Sunday, July 26, 2020

June’s new home sales and existing home sales

There were just two widely watched reports released this past week: the June report on new home sales from the Census bureau and the June 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 June, a weighted composite index of 85 different economic metrics, which rose from a upwardly revised +3.50 in May to +4.11 in June...however, since the CFNAI had fallen to a record low of –17.89 in April, the 3 month average of the index only moved up to –3.49 in June from an upwardly revised –6.36 in May, indicating national economic activity was well below the historical trend during the 2nd quarter...

This week also saw the release of another regional Fed manufacturing survey for July: the Kansas City Fed manufacturing survey for July, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to  +3 in July, up from readings of +1 in June and -19 in May, suggesting a slight recovery from the depression like conditions of early spring

New Home Sales Reported Higher in June After May Sales Revised Higher, April's Sales Revised Lower

The Census report on New Residential Sales for June (pdf) estimated that new single family homes were selling at a seasonally adjusted rate of 776,000 homes annually during the month, which was 13.8 percent (±17.8 percent)* above the revised May rate of 682,000 new single family home sales annually and 6.9 percent (±13.7 percent)* above the estimated annual rate that new homes were selling at in May of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether June new home sales rose or fell from those of May or even from those in June a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....hence, these initial new home sales reports are not very reliable and often see significant revisions...with this report; sales new single family homes in May were revised from the 676,000 annual rate reported last month to a 682,000 a year rate, April's annualized home sale rate, initially reported at 623,000, was revised from last months downward revision of 615,000 down to 571,000, while March's new home sales, at initially reported at an annual rate 627,000, and revised from a 619,000 rate to an annual rate of 612,000 last month, were revised again with this report but remained an annual rate of 612,000...

The annual rates of sales reported here are extrapolated from the estimates of canvassing Census field reps, which indicated that approximately 74,000 new single family homes sold in June, up from the 64,000 new homes that sold in May, the 53,000 new homes that sold in April, and the 59,000 new homes that sold in March....the raw numbers from Census field agents further led to an estimate that the median sales price of new houses sold in June was $329,200, up from the median sale price of $310,200 in May, and up from the median price of $311.800 in June of last year, while the average June new home sales price was $384,700, up from the revised $362,300 average in May, and up from the average sales price of $361,900 in June a year ago....a seasonally adjusted estimate of 307,000 new single family houses remained for sale at the end of June, which represents a 4.7 month supply at the June sales rate, down from the 5.5 month supply in May, which was originally reported as a 5.6 month supply....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 776,000 Annual Rate in June and A few Comments on June New Home Sales...

Existing Home Sales Rise by a Record 20.7% in June; Sales Prices at a Record High

The National Association of Realtors (NAR) reported that seasonally adjusted existing home sales rose by 20.7% from May to June, projecting that 4.72 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was still 11.3% below the annual sales rate projected for June of a year ago...the June home sales rebound came after home sales fell to a 3.91 million annual sales rate in May from an annual home sales rate of 4.33 million in April...the NAR also reported that the median sales price for all existing-home types was at a record high $295,300 in June, up from $283,600 in May and 3.5% higher than the sales price in June a year earlier, which they report as "the 100th straight month of year-over-year gains".....the NAR press release, which is titled "Existing-Home Sales Climb Record 20.7% in June", is in easy to read plain English, so if you're interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate brokerage, local government and banking services are rendered during the selling process..

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 510,000 homes sold in June, up by 37.1% from the 327,000 homes that sold in May, but down by 3.4% from the 528,000 homes that sold in June of last year...that same pdf indicates that the median home selling price for all housing types rose 4.1%, from a revised $283,600 in May to a record $295,300 in June, while the average home sales price was at a record $329,900, up 3.8% from the $317,900 average price in May, and up 2.6% from the $321,400 average home sales price of June a year ago, with the regional average home sales prices ranging from a low of $263,200 in the Midwest to a high of $436,600 in the West, both of which are also record highs...for additional coverage with long term graphs on this report, see "NAR: Existing-Home Sales Increased to 4.72 million in June" and "Comments on June Existing Home Sales" from Bill McBride at Calculated Risk...

 

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

Sunday, July 19, 2020

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

Major reports that were released this week included the June Consumer Price Index from the Bureau of Labor Statistics, the Retail Sales Report for June, the Business Sales and Inventories Report for May, and the June report on New Residential Construction, all from the Census Bureau, and the June report on Industrial Production and Capacity Utilization from the Fed...this week also saw the release of the the June Import-Export Price Index from the BLS, as well as the Regional and State Employment and Unemployment Report for June, 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 July: the Empire State Manufacturing Survey from the New York Fed, which covers New York state, southwestern Connecticut, and northern New Jersey, reported their headline general business conditions index rose from -0.2 in June to +17.2 in July, suggesting a return to brisk growth among First District manufacturers, while the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions fell from +27.5 in June to +24.1 in July, but still suggesting a robust recovery of that region's manufacturing....we should, however, caution against reading too much into these indexes after a widespread lockdown, where some factories were closed entirely, because just turning on a light switch for some of those manufacturers would represent an increase in their activity...

Consumer Prices Rose 0.6% in June on Higher Prices for Gasoline, Food, Clothing, & Car Insurance

The consumer price index rose 0.6% in June, as higher prices for food, clothing, energy, and transportation services were only partly offset by lower prices for communication and for used cars and trucks...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.6% in June, after falling by 0.1% in May, by 0.8% in April and by 0.4% in March, but after 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, rose from 256.394 in May to 257.797 in June, which left it statistically 0.6457% higher than the 256.143 index reading of June of last year, which is reported as a 0.6% year over year increase, up from the 0.1% year over year increase reported a month ago....with higher prices for food and energy major causes of the June CPI jump, seasonally adjusted core prices, which exclude food and energy, rose by 0.2% for the month, as the unadjusted core price index rose from 265.799 to 266.302, which left the core index 1.187% ahead of its year ago reading of 263.177,  which is reported as a 1.2% year over year increase, same as the year over year increase that was reported for May...

The volatile seasonally adjusted energy price index rose 5.1% in June, after falling 1.8% in May, 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 still 12.1% lower than in June a year ago...the price index for energy commodities was 11.7% higher in June, while the index for energy services was 0.2% lower, after fallling 0.5% in May....the energy commodity index was up 11.7% due to a 12.0% increase in the price of gasoline, the largest component, and a 10.2% increase in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average 2.4% higher...within energy services, the price index for utility gas service was unchanged after rising 0.8% in May but is still 0.2% lower than it was a year ago, while the electricity price index fell 0.3% after falling 0.8% in May....energy commodities are still averaging 23.2% lower than their year ago levels, with gasoline prices averaging 23.4% lower than they were a year ago, while the energy services price index is up 0.1% from last June, as electricity prices are 0.1% higher than a year ago…

The seasonally adjusted food price index rose 0.6% in June, after rising 0.7% in May, 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 after being unchanged last June, July & August, as the price index for food purchased for use at home was 0.7% higher in June, after rising 1.0 in May, while the index for food bought to eat away from home was 0.5% higher, as average prices at fast food outlets were 0.5% higher and prices at full service restaurants rose 0.9%, but food prices at employee sites and schools were on average 5.6% lower...

In the food at home categories, the price index for cereals and bakery products was 0.4% higher even though average bread prices fell 0.5%, because the price index for fresh cakes and cupcakes rose 3.5%, the price index for flour and prepared flour mixes rose 2.1%, and the price index for breakfast cereal rose 1.1%....at the same time, the price index for the meats, poultry, fish, and eggs group was 2.0% higher even though egg prices fell 2.4%, as the price index for beef and veal rose 4.8% and the price index for pork was 3.3% higher... on the other hand, the seasonally adjusted index for dairy products was 0.4% lower, as milk prices fell 0.6%, and as the index for dairy products other than cheese and ice cream fell 1.3%...meanwhile, the fruits and vegetables index was 0.4% higher as the price index for fresh vegetables rose 1.3% and the price index for canned fruits and vegetables rose 1.2%...in addition, the beverages index was 0.7% higher as the price index for carbonated drinks rose 2.2% and the price index for coffee rose 1.8%....lastly, the index for the ‘other foods at home’ category was 0.2 higher, as the price index for "other' fats and oils including peanut butter rose 1.2%, soup prices rose 0.6% and the price index for snacks rose 2.1%...the itemized list for price changes of over 100 separate food items is included at the beginning of Table 2 for this release, which also gives us a line item breakdown for prices of more than 200 CPI items overall...since last June, the price index for beef and veal has risen 25.1%,  led by a 26.4% increase in ground beef prices, the price index for pork has risen 11.8% as pork chops are up 23.9%, the price of eggs is up 12.1%, and potato prices have risen 13.3%, while only apple prices have fallen by more than 1% over the past year...

Among the seasonally adjusted core components of the CPI, which rose by 0.2% in June, after falling by by 0.1% in May, by 0.4% in April and by 0.1% in March, but after 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% higher in June, while the more heavily weighted composite for all services less energy services was 0.3% higher....

Among the goods components, which will be used by the Bureau of Economic Analysis to adjust June’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 window and floor coverings and other linens rose 2.1% and the index for bedroom furniture rose 1.6%, while the price index for appliances rose 1.7%....at the same time, the apparel price index was 1.7% higher on a 4.7% increase in the price index for men's suits, sport coats, and outerwear, a 3.3% increase in the price index for boy's apparel, a 6.5% increase in the price index for infants' and toddlers' apparel, and a 2.2% increase 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 0.5% lower even though prices for new cars rose 0.4% because prices for used cars and trucks fell 1.2%, tire prices fell 1.1%, and the price index for motor oil, coolant, and fluids fell 0.6%....meanwhile, prices for medical care commodities were 0.2% higher, as prescription drugs prices rose 0.1% and non-prescription drugs prices fell 0.1% but the seasonal adjustment boosted that to a 0.2% incease...however, the recreational commodities index was 0.1% lower on a 1.9% decrease in TV prices, a 1.0% decrease in the price index for pets and pet products and a 4.6% drop in prices for sewing machines, fabric and supplies, which offset a 2.0% increase in prices for recreational books and a 2.3% increase in the price index for sports vehicles including bicycles...at the same time, the education and communication commodities index was 0.6% lower on a 0.7% decrease in the price index for educational books and supplies, a 2.3% decrease in the price index for computer software and accessories, and a 3.2 decrease in the price index for telephone hardware, calculators, and other consumer information items...lastly, a separate price index for alcoholic beverages was 0.2% higher, and the price index for ‘other goods’ was 0.3% higher on a 1.2% increase in prices for cigarettes and a 3.6% increase in the price index for infants' equipment..

Within core services, the price index for shelter was 0.1% higher as rents rose 0.1% and homeowner's equivalent rent rose 0.1% while prices for lodging away from home at hotels and motels rose 1.4%, 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 0.4% higher on a 1.1% increase in moving, storage, freight expense....meanwhile, the price index for medical care services was 0.5% higher, as the price index for hospital services rose 0.4%, the price index for physicians' services rose 0.5% and the price of health insurance rose 1.0%... at the same time, the transportation services price index was 2.1% higher as the price index for car and truck rental rose 17.5%, airline fares rose 2.6% and vehicle insurance costs rose 5.1%....on the other hand, the recreation services price index fell 0.9% as the index for other recreation services fell 1.8% on a 3.5% drop in the price index for club memberships for shopping clubs, fraternal, or other organizations, and participant sports fees...in addition, the index for education and communication services was 0.1% lower as elementary and high school tuition and fees fell 0.2% and the index for internet services and electronic information providers fell 0.5%....lastly, the index for other personal services was up by 0.5% as the price index for haircuts and other personal care services rose 1.1%, and the index for legal fees was 0.3% higher...

Among core line items, prices for televisions, which are now averaging 15.4% cheaper than a year ago, the price index for telephone hardware, calculators, and other consumer information items, which is down by 14.4% since last June, the price index for rental of video discs and other media, which has fallen 14.3% from a year ago, the price index for women's dresses, which has fallen by 25.8% in the past year, the price index for women's outerwear, which has fallen by 17.6% from a year ago, the price index for men's suits, sport coats, and outerwear, which has fallen by 11.0% in the past year, the price index for sewing machines, fabric and supplies, which is down 11.3% year over year, the price index for lodging away from home including hotels and motels, which has fallen by 16.0% in the past year, prices for car and truck rental, which are down 19.2% in a year's time, motor vehicle insurance, which has fallen 10.1% since last year, airline fares, which are now down by 27.2% since last June, and the price index for computer software and accessories, which is down 14.9% 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 19.4% over the past year, and the price index for infants' equipment, which has risen 11.3% from a year ago, are the only line items to have increased by a double digit magnitude over that span....  

June Retail Sales Up 7.5% After May Sales Revised 0.5% Higher

Seasonally adjusted retail sales rose 7.5% in June after retail sales for April and May were revised higher....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $524.3 billion during the month, which was a increase of 7.5 percent (±0.5%) from May's revised sales of $487.7 billion, and 1.1 percent (±0.7 percent) above the adjusted sales of June of last year...May's seasonally adjusted sales were revised from the $485.5 billion reported last month to $487.7 billion, while April's adjusted sales were also revised higher, from $412.6 billion to $412.766 billion, and hence the change from April to May was revised to an increase of 18.2% from the 17.7% increase reported a month ago....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 4.5% in June, from $507,477 million in May to $530,442 million in June, while they were up 2.3% from the $518,273 million of sales in June a year ago...

Included below is the table of the monthly and yearly percentage changes in sales by business type taken from the Census retail sales pdf....the first pair of columns below gives us the seasonally adjusted percentage change in sales for each type of retail business from May to June and the year over year percentage change for those businesses since last June; the second pair of columns gives us the revised figures for May's report, with April to May and the May 2019 to May 2020 change shown; for your reference, our copy of this table as it appeared in the May report, before this month's revisions, is here....lastly, the third pair of columns shows the percentage change of the recent 3 months of sales (April, May and June) from the preceding three months (January, February and March) and from the same three months of a year ago....

June 2020 retail sales table

The figures shown in that fifth column above, ie, comparing sales of April, May and June to those of January, February and March, give us a quick sense of how the change in retail sales will impact the change in 2nd quarter GDP....as you can see, even though June's sales were above those of a year ago, nominal retail sales for the three months of the second quarter were down 7.5% from the first three months of this year...that's a decrease at a 26.8% annual rate, even before the recent month sales are adjusted for inflation, putting us well on our way to the largest quarterly GDP percentage drop on record...

To compute June's real personal consumption of goods data for national accounts from this June retail sales report, the BEA will use the corresponding price changes from the June consumer price index, which we reviewed earlier…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 June'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 June'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 clothing stores rose 105.1% in June, the apparel price index was 1.7% higher at the same time, which means that the increased cash outlay bought less clothing in June, and hence real sales of clothing for national accounts purposes "only" rose by 101.7%....also note that the 15.3% increase in sales at gas stations was largely driven by the 12.0% increase in the price of gasoline, and as we can see on the third line on the above table, June retail sales excluding that jump in sales at gas stations were up by 7.0%....

Another reason to be cautious about reading too much into the rebound in retail sales is that not all of it will make it to the bottom line of GDP...for instance, if the increase in auto sales largely 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 the increased furniture, TVs and clothing sales in May and June 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 were not; some hospitals were still restricting elective procedures, jet fuel demand was still down by around 60%, no baseball was being played in June, restaurant traffic was still down by a quarter and hotel occupancy was still down by more than a third...

Industrial Production Rose 5.4% in June, But Was Still Down 10.8% from a Year Ago

The Fed's G17 release on Industrial production and Capacity Utilization for June reported that seasonally adjusted industrial production rose 5.4% in June after rising by 1.4% in May but after falling by a revised 12.7% in April, and is now down by 10.8% from a year ago, after falling at a 42.6% annual rate in the 2nd quarter, largest quarterly decrease since the industrial retrenchment after World War II...to the extent that this report plays into GDP, that 2nd quarter decrease suggests a net subtraction from GDP of that magnitude across the components that this report covers...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose from 92.5 in May to 97.5 in June, after the May reading for the IP index was revised down from 92.6 to 92.5, the April index was revised from 91.3 to 109.2, the March reading was revised up from 104.4 to 104.5, and the February index was revised down from 109.4 to 109.3...

The manufacturing index, which accounts for around 77% of the total IP index, increased by 7.2% in June, from 87.0 in May to 93.3 in June, driven by a 105.0% increase in output of motor vehicles and parts, as the auto industry continued to reopen after the April lockdown...the May manufacturing index was revised from the 87.2 published last month to 87.0, the April manufacturing index was revised from 84.0 to 83.8, the March index was revised from 99.4 to 99.6, and the February manufacturing index was revised from 105.0 to 104.9, while the manufacturing index was down 11.2% from a year ago....meanwhile, the mining index, which includes oil and gas well drilling, decreased for the 6th consecutive month, falling from 114.4 in May to 111.0 in June, after the May index was revised up from the originally reported 114.3, which still leaves it 16.9% lower than it was a year ago....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, rose 4.2% to 101.5 June, after the May index was revised up from 96.8 to 97.4, which leaves the utility index 0.6% above its year earlier reading...

This report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 68.6% in June from 65.1% in May, after capacity utilization for May was revised up from the 64.8% reported a month ago....capacity utilization for all manufacturing industries rose from 62.3% to 66.9%, after manufacturing utilization for May was revised up from 62.2%, as capacity utilization by NAICS durable goods production facilities rose from 57.6% in May to 64.3% in June, while capacity utilization for NAICS non-durable producers rose from 68.2% to 70.6%....but capacity utilization for the mining sector fell to 75.0% in June, from 77.0% in May, which was originally reported as 75.4%, while utilities were operating at 72.3% of capacity during June, up from a revised 69.5% May, which was originally published as 69.1%...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 Construction and Building Permits Rebound in June

The June report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,186,000 in June, which was 17.3 percent (±11.0 percent)* above the revised May estimated annual rate of 1,011,000 units started, but was 4.0 percent (±9.1 percent)* below last June's pace of 1,235,000 housing starts a year...the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell from a year ago, with the figure in parenthesis the most likely range of the change indicated; in other words, June's housing starts could have been up by 5.1% or down by as much as 13.1% from those of a year ago, with revisions outside of that range eventually possible...in this report, the annual rate for May housing starts was revised from the 974,000 units reported last month to 1,011,000, while April starts, which were first reported at a 891,000 annual rate, were revised from a month ago but remained unchanged from the initial revised figure of 934,000 annually...

The annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by Census field agents, which estimated that 112,200 housing units were started in June, up from the 92,800 units started in May but down from the 115,100 units started in June of a year ago...of those housing units started in June, an estimated 81,600 were single family homes and 30,200 were units in structures with more than 5 units, up from the revised 65,900 single family starts in May, and up from the the 26,200 units started in structures with more than 5 units in May...

The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and broadly revised housing starts data...in June, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,241,000 housing units, which was 2.1 percent (±1.2 percent) above the revised May rate of 1,216,000 permits, but was 2.5 percent (±1.7 percent) below the rate of building permit issuance in June a year earlier...the annual rate of housing permits issued in May was revised from the 1,220,000 reported last month to 1,216,000....

Again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 122,200 housing units were issued in June, up from the revised estimate of 104,400 new permits issued in May...the June permits included 83,600 permits for single family homes, up from 66,100 in May, and 34,800 permits for housing units in apartment buildings with 5 or more units, down from 35,100 such multifamily permits a month earlier... for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.186 Million Annual Rate in June and Comments on June Housing Starts...

Business Sales Up 8.4% in May, Business Inventories Down 2.3%

Following the release of the June retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for May(pdf), which incorporates the revised May retail data from that June report and the previously published wholesale and factory data for May to give us a complete picture of the business contribution to the economy for that month....according to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,284.3 billion in May, up 8.4 percent (±0.3 percent) from April’s revised sales, but down 11.8 percent (±0.3percent) from May sales of a year earlier...note that total April sales were revised from the originally reported $1,184.8 billion to $1,184.954 billion but the decrease from March remained unchanged at -14.4%... manufacturer's sales were up 3.1% from April at $417,020 million in May, and retail trade sales, which exclude restaurant & bar sales from the revised May retail sales reported earlier, rose 17.1% to $448,201 million, while wholesale sales rose 5.4% to $419,097 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,933.7 billion at the end of May, down 2.3 percent (±0.1%) from April, and 4.8 percent (±0.4 percent) lower than in May a year earlier...the value of end of April inventories were revised to $1,979.7 billion from the $1,981.2 billion reported last month, now a 1.4% decrease from March...seasonally adjusted inventories of manufacturers were estimated to be valued at $687,016 million, 0.2% more than in April, while inventories of retailers were valued at $604,180 million, 6.2% less than in April, and inventories of wholesalers were estimated to be valued at $642,541 million at the end of May, down 1.2% from April...

In national accounts reports, the various categories of business inventories will be adjusted for price changes using item appropriate price indexes from the producer price index....with the release of wholesale inventories data last week, we figured there would be a real decrease wholesale inventory on the order of 2.8% in May wholesale inventories, following a real wholesale inventory increase on the order of 4% we had figured for April, but that because 1st quarter GDP wholesale inventories were deeply negative, any positive 2nd quarter real inventories would have a substantial positive impact on the growth rate of 2nd quarter GDP....likewise, the inflation adjusted factory inventory data from the prior week indicated a real decrease, following a real increase in April, but again because first quarter factory inventories were negative, we felt 2nd quarter factory inventories would still have a notable positive impact on the growth rate of 2nd quarter GDP....however, with prices for finished goods on average 1.6% higher in May on top of the nominal 6.2% decrease in May’s retail inventories, this report suggests that real retail inventories have decreased at a rate near 7.7% in May, following a modest decrease of around 0.4% in April....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 decreases in April and May retail inventories would thus have a substantial negative impact on 2nd quarter GDP, at least 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, July 12, 2020

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

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

July 9 2020 revolving consumer credit

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

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

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

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

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in May, seasonally adjusted new hires totaled a series high 6,487,000, up by a record 2,440,000 from the revised 4,047,000 who were hired or rehired in April, as the hiring rate as a percentage of all employed rose from 3.1% to 4.9%, which was also up from the hiring rate of 3.8% in May a year earlier (details of hiring by industry since January are in table 2)…note that most of the May increase in hiring represents those  who were laid off in March or April, as this release reports those who are called back as a rehiring....meanwhile, total separations fell by a record by 5,830,000, from 9,975,000 in April to 4,145,000 in May, while the separations rate as a percentage of the employed fell from 7.6% in April to 3.1% in May, which was also down from the separations rate of 3.7% in May a year ago (see table 3)...subtracting the 4,145,000 total separations from the total hires of 6,487,000 would imply an increase of 2,342,000 jobs in May, somewhat short of the revised payroll job increase of 2,699,000 for May reported by the June establishment survey last week, with at least some of that difference likely due to the difference in the date of the surveys, which is at month end for this report but is during the week of the 12th for the employment situation......

Breaking down the seasonally adjusted job separations, the BLS reports that 2,067,000 of us voluntarily quit their jobs in May, up by 190,000 from the revised 1,877,000 who quit their jobs in April, while the quits rate, widely watched as an indicator of worker confidence, rose from 1.4% to 1.6% of total employment, while it was still down from 2.3% a year earlier (see details in table 4)....in addition to those who quit, another 1,796,000 were either laid off, fired or otherwise discharged in May, down by 5,912,000 from the revised 7,708,000 who were discharged in April, as the discharges rate fell from 5.9% to 1.4% of all those who were employed during the month, but was still up from the 1.2% discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 282,000 in May, down from 390,000 in April, for an 'other separations' rate of 0.2%, down from 0.3% in April but the same as in May of a year ago....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release...

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

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

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

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

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

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

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

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

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

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

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

 

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

Sunday, July 5, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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