which was  7.7 percent (±1.2 percent) above the revised July rate of 1,317,000 permits, and was 12.0 percent (±1.6  percent) above the rate of building permit issuance in August a year earlier...the annual rate for housing permits issued in July was revised from 1,336,000 to a rate of 1,317,000 annually....again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for roughly 127,000 housing units were issued in August, up from the revised estimate of 118,800 new permits issued in July...the August permits included 78,100 permits for single family homes, down from 78,200 in July, and 44,900 permits for housing units in apartment buildings with 5 or more units, up from 36,500 such multifamily permits a month earlier...

For more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increase to 1.364 Million Annual Rate in August, Highest in 12 Years and Comments on August Housing Starts...

August Existing Home Sales Up 1.3%

The National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose 1.3% from July to August, projecting that 5.49 million homes would sell over an entire year if the August home sales pace were extrapolated over that year, a pace that was also 2.6% above the 5.35 annual sales rate they projected in August of a year ago….July sales, at a 5.42 million annual rate, were revised but unchanged from last month's report...the NAR also reported that the median sales price for all existing-home types was $278,200 in August, 4.7% higher than in August a year earlier, which they report as "the 90th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Increase 1.3% in August", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed  sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 534,000 homes sold in August, down by 1.1% from the 540,000 homes that sold in July, and down by 0.9% from the 539,000 homes that sold in August of last year, so we can see that it was the seasonal adjustment that caused the annualized published figures up to show increases...that same pdf indicates that the median home selling price for all housing types fell 0.8%, from a revised $280,400 in July to $278,200 in August, while the national average home sales price was $314,600, down 0.7% from the $316,800 average in July, but up 3.5% from the $304,000 average home sales price of August a year ago, with the regional average home sales prices ranging from a low of $247,100 in the Midwest to a high of $426,600 in the West....for both seasonally adjusted and unadjusted graphs and additional commentary on this report, check out the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Increased to 5.49 million in August and Comments on August Existing Home Sales...

 

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

Sunday, September 15, 2019

August’s consumer prices, producer prices, and retail sales; July’s business inventories and JOLTS

Major reports released this past week included the August Consumer Price Index, the August Producer Price Index, the August Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) report for July, all from the Bureau of Labor Statistics; the Retail Sales Report for August, Wholesale Trade, Sales and Inventories for July and Business Sales and Inventories for July, all from the Census Bureau; and the Consumer Credit Report for July from the Fed...that Fed report indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $23.3 billion in July, or at a 6.8% annual rate, as non-revolving credit expanded at a 5.3% rate to $3,041.6 billion while revolving credit outstanding expanded at a 11.2% rate to $1,081.2 billion, its largest jump since November 2017....

Consumer Prices Up 0.1% in August on Higher Housing & Health Care Costs

The consumer price index was 0.1% higher in August, as higher prices for housing, used vehicles, and health care were mostly offset by lower prices for energy & groceries ...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.1% in August after rising 0.3% in July, 0.1% in June, 0.1% in May, 0.3% in April, 0.4% in March, 0.2% in February, and after they had been unchanged in January, in December and in November, and had risen 0.3% in October, 0.1% in September, and 0.1% last August...the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to 100, actually fell from 256.571 in July to 256.558 in August, which left it statistically 1.7498% higher than the 252.146 index reading of August of last year, which is reported as a 1.7% year over year increase....with prices for groceries and most forms of energy being lower, seasonally adjusted core prices, which exclude food and energy, rose by 0.3% for the month, as the unadjusted core price index rose from 263.566 to 264.169, which left the core index 2.3863% ahead of its year ago reading of 258.012, which is reported as a 2.4% year over year increase, up from the 2.2% year over year increase reported for July...

The volatile seasonally adjusted energy price index fell 1.9% in August, after rising 1.3% in July, falling 2.3% in June, 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% last September, and hence is now 4.4% lower than in August a year ago...the price index for energy commodities was 3.3% lower in August, while the index for energy services was 0.2% lower, after being unchanged in July....the energy commodity index was down 3.3% due to a 3.5% decrease in the price of gasoline, the largest component, and a 0.6% decrease in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average 0.8% lower...within energy services, the price index for utility gas service rose 0.1% after falling 1.8% in July and is now 3.5% lower than it was a year ago, while the electricity price index fell 0.3% after rising 0.6% in July....energy commodities are now 7.1% lower than their year ago levels, with gasoline prices also averaging 7.1% lower than they were a year ago, while the energy services price index is 0.8% lower than last August, as even electricity prices are 0.1% lower than a year ago…

The seasonally adjusted food price index was unchanged in August, after being unchanged in June and July, 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, and by 0.1% last August, as the price index for food purchased for use at home fell 0.2% in August, while the index for food bought to eat away from home was 0.2% higher, as prices at fast food outlets and prices at full service restaurants both rose 0.2% while food at employee sites and schools were on average 0.6% lower...

In the food at home categories, the price index for cereals and bakery products was 0.3% lower as average bread prices fell 0.7%, breakfast cereal prices fell 1.5%, and the price index for flour and prepared flour mixes fell 0.8%...at the same time, the price index for the meats, poultry, fish, and eggs group was 0.7% lower, as the beef and veal price index fell 0.8%, average pork prices fell 1.0%, and egg prices were 2.6% lower...on the other hand, the seasonally adjusted index for dairy products was 0.2% higher, as average prices for milk rose 0.3% and cheese prices rose 0.6%...however, the fruits and vegetables index was 0.5% lower on a 1.4% decrease in the price index for fresh fruits and a 1.2% decrease in the price index for frozen fruits and vegetables...meanwhile, the beverages index was unchanged, as prices for beverage materials including tea fell 1.1% while carbonated drink prices were 0.6% higher....lastly, the index for the ‘other foods at home’ category was 0.3% higher, as prices for olives, pickles, relishes rose 2.6%, baby food prices rose 0.6%, and the snack food index rose 0.5%....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 July, only prices for eggs, which are down 15.9% from a year ago, have seen 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 August after rising by 0.3% in July, 0.3% in June, 0.1% in May, 0.1% in April, 0.1% in March, 0.1% in February, and by 0.2% for each of  the five months prior to that, the composite price index of all goods less food and energy goods was 0.2% 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 down 0.2%, as the price index for living room, kitchen, and dining room furniture fell 1.5%, the index for other furniture fell 4.0%, the price index for nonelectric cookware and tableware fell 3.3%, and the price index for laundry appliances was 4.2% lower....on the other hand, the apparel price index was 0.2% higher on a 3.0% increase in the price index for men's suits, sport coats, and outerwear, a 2.5% increase in the index for boy's apparel, and a 2.3% increase in the price index for men's footwear... in addition, the price index for transportation commodities other than fuel was 0.2% higher even though prices for new cars and trucks fell 0.1%, because prices for used cars and trucks rose 1.1%, and the price index for parts and equipment other than tires rose 0.9%... meanwhile, prices for medical care commodities averaged 0.3% higher as nonprescription drugs prices rose 1.6%....at the same time, the recreational commodities index was 0.2% higher despite a 1.7% decrease in TV prices because the price index for sporting goods rose 0.8%, the price index for newspapers and magazines rose 1.4% and the price index for toys, games, hobbies and playground equipment rose 1.3%....in addition, the education and communication commodities index was 0.9% higher on a 1.2% increase in the price index for computers, peripherals, and smart home assistant devices and a 2.1% price increase for college textbooks...lastly, a separate price index for alcoholic beverages was 0.1% higher, while the price index for ‘other goods’ rose 0.7% on a 3.4% increase in the price index for miscellaneous personal goods...

Within core services, the price index for shelter rose 0.2% on a 0.2% increase in rents, a 0.2% increase in homeowner's equivalent rent, which were offset by a 2.3% decrease in prices for 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 0.1% lower....at the same time, the price index for medical care services was 0.9% higher, as outpatient hospital services rose 1.5% and health insurance rose 1.9%...meanwhile, the transportation services price index was 0.4% higher as the price index for vehicle maintenance and servicing rose 1.2%, airline fares rose 1.7%, and intercity bus fares rose 2.3%....in addition, the recreation services price index was 0.6% higher as cable and satellite television service rose 1.0% and admission to sporting events rose 0.9%....on the other hand, the index for education and communication services was 0.1% lower as the index for technical and business school tuition and fees fell 2.2%....lastly, the index for other personal services was up 0.2% as the price index for personal care services such as haircuts rose 0.4% and laundry and dry cleaning services were 0.3% higher...

Among core line items, prices for televisions, which now average 20.2% cheaper than a year ago, the price index for telephone hardware, calculators, and other consumer information items, which is down by 14.8% since last August, and the price index for women's dresses, which is down 11.6% year over year, have all seen prices drop by more than 10% over the past year, while the cost of health insurance, which is now up by 18.6% over the past year, the price index for infants' furniture, which has increased 12.2% year over year, and intercity bus-fare, which has increased by 21.8% since last August, are the only line items to have increased by a double digit magnitude over that span....

Retail Sales Up by 0.4% in August after June and July Sales Revised Higher

Seasonally adjusted retail sales rose 0.4% in August after retail sales for June and July were revised higher...the Advance Retail Sales Report for August (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $526.1 billion during the month, which was up 0.4 percent (±0.5%)* from July's revised sales of $524.2 billion and 4.1 percent (±0.7 percent) above the adjusted sales in August of last year...July's seasonally adjusted sales were revised from the $523.5 billion reported last month to $524.2 billion, while June sales were also revised higher, from $519.9 billion to $520.055  billion, with this release....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 2.4%, from $533,058 million in July to $545,940 million in August, while they were up 4.2% from the $523,933 million of sales in August a year ago...the revision to June’s sales means that 2nd quarter sales were a bit more than $0.6 billion higher at an annual rate than previously reported, which should be enough to add 0.01 percentage point to 2nd quarter GDP when the 3rd estimate is published at the end of the month…

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the August Census Marts pdf....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from July to August in the first sub-column, and then the year over year percentage change for those businesses since last August in the 2nd column; the second pair of columns gives us the revision of last month’s July advance monthly estimates (now called "preliminary") as revised in this report, likewise for each business type, with the June to July change under "Jun 2019 (r)evised", and the revised July 2018 to July 2019 percentage change in the last column shown...for your reference, our copy of the table of last month’s advance July sale estimates, before this month's revision, is here....

August 2019 retail sales table

To compute August's real personal consumption of goods data for national accounts from this August retail sales report, the BEA will use the corresponding price changes from the August consumer price index, which we reviewed earlier….to estimate what they will find, we’ll start by pulling out the usually volatile sales of gasoline from the other totals...from the third line on the above table, we can see that August retail sales excluding the 0.9% drop in sales at gas stations were up by 0.5%....then, subtracting the figures representing the 0.2% decrease in grocery & beverage sales and the 1.2% decrease in food services sales from that total, we find that core retail sales were up by a bit more than 0.9% for the month...since the August CPI report showed that the the composite price index of all goods less food and energy goods was 0.2% higher in August, we can thus figure that real retail sales excluding food and energy, or real core PCE, will show an increase of about 0.7% 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 1.8%, the August price index for transportation commodities other than fuel was 0.2% higher, which would suggest that real sales at auto & parts dealers were 1.6% higher once price increases are taken into account... similarly, since sales at drug stores were up 0.7% while prices for medical care commodities were 0.3% higher, that suggests that real sales at drug stores rose 0.4%…on the other hand, while nominal sales at furniture stores were 0.5% lower in August, the home furniture price index was 0.2% lower, which means that real sales of clothing probably fell by about 0.3%...and while nominal sales at clothing stores were 0.9% lower in August, the apparel price index was 0.2% higher, which means that real sales of clothing probably fell by about 1.1%…

In addition to figuring those core retail sales, to make a complete estimate of real July PCE, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the August 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 0.2% higher...thus, while nominal sales at food and beverage stores were 0.2% lower in August, prices were also 0.2%, which means the sales decline was price related and real sales of food at groceries would be unchanged.…on the other hand the 1.2% nominal decrease in sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests real sales at bars and restaurants fell by 1.4% for the month...meanwhile, while sales at gas stations were down 0.9%, there was a 3.5% decrease in the retail price of gasoline, which would suggest real sales of gasoline were up on the order of 2.6% higher, with the caveat that gasoline stations do 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 August will show that real personal consumption of goods rose by about 0.7% in August, after rising by a revised 0.9% in July and by a revised 0.5% in June, after rising by 0.6% in May and by 0.6% in April, after rising 1.9% in March, falling by 0.9% in February and rising by 1.7% in January...at the same time, the 1.4% decrease in real sales at bars and restaurants will have a substantial negative impact on August's real personal consumption of services...

Producer Price Index Rose 0.1% August On Greater Demand for Services

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.1% in August, even as prices for finished wholesale goods fell by 0.5%, because the more heavily weighted margins of final services providers increased by 0.3%...that followed a July report that indicated the PPI rose 0.2%, as prices for finished wholesale goods increased 0.4%, while margins of final services providers decreased by 0.1%, a June report that indicated the PPI rose 0.1%, as prices for finished wholesale goods decreased 0.4%, while margins of final services providers increased by 0.4%, a revised May report that now shows the PPI was 0.1% lower, as prices for finished wholesale goods averaged 0.3% lower while average margins of final services providers were unchanged, and a revised April report that now has the PPI 0.5% higher, with prices for finished wholesale goods up 0.4% and margins of final services providers now up 0.6%....on an unadjusted basis, producer prices are 1.8% higher than a year ago, up from the 1.7% year over year change 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 1.9% higher than in August a year ago, up from the 1.7% YoY increase shown in July...

As noted, the price index for final demand for goods, aka 'finished goods', was 0.5% lower in August, after being 0.4% higher in July, 0.4% lower in June, 0.3% lower in May, 0.4% 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 of 2018....the finished goods index fell in July because the wholesale price index for energy was 2.5% lower, after rising by 2.3% in July, but after falling by 3.1% in June and by a revised 1.1% in May, and because the price index for wholesale foods fell 0.6% in August after rising 0.2% in July and 0.6% in June, and while the index for final demand for core wholesale goods (excluding food and energy) was unchanged after rising 0.1% in July....wholesale energy prices were lower on a 6.6% decrease in wholesale prices for gasoline, a 7.7% drop in wholesale prices for liquefied petroleum gas, and 12.1% lower wholesale prices for home heating oil, while the wholesale food price index fell on a 12.0% decrease in the wholesale price index for grains and a 11.8% increase in the wholesale price index for fresh and dry vegetables, even as wholesale egg prices rose 21.6%....among wholesale core goods, wholesale prices for iron and steel scrap rose 8.3% and wholesale prices for mobile homes rose 8.4%, while wholesale prices for industrial chemicals fell 2.9%..

At the same time, the index for final demand for services rose 0.3% in August, after falling 0.1% in July, rising 0.4% in June, being unchanged in May, rising a revised 0.6% in April, as the index for final demand for trade services rose 0.2% in August and the index for final demand for transportation and warehousing services rose 0.3%, 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 fuels and lubricants retailers rose 16.8%, margins for auto parts and tire retailers rose 6.2%, margins for apparel, footwear, and accessories retailers rose 3.5%, and margins for chemicals and allied products wholesalers rose 2.8%, while margins for machinery and vehicle wholesalers fell 4.2%... among transportation and warehousing services, margins for air transportation of freight fell 1.3% while margins for airline passenger services rose 1.4%...among the components of the core final demand for services index, margins for guestroom rentals rose 6.4%, margins for arrangement of vehicle rentals and lodging rose 5.0%, and margins for wireless telecommunication services rose 2.3%..

This report also showed the price index for intermediate processed goods fell 0.7% in August, after rising 0.2% in July, falling 1.1% in June and a revised 0.3% in May, after rising a revised 0.1% in April....the price index for intermediate energy goods fell 2.2%, as refinery prices for gasoline fell 6.6%, refinery prices for diesel fuel fell 5.7%, and prices for natural gas sold to electric utilities fell 2.2%...however, prices for intermediate processed foods and feeds rose 0.3%, as the producer price index for prepared animal feeds rose 1.2% and producer prices for meats rose 3.0%... meanwhile, the core price index for intermediate processed goods less food and energy fell 0.4% as producer prices for primary nonferrous metals decreased 1.9% and producer prices for plywood fell 2.7%... prices for intermediate processed goods are now 2.8% lower than in August a year ago, the fourth consecutive 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 1.0% in August, after rising 1.6% in July, falling 3.3% in June, falling a revised 3.8% in May, but after rising a revised 1.7% in April...that was as the August price index for crude energy goods fell 2.2% as crude oil prices fell 10.9% and unprocessed natural gas prices fell 4.5%, while the price index for unprocessed foodstuffs and feedstuffs fell 0.5% on a 9.7% decrease in producer prices for wheat and a 13.2% decrease in producer prices for corn....at the same time, the index for core raw materials other than food and energy materials rose 0.1%, as wastepaper prices rose 4.7% and prices for unprocessed iron and steel scrap rose 8.3%...this raw materials index is still 7.8% lower than a year ago, as the year over year change on this index has been negative all year...

Lastly, the price index for services for intermediate demand rose 0.5% in August, after falling 0.2% in July, rising 0.2% in June, falling a revised 0.2% in May, rising a revised 0.4% in April, and 0.5% in March...the price index for intermediate trade services was 0.6% higher, as margins for intermediate paper and plastic product wholesalers rose 2.2% and margins for intermediate chemicals wholesalers rose 2.8%…at the same time the index for transportation and warehousing services for intermediate demand rose 0.5%, as the price index for intermediate arrangement of freight and cargo transportation rose 4.8% and the price index for services related to water transportation rose 1.5%...in addition, the core price index for intermediate services less trade, transportation, and warehousing also rose 0.5%, as the price index for nonresidential real estate services rose 3.3% and the index for traveler accommodation services rose 5.8% while the price index for television advertising time sales fell 2.0%....over the 12 months ended in June, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.5% higher than it was a year ago...

July Business Sales Up 0.3%, Business Inventories Up 0.4%

After the release of the August retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for July (pdf), which incorporates the revised July retail data from that August report and the earlier published July wholesale trade report and last week’s July 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 $1,462.9 billion in July, up 0.3 percent (±0.1%) from June revised sales, and up 1.3 percent (±0.3 percent) from July sales of a year earlier...note that total June sales were concurrently revised down from the originally reported $1,460.1 billion to $1,458.6 billion....manufacturer's sales were down by 0.2% to $504,021 million in July, while retail trade sales, which exclude restaurant & bar sales from the revised July retail sales reported earlier, rose 0.8% to $459,298 million, and wholesale sales rose 0.3% to $499,596 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,042.6 billion at the end of July, up 0.4% (±0.1%) from June, and 4.8 percent (±0.4 percent) higher than in July a year earlier...the value of end of June inventories was revised down from the $2,035.7 billion reported last month to $2,035.2 billion, still statistically unchanged from May...seasonally adjusted inventories of manufacturers were estimated to be valued at $696,484 million, 0.2% higher than in June, inventories of retailers were valued at $667,077 million, 0.8% more than in June, while inventories of wholesalers were estimated to be valued at $679,084 million at the end of July, up 0.2% from June...

In national accounts, all types of business inventories are adjusted for inflation with an item-appropriate component of the producer price index...the July producer price index reported that prices for finished goods were on average 0.4% higher, that prices for intermediate processed goods were on average 0.2% higher, while prices for unprocessed goods were 1.6% higher...those increases suggest that the 0.4% July inventory increase was largely price related, and that real (inflation adjusted) inventories were probably a bit lower....since real private inventories grew at an inflation adjusted $69.0 billion annual rate in the 2nd quarter, any real inventory decrease in the 3rd quarter will reverse that and correspondingly subtract from GDP by whatever percentage of GDP that real change in inventory ends the 3rd quarter at...

Job Openings Down in July, Hiring and Firing Up; Job Quitting at a Record High

The Job Openings and Labor Turnover Survey (JOLTS) report for July from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by 31,000, from 7,248,000 in June to 7,217 ,000 in July, after June job openings were revised 100,000 lower, from 7,348,000 to 7,248,000...July's jobs openings were also 3.0% lower than the 7,442,000 job openings reported for July a year ago, as the job opening ratio expressed as a percentage of the employed fell from 4.6% in June to 4.5% in July, and was down from 4.8% in July a year ago....the 55,000 job opening decrease to 158,000 openings in the wholesale trade sector appears to be the largest percentage decrease for the month, while the increase from 129,000 to 171,000 information sector job openings looks to be the largest percentage increase... (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 July, seasonally adjusted new hires totaled 5,953,000, up by 237,000 from the revised 5,716,000 who were hired or rehired in June, as the hiring rate as a percentage of all employed rose from 3.8% in June to 3.9% in July, while it was the same as in July a year earlier (details of hiring by sector since March are in table 2)....meanwhile, total separations rose by 246,000, from 5,513,000 in June to 5,759,000 in July, while the separations rate as a percentage of the employed rose from 3.6% to 3.8%, which was unchanged from the separations rate in July a year ago (see table 3)...subtracting the 5,759,000 total separations from the total hires of 5,953,000 would imply an increase of 194,000 jobs in July, somewhat higher than the revised payroll job increase of 159,000 for July reported by the August establishment survey last week, but still within the expected +/-115,000 margin of error in these incomplete samplings.....

Breaking down the seasonally adjusted job separations, the BLS finds that a record 3,592,000 of us voluntarily quit our jobs in July, up by 130,000 from the revised 3,462,000 who quit their jobs in June, while the quits rate, widely watched as an indicator of worker confidence, rose to 2.4% of total employment, up from 2.3% in June and up from 2.3% in July a year earlier (see details in table 4)....in addition to those who quit, another 1,799,000 were either laid off, fired or otherwise discharged in July, up by 88,000 from the revised 1,711,000 who were discharged in June, as the discharges rate rose from 1.1% to 1.2% of all those who were employed during the month, while it was unchanged from the discharges rate of 1.2% a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 368,000 in July, up from 340,000 in June, for an 'other separations’ rate of 0.2%, which was the same rate as in June and as in July of last year....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

 

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

Sunday, September 8, 2019

August’s jobs report; July’s trade deficit, construction spending & factory inventories

In addition to the Employment Situation Summary for August from the Bureau of Labor Statistics, this week also saw the release of three July reports that provide us with inputs to 3rd quarter GDP, and in some cases suggest revisions to 2nd quarter GDP: the July report on our International Trade from the Bureau of Economic Analysis, and the July report on Construction Spending (pdf), and the Full Report on Manufacturers' Shipments, Inventories and Orders for July, both from the Census Bureau...

The week’s major privately issued reports included the ADP Employment Report for August; the light vehicle sales report for August from Wards Automotive, which estimated that vehicles sold at a 16.99 million annual rate in August, up from the 16.82 million annual rate in July, and up from the 16.66 million annual rate in August a year ago; and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the August Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 49.1% in August, down from 51.2% in July, and the lowest reading since January 2016, and the August Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 56.4% in August, up from 53.7% in July, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in August than in July...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 130,000 Jobs in August; Employment Rate at a 10 Year High as 590,000 Find Work

The Employment Situation Summary for August reported weak job creation despite a boost from Census hiring, but that those who reported they were employed jumped by the most in over a year, resulting in the highest employment rate since December 2008….estimates extrapolated from the establishment survey data indicated that employers added a seasonally adjusted 130,000 jobs in August, after the payroll job increase for July was revised down from 164,000 to 159,000, and the payroll jobs increase for June was revised down from 193,000 to 178,000…those revisions mean that this report represents a total of just 110,000 more seasonally adjusted payroll jobs than were reported last month, less than the increase in the working age population and far less than the 174,000 monthly average job gain over the last 12 months...the unadjusted data shows that there were actually 348,000 more payroll jobs in August, after July had seen an end of the school year related decrease of 1,074,000 jobs, so large seasonal adjustments continue to impact the monthly headline job count...

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors and government, which were offset by decreases of 11,100 jobs in the retail sector, 5,400 jobs in private education, 5,000 jobs in mining, 1,400 utility jobs, and 500 jobs in transportation and warehousing....the broad professional and business services category added 37,000 jobs, as 10,200 more were added by computer systems design services and 15,400 more workers found work with temporary employment services....employment in health care and social assistance rose by 36,800, with the addition of 17,100 jobs with individual and family services and 8,800 jobs in hospitals....federal government payrolls increased by 28,000, with the initial hiring of 25,000 for the decennial census, and another 15,000 found jobs in the financial sector, with 7,500 of those in insurance......employment in construction increased by 14,000, with 7,000 of those working on residential buildings, while the leisure and hospitality sector added a seasonally adjusted 12,000 jobs, by virtue of the addition of 11,900 more jobs in bars and restaurants...meanwhile, the other major sectors, including manufacturing, wholesale trade, and state and local government all saw increases of less than 10,000 in payroll employment over the month, while employment in the information sector was unchanged....

The establishment survey also showed that average hourly pay for all employees rose by 11 cents an hour to $28.11 an hour, after it had increased by a revised 9 cents an hour in July; at the same time, the average hourly earnings of production and non-supervisory employees increased by 11 cents to $23.59 an hour, after July's pay figure was also revised a penny higher....employers also reported that the average workweek for all private payroll employees increased by 0.1 hour to 34.4 hours in August, while hours for production and non-supervisory personnel increased by 0.1 hour to 33.6 hours...meanwhile, the manufacturing workweek increased by 0.2 hours to 40.6 hours, while average factory overtime fell by a tenth of an hour to  3.2 hours...

At the same time, the seasonally adjusted extrapolation from the August household survey indicated that the number of those who would self-report being employed rose by an estimated 590,000 to 157,878,000, the biggest jump in the employed since February of last year, while the similarly estimated number of those who would report unemployment fell by 19,000 to 6,044,000; which together meant that August saw a net increase of 571,000 in the total labor force.…since the working age population had grown by 207,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 364,000 to 95,510,000, while the labor force participation rate increased by 0.2% to 63.2%....at the same time, the jump in number employed vis-a-vis the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.2% to 60.9%, the highest since December 2008...on the other hand, the decrease in count of those unemployed as a percentage of the labor force was not enough to change the unemployment rate, as it remained at 3.7%.....meanwhile, the number who reported they were involuntarily working part time rose by 397,000 to 4,381,000 in August, which was enough to increase the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 7.0% in July to 7.2% in August.....

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.. 

July Trade Deficit Down 2.7% After 2nd Quarter Deficits Revised Higher

Our trade deficit fell by 2.7% in July as the value of our exports increased and the value of our imports decreased....the Census report on our international trade in goods and services for July indicated that our seasonally adjusted goods and services trade deficit decreased by $1.519 billion to $53,989 billion in July from a revised June deficit of $55,508 billion, which had previously been reported at $55.154 billion...trade figures going back to January were revised with this report, which on net left the 2nd quarter trade deficit more than $1.6 billion higher than was previously reported, suggesting a downward revision to 2nd quarter GDP, the magnitude of which depends on the 1st quarter revisions…after rounding, the value of our July exports rose by $1.2 billion to $207.4 billion on a $1.2 billion increase to $138.2 billion in our exports of goods, which was slightly offset by a decrease of less than $0.1 billion to $69.2 billion in our exports of services, while our imports fell by $0.4 billion to $261.4 billion on a $0.4 billion decrease to $211.8 billion in our imports of goods and less than a $0.1 billion increase to $49.6 billion in our imports of services...export prices were on average 0.2% higher in July, so the month's change in real exports was less than their nominal change by that percentage, while import prices were also 0.2% higher, meaning that our real imports were likewise smaller than their nominal value by that percentage..

The increase in our July exports was due to greater exports of consumer goods, capital goods and automobiles, which were partially offset by a drop in our exports of industrial supplies and materials....referencing the Full Release and Tables for July (pdf), in Exhibit 7 we find that our exports of consumer goods rose by $1,549 million to $17,720 million on a $1190 million increase in our exports of pharmaceutical preparations and a $251 million increase in our exports of artwork, antiques, and other collectibles, and that our exports of capital goods rose by $831 million to $45,690 million on a $598 million increase in our exports of drilling & oilfield equipment and a $257 million increase in our exports of civilian aircraft, and that our exports of automotive vehicles, parts, and engines rose by $615 million to $13,901 million on a $676 million increase in our exports of new and used passenger cars...in addition, our exports of other goods not categorized by end use rose by $124 million to $5,682 million...partially offsetting those increases, our exports of industrial supplies and materials fell by $1,417 million to $42,837 million on a $510 million decrease in our exports of crude oil, a $231 million decrease in our exports of metallurgical grade coal, a $226 million decrease in our exports of fuel oil, and a $217 million decrease in our exports of petroleum products other than fuel oil, and our exports of foods, feeds and beverages fell by $244 million to $11,779 million on a $76 million decrease in our exports of soybeans...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports and shows that a drop in our imports of capital goods was responsible for the $0.4 billion decrease in our goods imports, while their drop was partially offset by increased imports of industrial supplies and materials and consumer goods...our imports of capital goods fell by $1,506 million to $55,408 million on a $1,406 million decrease in our imports of computers and a $203 million decrease in our imports of semiconductors, and our imports of other goods not categorized by end use fell by $697 million to $9,797 million...mostly offsetting those decreases, our imports of industrial supplies and materials rose by $860 million to $44,008 million on an increase of $953 million in our imports of petroleum products other than fuel oil, an increase of $270 million in our imports of fuel oil, an increase of $265 million in our imports of fertilizers and an increase of $219 million in our imports of organic chemicals, which were in turn themselves offset by a decrease of $1153 million in our imports of crude oil...in addition, our imports of consumer goods rose by $604 million to $55,344 million on an increase of $514 million in our imports of cellphones, a $490 million increase in our imports of toys, games, and sporting goods, and a $231 million increase in our imports of furniture, offset by a $326 million decrease in our imports of artwork, antiques, and other collectibles and $304 million decrease in our imports of televisions, while our imports of automotive vehicles, parts and engines rose by $106 million to $32,738 million as a $543 million decrease in our imports of passenger cars was more than offset by a $391 increase in our imports of vehicle parts and accessories, and increased imports of trucks, buses, and special purpose vehicles, engines, and tires....in addition. our imports of foods, feeds, and beverages rose by $72 million to $12,770 million...

The Full Release and Tables pdf for this month's report also summarizes Exhibit 19, which gives us surplus and deficit details on our goods trade with selected countries:

The July figures show surpluses, in billions of dollars, with South and Central America ($3.7), Hong Kong ($2.4), Brazil ($0.7), United Kingdom ($0.3), OPEC ($0.3), and Singapore ($0.1). Deficits were recorded, in billions of dollars, with China ($29.6), European Union ($15.9), Mexico ($8.9), Germany ($6.2), Japan ($5.9), Italy ($3.1), Canada ($3.1), India ($2.1), Taiwan ($2.0), France ($1.9), South Korea ($1.5), and Saudi Arabia (less than $0.1).

  • • The balance with members of OPEC shifted from a deficit of $0.3 billion to a surplus of $0.3 billion in July. Exports decreased $0.3 billion to $3.6 billion and imports decreased $0.8 billion to $3.3 billion.
  • • The deficit with China decreased $0.5 billion to $29.6 billion in July. Exports decreased $0.3 billion to $9.3 billion and imports decreased $0.8 billion to $39.0 billion.
  • • The surplus with South and Central America decreased $1.1 billion to $3.7 billion in July. Exports decreased $0.9 billion to $13.0 billion and imports increased $0.2 billion to $9.3 billion.

To gauge the impact of July trade in goods on 3rd 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 in chained 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, except they are not annualized here....from that table, we can compute that 2nd quarter real exports of goods averaged 148369.7 million monthly in 2012 dollars, while inflation adjusted July exports were at 148,740 million in that same 2012 dollar quantity index representation... annualizing the change between the two figures, we find that July's real exports are running at a 1.00% annual rate above those of the 2nd quarter, or at a pace that would add about 0.12 percentage points to 3rd quarter's GDP if they were continued through August and September.....in a similar manner, we find that our 2nd quarter real imports averaged 233,235 million monthly in chained 2012 dollars, while inflation adjusted July imports were at 234,249 million...that would indicate that so far in the 3rd quarter, our real imports have grown at annual rate of roughly 1.75% from those of the 2nd quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 1.75% rate would subtract about 0.27 percentage points from 3rd quarter GDP....hence, if the July trade deficit is maintained throughout the 3rd quarter, our deteriorating balance of trade in goods over that of the 2nd quarter would subtract 0.15 percentage points from the growth of 3rd quarter GDP....however, note that we have not computed the impact of the less volatile change in services here because the BEA does not provide inflation adjusted data on those, and we don't have an easy way to adjust for all their price changes...

Construction Spending Rose 0.1% in July after 2nd Quarter Spending was Revised Lower

The Census Bureau report on construction spending for July (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,288.8 billion annually if extrapolated over an entire year, which was less than 0.1 percent (±1.3 percent)* above the revised annualized estimate of $1,288.1 billion of construction spending in June but 2.7 percent (±1.6 percent) below the estimated annualized level of construction spending in July of last year....the June construction spending estimate was revised 0.1% higher, from $1,287.0 billion to $1,288.1 billion, while the annual rate of construction spending for May was revised nearly 0.5% lower, from $1,303.4 billion to $1,297.464 billion....on net, those revisions would suggest a downward revision of 0.03 percentage points to 2nd quarter GDP when the third estimate is released at the end of September, assuming the net impacts from the inflation adjustments are similar to those we saw in the 2nd estimate...

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 $963.1 billion, 0.1 percent (±0.7 percent)* below the revised June estimate of $963.7 billion. Residential construction was at a seasonally adjusted annual rate of $506.7 billion in July, 0.6 percent (±1.3 percent)* above the revised June estimate of $503.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $456.4 billion in July, 0.8 percent (±0.7 percent) below the revised June estimate of $460.2 billion.
  • Public Construction: In July, the estimated seasonally adjusted annual rate of public construction spending was $325.7 billion, 0.4 percent (±2.5 percent)* above the revised June estimate of $324.3 billion. Educational construction was at a seasonally adjusted annual rate of $73.3 billion, 1.6 percent (±2.8 percent)* above the revised June estimate of $72.1 billion. Highway construction was at a seasonally adjusted annual rate of $97.0 billion, 2.7 percent (±6.4 percent)* below the revised June estimate of $99.7 billion.

Construction spending inputs into 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and into government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of July spending reported in this release on 3rd 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…the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for each of the various components of non-residential investment, so in lieu of trying to adjust for all of those 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 for an approximate estimate...

That price index showed that aggregate construction costs were up 0.6% in July, after rising 0.2% in June but after being unchanged from April to May...on that basis, we can estimate that July construction costs were roughly 0.8% more than those of May and those of April, and obviously 0.6% more than those of June...we then use those percentages to inflate the lower priced spending figures for each of those months, which is arithmetically the same as deflating July construction spending, for comparison purposes...annualized construction spending in millions of dollars for the second quarter is given as 1,288,070 for June, 1,297,464 for May, and 1,307,136 for April, while it was at 1,288,794 million in July ...thus to compare July's inflation adjusted construction spending to that of the first quarter, our arithmetic formula becomes: 1,288,794 / (((1,288,070 * 1.006) + (1,297,464 *1.008) + (1,307,136 * 1.008)) / 3) = 0.98601, meaning real construction spending in July was down 1.4% vis a vis the 2nd quarter, or down at a 5.6% annual rate...to figure the effect of that change on GDP,  we take the difference between the second quarter spending average and that of July and take that result as a fraction of 2nd quarter GDP, and find that aggregate July construction spending is falling at a rate that would subtract approximately 0.42 percentage points from 3rd quarter GDP should we see no improvement from July's adjusted figures in August or September…

Factory Shipments Down 0.2% in July, Factory Inventories Up 0.2%

The July Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $6.9 billion or 1.4 percent to $500.3 billion in July, following an increase of 0.5% to $493.4 billion in June, which was revised from the 0.6% increase to $493.8 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 July advance report on durable goods we reported on last week...on those revisions, the Census Bureau's own 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 July, up two consecutive months, increased $6.9 billion or 1.4 percent to $500.3 billion, the U.S. Census Bureau reported today. This followed a 0.5 percent June increase. Shipments, down following two consecutive monthly increases, decreased $0.9 billion or 0.2 percent to $504.0 billion. This followed a 0.1 percent June increase. Unfilled orders, up following three consecutive monthly decreases, increased $0.6 billion or virtually unchanged to $1,161.5 billion. This followed a 0.6 percent June decrease. The unfilled orders‐to‐shipments ratio was 6.67, up from 6.55 in June. Inventories, up ten of the last eleven months, increased $1.2 billion or 0.2 percent to $696.5 billion. This followed a 0.1 percent June increase. The inventories‐to‐shipments ratio was 1.38, unchanged from June.
  • New orders for manufactured durable goods in July, up two consecutive months, increased $5.0 billion or 2.0 percent to $250.2 billion, down from the previously published 2.1 percent increase. This followed a 1.8 percent June increase. Transportation equipment, also up two consecutive months, drove the increase, $5.7 billion or 7.0 percent to $86.4 billion. New orders for manufactured nondurable goods increased $2.0 billion or 0.8 percent to $250.1 billion.
  • Shipments of manufactured durable goods in July, down following two consecutive monthly increases, decreased $2.9 billion or 1.1 percent to $253.9 billion, unchanged from the previously published decrease. This followed a 0.9 percent June increase. Transportation equipment, also down following two consecutive monthly increases, led the decrease, $1.8 billion or 2.0 percent to $86.5 billion. Shipments of manufactured nondurable goods, up following two consecutive monthly decreases, increased $2.0 billion or 0.8 percent to $250.1 billion. This followed a 0.7 percent June decrease. Petroleum and coal products, also up following two consecutive monthly decreases, led the increase, $1.3 billion or 2.4 percent to $53.4 billion.
  • Unfilled orders for manufactured durable goods in July, up following three consecutive monthly decreases, increased $0.6 billion or virtually unchanged to $1,161.5 billion, down from the previously published 0.1 percent increase. This followed a 0.6 percent June decrease. Fabricated metal products, up two consecutive months, led the increase, $0.4 billion or 0.5 percent to $86.5 billion.
  • Inventories of manufactured durable goods in July, up twelve of the last thirteen months, increased $1.4 billion or 0.3 percent to $427.1 billion, down from the previously published 0.4 percent increase. This followed a 0.3 percent June increase. Transportation equipment, also up twelve of the last thirteen months, led the increase, $1.4 billion or 1.0 percent to $141.1 billion. Inventories of manufactured nondurable goods, down four consecutive months, decreased $0.2 billion or 0.1 percent to $269.4 billion. This followed a virtually unchanged June decrease. Chemical products, down following two consecutive monthly increases, drove the decrease, $0.2 billion or 0.3 percent to $90.7 billion.. 

To estimate the effect of those July factory inventories on 3rd 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 increased by 0.3% at $243,670 million; the value of work in process inventories rose 0.5% to $214,950 million, and materials and supplies inventories were valued 0.2% lower at $237,864 million.…meanwhile, the July producer price index reported that prices for finished goods were on average 0.4% higher, that prices for intermediate processed goods were on average 0.2% higher, while prices for unprocessed goods were 1.6% higher....assuming similar valuations for like types of inventories, that would suggest that July's real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were 0.3% higher, and real raw material inventory inventories were about 1.8% lower...since real NIPA factory inventories were somewhat higher in the 2nd quarter, the fact that this report appears to indicate a real decrease in aggregate July factory inventories will therefore have a corresponding negative impact on the growth rate of 3rd 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…)