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…)      

Sunday, June 14, 2020

May’s consumer and producer prices; April’s wholesale sales and JOLTS

Major reports released during the past week included the May Consumer Price Index, the May Producer Price Index, the May Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) for April, all from the Bureau of Labor Statistics; and the April report on Wholesale Trade, Sales and Inventories from the Census Bureau... this week also saw the release of the Mortgage Monitor for April(pdf) from Black Knight Financial Services, which indicated that 6.45% of mortgages were delinquent in April, up from 3.39% delinquent in March, and up from the 3.47% delinquency rate of April 2019, and that 0.40% of mortgages remained in the foreclosure process in April, down from 0.42% of all mortgages in March and down from 0.50% a year ago....the graph below from the Mortgage Monitor shows the mortgage delinquency rate by property value; it seems noteworthy that the delinquency rate for mortgages under $100,000 is more than three times that of mortgages of over $1 million:

June 8 2020 April Mortgage Monitor delinquency rate by property value

Consumer Prices Fell 0.1% in May on Lower Prices for Gasoline, Clothing, & Car Insurance

The consumer price index fell 0.1% in May, as lower prices for energy, clothing, lodging, and transportation services were only partly offset by higher prices for food, rent, and medical services...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices fell by 0.1% in May, after falling by 0.8% in April and 0.4% in March, rising by 0.1% in February, by 0.1% in January, by 0.2% in December, 0.2% in November, 0.2% in October, 0.1% in September, 0.1% in August and rising by 0.3% last July...the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to 100, actually inched up from 256.389 in April to 256.394 in May, which left it statistically 0.1179% higher than the 256.092 index reading of May of last year, which is reported as a 0.1% year over year increase, down from the 0.3% year over year increase reported a month ago....with lower prices for energy mostly offset by higher prices for food, seasonally adjusted core prices, which exclude food and energy, also fell by 0.1% for the month, as the unadjusted core price index fell from 266.089 to 265.799, which left the core index 1.222% ahead of its year ago reading of 262.590, which is reported as a 1.2% year over year increase, down from the 1.4% year over year increase that was reported for April...

The volatile seasonally adjusted energy price index fell 1.8% in May, after falling 10.1% in April, 5.8% in March, 2.0% in February and 0.7% in January, but after rising 1.6% in December, 0.8% in November and by 1.7% in October, but after falling 0.8% in September, falling 1.4% in August and rising 0.9% last July, and is now 18.9% lower than in May a year ago...the price index for energy commodities was 3.5% lower in May, while the index for energy services was 0.5% lower, after rising 0.1% in April....the energy commodity index was down 3.5% due to a 3.5% decrease in the price of gasoline, the largest component, and a 6.3% decrease in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average 1.0% higher...within energy services, the price index for utility gas service rose 0.8% after rising 0.2% in April but is still 0.3% lower than it was a year ago, while the electricity price index fell 0.8% after rising 0.1% in April....energy commodities are now averaging 33.2% lower than their year ago levels, with gasoline prices averaging 33.8% lower than they were a year ago, while the energy services price index is down 0.2% from last May, as electricity prices are also 0.2% lower than a year ago…

The seasonally adjusted food price index rose 0.7% in May, after rising 1.5% in April, 0.3% in March, 0.4% February, 0.2% January, 0.2% December, 0.1% in November, 0.2% October, 0.2% September, but being unchanged last June, July & August, as the price index for food purchased for use at home was 1.0% higher in May, after a 2.6% jump in April, while the index for food bought to eat away from home was 0.4% higher, as average prices at fast food outlets were 0.6% higher while prices at full service restaurants rose 0.2% and food prices at employee sites and schools were on average 0.2% higher...

In the food at home categories, the price index for cereals and bakery products was 0.2% lower as average bread prices fell 1.8%, prices for fresh biscuits, rolls, muffins fell 0.7%, and the price index for cakes, cupcakes, and cookies fell 0.9% on a 3.1% drop in cookie prices...on the other hand, the price index for the meats, poultry, fish, and eggs group was 3.7% higher even though egg prices fell 4.8%, as the price index for beef and veal rose 10.8%, and the price index for pork was 2.7% higher... meanwhile, the seasonally adjusted index for dairy products was 1.0% higher, even as milk prices fell 0.4%, as prices for ice cream & related products rose 2.5% and the index for other dairy products rose 1.9%...in addition, the fruits and vegetables index was 0.5% higher as the price index for fresh vegetables rose 1.3% and the price index for frozen fruits and vegetables rose 2.8%...at the same time, the beverages index was unchanged as the price index for carbonated drinks fell 0.9% while the price index for noncarbonated juices and drinks rose 0.4%....lastly, the index for the ‘other foods at home’ category was also unchanged, as the price index for sugar and sugar substitutes rose 1.2% while soup prices fell 3.3% and the price index for snacks fell 1.2%...the itemized list for price changes of over 100 separate food items is included at the beginning of Table 2 for this release, which also gives us a line item breakdown for prices of more than 200 CPI items overall...since last May, the price index for beef and veal is now 18.2% higher, the price of pork chops are up 14.0%, the price index for the index for pork roasts, steaks, and ribs has risen 13.1%, and the price of eggs, which is up 13.5%, are the only food items with a price change greater than 10% over the past year...

Among the seasonally adjusted core components of the CPI, which fell by 0.1% in May, after falling by 0.4% in April and by 0.1% in March, rising by 0.2% in February, 0.2% in January, 0.1% December, 0.2% November, 0.1% October, 0.2% in September, 0.2% in August, and by 0.3% last July, the composite price index of all goods less food and energy goods was 0.2% lower in May, while the more heavily weighted composite for all services less energy services was unchanged....among the goods components, which will be used by the Bureau of Economic Analysis to adjust May’s retail sales for inflation in national accounts data, the price index for household furnishings and supplies was 0.6% higher, as the price index for living room, kitchen, and dining room furniture rose 1.3% and the index for bedroom furniture rose 0.8%, while the price index for window coverings fell 2.4%....at the same time, the apparel price index was 2.3% lower on a 4.1% decrease in the price index for men's suits, sport coats, and outerwear, a 9.7% decrease in the price index for women's dresses, and a 5.3% decrease in the price index for women's underwear, nightwear, swimwear, and accessories...on the other hand, the price index for transportation commodities other than fuel was 0.1% jigher as prices for new cars rose 0.3%, prices for used cars and trucks fell 0.4%, tire prices rose 1.2%, and the price index for vehicle parts and equipment other than tires rose 1.5%....meanwhile, prices for medical care commodities were also 0.1% higher, even as prescription drugs prices fell 0.2%, because non-prescription drugs prices rose 0.4% and the price index for peronal medical equipment rose 1.5%...at the same time, the recreational commodities index was unchanged as a 0.9% decrease in TV prices, a 1.2% decrease in prices for recorded music and music subscriptions and a 1.9% drop in prices for photographic equipment were offset by a 1.6% increase in prices for recreational books, a 0.6% increase in the price index for toys, games, hobbies and playground equipment, a 0.6% increase in the price index for sporting goods, and a 2.0% increase in the price index for sewing machines, fabric and supplies...on the other hand, the education and communication commodities index was 0.1% lower on a 0.1% decrease in the price index for college textbooks and a 0.8% decrease in the price index for computers, peripherals, and smart home assistants...lastly, a separate price index for alcoholic beverages was 0.8% higher, while the price index for ‘other goods’ was 0.3% lower on a 0.8% decrease in the index for cosmetics, perfume, bath, nail preparations and implements and a 2.3% decrease in the index for infants' equipment..

Within core services, the price index for shelter was 0.2% higher as rents rose 0.3% and homeowner's equivalent rent rose 0.3% while prices for lodging away from home at hotels and motels fell 1.8%, while at the same time the shelter sub-index for water, sewers and trash collection rose 0.2%, and other household operation costs were on average 0.1% lower on a 2.4% drop in moving, storage, freight expense....meanwhile, the price index for medical care services was 0.6% higher, as the price index for dental services rose 1.1%, the price index for physicians' services rose 0.7% and the price of health insurance rose 1.1%... on the other hand, the transportation services price index was 3.6% lower as the price index for car and truck rental fell 3.5%, airline fares fell 4.9% and vehicle insurance costs fell 8.9%....however, the recreation services price index rose 1.3% as the index for cable and satellite television service rose 0.5% and the index for admission to to movies, theaters, and concerts rose 2.2%...at the same time, the index for education and communication services was 0.1% higher as elementary and high school  tuition and fees rose 0.5% and postage rose 0.3%....lastly, the index for other personal services was also up 0.1% as the price index for funeral services rose 0.2%, and the index for tax return preparation and other accounting fees was 0.3% higher...

Among core line items, prices for televisions, which are now averaging 15.6% cheaper than a year ago, the price index for telephone hardware, calculators, and other consumer information items, which is down by 12.5% since last May, the the price index for rental of video discs and other media, which has fallen 14.8% from a year ago, the price index for women's dresses, which has fallen by 26.2% in the past year, the price index for women's outerwear, which has fallen by 15.7% from a year ago, the price index for women's suits and separates, which is down 10.4% year over year, the price index for men's suits, sport coats, and outerwear, which has fallen by 15.8% in the past year, the price index for infants' and toddlers' apparel, which has fallen by 11.4% in the past year, prices for car and truck rental, which are down 19.2% in a year's time, vehicle insurance, which has fallen 14.3% since last year, airline fares, which are now down by 28.8% since last May, and the price index for computer software and accessories, which is down 10.5% year over year, have all seen prices drop by more than 10% over the past year, while the cost of health insurance, which is now up by 19.7% over the past year, and the price index for window coverings, which has risen 11.1% from a year ago, are the only line items to have increased by a double digit magnitude over that span....  

Producer Prices Rose 0.4% in May on Higher Energy and Food Prices

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.4% in May, as prices for finished wholesale goods averaged 1.6% higher, while margins of final service providers averaged 0.2% lower...that followed 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 March report that had the PPI down 0.2%, as prices for finished wholesale goods averaged 1.0% lower, while average margins of final services providers increased by 0.2%, a now revised February report that showed the PPI had fallen 0.4%, with prices for finished wholesale goods averaging 0.9% lower, while average margins of final services providers fell by 0.2%, and a re-revised January report that indicates the PPI had risen 0.3%, as prices for finished wholesale goods had been on average 0.3% higher, while margins of final services providers also increased by 0.3%...on an unadjusted basis, producer prices are still 0.8% lower than a year ago,  up from the 1.2% 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 0.1% for the month, and is now 0.4% lower than in May a year ago, down from the 0.3% year over year decrease shown in April...

As noted, the price index for final demand for goods, aka 'finished goods', was 1.6% higher in May, after being 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, 0.5% lower in June, and 0.2% lower in May of last year....the finished goods index rose 1.6% in May because the price index for wholesale energy goods was 4.5% higher, after falling by 19.0% in April, 6.7% in March, 3.6% in February but after rising by 0.2% in January, and because the price index for wholesale foods rose 6.0%, after falling 0.5% in April, being unchanged in March, falling 1.6% in February, and being unchanged in January, while the index for final demand for core wholesale goods (excluding food and energy) was unchanged, after falling 0.4% in April, rising 0.2% in March and being unchanged in February...wholesale energy prices were higher due to 43.9% jump in wholesale prices for gasoline and a 54.0% increase in wholesale prices for liquefied petroleum gas, even as wholesale prices for home heating oil fell 34.6%, while the wholesale food price index rose 6.0% on a 69.1% jump in wholesale prices for beef and veal and an 11.4% increase in the wholesale price index for fresh fruits and melons....among wholesale core goods, the wholesale price index for industrial chemicals fell 4.3% and the wholesale price index for office and store machines and equipment fell 1.2%, while wholesale prices for iron & steel scrap rose 11.3% and the wholesale price index for light motor trucks rose 1.2%%..

At the same time, the index for final demand for services fell 0.2% in May, after falling 0.2% in April, rising 0.2% in March, falling a revised 0.2% in February, and rising by a revised 0.3% in January, as the index for final demand for trade services fell 0.8%, the index for final demand for transportation and warehousing services rose 1.5%, and the core index for final demand for services less trade, transportation, and warehousing services was unchanged... among trade services, seasonally adjusted margins for fuels and lubricants retailers fell 13.1%, margins for automobile retailers fell 10.2%, and margins for TV, video, and photographic equipment and supplies retailers fell 9.0%, while margins for RVs, trailers, and campers retailers rose 11.2% ... among transportation and warehousing services, margins for airline passenger services rose 12.2% and margins for air transportation of freight rose 1.4% ...among the components of the core final demand for services index, margins for arrangement of cruises and tours fell 18.2%, and margins for securities brokerage, dealing, investment advice, and related services fell 10.0%, while margins for dental care rose 6.5%, margins for arrangement of vehicle rentals and lodging rose 5.3%, and margins for passenger car rental rose 4.8%…

This report also showed the price index for intermediate processed goods rose 0.1% in May, 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 0.1%, as refinery prices for gasoline rose 43.9% and producer prices for liquefied petroleum gas rose 54.0%, while refinery prices for residual fuels fell 38.9%, refinery prices for jet fuel fell 12.6% and refinery prices for No. 2 diesel fuel fell 16.2%...meanwhile, prices for intermediate processed foods and feeds rose 6.4%, as the producer price index for meats rose 40.4% and the index for processed fruits and vegetables rose 1.4%...at the same time, the core price index for intermediate processed goods less food and energy fell 0.6% as the producer price index for basic organic chemicals fell 5.2% and the producer price index for steel mill products decreased 3.1%... prices for intermediate processed goods are still 6.8% lower than in May a year ago, the 13th 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 8.9% in May, after falling 13.7% in April, 8.0% in March, a revised 7.2% in February and a revised 1.1% in January....that was as the May price index for crude energy goods rose 26.5% as crude oil prices rose 41.6% and as unprocessed natural gas prices rose 36.5%, while the price index for unprocessed foodstuffs and feedstuffs rose 4.5% on a 64.9% increase in producer prices for slaughter chickens and a 41.6% increase in producer prices for slaughter hogs...at the same time, the index for core raw materials other than food and energy materials rose 0.6%, as prices for wastepaper fell rose 18.3%, the price index for unprocessed iron & steel scrap increased 11.3%, and the price of copper base scrap rose 3.3%....this raw materials index is still 19.4% 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 fell 0.4% in May, after falling 1.6% in April, 0.1% in March, a revised 0.2% in February, but rising a revised 0.2% in January...the price index for intermediate trade services was 0.6% higher, as margins for intermediate chemicals and allied products wholesalers rose 1.8% and margins for intermediate machinery and equipment parts and supplies wholesalers rose 1.7%...meanwhile, the index for transportation and warehousing services for intermediate demand was 0.5% higher, as the intermediate price index for transportation of passengers (partial) rose 12.2% and the price index for air transportation of freight rose 1.4%...at the same time, the core price index for intermediate services less trade, transportation, and warehousing was 0.9% lower, as the intermediate price index for securities brokerage, dealing, investment advice, and related services fell 10.0%, the intermediate price index for business loans (partial) fell 9.9%, and the price index for radio advertising time sales fell 25.9%...over the 12 months ended in May, the year over year price index for services for intermediate demand is now 1.6% 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...

Job Openings, Hiring and Firing, and Job Quitting all way down in April

The Job Openings and Labor Turnover Survey (JOLTS) report for April from the Bureau of Labor Statistics estimated that seasonally adjusted job openings fell by by 965,000, from 6,011,000 in March to 5,046,000 job openings in April, after March job openings were revised 180,000 lower, from 6,191,000 to 6,011,000...April’s jobs openings were also 30.7% lower than the 7,284,000 job openings reported for April a year ago, as the job opening ratio expressed as a percentage of the employed fell from 3.8% in March to 3.7% in April, and it was down from 4.6% a year ago...the greatest percentage decrease in April job openings was in the leisure and hospitality sector, where openings fell by 210,000 to 454,000, while job openings in professional and business services fell by 309,000 to 883,000... (details on job openings by industry and region can be viewed in Table 1)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked to at the end of the release...

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in April, seasonally adjusted new hires totaled 3,524,000, down by 1,587,000 from the revised 5,111,000 who were hired or rehired in March, as the hiring rate as a percentage of all employed fell from 3.4% to 2.7%, which was also down from the 4.0% hiring rate in April a year earlier (details of hiring by industry since December are in table 2)....meanwhile, total separations also fell, by 4,755,000, from 14,643,000 in March to 9,888,000 in April, as the separations rate as a percentage of the employed fell from 9.7% in March to 7.5% in April, which was stiil way up from the separations rate of 3,8% in April a year ago (see table 3)...subtracting the total hires of 3,524,000 from the 9,888,000 total separations would imply an decrease of 6,364,000 jobs in April, quite a bit less than the revised payroll job increase of 20,687,000 for April reported by the May establishment survey last week, with only 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 finds that 1,786,000 of us voluntarily quit our jobs in April, down by 1,003,000 from the revised 2,789,000 who quit their jobs in March, while the quits rate, widely watched as an indicator of worker confidence, fell from 1.8% in March to 1.4% in April, which was also down from 2.3% a year earlier (see details in table 4)....in addition to those who quit, another 7,716,000 were either laid off, fired or otherwise discharged in April, down by 3,773,000 from the revised 11,489,000 who were discharged in March, as the discharges rate fell from 7.6% to 5.9% of all those who were employed during the month, which was still way up the 1.3% rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 386,000 in April, up from 366,000 in March, for an 'other separations' rate of 0.3%, up from 0.2% in March and from in April a year ago....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

April Wholesale Sales Down 16.9%, Wholesale Inventories Up 0.3%

The April report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $395.4 billion, down 16.9 percent (+/-0.5%) from the revised March sales level, and down 20.7 percent (±0.7 percent) from wholesale sales of April 2019... the March preliminary sales estimate was revised from the $475.0 billion reported last month to $475,572 million, which meant the February to March percent change was revised from the preliminary estimate of a decrease of 5.2 percent (±0.5 percent) to a decrease of 5.1 percent (±0.5 percent)....as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

On the other hand, the monthly change in private inventories is a major factor in GDP, as any goods on the shelf or in intermediate storage represent goods that were produced but not sold, and this April report estimated that wholesale inventories were valued at a seasonally adjusted $650.4 billion at month end, an increase of 0.3 percent (+/-0.2%) from the revised March level but 2.8 percent (±0.9 percent) lower than in April a year ago, with the March preliminary estimate revised from $650.7 billion to $648.7 billion at the same time, now down 1.1% from February....

That $2.0 billion downward revision to March wholesale inventories will reduce 1st quarter GDP by 0.04 percentage points ..meanwhile, April wholesale inventories, after an adjustment for price changes for each category of wholesale goods as indicated by the components of the April producer price index, appears to indicate a real wholesale inventory increase on the order of 4% heading into the 2nd quarter, which, after the $30.4 billion decrease in real wholesale inventories that was indicated by the key source data and assumptions (xls) in the second 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, June 7, 2020

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

The most crucial economic report released this past week was the Employment Situation Summary for May from the Bureau of Labor Statistics; other major monthly government agency issued reports released during the week included the Commerce Dept’s report on our International Trade in Goods and Services for April, and the April report on Construction Spending (pdf) and the Full Report on Manufacturers' Shipments, Inventories and Orders for April, both from the Census Bureau...in addition, this week also saw the Consumer Credit Report for April from the Fed, which showed that overall consumer credit, a measure of non-real estate personal debt, contracted by a seasonally adjusted $110.5 billion, or at a record 19.6% annual rate, as non-revolving credit contracted at a 4.0% rate to $3,113.5 billion while revolving credit outstanding shrunk at a record 64.9% rate to $1,019.8 billion...

Privately issued reports released this week included the ADP Employment Report for May and the light vehicle sales report for May from Wards Automotive, which estimated that vehicles sold at a 12.21 million annual rate in May, up from the 8.58 million annual rate of sales in April, but down from the 17.31 million annual rate in May a year ago....in addition, this week saw the release of both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the May Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 43.1% in May, up from 41.5% in April, which suggests a slower contraction of manufacturing activity nationally, and the May Non-Manufacturing Report On Business; which saw the NMI (non-manufacturing index) rise to 45.5%, up from a record low of 41.8% in April, indicating a somewhat smaller plurality of service industry purchasing managers reported contraction in various facets of their business in April...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally.

Employers Add 2,509,000 Jobs in May; Unemployment Rate Falls to 13.3%

The Employment Situation Summary for May indicated a rebound in payroll jobs and a decrease in the unemployment rate against consensus expectations for deeper job losses…seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added a record 2,509,000 jobs in May, after the previously estimated payroll job decrease for March was revised from a loss of 881,000 jobs to one of 1,373,000, while the payroll jobs decrease for April was revised from a loss of 20,500,000 jobs to a loss of 20,687,000 jobs…with those revisions, that means that this report still indicates an increase of 1,867,000 more jobs than were reported last month...the unadjusted data shows that there were actually 2,931,000 more payroll jobs extant in May than in April, as typical seasonal job increases in sectors such as construction, services to buildings and dwellings, and leisure and hospitality were reduced to what the BLS considers a normal level by the seasonal adjustments…

Before this report was released, the consensus estimate was that we'd see an additional loss of 8,250,000 jobs in May, so this report left many prognosticators with egg on their faces...some have speculated that the removal of the coronavirus restrictions may have accounted for the surprise employment increase, but this survey was conducted between May 10th and May 16th, when most states were still enforcing widespread lockdowns...more likely is that many companies brought employees back on their payrolls to qualify for loan forgiveness under the Payroll Protection Plan passed earlier by congress, which had the banks dole out thousands of govt guaranteed loans to companies to tide them over through the coronavirus lockdown, with the provision that the loans would be forgiven if their employees were kept on the payroll...the establishment survey counts workers who are paid by their employer for all or any part of the pay period including the 12th of the month as employed, even if they were not actually at their jobs....hence, this reported increase in payroll jobs does not necesssarily mean that more of us were working...whatever the case, weekly unemployment claims and other reports suggested further job losses in May consistent with the estimates, so we'll probably see quite a bit of Monday morning quarterbacking next week as the analysts try to sort it all out...

Seasonally adjusted job increases in May were mostly concentrated in the sectors that saw the big job losses in March and April, with only employment in various branches of government seeing a substantial loss of another 585,000 jobs, 309,900 of which were in local school districts....with a net increase of 1,239,000 jobs, the leisure and hospitality sector accounted for more than half of the May job gain, with an increase of 1,370,600 employees working in bars and restaurants partly offset by a loss of 148,000 jobs in accommodation....seasonally adjusted construction employment rose by 464,000 in May, with 164,900 of those construction jobs added by nonresidential specialty trade contractors and another 160,400 added by residential specialty trade contractors.…employment in health care and social assistance rose by 390,700, with the return of 244,800 jobs in dentist's offices, and 71,200 jobs in offices of health practitioners other than dentists or doctors...the retail sector added 367,800 jobs, led by 84,700 returning jobs with auto dealers and 84,000 more jobs with general merchandise retailers...272,000 jobs gains were seen by "other services", with 182,300 employed by personal and laundry services….manufacturing employment rose by 225,000, led by 29,800 jobs in the production of plastics and rubber products, 27,700 jobs in the manufacture of motor vehicles and parts, and 24,900 jobs in food manufacturing....the broad professional and business services sector added back 127,000 jobs, as 68,400 found employment with  in services to buildings and dwellings and 39,100 jobs were added by temporary help employment services...in addition, job increases of 33,400 were seen in private education, 33,000 in financial activities, and 24,100 in wholesale trade, while sectors losing jobs included 38,000 in information, 20,000 in resource extraction, 19,000 in transportation and warehousing, and 2,300 with utilities....

Reflecting the return of lower paid workers, the establishment survey also showed that average hourly pay for all employees fell by 29 cents an hour to $29.75 an hour in May, after it had increased by $1.35 cents an hour in April; at the same time, the average hourly earnings of production and non-supervisory employees decreased by 14 cents to $25.00 an hour....employers also reported that the average workweek for all private payroll employees gained a half hour to 34.7 hours in May, while hours for production and non-supervisory personnel was up six-tenths of an hour to 34.1  hours...meanwhile, the manufacturing workweek rose eight-tenths of a hour to 38.9 hours, while average factory overtime rose three-tenths of a hour to 2.4 hours...

Meanwhile, the seasonally adjusted extrapolation from the May household survey estimated indicated that the number of those who were employed rose an estimated 3,839,000 to 137,242,000, while the similarly estimated number of those who were unemployed fell by 2,093,000 to 20,985,000; which thus meant a rounded increase of 1,746,000 in the total labor force...since the working age population had grown by 151,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by 1,595,000 to 101,820,000....meanwhile, the big increase of those in the labor force as a percentage of the increasing working age population was enough to raise the labor force participation rate from 60.2% to 60.8%....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 51.3% to 52.8%...in addition, the decrease in the number counted as unemployed was enough to lower the unemployment rate from 14.7% to 13.3%...meanwhile, the number who reported they were involuntarily working part time fell by 254,000 to 10,633,000 in May, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from a record high of 22.8% in April to 21.2% in May...

The BLS provides us with a few caveats on that household survey data, which we'll just excerpt from here:

The household survey is generally collected through in person and telephone interviews, but personal interviews were not conducted for the safety of interviewers and respondents. The household survey response rate, at 67 percent, was about 15 percentage points lower than in months prior to the pandemicIn the household survey, individuals are classified as employed, unemployed, or not in the labor force based on their answers to a series of questions about their activities during the survey reference week (May 10th through May 16th). Workers who indicate they were not working during the entire survey reference week and expect to be recalled to their jobs should be classified as unemployed on temporary layoff.  In May, a large number of persons were classified as unemployed on temporary layoff. However, there was also a large number of workers who were classified as employed but absent from work. As was the case in March and April, household survey interviewers were instructed to classify employed persons absent from work due to coronavirus-related business closures as unemployed on temporary layoff. However, it is apparent that not all such workers were so classified. BLS and the Census Bureau are investigating why this misclassification error continues to occur and are taking additional steps to address the issue. If the workers who were recorded as employed but absent from work due to “other reasons” (over and above the number absent for other reasons in a typical May) had been classified as unemployed on temporary layoff, the overall unemployment rate would have been about 3 percentage points higher than reported (on a not seasonally adjusted basis). However, according to usual practice, the data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reclassify survey responses.

Hence, as with the establishment survey, we can expect to see quite a bit of rehashing of the household survey next week as the analysts try to sort it all out. ..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 directly from there...note that almost every paragraph in that release points to one or more of the tables that are linked to on the bottom of the release, and those tables are also on a separate html page here that you can open it along side the press release to avoid the need to scroll up and down the page..   

April Trade Deficit Increases 16.7% After March Trade Deficit Revised 4.7% Lower

Our trade deficit was 16.7% greater in April, as both our imports and exports decreased, but our exports decreased by more...the Commerce Dept report on our international trade in goods and services for April indicated that our seasonally adjusted goods and services trade deficit rose by a rounded $7.1 billion to $49.4 billion in April, from a March deficit that was revised from the originally reported $44.4 billion to $42.3 billion, a revision which would normally result in an upward revision of about 0.13 percentage points to 1st quarter GDP when the third estimate is released at the end of June;  however, this month’s report reflects revised statistics on trade in goods on both a Census basis and a balance of payments (BOP) basis going back to 2015, and revised statistics on trade in services beginning with 1999, so the 4th quarter basis for 1st quarter growth in trade would also need to be revised to determine the ultimate impact...

In rounded numbers, the value of our April exports fell by $38.9 billion, or 20.5%, to $151.3 billion on a $32.2 billion decrease to $95.5 billion in our exports of goods and a $6.7 billion decrease to $55.8 billion in our exports of services, while our imports fell by $26.4 billion, or 13.7% to $167.4 billion on a $26.4 billion decrease to $167.4 billion in our imports of goods and a $5.4 billion decrease to $33.3 billion in our imports of services...export prices averaged 3.3% lower in April, which would mean that real exports would be relatively greater than their nominal value by that percentage, while import prices were 2.6% lower, meaning that our real imports were likewise greater than their nominal change in value by that percentage..

The decrease in our April exports of goods came about largely as a result of lower exports of capital goods, of industrial supplies and materials and of automotive goods.....referencing the Full Release and Tables for April (pdf), in Exhibit 7 we find that our exports of capital goods fell by $10,115 million to $32,349 million on a $2,189 million decrease in our exports of engines for civilian aircraft, a $2,072 million decrease in our exports of civilian aircraft, a $961 million decrease in our exports of industrial machines other than those itemized separately, an $867 million decrease in our exports of electrical apparatuses, a $618 million decrease in our exports of parts for civilian aircraft, a $504 million decrease in our exports of industrial engines, a $431 million decrease in our exports of telecommunications equipment, and a $422 million decrease in our exports of measuring, testing, control instruments...at the same time, our exports of industrial supplies and materials fell by $9,133 million to $33,903 million on a $1,980 million decrease in our exports of crude oil, a $1697 million decrease in our exports of fuel oil, a $822 million decrease in our exports of petroleum products other than fuel oil, a $487 million decrease in our exports of industrial supplies other than those itemized separately, a $452 million decrease in our exports of plastic materials, a $449 million decrease in our exports of finished metal shapes, and a $328 million decrease in our exports of natural gas liquids...meanwhile, our exports of automotive vehicles, parts, and engines fell by $7,374 million to $3,826 million on a $2588 million decrease in our exports of parts and accessories of vehicles other than engines, chassis, and tires, a $2448 million decrease in our exports of passenger cars, a $1233 million decrease in our exports of trucks, buses, and special purpose vehicles, and a $919 million decrease in our exports of automotive engines and engine parts...in addition, our exports of consumer goods fell by $4,399 million to $10,387 million on a $717 million decrease in our exports of cell phones, a $689 million decrease in our exports of gem diamonds, and a $495 million decrease in our exports of art, antiques, and other collectibles, our exports of foods, feeds and beverages fell by $44 million to $10,739 million despite a $396 million increase in our exports of soybeans, and our exports of other goods not categorized by end use fell by $904 million to $4,412 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and indicates that lower imports of automotive goods, or capital goods, and of consumer goods were largely responsible fo the April decrease in our imports...our imports of automotive vehicles, parts and engines fell by $14,557 million to $13,345 million on a $6,853 million decrease in our imports of new and used passenger cars, a $4,131 million decrease in our imports of parts and accessories of vehicles other than engines, chassis, and tires, a $2,301 million decrease in our imports of trucks, buses, and special purpose vehicles, and a $1089 million decrease in our imports of automotive engines and engine parts...meanwhile, our imports of capital goods fell by $5,351 million to $48,171 million on a $1442 million decrease in our imports of semiconductors, a $765 million decrease in our imports of electric apparatuses. a $727 million decrease in our imports of civilian aircraft, a $684 million decrease in our imports of civilian aircraft engines,  a $502 million decrease in our imports of parts for civilian aircraft, a $411 million decrease in our imports of generators and accessories and a $403 million decrease in our imports of measuring, testing, control instruments...at the same time, our imports of consumer goods fell by $3,096 million to $43,792 million on a $1,176 million decrease in our imports of pharmacueticals, a $1,088 million decrease in our imports of cotton apparel and household goods, a $757 million decrease in our imports of gem diamonds, a $625  million decrease in our imports of jewelry, and a $454 million decrease in our imports of art, antiques, and other collectibles...in addition, our imports of foods, feeds, and beverages fell by $767 million to $12,062 million and our imports of other goods not categorized by end use fell by $2310 million to $7,552 million...on the other hand, our imports of industrial supplies and materials rose by $299 million to $41,423 million on a $4,457 million increase in our imports non-monetary gold and a $3057 million increase in our imports of finished metal shapes, which were mostly offset by a $3,870 million decrease in our imports crude oil, $1,513 million decrease in our imports of petroleum products other than fuel oil, and a $589 million decrease in our imports of precious metals other than gold..

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

The April figures show surpluses, in billions of dollars, with South and Central America ($2.9), OPEC ($1.4), Brazil ($0.8), Saudi Arabia ($0.3), and Hong Kong (less than $0.1). Deficits were recorded, in billions of dollars, with China ($26.0), European Union ($14.3), Germany ($4.0), Japan ($3.6), Mexico ($3.3), South Korea ($2.3), Taiwan ($2.2), Italy ($2.0), India ($1.9), France ($1.4), Singapore ($1.1), Canada ($0.4), and United Kingdom ($0.4).

  • • The deficit with China increased $9.0 billion to $26.0 billion in April. Exports increased $2.1 billion to $9.3 billion and imports increased $11.0 billion to $35.2 billion.
  • • The surplus with South and Central America decreased $2.1 billion to $2.9 billion in April. Exports decreased $4.3 billion to $8.7 billion and imports decreased $2.2 billion to $5.8 billion.
  • • The deficit with Mexico decreased $5.6 billion to $3.3 billion in April. Exports decreased $7.0 billion to $12.4 billion and imports decreased $12.6 billion to $15.8 billion.

To gauge the impact of April’s trade on 2nd quarter growth, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2012 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference being that they are not annualized in the table here...from this table, we can figure that 1st quarter real exports of goods averaged 147,392 million monthly in 2012 dollars, while April’s inflation adjusted exports were at 113,820 million in that same 2012 dollar quantity index representation... annualizing the change between those two figures, we find that April's real exports of goods were falling at a 64.4% annual rate from those of the 1st quarter, or at a pace that would subtract about 7.55 percentage points from 2nd quarter GDP if it were continued through May and June.....from that same table, we can figure that our 1st quarter real imports averaged 221,310 million monthly in chained 2012 dollars, while inflation adjusted April imports were at 193,800 million in that same 2012 dollar representation...that would indicate that so far in the 2nd quarter, our real imports have decreased at a 41.2% annual rate from those of the 1st quarter...since imports are subtracted 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 41.2% rate would conversely add 6.22 percentage points to 2nd quarter GDP....hence, if the April trade deficit is maintained at the same level throughout the 2nd quarter, our deteriorating balance of trade in goods would subtract about 1.33 percentage points from the growth of 2nd quarter GDP....note that we have not estimated the impact of the change in services here because the Census does not provide handy inflation adjusted data on those, but that with our nominal exports of services down $6.7 billion while our imports of services were down $5.4 billion, we can expect our deterioration balance of services trade to also have a negative impact on 2nd quarter GDP...

Construction Spending Down 2.9% in April After Prior Months Revised Much Higher

The Census Bureau's report on construction spending for April (pdf) estimated that the month's seasonally adjusted construction spending was at a $1,346.2 billion annual rate during the month, down 2.9 percent (±0.8 percent) from the revised March annualized rate of $1,386.6 billion, but 3.0 percent (±1.5 percent) above the estimated annualized level of construction spending in April of last year...the annualized March construction spending estimate was revised 1.9% higher, from $1,360.5 billion to $1,386.6 billion, while the annual rate of construction spending for February was revised 2.8% higher, from $1,348.4 billion to $1,386.3 billion...taken together, those revisions would suggest an upward revision of around 0.54 percentage points to 1st quarter GDP when the third estimate is released at the end of June...

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

  • Private Construction Spending on private construction was at a seasonally adjusted annual rate of $1,004.1 billion, 3.0 percent (±0.7 percent) below the revised March estimate of $1,035.6 billion. Residential construction was at a seasonally adjusted annual rate of $536.8 billion in April, 4.5 percent (±1.3 percent) below the revised March estimate of $561.9 billion. Nonresidential construction was at a seasonally adjusted annual rate of $467.3 billion in April, 1.3 percent (±0.7 percent) below the revised March estimate of $473.6 billion.
  • Public Construction In April, the estimated seasonally adjusted annual rate of public construction spending was $342.1 billion, 2.5 percent (±1.5 percent) below the revised March estimate of $351.0 billion. Educational construction was at a seasonally adjusted annual rate of $78.6 billion, 2.3 percent (±1.5 percent) below the revised March estimate of $80.4 billion. Highway construction was at a seasonally adjusted annual rate of $106.1 billion, 5.2 percent (±4.6 percent) below the revised March estimate of $111.9 billion

This construction spending report is used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and as government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of April's construction spending reported in this release on 2nd quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...there are many different price indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf) that are used by the BEA to make those inflation adjustments, so in lieu of trying to adjust for price changes for all of those types of construction separately, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed for an estimate...that index showed that aggregate construction costs were up 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 April construction costs were roughly 0.6% greater than those of February and 0.7% greater than those of January, and obviously 0.5% greater than those of March...we then use those percentage differences to inflate spending for each of those three months, which is arithmetically the same as deflating April construction spending against the first quarter, for comparison purposes...construction spending in millions of dollars for the first quarter months is given as 1,386,579 for March, 1,386,266 for February, and 1,382,963 for January...thus to find the difference between April's inflation adjusted construction spending and the adjusted construction spending of the first quarter, our formula becomes: 1,346,166 / (( 1,386,579 * 1.005 + 1,386,266 * 1.006 + 1,382,963 * 1.007) / 3) = 0.96598, meaning real construction spending in April was down roughly 3.4% vis a vis the 1st quarter, or down at a 12.93% annual rate....to figure the potential effect of that change on 2nd quarter GDP,  we take the annualized difference between the first quarter average inflation adjusted construction spending and April's spending as a fraction of the annualized 1st quarter GDP figure, and from that estimate that real April construction spending was falling at a rate that would subtract about 1.20 percentage points from the growth rate of 2nd quarter GDP…

Factory Shipments Down 13.5% in April, Factory Inventories Down 0.4% on Lower Prices

The April Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods fell by $4.0 billion or 0.8 percent to $499.3 billion in April, following a decrease of 11.0% to $441.8 billion in March, which was revised from the 10.3% decrease to $445.8 billion reported for March last month....however, the Census Bureau does not even collect data on new orders for non durable goods for this widely watched "factory orders report", and uses non-durables shipments data instead, which would have to be particularly fraught given the supply chain problems we've had recently...for example, it's likely that there were more orders for household paper products in April than the factories were able to ship, but this report would only count those items that had actually shipped at being ordered..

Given the Census's bureau's questionable method of estimating orders, then, we believe that both the "new orders" and "unfilled orders" sections of this report are really only useful as a revised update to the April advance report on durable goods we reported on 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 April, down three of the last four months, decreased $57.5 billion or 13.0 percent to $384.3 billion, the U.S. Census Bureau reported today. This followed an 11.0 percent March decrease. Shipments, down four consecutive months, decreased $63.6 billion or 13.5 percent to $406.8 billion. This followed a 5.5 percent March decrease. Unfilled orders, down two consecutive months, decreased $17.6 billion or 1.6 percent to $1,107.6 billion. This followed a 2.1 percent March decrease. The unfilled orders-to-shipments ratio was 7.62, up from 6.70 in March. Inventories, down four consecutive months, decreased $2.6 billion or 0.4 percent to $686.5 billion. This followed a 1.1 percent March decrease. The inventories-to-shipments ratio was 1.69, up from 1.46 in March.
  • New orders for manufactured durable goods in April, down three of the last four months, decreased $36.3 billion or 17.7 percent to $168.7 billion, down from the previously published 17.2 percent decrease. This followed a 16.7 percent March decrease. Transportation equipment, also down three of the last four months, led the decrease, $24.3 billion or 48.3 percent to $26.1 billion. New orders for manufactured nondurable goods decreased $21.2 billion or 9.0 percent to $215.6 billion.
  • Shipments of manufactured durable goods in April, down three of the last four months, decreased $42.4 billion or 18.2 percent to $191.2 billion, down from the previously published 17.7 percent decrease. This followed a 5.5 percent March decrease. Transportation equipment, also down three of the last four months, led the decrease, $31.7 billion or 43.1 percent to $41.8 billion. Shipments of manufactured nondurable goods, down four consecutive months, decreased $21.2 billion or 9.0 percent to $215.6 billion. This followed a 5.4 percent March decrease. Petroleum and coal products, also down four consecutive months, led the decrease, $11.9 billion or 32.0 percent to $25.4 billion.
  • Unfilled orders for manufactured durable goods in April, down two consecutive months, decreased $17.6 billion or 1.6 percent to $1,107.6 billion, unchanged from the previously published decrease. This followed a 2.1 percent March decrease. Transportation equipment, also down two consecutive months, led the decrease, $15.7 billion or 2.0 percent to $759.6 billion.
  • Inventories of manufactured durable goods in April, up two consecutive months, increased $0.6 billion or 0.2 percent to $425.3 billion, unchanged from the previously published increase. This followed a 0.5 percent March increase. Transportation equipment, up twenty-one of the last twenty-two months, led the increase, $0.4 billion or 0.3 percent to $143.0 billion. Inventories of manufactured nondurable goods, down four consecutive months, decreased $3.2 billion or 1.2 percent to $261.2 billion. This followed a 3.5 percent March decrease. Petroleum and coal products, also down four consecutive months, drove the decrease, $3.7 billion or 12.1 percent to $27.1 billion. By stage of fabrication, April materials and supplies increased 2.3 percent in durable goods and decreased 1.2 percent in nondurable goods. Work in process decreased 0.7 percent in durable goods and 1.5 percent in nondurable goods. Finished goods decreased 1.2 percent in durable goods and 1.1 percent in nondurable goods.

To estimate the effect of those April factory inventories on 2nd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the total value of finished goods inventories fell by 1.2% to $245,836 million; the value of work in process inventories fell 0.9% to $201,855 million, and the value of materials and supplies inventories rose 0.9% to $238,785 million...the April producer price index reported that prices for finished goods were on average 3.3% lower, that prices for intermediate processed goods were on average 3.7% lower, while prices for unprocessed goods were 13.7% lower....assuming similar valuations for like types of inventories, those lower prices would suggest that April's real finished goods inventories were about 2.1% greater, that real inventories of intermediate processed goods were roughly 2.8% greater, and real raw material inventory inventories were about 14.7% greater, with a caveat on the later that much of raw material price drop in April was in energy goods, the impact of which could be distorted by our simplistic calculation...nonetheless, since real NIPA factory inventories were much lower in the 1st quarter, and this report seems to indicate a large increase in April’s real inventories, it appears that the real change in April factory inventories will have a very large 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…)