Sunday, April 11, 2021

March producer prices; February’s trade deficit, job openings survey, factory inventories, & wholesale trade

Major monthly reports released over the past week included the Commerce Department's report on our International Trade for February, the Producer Price Index for March and the Job Openings and Labor Turnover Survey (JOLTS) for February, both from the Bureau of Labor Statistics, and the Full Report on Manufacturers' Shipments, Inventories and Orders for February, and the February report on Wholesale Trade, Sales and Inventories, both from the Census Bureau....in addition, the Fed released the Consumer Credit Report for February, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $27.6 billion, or at a 7.9% annual rate, the most since late 2017, as non-revolving credit expanded at a 7.3% annual rate to $3,231.4 billion and revolving credit outstanding grew at a 10.1% rate to $974.4 billion...

Privately issued reports released this week included the March 2021 Services Report On Business® from the Institute for Supply Management, which saw the ISM Services index rise to an all-time high of 63.7% in March, up from 55.3% in February, indicating a much larger plurality of service industry purchasing managers reported expansion in various facets of their business in March, and the Mortgage Monitor for February (pdf) from Black Knight Financial Services, which indicated that 6.00% of all mortgages were delinquent in February, up from 5.85% in January, and up from 3.28% in February of 2020, and that a record low of 0.32% of all mortgages were in the foreclosure process, unchanged from the 0.32% that were in foreclosure in January but down from the 0.45% of mortgages that were in foreclosure a year earlier...

US Trade Deficit Rises 4.8% in February to Record High

Our trade deficit rose 4.8% February, as both our exports and imports decreased, but the value of our exports fell by almost three times as much as the value of our imports did....the Commerce Department report on our international trade in goods and services for February indicated that our seasonally adjusted goods and services trade deficit rose by $3.3 billion to $71.1 billion in February, from a January deficit that was revised down to $67.8 billion from the $68.2 billion deficit reported a month ago...in rounded figures, the value of our February exports fell by $5.0 billion to $187.3 billion on $4.8 billion decrease to $131.1 billion in our exports of goods and a $0.2 billion decrease to $56.1 billion in our exports of services, while our imports fell $1.7 billion to $258.3 billion as a $2.0 billion decrease to $219.1 billion in our imports of goods was partially offset by a $0.3 billion increase to $39.2 billion in our imports of services....export prices averaged 1.6% higher in February, which means our real exports month over month fell more than the nominal decrease by that percentage, while import prices rose 1.3%, meaning that the contraction in real imports was greater than the nominal decrease reported here by that percentage...

The decrease in our February exports of goods resulted from lower exports of capital goods, consumer goods, soybeans, and of automotive vehicles, parts and engines...referencing the Full Release and Tables for February (pdf), in Exhibit 7 we find that our exports of capital goods fell by $2,451 million to $39,094 million on a $738 million decrease in our exports of industrial machines other than those itemized separately, a $459 million decrease in our exports of civilian aircraft, and a $409 million decrease in our exports of semiconductors, and that our exports of consumer goods fell by $937 million to $15,049 million on a $470 million decrease in our exports of gem diamonds; in addition, our exports of foods, feeds and beverages fell by $727 million to $13,166 million on a $889 million decrease in our exports of soybeans, and our exports of automotive vehicles, parts, and engines fell by $703 million to $11,899 million on a $319 million decrease in our exports of parts and accessories of vehicles other than tires, engines and chassis and a $280 million decrease in our exports of new and used passenger cars, while our exports in other goods not categorized by end use fell by $372 million to $4,968 million....partially offsetting the decreases in those end use categories, our exports of industrial supplies and materials rose by $352 million to $46,448 million as a $2,399 million increase in our exports of natural gas and a $503 million increase in our exports of non-monetary gold were partly offset by a $824 million decrease in our exports of crude oil, a $326 million decrease in our exports of plastic materials, and a $357 million decrease in our exports of natural gas liquids...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports of goods and shows that lower imports of automotive vehicles, parts, and engines and of consumer goods were responsible for the $2.0 billion decrease in our February imports, while their impact was partly offset by greater imports of industrial supplies and materials...our imports of automotive vehicles, parts and engines fell by $3,393 million to $28,184 million on a $1,768 million decrease in our imports of passenger cars, a $633 million decrease in our imports of trucks, buses, and special purpose vehicles, and a $589 million decrease in our imports of parts and accessories of vehicles other than tires, engines and chassis, and our imports of consumer goods fell by $2,674 million to $60,665 million as a $3,876 million decrease in our imports of pharmaceuticals and a $438 million decrease in our imports of household appliances were partially offset by a $737 million increase in our imports of artwork, antiques, and other collectibles...in addition, our imports of foods, feeds, and beverages fell by $669 million to $13,116 million on decreases in most food & feed categories and a $285 million decrease in imports of foods other than those itemized separately...partially offsetting the decreases in those end use categories, our imports of industrial supplies and materials rose by $3,531 million to $46,586 million on a $1,056 million increase in our imports of finished metal shapes, a $963 million increase in our imports of crude oil, an $874 million increase in our imports of natural gas, a $535 million increase in our imports of precious metals other than those itemized, and a $395 million increase in our imports of petroleum products other than those itemized, and our imports of capital goods rose by $159 million to $57,707 million as a $951 million increase in our imports of civilian aircraft was partly offset by a $420 million increase in our imports of computers, and lastly our imports of other goods not categorized by end use rose by $924 million to $9,483 million...

The press release for this month's report summarizes Exhibit 19 in the full release pdf for February, which gives us surplus and deficit details on our goods trade with selected countries:

The February figures show surpluses, in billions of dollars, with South and Central America ($3.7), Brazil ($1.4), Hong Kong ($1.2), Singapore ($0.6), United Kingdom ($0.2), and Saudi Arabia ($0.1). Deficits were recorded, in billions of dollars, with China ($30.3), European Union ($19.0), Mexico ($6.8), Germany ($5.3), Japan ($4.5), Canada ($4.0), Italy ($3.2), France ($2.7), Taiwan ($2.4), South Korea ($2.3), and India ($1.7).

  • The deficit with China increased $3.1 billion to $30.3 billion in February. Exports decreased $4.5 billion to $10.4 billion and imports decreased $1.5 billion to $40.6 billion.
  • The deficit with Canada increased $2.2 billion to $4.0 billion in February. Exports decreased $0.5 billion to $23.7 billion and imports increased $1.7 billion to $27.7 billion.
  • The deficit with Mexico decreased $5.1 billion to $6.8 billion in February. Exports increased $2.1 billion to $22.8 billion and imports decreased $3.0 billion to $29.6 billion.

To gauge the impact of January and February trade on 1st quarter GDP growth figures, we use exhibit 10 in the full pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2012 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference being that the amounts are not annualized here....from that table, we can figure that the 4th quarter’s real exports of goods averaged 145,373.7 million monthly in chained 2012 dollars, while inflation adjusted 1st quarter goods exports were at 147,294 million and 139,441 million for January and February respectively in that same 2012 dollar quantity index representation...averaging January’s and February’s goods exports and then computing the annualized change between that average and the average of the fourth quarter, we find that the 1st quarter's real exports of goods are running at a 5.4068% annual rate below those of the 4th quarter, or at a pace that would subtract about 0.33 percentage points from 1st quarter GDP..... in a similar manner, we find that our 4th quarter real imports of goods averaged 239,602.7 million monthly in chained 2012 dollars, while inflation adjusted January and February imports were at 243,409 million and 238,534 million respectively, after that same 2012 chained dollars inflation adjustment...that would indicate that so far in the 1st quarter, our real imports of goods have increased at a 2.305% annual rate from those of the 4th quarter...since increases in 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 2.3% rate would subtract about 0.26 percentage points from 1st quarter GDP....hence, if the average trade deficit in goods of the two months reported here is continued in March, the net effect of our international trade in goods will be to subtract around 0.59 percentage points from 1st quarter GDP...

Note that we have not computed 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 $0.2 billion decrease in exports of services and the $0.3 billion increase in imports of services both suggest that February’s trade in services would also be a subtraction from 1st quarter GDP, after the change January's exports and imports in services were statistically equal...

Producer Prices rose 1.0% in March on Higher Wholesale Energy Prices, Wider Margins for Trade and Transport Services

The seasonally adjusted Producer Price Index (PPI) for final demand rose 1.0% in March, as prices for finished wholesale goods rose 1.7% while margins of final services providers rose 0.7%...that increase followed a February report that the PPI was 0.5% higher, with prices for finished wholesale goods on average 1.4% higher, while margins of final services providers increased by 0.1%, a January report that had the PPI 1.3% higher, with average prices for finished wholesale goods rising 1.4%, while margins of final services providers increased by 1.3%, a now revised December report that indicated the PPI was up 0.3%, with prices for finished wholesale goods up 1.0% while margins of final services providers were 0.2% lower, and a re-revised November report that shows the PPI was unchanged, with prices for finished wholesale goods rising 0.4% while margins of final services providers decreased 0.2%....on an unadjusted basis, producer prices are now 4.2% higher than a year ago, up from the 2.8% year over year increase indicated by last month's report, while, the core producer price index, which excludes food, energy and trade services, rose by 0.6% for the month, and is now 3.1% higher than in March a year ago, up from the 2.2% year over year increase as was shown in February...

As noted, the price index for final demand for goods, aka 'finished goods', was 1.7% higher in March, after being 1.4% higher in February, 1.4% higher in January, 1.0% higher in December, 0.4% higher in November, 0.5% higher in October, 0.4% higher in September, 0.4% higher in August, 0.5% higher in July, 0.4% higher in June, and 1.4% higher in May, but 2.8% lower in April and 1.7% lower in March of last year....the finished goods price index rose 1.7% in February because the price index for wholesale energy goods was 5.9% higher, after it had risen by 6.0% in February, 5.1% in January, 4.7% in December, 1.7% in November, and by 0.5% in October, while the price index for wholesale foods rose 0.5%, after rising by 1.3% in February, rising 0.2% in January, after being unchanged in December and rising by a revised 0.2% in November, and while the index for final demand for core wholesale goods (excluding food and energy) was 0.9% higher, after it had risen by 0.3% in February and 0.8% in January....wholesale energy prices averaged 5.9% higher due to a 8.8% increase in wholesale prices for gasoline and a 16.5% increase in wholesale prices for No.2 diesel fuel, while, the wholesale food price index rose 0.5% on a 10.3% increase in the wholesale price index for eggs for fresh use, a 6.0% increase in the wholesale price index for pork, and a 7.7% increase in wholesale price index for fin-fish and shellfish....among core wholesale goods, the wholesale price index for industrial chemicals rose 9.1%, the wholesale price index for mobile homes rose 2.5%, and the wholesale price index for iron and steel scrap rose 10.8% ..

At the same time, the index for final demand for services rose 0.7% in March, after rising 0.1% in February and 1.3% in January, after falling by 0.2% in December and in November, as the index for final demand for trade services rose 1.0%, the index for final demand for transportation and warehousing services rose 1.5%, and the core index for final demand for services less trade, transportation, and warehousing services was 0.4% higher...among trade services, seasonally adjusted margins for machinery and vehicle wholesalers rose 6.7%, margins for apparel, jewelry, footwear, and accessories retailers rose 5.8%, margins for TV, video, and photographic equipment and supplies retailers rose 6.8%, and margins for food retailers rose 1.1%, while margins for automobile retailers fell 4.7%.. among transportation and warehousing services, average margins for truck transportation of freight rose 1.7%, average margins for air transportation of freight rose 1.2%, and average margins for rail transportation of freight and mail rose 1.1%...among the components of the core final demand for services index, the index for portfolio management rose 1.6%, the index for passenger car rental rose 9.6%, and margins for residential property sales and leases, brokerage fees and commissions rose 1.7%, while margins for arrangement of cruises and tours fell 3.0%…

This report also showed the price index for intermediate processed goods rose 4.0% in March, after rising 2.7% in February, 1.7% in January, a revised 1.2% in December, a revised 0.9% in November, 0.9% in October, 0.6% in September, 0.9% in August, 1.4% in July, and 1.2% in June, but after being unchanged in May and falling the prior 5 months....the price index for intermediate energy goods rose 8.8%, as refinery prices for gasoline rose 8.8%, refinery prices for No. 2 diesel fuel rose 16.5%, refinery prices for jet fuel rose 12.6%, producer prices for industrial electric power rose 9.5%, and producer prices for industrial natural gas rose 8.5%... meanwhile, the price index for intermediate processed foods and feeds rose 0.9%, as the producer price index for fats and oil rose 3.1%, the producer price index for processed poultry rose 3.9%, and the producer price index for prepared animal feeds rose 1.0%...at the same time, the core price index for intermediate processed goods less food and energy rose 3.2% as the producer price index for plastic resins and materials rose 9.1%, the producer price index for phosphates rose 20.4%, the producer price index for steel mill products rose 17.6%, the producer price index for plywood rose 10.5%, and the producer price index for hardwood lumber rose 9.0%...prices for intermediate processed goods are now 12.5% higher than in March a year ago, the fourth increase after 19 consecutive year over year decreases, which followed 29 months of year over year increases, which had been preceded by 16 months of negative year over year comparisons, as prices for intermediate goods fell every month from July 2015 through March 2016....

Meanwhile, the price index for intermediate unprocessed goods rose 9.3% in March, after rising 4.3% in February, 3.8% in January, a revised 2.3% in December, a revised 6.3% in November, and after rising by 1.3% in October, 5.2% in September, 4.0% in August, 0.6% in July, 5.4% in June and 8.4% in May, but after falling 13.7% in April, and by 8.1% last March ....that was as the March price index for crude energy goods rose 22.3% as crude oil prices rose 11.0%, unprocessed natural gas prices rose 46.6%, and coal prices were unchanged, while the price index for unprocessed foodstuffs and feedstuffs rose 1.4% on a 17.0% increase in the price of slaughter hogs, and a 5.3% increase in producer prices for alfalfa hay....at the same time, the index for core raw materials other than food and energy materials rose 3.2%, as the price index for copper base scrap rose 11.1% and the price index for iron and steel scrap rose 10.8%... this raw materials index is now 41.6% higher than a year ago, just the fifth annual increase in more than 2 years, as the year over year change on this index had been negative from the beginning of 2019 through October of last year...

Lastly, the price index for services for intermediate demand rose 0.4% in March, after rising 0.7% in February, 1.3% in January, and a revised 0.2% in December, after being unchanged  in November, rising 0.7% in October, rising 1.1% in September, 0.8% in August, 0.5% in July, and 0.3% last June….the price index for intermediate trade services was 0.4% higher, as margins for intermediate building materials, paint, and hardware wholesalers rose 3.6%, margins for intermediate paper and plastics products wholesalers rose 3.9%, and margins for intermediate hardware, building material, and supplies retailers rose 2.1%...meanwhile, the index for transportation and warehousing services for intermediate demand was 0.9% higher, as the intermediate price index for water transportation of freight rose 3.3%, the intermediate price index for truck transportation of freight rose 1.7%, and the intermediate price index for arrangement of freight and cargo rose 2.9%....at the same time, the core price index for intermediate services other than trade, transportation, and warehousing services rose 0.3%, as the intermediate price index for business loan services (partial) rose 6.2%, the intermediate price index for passenger car rental rose 9.6%, the intermediate price index for investment banking rose 4.4%, and the intermediate price index for advertising space sales in periodicals and newspapers rose 1.8%, while the intermediate price index for truck, utility trailer, and RV rental and leasing fell 2.6%..over the 12 months ended in March, the year over year price index for services for intermediate demand is 4.0% higher than it was a year ago, the seventh consecutive positive annual change since it briefly turned negative year over year from April to August for the first time in the history of this index...

Job Openings, Hiring, Layoffs & Job Quitting were all Higher in February

The Job Openings and Labor Turnover Survey (JOLTS) report for February from the Bureau of Labor Statistics estimated that seasonally adjusted job openings increased by 268,000, from 7,099,000 in January to 7,367,000 in February, after January’s job openings were revised up from the originally reported 6,917,000...February's jobs openings were also 5.1% higher than the 7,012,000 job openings reported in February a year ago, as the job opening ratio expressed as a percentage of the employed rose from 4.7% in January to 4.9% in February, which was also up from the 4.4% rate of February a year ago...the healthcare and social assistance sector, with a 233,000 job opening increase to 1,453,000 openings, saw the largest increase, while job openings in state and local education decreased by 117,000 to 177,000  (details on job openings by industry and region can be viewed in Table 1)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked 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 February, seasonally adjusted new hires totaled 5,738,000, up by 273,000 from the revised 5,465,000 who were hired or rehired in January, as the hiring rate as a percentage of all employed rose from 3.8% in January to 4.0% in February, which was also up from the 3.9% hiring rate in February a year earlier (details of hiring by sector since October and for a year ago are in table 2)....meanwhile, total separations rose by 133,000, from 5,323,000 in January to 5,456,000 in February, as the separations rate as a percentage of the employed rose from 3.7% in January to 3.8% in February, and was also up from 3.7% in February a year ago (see details in table 3)...subtracting the 5,456,000 total separations from the total hires of 5,738,000 would imply an increase of 288,000 jobs in February, somewhat less than the revised payroll job increase of 468,000 for February reported in the March establishment survey last week, with at least some of that difference likely due to the difference in the date of the surveys, which is at month end for this report but is during the week of the 12th for the employment situation....

Breaking down the seasonally adjusted job separations, the BLS founds that 3,357,000 of us voluntarily quit our jobs in February, up by 51,000 from the revised 3,306,000 who quit their jobs in January, while the quits rate, widely watched as an indicator of worker confidence, remained at 2.3% of total employment, which was still up from the quits rate of 2.2% year earlier (see details in table 4)....in addition to those who quit, another 1,775,000 were either laid off, fired or otherwise discharged in February, also up by 51,000 from the revised 1,724,000 who were discharged in January, as the discharges rate remained at 1.2% of all those who were employed during the month, while it was down from the 1.3% discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 323,000 in February, up from 294,000 in January, for an 'other separations rate’ of 0.2%, same as in January and the same as in February 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...  

February Factory Shipments Down 2.0%, Factory Inventories 0.8% Higher

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) for February from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods decreased by $4.1 billion or 0.8 percent to $505.7 billion in February, the first decrease in 10 months, following a revised 2.7% increase to $509.7 billion in January, which was originally reported as a 2.6 percent increase to $509.4 billion a month ago....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 accurate as revised updates to the February advance report on durable goods which was released two weeks ago...on those durable goods revisions, the Census Bureau's own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we'll just quote directly from that summary here:

  • Summary: New orders for manufactured goods in February, down following nine consecutive monthly increases, decreased $4.1 billion or 0.8 percent to $505.7 billion, the U.S. Census Bureau reported today. This followed a 2.7 percent January increase. Shipments, also down following nine consecutive monthly increases, decreased $10.3 billion or 2.0 percent to $502.4 billion. This followed a 1.8 percent January increase. Unfilled orders, up two consecutive months, increased $8.5 billion or 0.8 percent to $1,082.3 billion. This followed a 0.2 percent January increase. The unfilled orders-to-shipments ratio was 6.29, up from 6.11 in January. Inventories, up six of the last seven months, increased $5.5 billion or 0.8 percent to $702.4 billion. This followed a 0.2 percent January increase. The inventories-to-shipments ratio was 1.40, up from 1.36 in January. 
  • New orders for manufactured durable goods in February, down following nine consecutive monthly increases, decreased $3.2 billion or 1.2 percent to $254.1 billion, down from the previously published 1.1 percent decrease. This followed a 3.6 percent January increase. Transportation equipment, down following five consecutive monthly increases, led the decrease, $1.5 billion or 1.8 percent to $83.4 billion. New orders for manufactured nondurable goods decreased $0.9 billion or 0.4 percent to $251.6 billion.
  • Shipments of manufactured durable goods in February, down following five consecutive monthly increases, decreased $9.4 billion or 3.6 percent to $250.8 billion, down from the previously published 3.5 percent decrease. This followed a 1.8 percent January increase. Transportation equipment, also down following five consecutive monthly increases, led the decrease, $7.1 billion or 8.3 percent to $78.5 billion. Shipments of manufactured nondurable goods, down following nine consecutive monthly increases, decreased $0.9 billion or 0.4 percent to $251.6 billion. This followed a 1.8 percent January increase. Chemical products, also down following nine consecutive monthly increases, led the decrease, $0.8 billion or 1.1 percent to $71.1 billion.
  • Unfilled orders for manufactured durable goods in February, up two consecutive months, increased $8.5 billion or 0.8 percent to $1,082.3 billion, unchanged from the previously published increase. This followed a 0.2 percent January increase. Transportation equipment, up following eleven consecutive monthly decreases, led the increase, $5.0 billion or 0.7 percent to $711.1 billion.
  • Inventories of manufactured durable goods in February, up following two consecutive monthly decreases, increased $2.8 billion or 0.7 percent to $427.3 billion, unchanged from the previously published increase. This followed a 0.3 percent January decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $0.9 billion or 0.6 percent to $146.6 billion. Inventories of manufactured nondurable goods, up six of the last seven months, increased $2.7 billion or 1.0 percent to $275.1 billion. This followed a 0.9 percent January increase. Petroleum and coal products, up four consecutive months, led the increase, $1.9 billion or 5.3 percent to $37.4 billion..

To gauge the effect of February's dollar valued factory inventories on 1st 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 0.5% to $251,683 million; the value of work in process inventories also increased by 0.5% to $206,550 million, and the value of materials and supplies inventories increased by 1.3% to $244,208 million...at the same time, the producer price index for February indicated that prices for finished goods increased 1.4%, that prices for intermediate processed goods were 2.7% higher, and that prices for unprocessed goods were on average 4.3% higher, even as core raw materials were priced 1.3% lower than January's....assuming similar valuations for like inventories, that would suggest that February's real finished goods inventories were around 0.9% lower than January’s, that real inventories of intermediate processed goods were about 2.2% smaller, and that real raw material inventory inventories were on average lower, even as core raw material inventories were higher…since there was a small increase in 4th quarter real factory inventories, the large February decrease, following an equally large decrease in January's real factory inventories, will thus have a significant negative impact on 1st quarter GDP...

February Wholesale Sales Down 0.8%, Wholesale Inventories Up 0.6% Due to Higher Prices

The February report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $538.3 billion, down 0.8 percent (±0.7 percent) from the revised January level, but 6.4 percent (±0.9 percent) higher than wholesale sales of February 2020... the December 2020 to January 2021 percent change in sales was revised from the preliminary estimate of up 4.9 percent (±0.7 percent) to $531.7 billion to an increase of 4.4 percent (±0.9 percent) to $542,867 million in conjunction with an annual revision of previously published data based on the results of the 2019 Annual Wholesale Trade Survey and the results of the 2017 Economic Census, which makes any such comparisons to previous published amounts nonsense....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 sold....

On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold, and this February report estimated that wholesale inventories were valued at $682.5 billion at month end, an increase of 0.6 percent (+/-0.4%) from the revised January level and also 2.0 percent (±1.1 percent) higher than February a year ago, with the January preliminary inventory estimate revised upward from the advance estimate of up 1.3 percent (±0.4 percent) to $661.7 billion to an increase of 1.4 percent (±0.2 percent) to $678.2 billion....

For national accounts, the wholesale inventories reported here will be adjusted the February producer price index, ie the index a month prior to the one we just reported on...with notable exceptions such as inventories of farm products, chemicals and petroleum, we've previously estimated that wholesale inventories appear to be roughly 70% finished goods....with the February producer price index for finished goods up by 1.4% while the producer price indexes for intermediate goods & raw goods were 2.7% higher and 4.3% higher respectively, we can thus figure that February’s real wholesale inventories would have decreased by at least 0.8%, and probably by much more...since the real wholesale inventories inched up a bit over the 4th quarter, any real decrease in the 1st quarter will not only reverse that bit, but also subtract from the growth of GDP by the size of the real inventory decrease...

 

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

Sunday, April 4, 2021

March employment report; February’s construction spending

Major monthly reports released over the past week included the Employment Situation Summary for March from the Bureau of Labor Statistics and the February report on Construction Spending from the Census Bureau...this week also saw the last of the regional Fed manufacturing surveys for March: the Dallas Fed Texas Manufacturing Outlook Survey reported their general business activity composite index rose to +28.9 from last month's +17.2, indicating that a substantial majority of Texas businesses reported an increase in activity during the month...

Privately issued reports released this week included the ADP Employment Report for March and the light vehicle sales report for March from Wards Automotive, which estimated that vehicles sold at a 17.75 annual rate in March, up from the snowstorm suppressed 15.67 annual sales rate in February, and up from the pandemic lockdown suppressed 11.37 million annual sales rate reported a year earlier...the week also had the release of the Case-Shiller Home Price Index for January from S&P Case-Shiller, which reported that home prices during November, December and January averaged 11.2% higher nationally than prices for the same homes that sold during the same 3 month period a year earlier....in addition, this week also saw the widely followed March Manufacturing Report On Business from the Institute for Supply Management (ISM), which indicated that the manufacturing PMI (Purchasing Managers Index) rose to 64.7% in March, up from 60.8% in February, which suggests a widespread expansion among manufacturing firms nationally...

Employers Add 916,000 Jobs in March, Unemployment Rate Falls 0.2% to 6.0%

The Employment Situation Summary for March reported a much larger than expected payroll job increase, while the employment rate rose 0.2% and the unemployment rate fell 0.2%…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 916,000 jobs in March, after the previously estimated payroll job increase for January was revised up by 67,000, from 166,000 to 233,000, and the payroll jobs increase for February was revised up by 89,000, from 379,000 to 468,000…so including those revisions, this report thus represents a total of 1,072,000 more seasonally adjusted payroll jobs than were reported last month...nonetheless, seasonally adjusted non-farm payrolls are still 8,403,000 below the record 152,523,000 jobs reported for February a year ago, before the pandemic related layoffs kicked in...the unadjusted data shows that there were actually 1,323,000 more payroll jobs extant in March than in February, as the usual seasonal job increases in sectors such as construction, administrative and waste services, and in leisure and hospitality were washed out by the seasonal adjustments…

Seasonally adjusted job increases in March were spread through both the goods producing and the service sectors and government, with no major sector showing a statistically significant job loss...even after a 156,000 job downward seasonally adjustment, employment in the leisure and hospitality sector increased by 280,000 jobs, including the addition of 175,800 more jobs in bars and restaurants, 41,200 more jobs in amusements, gambling, and recreation, and 40,000 more jobs in accommodation...similarly, even after a 101,000 job downward seasonally adjustment, employment in construction increased by 110,000 jobs, including 38,200 jobs with nonresidential specialty trade contractors and 27,300 more in heavy and civil engineering construction...with several school districts resuming in-person classes, employment in local education increased by 76,000 jobs; at the same time, state government education payrolls increased by 49,600, and private educational services added 64,400 more....the broad professional and business services sector added 66,000 jobs, with an increase of 12,800 jobs with employment services and 10,000 jobs servicing to buildings and dwellings...employment in manufacturing rose by 53,000, led by the addition of 13,700 jobs in the manufacture of fabricated metal products and 7,400 more in the manufacture of miscellaneous nondurable goods...there were also 47,500 jobs added in transportation and warehousing, including 16,700 couriers and messengers and 12,800 jobs in transit and ground passenger transportation...another 42,000 jobs were added in a catch-all 'other services' category, including 18,600 jobs in personal and laundry services and 18,300 in repair and maintenance  ....employment in health care and social assistance rose by 36,400, with the addition of 20,100 jobs in individual and family services and 4,200 jobs in home health care services…wholesale trade employment increased by 23,700, led by the addition of 14,300 jobs in the trade of durable goods....in addition, seasonally adjusted retail jobs increased by 22,500, with 16,300 of those in clothing and clothing accessories stores and 13,000 more with motor vehicle and parts dealers, which were partially offset by a loss of 9,100 jobs in building material and garden supply stores...the resource extraction sector added 20,000 jobs, 19,300 of which were in support activities for mining...there were also 16,000 more jobs in the financial sector, due to the addition of 11,200 jobs with insurance carriers and related activities and 10,000 more in real estate, as credit intermediation and related activities shed 6,600 employees....meanwhile employment in other major sectors, including the information sector and utilities, saw employment change by less than 2,000 over the month....

The establishment survey also showed that average hourly pay for all employees fell by 4 cents an hour to $29.96 an hour in March, after it had increased by a revised 4 cents an hour in February; at the same time, the average hourly earnings of production and non-supervisory employees increased by 2 cents to $25.21 an hour...employers also reported that the average workweek for all private payroll employees increased by 0.3 hour to 34.9 hours in March, after a 0.4 hour decrease in February, while hours for production and non-supervisory personnel rose by 0.3 hour to 34.3 hours, also reflecting a rebound from February...in addition, the manufacturing workweek rose by 0.2 hour to 40.5 hours, while average factory overtime increased by 0.1 hours to 3.3 hours...

Meanwhile, the March household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 609,000 to 150,848,000, while the similarly estimated number of those counted as unemployed fell by 262,000 to 9,710,000; which together meant there was a 347,000 increase in the total labor force...since the working age population had grown by 85,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 263,000 to 100,445,000...meanwhile, the increase of those in the labor force was large enough, when compared to the civilian noninstitutional population, to increase the labor force participation rate from 61.4% in February to 61.5% in March......at the same time, the increase in number employed as a percentage of the increase in the population was enough to raise the employment to population ratio, which we could think of as an employment rate, by 0.2%, from 57.6% in February to 57.8% in March...likewise, the decrease in the number unemployed was enough to lower the unemployment rate by 0.2%, from 6.2% in February to 6.0% in March....meanwhile, the number who reported they were involuntarily working part time fell by 262,000 to 5,826,000 in March, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 11.1% in February to 10.7% in March, the lowest since March of last year..

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.. 

Construction Spending Fell 0.8% in February after January & December Figures Were Revised Higher

The Census Bureau's report on February construction spending (pdf) reported that "Construction spending during February 2021 was estimated at a seasonally adjusted annual rate of $1,516.9 billion, 0.8 percent (±0.7 percent) below the revised January estimate of $1,529.0 billion. The February figure is 5.3 percent (±1.0 percent) above the February 2020 estimate of $1,441.1 billion. During the first two months of this year, construction spending amounted to $213.2 billion, 4.9 percent (±1.0 percent) above the $203.2 billion for the same period in 2020. "...the January annualized spending estimate was revised 0.5% higher, from the $1,521.5 billion reported a month ago to $1,529.0 billion, while December's construction spending was revised from $1,496.5 billion to $1,510.4 billion annually, which together meant that the January construction spending increase was revised from +1.7% to +1.2%...the $13.9 billion upward revision to December’s annualized spending would mean we’ll see a upward revision of about 12 basis points to 4th quarter GDP when the annual revisions are released later this summer...

A further breakdown of the different subsets of construction spending are provided by a Census summary, which precedes the detailed spreadsheets:below:

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,165.7 billion, 0.5 percent (±0.7 percent)* below the revised January estimate of $1,171.6 billion. Residential construction was at a seasonally adjusted annual rate of $717.9 billion in February, 0.2 percent (±1.3 percent)* below the revised January estimate of $719.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $447.8 billion in February, 1.0 percent (±0.7 percent) below the revised January estimate of $452.3 billion.
  • Public Construction: In February, the estimated seasonally adjusted annual rate of public construction spending was $351.2 billion, 1.7 percent (±1.2 percent) below the revised January estimate of $357.4 billion. Educational construction was at a seasonally adjusted annual rate of $86.9 billion, 3.2 percent (±1.3 percent) below the revised January estimate of $89.8 billion. Highway construction was at a seasonally adjusted annual rate of $102.3 billion, 0.6 percent (±3.1 percent)* below the revised January estimate of $103.0 billion.

As you can tell from that summary, construction spending data would input 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 February’s construction spending reported in this release on 1st 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 to determine the actual change in construction put in place...there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust the figures for all of those types of construction separately, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the needed price adjustment and come up with an estimate...

That price index showed that aggregate construction costs were up 0.3% in February, after they had increased by 0.2% in January, and had been up by 0.1% in both December and in November...on that basis, we can estimate that February construction costs were about 0.5% more than those of December, roughly 0.6% more than those of November, and roughly 0.7% more than those of October, and of course 0.3% more than those of January...we then use those relative price change percentages to inflate the lower cost spending figures for each of the 4th quarter months vis a vis February, which is arithmetically the same as adjusting higher priced January and February construction spending downward, for purposes of comparison....this report gives annualized construction spending in millions of dollars for the 4th quarter months as $1,510,387 in December, $1,479,555 in November, and $1,458,989 in October, while annualized construction spending was at $1,516,927 in February and $1,528,954 in January....thus to compare January's nominal construction spending of $1,384,486 and February's figure of $1,366,697 to inflation adjusted figures of the fourth quarter, our formula becomes: ((1,516,927 + 1,528,954 * 1.003) / 2 ) / (( 1,510,387 * 1.005 + 1,479,555 * 1.006 + 1,458,989 * 1.007)/ 3) = 1.022372, which tells us that real construction spending over January and February was up by 2.237% from that of the 4th quarter period, or up at a 9.25% annual rate...then, to figure the potential effect of that change on GDP,  we take the difference between the 4th quarter inflation adjusted average and that of January's & February's adjusted spending as a fraction of 4th quarter GDP, and find that 1st quarter construction spending is rising at a rate that would add about 0.88 percentage points to 1st quarter GDP, an estimate which assumes there would be little change in real construction in March over the January & February average...

 

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

Sunday, March 28, 2021

3rd estimate 4th quarter GDP; February’s income and outlays, durable goods, new home sales & existing home sales

The key economic reports released the past week were the 3rd estimate of 4th quarter GDP and the February report on Personal Income and Spending from the Bureau of Economic Analysis; other widely watched releases included the advance report on durable goods for February and the February report on new home sales, both from the Census bureau, and the Existing Home Sales Report for February from the National Association of Realtors (NAR)...we also had the release of the Chicago Fed National Activity Index (CFNAI) for February, a weighted composite index of 85 different economic metrics, which fell to –1.09 in February from +0.75 in January, which was revised from the +0.66 reported for January last month...as a result of the February decrease, the 3 month average of the CFNAI decreased to –0.02 in February from a revised +0.46 in January, which indicates that national economic activity has been ever so slightly below the historical trend over recent months...

In addition,  the week also saw the release of the Regional and State Employment and Unemployment Report for February from the Bureau of Labor Statistics, a report which breaks down the two employment surveys from the monthly national jobs report by state and region (Note: January's regional report was released last week, delayed in order to compile the annual revisions)....while the text of this report provides a useful summary of the state and regional data, the serious statistical aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands...

This week also saw the release of two more regional Fed manufacturing surveys for March: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index rose to +17 in March from +14 in February, suggesting an ongoing expansion in that region's manufacturing, and the Kansas City Fed manufacturing survey for March, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +26 in March, up from +24 in February and from +17 in January, indicating the continuation of a broad based expansion in that region's manufacturing...

4th Quarter GDP Grew at a 4.3% Rate, Revised from a 4.1% Rate, on Greater Growth of Inventories

The Third Estimate of our 4th Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 4.3% rate in the quarter, revised from the 4.1% growth rate reported in the second estimate last month, as inventories, exports, and government outlays were greater than was previously estimated, more than offsetting a downward revision to personal consumption expenditures....in current dollars, our fourth quarter GDP grew at a 6.27% annual rate, increasing from what would work out to be a $21,170.3 billion a year output rate in the 3rd quarter to a $21,494.7 billion annual rate in the 4th quarter, with the headline 4.3% annualized rate of increase in real output arrived at an annualized inflation adjustment averaging 2.0%, known in aggregate as the GDP deflator, was computed from the weighted price changes of each of the GDP components and applied to their current dollar change...

Remember that the GDP release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes 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 4th quarter GDP, which can be accessed directly on the BEA's GDP landing page, which also offers links to just the tables on Excel and other technical notes...specifically, we reference table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st quarter of 2017; table 2, which shows the contribution of each of the components to the GDP figures for those quarters and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; and table 4, which shows the change in the price indexes for each of the components...the pdf for the 4th quarter second estimate, which this estimate revises, is here...

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from a growth rate of 2.4% to an overall 2.3% growth rate in this 3rd estimate…that growth rate figure was arrived at by deflating the 3.82% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated inflation grew at a 1.5% annual rate in the 4th quarter, which was revised from the 1.6% PCE inflation rate reported a month ago, and hence was a major factor in the downward revision to PCE....real consumption of durable goods shrank at a 1.1% annual rate, which was revised from the 0.6% contraction rate shown in the second estimate, and subtracted 0.09 percentage points from GDP, as consumption of motor vehicles, consumption of furniture and appliances and consumption of recreational goods and vehicles all decreased.....at the same time, real consumption of nondurable goods by individuals shrunk at a 1.6% annual rate, revised from the 1.1% contraction rate reported in the 2nd estimate, and subtracted 0.23 percentage points from the 4th quarter’s economic growth rate, as modest growth in real consumption of clothing and footwear was more than offset by lower consumption of food, gasoline and and other non-durable goods.....on the other hand, consumption of services grew at a 4.3% annual rate, revised from the 4.0% growth rate reported last month, and added 1.90 percentage points to the final GDP tally, as real consumption of health care services grew at a 14.3% rate and accounted for three-fourths of the quarter’s growth in services...

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 27.8% annual rate in the 4th quarter, revised from the 26.5% growth estimate reported last month, as real private fixed investment grew at a 18.6% rate, revised from the 19.1% growth rate reported in the second estimate, while inventory growth was greater than previously estimated...investment in non-residential structures was revised to show contraction at a 6.2% rate, revised from the 1.1% growth rate previously reported, while real investment in equipment grew at 25.4% rate, revised from the 25.7% growth rate shown a month ago...meanwhile the quarter's investment in intellectual property products was revised from growth at a 8.4% rate to growth at a 10.5% rate, while at the same time real residential investment was shown to be growing at a 36.6% annual rate, revised from 35.8% in the previous report....after those revisions, the decrease in investment in non-residential structures subtracted 0.17 percentage points from the 4th quarter's growth rate, while the increase in investment in equipment added 1.32 percentage points to the quarter's growth rate, the increase in investment in intellectual property added 0.49 percentage points to the growth rate of 4th quarter GDP, and the increase in residential investment added 1.39 percentage points to the growth rate of GDP.....for an easy to read table as to what's included in each of those GDP investment categories, see the NIPA Handbook, Chapter 6, page 3....

At the same time, growth of real private inventories was revised from the previously reported $48.0 billion in inflation adjusted growth to show that inventory grew at an inflation adjusted $62.1 billion rate….that came after inventories had contracted at an inflation adjusted $3.7 billion rate in the 3rd quarter, and hence the $65.8 billion positive change in real inventory growth from the 3rd to the 4th quarter added 1.37 percentage points to the 4th quarter's growth rate, revised from the 1.11 percentage point addition to GDP from inventory growth reported in the second estimate....however, since a greater growth of inventories indicates that more of the goods produced during the quarter were left in a warehouse or sitting on a shelf, their increase at a $65.8 billion rate conversely meant that real final sales of GDP were actually smaller by that much, and hence real final sales of GDP grew at a 2.9% rate in the 4th quarter, revised from the 3.0% real final sales growth shown in the second estimate, and down from the real final sales growth rate of 25.9% in the 3rd quarter, when the greater inventory growth from the deeply negative 2nd quarter inventory figure had reduced real final sales by as much as it added to the quarter's GDP.....

The previously reported increase in real exports was revised higher with this estimate, while the previously reported increase in real imports was revised higher by a bit less, so on net the change in our net trade was a smaller subtraction from GDP rather than was previously reported.....our real exports grew at a 22.3% rate, revised from the 21.8% growth 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 and hence not captured by another GDP metric, that growth added 2.04 percentage points to the 4th quarter's growth rate, revised from the 2.00 percentage point addition shown in the previous report....meanwhile, the previously reported 29.6% growth rate in our real imports was revised to a 29.8% growth rate, and since imports are subtracted from GDP because they represent either consumption or investment that was added to an other GDP component that shouldn't have been because it was not produced here, their increase subtracted 3.57 percentage points from 4th quarter GDP, rather than the 3.55 percentage point subtraction shown last month....thus, that slight improvement in our deteriorating trade balance subtracted a net of 1.53 percentage points from 4th quarter GDP, rather than the 1.55 percentage point subtraction that had been indicated by the second estimate..

Finally, there was also an upward revision to real government consumption and investment in this 3rd estimate, as the real contraction rate for the entire government sector was revised from a 1.1% rate to a 0.8% rate.....real federal government consumption and investment was seen to have shrunk at a 0.9% rate in this estimate, unchanged from the second estimate, as real federal outlays for defense grew at a 4.8% rate and added 0.20 percentage points to 4th quarter GDP, revised from the 4.7% growth rate shown previously, while all other federal consumption and investment shrunk at an unrevised 8.9% rate, which subtracted 0.26 percentage points from 4th quarter GDP....meanwhile, real state and local consumption and investment was revised from shrinking at a 1.2% rate in the second estimate to shrinking at a 0.8% rate in this estimate, as state and local investment spending grew at a 7.8% rate and added 0.16 percentage points to 4th quarter GDP, while state and local consumption spending shrunk at a 2.7% rate and subtracted 0.24 percentage points from GDP....note that government outlays for social insurance are not included in this government GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating there had been an increase in the output of those goods or services...

Personal Income down 7.1% in February, Personal Spending down 1.0%, PCE Price Index up 0.2%

The February report on Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 1st 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 report also provides us with the nation's personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds into GDP and other national accounts data, the change reported for each of those metrics are not the current monthly change; rather, they're seasonally adjusted amounts at an annual rate, ie, they tell us how much income and spending would increase in a year if February’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 January to February...

Hence, when the opening line of the press release for this report tell us "Personal income income decreased $1,516.6 billion (7.1 percent) in February", that means that the annualized figure for US personal income in February, $19,945.6 billion, was $1,516.6 billion, or roughly 7.1% less than the annualized personal income figure of $21,462.2 billion for January; the actual change in personal income from January to February is not provided...similarly, annualized disposable personal income, which is income after taxes, fell by nearly 8.0%, from an annual rate of an annual rate of $19,210.5 billion in January to an annual rate of $17,678.2 billion in February...the components of the monthly decrease in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized figures...in February, the reason for the $1,516.6 billion annualized decrease in personal income was a $1,584.1 billion annualized decrease in government social benefits to individuals, which was only slightly offset by a $37.7 billion annualized increase in business & farm proprietors’ income and a $15.6 billion annualized increase in interest and dividend income...wages and salaries, which fell by an annualized $0.2 billion, were barely a factor in February's personal income change...

For the personal consumption expenditures (PCE) that will be included in 1st quarter GDP, BEA reports that they decreased at a $149.0 billion annual rate, or by nearly 1.0 percent, as the annual rate of PCE fell from $14,939.1 billion in January to $14,790.1 in February, after the January PCE rate was revised down from the originally reported $14,816.8 billion annually...the current dollar decrease in February spending resulted from a $155.9 billion decrease to $ 5,018.9 billion in spending for goods, a decrease which was evident in last week's February retail sales report, which was only slightly offset by a $7.0 billion annualized increase to $9,771.2 billion in annualized in spending for services....total personal outlays for February, which includes interest payments and personal transfer payments in addition to PCE, fell by an annualized $141.5 billion to $15,267.7 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $2,410.4 billion annual rate in February, down from the revised $3,801.3 billion in annualized personal savings in January... as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 13.6% in February from January's savings rate of 19.8%, which was still up from the saving rate of 8.3% in February of last year and still higher than any personal savings rate of the entire 1975 to 2019 period...

Before personal consumption expenditures can be used in the 1st quarter 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, which is included in Table 9 in the pdf for this report....that PCE price index rose from 112.481 in January to 112.740 in February, a month over month inflation rate that's statistically 0.23026%, which BEA reports as an increase of 0.2 percent, following the PCE price index increase of 0.3% that they reported for January...then, applying that 0.23026% inflation adjustment to the decrease in February PCE shows that real PCE fell by 1.22482% in February, which the BEA reports as a 1.2% decrease......notice that when those PCE price indexes are applied to a given month's annualized PCE in current dollars, it gives us that month's annualized real PCE in those same 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 that of another....that result is shown in table 7 of the PDF, where we see that February's chained dollar consumption total works out to 13,119.2 billion annually, 1.22497% less than January's 13,281.9 billion, statistically the same as the real PCE decrease we just computed...

Finally, to estimate the impact of the change in PCE on the change in GDP, we have to compare real PCE from January and February to the the real PCE of the 3 months of the fourth quarter....while this report shows PCE for all those months on a monthly basis, the BEA also provides the annualized chained dollar PCE on a quarterly basis in table 8 in the pdf for this report, where we find that the annualized real PCE for the 3 months of the 4th quarter was represented by 12,999.1 billion in chained 2012 dollars...(note that's the same figure shown in table 3 of the pdf for the 4th quarter GDP report)....then, by averaging the annualized chained 2012 dollar PCE figures for January and February, 13,281.9 billion and 13,119.2 billion, we get an equivalent annualized PCE for the two months of the 1st quarter that we have the data for so far....when we compare that average of 13200.55 to the 4th quarter chained dollar PCE of 12,999.1, we find that 1st quarter real PCE has grown at a 6.34% annual rate for the two months of the 1st quarter included in this report (note the math to get that annual rate: ((( 13,281.9 +13,119.2 ) / 2 ) /12,999.1 ) ^ 4 = 1.063445...growth at that rate means that if March real PCE does not improve from the average of January and February, which seems unlikely, growth in PCE would still add 4.39 percentage points to the growth rate of the 1st quarter...

February Durable Goods: New Orders Down 1.1%, Shipments Down 3.5%, Inventories Up 0.7%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for February (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods decreased by $2.9 billion or 1.1 percent to $254.0 billion in February, the first decrease in 10 months, after January's new orders were revised from the $256.6 billion reported last month to $256.9 billion, now a 3.5% increase from December's new orders…as a result, year to date new orders are still up by 3.4% from those of 2020...

The volatile monthly new orders for transportation equipment led February’s new orders decrease, as the value of new transportation equipment orders fell $1.3 billion or 1.6 percent to $83.6 billion, despite a 103.3% increase to $9,504 million in new orders for defense aircraft, as the value of new orders for motor vehicles and parts fell 8.7% to $57,588 million...excluding orders for transportation equipment, other new orders fell 0.9%, while excluding just new orders for defense equipment, new orders fell  0.7%....meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, were also weak, falling by $563 million or 0.8% to $72,480 million...

Over the same period, the seasonally adjusted value of February’s shipments of durable goods, which will ultimately be included as inputs into various components of 1st quarter GDP after adjusting for changes in prices, fell for the first time in six months, decreasing by $9.1 billion or 3.5 percent to $250.9 billion, after the value of January shipments was revised from $513.3 billion to $512.2 billion, now up 1.7% from December, rather than the 2.0% increase reported a month ago....lower shipments of transportation equipment were mostly responsible for the February shipments decrease, as they decreased by $7.0 billion or 8.2 percent to $78.6 billion, on an 8.9% decrease to $57,196 million in the value of shipments of motor vehicles and parts....meanwhile, the value of shipments of nondefense capital goods less aircraft fell 1.0% to $71,281 million, after January’s capital goods shipments were revised down from $72,054 million to $71,966 million...

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose by $2.8 billion or 0.7 percent to $427.3 billion, the first increase in three months, after the value of January inventories was revised from $424.3 billion to $424.5 billion, still down 0.3% from December....the value of inventories of transportation equipment rose $0.9 billion or 0.6 percent to $146.6 billion, led by a 2.6% increase to $41,612 in inventories of motor vehicles and parts, while the value of all other inventories rose 0.7% to $280,654 million...

Finally, the value of unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but often very volatile new orders, rose for the second consecutive month after failing to rise over the prior ten, increasing by $8.4 billion or 0.8 percent to $1,082.0 billion, following a 0.2% January increase to $1,073.65 billion, which was revised from the previously reported 0.1% increase to $1,072.6 billion....a $5.0 billion or 0.7 percent increase to $711.1 billion in unfilled orders for transportation equipment led the February increase, while unfilled orders excluding transportation equipment orders were up 0.9% to $370,865 million...however, the unfilled order book for durable goods is still 5.7% below the level of last February, with unfilled orders for transportation equipment 10.9% below their year ago level, mostly due to a 15.5% decrease in the backlog of orders for commercial aircraft and parts...

February New Home Sales Reported 18.2% Lower After Prior Month's Sales Revised Higher

The Census report on New Residential Sales for February (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 775,000 homes annually during the month, which was 18.2 percent (±13.9 percent) the revised January annual sales rate of 948,000 new home sales, but 8.2 percent (±21.7 percent)* above the estimated annual rate that new homes were selling at in February of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether February new home sales rose or fell from the February sales rate of a year ago, with the figures in parenthesis representing the 90% confidence range for the reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....with this report; sales of new single family homes in January were revised from the annual rate of 923,000 reported last month to an annual rate of 948,000, and new home sales in December, initially reported at an annual rate of 842,000 and revised up to a 885,000 rate last month, were revised up to a 919,000 a year rate with this report, while November's annualized new home sales rate, initially reported at an annual rate of 841,000 and revised from a 829,000 rate to a 839,000 a year rate last month, were revised up to a 857,000 annual 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 64,000 new single family homes sold in February, down from the estimated 75,000 new homes that sold in January but up from the 62,000 that sold in December, and up from 63,000 in February a year ago...the raw numbers from Census field agents further estimated that the median sales price of new houses sold in February was $349,400, down from the median sale price of $353,200 in January and down from the median sales price of $351,800 in February a year ago, while the average February new home sales price was $416,000, up from the $410,400 average sales price in January, and up from the average sales price of $386,200 in February a year ago....a seasonally adjusted estimate of 312,000 new single family houses remained for sale at the end of February, which represents a 4.8 month supply at the February sales rate, up from the revised 4.2 months months of new home supply in January...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales decrease to 775,000 Annual Rate in February and A few Comments on February New Home Sales..

Existing Home Sales Fell 6.6% in February

The National Association of Realtors (NAR) reported that existing home sales decreased by 6.6% from January to February on a seasonally adjusted basis, projecting that 6.22 million existing homes would sell over an entire year if the February home sales pace were extrapolated over that year, a pace that was still 9.1% above the annual sales rate projected in February of last year....at the same time, the January home sales pace was revised from the 6.69 million annual rate reported a month ago to a 6.66 million rate with this report, which means that February home sales actually fell by 6.7%...the NAR also reported that the median sales price for all existing-home types was $313,000 in February, 15.8% higher than in February a year earlier, which they report "marks 108 straight months of year-over-year gains", and that the inventory of homes for sale was at a record-low of 1.03 million units, down by a record 29.5% from a year ago.....the NAR press release, which is titled "Existing-Home Sales Descend 6.6% in February", is in easy to read plain English, so if you're interested in further 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) to see what actually happened with home sales during the month...this unadjusted data indicates that roughly 364,000 homes sold in February, down 0.5% from the revised 366,000 homes that sold in January, and 8.7% more than the 335,000 homes that sold in February of last year....that same pdf indicates that the median home selling price for all housing types rose by 3.1%, from a revised $303,600 in January to $313,000 in February, while the average home sales price rose by 1.9% to $344,200 from the $337,800 average sales price in January, which was also up by 12.6% from the $305,800 average home sales price of February a year ago...for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Decreased to 6.22 million in February and Comments on February 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 of which are picked from the aforementioned GGO posts, contact me…)  

Sunday, March 21, 2021

February’s retail sales, industrial production, & housing construction; January’s business inventories

Major monthly reports released over the past week included the Retail Sales report for February and Business Sales and Inventories for January from the Census Bureau, the February report on Industrial Production and Capacity Utilization from the Fed, and the February report on New Residential Construction, also from the Census Bureau ...in addition,  the week also saw the release of the Regional and State Employment and Unemployment Report for January from the Bureau of Labor Statistics, a report which breaks down the two employment surveys from the monthly national jobs report by state and region....while the text of that report provides a useful summary of this data, the serious statistical aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands...

This week also saw the release of the first two regional Fed manufacturing surveys for March: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one NYC suburban county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index rose from +12.1 in February to +17.4 in March, it's highest since last summer, suggesting a broader based expansion of First District manufacturing... meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions jumped to a 50+ year high of +51.8 in March from + 23.1 in February, indicating a substantial majority of that region's manufacturing firms are seeing increased activity this month...

Retail Sales Fell 3.0% in February After January Sales Revised 1.9% Higher

Seasonally adjusted retail sales decreased 3.0% in February after retail sales for January were revised 1.9% higher...the Advance Retail Sales Report for February (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $561.7 billion during the month, which was 3.0 percent (±0.5%) lower than January's revised sales of $579.1 billion, but still 6.3 percent (±0.7 percent) above the adjusted sales in February of last year...January's seasonally adjusted sales were revised up from $568.2 billion to $579.1 billion, while December's sales were revised from $539.7 billion down to $538,338 million; as a result, the December to January change was revised up from up 5.3 percent (±0.5 percent) to up 7.6% (±0.3%)...the downward revisions to December sales would indicate that 4th quarter personal consumption expenditures will be revised lower at about a $5.5 billion annual rate, which would thereby reduce 4th quarter GDP by about 0.11 percentage points...estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales were down 5.4%, from $519,588 million in January to $491,356 million in February, while they were up 2.4% from the $479,868 million of sales in February of a year ago..  

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the February Census Marts pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each kind of business from the January revised figure to this month's February "advance" report in the first sub-column, and then the year over year percentage sales change since last February is in the 2nd column...the second double column pair below gives us the revision of the January advance estimates (now called "preliminary") as of this report, with the new December to January percentage change under "Dec 2020 (r)" (revised) and the January 2020 to January 2021 percentage change as revised in the last column shown...for your reference, our copy of the table of last month’s advance estimate of January sales, before this month's revisions, is here, should you be interested in more detail in how January sales were revised.….

February 2021 retail sales table

To compute February's real personal consumption of goods data for national accounts from this February retail sales report, the BEA will use the corresponding price changes from the February consumer price index, which we reviewed last week...to estimate what they will find, we'll first separate out the volatile sales of gasoline from the other totals...from the third line on the above table, we can see that February retail sales excluding the 3.6% price-related increase in sales at gas station were down by 3.5%....then, subtracting the figures representing the insignificant increase in grocery & beverage store sales and the 2.5% decrease in food services sales from that total, we find that core retail sales were down by roughly 4.25% for the month...since the CPI report showed that the composite price index for all goods less food and energy goods was 0.1% higher in February, we can thus approximate that real retail sales excluding food and energy will on average be down by roughly 4.35%.....however, the actual adjustment in national accounts data 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 and parts dealers were down 4.2%, the price index for transportation commodities other than fuel was 0.4% lower, which would suggest that real sales at vehicle and parts dealers fell by roughly 3.8%...similarly, while nominal sales at clothing stores were 2.8% lower in February, the apparel price index was 0.7% lower, which means that real sales of clothing fell around 2.1%...on the other hand, while nominal sales at sporting goods, hobby, music and book stores fell 7.5%, the price index for recreational commodities rose 0.5%, so we can figure real sales of recreational goods were down by roughly 8.0%....

In addition to figuring those core retail sales, we should also adjust food and energy retail sales for their price changes separately…the February CPI report showed that the food price index was 0.4% higher, with the index for food purchased for use at home 0.3% higher, while prices for food bought to eat away from home (other than at employee sites and schools) were 0.4% higher... thus, while nominal sales at food and beverage stores were unchanged, real sales of food and beverages would be roughly 0.3% lower in light of the 0.3% higher prices…meanwhile, the 2.5% decrease in nominal sales at bars and restaurants, once adjusted for 0.4% higher prices, suggests that real sales at bars and restaurants fell about 2.9% during the month....on the other hand, while sales at gas stations were up 3.6%, there was a 6.4% increase in the retail price of gasoline during the month, which would suggest that real sales of gasoline were down on the order of 2.6%, with the caveat that gasoline stations do sell more than gasoline, and we haven’t accounted for those other sales....averaging real sales that we have thus estimated together, but leaving out real restaurant and bar sales, we can then estimate that the income and outlays report for February will show that real personal consumption of goods fell by more than 3.6% in February, after rising by a revised 7.4% in January, but after falling by a revised 2.1% in December...at the same time, the 2.9% decrease in real sales at bars and restaurants would reduce the growth rate of February’s real personal consumption of services by almost 0.3%...

Industrial Production Falls 2.2% in February After Prior Months Revised Lower

The Fed's February G17 release on Industrial production and Capacity Utilization reported that industrial production decreased by 2.2% in February after rising by a revised 1.1% in January, which left industrial output 4.2% lower than a year ago...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, was at 104.7 in February, after the January index was revised down from 107.2 to 107.1, the December index was revised down from 106.2 to 105.8, the November index was revised down from 104.9 to 104.8, and the October index was revised down from 103.9 to 103.8...

The manufacturing index, which accounts for more than 77% of the total IP index, fell 3.1% to 100.7 in February, mostly due to damage to petroleum refineries, petrochemical facilities, and plastic resin plants from the February deep freeze, without which manufacturing would have only been down about a half percent...that came after the manufacturing index for January was revised down from 103.9 to 103.8,  the manufacturing index for December index was revised down from 102.8 to 102.6, and the manufacturing index for November index was revised down from 101.9 to 101.8, leaving the manufacturing index 0.4% below its year ago level....meanwhile, the mining index, which includes oil and gas well drilling, fell 5.4%, from 119.0 in January to 112.6 in February, after the January index was revised down from 119.6, which left the mining index 15.3% below where it was a year earlier......finally, the utility index, which often fluctuates due to above or below normal temperatures, rose by 7.4% in our cold February, from 104.8 to 112.5, after our warmer January’s utility index was revised from 105.1 to 104.8, now down 0.6% from December...with this February's temperatures much below the already cooler levels seen across much of the US last February, the utility index is now 10.1% higher than it was a year ago...

This report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry fell to 73.8% in February from 75.5% in January, which was revised down from the 75.6% reported last month ...capacity utilization of NAICS durable goods production facilities fell from a revised 73.8% in January to 71.9% in February, while capacity utilization for non-durables producers fell from a downwardly revised 76.7% to 73.9%...capacity utilization for the mining sector fell to 77.5% in February from 81.8% in January, which was originally reported as 82.2%, while utilities were operating at 78.5% of capacity during February, up from their 73.3% of capacity during January, which was previously reported at 73.5%...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..

Housing Starts, Permits Reported Much Lower in February

The February report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in February was at a seasonally adjusted annual rate of 1,421,000, which was 10.3 percent (±10.5 percent)* below the revised estimated January annual rate of 1,584,000, and was 9.3 percent (±9.4 percent)* below last February's rate of 1,567,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell during the month, or even over the past year, with the figures in parenthesis the most likely range of the change indicated; in other words, February housing starts could have been up by 0.2% or down by as much as 20.8% from those of January, with revisions of a greater magnitude in either direction still possible...in this report, the annual rate for January housing starts was revised from the 1,580,000 reported last month to 1,584,000, while December starts, which were first reported at a 1,669,000 annual rate, were revised from last month's initial revised figure of 1,680,000 annually back down to a 1,670,000 annual rate with this report....

The annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 100,700 housing units were started in February, down from the 111,000 units that were started in January and down from the 115,100 units that were started in December....of those housing units started in February, an estimated 72,200 were single family homes and 27,800 were units in structures with more than 5 units, down from the revised 77,100 single family starts in January. and down from the 33,000 units started in structures with more than 5 units...

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 February, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,682,000, which was 10.8 percent (±1.0 percent) below the revised January rate of 1,886,000 permits, but was 17.0 percent (±1.4 percent) above the rate of building permit issuance in February a year earlier...the annual rate for housing permits issued in January was a 14 year high for building permits and was revised up from the originally reported 1,881,000....

Again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 117,200 housing units were issued in February, down from the revised estimate of 128,800 new permits issued in January....of those permits issued in February, 80,900 were permits for single family homes and 33,200 were permits for units in structures of more than 5 units, down from the 83,900 single family permits in January, and down from the 41,300 permits for units in structures of more than 5 units...for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts decreased to 1.421 Million Annual Rate in February and Comments on February Housing Starts...

January Business Sales Up 4.7%, Business Inventories Up 0.3%

After the release of the February retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for January (pdf), which incorporates the revised January retail data from that February report and the earlier published January wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,568.5 billion in January, up 4.7 percent (±0.3 percent) from December's revised sales, and 7.1 percent (±0.4 percent) higher than January sales of a year earlier...note that total December sales were concurrently revised up from the originally reported $1,494.2 billion to $1,497.953 billion, now a 1.0% increase from November, rather than the 0.8% increase previously reported....manufacturer's sales rose 1.9% to $513,268 million in January, and retail trade sales, which exclude restaurant & bar sales from the revised January retail sales reported earlier, rose 7.4% to $523,540 million, while wholesale sales rose 4.9% to $531,726 million...

meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,982.4 billion at the end of January, up 0.3% (±0.1%) from the end of December, but still 1.8 percent (±0.3 percent) lower than in January a year earlier...at the same time, the value of end of December inventories was revised from the $1,971.7 billion reported last month to $1,976.5 billion, now up 0.8% from November, rather than the 0.6% increase reported last month....seasonally adjusted inventories of manufacturers were estimated to be valued at $696,267 million, up 0.1% from December, while inventories of retailers were valued at $624,353 million, down 0.5% from in December, while inventories of wholesalers were estimated to be valued at $661,736 million at the end of January, 1.3% higher than in December...

For GDP purposes, all these inventories, including retail, will be adjusted for inflation with appropriate component price indices of the producer price index for January, which indicated finished goods prices were 1.3% higher...two weeks ago, we looked at real factory inventories with producer price adjustments for goods at various stages of production, and judged those inventories would have a significant negative impact on 1st quarter GDP…then last week, we found that January's wholesale inventories decrease alone would have a modest negative impact on 1st quarter GDP….since the nominal value of retail inventories for January has now been shown to be 0.5% lower, real retail inventories for the month, after the 1.3% finished goods price adjustment, thus would have thus decreased by 1.8% from December, after a fourth quarter that saw real retail inventories increase substantially...therefore, what is shaping up to be a large real retail inventory decrease in the 1st quarter to date would have a much larger negative impact on 1st quarter GDP, first by subtracting the big decrease in first quarter real retail inventories, and then by subtracting the amount of their 4th quarter increase…

 

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