Sunday, October 25, 2020

September’s new housing construction and existing home sales

Just two widely watched reports were released this past week: the September report on New Residential Construction from the Census Bureau, and the Existing Home Sales Report for September from the National Association of Realtors (NAR)....also released this week was the Regional and State Employment and Unemployment report for September from the Bureau of Labor Statistics, a report which breaks down the two employment surveys from the monthly national jobs report by state and region....while the text of that report provides a useful summary of this data, the serious statistics aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands....in addition, this week also saw the release of another regional Fed manufacturing survey for October: the Kansas City Fed manufacturing survey for October, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to +13 in October, up from +11 in September but down from +14 in August, all readings which are indicative of a modest recovery among that region's manufacturers...

Housing Starts and Building Permits Were Both higher in September

The September report on New Residential Construction (pdf) from the Census Bureau reported that their widely watched estimate of new housing units that were started during the month was at a seasonally adjusted annual rate of 1,415,000, which was 1.9 percent (±8.8 percent)* above the revised August estimated annual rate of 1,388,000 housing unit starts, and was 11.1 percent (±11.3 percent)* above last September's pace of 1,274,000 housing starts a year...the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month, or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, September's housing starts could have been down by 6.9%, or up by as much as 10.7% from those of August, with a 10% chance that the actual change could have even been outside of that wide range....in this report, the annual rate for August housing starts was revised from the 1,416,000 reported last month to 1,388,000, while July starts, which were first reported at a 1,496,000 annual rate, were revised down from last month's initial revised figure of 1,492,000 annually to a 1,487,000 annual rate with this report....

Those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 125,000 housing units were started in September, up from the 124,500 units started in August...of those housing units started in September, an estimated 97,300 were single family homes and 26,700 were units in structures with more than 5 units, up from the revised 92,700 single family starts in August, but down from the 30,000 units started in structures with more than 5 units in August...

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, which is also impacted by the weather...in September, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,553,000 housing units, which was 5.2 percent (±1.6 percent) above the revised August rate of 1,476,000 permits, and 8.1 percent (±1.8 percent) above the rate of building permit issuance in September a year earlier...the annual rate for housing permits issued in August was revised from an annual rate of 1,470,000 to 1,476,000 annually....

again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 134,200 housing units were issued in September, up from the revised estimate of 126,200 new permits issued in August...the September permits included 95,300 permits for single family homes, up from 89,900 single family permits in August, and 34,900 permits for housing units in apartment buildings with 5 or more units, up from 31,700 such multifamily permits a month earlier...

For graphs and more commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts at 1.415 Million Annual Rate in September and Comments on September Housing Starts...

Existing Home Sales Rose 9.4% to a 14 Year High in September

The National Association of Realtors (NAR) reported that their seasonally adjusted tally of existing home sales rose by 9.4% from August to September, the fourth consecutive increase, projecting that a 14 year high of 6.54 million homes would sell over an entire year if the September home sales pace were extrapolated over that year, a pace that was also nearly 21% above the annual sales rate projected in September of a year ago...August sales, now reported at a 5.98 million annual rate, were revised from the 6.00 million rate reported a month ago ...the NAR also reported that the median sales price for all existing-home types was $311,800 in September, 14.8% higher than in September a year earlier, which they say "marks 103 straight months of year-over-year gains"...the NAR press release, which is titled "Existing-Home Sales Soar 9.4% to 6.5 Million in September", 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, et al., you can easily find them in that press release...as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell for are included in GDP, except insofar as real estate, local government and banking services are rendered during the selling process…

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we 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 560,000 homes sold in September, the same number of homes that sold in August, but 24.4% more than the 450,000 homes that sold in September of last year, so we can see that the seasonal adjustment gave a considerable boost to the monthly change published in the press release...that same pdf indicates that the median home selling price for all housing types rose by less than half a percent, from a revised $310.400 in August to $311,800 in September, while the average home sales price was $343,300, up 0.3% from the $342,300 average sales price in August, and up 11.6% from the $307,500 average home sales price of September a year ago, with regional average home sales prices ranging from a low of $270,900 in the Midwest to a high of $460,100 in the West... for both seasonally adjusted and unadjusted graphs and additional commentary on this report, see the following two posts from Bill McBride at Calculated Risk: NAR: Existing-Home Sales Increased to 6.54 million in September and Comments on September Existing Home Sales....

 

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

Sunday, October 18, 2020

September's consumer price and producer price indexes, retail sales, & industrial production; August's business inventories

Major reports released this past week included the September Consumer Price Index, the September Producer Price Index, and the September Import-Export Price Index from the Bureau of Labor Statistics, the Retail Sales report for September and the corresponding Business Sales and Inventories report for August from the Census Bureau, and Industrial production and Capacity Utilization for September from the Fed....this week also saw the release of the first two regional Fed manufacturing surveys for October: the Empire State Manufacturing Survey for October from the New York Fed, which covers New York and northern New Jersey, reported their headline general business conditions index fell from +17.0 in September to +10.5 in October, suggesting that First District manufacturing is recovering at a slower pace than a month ago, while the Philadelphia Fed Manufacturing Survey for October, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from +15.0 in September to +32.3 in October, suggesting that the region's manufacturing is recovering at a much more rapid pace than a month ago..

Consumer Prices Rose 0.2% in September on Higher Prices for Utilities, Used Cars, and Fast Food

The consumer price index rose 0.2% in September, as higher prices for energy services, new & used vehicles, and restaurant meals were only partly offset by lower prices for groceries, clothing, appliances, and transportation services ...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices rose by 0.4% in August, after rising by 0.4% in August, by 0.6% in July and by 0.6% in June, after 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, and rising by 0.1% last September...the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to 100, rose from 259.918 in August to 260.280 in September, which left it statistically 1.317% higher than the 256.759 reading of September of last year, which is reported as a 1.3% year over year increase, same as the year over year increase reported a month ago....with higher prices for utilities offset by lower prices for groceries, seasonally adjusted core prices, which exclude food and energy, also rose by 0.2% for the month, as the unadjusted core price index rose from 268.756 to 269.054, which left the core index 1.713% ahead of its year ago reading of 264.522, which is reported as a 1.7% year over year increase, up from the 1.6% the year over year core price increase that was reported for August...

The volatile seasonally adjusted energy price index rose 0.8% in September, after rising 0.9% in August, 2.5% in July, 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 August, and is still 7.7% lower than in September a year ago...the price index for energy commodities was 0.1% lower in September, while the index for energy services was 1.6% higher, after falling 0.2% in August....the energy commodity index was down 0.1% despite a 0.1% increase in the price of gasoline, due to a 5.3% decrease in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average 0.6% lower...within energy services, the price index for utility gas service rose 4.2% after falling 0.2% in August and is now 3.8% higher than it was a year ago, while the electricity price index rose 0.9% after falling 0.2% in August....energy commodities are averaging 15.5% lower than their year ago levels, with gasoline prices averaging 15.4% lower than they were a year ago, while the energy services price index is now up 1.4% from last September, as electricity prices are also 0.7% higher than a year ago…

The seasonally adjusted food price index was unchanged in September, after rising 0.1% in August, falling 0.4% in July, 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 0.4% lower in September, after falling 0.1% in August, while the index for food bought to eat away from home was 0.6% higher, as average prices at fast food outlets were a record 0.9% higher while prices at full service restaurants rose 0.3%, and while food prices at employee sites and schools averaged 0.3% lower...

In the food at home categories, the price index for cereals and bakery products was unchanged as average bread prices rose 0.3% and breakfast cereal prices rose 2.0%, while the price index for fresh sweetrolls, coffeecakes, and doughnuts fell 2.0%, the price index for cookies fell 0.8%, and the price index for flour and prepared flour mixes fell 0.5%....at the same time, the price index for the meats, poultry, fish, and eggs group was 0.4% lower as the price index for beef and veal fell 0.6%, egg prices fell 0.9%, and the price index for pork was 1.2% lower... meanwhile, the seasonally adjusted index for dairy products was 0.5% lower, as milk prices fell 0.2%, the index for cheese and related products was 0.6% lower, and the index for other dairy products fell 0.9%...in addition, the fruits and vegetables index was 0.4% lower as the price index for fresh fruits fell 1.3%, potato prices fell 3.8%, and the price index for dried beans, peas, and lentils fell 3.1%...at the same time, the beverages price index was 0.8% lower as the price index for carbonated drinks fell 1.7% and the prices index for beverage materials including coffee and tea fell 0.4%....lastly, the price index for the ‘other foods at home’ category was 0.6% lower, as butter prices fell 1.7%, peanut butter prices fell 2.6%, the price index for salt and other seasonings and spices fell 1.5%, and the price index for frozen and freeze dried prepared foods fell 0.9%...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 September, the price index for uncooked beef roasts has risen 11.9%, the price index for pork chops is up 11.2%, the price index for poultry other than chicken is 12.5% higher, and the price index for frankfurters is up 10.2% over the year, while the 3.2% decrease in banana prices is the largest drop of the few food prices that have declined over the past year...

Among the seasonally adjusted core components of the CPI, which rose by 0.2% in September, after rising by 0.4% in August, by 0.6% in July and by 0.2% in June, after 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, and by 0.2% last August, the composite price index of all goods less food and energy goods was 0.8% higher in September, while the more heavily weighted composite for all services less energy services was unchanged....

Among the goods components, which will be used by the Bureau of Economic Analysis to adjust September's retail sales for inflation in national accounts data, the price index for household furnishings and supplies was 0.2% lower, as the price index for major appliances fell 2.0% on a 5.6% decrease in prices for laundry equipment, the price index for window coverings fell 0.9%, the price index for floor coverings fell 0.8%, and the price index for dishes and flatware decreased by 1.9%....at the same time, the apparel price index was 0.5% lower on a 3.1% decrease in the price index for men's suits, sport coats, and outerwear, a 4.7% decrease in the price index for boy's apparel, a 2.1% decrease in the price index for boys' and girls' footwear, and a 3.7% decrease in the price index for infants' and toddlers' apparel...on the other hand, the price index for transportation commodities other than fuel was 2.7% higher, as new car prices rose 0.3% prices for used cars and trucks rose 6.7% and the price index for vehicle parts and equipment other than tires rose 1.9%....however, prices for medical care commodities were unchanged, as non-prescription drug prices rose 0.2% while the price index for medical equipment and supplies fell 2.0%...meanwhile, the recreational commodities index was 0.4% lower on a 2.0% decrease in the price index for pets, pet supplies, accessories, a 1.7% decrease in the price index for photographic equipment and supplies, and a 1.3% decrease in the price index for sports vehicles including bicycles...at the same time, the education and communication commodities index was 2.5% lower on a 4.1% decrease in the price index for computers, peripherals, and smart home assistants and a 5.6% decrease in the price index for computer software and accessories...lastly, a separate price index for alcoholic beverages was 0.2% lower, while the price index for ‘other goods’ was up 0.1% on a 0.9% increase in the price index for miscellaneous personal goods..

Within core services, the price index for shelter was 0.1% higher as rents rose 0.1% and homeowner's equivalent rent rose 0.1% while prices for lodging away from home at hotels and motels fell 0.5%, while at the same time the shelter sub-index for water, sewers and trash collection rose 0.2%, and other household operation costs were on average 0.4% higher on a 1.9% increase in moving, storage, freight expenses....meanwhile, the price index for medical care services was unchanged, as the price index for eyeglasses and eye care rose 0.8%, the price index for hospital services rose 0.6%, and the price index for care of invalids and elderly at home rose 0.6%, while the price of health insurance fell 1.5%... however, the transportation services price index was 0.9% lower as airline fares fell 2.0% and vehicle insurance costs fell 3.5%, even as the price index for intracity mass transit rose 13.3%...meanwhile, the recreation services price index rose 0.5% as the index for photographers and photo processing rose 1.2%, the index for pet services rose 0.5% and the index for "club membership for shopping clubs, fraternal, or other organizations, or participant sports fees" rose 2.6%....at the same time, the index for education and communication services was unchanged as the price index for college tuition and fees fell 0.5% while the price index for land line telephone services rose 0.5% and the index for delivery services rose 0.8%...lastly, the index for other personal services was up 0.2% as the price index for haircuts and other personal care services rose 0.3%, the index for tax return preparation and other accounting fees rose 0.7%, and the price index for apparel services other than laundry and dry cleaning was 1.0% higher...

Among core line items, prices for televisions, which are still averaging 11.3% cheaper than a year ago, the price index for telephone hardware, calculators, and other consumer information items, which is down by 13.6% since last September, the price index for computer software and accessories, which is down 14.3% year over year, the price index for men's suits, sport coats, and outerwear, which has fallen 18.7% from a year ago, the price index for women's dresses, which has fallen by 16.8% in the past year, the price index for women's outerwear, which has fallen by 10.3% from a year ago, the price index for boys' apparel, which has fallen by 11.4% in the past year, the price index for lodging away from home including hotels and motels, which has fallen by 15.0% in the past year, and airline fares, which are now down by 25.0% since last September, have all seen prices drop by more than 10% over the past year, while the cost of health insurance, which is still up by 14.1% over the past year, the price index for used cars and trucks, which has risen 10.3% from a year ago, the price index for infant's equipment, which is up by 13.7% year over year, and the price index for infant's furniture, which is up 10.7% from last September, are the only line items to have increased by a double digit magnitude over that span.... 

Retail Sales Increased by 1.9% in September after July and August Sales were Revised 0.3% Higher

Seasonally adjusted retail sales rose 1.9% in September after retail sales for July and August were revised 0.3% higher....the Advance Retail Sales Report for September (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $549.3 billion during the month, which was 1.9 percent (± 0.5 percent) above August's revised sales of $526.9 billion, and 5.4 percent (± 0.7 percent) above the adjusted sales in September of last year...August's seasonally adjusted sales were revised from $537.5 billion to $539.0 billion, while July sales were also revised higher, from $534.6 billion to $535.9 billion, with this release....unadjusted sales estimates, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 2.8%, from $546,720 million in August to $531,172 million in September, while they were up 7.1% from the $496,074 million of sales in September a year ago...

Since it's the end of the quarter for retail sales, we'll include the entire table from this report showing the change in retail sales by business type, including the quarter over quarter data...again, to explain what it shows, the first double column below shows us the seasonally adjusted percentage change in sales for each kind of business from the August revised figure to this month's September "advance" report figure in the first sub-column, and then the year over year percentage sales change since last September in the 2nd column; the second double column pair below gives us the revision of the August advance estimates (now called "preliminary") as of this report, with the new July to August percentage change under "Jul 2020 (r)" (revised) and the August 2019 to August 2020 percentage change as revised in the 2nd column of the pair.. (for your reference, the table of last month’s advance estimate of August sales, before this month's revisions, is here).... then, the third pair of columns shows the percentage change of the most recent 3 months of this year's sales (July, August and September) from the preceding three months of the 2nd quarter (April, May and June) and then from the same three months (July, August and September) of a year ago....that first column of that pair gives us a snapshot comparison of 2nd quarter sales to third quarter sales which, after adjustment for price changes, can be useful in estimating the impact of this report on 3rd quarter GDP:

September 2020 retail sales table

To compute September's real personal consumption of goods data for national accounts from this September retail sales report, the BEA will use the corresponding price changes from the September consumer price index, which we reviewed earlier...to estimate what they will find, we’ll start by pulling out the usually volatile sales of gasoline from the other totals...from the third line on the above table, we can see that September retail sales excluding the 1.5% increase in sales at gas stations were also up by 1.9%....then, subtracting the figures representing the little changed grocery & beverage sales and the 2.1% increase in food services sales from that total, we find that core retail sales were up by almost 2.3% for the month....since the CPI report showed that the composite price index for all goods less food and energy goods was up 0.8% in September, we can thus figure that real retail sales excluding food and energy were up by nearly 1.5% month over month...however, the adjustment 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 up by 3.6%, the price index for transportation commodities other than fuel was 2.7% higher, as new car prices rose 0.3%, prices for used cars and trucks rose 6.7% and the price index for vehicle parts and equipment other than tires rose 1.9%...that would suggest that real unit sales at auto & parts dealers would only be on the order of 0.9% higher...on the other hand, while sales at clothing stores were 11.0% higher in September, the apparel price index was 0.5% lower, which means that real sales of clothing actually rose almost 11.6%...similarly, while nominal sales at sporting goods, hobby, music and book stores rose 5.7%, the price index for recreational commodities fell 0.4%, so real sales of recreational goods were up roughly 6.1%...

In addition to figuring those core retail sales, to make a complete estimate of real September PCE, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do….the September CPI report showed that the food price index was unchanged in September, with the price index for food purchased for use at home 0.4% lower, while prices for food bought for eating away from home were 0.6% higher... hence, with nominal sales at food and beverage stores were unchanged, real sales of food at groceries would be roughly 0.4% higher.…on the other hand, the 2.1% increase in nominal sales at bars and restaurants, once adjusted for 0.6% higher prices, suggests that real sales at bars and restaurants only rose by 1.5%...similarly, while sales at gas stations were up 1.5%, there was a 0.1% increase in the retail price of gasoline, which would suggest real sales of gasoline were up on the order of 1.4%, with the caveat that gasoline stations do 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 1.2excluding food services, we’d estimate that the income and outlays report for September will show that real personal consumption of goods rose 1.2% in September, after rising by a revised 0.1% in August and by a revised 1.2% in July....at the same time, the 1.5% increase in real sales at bars and restaurants will have a significant positive impact on September's real personal consumption of services..

Industrial Production Fell 0.6% in September after Prior Months Revised Higher

The Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production decreased by 0.6% in September after rising by 0.4% in August and by 4.2% in July, which was revised from the 3.5% increase previously reported...the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, fell from a revised 102.2 in August to 101.5 in September; after the index for August was revised from the previously reported 101.4 to 102.2, the index for July was revised from the previously reported 101.0 to 101.7, the index for June was revised from the previously reported 97.5 to 97.6, while the April index was revised from 90.0 to 90.3, and the May index of 91.9 was unchanged from the previous report....for the 3rd quarter as compared to the 2nd quarter, industrial production rose at a 39.8% annual rate, even as total industrial production was still 7.3% lower than in September a year earlier, due to the  production decrease in the second quarter of this year....

The manufacturing index decreased by 0.3% in September, from 98.5 in August to 98.3 in September, after August's manufacturing index was revised from 97.9 to 98.5, July's manufacturing index was revised from 97.0 to 97.4, June's manufacturing index was revised from 93.4 to 93.5, May's manufacturing index was revised but remained at 86.9, and the April manufacturing index was revised from 83.6 to 83.9.....meanwhile, the mining index, which includes oil and gas well drilling, rose from 112.0 in August to 113.9 in September, after the August index was revised up from 109.7 , but is still 14.8% lower than it was a year ago....finally, the utility index, which often fluctuates due to above or below normal temperatures, fell 5.6% to 99.6 in September, after the August index was revised 105.2 to 105.5, and is now 6.1% lower than in September of a year ago...

This report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry fell from 72.0% in August to 71.5% in September, after rising from 71.6% in July....capacity utilization of NAICS durable goods production facilities fell from 69.8% in August to 69.4% in September, while capacity utilization for non-durables producers was unchanged at 72.9%...capacity utilization for the mining sector rose to 77.6% in September from 76.1% in August, which was revised from the 74.5% that was originally reported, while utilities were operating at 70.4% of capacity during September, down from their 74.7% of capacity during August, which was revised up from 74.5%...for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories....

Producer Prices rose 0.4% in August on Higher Wholesale Food Prices and Higher Margins for Core Services

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.4% in September, as prices for both finished wholesale goods and margins of final service providers averaged 0.4% higher....that followed an August report that indicated that the PPI was 0.3% higher, as prices for finished wholesale goods averaged 0.1% higher while margins of final service providers averaged 0.5% higher, a July report that had the PPI 0.6% higher, as prices for finished wholesale goods averaged 0.8% higher while margins of final service providers averaged 0.5% higher, a now revised June report that had the PPI 0.1% higher, as prices for finished wholesale goods averaged 0.4% higher, while margins of final service providers averaged 0.2% lower, and a re-revised May report that has the PPI 0.5% higher, as prices for finished wholesale goods averaged 1.5% higher, while margins of final service providers increased by 0.1%....on an unadjusted basis, producer prices are now 0.4% higher than a year ago, up from the 0.2% year over year decrease indicated by last month's report, while the core producer price index, which excludes food, energy and trade services, rose by 0.4% for the month, and is now 0.7% higher than in September a year ago, up from the 0.3% year over year increase shown in August...

As noted, the price index for final demand for goods, aka 'finished goods', was 0.4% higher in September, after being 0.1% higher in August, 0.8% higher in July, 0.4% higher in June, 1.5% higher in May, 3.0% 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, and 0.3% lower in August of last year....the finished goods index rose 0.4% in September even as the price index for wholesale energy goods was 0.3% lower, after it had fallen by 0.1% in August, risen by 5.3% in July, by 9.7% in June and 4.3% in May, because the price index for wholesale foods rose 1.2%, after falling 0.4% in August, 0.5% in July, and a revised 4.9% in June, but after rising a revised 5.6% in May, while the index for final demand for core wholesale goods (excluding food and energy) was 0.4% higher, after being 0.3% higher in July and August....wholesale energy prices averaged 0.3% lower due to a 2.8% decrease in wholesale prices for gasoline, a 3.8% decrease in wholesale prices for LP gas, and a 4.9% decrease in wholesale prices for No.2 diesel fuel, while the wholesale food price index rose 1.2% on a 16.7% increase in wholesale prices for fresh eggs, a 19.4% increase in the wholesale price index for oilseeds, and a 16.4% increase in the wholesale price index for grains....among wholesale core goods, the wholesale price index for iron a steel scrap rose 14.7%, the wholesale price index for industrial chemicals rose 4.0%, and the wholesale price index for mobile homes rose 6.6%...

At the same time, the index for final demand for services rose 0.4% in September, after rising 0.5% in August, and 0.5% in July, after falling a revised 0.2% in June and rising a revised 0.1% in May, as the index for final demand for trade services rose 0.2%, the index for final demand for transportation and warehousing services rose 0.4%, and the core index for final demand for services less trade, transportation, and warehousing services was 0.5% higher... among trade services, seasonally adjusted margins for RVs, trailers, and campers retailers rose 31.8%, margins for hardware, building materials, and supplies retailers rose 13.8%, margins for major household appliance retailers rose 4.9%, and margins for fuels and lubricants retailers rose 4.0%... among transportation and warehousing services, margins for airline passenger services rose 2.5% while margins for air transportation of freight fell 1.1%...among the components of the core final demand for services index, the index for arrangement of cruises and tours rose 5.0%, the index for credit intermediation, incl. trust services (partial) rose 4.6%, margins for traveler accommodation services rose 3.9%, and margins for consumer loans (partial) rose 3.3%…

This report also showed the price index for intermediate processed goods rose 1.0% in September, the largest jump since January 2016, after rising 0.6% in August, 1.5% in July, a revised 1.3% in June, but after being unchanged in May and falling the prior 5 months....the price index for intermediate energy goods rose 0.2%, as producer prices for natural gas sold to electric utilities rose 14.1% and producer prices for natural gas sold to industry rose 7.7%, while refinery prices for No. 2 diesel fuel fell 4.9%... meanwhile, the price index for intermediate processed foods and feeds was unchanged, as the producer price index for processed fruits and vegetables fell 3.4% and the producer price index for dairy products fell 2.5% while the producer price index for prepared animal feeds rose 2.6% and the producer price index for meat rose 2.0%...at the same time, the core price index for intermediate processed goods less food and energy rose 1.3% as the producer price index for plywood rose 10.3%, the producer price index for softwood lumber increased 28.6%, the producer price index for building paper and board rose 18.7%, and the producer price index for aluminum mill shapes rose 6.8%...however, prices for intermediate processed goods are still 1.5% lower than in September a year ago, the 17th 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 prices for intermediate goods fell every month from July 2015 through March 2016....

Meanwhile, the price index for intermediate unprocessed goods rose 3.9% in September, after rising 7.0% in August, falling 0.7% in July, rising a revised 4.0% in June and a revised 8.6% in May, but after falling 12.6% in April and 8.5% in March....that was even as the September price index for crude energy goods fell 0.7% as crude oil prices fell 9.8% while unprocessed natural gas prices rose 12.1%, as the price index for unprocessed foodstuffs and feedstuffs rose 5.6% on a 55.9% increase in producer prices for slaughter barrows and gilts, a 20.7% increase in producer prices for slaughter cattle and a 19.6% increase in producer prices for oilseeds...at the same time, the index for core raw materials other than food and energy materials rose 7.2%, as prices for iron and steel scrap and aluminum base scrap both rose 14.7% and the price index for nonferrous metal ores increased 7.0%....however, this raw materials index is still 5.4% lower than a year ago, as the year over year change on this index has been negative since the beginning of 2019...

Lastly, the price index for services for intermediate demand rose 1.0% in September, after rising 0.7% in August, 0.7% in July, and a revised 0.2% in June, after falling revised 0.3% in May, and falling 1.7% in April...the price index for intermediate trade services was 2.1% higher, as margins for intermediate hardware, building material, and supplies retailers rose 13.8% and margins for intermediate building materials, paint, and hardware wholesalers rose 4.5%...meanwhile, the index for transportation and warehousing services for intermediate demand was 0.9% higher, as the intermediate price index for arrangement of freight and cargo rose 11.8% and the intermediate price index for transportation of passengers (partial) rose 2.5%...at the same time, the core price index for intermediate services less trade, transportation, and warehousing was 0.6% higher, as the price index for gross rents for retail properties increased 7.9%, the price index for investment banking rose 8.9%, the intermediate price index for business loans (partial) rose 4.4%, the intermediate price index for traveler accommodation services rose 3.9%, and the intermediate price index for securities brokerage, dealing, investment advice, and related services rose 2.9%...over the 12 months ended in September, the year over year price index for services for intermediate demand is now 0.3% higher than it was a year ago, the first positive annual change since it turned negative year over year in April for the first time in the history of this index...

Business Sales Rose 0.6% in August; Business Inventories Rose 0.3%

After the release of the September retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for August (pdf), which incorporates the revised August retail data from that September report and the earlier published August 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 $1,452.4 billion in August, up 0.6 percent (±0.1%) from July’s revised sales, but down 0.4 percent (±0.4 percent)* from August sales of a year earlier....note that total July sales were concurrently revised up from the originally reported $1,441.1 billion to $1,443.470 billion, now a 3.4% increase from June....manufacturer's sales were 0.3% higher at $481,280 million in August, and retail trade sales, which exclude restaurant & bar sales from the revised August retail sales we reported earlier, were were 0.2% higher at $484,510 million, while wholesale sales were 1.4% higher at $486,636 million…

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,919.2 billion billion at the end of August, up 0.3 percent (±0.1 percent) from July, but 5.5 percent (±0.3%) lower than in August a year earlier...the value of end of July inventories were revised to $1,914.2 billion from the $1,914.3 billion reported last month but is still a 0.1% increase from June...seasonally adjusted inventories of manufacturers were estimated to be valued at $686,554 million, statistically unchanged from July, while inventories of retailers were valued at $597,075 million, 0.4% more than in July, and inventories of wholesalers were estimated to be valued at $635,525 million at the end of August, also 0.4% higher than in July…

For GDP purposes, all inventories, including retail, are adjusted for inflation with appropriate component price indices of the producer price index...while we reviewed the September index above, the producer price index for August indicated that aggregate prices prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were 0.6% higher, while prices for unprocessed goods were 7.0% higher...retail inventories are all finished goods, as are about 70% of wholesale inventories, while factory inventories, which we looked at two weeks ago, are roughly evenly split between the three stages of production...hence, although the nominal value of August inventories was 0.3% higher, real inventories would have been little changed August, following an increase of around 0.4% in real July inventories...since the recent GDP report showed that real private inventories saw a substantial decrease in the second quarter, any real increase in real inventories over the 3rd quarter would thus have a substantial positive impact on 3rd quarter GDP, first by reversing the 2nd quarter drop, and then by incrementally adding to that by the amount of the 3rd quarter increase...

 

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

Sunday, October 11, 2020

August's trade deficit, wholesale inventories and JOLTS

Major agency reports released this past week included the the August report on our International Trade from the Commerce Dept, the Job Openings and Labor Turnover Survey (JOLTS) from the Bureau of Labor Statistics, and the August report on Wholesale Trade, Sales and Inventories from the Census Bureau...in addition, the Fed released the Consumer Credit Report for August, which indicated that overall consumer credit, a measure of non-real estate debt, contracted by a seasonally adjusted $7.2  billion in August, or at a 2.1% annual rate, as non-revolving credit expanded at a 0.8% rate to $3,159.4 billion while revolving credit outstanding contracted at a 11.3% rate to $985.3 billion...

This week’s major privately issued reports included the September Services Report On Business from the Institute for Supply Management (ISM), which saw the rebranded Services PMI rise to 57.8% in September, up from 56.9% in August, indicating a larger plurality of service industry purchasing managers reported expansion in various facets of their business in September, and the Mortgage Monitor for August (pdf) from Black Knight Financial Services, which reported that 6.88% of mortgages were delinquent in August, down from the 6.91% that were delinquent in July, but well up from the 3.45% delinquency rate of August of 2019, and that a record low 0.35% of mortgages remained in the foreclosure process in August, down from 0.36% in July, and down from the 0.48% of mortgages that were in foreclosure a year ago...

Trade Deficit Rose 5.9% to a 14 Year High in August on Higher Imports of Pharmaceuticals and Passenger Cars

Our trade deficit rose by 5.9% in August as the value of both our exports and our imports increased, but the value of our imports increased by a greater amount....the Commerce Dept report on our international trade in goods and services for August indicated that our seasonally adjusted goods and services trade deficit rose by $3.7 billion to a 14 year high of $67.1 billion in August, from a July deficit of $63.4 billion, which was revised from the $63.6 billion deficit for July that had been reported last month...after rounding, the value of our August exports rose by $3.6 billion to $171.9 billion on a $3.5 billion increase to $119.1 billion in our exports of goods and a $0.1 billion increase to $52.8 billion in our exports of services, while the value of our imports rose by $7.4 billion to $239.0 billion on a $6.5 billion increase to $203.0 billion in our imports of goods and a $0.8 billion increase to $36.1 billion in our imports of services...prices for our exports were on average 0.5% higher in August, which means the relative real change in exports for the month was less than the nominal change by that percentage, while import prices were 0.9% higher, meaning that the relative real change in imports was similarly smaller than the nominal dollar value reported here by that percentage...

The increase in our August exports of goods resulted from greater exports of industrial supplies and farm products, which were partially offset by lower exports of capital goods....referencing the Full Release and Tables for August (pdf), in Exhibit 7 we find that our exports of industrial supplies and materials rose by $3,851 million to $39,139 million on a $1778 million increase in our exports of non-monetary gold, a $375 million increase in our exports of other precious metals, and a $333 million increase in our exports of petroleum products other than fuel oil, and that our exports of foods, feeds and beverages rose by $1,075 million to $11,286 million on a $951 million increase in our exports of soybeans...in addition, our exports of consumer goods rose by $202 million to $15,101 million on an $228 million increase in our exports of pharmaceuticals, and our exports of automotive vehicles, parts, and engines rose by $48 million to $12,205 million on a $169 million increase in our exports of trucks, buses, and special purpose vehicles...partially offsetting the increases in those categories, our exports of capital goods fell by $1,416 million to $36,306 million on a $1,219 million decrease of in our exports of semiconductors and a $346 million decrease of in our exports computer accessories, and our exports of other goods not categorized by end use fell by $346 million to $4,715 million...

Exhibit 8 in the Full Release and Tables gives us seasonally adjusted details on our imports of goods and shows that higher imports of consumer goods, automotive products and "other" goods were responsible for the $6.5 billion increase in our imports of goods, while our imports industrial supplies and materials decreased....our imports of consumer goods rose by $3,823 million to $57,852 million on a $2,717 million increase in our imports of pharmaceuticals, a $500 million increase in our imports of cotton apparel and household goods, a $492 million increase in our imports of furniture and a $315 million increase in our imports of stereo equipment, while our imports of automotive vehicles, parts and engines rose by $1,658 million to $28,012 million on a $988 million increase in our imports of new & used passenger cars and a $445 million increase in our imports of parts and accessories of vehicles other than engines, chassis, and tires....in addition, our imports of capital goods rose by $830 million to $54,694 million on a $675 million increase in our imports of computers and a $405 million increase in our imports of semiconductors, our imports of foods, feeds, and beverages rose by $678 million to $13,484 million on a $215 million increase in our imports of alcoholic beverages other than wine and beer, and our imports of other goods not categorized by end use rose by $1,067 million to $9,595 million.....partially offsetting the increases in those categories, our imports of industrial supplies and materials fell by $1,550 million to $38,277 million on a $2,116 million decrease in our imports of nonmonetary gold and a $1,611 million decrease in our imports of finished metal shapes, which were partly offset by a $1,035 million increase in our imports of crude oil..

The Full Release and Tables pdf for this month's report also summarizes Exhibit 19, which gives us surplus and deficit details on our goods trade with selected countries:

The August figures show surpluses, in billions of dollars, with South and Central America ($2.4), Hong Kong ($1.7), OPEC ($1.3), Brazil ($1.0), United Kingdom ($1.0), Saudi Arabia ($0.2), and Singapore ($0.1). Deficits were recorded, in billions of dollars, with China ($26.4), European Union ($15.7), Mexico ($12.5), Germany ($4.6), Japan ($4.3), Italy ($2.6), Taiwan ($2.6), India ($2.3), France ($2.2), South Korea ($2.2), and Canada ($1.2).

  • The deficit with Germany increased $1.6 billion to $4.6 billion in August. Exports decreased $0.3 billion to $4.9 billion and imports increased $1.2 billion to $9.6 billion.
  • The deficit with Japan increased $1.0 billion to $4.3 billion in August. Exports increased $0.6 billion to $5.3 billion and imports increased $1.5 billion to $9.6 billion.
  • The deficit with China decreased $1.9 billion to $26.4 billion in August. Exports increased $1.7 billion to $11.2 billion and imports decreased $0.2 billion to $37.7 billion.

To gauge the impact of July and August goods trade on 3rd quarter GDP growth figures, we use exhibit 10 in the full pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, except that the figures are not annualized here....from that table, we can compute that 2nd quarter real exports of goods averaged 113,766 million monthly in 2012 dollars, while the similarly inflation adjusted July and August goods exports were at 133,262 million and 136,725 million respectively, in that same 2012 dollar quantity index representation...computing the annual rate of change between the second and third quarter inflation adjusted averages, we find that the 3rd quarter's real exports of goods are running at a 98.24% annual rate above those of the 2nd quarter, or at a pace that would add about 5.67 percentage points to 3rd quarter GDP if it were continued through September...in a similar manner, we find that our 2nd quarter real imports averaged 196,062.3 million monthly in chained 2012 dollars, while inflation adjusted July and August imports were at 224,328 million and 229,038 million in 2012 dollars respectively...that would mean that so far in the 3rd quarter, our real imports have grown at 78.69% annual rate from those of  the 2nd quarter...since imports subtract from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at a 78.69% rate would thus subtract 6.13 percentage points from 3rd quarter GDP...(note that imports are larger than exports and hence the smaller percentage increase here has a larger impact)....hence, if our July and August trade deficit in goods remains at these same levels throughout September, our deteriorating balance of trade in goods would subtract a net of about 0.46 percentage points from the growth of 3rd quarter GDP....note that we have not computed the impact of the less volatile change in services here because the Census does not provide inflation adjusted data on those, and we don't have an easy way to estimate the relevant price changes, but that services exports increased by much less than services imports increased in the quarter, suggesting trade in services will also have a significant negative impact on 3rd quarter GDP... 

Job Openings and Job Quitting Lower in August, Hiring Little Changed, Layoffs at a Record Low

The Job Openings and Labor Turnover Survey (JOLTS) report for August from the Bureau of Labor Statistics estimated that seasonally adjusted job openings decreased by 204,000, from 6,697,000 in July to 6,493,000 openings in August, after July job openings were revised 79,000 higher, from 6,618,000 to 6,697,000...August jobs openings were also 9.4% lower than the 7,166,000 job openings reported in August a year ago, as the job opening ratio expressed as a percentage of the employed fell from 4.6% in July to 4.4% in August, which was also down from 4.5% a year ago...the largest percentage decrease appears to have been the 68,000 job opening decrease to 264,000 job openings in construction, while job openings in manufacturing increased by 30,000 to 460,000 (see table 1 for more details)...like most BLS releases, the press release for this report is easy to understand and also refers us to the associated table for the data cited, which are linked at the end of the release...

The JOLTS release also reports on labor turnover, which consists of hires and job separations, which in turn is further divided into layoffs and discharges, those who quit, and 'other separations', which includes retirements and deaths....in August, seasonally adjusted new hires totaled 5,919,000, up by 16,000 from the revised 5,903,000 who were hired or rehired in July, as the hiring rate as a percentage of all employed remained unchanged at 4.2%, which was up from 3.9% hiring rate in August a year earlier (details of hiring by sector since March are in table 2)....meanwhile, total separations fell by 394,000, from 4,988,000 in July to 4,594,000 in August, while the separations rate as a percentage of the employed fell from 3.6% to 3.3%, which was also down from 3.7% in August a year ago (see table 3)...subtracting the 4,594,000 total separations from the total hires of 5,919,000 would imply an increase of 1,325,000 jobs in August, somewhat less than the revised payroll job increase of 1,489,000 for August reported by the September 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 2,793,000 of us voluntarily quit our jobs in August, down by 141,000 from the revised 2,932,000 who quit their jobs in July, while the quits rate, widely watched as an indicator of worker confidence, fell from 2.1% to 2.0% of total employment, and was also down from the quits rate of 2.3% a year earlier (see details in table 4)....in addition to those who quit, another 1,473,000 were either laid off, fired or otherwise discharged in August, down by 272,000 from the revised 1,745,000 who were discharged in July, while the discharges rate fell to record low of 1.0% of all those who were employed during the month, down from the 1.3% discharges rate in July and the 1.2% discharges rate of a year earlier....meanwhile, other separations, which includes retirements and deaths, were at 328,000 in August, up from 311,000 in July, for an 'other separations rate’ of 0.2%, the same as in July and as in August of last year....both seasonally adjusted and unadjusted details by industry and by region on hires and job separations, and on job quits and discharges can be accessed using the links to tables at the bottom of the press release

August Wholesale Sales Up 1.4%, Wholesale Inventories Up 0.4%

The August report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $486.6 billion, up by 1.4 percent (±0.5 percent) from the revised July level, but down n 2.3 percent (±1.1 percent) from wholesale sales of August 2019... the July preliminary estimate was revised up to $479.9 billion from the $479.2 billion in wholesale sales reported last month, which meant that the June to July change was revised from the preliminary estimate of a 4.6 percent (±0.5 percent) increase to one of + 4.8 percent (±0.5 percent).....as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold....

On the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold, and this August report estimated that wholesale inventories were valued at a seasonally adjusted $680.7 billion at month end, up 0.4 percent (+/-0.2%) from the revised July level, but 5.2 percent (±0.7 percent) lower than in August a year ago...July's inventory value was revised from the $632.3 billion reported a month ago to $633.2 billion, which revised the July inventory decrease from down 0.3 percent (+/-0.2%) to down 0.2 percent (+/-0.2%)..

August wholesale inventories would be adjusted for inflation with the appropriate sub-indices of the August producer price index, which showed that aggregate prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were 0.6% higher, while prices for unprocessed goods were 7.0% higher....with wholesale inventories roughly 2/3rds finished goods, those PPI price changes suggest that the increase in August inventories was mostly price related, and that real wholesale inventories were little changed....however, since the key source data and assumptions (xls) for the third estimate of 2nd quarter GDP indicates a real decrease of $45.4 billion in wholesale inventories on an inflation adjusted NIPA basis, any 3rd quarter real inventory change that falls well short of that big drop will result in a substantial boost to 3rd quarter GDP...

 

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

Sunday, October 4, 2020

September’s jobs report; 3rd estimate of 2nd quarter GDP; August’s income and outlays, new construction, and factory inventories

This week was one of the infrequent times where we see the release of the key end-of-the-month reports and the key first of the month reports during the same week, and hence this week we have the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, and the August report on Personal Income and Spending, also from the BEA, which includes 2 months of data on personal consumption expenditures and hence will account for more than 46% of 3rd quarter GDP, and the Employment Situation Summary for September from the Bureau of Labor Statistics...other major reports released this week included the August report on Construction Spending (pdf), and the Full Report on Manufacturers' Shipments, Inventories and Orders for August, both from the Census Bureau...

This week’s major privately issued reports included the ADP Employment Report for September and the September report on light vehicle sales from Wards Automotive, (the source of the BEA's data) which estimated that vehicles sold at a 16.34 million annual rate in September, up from the 15.19 million annual rate in August, but down from the 17.19 million annual sales rate in September of last year, and the Case-Shiller Home Price Index for July, which is an index generated by comparing relative sales prices for May, June and July repeat home sales to their earlier selling prices, and which reported that home prices nationally for those 3 months averaged 4.8% higher than prices for the same homes that sold during the same 3 month period a year earlier, up from the 4.3% year over year increase shown in the prior report....this week also saw the release of the widely followed manufacturing purchasing manager's survey from the Institute for Supply Management (ISM): the September Manufacturing Report On Business indicated that the manufacturing PMI (Purchasing Managers Index) fell to 55.4% in September, down from 56.0% in August, indicating a slightly smaller plurality of manufacturing purchasing managers reported expansion in various facets of their business in September...

Employers Add 661,000 Jobs in September; Labor Force Participation Rate Falls to 61.4%

The Employment Situation Summary for September indicated that the rebound in payroll jobs from their April nadir continued for a 5th consecutive month, and that the unemployment rate fell by 0.5% to 7.9%, but that the the labor force participation rate fell by 0.3% to to 61.4%….estimates extrapolated from the establishment survey data projected that employers added a seasonally adjusted 661,000 jobs in September, after the previously estimated payroll job increase for July was revised up from 1,734,000 to 1,761,000 and the payroll jobs increase for August was revised up from 1,371,000 to 1,489,000….thus, those revisions mean that the combined number of jobs created over those two months was 145,000 more than was previously reported.....the unadjusted data, meanwhile, shows that there were actually 1,137,000 more payroll jobs in September, largely due to job increases relating to the beginning of the school year, and that the seasonal adjustment brought the headline jobs number down to a level where that normal September increase was negated...

Seasonally adjusted job increases in September were seen throughout the private goods producing and service sectors, with only jobs in various branches of government seeing a net seasonally adjusted employment decrease 216,000 jobs, mostly due to local school systems adding 231,100 fewer jobs and state universities adding 49,400 fewer jobs than is normal for September...returning jobs in the leisure and hospitality sector accounted for a seasonally adjusted increase of 318,000 jobs in September, with the return of 200,300 jobs in bars and restaurants and 68,800 more employed in amusements, gambling, and recreation...the retail sector saw an increase of 142,400 jobs, with 39,800 workers returning to jobs in clothing stores, and 19,500 returning to jobs in general merchandise stores....at the same time, employment in health care and social assistance rose by 107,700, led by the addition of 31,700 jobs in individual and family services and 18,200 jobs in doctor's offices....in addition, the broad professional and business services category added 89,000 jobs, as 22,400 workers found jobs in services to buildings and dwellings and 13,100 were hired by architectural and engineering services...September also saw the addition of 73,600 jobs in transportation and warehousing, with 32,200 of those in warehousing and storage and 21,400 in transit and ground passenger transportation... meanwhile, employment in manufacturing increased by 66,000, with 14,300 of those working in manufacture of motor vehicles and parts and 13,800 more in the manufacture of machinery...another 37,000 jobs were added in various financial activities, led by 11,900 in real estate and 8,100 in rental and leasing services...and "other services" added 36,000 more to the month's total, with 30,600 of those working in membership associations and organizations...other September job additions included 27,000 jobs in the information sector, 26,000 jobs in construction, 18,700 in wholesale trade, 2,800 with utilities and 1,000 jobs in resource extraction..

The establishment survey also showed that average hourly pay for all employees rose by two cents an hour to $29.47 an hour, after it had increased by a revised 10 cents an hour in August; at the same time, the average hourly earnings of production and non-supervisory employees increased by a penny to $24.79 an hour...employers also reported that the average workweek for all private payroll employees rose by 0.1 hour to 34.7 hours in September, while hours for production and non-supervisory personnel rose by 0.1 hour to 34.1 hours, after their August workweek had been unchanged...at the same time, the manufacturing workweek rose by 0.2 hour to 40.2 hours after rising 0.3 hours in August, while average factory overtime decreased by 0.1 hour to 2.9 hours...

Meanwhile, the seasonally adjusted extrapolation from the September household survey indicated that the number of those who would self-report being employed rose by an estimated 275,000 to 147,563,000, while the similarly estimated number of those who would qualify as being unemployed fell by 970,000 to 12,580,000; and hence the civilian labor force decreased by a net of 695,000...since the working age population had grown by 184,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 879,000 to 100,599,000, which combined with the lower labor force was enough to lower the labor force participation rate from 61.7% to 61.4%...however, the relatively large increase in number employed was still enough to boost the employment to population ratio, which we could think of as an employment rate, as it rose from 56.5% to 56.6%...at the same time, the relatively large drop in the number unemployed was also enough to lower the unemployment rate by 0.5%, from 8.4% to 7.9%, which was the lowest unemployment rate since March...meanwhile, the number of the employed who reported they were forced to accept just part time work fell by 1,272,000, from 7,572,000 in August to 6,300,000 in September, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", from 14.2% of the labor force in August to 12.8% in September, also the lowest since March....

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..

2nd Quarter GDP Revised to Show Our Economy Shrunk at a 31.4% Rate

The Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services shrunk at a 31.4% annual rate in the 2nd quarter, revised from the 31.7% contraction rate reported in the second estimate a month ago, as personal consumption expenditures shrunk somewhat less than was previously estimated, more than offsetting downward revisions to private fixed investment, inventories, exports and federal government growth....in current dollars, our second quarter GDP fell at a 32.82% annual rate, decreasing from what would work out to be a $21,561.1 billion a year rate in the 1st quarter to a $19,520.1 billion annual rate in the 2nd quarter, with the headline 31.4% annualized rate of decrease in real output arrived at after annualized GDP inflation adjustments averaging minus 1.8% were computed and applied to the current dollar change of the components, revised from the negative 2.0% GDP deflator indicated by the 2nd estimate...

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 compounded by 4 times of that which 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 pdf for the 3rd estimate of 2nd quarter GDP, which you may have to access by using the BEA's main GDP page...specifically, we’ll be referencing 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 change for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; and table 4, which shows the change in the price indexes for each of the major GDP components...the pdf for the 2nd quarter’s second estimate, which this estimate revises, is here...

The decrease of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 34.1% contraction rate reported last month to indicate 2nd quarter PCE shrunk at a 33.2% rate in this month’s estimate…that PCE contraction figure was arrived at by deflating the 34.3% contraction rate in the dollar amount of consumer spending with the PCE price index, which indicated consumer inflation shrunk at a 1.6% annual rate in the 2nd quarter, revised from the minus 1.8% PCE inflation rate published a month ago...real consumption of durable goods fell at a 1.7% annual rate, which was revised from the 1.3% decrease shown in the advance report, but subtracted no percentage points from GDP in the BEA's computational equivalent of a rounding error, as increases in real consumption of automobiles and recreational goods and vehicles offset the decreases in consumption of furniture, appliances and other durable goods....meanwhile, real consumption of nondurable goods by individuals shrunk at a 15.0% annual rate, revised from the 14.9% increase reported in the 2nd  estimate, and subtracted 2.05 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 nondurables drop….at the same time, consumption of services shrunk at a 41.8% annual rate, revised from the 43.1% contraction rate reported last month, and subtracted 21.95 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 46.6% annual rate in the 2nd quarter, revised from the 46.2% contraction estimate reported last month, as real private fixed investment fell at a 29.2% rate, rather than at the 28.9% rate reported in the second estimate, while business and farm inventories fell by a bit more than had been previously estimated...real investment in non-residential structures was revised from shrinking at a 33.4% rate to shrinking at a 33.6% rate, while real investment in equipment contracted at a 35.9% rate, statistically unchanged from the contraction rate previously reported...at the same time, the quarter's investment in intellectual property products was revised from shrinking at a 7.7% rate to shrinking at a 11.4% rate, and the contraction in real residential investment was revised from shrinking at a 37.9% annual rate to shrinking at a 35.6% rate…after those revisions, the contraction in investment in non-residential structures subtracted 1.11 percentage points from the increase in 2nd quarter GDP and the decrease in investment in equipment subtracted 2.03 percentage points from the quarter's growth, while the decrease in investment in intellectual property subtracted 0.53 percentage points and the decrease in residential investment subtracted 1.60 percentage points from the 2nd quarter's growth rate...

Meanwhile, the drop in real private inventories was revised from the previously reported $286.4 billion in inflation adjusted dollars to show inventories decreased at an inflation adjusted $287.0 billion rate...this came after inventories had shrunk by an inflation adjusted $80.9 billion rate in the 1st quarter, and hence the $206.1 billion negative change in real inventories from those of the 1st quarter subtracted 3.50 percentage points from the 2nd quarter's growth rate, revised from the 3.46 percentage point subtraction due to inventory shrinkage shown in the second estimate....however, since shrinking inventories indicates that less of the goods produced during the quarter were left "sitting on the shelf” or in a warehouse, that decrease by an adjusted $206.1 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 28.1% rate in the 2nd quarter, revised from the 28.5% rate of decrease shown in the second estimate...

The previously reported decrease in real exports was somewhat greater with this estimate, while the previously reported decrease in real imports was revised just a bit lower, and as a result our net trade was a smaller addition to GDP than was previously reported...our real exports of goods and services shrunk at a 64.4% rate in the 1st quarter, revised from the 63.2% shrinkage rate shown in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their greater decrease conversely subtracted 9.51 percentage points from the 1st quarter's growth rate, revised from the 9.22 subtraction shown last month...meanwhile, the previously reported 54.0% decrease in our real imports was revised to a 54.1% 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 10.13 percentage points to 1st quarter GDP, revised from the 10.12 percentage point addition shown a month ago....thus, the improving US trade balance that accompanied the collapse in global trade added a rounded 0.62 percentage points to 2nd quarter GDP, down from the 0.90 percentage point addition resulting from an improving foreign trade balance that was indicated by the second estimate..

Finally, there was also a downward revision to real government consumption and investment in this 3rd estimate, as the entire government sector is now shown growing at a 2.5% rate, revised from the 2.8% growth rate for government indicated by the 2nd estimate....real federal government consumption and investment was seen to have grown at a 16.4% rate from that of the 1st quarter in this estimate, which was revised from the 17.6% growth rate shown in the 2nd estimate, as real federal outlays for defense grew at a 3.8% rate, revised from the previously reported 4.2% defense growth rate, and added 0.18 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 37.6% rate, revised from last month's 40.1% rate, and added 0.98 percentage points to GDP....meanwhile, real state and local consumption and investment shrunk at a 5.4% rate in the quarter, revised from the 5.5% contraction rate shown in the 2nd estimate, and subtracted 0.40 percentage points from 2nd quarter GDP, which was revised from the 0.41 percentage point subtraction shown in the second estimate...note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures, and only when such funds are spent on goods or services, thereby indicating an increase in the output of those goods or services...

August Personal Income down 2.7%; 2 Months PCE Would Add 25.36 Percentage Points to Q3 GDP

The August report Personal Income and Outlays from the Bureau of Economic Analysis gives us nearly half the data that will go into 3rd quarter GDP, since it gives us 2 months of data on our personal consumption expenditures (PCE), which accounts for nearly 70% of GDP, and the PCE price index, the inflation gauge the Fed targets, and which is used to adjust that personal spending data for inflation to give us the relative change in the output of goods and services that our spending indicated....this report also gives us monthly personal income data, disposable personal income, which is income after taxes, and our monthly savings rate...however, because this report feeds in to GDP and other national accounts data, the change reported for each of those metrics is not the current monthly change; rather, they're seasonally adjusted amounts expressed at an annual rate, ie, they tell us how much national income and spending would change over a year if August’s adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one month's annualized figure to the next, and in this case of this month's report they give us the percentage change in each annualized metric from July to August....

Thus, when the opening line of the news release for this report tell us "Personal income decreased $543.5 billion (2.7 percent) in August", they mean that the annualized figure for seasonally adjusted personal income in August, $19,492.8 billion, was $543.5 billion, or 2.7% less than the annualized personal income figure of $20,036.3 billion for July; the actual, unadjusted change in personal income from July to August, which would be on the order of one-twelfth of that size, is not given...similarly, annualized disposable personal income, which is income after taxes, fell by nearly 3.2%, from an annual rate of $17,873.9 billion in July to an annual rate of $17,303.0 billion in August....the monthly contributors to the decrease in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are thus also annualized...in August, the reason for the $543.5 billion annual rate of decrease in personal income was a $725.3 billion annual rate of decrease in personal current transfer receipts (reflecting the end of the emergency unemployment stipends), which was partially offset by a $119.9 billion annual rate of increase in wages and salaries..

For personal consumption expenditures (PCE), BEA reports that they increased at a $141.1 billion annual rate, or by almost 1.0 percent, as the annual rate of PCE rose from $14,228.5 billion in July to $14,369.6 in August; that was after the July PCE figure was revised up from the originally reported $14,199.5 billion annually, and prior months were revised as well, all of which were already included in the concurrent 3rd estimate of 2nd quarter GDP.....total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $152.9 billion to $14,868.4 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $2,434.6 billion annual rate in August, down from the revised $3,158.4 billion annualized personal savings in July... hence, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell to 14.1% in August, down from 17.7% in July..

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....the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2012 prices = 100, and which is included in Table 9 in the pdf for this report....that index rose from 111.287 in July to 111.639 in August, a month over month inflation rate that's statistically 0.3163%, which BEA reports as a 0.3% increase, following the rounded +0.4% change in the PCE price index they reported for July...applying the August inflation adjustment to the nominal change of August spending left real PCE up a rounded 0.7% in August, after a real PCE increase of 1.1% in July ...note that when those 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 one month's or one quarter's real goods and services produced to another....that result is shown in table 7 of the PDF, where we see that August's chained dollar personal consumption total works out to 12,874.4 billion annually, 0.67327% more than July's 12,788.3 billion, a difference that the BEA rounds up and reports as +0.7%...

  However, to estimate the impact of the change in real PCE on the change in GDP,  month over month changes such as that don't help us much, since GDP is reported quarterly...thus we have to compare July and August's real PCE to the the real PCE of the 3 months of the second quarter....while this report reports real PCE for each of those months separately, the BEA also provides the annualized chained dollar PCE for those three months quarterly in table 8 in the pdf for this report, where we find that the annualized real PCE for the 2nd quarter was represented by 11,860.3 billion in chained 2012 dollars...(note that's also what's shown in table 3 of the pdf for the revised 2nd quarter GDP report)....then, by averaging the annualized chained 2012 dollar figures for July and August, 12,788.3 billion and 12,874.4 billion respectively, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far....when we compare that average of 12,831.35 billion to the 2nd quarter real PCE of 11,860.3 billion, we find that 3rd quarter real PCE has grown at a 37.00% annual rate for the two months of the 3rd quarter that we have...{note the math we've used to get that annual growth rate: (((12,788.3 + 12,874.4)/ 2) / 11,860.3) ^ 4 = 1.369956 }...that's a pace that would add 25.36 percentage points to the growth rate of the 3rd quarter, even if there should be no improvement in September's real PCE from that July & August average... 

Construction Spending Rose 1.4% in August after June and July Spending were Revised Higher

The August report on construction spending (pdf) from the Census Bureau estimated that our seasonally adjusted construction spending construction spending for the month was at an annual rate of $1,412.8 billion, which was 1.4 percent (±1.0 percent) above the revised annualized estimate of $1,392.7 billion in construction spending in July, and was 2.5 percent (±1.5 percent) above the estimated annualized level of construction spending of August of last year....July construction spending was originally reported at a $1,364.6 billion annual rate, and it has thus been revised up to a $1,392.7 billion annual rate, while June construction spending was revised from the $1,362.8 billion annual rate reported last month to a $1,383,647 billion rate, which would mean that 2nd quarter GDP was underestimated by about 0.17 percentage points...however, 2nd quarter's GDP will not be revised to reflect that underestimation until the annual revision of next summer...

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 $1,061.4 billion, 1.9 percent (±0.7 percent) above the revised July estimate of $1,041.7 billion. Residential construction was at a seasonally adjusted annual rate of $589.4 billion in August, 3.7 percent (±1.3 percent) above the revised July estimate of $568.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $472.0 billion in August, 0.3 percent (±0.7 percent)* below the revised July estimate of $473.4 billion.
  • Public Construction - In August, the estimated seasonally adjusted annual rate of public construction spending was $351.4 billion, 0.1 percent (±1.8 percent)* above the revised July estimate of $350.9 billion. Educational construction was at a seasonally adjusted annual rate of $82.6 billion, 0.6 percent (±1.8 percent)* above the revised July estimate of $82.2 billion. Highway construction was at a seasonally adjusted annual rate of $100.6 billion, 1.9 percent (±4.6 percent)* above the revised July estimate of $98.7 billion.

This construction spending report is used as source data for 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and government investment outlays, for both state and local and Federal governments.... however, gauging the impact of revised July and August construction spending as reported here on 3rd quarter GDP is difficult because all figures given in this report are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...accurately adjusting construction for price changes is not easy either, because the National Income and Product Accounts Handbook, Chapter 6 (pdf), lists a multitude of privately published deflators that are used by the BEA for the various components of non-residential investment, such as the Engineering News Record construction cost index for utilities construction spending....so in lieu of trying to find and adjust for all of those obscure price indices, we've opted to just use the producer price index for final demand construction as an inexact shortcut to make the price adjustment needed in order to make a ballpark estimate.

That producer price index showed that aggregate construction costs fell 0.2% in August after rising 0.6% in July, falling 0.3% in June and being unchanged from April to May...on that basis, we can estimate that construction costs for August were roughly 0.4% more than June, roughly 0.1% more than those of May and also roughly 0.1% more than those of April, while obviously 0.2% less than those of July...we then use those percentages to inflate lower priced spending figures for each of the 2nd quarter months, which is arithmetically the same as adjusting higher priced July and August construction spending downward, for comparison purposes... annualized construction spending in millions of dollars for the second quarter months is shown at 1,383,647 for June, 1,369,363 for May, and 1,387,936 for April in this report, while it was at $1,392,653 million for July and $1,412,823 million for August...thus to compare July and August’s inflation adjusted construction spending to that of the second quarter, our formula becomes: ((1,412,823  + 1,392,653 * 0.998) / 2 ) / ((1,383,647 * 1.004 + 1,369,363 * 1.001 + 1,387,936 *1.001) / 3) =  1.01321, meaning real construction over July and August was 1.321% higher than that of the 2nd quarter...that means that after adjusting for inflation, real construction for the 3rd quarter rose at a 5.388% annual rate from that of the 2nd quarter...that's growth at a $18.266 billion annual rate, which means that even if September shows no improvement, growth in construction would add a net of about 0.44 percentage points to 3rd quarter GDP across those components that it influences...

Factory Shipments Up 0.3% in August, Factory Inventories Statistically Unchanged

The August 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 $3.2 billion or 0.7 percent to $470.1 billion in August, following an increase of 6.5% to $466.9 billion in July, which was revised from the 6.4% increase to $466.1 billion in new orders reported 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 revised updates to the August advance report on durable goods we reported on last week...on those revisions, the Census Bureau's own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we'll just quote directly from that summary here:

  • Summary: New orders for manufactured goods in August, up four consecutive months, increased $3.2 billion or 0.7 percent to $470.1 billion, the U.S. Census Bureau reported today. This followed a 6.5 percent July increase. Shipments, also up four consecutive months, increased $1.4 billion or 0.3 percent to $481.3 billion. This followed a 4.7 percent July increase. Unfilled orders, down five of the last six months, decreased $6.2 billion or 0.6 percent to $1,078.6 billion. This followed a 0.7 percent July decrease. The unfilled orders-to-shipments ratio was 6.60, down from 6.69 in July. Inventories, up three of the last four months, increased $0.2 billion or virtually unchanged to $686.6 billion. This followed a 0.6 percent July decrease. The inventories-to-shipments ratio was 1.43, unchanged from July.
  • New orders for manufactured durable goods in August, up four consecutive months, increased $1.3 billion or 0.5 percent to $233.2 billion, up from the previously published 0.4 percent increase. This followed an 11.8 percent July increase. Machinery, also up four consecutive months, led the increase, $0.5 billion or 1.5 percent to $31.2 billion. New orders for manufactured nondurable goods increased $1.9 billion or 0.8 percent to $236.9 billion.
  • Shipments of manufactured durable goods in August, down following three consecutive monthly increases, decreased $0.5 billion or 0.2 percent to $244.3 billion, up from the previously published 0.3 percent decrease. This followed a 7.6 percent July increase. Transportation equipment, also down following three consecutive monthly increases, drove the decrease, $1.4 billion or 1.7 percent to $81.6 billion. Shipments of manufactured nondurable goods, up four consecutive months, increased $1.9 billion or 0.8 percent to $236.9 billion. This followed a 1.8 percent July increase. Petroleum and coal products, also up four consecutive months, led the increase, $1.6 billion or 4.2 percent to $39.6 billion.
  • Unfilled orders for manufactured durable goods in August, down five of the last six months, decreased $6.2 billion or 0.6 percent to $1,078.6 billion, unchanged from the previously published decrease. This followed a 0.7 percent July decrease. Transportation equipment, down six consecutive months, drove the decrease, $6.8 billion or 0.9 percent to $728.1 billion.
  • Inventories of manufactured durable goods in August, down three consecutive months, decreased $0.6 billion or 0.1 percent to $420.4 billion, unchanged from the previously published decrease. This followed a 0.8 percent July decrease. Machinery, down seven of the last eight months, led the decrease, $0.4 billion or 0.6 percent to $69.1 billion. Inventories of manufactured nondurable goods, up three of the last four months, increased $0.8 billion or 0.3 percent to $266.2 billion. This followed a 0.2 percent July decrease. Chemical products, up two of the last three months, led the increase, $0.5 billion or 0.5 percent to $96.9 billion.

To gauge the effect of August factory inventories on 3rd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index...by stage of fabrication, the value of finished goods inventories was 0.1% lower at $243,966 million; the value of work in process inventories was 0.4% higher at $206,258 million, and the value of materials and supplies inventories was 0.4% lower at $144,938 million...the producer price index for August indicated that prices for finished goods were on average 0.1% higher, that prices for intermediate processed goods were 0.6% higher, while prices for unprocessed goods were 7.0% higher....assuming average valuations will be similar for like inventories, we could thus estimate that August's real finished goods inventories decreased by 0.2%, that real inventories of intermediate processed goods were also 0.2% lower, and that real raw material inventory inventories were roughly 7.4% lower...those real inventory decreases follow July’s factory inventory change, when real inventories were slightly lower…since real NIPA factory inventories were a bit higher in the 2nd quarter, the fact that we've had real decreases in aggregate July and August factory inventories would therefore have a corresponding negative impact on the growth rate of 3rd quarter GDP....however, with total business inventories down sharply in the 2nd quarter, the modest negative impact of falling factory inventories is likely to be offset by less severe contraction, or even growth of inventories at the retail and wholesale levels...

 

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