Sunday, August 30, 2020

2nd estimate of 2nd quarter GDP; July’s income and outlays, durable goods, & new home sales

The key economic reports that were released this week were the 2nd estimate of 2nd quarter GDP and the July report on Personal Income and Spending, both from the Bureau of Economic Analysis ....the week also saw the release of the July advance report on durable goods and the July report on new home sales, both from the Census Bureau, the S&P CoreLogic Case-Shiller Home Price Index for June from S&P Case-Shiller, which is an index derived from the relative average of home sales prices, and which reported that home prices nationally for April, May and June averaged 4.3% higher than the prices for the same homes that sold during the same 3 month period a year earlier, and the Chicago Fed National Activity Index (CFNAI) for July, a weighted composite index of 85 different economic metrics, which fell to +1.18 in July, down from a revised +5.33 in June...however, the 3 month average of the CFNAI rose to +3.59 in July, up from –2.78 in June, which would indicate national economic activity has been well above the historical trend over those recent months...

In addition, this week saw the release of two more regional Fed manufacturing surveys for August: 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 from +10 in July to +18 in August, suggesting an ongoing expansion of that region's manufacturing, and the Kansas City Fed manufacturing survey for August, which covers western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico; they reported their broadest composite index rose to +14 in August, up from readings of +3 in July and +1 in June, also suggesting a pickup in that region's manufacturing...

2nd Quarter GDP Revised to Show Our Economy Shrunk at a 31.7% Rate

The Second Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 31.7% annual rate in the 2nd quarter, revised from the 32.9% contraction rate reported in the advance estimate last month, as personal consumption expenditures, private fixed investment, inventories, and exports all shrunk less than was previously estimated, while prices for goods and services fell by more than was previously indicated, meaning there was correspondingly more real output for the dollars spent....in current dollars, our second quarter GDP fell at a 33.28% annual rate, decreasing from what would work out to be a $21,561.1 billion a year rate in the 1st quarter to a $19,486.5 billion annual rate in the 2nd quarter, with the headline 31.7% annualized rate of decrease in real output arrived at after annualized GDP inflation adjustments averaging minus 2.0% were computed and applied to the current dollar change of the components, revised from the negative 1.8% GDP deflator indicated by the advance report..

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 that’s roughly 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 are then used as quantity indexes, rather 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 second 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 3rd 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 the inflation adjusted value in 2012 dollars of each of those 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 advance estimate, which this estimate revises, is here...

The decrease of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 34.6% contraction rate reported last month to indicate PCE shrunk at a 34.1% rate in this month’s estimate…that PCE contraction figure was arrived at by deflating the 35.3% contraction rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation shrunk at a 1.8% annual rate in the 2nd quarter, revised from the minus 1.9% PCE inflation rate published a month ago...real consumption of durable goods fell at a 1.3% annual rate, which was revised from the 1.4% decrease shown in the advance report, but added 0.03 percentage points to GDP, as increases in real consumption of automobiles and recreational goods and vehicles offset the decreases in furniture, appliances and other durable goods....meanwhile, real consumption of nondurable goods by individuals shrunk at a 14.9% annual rate, revised from the 15.9% increase reported in the 1st estimate, and subtracted 2.02 percentage points from the 2nd quarter's economic growth, as real decreases in consumption of clothing and energy goods accounted for nearly 90% of the quarter's drop….at the same time, consumption of services shrunk at a 43.1% annual rate, revised from the 43.5% contraction rate reported last month, and subtracted 22.77 percentage points from the final GDP figure, as health care services, recreation services, and food services and accommodation all fell at rates exceeding 50%...

At the same time, seasonally adjusted real gross private domestic investment shrunk at a 46.2% annual rate in the 2nd quarter, revised from the 49.0% contraction estimate reported last month, as real private fixed investment fell at a 28.9% rate, rather than at the 29.9% rate reported in the advance estimate, while business and farm inventories fell by less than had been previously estimated...real investment in non-residential structures was revised from shrinking at a 27.0% rate to shrinking at a 26.0% rate, while real investment in equipment was revised to show it contracted at a 33,4% rate, revised from the 34.9% contraction rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from shrinking at a 7.2% rate to shrinking at a 7.7% rate, and the contraction in real residential investment was revised from shrinking at a 38.7% annual rate to shrinking at a 37.9% rate…after those revisions, the contraction in investment in non-residential structures subtracted 1.10 percentage points from the increase in 2nd quarter GDP and the decrease in investment in equipment subtracted 2.02 percentage points from the quarter's growth, while the decrease in investment in intellectual property subtracted 0.35 percentage points and the decrease in residential investment subtracted 1.72 percentage points from the 2nd quarter's growth rate...

Meanwhile, the drop in real private inventories was revised from the originally reported $315.5 billion in inflation adjusted dollars to show inventories decreased at an inflation adjusted $286.4 billion rate...this came after inventories had shrunk by an inflation adjusted $80.9 billion rate in the 1st quarter, and hence the $205.5 billion negative change in real inventories from those of the 1st quarter subtracted 3.46 percentage points from the 2nd quarter's growth rate, revised from the 3.98 percentage point subtraction due to inventory shrinkage shown in the advance 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 an adjusted $205.5 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 fell at a 28.5% rate in the 2nd quarter, revised from the 29.3% rate of decrease shown in the advance estimate...

The previously reported decrease in real exports was a bit less with this estimate, while the previously reported decrease in real imports was revised higher, and as a result our net trade was a larger addition to GDP than was previously reported...our real exports of goods and services shrunk at a 63.2% rate in the 1st quarter, revised from the 64.1% shrinkage rate shown in the first 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 9.22 percentage points from the 1st quarter's growth rate, revised from the 9.38 subtraction shown last month...meanwhile, the previously reported 53.4% decrease in our real imports was revised to a 54.0% 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 10.12 percentage points to 1st quarter GDP, revised from the 10.06 percentage point addition shown a month ago....thus, the improving US trade balance that accompanied the collapse in global trade added a rounded 0.90 percentage points to 2nd quarter GDP, up from the 0.68  percentage point addition resulting from an improving foreign trade balance that was indicated by the advance estimate..

Finally, there was a small upward revision to real government consumption and investment in this 2nd estimate, as the entire government sector is now shown growing at a 2.8% rate, revised from the 2.7% growth rate for government indicated by the 1st estimate....real federal government consumption and investment was seen to have grown at a 17.6% rate from that of the 1st quarter in this estimate, which was revised from the 17.4% growth rate shown in the 1st estimate, as real federal outlays for defense grew at a 4.2% rate, revised from the previously reported 4.1% growth and added 0.08 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 40.1% rate, revised from last month's 39.7% rate, and added 1.03 percentage points to GDP....meanwhile, real state and local consumption and investment shrunk at a 5.5% rate in the quarter, revised from the 5.6% contraction rate shown in the 1st estimate, and subtracted 0.41 percentage points from 2nd quarter GDP, which was revised from the 0.40 percentage point subtraction shown in the advance 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...

July Personal Income Up 0.4%, Personal Spending Up 1.9%, PCE Price Index Up 0.3%

The monthly report on Personal Income and Outlays from the Bureau of Economic Analysis is one of the most important regular economic release we see monthly, since each monthly report on personal consumption expenditures (PCE) accounts for roughly 23% of its quarter's GDP by itself...moreover, this report also computes 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, and reports monthly personal income data, disposable personal income, which is income after taxes, and our monthly national 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, the figure are seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much income and spending would change over a year if July'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 June to July..

Thus, when the opening line of the press release for the July report tell us "Personal income increased $70.5 billion (0.4 percent) in July", they mean that the annualized figure for seasonally adjusted personal income in July, $20,042.7 billion, was $70.5 billion, or somewhat less than 0.4% greater than the annualized personal income figure of $19,972.2 billion extrapolated for June; the actual, unadjusted change in national personal income from June to July, which is an order of magnitude lower, is not given...at the same time, annualized disposable personal income, which is income after taxes, rose by more than 0.2%, from an annual rate of $17,841.6 billion in June to an annual rate of $17,881.5 billion in July....the monthly contributors to the increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in July, the reasons for the $70.5 billion annual rate of increase in personal income were an annualized $125.5 billion increase in wages and salaries and an annualized $34.4 billion increase in non-farm business proprietors income, which were partially offset by an annualized $84.1 billion decrease in personal current transfer receipts from government programs…

For the personal consumption expenditures (PCE) that will be included in 3rd quarter GDP, BEA reports that they increased at $267.6 billion rate, or by 1.9% from June, as the annual rate of PCE rose from $13,931.9 billion in June to $14,199.5 billion in July....June's PCE was revised from $13,851.2 billion annually to $13,931.9 billion, while PCE for the months going back to April were also revised as well, all of which were already included in the revised 2nd estimate of 2nd quarter GDP which we reviewed earlier (data in this report, although usually released a business day later than the GDP release, is concurrent with the GDP data)....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $270.6 billion to $14,694.8 billion annually in July, which left total personal savings, which is disposable personal income less total outlays, at a $3,186.7 billion annual rate in July, down from the revised $3,417.4 billion in annualized personal savings in June...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 17.8% in July from the revised June savings rate of 19.2%...

As you know, before personal consumption expenditures are used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption....that's done with the price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, which is included in Table 9 in the pdf for this report...that index rose from 110.791 in June to 111.146 in July, a month over month inflation rate that's statistically 0.3204%, which BEA reports as an increase of 0.3 percent, following the rounded increase of 0.5 percent in the PCE price index reported for June...note that when the PCE price indexes are applied to a given month's annualized PCE in current dollars, it yields that month's annualized real PCE in chained 2012 dollars, which are the means that the BEA uses to compare the real goods and services produced in one month or one quarter to the real goods and services produced in another....that result is shown in table 7 of the PDF, where we see that July's chained dollar consumption total works out to 12,778.2 billion annually, 1.5949% more than June's 12,577.6 billion, a difference in real PCE that the BEA reports as a 1.6% increase for July...

However, to estimate the impact of the change in PCE on the change in GDP, that month over month change in PCE doesn't help us much, since GDP is reported quarterly....thus we have to compare July's real PCE to the the real PCE of the 3 months of the second quarter....while this report shows real PCE for those three months at an annual rate monthly, the BEA also provides the quarterly 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 2nd quarter was represented by 11,819.6 billion in chained 2012 dollars..(note, that's the same as was shown in table 3 of the pdf for the 2nd quarter GDP report)....when we compare July's inflation adjusted PCE of 12,778.2 billion to the 2nd quarter’s real PCE of 11,819.6 billion, we find that July’s real PCE has grown at a 36.605% annual rate from the 2nd quarter....that means that even if July’s real PCE growth does not improve from the July level during August and September, growth in PCE would still add 25.03 percentage points to the growth rate of 3rd quarter GDP...  

July Durable Goods: New Orders Up 11.2%, Shipments Up 7.3%, Inventories Down 0.5%, Unfilled Orders Down 0.8%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for July (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $23.2 billion or 11.2 percent to $230.7 billion in July, following a revised increase of 7.7% to $207.5 billion in June's new orders, which had been originally reported as a 7.3% increase to $206.9 billion of new June orders...despite those back to back increases, however, year to date new orders are still running 12.1% below those of 2019, a modest increase from the 13.3% year to date decrease in new orders we saw in this report last month...as is usually the case, the volatile monthly change in new orders for transportation equipment led the July headline change, as transportation equipment orders rose $19.6 billion or 35.6 percent to $74.7 billion, on a $4.7 billion decrease to $5.8 billion in cancellations of orders for commercial aircraft and a 77.1% increase to $4,665 million in new orders for defense aircraft....excluding new orders for such ‘transportation’ equipment, other new orders were up 2.4% in July, while new orders for nondefense capital goods excluding aircraft, a proxy for future equipment investment, rose 1.9% to $66,099 million...

The seasonally adjusted value of July's shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, increased by $16.6 billion or 7.3 percent to $244.0 billion, after the value of June shipments were revised from a 14.9% increase to $227.1 billion to a 15.2% increase to $227,447 million....a 17.8% jump in shipments of transportation equipment led the July increase, as they rose $12.6 billion to $83.2 billion, on a 23.8% increase in shipments of motor vehicles and parts…excluding shipments of transportation equipment, shipments of other durable goods still rose 2.5%, as shipments of nondefense capital goods excluding aircraft rose 2.4%…

Meanwhile, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the 2nd consecutive month, decreasing by $1.9 billion or 0.5 percent to $422.6 billion, after the change in June's durables goods inventories was revised from a 0.1% increase to $425.3 billion to a 0.1% decrease to $424.5 billion ...an decrease in inventories of machinery led the July inventory decrease,falling 1.0% to $69.7 billion, while inventories of transportation equipment were up 0.1% to $146,489 million on a 1.2% increase in inventories of commercial aircraft...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, fell for the fourth time in five months, and by $8.2 billion or 0.8 percent to $1,084.4 billion...that followed a June decrease of 1.4% to $1,092.66 billion that was revised from the previously reported 1.4% decrease to $1,092.4 billion.....a decrease of $8.4 billion or 1.1 percent to $735.2 billion in unfilled orders for transportation equipment was responsible for the decrease, as unfilled orders excluding transportation equipment were up 0.1% to $349,266 million....compared to a year earlier, the unfilled order book for durable goods is 5.5% below the level of last July, as unfilled orders for transportation equipment are now 7.8% below their year ago level, largely due to a 14.0% decrease in the backlog of orders for commercial aircraft... 

New Home Sales Reported at 13 Year High in July After May and June Sales Revised Higher

The Census report on New Residential Sales for July (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 901,000 new homes a year, which was a post recession high, 13.9 percent (±20.0 percent)* above the revised June annual rate of 791,000, and 36.3 percent (±27.4 percent) above the estimated annual rate that new homes were selling at in July of last year....the asterisk indicates that based on their small sampling, Census could not be certain whether July new home sales rose or fell from those of June, 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 June were revised from the annual rate of 776,000 reported last month to a 791,000 a year rate, while home sales in May, initially reported at an annual rate of 676,000 and revised up to a 682,000 a year rate last month, were further revised up to a 687,000 annual rate with this report, and while April's annualized home sales rate, initially reported at 623,000 and revised from a rate of 615,000 down to 571,000 last month, were revised a bit lower, to a 570,000 annual rate with this release..

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which showed that approximately 78,000 new single family homes sold in July, up from the 75,000 new homes that sold in June and the 64,000 that sold in May....the raw numbers from Census field agents were further used to estimate that the median sales price of new single family houses that sold in July was $330,600, down from the median sale price of $337,000 in June but up from the median price of $308,300 in July a year ago, while the average July new home sales price was $391,300, up from $381,900 average sales price in June, and up from the average sales price of $373,500 in July a year ago....a seasonally adjusted estimate of 299,000 new single family houses remained for sale at the end of July, which represents a 4.0 month supply at the July sales rate, down from the revised 4.6 month supply of unsold homes in June, and down from the 6.0 months of supply in July a year ago....for more details and graphics on this report, see Bill McBride's two posts, New Home Sales increased to 901,000 Annual Rate in July and A few Comments on June New Home Sales...

 

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

Sunday, August 23, 2020

new residential construction and existing home sales reports for July

The only widely watched reports released this week were the July report on New Residential Construction from the Census Bureau and the Existing Home Sales Report for July from the National Association of Realtors (NAR)....but this week also saw the first two regional Fed manufacturing surveys for August: the Empire State Manufacturing Survey from the New York Fed, which covers New York and northern New Jersey, reported their headline general business conditions index fell from +17.2 in July to +3.7 in August, suggesting a slowdown in the growth of First District manufacturing after the early summer rebound, while the Philadelphia Fed Manufacturing Survey for August, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions fell from +24.1 in July to +17.2 in August, still suggesting ongoing growth of that region's manufacturing industries, as any positive index reading would...

In addition, this week also saw a preliminary annual benchmark revision of employment data from the Bureau of Labor Statistics, which estimated there were 173,000 fewer payroll jobs in March of 2020 than had previously been reported, which would then impact subsequent employment data...however, this estimate will not be applied to the monthly employment reports until the annual revision is finalized with the January 2021 employment report on the first Friday of February 2021, when the national employment survey figures are benchmarked to state tax records.....

New Housing Starts, Building Permits Reported Much Higher in July

The July report on New Residential Construction (pdf) from the Census Bureau estimated that the widely watched count of new housing units started in July was at a seasonally adjusted annual rate of 1,496,000, which was 22.6 percent (±14.7 percent) above the revised June estimated annual rate of 1,220,000 housing units started, and was 23.4 percent (±12.4 percent) above last July's pace of 1,212,000 housing starts annually....the figures in parenthesis indicate the most likely range of the change indicated; in other words, July's housing starts could have been up by 7.9% or by as much as 37.3% from those of June, with even larger revisions eventually possible...in this report, the annual rate for June housing starts was revised up from the 1,186,000 reported last month to 1,222,000, while May starts, which were first reported at a 974,000 unit annual rate, were revised from last month's initial revised figure of 1,011,000 annually to an annual rate of 1,038,000 with this report....

Those 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, from which they estimated that 139,400 housing units were started in July, up from the 114,600 units started in June and the 95,100 started in May...of those housing units started in July, an estimated 89,300 were single family homes and 49,400 were units in structures with more than 5 units, up from the revised 84,900 single family starts in June, and up from the 25,900 units started in structures with more than 5 units in June...

As we've noted previously, the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in July, Census estimated new building permits were being issued for a seasonally adjusted rate of 1,495,000 housing units per year, which was 18.8 percent (±1.1 percent) above the revised June annual rate of 1,258,000 permits, and was 9.4 percent (±1.5 percent) above the rate of building permit issuance in July a year earlier...the annual rate for housing permits issued in June was revised from 1,241,000 to 1,258,000....

Again, these annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 136.400 housing units were issued in July, up from the revised estimate of 124,000 new permits issued in June...the July permits included 92,700 permits for single family homes, up from 84,300 single family permits in June, and 39,600 permits for housing units in apartment buildings with 5 or more units, up from 35,800 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 1.496 Million Annual Rate in July and Comments on July Housing Starts..

Existing Home Sales Rose a Record 24.7% in July, Median Sales Price at Record $304,100

The National Association of Realtors (NAR) reported that their seasonally adjusted annual rate of existing homes sold rose by a record 24.7% from June to July, projecting that 5.86 million homes would sell over an entire year if the July home sales pace were extrapolated over that year, a pace that was also 8.7% above the annual sales rate projected in July of a year ago….June home sales, now reported at a 4.70 million annual rate, were revised from the 4.72 million annual rate indicated by last month's report...the NAR also reported that the median sales price for all existing-home types was at a record $304,100 in July, 8.5% higher than in July a year earlier, which they report "marks 101 straight months of year-over-year gains.".....the NAR press release, which is titled "Existing-Home Sales Continue Record Pace, Soar 24.7% in July", 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....since 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…

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we like to look at the raw data overview (pdf), which gives us a close approximation to the actual number of homes that sold each month...this unadjusted data indicates that roughly 597,000 homes sold in July, up by 17.8% from the 507,000 homes that sold in June, and up 10.6% from the estimated 540,000 homes that sold in July of last year, so we can see there was a modest seasonal adjustment to bring the annualized published figures up to the level reported...that same pdf indicates that the median home selling price for all housing types rose 3.3%, from a revised record high of $294,500 in June to a new record of $304,100 in July, while the average home sales price was a record  $337,500, up 2.6% from the $328,900 average selling price in June, and up 6.5% from the $316,800 average home sales price of July a year ago, with the regional average home sales prices ranging from a low of $272,000 in the Midwest to a high of $448,700 in the West, both of which are also record highs.....for additional commentary with long term graphs on this report, see "NAR: Existing-Home Sales Increased to 5.86 million in July" and "Comments on July 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, August 16, 2020

July’s consumer & producer prices, retail sales, & industrial production; June’s business inventories & JOLTS

Major economic reports released this past week were the Job Openings and Labor Turnover Survey (JOLTS) for June, the July Consumer Price Index, the July Producer Price Index, and the July Import-Export Price Index, all from the Bureau of Labor Statistics, the Retail Sales Report for July and the Business Sales and Inventories report for June, both from the Census bureau, and the July report on Industrial Production and Capacity Utilization from the Fed...in addition, a Fed release from last Friday that i neglected to mention last week was the Consumer Credit Report for June, which indicated that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $9.0 billion, or at a 2.6% annual rate, as non-revolving credit expanded at a 4.3% rate to $3,132.5 billion while revolving credit outstanding contracted at a 2.8% rate to $992.4 billion...for the second quarter as a whole, consumer credit shrunk at a seasonally adjusted annual rate of 6-3/4 percent, as revolving credit shrunk at an annual rate of 31-3/4 percent, while non-revolving credit increased at an annual rate of 2 percent.

Consumer Prices Rose 0.6% in July on Higher Prices for Gasoline, Clothing, Cars, & Car Insurance

The consumer price index rose 0.6% in July, as higher prices for clothing, gasoline, new and used vehicles, and transportation services were only partly offset by lower prices for groceries ...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.6% in July, after rising by 0.6% in June, falling by 0.1% in May, falling 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 257.797 in June to 259.101 in July, which left it statistically 0.9861% higher than the 256.143 index reading of June of last year, which is reported as a 1.0% year over year increase, up from the 0.6% year over year increase reported a month ago....with higher prices for energy offset by lower prices for groceries, seasonally adjusted core prices, which exclude food and energy, also rose by 0.6% for the month, as the unadjusted core price index rose from 266.302 to 267.703, which left the core index 1.5696% ahead of its year ago reading of 263.566, which is reported as a 1.6% year over year increase, up from the 1.2% the year over year increase that was reported for June...

The volatile seasonally adjusted energy price index rose 2.5% in July, after rising 5.1% in June, falling by 1.8% in May, by 10.1% in April, 5.8% in March, 2.0% in February and by 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 5.3% higher in July, while the index for energy services was unchanged, after falling 0.2% in June....the energy commodity index was up 5.3% due to a 5.6% increase in the price of gasoline, the largest component, and a 4.3% increase in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average 0.4% higher...within energy services, the price index for utility gas service fell 1.0% after being unchanged in June and is now 0.3% lower than it was a year ago, while the electricity price index rose 0.3% after falling 0.3% in June....energy commodities are still averaging 20.2% lower than their year ago levels, with gasoline prices averaging 20.3% lower than they were a year ago, while the energy services price index is now down 0.1% from last July, as electricity prices are also 0.1% lower than a year ago…

The seasonally adjusted food price index fell 0.4% in July, after rising 0.6% in June, 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 1.1% lower in June, after rising 0.7% in June, while the index for food bought to eat away from home was 0.5% higher, as average prices at fast food outlets were 0.6% higher and prices at full service restaurants rose 0.4%, while data for food prices at employee sites and schools is missing...

In the food at home categories, the price index for cereals and bakery products was 0.4% lower even though average bread prices rose 0.6%, because the price index for fresh cakes and cupcakes fell 1.5%, the price index for flour and prepared flour mixes fell 1.4%, and the price index for breakfast cereal fell 1.8%....at the same time, the price index for the meats, poultry, fish, and eggs group was 3.8% lower as the price index for beef and veal fell 8.2%, egg prices fell 4.0%, and the price index for pork was 3.2% lower... in addition, the seasonally adjusted index for dairy products was 0.8% lower, even as milk prices rose 0.2%, because the index for cheese and related products fell 1.6%...on the other hand, the fruits and vegetables index was 0.1% higher as the price index for fresh fruits rose 0.2% and the price index for canned fruits rose 1.2%...meanwhile, the beverages price index was 0.5% lower as the price index for noncarbonated juices and drinks fell 0.5% and the price index for coffee fell 1.4%....lastly, the price index for the ‘other foods at home’ category was 0.2%lower, as the price index for sugar and sweets fell 0.9%, prices for peanut butter fell 2.4%, the price index for salt and other seasonings and spices fell 0.8% and the price index for baby food fell 1.7%...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 14.2%, led by a 15.0% increase in ground beef prices, the price index for pork chops has risen 12.2%, the price index for pork other than chops, ham and bacon is up 13.7%, the price of frankfurters is up 15.7%, and the price index for poultry other than chicken is 10.9% higher, while only fresh fruit prices have declined over the past year...

Among the seasonally adjusted core components of the CPI, which rose by 0.6% in July, after rising by 0.2% in June, falling 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 0.7% higher in July, while the more heavily weighted composite for all services less energy services was 0.6% higher....

Among the goods components, which will be used by the Bureau of Economic Analysis to adjust July’s retail sales for inflation in national accounts data, the price index for household furnishings and supplies was 0.5% higher, as the price index for major appliances rose 3.0% on a 10.9% increase in prices for laundry equipment, the index for household paper products rose 3.7%, and the index for household cleaning products increased by 1.8%....at the same time, the apparel price index was 1.1% higher on a 4.6% increase in the price index for women's outerwear, a 4.1% increase in the price index for women's dresses, a 5.8% increase in the price index for boy's apparel, and a 2.6% increase in the price index for women's footwear...in addition, the price index for transportation commodities other than fuel was 1.4% higher as prices for new cars rose 0.8%, prices for used cars and trucks rose 2.3%, tire prices rose 0.7%, and the price index for motor oil, coolant, and fluids rose 1.2%....meanwhile, prices for medical care commodities were unchanged, as prescription drugs prices fell 0.2% while the price index for medical equipment and supplies rose 0.3%...however, the recreational commodities index was 0.5% higher on a 2.4% increase in the price index for sports vehicles including bicycles, a 5.6% increase in the price index for sewing machines, fabric and supplies, a 1.4% increase in the price index for music instruments and accessories, and a 1.0% increase in prices for photographic equipment...on the other hand, the education and communication commodities index was 0.5% lower on a 1.0% decrease in the price index for computers, peripherals, and smart home assistants and a 0.5% decrease in the price index for telephone hardware, calculators, and other consumer information items...lastly, a separate price index for alcoholic beverages was 0.3% lower, while the price index for ‘other goods’ was unchanged as a 0.9% increase in prices for cigarettes was offset by a 4.4% decrease in the price index for miscellaneous personal goods..

Within core services, the price index for shelter was 0.2% higher as rents rose 0.2% and homeowner's equivalent rent rose 0.2% while prices for lodging away from home at hotels and motels rose 1.2%, while at the same time the shelter sub-index for water, sewers and trash collection rose 0.4%, and other household operation costs were on average 0.3% higher on a 2.3% increase in moving, storage, freight expense....meanwhile, the price index for medical care services was 0.5% higher, as the price index for physicians services rose 0.7%, the price index for dental services rose 0.6% and the price of health insurance rose 1.1%... at the same time, the transportation services price index was 3.6% higher as the price index for car and truck rental rose 4.0%, airline fares rose 5.4% and vehicle insurance costs rose 9.3%....on the other hand, the recreation services price index fell 1.2% as the index for other recreation services fell 3.2% on a 4.7% drop in the price index for club memberships for shopping clubs, fraternal, or other organizations, and participant sports fees and a 4.2% decrease in the price index for admission to movies, theaters, and concerts....however, the index for education and communication services was 1.3% higher as the price index for wireless telephone services rose 3.6% and the index for delivery services rose 1.4%....lastly, the index for other personal services was up by 0.6% as the price index for haircuts and other personal care services rose 1.5%...

Among core line items, prices for televisions, which are still averaging 13.8% cheaper than a year ago, the price index for telephone hardware, calculators, and other consumer information items, which is down by 14.1% since last July, the price index for men's suits, sport coats, and outerwear, which has fallen 12.8% from a year ago, the price index for women's dresses, which has fallen by 23.1% in the past year, the price index for women's outerwear, which has fallen by 15.3% from a year ago, the price index for men's shirts and sweaters, which has fallen by 10.8% in the past year, the price index for lodging away from home including hotels and motels, which has fallen by 15.3% in the past year, and airline fares, which are now down by 23.7% since last July, have all seen prices drop by more than 10% over the past year, while the cost of health insurance, which is still up by 18.7% over the past year, and the price index for household paper products, which has risen 10.7% from a year ago, are the only line items to have increased by a double digit magnitude over that span....  

July Retail Sales Rose 1.2% After May and June Sales were Revised Higher

Seasonally adjusted retail sales were 1.2% higher in July after retail sales for May and June were revised higher....the Advance Retail Sales Report for July (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $536.0 billion during  the month, which was 1.2 percent (± 0.5 percent) higher than June's revised sales of $529.4 billion and 2.7 percent (±0.7 percent) above the adjusted sales in July of last year...June's seasonally adjusted sales were revised from the $524.3 billion reported last month to $529.4 billion, while May sales were revised from $487.7 billion to $488.2 billion, and as a result the June increase was revised from 7.5% to 8.4%....estimated unadjusted sales, extrapolated from a survey of a small sampling of retailers, indicated sales actually rose 3.0%, from $536,142 million in June to $552,472 million in July, while they were up 3.8% from the $532,103 million of sales in July a year ago...combined, the revisions to May and June indicate that the 2nd quarter’s adjusted sales were roughly $5.6 billion higher than previously reported, which would add about $22.5 billion to the BEA's calculation of 2nd quarter personal consumption expenditures at an annual rate before the inflation adjustment, which should be enough to boost 2nd quarter GDP by roughly 0.24 percentage points when the 2nd estimate is published at the end of the month…

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

July 2020 retail sales table

To compute July's real personal consumption of goods data for national accounts from this July retail sales report, the BEA will use the corresponding price changes from the July consumer price index, which we just reviewed….to estimate what they will find, we’ll first pull out the usually volatile sales of gasoline from the other totals...from the third line on the above table, we can see that July retail sales excluding the 6.2% jump in sales at gas stations were up by 0.9%....then, subtracting the figures representing the 0.2% increase in grocery & beverage sales and the 5.0% increase in food services sales from that total, we find that core retail sales were up by somewhat less than 0.5% for the month...since the July CPI report showed that the the composite price index of all goods less food and energy goods was 0.7% higher in July, we can thus figure that real retail sales excluding food and energy, or real core PCE, will show an decrease of about 0.2% for the month...however, the actual adjustment in national accounts for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were down 1.2%, the July price index for transportation commodities other than fuel was 1.4% higher, which would suggest that real sales at auto & parts dealers were 2.6% lower once price increases are taken into account... similarly, while nominal sales at clothing stores were 6.2% higher in July, the apparel price index was 1.1% higher, which means that real sales of clothing only rose around 5.0%...

In addition to figuring those core retail sales, to make a complete estimate of real July PCE, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the July CPI report showed that the food price index was 0.4% lower, as the price index for food purchased for use at home fell 1.1% while the index for food bought away from home was 0.5% higher...thus, while nominal sales at food and beverage stores were 0.2% higher, real sales of food and beverages would have been around 1.3% higher in light of the 1.1% decrease in prices…meanwhile, the 5.0% increase in nominal sales at bars and restaurants, once adjusted for 0.5% higher prices, suggests that real sales at bars and restaurants actually rose around 4.5% during the month...at the same time, while sales at gas stations were up 6.2%, there was concurrently a 5.6% increase in the price of gasoline during the month, which would suggest that real sales of gasoline were only on the order of 0.6% higher, with a caveat that gasoline stations sell more than gasoline, and we haven’t accounted for those other sales…by averaging those estimated real sales figures with a sales appropriate weighting, and excluding food services, we’d estimate that the income and outlays report for July will show that real personal consumption of goods were close to unchanged in July, after rising by a revised 6.7% in June and after rising by a revised 14.2% in May, but after falling by 12.5% in April, 0.7% in March, and 0.4% in February...at the same time, the 4.5% increase in real sales at bars and restaurants should have a noticable positive impact on July's real personal consumption of services...

We want to caution that the shortcut method that we've used here to make these estimates is likely prone to more inaccuracies than usual, given the unbalanced and wide range of changes in each of the types of sales in this month’s report, but we opted to go ahead with it anyhow for illustrative purposes...another reason for caution with this rebound in retail sales is that not all of it will make it to the bottom line of GDP...for instance, if a substantial portion of July's auto sales 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 electronics, appliance and clothing store sales came from imported goods, the corresponding imports of electronics, appliances and clothing will subtract from GDP by the same amount that the increased sales of those goods added to it....the only increases in retail sales that add to GDP without an offset are those that indicate 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...moreoever, since Covid 19 is a services recession, personal consumption of services, which accounts for 47% of each month's GDP, will be much more important in tracking the trajectory of the economy.....for that, we'd have to know if health care services, transportation services, recreation services, education services and food services and accommodations have increased or not over the month, and then vis-a-vis the last quarter... indications are that they have not

Industrial Production Rose 3.0% in July After May and June Were Revised Lower

The Fed's G17 release on Industrial production and Capacity Utilization for July indicated that industrial production rose by 3.0% in July after rising by a revised 5.7% in June and a revised 0.9% in May...however, after revisions, industrial production is still down 8.2% from a year ago, and 8.4 percent below its pre-pandemic February level....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 100.2 in July from 97.2 in June, which was revised from the 97.5 reported for June a month ago...at the same time, the May reading for the IP index was revised down from 92.5 to 92.0, while the March reading for the index was revised up from 104.5 to 104.6....

The manufacturing index, which accounts for around 77% of the total IP index, increased by 3.4% to 96.5 in July, after June's manufacturing index was revised from 93.3 to 93.4, April & May's manufacturing index were unrevised at 83.8 and 87.0 respectively, while the March manufacturing index was revised from 99.6 to 99.7...nonetheless, the manufacturing index is still down 7.7% from a year ago, having fallen 8.0% since February....meanwhile, the mining index, which includes oil and gas well drilling, rose 0.8%, from 107.6 in June to 108.5 in July, which was still 17.0% lower than it was a year ago, after the June index was revise down from 111.0....finally, the utility index, which often fluctuates due to above or below normal temperatures, rose 3.3% to 105.9 in July, after the June utility index was revised from 101.5  to 102.5 and the May index was revised from 97.4 to 100.4...with a similarly hot July in 2019, the utility index is only 0.6% above its year ago reading of 105.3..

This report also provides capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry rose from 68.5% in June to 70.6% in July, after capacity utilization for June was revised from 68.6% to 68.5%, and after capacity utilization for  May was revised from 65.1% to 64.8%...capacity utilization by NAICS durable goods production facilities rose from 64.5% in June to 68.1% in July, while capacity utilization for non-durables producers rose from 70.5% to 71.5% at the same time....meanwhile, capacity utilization for the mining sector rose to 73.5% in July from 72.7% in June, which was originally reported as 75.0%, while utilities were operating at 75.2% of capacity during July, up from their 73.0% of capacity during June, a figure that was originally reported at 72.3%..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.... 

Producer Prices rose 0.6% in July on Higher Energy Prices and Higher Margins for Wholesalers and Retailers

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.6% in July, the largest increase since October 2018, as prices for finished wholesale goods averaged 0.8% higher while margins of final service providers averaged 0.5% higher….that followed a June report that had the PPI 0.2% lower, 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, 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, a revised April report wherein the PPI now fell 0.9%, as prices for finished wholesale goods averaged 2.8% lower, while average margins of final services providers were unchanged, and a re-revised March report that now has the PPI down 0.4%, with prices for finished wholesale goods averaging 1.5% lower, while average margins of final services providers increased by 0.1%....on an unadjusted basis, producer prices are still 0.4% lower than a year ago, up from the 0.8% 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 0.1% higher than in July a year ago, up from the 0.1% year over year decrease shown in June...

As noted, the price index for final demand for goods, aka 'finished goods', was 0.8% higher in July, after being 0.2% higher in June, 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, and 0.3% higher in July of last year....the finished goods index rose 0.8% in July because the price index for wholesale energy goods was 5.3% higher, after rising by 7.7% in June and 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 0.5%, after falling 5.2% in June, rising 6.0% in May, and falling a revised 0.4% in April and by a revised 0.1% in March, and while the index for final demand for core wholesale goods (excluding food and energy) was 0.3% higher, after being 0.1% higher in June....wholesale energy prices were higher due to a 10.1% increase in wholesale prices for gasoline, a 56.1% increase in wholesale prices for home heating oil, and a 31.3% increase in wholesale prices for No.2 diesel fuel, while the wholesale food price index fell 0.5% on a 7.4% decrease in the wholesale price index for beef and veal, a 6.5% decrease in the wholesale price index for fresh and dry vegetables, and a 3.5% decrease in the wholesale price index for pork....among wholesale core goods, the wholesale price index for industrial chemicals rose 2.9%, the wholesale price index for cigarettes rose 2.4%, and the wholesale price index for jewelry, platinum and karat gold rose 2.9%...

At the same time, the index for final demand for services rose 0.5% in July, after falling 0.3% in June, 0.2% in May, and a revised 0.3% in April, after being unchanged in March, as the index for final demand for trade services rose 0.8%, the index for final demand for transportation and warehousing services fell 0.8%, and the core index for final demand for services less trade, transportation, and warehousing services was 0.4% higher... among trade services, seasonally adjusted margins for automobile retailers rose 20.5%, margins for TV, video, and photographic equipment and supplies retailers rose 16.4%, margins for hardware, building materials, and supplies retailers rose 5.8%, margins for furniture retailers rose 5.5%, and margins for machinery and vehicle wholesalers rose 4.9%... among transportation and warehousing services, margins for airline passenger services fell 7.0% while margins for air transportation of freight rose 4.9%...among the components of the core final demand for services index, the index for portfolio management rose 7.8%, margins for sales and subscriptions of periodicals and newspapers rose 5.5%, margins for arrangement of vehicle rentals and lodging rose 5.5%, the index for legal services rose 1.9%, and margins for dental care rose 1.1%…

This report also showed the price index for intermediate processed goods rose 1.5% in July, after rising 0.9% in June, 0.1% in May, but after falling a revised 3.3% in April and a revised 1.5% in March....the price index for intermediate energy goods rose 7.4%, as refinery prices for gasoline rose 10.1%, refinery prices for residual fuels rose 42.9%, refinery prices for jet fuel rose 15.1% and refinery prices for No. 2 diesel fuel rose 31.3%...meanwhile, prices for intermediate processed foods and feeds fell 0.7%, as the producer price index for meats fell 8.0% and the producer price index for fats and oils fell 0.8%...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 plywood rose 9.7%, the producer price index for softwood lumber increased 11.0%, and the producer price index for copper and brass mill shapes rose 7.3%...prices for intermediate processed goods are still 3.6% lower than in July a year ago, the 15th consecutive year over year decrease, following 29 months of year over year increases, which had been preceded by 16 months of negative year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016....

Meanwhile, the price index for intermediate unprocessed goods fell 0.7% in July, after rising 3.1% in June and 8.9% in May, but after falling a revised 13.6% in April and a revised 8.5% in March....that was as the June price index for crude energy goods fell 7.4% as crude oil prices fell 13.6% and unprocessed natural gas prices fell 1.5%, while the price index for unprocessed foodstuffs and feedstuffs rose 4.3% on a 43.7% increase in producer prices for raw milk and a 6.7% increase in producer prices for corn...at the same time, the index for core raw materials other than food and energy materials rose 0.3%, as prices for copper base scrap rose 9.0%, the price index for nonferrous metal ores increased 5.3%, and the price of iron ores  rose 3.1%....this raw materials index is now 16.3% lower than a year ago, as the year over year change on this index has been negative since the beginning of last year...

Lastly, the price index for services for intermediate demand rose 0.7% in July, after rising 0.2% in June, falling 0.4% in May, falling a revised 1.7% in April, and rising a revised 0.1% in March...the price index for intermediate trade services was 1.1% higher, as margins for intermediate hardware, building material, and supplies retailers rose 5.8%, margins for building materials, paint, and hardware wholesalers rose 1.9%, and margins for intermediate machinery and equipment parts and supplies wholesalers rose 2.1%...meanwhile, the index for transportation and warehousing services for intermediate demand was 0.4% lower, as the intermediate price index for arrangement of freight and cargo fell 5.0% and the intermediate price index for airline passenger services dropped 7.0%...at the same time, the core price index for intermediate services less trade, transportation, and warehousing was 0.8% higher, as the price index for television advertising time sales rose 6.6%, the intermediate price index for portfolio management rose 7.8%, and the price index for radio advertising time sales rose 3.9%...over the 12 months ended in May, the year over year price index for services for intermediate demand is still 1.0% 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...

June Business Sales Up 8.4%, Business Inventories Down 1.1%, Lower than Estimated by the BEA

Following the release of the July retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for June(pdf), which incorporates the revised June retail data from that July retail report and the 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 $1,394.0 billion in June, up 8.4 percent (±0.3) from May revised sales, but down 4.3 percent (±0.4 percent) from June sales of a year earlier...note that total May sales were revised from the originally reported $1,284.3 billion to $1,285.8 billion, now up 8.5% from April, rather than up 8.4% as had previously been reported....manufacturer's adjusted sales were up 9.8% to $457,303 million in June, and retail trade sales, which exclude restaurant & bar sales from the revised June retail sales reported earlier, were up 6.8% to $479,451 million, while wholesale trade sales rose 8.8% to $457,264 million...

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,912.1 billion at the end of June, down 1.1 (±0.1 percent)* from May, and 5.8 percent (±0.4 percent) lower than in June a year earlier...the value of end of May inventories was revised down from the $1,933.737 billion reported last month to $1,933,282 billion, still down 2.3% from April...seasonally adjusted inventories of manufacturers were estimated to be valued at $687,406 million at the end of June, 0.6% higher than those at the end of May, inventories of retailers were valued at $579,948 million, 2.6% less than in May, while inventories of wholesalers were estimated to be valued at $625,300 million at the end of June, down 1.2% from May...

The Key source data and assumptions that accompanied the release of the advance estimate of 2nd quarter GDP indicates that the BEA had assumed that total seasonally adjusted June manufacturing and trade inventories (on a Census basis) would decrease by $20.5 billion from the previously published May figures...since this report shows that total June inventories decreased by $21.2 billion while May inventories were revised down by $0.4 billion at the same time, that means that the advance estimate of 2nd quarter GDP overestimated end of June inventories by $1.1 billion, or at an annual rate of about $4.5...assuming there is no major change relating to the inflation adjustment on those inventories, a revision to reflect these new figures would be enough to subtract about 0.07 percentage points from 2nd quarter GDP, when the 2nd estimate is released at the end of August... 

Job Openings and Job Quitting Higher in June; Hiring Down, Layoffs Little Changed

The Job Openings and Labor Turnover Survey (JOLTS) report for June from the Bureau of Labor Statistics estimated that seasonally adjusted job openings rose by 518,000, from 5,371,000 in May to 5,889,000 in June, after May job openings were revised a bit lower, from 5,397,000 to 5,371,000...June jobs openings were still 18% lower than the 7,185,000 job openings reported in June a year ago, as the job opening ratio expressed as a percentage of the employed rose from 3.9 in May to 4.1% in June, but was down from the 4.5% rate in June of a year ago...the greatest jump in June job openings was in bars and restaurants, where openings rose by 198,000 to 718,000, while job openings in construction fell by 70,000 to 245,000 (see table 1 for details on other categories of job openings)...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 June, seasonally adjusted new hires totaled 6,696,000, down by 503,000 from the revised 7,199,000 who were hired or rehired in May, but still the second highest monthly number of hires on record, as the hiring rate as a percentage of all employed fell to 4.5% from a record high of 4.9% in May, while it was still much higher than the 3.8% hiring rate in June a year earlier (details of hiring by industry since January are in table 2)....meanwhile, total separations increased by 522,000, from 4,236,000 in May to 4,758,000 in June, as the separations rate as a percentage of the employed rose from 3.2% to 3.5%, which was still down from the 3.7% separations rate of June a year ago (see table 3)...subtracting the 4,758,000 total separations from the total hires of 6,696,000 would imply an increase of 1,938,000 jobs in June, quite a bit less than the revised payroll job increase of 4,791,000 for June reported by the July 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 finds that 2,598,000 of us voluntarily quit their jobs in June, up 521,000 from the revised 2,067,000 who quit their jobs in May, while the 'quits rate', widely watched as an indicator of worker confidence, rose from 1.6% to 1.9% of total employment, which was still far down from the 2.3% quits rate of a year earlier (see details in table 4)....in addition to those who quit, another 1,885,000 were either laid off, fired or otherwise discharged in June, down by 18,000 from the revised 1,903,000 who were discharged in May, as the discharges rate remained at 1.4% of all those who were employed during the month, which was still up from the discharges rate of 1.2% a year earlier (see table 5)...meanwhile, other separations, which includes retirements and deaths, were at 275,000 in June, up from 266,000 in May, for an 'other separations rate’ of 0.2%, same as in May and as in June of last year....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be easily accessed using the links to tables at the bottom of the press release...

 

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

Sunday, August 9, 2020

July’s jobs report; June’s trade deficit, construction spending, factory inventories and wholesale sales

The major economic releases from the past week included the Employment Situation Summary for July from the Bureau of Labor Statistics, and four June reports that included metrics which were either estimated or included in last week's release of 2nd quarter GDP: the Commerce Dept report on our International Trade for June, the June report on Construction Spending (pdf), the Full Report on Manufacturers' Shipments, Inventories and Orders for June, and the June report on Wholesale Trade, Sales and Inventories, all from the Census Bureau...

Privately issued reports included the ADP Employment Report for July, the light vehicle sales report for July from Wards Automotive, which estimated that vehicles sold at a 14.52 million annual rate in July, up 11.1% from the 13.05 million annual rate in June, but down 14.4% from the 16.82 annual sales rate of July 2019, and the Mortgage Monitor for June (pdf) from Black Knight Financial Services, which reported that 7.59% of mortgages were delinquent in June, down from the 7.76% that were delinquent in May, but way up from the 3.73% delinquency rate of June of 2019, and that a record low 0.36% of mortgages remained in the foreclosure process in June, down from 0.38% of all mortgages in May, and down from the 0.50% in foreclosure a year ago....

This week also saw both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the July Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) rose to 54.2% in July, up from 52.6% in June, suggesting a bit faster growth among manufacturing firms nationally, and the July 2020 Services Report On Business, which saw their Services PMI rise to 58.1%, up from 57.1% in June, and up from 45.4% in May, indicating a significant plurality of service industry purchasing managers reported growth in various facets of their business in July...

Employers Add 1,763,000 Jobs in July on Aberrant Seasonal Adjustment; Unemployment Rate Falls to 10.2%

The Employment Situation Summary for July from the Bureau of Labor Statistics showed there was a continuation of the rebound in payroll jobs that we've seen over the past two months, and a decrease in the unemployment rate, bettering most estimates for a less robust jobs recovery……seasonally adjusted estimates extrapolated from the establishment survey data projected that employers added 1,763,000 jobs in July, after the payroll job increase for May was revised May was revised up by 26,000, from 2,699,000 to 2,725,000 jobs, and the June jobs increase was revised down by 9,000, from 4,800,000 jobs to +4,791,000, and hence the combined number of jobs created over those two months was 17,000 more than was previously reported....the unadjusted data shows that there were only 591,000 more payroll jobs extant in July than in June, as the large seasonal job cutback usually associated with the end of the school year actually occurred in April, and this month's seasonal adjustments gave those jobs back…

Seasonally adjusted job increases were spread throughout the private goods producing and service sectors and government, with only the information sector seeing a statistically significant loss of 15,000 jobs, led by 6,900 fewer jobs in the publishing industry...the leisure and hospitality sector, which added 592,000 jobs, accounted for about one-third of the seasonally adjusted July job increase,  with the return of 502,000 employees in bars and restaurants and 99,900 workers in the amusements, gambling, and recreation industries....government employment indicated a 301,000 seasonally adjusted job increase, but 215,700 of those jobs were in local school districts and 29,800 were with state colleges and universities, which actually employed 928,300 and 31,900 fewer in July than in June respectively, so most of that job increase is a statistical aberration, even as 27,000 temporary workers were hired for the 2020 Census...meanwhile, the retail sector saw an increase of 258,300 jobs, led by 120,800 workers returning to jobs in clothing stores and 45,100 returning to jobs in department stores...employment in health care and social assistance rose by 291,400, with the addition of 45,100 workers in child day care services and the return of 44,800 jobs in dentist's offices, and 24,700 jobs in hospitals...in addition, the broad professional and business services category added 170,000 jobs, as 143,700 were added by temporary help services. while professional and technical services other than those itemized added 17,700...meanwhile, "other services" added 149,000 jobs, with 118,600 of that increase coming in personal and laundry services...other July job increases included the addition of 37,900 jobs in transportation and warehousing, 26,000 jobs in manufacturing, 21,000 jobs in financial activities, and 20,000 jobs in construction, while the resource extraction sector shed 7,000 jobs and another 5,000 jobs were lost in wholesale trade...

Even with the return of mostly lower paid workers, the establishment survey also showed that average hourly pay for all employees rose by 7 cents an hour to $29.37 an hour, after it had decreased by a revised 38 cents an hour in June; at the same time, however, the average hourly earnings of production and non-supervisory employees decreased by 11 cents to $24.63 an hour...employers also reported that the average workweek for all private payroll employees decreased by a tenth of an hour to 34.5 hours, while hours for production and non-supervisory personnel was unchanged at 34.0 hours....at the same time, the average manufacturing workweek increased by seven-tenths of an hour to 39.7 hours, while factory overtime was up by three-tenths of an hour to 2.8 hours…

Meanwhile, the seasonally adjusted extrapolation from the July household survey estimated that the number of those employed rose by an estimated 1,350,000 to 143,532,000, while the similarly estimated number of those unemployed fell by 1,412,000 to 16,338,000; which together meant that July saw a net decrease of 62,000 in the total labor force...since the working age population had grown by 169,000 over the same period, that meant the number of employment aged individuals who were not in the labor force fell by a rounded 230,000 to 100,503,000....hence, the decrease of those in the labor force was enough to lower the labor force participation rate from 61.5% in June to 61.4% in July....at the same time, the increase in number employed vis-a-vis the increase in the population was great enough to increase the employment to population ratio, which we could think of as an employment rate, by 0.5% to 55.1%...at the same time, the decrease in the number counted as unemployed was enough to lower the unemployment rate as a percentage of the labor force from 11.1% to 10.2%....meanwhile, the number who reported they were involuntarily working part time fell by 619,000 to 8,443,000 in July, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 18.0% in June to 16.5% in July, which is still way up from the 6.9% U-6 rate reported in July a year ago...

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

June Trade Deficit Down 7.5% on $5.9 Billion Decrease in Imports of Nonmonetary Gold

Our trade deficit decreased by 7.5% in June as the value of both our exports and our imports increased, but the value of our exports increased by more....the Commerce Department report on our international trade in goods and services for June indicated that our seasonally adjusted goods and services trade deficit fell by a rounded $4.1 billion to $50.7 billion in June from a revised May deficit of $54.8 billion, which had previously been reported at $54.6 billion...the value of our June exports rose by $13.6 billion to $158.3 billion on a $13.0 billion increase to $102.9 billion in our exports of goods and a $0.6 billion increase to $55.4 billion in our exports of services, while our imports rose by $9.5 billion to $208.9 billion on a $9.0 billion increase to $175.0 billion in our imports of goods and a $0.5 billion increase to $33.9 billion in our imports of services...export prices were on average 1.4% higher in June, so the month's real exports would be relatively less than their nominal value by that percentage, while import prices were also 1.4% higher, meaning that our real imports were likewise relatively smaller than their nominal value by that percentage..

The increase in our June exports was largely the result of greater exports of automotive products, of capital goods, and of industrial supplies and materials....referencing the Full Release and Tables for June (pdf), in Exhibit 7 we find that our exports of automotive vehicles, parts, and engines rose by $4,907 million to $8,306 million on a $1,840 million increase in our exports of parts and accessories of vehicles other than engines, chassis, and tires,  a $1,674 million increase in our exports of new and used passenger cars, a $713 million increase in our imports of engines and engine parts, and a $591 million increase in our exports of trucks, buses, and special purpose vehicles...at the same time, our exports of capital goods rose by $3,769 million to $35,245 million on increases of $593 million in our exports of civilian aircraft, $550 million in our exports of industrial machines other than those itemized separately, $547 million in our exports of telecommunications equipment, $451 million in our exports of electrical apparatuses, $446 million in our exports of computer accessories, and $309 million in our exports of semiconductors, while our exports of industrial supplies and materials rose by $2,840 million to $32,810 million on increases of $807 million in our exports of fuel oil, $490 million in our exports of other refined products, $412 million in our exports of crude oil, and $353 million in our exports of natural gas liquids...in addition, our exports of consumer goods rose by $1,352 million to $12,295 million, led by a $262 million increase in our exports of cellphones and similar goods, while our exports of foods, feeds and beverages rose by $470 million to $9,950 million on a $356 million increase in our exports of soybeans, and our exports of other goods not categorized by end use rose by $509 million to $4,250 million....

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our goods imports and shows that greater imports of automotive products, consumer goods, and capital goods were the major reasons for the June increase in our imports, while the increases in those categories were partly offset by a drop in our imports of industrial supplies and materials...our imports of automotive vehicles, parts and engines rose by $9,666 million to $18,632 million on a $4,117 million increase in our imports of new and used passenger cars, a $2,715 million increase in our imports of automotive parts other than tires, engines, bodies and chassis, a $2,128 million increase in our imports of trucks, buses, and special purpose vehicles and a $672 million increase in our imports of engines and engine parts...in addition, our imports of consumer goods rose by $4745 million to $50,460 million on a $1,066 million increase in our imports of cellphones, a $712 million increase in our imports of gem diamonds, a $546 million increase in our imports of cotton apparel and household goods, a $523 million increase in our imports of antiques, artwork and other collectibles, a $391 million increase in our imports of toys and games, a $362 million increase in our imports of furniture and similar household goods, a $342 million increase in our imports of jewelry, a $309 million increase in our imports of televisions and video equipment and a $304 million increase in our imports of appliances, while our imports of capital goods rose by $2247 million to $49,785 million on a $778 million increase in our imports of computers, a $444 million increase in our imports of telecommunications equipment, a $427 million increase in our imports of electrical apparatuses, and a $343 million increase in our imports of semiconductors...at the same time, our imports of foods, feeds, and beverages rose by $307 million to $12,405 million...partially offsetting the increases in those categories, our imports of industrial supplies and materials fell by $8,288 million to $35,405 million on a $5,887 million decrease in our imports of nonmonetary gold and a $2,906 million decrease in our imports of finished metal shapes, and our imports of other goods not categorized by end use fell by $164 million to $7,153 million....

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 June figures show surpluses, in billions of dollars, with South and Central America ($1.8), United Kingdom ($1.3), Hong Kong ($1.0), OPEC ($0.5), and Brazil ($0.4). Deficits were recorded, in billions of dollars, with China ($26.7), European Union ($13.1), Mexico ($9.0), Germany ($3.8), Taiwan ($2.4), Italy ($2.1), South Korea ($1.9), Japan ($1.8), India ($1.7), France ($1.0), Saudi Arabia ($0.7), Singapore ($0.2), and Canada ($0.1).

  • The deficit with Japan decreased $1.4 billion to $1.8 billion in June. Exports increased $0.2 billion to $4.9 billion and imports decreased $1.3 billion to $6.6 billion.
  • The deficit with Singapore decreased $1.4 billion to $0.2 billion in June. Exports increased $0.3 billion to $2.1 billion and imports decreased $1.1 billion to $2.2 billion.
  • The deficit with Mexico increased $4.8 billion to $9.0 billion in June. Exports increased $4.8 billion to $15.5 billion and imports increased $9.6 billion to $24.5 billion.

In the advance report on 2nd quarter GDP released last week, our June trade deficit was estimated based on the Advance Report on our International Trade in Goods which was also released last week, just before the GDP release...that report estimated that our June goods trade deficit was at $70,641 million on a Census basis, down from the $75,258 million goods deficit reported in May...this report revises those figures and shows that our actual goods trade deficit in June was $72,150 million on a balance of payments basis, and $70,985 million on a Census basis, and that the May goods deficit was revised to $75,380 million on a Census basis...together, those revisions from the previously published data mean that the 2nd quarter goods trade deficit in goods was roughly $466 million more than the estimate that was used in last week's GDP report, or around $1.9 billion more at an annual rate, before adjusting for price changes...that would indicate a downward revision of roughly 0.03 percentage points to 2nd quarter GDP when the 2nd estimate is released at the end of August.....note that the BEA's key source data and assumptions reports services at an adjusted annual rate which this report does not, so we are unable to discern what revisions to that data might further impact 2nd quarter GDP...

Construction Spending Fell 0.7% in June after Prior Months Were Revised Higher

The Census Bureau report on construction spending for June (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,355.2 billion annually if extrapolated over an entire year, which was 0.7 percent (±1.2 percent)* below the revised annualized estimate of $1,364.7 billion of construction spending for May but 0.1 percent (±1.5 percent) above the estimated annualized level of construction spending in June of last year...the May annualized construction spending estimate was revised more than 0.6% higher, from $1,356.4 billion to $1,364.7 billion, while the annual rate of construction spending for April was revised more than 0.1% higher, from $1,386.1 billion to $1,387.936 billion...for the first half of 2020, actual construction spending amounted to $667.9 billion, 5.0 percent (±1.2 percent) above the $636.0 billion spent in the first half 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 $1,001.9 billion, 0.7 percent (±0.7 percent)* below the revised May estimate of $1,009.0 billion. Residential construction was at a seasonally adjusted annual rate of $534.2 billion in June, 1.5 percent (±1.3 percent) below the revised May estimate of $542.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $467.7 billion in June, 0.2 percent (±0.7 percent)* above the revised May estimate of $466.9 billion.
  • Public Construction: In June, the estimated seasonally adjusted annual rate of public construction spending was $353.3 billion, 0.7 percent (±2.0 percent)* below the revised May estimate of $355.8 billion. Educational construction was at a seasonally adjusted annual rate of $85.8 billion, 2.7 percent (±1.5 percent) below the revised May estimate of $88.2 billion. Highway construction was at a seasonally adjusted annual rate of $102.6 billion, 1.7 percent (±6.3 percent)* below the revised May estimate of $104.4 billion.

Construction spending for all three months of the 2nd quarter was higher than what was reported by the BEA in the advance report for 2nd quarter GDP last week...as we saw above, the annual rate of construction spending for April was revised $1.8 billion higher, and annualized construction spending for May was revised $8.3 billion higher...in reporting 2nd quarter GDP, the Excel file with key source data and assumptions accompanying the report indicated on line 84 that they had estimated that the value of June nonresidential construction would be $9.8 billion smaller than that of the previously reported May figure, that June residential construction on lines 110 and 111 would be $5.6 billion smaller than that of the previously reported May figure, and that the value of June public construction shown on line 200 would be $2.5 billion smaller than the previously published May figure...hence, the total of the figures used by the BEA for total June construction in the 2nd quarter GDP report were $17.9 billion less than the previously published May figure...with June construction now reported down $9.5 billion from a May figure that was revised $8.3 billion higher, that means that the BEA had underestimated annualized June construction spending by $16.7 billion when reporting 2nd quarter GDP...thus, after averaging the revisions to construction spending for the three months of the 2nd quarter, the total revised annualized figure for 2nd quarter construction spending would thus be $8.9 billion more than the figures used by the BEA when computing 2nd quarter GDP, implying they’d need an upward revision of roughly 0.21 percentage points to 2nd quarter GDP when the 2nd estimate is released on the 27th of August..

Factory Shipments Up 9.8% in June, Factory Inventories Up 0.6%

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $25.5 billion or 6.2 percent to $437.2 billion in June, following an increase of 7.7% to $411.7 billion in May, which was revised from the 8.0 percent increase to $412.8 billion reported for May 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 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 June, up two consecutive months, increased $25.5 billion or 6.2 percent to $437.2 billion, the U.S. Census Bureau reported today. This followed a 7.7 percent May increase. Shipments, also up two consecutive months, increased $40.7 billion or 9.8 percent to $457.3 billion. This followed a 3.0 percent May increase. Unfilled orders, down three of the last four months, decreased $15.3 billion or 1.4 percent to $1,092.5 billion. This followed a virtually unchanged May increase. The unfilled orders-to-shipments ratio was 7.01, down from 7.56 in May. Inventories, up two consecutive months, increased $4.0 billion or 0.6 percent to $690.9 billion. This followed a 0.2 percent May increase. The inventories-to-shipments ratio was 1.51, down from 1.65 in May. 
  • New orders for manufactured durable goods in June, up two consecutive months, increased $14.6 billion or 7.6 percent to $207.2 billion, up from the previously published 7.3 percent increase. This followed a 15.0 percent May increase. Transportation equipment, also up two consecutive months, led the increase, $9.3 billion or 20.2 percent to $55.4 billion. New orders for manufactured nondurable goods increased $10.9 billion or 5.0 percent to $230.0 billion.
  • Shipments of manufactured durable goods in June, up two consecutive months, increased $29.8 billion or 15.1 percent to $227.3 billion, up from the previously published 14.9 percent increase. This followed a 4.1 percent May increase. Transportation equipment, also up two consecutive months, led the increase, $24.3 billion or 52.1 percent to $70.9 billion. Shipments of manufactured nondurable goods, up two consecutive months, increased $10.9 billion or 5.0 percent to $230.0 billion. This followed a 2.0 percent May increase. Petroleum and coal products, also up two consecutive months, led the increase, $7.6 billion or 27.0 percent to $35.9 billion.
  • Unfilled orders for manufactured durable goods in June, down three of the last four months, decreased $15.3 billion or 1.4 percent to $1,092.5 billion, unchanged from the previously published decrease. This followed a virtually unchanged May increase. Transportation equipment, down four consecutive months, drove the decrease, $15.6 billion or 2.1 percent to $743.5 billion.
  • Inventories of manufactured durable goods in June, up four consecutive months, increased $0.2 billion or virtually unchanged to $425.0 billion, down from the previously published 0.1 percent increase. This followed a virtually unchanged May increase. Transportation equipment, up twenty-three of the last twenty-four months, drove the increase, $2.1 billion or 1.5 percent to $146.5 billion.  Inventories of manufactured nondurable goods, up two consecutive months, increased $3.8 billion or 1.5 percent to $265.9 billion. This followed a 0.4 percent May increase. Petroleum and coal products, also up two consecutive months, led the increase, $3.2 billion or 11.0 percent to $32.1 billion. By stage of fabrication, June materials and supplies decreased 1.2 percent in durable goods and increased 1.9 percent in nondurable goods. Work in process increased 1.2 percent in durable goods and 2.3 percent in nondurable goods. Finished goods increased 0.1 percent in durable goods and 0.9 percent in nondurable goods.

The BEA's key source data and assumptions (xls) for the advance estimate of second quarter GDP indicates on line 143 that they had estimated that the value of non-durable goods inventories would rise $3.8 billion before any inflation adjustment in June, and this report indicates that total non-durable goods inventories actually did increase in value by $3.8 billion, which means there should be no 2nd quarter GDP revision on account of June's non-durable factory inventories...however, note that durable goods inventories, which had been used as source data for the advance estimate of GDP, were revised from the previously published $0.4 billion or 0.1% increase to $425.3 billion to a 'virtually unchanged' $0.2 billion increase to $425.0 billion with this report... that would indicate that they overestimated the change in the 2nd quarter GDP inventory component by up to $1 billion on an annualized basis, which would suggest that 2nd quarter GDP might have to be revised downwards by 0.01 or 0.02 percentage points to account for what this report shows...

June Wholesale Sales Up 8.8%; Inventories Down 1.4%

The June report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $457.3 billion, up 8.8 percent (±0.9 percent) from the revised May level, but down 8.5 percent (±1.1 percent) from wholesale sales of June 2019... the May preliminary estimate was revised up $1.3 billion or 0.3% to $420.44 billion from the $419.1 billion sales reported last month, which is now 5.7% more than April's sales, revised from the 5.4% increase reported last month...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 additional goods on the shelf or in intermediate storage represent goods that were produced but not sold, and this June report estimated that wholesale inventories were valued at a seasonally adjusted $633.3 billion at month end, down 1.4 percent (+/-0.2%) from the revised May level and 5.6 percent (±0.9 percent) lower than in June a year ago, with the May preliminary estimate revised but essentially unchanged at $642.5 billion at the same time, still a 1.2% decrease from April....

In the advance report on 2nd quarter GDP of last week, wholesale inventories were estimated based on the sketchy Advance Report on Wholesale and Retail Inventories which was released the day before the GDP release...that report estimated that our seasonally adjusted wholesale inventories were valued at $629.607 billion at the end of June, down from $642,207 billion in May....those figures total $3.96 billion less than the $633,283 billion for June and $642,489 for May that this report shows, which would imply that the quarterly decrease in 2nd quarter wholesale inventories was overestimated at roughly a $15.9 billion annual rate...assuming there's no revision or imbalance in the inflation adjustment to those inventories, that would suggest that the contraction rate of 2nd quarter GDP was overestimated by around 0.20 percentage points, just based on what this report shows...

 

(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…)