Sunday, July 12, 2020

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

Major reports released this past week included the June Producer Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) for May, both of which came from the Bureau of Labor Statistics, and the May report on Wholesale Trade, Sales and Inventories from the Census Bureau....the week also saw the Consumer Credit Report for May from the Fed, which indicated that overall consumer borrowing outstanding shrunk by a seasonally adjusted $18.2 billion, or at a 5.3% annual rate, as non-revolving credit expanded at a 2.3% rate to $3,117.3 billion while revolving credit outstanding shrunk at a 28.6% rate to $995.6 billion...that's the 3rd consecutive big drop in revolving credit outstanding, and we’ll include a graph showing that:

July 9 2020 revolving consumer credit

The above graph was copied from the Zero Hedge coverage of the May Consumer Credit Report, and it shows the month over month change in aggregate US revolving credit in billions of dollars going back to the turn of the century, with months where there was an increase shown as green vertical bars pointing up from the zero line, and the months where there was a decrease in revolving credit shown as a red vertical bar pointing down from the zero line...Zero Hedge suggests that consumers are withdrawing savings to pay down their credit cards, but the sheer size of this three month drawdown suggests that consumers are using their stimulus checks to pay off old debts, which obviously would not have the economic stimulating impact the lawmakers who passed that stimulus had intended...

Privately issued reports released this week included the June 2020 Non-Manufacturing Report On Business from the Institute for Supply Management, which saw the NMI (non-manufacturing index) rise to 57.1%, up from 45.4% in May, and up from 41.8% in April, indicating a significant plurality of service industry purchasing managers reported growth in various facets of their business in June...this week also saw the release of the Mortgage Monitor for May (pdf) from Black Knight Financial Services, which indicated that 7.76% of mortgages were delinquent in April, up from the 6.45% that were delinquent in April, and up from the 3.36% delinquency rate of May 2019, and that a record low 0.38% of mortgages remained in the foreclosure process in May, down from 0.40% of all mortgages in April and down from 0.49% a year ago....

Record Hiring, Record Drop in Firings in May: Job Openings and Job Quitting Both Rise

The Job Openings and Labor Turnover Survey (JOLTS) report for May from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 401,000, from 4,996,000 in April to 5,397,000 in May, after April’s  job openings were revised 50,000 lower, from 5,046,000,000 to 4.996,000...May jobs openings were still 26.1% lower than the 7,300,000 job openings reported in May a year ago, while the job openings ratio expressed as a percentage of those employed rose from 3.7% in April to 3.9% in May, while it was down from 4.6% in May a year ago...the greatest percentage increase in May job openings was in the construction sector, where openings rose by 118,000 to 365,000, while job openings in the information sector fell by 55,000 to 77,000 (see table 1 for more details)...like most BLS releases, the press release for report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in May, seasonally adjusted new hires totaled a series high 6,487,000, up by a record 2,440,000 from the revised 4,047,000 who were hired or rehired in April, as the hiring rate as a percentage of all employed rose from 3.1% to 4.9%, which was also up from the hiring rate of 3.8% in May a year earlier (details of hiring by industry since January are in table 2)…note that most of the May increase in hiring represents those  who were laid off in March or April, as this release reports those who are called back as a rehiring....meanwhile, total separations fell by a record by 5,830,000, from 9,975,000 in April to 4,145,000 in May, while the separations rate as a percentage of the employed fell from 7.6% in April to 3.1% in May, which was also down from the separations rate of 3.7% in May a year ago (see table 3)...subtracting the 4,145,000 total separations from the total hires of 6,487,000 would imply an increase of 2,342,000 jobs in May, somewhat short of the revised payroll job increase of 2,699,000 for May reported by the June 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 reports that 2,067,000 of us voluntarily quit their jobs in May, up by 190,000 from the revised 1,877,000 who quit their jobs in April, while the quits rate, widely watched as an indicator of worker confidence, rose from 1.4% to 1.6% of total employment, while it was still down from 2.3% a year earlier (see details in table 4)....in addition to those who quit, another 1,796,000 were either laid off, fired or otherwise discharged in May, down by 5,912,000 from the revised 7,708,000 who were discharged in April, as the discharges rate fell from 5.9% to 1.4% of all those who were employed during the month, but was still up from the 1.2% discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 282,000 in May, down from 390,000 in April, for an 'other separations' rate of 0.2%, down from 0.3% in April but the same as in May of a year ago....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

Producer Prices Fell 0.2% in June on Lower Margins for Wholesalers and Retailers

The seasonally adjusted Producer Price Index (PPI) for final demand fell 0.2% in June, even as prices for finished wholesale goods averaged 0.2% higher, because the more heavily weighted margins of final service providers averaged 0.3% lower...that followed a May report that had the PPI 0.4% higher, as prices for finished wholesale goods averaged 1.6% higher, while margins of final service providers averaged 0.2% lower, an April report wherein the PPI fell 1.3%, the largest drop in the history of the index, as prices for finished wholesale goods averaged 3.3% lower, and average margins of final services providers decreased by 0.2%, a revised March report that now has the PPI down 0.1%, with prices for finished wholesale goods averaging 1.0% lower, while average margins of final services providers increased by 0.3%, and a re-revised February report that showed the PPI had fallen 0.5%, with prices for finished wholesale goods averaging 0.9% lower, while average margins of final services providers fell by 0.3%...on an unadjusted basis, producer prices are still 0.8% lower than a year ago,  same as the year over year decrease indicated by last month's report, while, the core producer price index, which excludes food, energy and trade services, rose by 0.3% for the month, and is now just 0.1% lower than in May a year ago, up from the 0.4% year over year decrease shown in May...

As noted, the price index for final demand for goods, aka 'finished goods', was 0.2% higher in May, after being 1.6% higher in May, 3.3% lower in April, 1.0% lower in March, 0.9% lower in February, 0.3% higher in January, 0.2% higher in December, 0.3% higher in November, 0.5% higher in October, 0.2% lower in September, 0.3% lower in August, 0.3% higher in July, and 0.5% lower in June of last year....the finished goods index rose 0.2% in May because the price index for wholesale energy goods was 7.7% higher, after rising by 4.5% in May, but after falling by 19.0% in April, 6.7% in March, and 3.6% in February, while the price index for wholesale foods fell 5.2%, after rising 6.0% in May, falling 0.5% in April, being unchanged in March, and falling 1.6% in February, and while the index for final demand for core wholesale goods (excluding food and energy) was 0.1% higher, after being unchanged in May...wholesale energy prices were higher due to a 26.3% increase in wholesale prices for gasoline, a 53.3% increase in wholesale prices for home heating oil, a 28.0% increase in wholesale prices for No.2 diesel fuel and a 21.6% increase in wholesale prices for liquefied petroleum gas, while the wholesale food price index fell 5.2% on a 44.5% decrease in the wholesale price index for beef and veal, a 15.2% decrease in the wholesale price index for pork, and an 12.7% decrease in the wholesale price of eggs for fresh use....among wholesale core goods, the wholesale price index for industrial chemicals rose 4.1%, the wholesale price index for household appliances rose 0.8%, and the wholesale price index for household furniture rose 0.4%...

At the same time, the index for final demand for services fell 0.3% in June, after falling 0.2% in May, 0.2% in April, rising a revised 0.3% in March, and falling a revised 0.3% in February, as the index for final demand for trade services fell 1.8%, the index for final demand for transportation and warehousing services rose 0.9%, and the core index for final demand for services less trade, transportation, and warehousing services was 0.3% higher... among trade services, seasonally adjusted margins for fuels and lubricants retailers fell 9.4%, margins for machinery and vehicle wholesalers fell 7.4%, margins for apparel, jewelry, footwear, and accessories retailers fell 7.1%, and margins for TV, video, and photographic equipment and supplies retailers fell 6.0%, while margins for automobile retailers rose 12.2% ... among transportation and warehousing services, margins for airline passenger services rose 4.8% and margins for courier, messenger, and U.S. postal services rose 0.5%...among the components of the core final demand for services index, margins for passenger car rental rose 12.0%, margins for food and beverages services for immediate consumption (partial) rose 1.9%, and margins for hospital inpatient care rose 0.8%, while margis for arrangement of cruises and tours fell 26.0%, margins for deposit services fell 4.2%, and margins for dental care fell 3.7%…

This report also showed the price index for intermediate processed goods rose 0.9% in June, after rising 0.1% in May, but after falling 3.7% in April, 1.1% in March, 0.9% in February and 0.2% in January....the price index for intermediate energy goods rose 7.2%, as refinery prices for gasoline rose 26.3%, producer prices for liquefied petroleum gas rose 21.6%, while refinery prices for residual fuels rose 90.4%, refinery prices for jet fuel rose 47.0% and refinery prices for No. 2 diesel fuel rose 28.0%...meanwhile, prices for intermediate processed foods and feeds fell 5.5%, as the producer price index for meats fell 27.7% and the index for processed poultry fell 1.5%...at the same time, the core price index for intermediate processed goods less food and energy rose 0.5% as the producer price index for basic organic chemicals rose 5.2% and the producer price index for softwood lumber increased 12.9%... prices for intermediate processed goods are still 5.0% lower than in June a year ago, the 14th consecutive year over year decrease, following 29 months of year over year increases, which had been preceded by 16 months of negative year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016....

Meanwhile, the price index for intermediate unprocessed goods rose 3.1% in June, after rising 8.9% in May, but after falling 13.7% in April, a revised 8.4% in March, a revised 6.6% in February and 1.1% in January....that was as the June price index for crude energy goods rose 16.8% as crude oil prices rose 71.9% even as unprocessed natural gas prices fell 18.4%, while the price index for unprocessed foodstuffs and feedstuffs fell 5.6% on a 39.8% decrease in producer prices for slaughter barrows and gilts, a 7.9% decrease in producer prices for slaughter chickens, and a 13.0% decrease in producer prices for raw milk...at the same time, the index for core raw materials other than food and energy materials rose 1.1%, as prices for copper base scrap rose 10.3%, the price index for nonferrous metal ores increased 2.1%, and the price of aluminum base scrap rose 1.5%....this raw materials index is still 14.6% lower than a year ago, as the year over year change on this index remained negative all last year...

Lastly, the price index for services for intermediate demand rose 0.2% in June, after falling 0.4% in May, 1.6% in April, being unchanged in March, falling a revised 0.2% in February...the price index for intermediate trade services was 0.5% lower, as margins for metals, minerals, and ores wholesalers fell 4.5%, margins for food wholesalers fell 1.2%, and margins for intermediate machinery and equipment parts and supplies wholesalers fell 0.8%...meanwhile, the index for transportation and warehousing services for intermediate demand was 0.2% lower, as the intermediate price index for arrangement of freight and cargo fell 2.5%, the price index for warehousing, storage, and related services fell 1.9%, and the price index for water transportation of freight fell 0.7%...at the same time, the core price index for intermediate services less trade, transportation, and warehousing was 0.4% higher, as the intermediate price index for gross rents for retail properties rose 14.8%, the intermediate price index for passenger car rental rose 12.0%, and the price index for radio advertising time sales rose 4.1%...over the 12 months ended in May, the year over year price index for services for intermediate demand is now 1.5% lower than it was a year ago, after turning negative year over year in April for the first time in the history of this index...

May Wholesale Sales Up 5.4%, Wholesale Inventories Down 1.2%

The May report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $419.1 billion in May, up 5.4 percent (+/-0.7%) from the revised April level, but down 16.2 percent (±0.7 percent) from the value of wholesale sales in May 2019... the April preliminary estimate of wholesale sales was revised from the $395.4 billion reported a month ago to $397.7 billion, which meant the March to April percent change was revised from the preliminary estimate of down 16.9 percent (±0.5 percent) to down 16.4 percent (±0.5 percent) ...as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

On the other hand, the monthly change in private inventories is a major factor in GDP, as any goods left on the shelf or in intermediate storage represent goods that were produced but not sold, and this May report estimated that wholesale inventories were valued at a seasonally adjusted $642.5 billion at month end, a decrease of 1.2 percent (+/-0.2%) from the revised April level and 4.2 percent (±0.9 percent) lower than in May a year ago, with the April preliminary inventory estimate revised from $650.4 billion to $650.0 billion at the same time, now a 0.2% increase from March...

For national accounts purposes, May wholesale inventories will be adjusted for price changes by category with the appropriate components of the May producer price index, which indicated a 1.6% increase in prices for finished goods, a 0.1% increase in prices for intermediate goods, and a 8.9% increase in prices for unprocessed goods....with most of wholesale inventories finished goods, there will be a real decrease on the order of 2.8% in May wholesale inventories, following a real wholesale inventory increase on the order of 4% we had figured for April...however, any real increase in 2nd quarter inventories on the heels of the $37.6 billion annualized decrease in real wholesale inventories that was indicated by the key source data and assumptions (xls) for the third estimate of 1st quarter GDP will have a substantial positive impact on the growth rate of 2nd quarter GDP...

 

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

Sunday, July 5, 2020

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

In addition to the Employment Situation Summary for June from the Bureau of Labor Statistics, this week's economic releases included three major May reports that will input into 2nd quarter GDP: the BEA's report on our International Trade for May, and the May report on  Construction Spending and the Full Report on Manufacturers' Shipments, Inventories and Orders for May, both from the Census Bureau....this week also saw the last regional Fed manufacturing survey for June; the Dallas Fed's Texas Manufacturing Outlook Survey, which also covers adjacent western Louisiana and southeastern New Mexico, indicated its general business activity index rose to -6.1 in June from -49.2 in May and from a record low of -74.0 in April, still indicating an ongoing contraction of the Texas economy...

Privately issued reports released this week included the ADP Employment Report for June, the light vehicle sales report for June from Wards Automotive, which is the source data for the BEA report and which estimated that vehicles sold at a 13.05 million seasonally adjusted annual rate in June, up from the 12.21 million rate in May, but down from the 17.21 annual rate in June of 2019, and the Case-Shiller house price indexes for April from S&P Case-Shiller, who reported that their national home price index was 4.7% higher than in the same month's report a year ago, up from the 4.4% year over year gain reported for March...note that this "April" index compares repeat home sales that were filed in February, March, and April to those that were filed during the same three months a year ago, and that the deed filing typically lags the closing, so that this "April" report largely involves home sales that closed before this year's widespread coronavirus related lockdowns...this week also saw the widely followed purchasing manager's survey from the Institute for Supply Management (ISM): the June Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 52.6% in June, up from 43.1% in May, which suggests that manufacturing nationally is recovering after bottoming out over the past two months..

Employers Add 4,800,000 Jobs in June, Unemployment Rate Falls 2.2% to 11.1%

The Employment Situation Summary for June showed there was a continuation of the rebound in payroll jobs we saw a month ago, and a decrease in the unemployment rate, beating consensus expectations for a less robust recovery…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 4,800,000 jobs in June, after the payroll job increase for May was revised up from 2,509,000 jobs to 2,699,000, and the April decrease was revised down from a loss of 20,687,000 jobs to a loss of 20,787,000, which means that the combined number of jobs extant over those two months was 90,000 more than was previously reported....the unadjusted data indicates that there were actually 5,103,000 more payroll jobs in June than in May, as large seasonal job increases that are typical for sectors such as construction, trade and transportation, and leisure and hospitality were normalized by the seasonal adjustments…

Seasonally adjusted job increases were spread throughout government and the private goods producing and service sectors, while only the resource extraction sector saw a seasonally adjusted loss as large as 10,000 jobs, on a decrease of 7,300 workers in support activities for 'mining', which includes oil & gas extraction....with an increase of 2,088,000 jobs, the leisure and hospitality sector gain accounted for a big part of the June job gain, with a return of 1,483,400 employees working in bars and restaurants, an increase of 365,900 employees in performing arts and spectator sports, and a gain of of 238,600 jobs in accommodation....the retail sector saw an increase of 739,800 jobs, led by 201,600 returning jobs in clothing stores and 108,100 returning jobs in general merchandise retailers...employment in health care and social assistance rose by 474,900, with the return of 190,400 jobs in dentist's offices, and 80,000 jobs in doctor's offices...another 357,000 jobs gains were seen by "other services", with an increase of 264,200 employed by personal and laundry services… manufacturing industries added back 356,000 workers in June, with the return of 195,800 workers in motor vehicles and parts factories and 25,500 in the manufacture of miscellaneous durable goods...the broad professional and business services sector added back 306,000 jobs, as 148,900 more were employed by temporary help services and 53,100 more found work in services to buildings and dwellings....seasonally adjusted construction employment rose by 158,000 in June, with 71,300 of those construction jobs added by nonresidential specialty trade contractors and another 64,100 added by residential specialty trade contractors.….the transportation and warehousing sector saw an increase of 98,700 jobs, as the addition of 60,500 workers in warehousing and storage left employment in that sector one of the few higher than a year ago (another was food and beverage stores)...in addition, the wholesale trade sector saw an increase of 67,600 jobs, led by a 37,800 job increase in trade of durable goods...other June job increases included the addition of 93,400 jobs in private education, 33,000 in government, 32,000 in financial activities, and 9,000 in the information sector...

Reflecting the return of so many lower paid workers, the establishment survey also showed that the average hourly pay for all employees fell by 35 cents to $29.37 an hour in June, after it had decreased by a downwardly revised 32 cents an hour in May; at the same time, the average hourly earnings of production and nonsupervisory employees decreased by 23 cents to $24.74 an hour...employers also reported that the average workweek for all private payroll employees decreased by 0.2 hours to 34.5 hours, while hours for production and non-supervisory personnel also fell by 0.2 hours to 33.9 hours...meanwhile, the manufacturing workweek rose by 0.5 hour to 39.2 hours, while factory overtime was unchanged at 2.4 hours..

Meanwhile, the seasonally adjusted extrapolation from the June household survey estimated that the count of those employed rose by an estimated 4,940,000 to 142,182 ,000, while the similarly estimated number of those unemployed fell by 3,235,000 to 17,750,000; which together meant that June saw a net increase of 1,705,000 in the total labor force...since the working age population had grown by 157,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 1,547,000 to 100,273,000....the big increase of those in the labor force was enough to raise the labor force participation rate by 0.7% to 61.5%....likewise, the big increase in number employed vis a vis the increase in the population was enough to raise the employment to population ratio, which we could think of as an employment rate, from 52.8% to 54.6%...at the same time, the decrease in the number counted as unemployed was enough to lower the unemployment rate from 13.3% to 11.1%....meanwhile, the number who reported they were involuntarily working part time fell by 1,517,000 to 9,062,000 in June, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 21.2% in May to 18.0% in June...

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 alongside the press release to avoid the need to scroll up and down the page.. 

May Trade Deficit Rose 9.4% on Lower Exports of Oil & Oil Products, Capital Goods, Automotives, et al

Our trade deficit increased by 9.4% in May as the value of both our exports and our imports decreased, but our exports decreased by more than three times as much....the Commerce Department report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit rose by $4.8 billion to $54.6 billion in May, from a April deficit of $49.8 billion, which was revised up from the $49.4 billion deficit reported for April last month....in rounded totals, the value of our May exports fell by $6.6 billion to $144.5 billion on a $5.5 billion decrease to $90.0 billion in our exports of goods and a $1.1 billion decrease to $54.5 billion in our exports of services, while our imports fell $1.8 billion to $199.1 billion on a $1.3 billion decrease to $166.0 billion in our imports of goods and a $0.5 billion decrease to $33.1 billion in our imports of services...export prices were on average 0.5% higher in May, so this month's real exports were less than their nominal value by that percentage, while import prices were 1.0% higher, meaning that our real imports were likewise smaller than their nominal value by that percentage..

The decrease in May's exports was largely due to lower exports of industrial supplies and materials and of capital goods, with only exports of consumer goods seeing a relatively smaller increase ....referencing the Full Release and Tables for the May trade report (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials fell by $3,928 million to $29,942 million on a $1,648 million decrease in our exports of petroleum products other than fuel oil, a $696 million decrease in our exports of crude oil, a $638 million decrease in our exports of fuel oil and a $298 decrease in our exports of organic chemicals, and that our exports of capital goods fell by $896 million to $31,476 million on a $389 million decrease in our exports of semiconductors, a $349 million decrease in our exports of computer accessories, a $253 million decrease in our exports of medical equipment, and a $219 million decrease in our exports of parts for civilian aircraft, which were partially offset by a $322 million increase in our exports of industrial machines other than those itemized separately and a $241 million increase in our exports of civilian aircraft...at the same time, our exports of automotive vehicles, parts, and engines fell by $426 million to $3,402 million on a $522 million decrease in our exports of passenger cars, our exports of foods, feeds and beverages fell by $314 million to $10,469 million on a $239 million decrease in our exports of meat, poultry, and related products, and our exports of other goods not categorized by end use fell by $606 million to $3,811 million....partly offsetting those decreases, our exports of consumer goods rose by $557 million to $10,968 million, led by a $116 million increase in our exports of gem diamonds...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that lower imports of automotive goods and capital goods were largely responsible for the May decrease in our imports, and that they were mostly offset by higher imports of industrial supplies and materials and consumer goods...our imports of automotive vehicles, parts and engines fell by $4384 million to $8,967 million on a $2955 million decrease in our imports of new and used passenger cars, a $589 million decrease in our imports of parts and accessories of vehicles other than engines, chassis, and tires,  a $405 million decrease in our imports of trucks, buses, and special purpose vehicles, and a $319 million decrease in our imports of automotive tires and tubes, while our imports of capital goods fell by $643 million to $47,531 million on a $400 million decrease in our imports of computers and our imports of other goods not categorized by end use fell by $238 million to $7,314 million....largely offsetting the decreases in those import categories, our imports of industrial supplies and materials rose by $2,270 million to $43,694 million on a $1,239 million increase in our imports of non-monetary gold, a $1267 million increase in our imports of finished metal shapes, and a $482 million increase in our imports of other precious metals, and a $281 million increase in our imports of organic chemicals, and our imports of consumer goods rose by $1,914 million to $45,723 million on a $1,783 million increase in our imports of clothing and textiles other than those of wool and cotton, a $1,181 million increase in our imports of cell phones, a $449 million increase in our imports of TVs and video equipment and a $249 million increase in our imports of artwork and antiques, which were offset by decreases of $816 million in our imports of cotton apparel and household goods, $665 million in our imports of furniture and household goods and $339 million in our imports of footwear...in addition, our imports of foods, feeds, and beverages rose by $34 million to $12,098 million on a $204 million increase in our imports of vegetables....

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

The May figures show surpluses, in billions of dollars, with South and Central America ($1.9), Brazil ($0.4), OPEC ($0.4), United Kingdom ($0.2), and Hong Kong ($0.1). Deficits were recorded, in billions of dollars, with China ($27.9), European Union ($12.7), Mexico ($4.2), Germany ($3.9), Japan ($3.2), Taiwan ($2.6), South Korea ($1.9), Singapore ($1.6), Italy ($1.4), Canada ($1.2), France ($1.1), India ($0.7), and Saudi Arabia ($0.1).

  • • The deficit with China increased $1.9 billion to $27.9 billion in May. Exports increased $0.7 billion to $10.0 billion and imports increased $2.7 billion to $37.9 billion.
  • • The surplus with members of OPEC decreased $1.0 billion to $0.4 billion in May. Exports decreased $0.5 billion to $2.4 billion and imports increased $0.5 billion to $2.1 billion.
  • • The deficit with the European Union decreased $1.6 billion to $12.7 billion in May. Exports decreased $1.0 billion to $14.9 billion and imports decreased $2.6 billion to $27.6 billion.

To gauge the impact of April and May trade on 2nd quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2012  dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference here being that the amounts are not annualized...from that table, we can figure that we can figure that 1st quarter real exports of goods averaged 147,392 million monthly in 2012 dollars, while inflation adjusted April and May exports were at 113,528 million and 106,801 million respectively in that same 2012 dollar quantity index representation.... after averaging inflation adjusted April and May goods exports and then computing the annualized change between that average and the average of the first quarter, we find that the 2nd quarter's real exports of goods are running at a 68.8% annual rate below those of the 1st quarter, or at a pace that would subtract about 7.18 percentage points from 2nd quarter GDP if continued at the same rate through June.....

In a similar manner, we find that our 1st quarter real imports averaged 221,310 million monthly in chained 2012 dollars, while inflation adjusted April and May imports were at 193,973 million and 193,287 million in those same inflation adjusted dollars respectively....that would mean that so far in the 2nd quarter, our real imports of goods have decreased at a 41.4% annual rate from those of the 1st quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their decrease at a 41.4% rate would conversely add 5.28 percentage points back to 2nd quarter GDP....hence, if our goods trade deficit at the April - May level is maintained through June, our deteriorating balance of trade in goods would subtract a net of roughly 1.90 percentage points from the growth of 2nd quarter GDP....

Note that we have not figured the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, but that the month’s decrease in exports of services was twice the decrease in imports of services, which thus suggests that May’s trade in services would also subtract from 2nd quarter GDP...

Construction Spending Falls 2.1% in May after March & April Spending Revised Much Higher

The Census Bureau report on construction spending for May (pdf) estimated that May's seasonally adjusted construction spending would work out to $1,356.4 billion annually if extrapolated over an entire year, which was 2.1 percent (±1.0 percent) below the revised annualized estimate of $1,386.1 billion of construction spending in April but 0.3 percent (±1.5 percent)* above the estimated annualized level of construction spending in May of last year...with this release, unadjusted construction spending data was revised back to January 2018 and seasonally adjusted data was revised back to January 2013, and there was a methodology change in computing the total construction cost of private multifamily residential projects for months going back to January 2009...as a result of that and the usual monthly revision, the April spending estimate was revised 3.0% higher, from $1,346.2 billion to $1,386.1 billion, while the annual rate of construction spending for March was revised 3.6% higher, from $1,386.6 billion to $1,436.7 billion...we would normally suggest that a large upward revision to annualized March construction spending would have large positive impact on first quarter GDP when the annual revisions to GDP are released in late July, but with 4th quarter construction also being revised, the entire quarter over quarter change will need to be recomputed...construction spending tor the first 5 months of 2020 has now amounted to $543.2 billion, 5.7 percent (±1.2 percent) more than the $513.7 billion in construction spending for the same 5 months of 2019…

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

  • Private Construction: Spending on private construction was at a seasonally adjusted annual rate of $1,001.2 billion, 3.3 percent (±0.7 percent) below the revised April estimate of $1,035.2 billion. Residential construction was at a seasonally adjusted annual rate of $535.9 billion in May, 4.0 percent (±1.3 percent) below the revised April estimate of $558.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $465.3 billion in May, 2.4 percent (±0.7 percent) below the revised April estimate of $476.9 billion.
  • Public Construction: In May, the estimated seasonally adjusted annual rate of public construction spending was $355.2 billion, 1.2 percent (±2.0 percent)* above the revised April estimate of $350.9 billion. Educational construction was at a seasonally adjusted annual rate of $87.3 billion, 0.1 percent (±2.0 percent)* above the revised April estimate of $87.2 billion. Highway construction was at a seasonally adjusted annual rate of $106.6 billion, 2.8 percent (±6.7 percent)* above the revised April estimate of $103.7 billion.

This construction spending report will be used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local and Federal governments.... however, gauging the impact of the revised April and May construction spending as reported here on 2nd quarter GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is no easy matter, either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities' construction....in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed to make an estimate..,that index showed that aggregate construction costs fell 0.1 in May, after being up 0.5% from March to April, up 0.1% from February to March, and up 0.1% from January to February..

On that basis, we can estimate that May construction costs were roughly 0.4% greater than those of March, 0.5% greater than those of February and 0.6% greater than those of January, and obviously 0.1% less than those of April...we then use those percentages to inflate spending for each of the months of the first quarter, which is arithmetically the same as deflating April and May construction spending vis-a vis the 1st quarter for comparison purposes, and then we'll compare the 'inflation adjusted' average of the 1st quarter months to the spending average of the 2nd quarter months...annualized construction spending in millions of dollars for the five months in question is given as 1,356,409 for May, 1,386,129 for April, 1,436,727 for March, 1,441,145 for February, and 1,437,719 for January....thus to figure the annual rate of change of May's nominal construction spending figure of $1,293,872 and April's figure of $1,304,007 from those of  the 'inflation adjusted'  figures of the first quarter, our calculation becomes (((1,356,409 + 1,386,129 * .999) / 2) / (((1,436,727 * 1.004) + (1,441,145 * 1.005) + (1,437,719 * 1.006)) / 3)) ^ 4 = 0.80774, which means that after adjusting for inflation, construction spending has been shrinking at a 19.2% annual rate over the first 2 months of the second quarter...that would be a contraction at a $75.15 billion annual rate, which means that if June shows no improvement, that contraction in real construction would subtract a net of about 1.89 percentage points from 2nd quarter GDP across those components that it influences...

Factory Shipments Up 3.1% in May, Factory Inventories Up 0.2%

The May Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods increased by $30.5 billion or 8.0 percent to $412.8 billion in May, following a decrease of 13.5% to $382.3 billion in April, which was revised from the 13.0% decrease to $384.3 billion reported for April last month....however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", both the "new orders" and "unfilled orders" sections of this report are really only accurate as a revised update to the May advance report on durable goods we reported on last week...on those revisions, the Census Bureau's summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite complete, so we'll just quote directly from that here:

  • Summary: New orders for manufactured goods in May, up following two consecutive monthly decreases, increased $30.5 billion or 8.0 percent to $412.8 billion, the U.S. Census Bureau reported today. This followed a 13.5 percent April decrease. Shipments, up following four consecutive monthly decreases, increased $12.5 billion or 3.1 percent to $417.0 billion. This followed a 14.0 percent April decrease. Unfilled orders, up following two consecutive monthly decreases, increased $0.7 billion or 0.1 percent to $1,108.5 billion. This followed a 1.5 percent April decrease. The unfilled orders-to-shipments ratio was 7.53, down from 7.70 in April. Inventories, up following four consecutive monthly decreases, increased $1.1 billion or 0.2 percent to $687.0 billion. This followed a 0.5 percent April decrease. The inventories-to-shipments ratio was 1.65, down from 1.70 in April.
  • New orders for manufactured durable goods in May, up following two consecutive monthly decreases, increased $26.3 billion or 15.7 percent to $193.8 billion, down from the previously published 15.8 percent increase. This followed an 18.3 percent April decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $21.1 billion or 82.0 percent to $46.9 billion. New orders for manufactured nondurable goods increased $4.2 billion or 2.0 percent to $219.0 billion.
  • Shipments of manufactured durable goods in May, up following two consecutive monthly decreases, increased $8.3 billion or 4.4 percent to $198.0 billion, unchanged from the previously published increase. This followed an 18.8 percent April decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $5.1 billion or 12.4 percent to $46.6 billion. Shipments of manufactured nondurable goods, up following four consecutive monthly decreases, increased $4.2 billion or 2.0 percent to $219.0 billion. This followed a 9.3 percent April decrease. Petroleum and coal products, also up following four consecutive monthly decreases, led the increase, $3.1 billion or 12.1 percent to $28.2 billion.
  • Unfilled orders for manufactured durable goods in May, up following two consecutive monthly decreases, increased $0.7 billion or 0.1 percent to $1,108.5 billion, unchanged from the previously published increase. This followed a 1.5 percent April decrease. Transportation equipment, also up following two consecutive monthly decreases, led the increase, $0.3 billion or virtually unchanged to $760.0 billion.
  • Inventories of manufactured durable goods in May, up three consecutive months, increased $0.3 billion or 0.1 percent to $425.0 billion, unchanged from the previously published increase. This followed a virtually unchanged April increase. Transportation equipment, up twenty-two of the last twenty-three months, drove the increase, $1.3 billion or 0.9 percent to $144.0 billion. Inventories of manufactured nondurable goods, up following four consecutive monthly decreases, increased $0.8 billion or 0.3 percent to $262.0 billion. This followed a 1.2 percent April decrease. Petroleum and coal products, also up following four consecutive monthly decreases, drove the increase, $1.8 billion or 6.5 percent to $28.8 billion.

To estimate the effect of those May factory inventories on 2nd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories were statistically unchanged at $245,140 million; the value of work in process inventories rose 0.7% to $203,300 million, while the value of materials and supplies inventories fell 0.1% to $238,576 million...the May producer price index reported that prices for finished goods were on average 1.6% higher, that prices for intermediate processed goods were 0.1% higher, while prices for unprocessed goods averaged 8.9% higher....assuming similar valuations for like types of inventories, that would suggest that May's real finished goods inventories were about 1.6% less than April's, that real inventories of intermediate processed goods were about 0.6% higher, and that real raw material inventories were about 9% lower, with a caveat on the later that most of the May price increase was in energy goods, which account for a relatively smaller amount of the producer inventory aggregate....nonetheless, those decreases are not great enough to reverse the real inventory increases seen in April, and since real NIPA factory inventories were much lower in the 1st quarter, it appears that the real change in 2nd quarter factory inventories still will have a notable positive impact on the growth rate of 2nd quarter GDP...

 

 

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

Sunday, June 28, 2020

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

The key economic releases of the past week were the 3rd estimate of 1st quarter GDP from the Bureau of Economic Analysis and the May report on Personal Income and Spending, also from the BEA, which includes two months of 2nd quarter data on personal consumption expenditures and hence accounts for 46% of 2nd quarter GDP....other widely watched releases included the May advance report on durable goods and the May report on new home sales, both from the Census bureau, and the May report on existing home sales from the National Association of Realtors (NAR)....this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for May, a weighted composite index of 85 different economic metrics, which rose from a downwardly revised a record low –17.89 in April to to +2.61 in May; that left the 3 month average of the index at –6.65 in May, up from –7.50 in April, still indicating national economic activity has been in a deep recession over these recent months...

In addition, this week also saw the results of two more regional Fed manufacturing surveys for June; 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 0 in June, up from -27 in May, indicating that an equal number of that region's manufacturers reported a deeper slowdown as those who reported a return to growth, and the Kansas City Fed manufacturing survey for June, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, which reported its broadest composite index rose to +1 in June, up from -19 in May and up from the a record low of - 30 in April, also indicating that this region's manufacturing has stabilized a lower level...

1st Quarter GDP Contraction Rate Remains at 5.0% in 3rd Estimate

The Third Estimate of our 1st Quarter GDP from the Bureau of Economic Analysis indicated that the real output of our goods and services decreased at a 5.0% annual rate in the quarter, revised but statistically unchanged from the 5.0% growth rate reported in the second estimate last month, as upward revisions to domestic fixed investment and government outlays were offset by downward revisions to inventories and exports...in current dollars, our first quarter GDP fell at a 3.56% annual rate, decreasing from what would work out to be a $21,729.1 billion a year rate in the 4th quarter of last year to a $21,539.7 billion annual rate in the 1st quarter of this year, with the headline 5.0% annualized rate of decrease in real output arrived at after an annualized inflation adjustment averaging 1.4%, aka the GDP deflator, was computed and applied to the current dollar change of each of the GDP components....

As we review this month's revisions, remember that this release reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change usually a bit over 4 times of that what actually occurred from one 3 month period to the next, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price changes now chained from 2012, and then that all percentage changes in this report are calculated from those 2012 dollar figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts....for our purposes, all the data that we'll use in reporting the changes here comes directly from the Full Release & Tables for the third estimate of 1st quarter GDP, which is linked to on the BEA's main GDP page...specifically, we’ll be using table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 2nd quarter of 2016; table 2, which shows the contribution of each of the components to the GDP figures for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP  components; and table 4, which shows the change in the price indexes for each of the GDP components...the full pdf for the 1st quarter's 2nd estimate, which this estimate revises, is here...

Real personal consumption expenditures (PCE), the largest component of GDP, were revised but still showed contraction at a 6.8% annual rate in the 1st quarter, the same contraction rate reported last month...that PCE contraction figure was arrived at by deflating the 5.9% lower rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer price inflation grew at a 1.3% annual rate in the 1st quarter, same PCE inflation rate that was published a month ago....real consumption of durable goods fell at a 13.8% annual rate, which was revised from the 13.2% drop shown in the second estimate, and subtracted 1.03 percentage points from GDP, as a drop in real consumption of automobiles at a 30.0% rate accounted for more than four-fifths of the decrease in durable goods....however, real consumption of nondurable goods by individuals rose at a 8.0% annual rate, revised from the 7.7% increase rate reported in the 2nd estimate, and added 1.08 percentage points to 1st quarter economic growth, as a increase in the real consumption of food at home at a 30.4% annual rate more than offset decreased consumption of clothing and energy goods….at the same time, consumption of services shrunk at a 9.8% annual rate, revised from the 9.7% contraction rate reported last month, and subtracted 4.78 percentage points from the final GDP tally, as an annualized 16.5% contraction in health care services accounted for 45% of the 1st quarter decrease in services...

Meanwhile, seasonally adjusted real gross private domestic investment shrunk at a 10.2% annual rate in the 1st quarter, revised from the 10.5% contraction estimate reported last month, as real private fixed investment shrunk at a 1.3% rate, rather than at the 2.4% rate reported in the second estimate, while business and farm inventories fell by more than had been previously estimated...real investment in non-residential structures was revised from shrinking at a 3.9% rate to growing at a 2.6% rate, while real investment in equipment was revised to show it contracted at a 16.6% rate, revised from the 16.7% contraction rate reported in the 2nd estimate...at the same time, the 1st quarter's investment in intellectual property products was revised from real growth at a 1.0% rate to real growth at a 1.3% rate, and growth in real residential investment was revised from a 18.5% annual rate to growth at a 18.2% rate…after those revisions, the growth in investment in non-residential structures reduced the decrease in 1st quarter GDP by 0.07 percentage points, while the decrease in investment in equipment subtracted 0.99 percentage points from the quarter's growth...partly offsetting that, the increase in investment in intellectual property added 0.06 percentage points and the increase in residential investment added 0.65 percentage points to the 1st quarter's growth rate...

At the same time, the decrease in real private inventories was revised from the previously reported $67.2 billion in inflation adjusted dollars to show inventories shrunk at an inflation adjusted $74.8 billion rate...this came after inventories had grown at an inflation adjusted $13.1 billion rate in the 4th quarter, and hence the $87.8 billion negative change in real inventories from those of the 4th quarter subtracted 1.56 percentage points from the 1st quarter's growth rate, revised from the 1.43 percentage point subtraction due to inventory growth shown in the second estimate....however, since shrinking inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that decrease by $87.8 billion meant that real final sales of GDP were actually greater by that much, and therefore the BEA found that real final sales of GDP only fell at a 3.5% rate in the 1st quarter, revised from the 3.7% rate of decrease shown in the second estimate...

The previously reported decrease in real exports was revised even lower, while the decrease in real imports was also greater than previously reported, and with those changes mostly offsetting one another, our net trade was a just slightly smaller addition to GDP than was previously reported...our real exports of goods and services shrunk at a 9.0% rate in the 1st quarter, revised from the 8.7% contraction rate shown in second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their decrease conversely subtracted 1.06 percentage points from the 1st quarter's growth rate, revised from the 1.02 percentage point subtraction shown last month...meanwhile, the previously reported 15.5% decrease in our real imports was revised to a 15.7% decrease, and since imports subtract from GDP because they represent either consumption or investment that was not produced in the US, their decrease conversely added 2.37 percentage points to 1st quarter GDP, revised from the 2.34 percentage point addition shown a month ago....thus, the improving trade balance that accompanied the collapse in trade added a rounded 1.31 percentage points to 1st quarter GDP, down from the 1.32 percentage point addition resulting from an improving foreign trade balance that was indicated by the advance estimate..

Finally, there were also revisions to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown to have grown at a 1.1% rate, revised from the 0.8% growth rate for government indicated by the 2nd estimate....real federal government consumption and investment was seen to have grown at a 2.0% from the 4th quarter in this estimate, which was revised from the 1.9% growth rate shown in the 2nd estimate, as real federal outlays for defense grew at a 1.1% rate, revised from the 1.0% shown a month ago, and added 0.05 percentage points to 1st quarter GDP, while all other federal consumption and investment grew at a upwardly revised 3.1% rate and added 0.09 percentage points to GDP, revised from the 0.08 percentage point addition shown last month...meanwhile, real state and local consumption and investment grew at a 0.5% rate in the quarter, revised from the 0.2% growth rate in the 2nd estimate, and added 0.06 percentage points to 1st quarter GDP, which was revised from the 0.02 addition shown in the second estimate...note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thereby indicating an increase in the output of those goods or services...

May Personal Income Down 4.2%, Spending up 8.2%; 2 Months PCE Would Subtract 29.06 Percentage Points from Q2 GDP

The May report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 2nd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this same report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if May’s change in seasonally adjusted income and spending were extrapolated over an entire year.....however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from April to May....

Thus, when the opening line of the news release for this report tell us "Personal income decreased $874.2 billion (4.2 percent) in May", they mean that the annualized figure for seasonally adjusted personal income in May, $19,839.3 billion, was $874.2 billion, or a bit more than 4.2% less than the annualized  personal income figure of $20,713.5 billion for April; the actual, unadjusted change in personal income from April to May is not given here...similarly, annualized disposable personal income, which is income after taxes, fell by nearly 4.9%, from an annual rate of an annual rate of $18,698.6 billion in April to an annual rate of $17,787.5 billion in May....the reasons for the decrease in personal income and disposable personal income can be viewed in table 1 of the Full Release & Tables (pdf) for this release, also as annualized amounts, and were due to a $1,097.8 billion decrease to $5,290.1 billion in personal current transfer receipts from government programs, partially reversing the $3,027.7 increase in personal current transfer receipts in April as coronavirus stimulus checks went out, and which more than offset a $258.3 billion increase to $8,733.3 billion in wages and salaries, partially reversing the $839.7 billion decrease in April's wages and salaries due to the lockdown...again, remember those are all annualized figures...

For the personal consumption expenditures (PCE) that we're interested in, BEA reports that they increased at a $994.5 billion annual rate, or by roughly 8.2 percent, partially rebounding from the decreases of 12.6% in April and 6.6% in March, as the annual rate of PCE rose from $12,168.2 billion in April to $13,162.6 billion in May...that was after the April PCE figure was revised up from the originally reported $12,013.3 billion annually and March PCE was revised from an annual rate of $13,906.8 billion to an annual rate of $13,925.8 billion, a revision that was already captured by the 3rd estimate of 1st quarter GDP we reported on earlier....the current dollar increase in May spending included a $338.8 billion or 28.6% increase to an annualized $1,523.9 billion in spending for durable goods, a $208.6 billion or 7.7% increase to an annualized $2,910.7 billion in spending for non-durable goods and a $447.1 billion or 5.4% increase to $8,728.0 billion in annualized spending for services....total personal outlays in May, which includes interest payments, and personal transfer payments in addition to PCE, rose by an annualized $989.9 billion to a $13,666.1 billion annual rate, which left national personal savings, which is disposable personal income less total outlays, at a $4,121.4 billion annual rate in May, down from the revised record $6,022.4 billion annualized personal savings in April... as a result of that decrease, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 23.2% in May, after April's record savings rate was revised from 33.0% to 32.2%...

As you know, before those personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is computed by the BEA and included in Table 9 in the pdf for this report....that index rose from 110.006 in April to 110.112  in May, a month over month inflation rate that's statistically 0.09636%, which BEA reports as an increase of 0.1 percent, following a similarly rounded PCE price index decrease of 0.5% reported for April...applying that May inflation adjustment to the nominal amounts of spending left reported growth in real PCE at 8.1% in May, after a real PCE decrease of 12.2% in April and a real PCE decrease of 6.4% in March....note that when those PCE price indexes are applied to each month's annualized PCE in current dollars, it yields that month's annualized real PCE in those familiar chained 2012 dollars, which are the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....those results are shown in table 7 of the PDF, where we see that May's chained dollar consumption total works out to 11,954.8 billion annually, 8.0689% more than April's 11,062.2 billion, a difference that the BEA reports as 8.1%, even as the full decimal fractions are used in all their computations...

  However, to estimate the impact of the change in PCE on the change in GDP, such month over month changes don't help us much, since GDP is reported quarterly...thus we have to compare April and May's real PCE to the the real PCE of the 3 months of the first quarter....while this report shows PCE for all those amounts monthly, the BEA also provides the annualized chained dollar PCE for those three months in table 8 in the pdf for this report, where we find that the annualized real PCE for the 1st quarter was represented by 13,179.0 billion in chained 2012 dollars..(note that's the same as is shown in table 3 of the pdf for the revised 1st quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for April and May, 11,062.2 billion and 11,954.8 billion respectively, we can get an equivalent annualized PCE for the two months of the 2nd quarter that we have data for so far....when we compare that average of 11508.5 billion to the 1st quarter real PCE representation of 13,179.0 billion, we find that 2nd quarter real PCE has fallen at a 41.85% annual rate for the two months of the 2nd quarter that we have data for at this point...(note the math used to get that annual growth rate: 1 - ((( 11,062.2 + 11,954.8) /2 ) / 13,179.0 ) ^ 4  = 0.418506)....that's a pace that would subtract 29.06 percentage points from the growth rate of the 2nd quarter by itself, with that computation based on the unlikely assumption that there'd be no improvement in June PCE from the April-May average...

May Durable Goods: New Orders Up 15.8%, Shipments Up 4.4%, Inventories Up 0.1%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for May (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $26.6 billion or 15.8 percent to $194.4 billion in May, following a revised decrease of 18.1% to $167.8 billion in April’s new orders, which had originally been reported as a 17.2% decrease to $170.0 billion...however, year to date new orders are still running 13.6% lower than they were a year ago, despite the May increase....as is usually the case, the volatile monthly change in new orders for transportation equipment led the May headline increase, as those transportation equipment orders rose $20.9 billion or 80.7 percent to $46.9 billion, as the $8.6 billion cancellation in new orders for commercial aircraft indicated for April was reversed to a $3.1 billlion increase and new orders for motor vehicles rose 27.5% to $28.2 billion....excluding new orders for transportation equipment, other new orders just rose 4.0% in May, as the important new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment, rose 3.2% to $62,729 million...

Meanwhile, the seasonally adjusted value of May's shipments of durable goods, which will ultimately be inputs into various components of 2nd quarter GDP after adjusting for changes in prices, rose for the first time in 3 months, increasing by $8.4 billion or 4.4 percent to $198.5 billion, after April shipments were revised from a decrease of 17.7% to $192.3 billion to a decrease of 18.6% to $190.1 billion....shipments of transportation equipment led the May increase, as they rose $5.0 billion or 12.1 percent to $46.5 billion, while shipments of nondefense capital goods excluding aircraft rose 1.8% to $62,371 million…

At the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the 3rd consecutive month, increasing by $0.3 billion or 0.1 percent to $425.1 billion, after the value of end of April inventories were revised from $425.6 billion to $424.8 billion, now just a statistically insignificant increase from March...a $1.3 billion or 0.9 percent increase to $144.1 billion in the value of inventories of transportation equipment was responsible for the May inventory increase, as inventories of other durable goods fell 0.4% to $281.0 billion...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the first time in three months, increasing by $0.8 billion or 0.1 percent to $1,108.6 billion, following an April decrease of 1.5% to $1,107.77 billion, revised from the 1.6% decrease to $1,107.8 billion reported a month ago...a $0.3 billion increase to $760.0 billion in unfilled orders for transportation equipment was responsible for part of the increase, but unfilled orders excluding transportation equipment orders were also up 0.1% to $348,571 million.... compared to a year ago, the unfilled order book for durable goods is now 4.1% lower than the level of last May, with unfilled orders for transportation equipment 5.7% below their year ago level, on a 4.3% decrease in the backlog of orders for motor vehicles and a 10.3% decrease in the order book for commercial aircraft...

New Homes Sales Reported Higher in May; Prices Also Higher

The Census report on New Residential Sales for May (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 676,000 homes annually during the month, which was 16.6 percent (±15.5 percent) above the revised April rate of 580,000 new single family homes a year and 12.7 percent (±23.5 percent)* above the estimated annual rate that new homes were selling at in May of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether May new home sales rose or fell from those of May a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report, sales of new single family homes in April were revised from the annual rate of 623,000 reported last month to a 615,000 annual rate, and March's annualized home sale rate, initially reported at 627,000, was revised from last months downwardly revised figure of 619,000 to a 612,000 rate, while the annual rate of February's sales, initially reported at an annual rate of 765,000 and revised from a revised annual rate of 741,000 to an annual rate of 717,000 last month, were further revised to an annual rate of 716,000 with this report...

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 64,000 new single family homes sold in May, up from the 54,000 new homes that sold in April, and up from the estimated 59,000 new homes that sold in March....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in May was at $317,900, up from the median sales price of $303,000 in April, and up from the median sales price of $312,700 in May of last year, while the average May new home sales price was $368,800, up from a $352,300 average price in April, but down from the average home sales price of $379,100 in May a year ago....a seasonally adjusted estimate of 318,000 new single family houses remained for sale at the end of May, which represents a 5.6 month supply at the May sales rate, down from a revised 6.7 month supply in April....for more details and graphics on this report, see Bill McBride's two posts on this month's report, “New Home Sales increased to 676,000 Annual Rate in May. and “A few Comments on May New Home Sales”....

Existing Home Sales Fell 9.7% in May; Median Sale Price Also Slips 0.7% from April

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales fell 9.7% from April to May, projecting that 3.91 million homes would sell over an entire year if the May home sales pace were extrapolated over that year, a pace that was also 26.6% lower than the annual sales rate projected in May of a year ago....that came after homes sold at an annual sales rate of 4.33 million in April, which was unrevised from last month's report, and an annual home sales rate of 5.27 million in March, and an annual home sales rate of 5.76 million in February...the NAR also reported that the median sales price for all existing-home types in May was $284,600, which was 2.3% higher than in May a year earlier, which they report "marks 99 straight months of year-over-year gains"....the NAR press release, which is titled Existing-Home Sales Fall 9.7% in May While NAR Expects Strong Rebound in Coming Months, is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distr essed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes  sell are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this data indicates that roughly 372,000 homes sold in May, down by 0.3% from the 373,000 homes that sold in April and 31.4% less than the 542,000 homes that sold in May of last year, so we can see the effect of the seasonal adjustment to reduce the large springtime increase typical for May home sales...that same pdf indicates that the median home selling price for all housing types fell 0.7%, from a revised $286,700 in April to $284,600 in May, while the average home sales price was at $319,300, down 0.6% from the $321,100 average in April, but up 1.5% from the $314,600 average home sales price of May a year ago, with the regional average home sales prices ranging from a low of $252,600 in the Midwest to a high of $422,300 in the West...for additional details and long term graphs on this report, see "NAR: Existing-Home Sales Decreased to 3.91 million in May, Rebound Expected in Coming Months" and "Comments on May Existing Home Sales" from Bill McBride at Calculated Risk..

 

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

Sunday, June 21, 2020

May's reports on retail sales, industrial production; and new home construction; April’s business inventories

Major releases of the past week included the reports on Retail Sales for May and Business Sales and Inventories for April, both from the Census bureau; the report on Industrial Production and Capacity Utilization for May from the Fed, and the May report on New Residential Construction, also from the Census Bureau...in addition, this week also saw the release of the Regional and State Employment and Unemployment Summary for May 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 this report provides a useful summary of this data, the serious statistics 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 Fed regional manufacturing reports for June: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index rose to -0.2 in June, up from -48.5 in May, indicating that the contraction in First District manufacturing has stabilized at a depressed level... meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions rose from -43.1 in May to +27.5 in June, its first positive reading since February, a change which they explain was because "Forty-six percent of the firms reported increases [in their manufacturing activity] this month (up from 15 percent last month), while 19 percent reported decreases (down from 58 percent)." …understand that after a lockdown, just turning on a light switch would represent an increase in activity for some of those companies...

May Retail Sales Rose 17.7% After April Sales Were Revised 2.2% Higher

Seasonally adjusted retail sales rose a record 17.7% in May after retail sales for April were revised 2.2% higher....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $485.5 billion for the month, which was an increase of 17.7 percent (±0.5%) from April's revised sales of $412.6 billion but 6.3 percent (±0.7 percent) below the adjusted sales of May of last year...April's seasonally adjusted sales were revised from the $403.9 billion reported last month to $412.6 billion, while March sales were revised from $483.5 billion to $481.5 billion, which meant that March to April percent change was revised from a decrease of 16.4 percent (±0.5%) to a decrease of 14.7 percent (± 0.2 percent).... estimated sales before seasonal adjustments, which were extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 23.1% before adjustment, from $410,190 million in April to $504,802 million in May, while they were down 7.7% from the $547,130 million of sales in May a year ago...

Included below is the table of the monthly and yearly percentage changes in sales by business type taken from the Census pdf....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from April to May in the first sub-column, and then the year over year percentage change for those businesses since last May in the 2nd column; the second pair of columns gives us the revision of last month’s April advance monthly estimates (now called "preliminary") as revised with this report, likewise for each business type, with the March to April change under "Mar 2020 r" (revised) and the revised April 2019 to April 2020 percentage change in the last column shown...for your reference, our copy of the table of last month’s advance April estimates, before this month's revision, is here....

May 2020 retail sales table

While this month's 17.7% increase in sales was a record jump, we have to realize it was from the depressed level of April, which followed on the heels of the widespread coronavirus shuttering of many retail establishments in March....hence, while sales at furniture stores rose 89.7% in May, their sales were still down 21.5% from a year ago...similarly, while sales at electronics and appliance stores were up 50.5% in May, they were still 29.9% lower than in May a year ago....and in an even more extreme example, even though sales at clothing stores jumped by 188% in May, they were still 63.4% lower than sales in clothing stores a year ago...however, there are some business types which saw a year over year improvement...even after elevated sales in March and April, grocery stores sales were still 14.4% higher than in May of last year; since it's unlikely that Americans are eating that much more than a year ago, this suggests ongoing at home stockpiling of essentials after the shortages of some items in March and April...sales at building material and gardens supply stores were also up 16.4% year over year, suggesting that those stuck at home are spending more on their own houses and property...similarly, sales at sporting goods, musical instrument, book stores, and other recreational stores were up 4.9% year over year, suggesting we're still spending to keep ourselves entertained during this period of reduced social activity...

To compute May's real personal consumption of goods data for national accounts from this May retail sales report, the BEA will use the corresponding price changes from the May consumer price index, which we reviewed last week...we would normally make an attempt to estimate that figure by using the broad composite price index of all goods less food and energy goods to adjust the majority of May's retail sales increases for inflation, but given the wide range of changes in each of the types of sales in this month’s report, our shortcut method would be prone to introduce more inaccuracies than tolerable in our estimation, so we'll forego that effort this month...to get a more accurate estimation of the change in May's personal consumption of goods, we would need to adjust each of the types of sales shown above by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were up 44.1% in May, the May price index for transportation commodities other than fuel was 0.1% higher, which would mean that real sales at auto & parts dealers were 44.0% higher. once the price increase is taken into account...on the other hand, while nominal sales at clothing stores rose 188.0%, the apparel price index was 2.3% lower at the same time, which means that the 188% increased cash outlay bought even more clothes in May, and hence real sales of clothing for national accounts purposes rose by nearly 195%...

another reason to be cautious about reading too much into this one month jump in retail sales is that not all of it will make it to the bottom line of GDP...for instance, if the rebound of auto sales all came out of inventories of vehicles that were not sold in March and April, the corresponding reduction of inventories will subtract from GDP by the same amount that the increased sales added to it...similarly, if all the increased furniture, TVs and clothing that sold in May came from imported goods, the corresponding imports of furniture, TVs and clothing will subtract from GDP by the same amount that the increased sales of those goods added to it....the only way that increased retail sales adds to GDP without an offset is if it indicates an increase in the amount of goods produced for those sales domestically; in general, goods in that catagory would include in the increased sales of groceries, gasoline, and building materials...much more important to the ultimate trajectory of GDP will be personal consumption of services, which accounts for 47% of each month's GDP....here we'd have to know if health care services, transportation services, recreation services and food services and accommodations have increased over the month; indications are they have not; most hospitals were still restricting elective procedures, jet fuel demand was still down by more than two thirds, no baseball was played in May, restaurants were only only cautiously reopening and hotel occupancy was still down by more than 50%...

Industrial Production Up 1.4% in May After April Revised Down 1.4%; Capacity Utilization Up 0.8% After 0.9% Downward Revision

Industrial production increased in May after production for April was revised lower...the Fed's G17 release on Industrial production and Capacity Utilization for May reported that industrial production increased 1.4% in May after falling by a revised 12.5% in April and by a revised 4.6% in March, which left total output 15.3% lower than a year ago, down from last month's -15.0% year over year figure...the industrial production index, which is benchmarked for average 2012 production to be equal to 100.0, rose from a revised 91.3 in April to 92.6 in May, after the April reading for the index was revised down from 92.6 to 91.3, the March index was revised up from 104.3 to 104.4, the February index was revised from 109.3 to 109.4, the January index was revised from 109.1 to 109.2, and the December index was revised from 109.6 to 109.7...

The manufacturing index, which accounts for more than 77% of the total IP index, increased by 3.8%, from 84.0 in April to 87.3 in May, after the April manufacturing index was revised from 85.5 to 84.0, the March index was revised from 99.1 to 99.4, the February manufacturing index was revised from 104.9 to 105.0, and the January manufacturing index was also revised from 104.9 to 105.0, leaving manufacturing output 16.5% lower than it was a year ago... meanwhile, the mining index, which includes oil and gas well drilling, fell from 122.7 in April to 114.3 in May, after the April index was revised down from from the originally reported 123.4, which left the mining index 14.1% lower than it was a year earlier....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 2.3% to 96.8 in May, after April's index was revised from 99.3 to 99.1, leaving the utility index 8.0% below it's year earlier level...

This report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 64.8% in May from 64.0% in April, after capacity utilization for April was revised down from the 64.9% reported a month ago....capacity utilization for all manufacturing industries rose from a downwardly revised 60.0% in April to 62.2% in May, as utilization of NAICS durable goods production facilities rose from a revised 54.0% in April to 57.1% in May, while capacity utilization for non-durables manufacturers rose from 67.1% to 68.5%...at the same time, capacity utilization for the mining sector fell to 75.4% in May, from 81.2% in April, which was originally reported as 81.7%, while utilities were operating at 69.1% of capacity during May, down from the revised 70.9% of capacity during April, which was was originally reported at 71.1% ....for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....  

New Housing Starts Higher, New Permits Much Higher in May

The May report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 974,000 in May, which was  4.3 percent (±15.5 percent)* above the revised April estimated annual rate of 934,000 housing unit starts, but was 23.2 percent (±6.2 percent) below last May's rate of 1,286,000 housing starts a year...the asterisk indicates that Census does not have sufficient data to determine whether housing starts actually rose or fell from April to May, with the figure in parenthesis the most likely range of the change indicated; in other words, May’s housing starts could have just as easily been down by 11.2% or up by as much as 19.8% from those of April, with even larger revisions possible...in this report, the annual rate for April's housing starts was revised from the 891,000 estimated last month to 934,000, while March housing starts, which were first reported at a 1,216,000 annual rate, were revised from last month's initial revised annual figure of 1,276,000 down to 1,269,000 annually with this report....

The annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 89,300 housing units were started in May, up from the 84,800 units started in April but down from the 104,500 units started in March...of those housing units started in May, an estimated 62,600 were single family homes and 26,000 were units in structures with more than 5 units, identical to the revised 62,600 single family starts in April, but up from the 21,300 units started in structures with more than 5 units at the same time...

The monthly data on new building permits, with a smaller margin of error and hence usually smaller revisions, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in May, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,220,000 housing units, which was 14.4 percent (±1.1 percent) above the revised April permit rate of 1,066,000, but 8.8 percent (±1.0 percent) below the rate of permit issuance in May a year earlier….the annual rate for housing permits issued in April was revised from the 1,074,000 reported a month ago to 1,066,000...quoting the report for the annualized figures on the types of permits: “Single-family authorizations in May were at a rate of 745,000; this is 11.9 percent (±1.9 percent) above the revised April figure of 666,000. Authorizations of units in buildings with five units or more were at a rate of 434,000 in May. .”

Again, the annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed that permits for roughly 105,100 housing units were issued in May, up from the revised estimate of 96,000 new permits issued in April, but down from the 115,900 units permitted in March....the May figure included permits for an estimated 66,100 single family units, up from 63,600 in April, and permits for 35,700 units in structures with more than 5 units, up from 29,800 in April….for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 974 Thousand Annual Rate in May and Comments on May Housing Starts...

April Business Sales Down 14.4%, Business Inventories Down 1.3%

Following the release of the May retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for April (pdf), which incorporates the revised April retail data from that May report and earlier published wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,184.8 billion in April, down 14.4 percent (±0.2 percent) from March revised sales,and down 18.4 percent (±0.3 percent) from April sales of a year earlier...note that total March sales were revised from the originally reported $1,386.1 billion to $1,384.1 billion, and as a result the March decrease from February increased from 4.9% to 5.1%....manufacturer's sales were down 13.5% from March at $406,763 million in April, and retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, fell 12.7% to $382,654 million, while wholesale sales fell 16.9% to $395,355 million..

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,981.2 billion at the end of April, down 1.3 percent (±0.1%) from March, and 2.2 percent (±0.4 percent) lower than in April a year earlier...the value of end of March inventories was revised from the $2,012.5 billion reported last month to $2,007.0 billion with this release, now a 0.3% decrease from February...seasonally adjusted inventories of manufacturers were estimated to be valued at $686,476 million, 0.4% lower than in March, inventories of retailers were valued at $644,366 million, 3.7% less than in March, while inventories of wholesalers were estimated to be valued at $650,398 million at the end of April, up 0.3% from March.

With the release of the factory inventory data two weeks ago, we judged that the real change in April factory inventories would have a very large positive impact on the growth rate of 2nd quarter GDP; likewise, with the release of the wholesale inventory last week, we felt wholesale inventories would also have a substantial positive impact on the growth rate of 2nd quarter GDP...….since the April producer price index reported that prices for finished goods were on average 3.3% lower, that means that the real decrease in retail inventories was only around 0.4% for the month…however, since real retail inventories saw a substantial increase in the first quarter, albeit more than offset by decreases in factory and wholesale inventories, the real decrease in April retail inventories would thus have a substantial negative impact on 2nd quarter GDP, again partly offsetting the positive impact of factory and wholesale inventories..

 

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