Sunday, January 31, 2021

4th quarter GDP report; December’s personal income and outlays, durable goods, and new home sales

This week’s key reports were the advance estimate of 4th quarter GDP and the December report on Personal Income and Spending, both from the Bureau of Economic Analysis...other widely watched reports included the advance report on durable goods for December andthe December report on new home sales, both from the Census bureau, and the Case-Shiller Home Price Index for Novemberfrom S&P Case-Shiller, which indicated that prices for homes that sold nationally during September, October and November averaged 9.5% higher than the prices for the same homes that sold during the same 3 month period a year earlier, up from the 8.4% year over year increase they now indicate for October's index....the week also saw the release of the Regional and State Employment and Unemployment Summary for December from the Bureau of Labor Statistics, which breaks down the previously published employment data by state and region, and the Chicago Fed National Activity Index (CFNAI) for December, a weighted composite index of 85 different economic metrics, which rose to +0.52 in December, up from +0.31 in November, which was revised up from the +0.27 reported last month…as a result, the 3 month average of the CFNAI rose to +0.61 in December, up from a revised +0.59 in November, which indicates that national economic activity continued at a pace above the historical trend over the 4th quarter months…

This week also saw the last three Fed manufacturing surveys for January: the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell to +14 in January from +19 in December and from +29 in November, suggesting less robust growth of Fifth District manufacturing; the Kansas City Fed manufacturing survey for January, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index rose to +17 in January, up from +14 in December and +11 in November, indicating a faster growth rate of that region’s manufacturing, and the Dallas Fed Texas Manufacturing Outlook Survey, covering Texas and adjacent counties in Louisiana and New Mexico, reported its general business activity index fell to +7.0, down from last month's +10.5, indicating a smaller plurality of the region's manufacturers felt business activity had improved than had indicated so a month earlier...

4th Quarter GDP Grew at 4.0% Rate; 2020 Growth was Still Down 3.5%

The Advance Estimate of 4th Quarter GDP from the Bureau of Economic Analysis estimated that the real output of goods and services produced in the US grew at a 4.0% annual rate over the output of the 3rd quarter of 2018, when our real output grew at a 33.4% real rate, as stronger  private domestic investment more than offset a deteriorating foreign trade balance, which subtracted more than a percentage point...for the entire year, our economy shrunk at a 3.5% rate, down from the the 2.2% growth of 2019, and the 3.0% growth rate of 2019....in current dollars, our fourth quarter GDP grew at a 6.0% annual rate, increasing from what would work out to be a $21,170.3 billion a year output rate in the 3rd quarter to a $21,479.5 annual rate in the 4th quarter, with the headline 4.0% annualized rate of increase in real output arrived at after an annualized inflation adjustment averaging 2.0%, aka the GDP deflator, was computed from the price changes of the components and applied to their current dollar change.... as is usual with an advance estimate, the BEA cautions that the source data is incomplete and also subject to revisions, which have averaged +/-0.6% in either direction before the third estimate for the quarter is released, which will be two months from now...see the Key source data and assumptions(xls) for the December estimates..

While we review the details for the 4th quarter below, remember that the news release for the Advance Estimate reports all quarter over quarter percentage changes at an annual rate, which means that they're expressed as a change a bit over 4 times of that what actually occurred over the 3 month period, and that the prefix "real" is used to indicate that each change has been adjusted for inflation using price indexes chained from 2012 prices, and then that all percentage changes in this report are calculated from those '2012 dollar' figures, which would be better thought of as a quantity indexes than as any reality based dollar amounts, because real GDP is not a monetary metric....for our purposes, all the data that we'll use in reporting the changes here comes directly from the pdf for the advance estimate of 4th quarter GDP,which we find on the BEA GDP landing page, which also offer links to just the tables on Excel and other technical notes... specifically, we refer to table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 1st  quarter of 2017, table 2, which shows the contribution of each of the components to the GDP growth figures for those quarters and years, table 3, which shows both the current dollar value and the inflation adjusted value in 2012 dollars of each of those components, and table 4, which shows the change in the price indexes for each of the GDP components....

Our Personal consumption expenditures (PCE), which are used to compute almost 70% of GDP, grew at a 4.05% rate in current dollars in the 4th quarter, which were then subsequently deflated after an annualized PCE price index increase of 1.5% was used to adjust that consumer spending for inflation to indicate a 2.5% real growth rate of goods and services consumed for GDP purposes ...consumer outlays for durable goods fell at less than a 0.1% rate in current dollars, while prices for those durable goods were statistically unchanged, and thus the BEA found that the real change in the output of consumer durables was also statistically unchanged, as real growth in consumption of motor vehicles was offset by lower consumption of furniture, appliances and recreational goods and vehicles ...the BEA also found that real output of consumer non-durable goods shrunk at a 0.7% rate, after decreased consumer spending for non-durables at a 0.35% rate was adjusted for weighted non-durable goods prices that fell at a 0.3% rate, as modest growth in real consumption of clothing, footwear, and other non-durable goods was more than offset by lower consumption of food, gasoline and other energy goods....meanwhile, the 6.5% nominal growth in consumer outlays for services was deflated by an average 2.4% increase in prices for personal services to show real output of consumer services grew at a 4.0% annual rate, as a 12.1% growth rate in real health care services accounted for about 80% of 4th quarter services growth...as a result of those changes in growth from the 3rd to the 4th quarter, the change in real outlays for durable goods had no impact on the GDP growth rate, the decrease in non-durable goods subtracted 0.10 percentage points from GDP, while increased services added 1.80 percentage points to the growth rate of the economy in the 4th quarter..

The change in other components of the change in GDP is computed by the BEA in the same manner that we have just illustrated for computing real PCE; ie, the annualized increase in current dollar spending for the quarter is adjusted with the annualized inflation factor for that component, yielding the change in real units of goods or services produced during the quarter, at an annual rate....thus, real gross private domestic investment, which had grown at a real 86.3% annual rate in the 3rd quarter, grew at a real 25.3% annual rate from those levels in the 4th quarter, as the real growth rate of fixed investments grew at a 18.4% annual rate in the 4th quarter, after growing at a 31.3% rate in the 3rd quarter...among fixed investments, real non-residential fixed investment grew at a 13.8% rate as real investment in non-residential structures grew at a 3.0% rate and added 0.08 percentage points to 4th quarter GDP, real investment in equipment grew at a 24.9% rate and added 1.30 percentage points to 4th quarter GDP, and real investment in intellectual property grew at 7.5% rate and added 0.35 percentage points to GDP....at the same time, real residential investment grew at a 33.5% rate and added 1.29 percentage points to GDP....for an easy to read table as to what's included in each of those GDP investment categories, seethe NIPA Handbook, Chapter 6, page 3.....

Meanwhile, real private inventories grew by an inflation adjusted $44.6 billion in the 4th quarter, after shrinking at an inflation adjusted $3.7 billion in the 3rd quarter, and as a result the rounded $48.3 billion positive change in real inventory growth added 1.04 percentage points to the 4th quarter's growth rate, after a $283.3 billion increase in real inventory growth in the 3rd quarter had added 6.57 percentage points to that quarter's GDP....however, since growth in inventories indicates that more of the goods produced during the quarter were left in storage or "sitting on the shelf”, the $48.3 billion increase in their growth in turn means real final sales of GDP were less by that amount, and hence real final sales of GDP rose at a 3.0% rate in the 4th quarter, down from the real final sales growth rate of 25.9% in the 3rd quarter, when the greater inventory growth had reduced real final sales by as much as it added to the quarter's GDP...

Real exports and real imports both increased in the quarter, but imports increased by more, thus decreasing the amount of our investment and consumption that was domestically sourced.....our real exports of goods and services grew at a 22.0% rate in the fourth quarter, after our exports had increased at a 59.6% rate in the 3rd quarter, while our real imports grew at a 29.5% rate in the fourth quarter, after growing at a 93.1% rate in the 3rd quarter...as you'll recall, increases in exports are added to GDP because they are part of our production that was not consumed or added to investment in our country (& hence not counted elsewhere in this GDP calculation), while increases in imports subtract from GDP because they represent either consumption or investment that was added to another GDP component that shouldn't have been because it was not produced in the US....thus the 4th quarter increase in real exports added 2.01 percentage points to 4th quarter GDP, while the greater increase in 4th quarter imports subtracted 3.53 percentage points from 4th quarter GDP, and hence our worsening trade imbalance subtracted a net of 1.52 percentage points from 4th quarter GDP, after our worsening trade deficit had subtracted a rounded 3.21  percentage points from GDP in the third quarter…

Finally, real consumption and investment by all branches of government decreased at a 1.2% annual rate in the 4th quarter, after shrinking at a 4.8% rate in the 3rd quarter, as federal government consumption and investment shrunk at a 0.5% rate, while state and local consumption and investment shrunk at a 1.7% rate....inflation adjusted federal spending for defense grew at a 5.0% rate and added 0.21 percentage points to 4th quarter GDP growth, while real non-defense federal consumption and investment shrunk at a 8.4% rate and subtracted 0.24 percentage points from GDP....note that federal government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, indicating an increase in the output of those goods or services....meanwhile, state and local government investment and consumption expenditures shrunk at a 1.7% annual rate and subtracted a rounded 0.19 percentage points from the growth of 4th quarter GDP, as a real decrease in state and local consumption expenditures subtracted 0.25 percentage points from GDP, while real state and local investment grew at a 3.2% annual rate and added 0.07 percentage points to GDP...

December Personal Income Rose 0.6%, Personal Spending Fell 0.2%, PCE Price Index Up 0.4%

Friday's release of the December Income and Outlays report from the Bureau of Economic Analysis was concurrent with the GDP release on Thursday, and all the PCE data in the 4th quarter GDP report we just covered actually originated with this report...and like that GDP report, all the dollar values reported here are at an annual rate and seasonally adjusted, ie, they tell us what personal income, spending and saving would be for a year if December's adjusted income and spending were extrapolated over an entire year...however, the percentage changes are computed monthly, from one 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 November to December....thus, when the opening line of the news release for this report tells us "Personal income increased $116.6 billion (0.6 percent) in December...", they mean that the annualized figure for all types of personal income in December, $19,568.5 billion, was $116.6 billion, or roughly 0.6% greater than the annualized personal income figure of $19,451.9 billion for November; the actual increase in personal income in December over November is not given....similarly, disposable personal income, which is income after taxes, rose by more than 0.6%, from an annual rate of $17,227.0 billion in November to an annual rate of $17,338.6 billion in December...the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are also annualized...in December, the largest contributors to the $116.6 billion annual rate of increase in personal income were an annualized $85.2 billion increase in personal current transfer receipts from government programs, and a $57.8 billion increase in dividend and interest income, while wages and salaries rose at a $47.1 billion rate and proprietor's income fell at a $78.1 billion rate on a $70.0 billion decrease in nonfarm proprietor's income…

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for December, which were included in the change in real PCE in the 4th quarter GDP report, fell at a $27.9 billion annual rate to a $14,493.7 billion pace of consumer spending annually, almost 0.2% below that of November, after November‘s PCE was revised down from the previously reported annual rate of $14,566.8 billion to $14,521.6 billion, now down 0.4% from October...the current dollar decrease in December spending was due to a $40.9 billion decrease to $4,810.2 billion in annualized spending for goods, and was partly offset by a $13.0 billion annualized increase to an annualized $9,683.6 billion in spending for services....total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, fell by an annualized $39.2 billion to $14,960.8 billion in December, which left personal savings, which is disposable personal income less total outlays, at a $2,377.7 billion annual rate in December, up from the revised $2,226.9 billion in annualized personal savings in November...as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, rose to 13.7%, up from 12.9% in November, and resulting in a 2020 savings rate of 16.2%,the highest annual savings rate on record..

While our personal consumption expenditures accounted for 69.2% of our fourth quarter GDP, before they could be included in that measurement of the change in our output, they first needed to be adjusted for inflation, to give us the real change in consumption, and hence the real change in the goods and services that were produced for that consumption.....that adjustment was made using the price index for personal consumption expenditures, also included in this report, which is a chained price index based on 2012 prices = 100....from Table 9 in the pdf for this report, we find that index rose from 111.694 in November to 112.169 in December, giving us a month over month inflation rate of 0.42527%, which the BEA reports as an increase of +0.4%...at the same time, Table 11 reports a year over year PCE price index increase of 1.3%, and a core price increase, excluding food and energy, of 1.5% for the year, both still below the Fed's inflation target....applying the December inflation adjustment to the change in December’s PCE shows that real PCE was down 0.6148%, which BEA reports as a 0.6% decrease in their summary table...note that when those PCE price indexes are applied to a given month's annualized current dollar PCE, it yields that month's annualized real PCE in chained 2012 dollars, which aren't really dollar amounts at all, but merely the means that the BEA uses to compare one month's or one quarter's real goods and services produced to another....those results are shown in tables 7 and 8 of the report PDF, where the quarterly figures given are identical to those shown in table 3 in the GDP report, and which were used to compute the contribution of real personal consumption of goods and services to GDP...

December Durable Goods: New Orders Up 0.2%, Shipments Up 1.4%, Inventories Down 0.2%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for December(pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods rose by $0.4 billion or 0.2 percent to $245.3 billion in December, after November's new orders were revised from the $244.2 billion reported a month ago to $244.9 billion, now a 1.2% increase from October's new orders...for the year, 2020's new orders were 7.0% below those of 2019, after 2019's orders had fallen 1.5% from those of 2018....

An increase of $0.8 billion or 2.4 percent to $33.2 billion in new orders for machinery was responsible for the December new orders increase, while the volatile monthly new orders for transportation equipment fell $0.8 billion or 1.0 percent to $78.0 billion, as new orders for commercial aircraft fell 58.1% to $1,143 million....excluding orders for transportation equipment, other new orders rose 0.7%, while excluding new orders for defense equipment, new orders rose 0.5%....meanwhile, new orders for nondefense capital goods less aircraft, a proxy for equipment investment, rose $414 million or 0.6% to $71,772 million...

Tie seasonally adjusted value of December’s shipments of durable goods, which were included as inputs into various components of 4th quarter GDP after adjusting for changes in prices, rose by $3.5 billion or 1.4 percent to $253.8 billion, the seventh increase in eight months, after the value of November shipments was revised from from $250.1 billion to $250.3 billion, now up 0.4% from October...shipments of transportation equipment, also up seven times in eight  months, led the increase, rising $2.2 billion or 2.7 percent to $84.8 billion, on a 44.4% increase to $6,258 million in shipments of commercial aircraft.... in addition, the value of shipments of nondefense capital goods less aircraft rose 0.5% to $70,208 million, after November’s capital goods shipments were revised from $69,888 million to $69,892 million,  still a 0.5% increase from October....for the year, shipments of durable goods were valued 5.0% lower than those of 2019, which in turn were just 0.9% greater than those of 2018…

At the same time, the value of December’s seasonally adjusted inventories of durable goods, also a major GDP contributor, fell for the first time in the past four months, decreasing by $0.7 billion or 0.2 percent to $425.9 billion, after November inventories were revised from $426.6 billion to $426,631 million, still up 0.9% from October....a $2.8 billion or 1.8 percent decrease to $148.0 billion in inventories of transportation equipment was responsible for the decrease, which in turn was driven by a 2.8 percent decrease to $78,582 million in inventories of commercial aircraft, which are still 8.3% higher than at the end of 2019...

Finally, unfilled orders for manufactured durable goods, which are probably a better measure of industry conditions than the widely watched but obviously volatile new orders, decreased for the ninth month out of the last ten, falling by $3.2 billion or 0.3 percent to $1,070.4 billion, after unfilled orders for November were revised from $1,072.9 billion to $1,073.6 billion, now a statistically insignificant decrease from October...a $6.8 billion or 0.9 percent decrease to $706.3 billion in unfilled orders for transportation equipment was responsible for the December decrease, as unfilled orders for durable goods other than transportation equipment rose 1.0% to $364,035 million...the unfilled order book for durable goods at the end of December was 6.6% below the level at the end of 2019, as the unfilled order book for transportation equipment fell 11.1%, while unfilled orders for nondefense capital goods less aircraft ended 4.3% above their year ago level..

New Home Sales Little Changed in December, Up 18.8% for the Year

The Census report on New Residential Sales for December(pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 842,000 homes annually during the month, which was 1.6 percent (±15.8 percent)* above the revised November annual rate of 829,000 new single family home sales, and was 15.2 percent (±17.2 percent)* above the estimated annual rate that new homes were selling at in December of last year....the asterisks indicate that based on their small sampling, Census could not be certain whether December new home sales rose or fell from those of November, or even from sales of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series....with this report; sales new single family homes in November were revised from the annual rate of 841,000 reported last month to an annual rate of 829,000, while home sales in October, initially reported at an annual rate of 999,000 and revised to 945,000 last month, were revised to a 949,000 a year rate with this report, while September's home sale rate, initially reported at an annual rate of 995,000 and revised down from the initially revised 1,002,000 a year rate to a 965,000 a year rate last month, were revised but remained at a 965,000 annual rate with this release...an estimated 811,000 new homes were sold during the past year, which was18.8 percent (±4.3 percent) more than the 683,000 new homes that sold during 2019...

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 55,000 new single family homes sold in December, down from the estimated 59,000 new homes that sold in November and the 77,000 that sold in October.....the raw numbers from Census field agents further estimated that the median sales price of new houses sold in December was $355,900, up from the median sale price of $343,900 in November and up from the median new home sales price of $329,500 in December a year ago, while the average December new home sales price was $394,900, up from the $393,200 average sales price in November, and up from the average sales price of $377,700 in December a year ago, but still down from the $402,900 average sales price of three years earlier....a seasonally adjusted estimate of 302,000 new single family houses remained for sale at the end of December, which represents a 4.3 month supply of homes at the December sales rate, up from the revised 4.2 months of new home supply in November...for graphs and additional commentary on this report, see the following two posts by Bill McBride at Calculated Risk: New Home Sales increase to 842,000 Annual Rate in December; Sales up 18.8% in 2020 and A few Comments on December New Home Sales...

 

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

Sunday, January 24, 2021

December’s reports on new home construction and existing home sales

The only widely watched reports that were released this past week were the New Residential Construction report for December(pdf) from the Census Bureau, and the existing home sales report for December from the National Association of Realtors (NAR)...the week also saw the release of the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, which reported its broadest diffusion index of manufacturing conditions increased from a revised reading of +9.1 in December to +26.5 in January, indicating a return to faster growth for that region's manufacturing firms during this month...

December Housing Starts and New Permits both at 14 Year Highs

The December report on New Residential Construction(pdf) from the Census Bureau estimated that the number of new housing units started in December was at a seasonally adjusted annual rate of 1,669,000, a 14 year high, which was 5.8 percent (±11.0 percent)* above the revised November estimated annual rate of 1,578,000 housing units started, and was 5.2 percent (±10.1 percent)* last December's annual rate of 1,142,000 housing starts....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 figures in parenthesis the most likely range of the change indicated; in other words, December housing starts could have been down by 5.2% or up by as much as 16.8% from those of November, with revisions of a greater magnitude in either direction possible...in this report, the annual rate for November housing starts was revised from the 1,547,000 reported last month to 1,578,000, while October starts, which were first reported at a 1,530,000 annual rate, were revised from last month's initial revised figure of 1,528,000 annually back to a 1,530,000 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 113,300 housing units were started in December, down from the 120,200 units that were started in November, typical in that construction usually slows during the winter months...of those housing units started in December, an estimated 89,300 were single family homes and 22,600 were units in structures with more than 5 units, up from the revised 88,500 single family starts in November, but down from the 30,500 units started in structures with more than 5 units in November...

The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data....in December, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,709,000, which was 4.5 percent (±1.4 percent) above the revised November rate of 1,635,000 permits, 17.3 percent (±1.8 percent) above the rate of building permit issuance in December a year earlier, and the highest since August 2006...the annual rate for housing permits issued in November was revised down from the originally reported 1,639,000 permits....

Again, these annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 134,100 housing units were issued in December, up from the revised estimate of 120,000 new permits issued in November...the December permits included 88,800 permits for single family homes, up from 79,500 single family permits issued in November, and 41,700 permits for housing units in apartment buildings with 5 or more units, up from 36,500 such multifamily permits a month earlier... for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.669 Million Annual Rate in DecemberandComments on December Housing Starts...

December Existing Home Sales Rise 0.7% to a 14 Year High

The National Association of Realtors (NAR) reported that their seasonally adjusted count of existing home sales rose by 0.7% from November to December, the sixth increase in seven months, projecting that a 14 year high of 6.76 million existing homes would sell over an entire year if the December home sales pace were extrapolated over that year, a pace that was also 22.2% above the annual sales rate they projected in December of a year ago.…November sales are indicated to have been at a 6.71 million rate, revised up from the 6.69 million annual rate indicated by last month’s report…for the year, existing home sales totaled 5.64 million, up 5.61% from the 5.34 million homes that were sold in both 2018 and 2019…the NAR also reported that the median sales price for all existing-home types was $309,800 in December, which was 12.9% higher than in December a year earlier, which they report "marks 106 straight months of year-over-year gains“…..the NAR press release, which is titled “Existing-Home Sales Rise 0.7% in December, Annual Sales See Highest Level Since 2006“, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release…as sales of existing properties do not add to our national output, neither these home sales nor the prices for which these homes sell 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) to see what actually transpired during the month…this unadjusted data indicates that roughly 537,000 homes sold in December, up by 8.9% from the 493,000 homes that sold in November, and 23.7% more than the 434,000 homes that sold in December of last year, so we can see that the seasonal adjustments had a moderate negative impact on the published figures….that same pdf indicates that the median home selling price for all housing types fell 0.4% for the month, from a revised $310,900 in November to $309,800 in December, while the average home sales price was $342,400, down 0.1% from the $342,800 average sales price in November, but up 10.1% from the $311,000 average home sales price of December a year ago…for the year as a whole, the median home sales price was at $296,500, up 9.0% from the median sales prices of $271,900 in 2019, while the average home sales price was at $331,600, a 7.5% increase from the $308,600 average home sales price in 2019...a record low 1,070,000 million homes remained on the market at the end of December, down from 1,280,000 in November, which was a 1.9 month supply at the December sales rate, also an all time low..

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 6.76 million in December and Comments on December 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, January 17, 2021

December's consumer & producer prices, retail sales, & industrial production; November's business inventories & JOLTS

Major reports that were released this past week included the December Consumer Price Index, the December Producer Price Index, the December Import-Export Price Index, and the Job Openings and Labor Turnover Survey (JOLTS) for November, all from the Bureau of Labor Statistics; the Advance Retail Sales Report for December and the Full Report on Manufacturers' Shipments, Inventories and Orders for November, both from the Census Bureau, and the December report on Industrial Production and Capacity Utilization from the Fed....the week also saw the release of the first regional Fed manufacturing survey for January: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index fell from +6.3 in November and from +4.7 in December to +3.5 in January, suggesting somewhat sluggish growth of First District manufacturing....

CPI Rose 0.4% in December on Higher Prices for Fuel, Food, Clothing, and Car Insurance

The consumer price index rose 0.4% in December, as higher prices for fuel, food, clothing, and vehicle insurance were only slightly offset by lower prices for airline fares, major appliances and used vehicles...the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that seasonally adjusted prices averaged 0.4% higher in December, after rising 0.2% in November, being unchanged in October, rising by by 0.2% in September, 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, and rising by 0.2% last December....the unadjusted CPI-U index, which was set with prices of the 1982 to 1984 period equal to 100, rose from 260.229 in November to 260.474 in December, which left it statistically 1.3620% higher than the 256.974 reading of October of last year, which is reported as a 1.4% year over year increase, up from the 1.2% year over year increase reported a month ago....with higher prices for gasoline a major factor in the overall index increase, seasonally adjusted core prices, which exclude food and energy, were just 0.1% higher for the month, as the unadjusted core price index actually fell from 269.473 to 269.226, which left the core index 1.6196% ahead of its year ago reading of 264.935, which is reported as a 1.6% year over year increase, the same as the year over year core price increase that was reported for November...

The volatile seasonally adjusted energy price index rose 4.0% in December, after rising 0.4% in November, 0.1% in October, 0.8% in September, 0.9% in August, 2.5% in July, 5.1% in June, but after 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% last October, but is still 9.4% lower than in November a year ago...the price index for energy commodities was 8.2% higher in December, while the index for energy services was 0.1% higher, after rising 1.1% in November....the energy commodity index was up 8.2% on a 8.3% increase in the price of gasoline and a 10.0% increase in the index for fuel oil, while prices for other energy commodities, including propane, kerosene, and firewood, were on average 1.2% higher...within energy services, the price index for utility gas service fell 0.8% after rising 3.1% in November and is now 4.1% higher than it was a year ago, while the electricity price index rose 0.4% after rising 0.5% in November....energy commodities are still averaging 15.2% lower than their year ago levels, with gasoline prices also averaging 15.2% lower than they were a year ago, while the energy services price index is now up 2.6% from last December, as electricity prices are now 2.2% higher than a year ago…

The seasonally adjusted food price index rose 0.4% in December, after falling 0.1% in November, rising 0.2% in October, being unchanged in September, 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% higher in December, after falling 0.3% in November, while the index for food bought to eat away from home was also 0.4% higher, as average prices at fast food outlets rose 0.5% and prices at full service restaurants rose 0.3%, while food prices at employee sites and schools averaged 0.1% higher...

In the food at home categories, the price index for cereals and bakery products was 0.4% higher as average bread prices rose 0.2%, the price index for breakfast cereal rose 1.0%, and the price index for cakes, cupcakes, and cookies rose 1.2%....on the other hand, the price index for the meats, poultry, fish, and eggs food group was 0.2% lower as the price index for beef and veal fell 0.3%, the price index for poultry fell 0.9%, and egg prices fell 3.5%...at the same time, the seasonally adjusted index for dairy products was 0.8% higher, as whole milk prices rose 3.4% and the index for cheese and related products was 0.4% higher....meanwhile, the fruits and vegetables index was 0.4% lower as the price index for canned fruit fell 1.5% and the price index for canned vegetables fell 2.1%, while the price index for fresh vegetables fell 0.5% on a 2.6% decrease in tomato prices...on the other hand, the beverages price index was 1.1% higher as the price index for carbonated drinks rose 1.8% and the price index for coffee also rose 1.8%....lastly, the price index for the ‘other foods at home’ category was 0.7% higher, as the price index for butter and margarine rose 2.1%, peanut butter prices rose 3.2%, and the price index for soups rose 1.7%...the itemized list for price changes of over 100 separate food items is included at the beginning of Table 2 for this release, which also gives us a line item breakdown for prices of more than 200 CPI items overall...since last November, just peanut butter prices, which have risen 11.2%, is the only food line item showing a change greater than 10% over the past year...

Among the seasonally adjusted core components of the CPI, which was 0.1% higher in December after being 0.2% higher in November, being unchanged in October, after rising by 0.2% in September, 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, and by 0.2% last November, the composite price index of all goods less food and energy goods was 0.2% higher in December, while the more heavily weighted composite for all services less energy services was 0.1% higher....

Among the goods components, which will be used by the Bureau of Economic Analysis to adjust November's retail sales for inflation in national accounts data, the price index for household furnishings and supplies was 0.1% lower, as the price index for major appliances fell 3.0% and the price index for window and floor coverings fell 2.3%....at the same time, the apparel price index was 1.4% higher on a 4.6% increase in the price index for men's suits, sport coats, and outerwear, a 4.8% increase in the price index for men's shirts and sweaters, a 3.2% increase in the price index for women's dresses, a 3.0% increase in the index for women's outerwear, a 2.3% increase in the price index for girls' apparel, and a 2.3% increase in the price index for boys' apparel....on the other hand, the price index for transportation commodities other than fuel was 0.2% lower even as prices for new cars rose 0.3%, as prices for used cars and trucks fell 1.2% and the price index for vehicle parts and equipment other than tires fell 0.1%....meanwhile, the price index for medical care commodities 0.4% lower, as both prescription and nonprescription drug prices fell 0.4% and the price index for medical equipment and supplies fell 0.2%...however, the recreational commodities index was 0.2% higher on a 0.7% increase in TV prices, a 2.5% increase in the price index for other video equipment, a 0.5% increase in the price index for pets, pet supplies, & accessories, a 2.4% increase in the price index for photographic equipment, and a 3.6% increase in the price index for sports equipment...at the same time, the education and communication commodities index was 0.8% higher on a 1.8% increase in the price index for computers, peripherals, and smart home assistants and a 1.7% increase 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 0.3% on a 3.2% increase in the price index for infants equipment and a 1.1% increase in cigarette prices...

Within core services, the price index for shelter was 0.1% higher as rents and homeowner's equivalent rent were both 0.1% higher, while prices for lodging away from home at hotels and motels unchanged, while at the same time the shelter sub-index for water, sewers and trash collection rose 0.4% and other household operation costs were on average 2.0% higher on a 3.2% increase in domestic services....meanwhile, the price index for medical care services was 0.1% lower, as the price index for eyeglasses and eye care fell 0.1% and the average price of health insurance fell 1.1%... the transportation services price index was also 0.1% lower even though vehicle insurance costs rose 1.4% as airline fares fell 2.3%, car and truck rentals fell 5.6%, and the price index for automobile service clubs fell 1.1%...at the same time, the recreation services price index fell 0.5% as the index for photo processing fell 5.6% and the index for admissions to movies, concerts and sporting events fell 3.5%....meanwhile, the index for education and communication services was 0.1% higher as the price index delivery services rose 1.5% and the price index for day care and preschool rose 0.3%...lastly, the index for other personal services was up 0.9% as the price index for checking accounts and other bank services rose 8.5% and the price index for laundry and dry cleaning services was 0.4% higher...

Among core line items, the price index for telephone hardware, calculators, and other consumer information items, which is down by 16.3% since last December, the price index for men's suits, sport coats, and outerwear, which is still down 13.4% from a year ago, the price index for women's dresses, which has fallen by 11.2% in the past year, the price index for medical equipment and supplies which is down by 10.0% from a year ago, the price index for lodging away from home including hotels and motels, which has fallen by 11.2% in the past year, and airline fares, which are now down by 18.4% since last December, have all seen prices drop by more than 10% over the past year, while the cost of intercity bus fare, which is up by 12.8% over the past year, the price index for used cars and trucks, which has risen 10.0% from a year ago, the price index for infant's equipment, which is up by 22.3% year over year, and the price index for major appliances, which is up 16.6% from last December, are the only line items to have increased by a double digit magnitude over that span.... 

Retail Sales Fell 0.7% in December after Prior Months Were Revised Lower

Seasonally adjusted retail sales decreased in December after retail sales for October and November were revised lower...the Advance Retail Sales Report for December (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $540.9 billion during the month, which was 0.7 percent (±0.5%) lower than November's revised sales of $544.6 billion, but was 2.9 percent (±0.7 percent) above the adjusted sales in December of last year...November's seasonally adjusted sales were revised almost 0.4% lower, from $546.5 billion to $544.6 billion, while October's sales were revised less than 0.1% lower, from $552.5 billion to $552.2 billion; as a result, the October to November change was revised up from a decrease of 1.1 percent (±0.5%) to a decrease of 1.4 percent (±0.2%), and the quarter over quarter increase for the 4th quarter was reduced to 0.3%....estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated actual sales rose 13.5%, from $546,082 million in November to $620,036 million in December, while they were up 4.8% from the $591,380 million of sales in December a year ago, so we can see how the large December seasonal adjustment knocked the big holiday sales increase we’d normally expect down to a negative print...

Since it's the end of the quarter and the end of the year for retail sales, we'll include the entire table from this report showing retail sales by business type, including the quarter over quarter data...again, to explain what this table shows, the first double column below shows us the seasonally adjusted percentage change in sales for each kind of business from the November revised figure to this month's December "advance" figure in the first sub-column, and then the year over year percentage sales change since last December in the 2nd column; the second double column pair below gives us the revision of the November advance estimates (now called "preliminary") as of this report, with the new October to November percentage change under "Oct 2020 r" (revised) and the November 2019 to November 2020 percentage change as revised in the 2nd column of that pair (for your reference, the table from the advance estimate of November 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 (October, November and December) from the preceding three months of the 3rd quarter (July, August and September) and then from the same three months (October, November and December) of a year earlier....that first column of the last pair thus gives us a snapshot comparison of 3rd quarter sales to fourth quarter sales, which is useful in estimating the impact of retail sales on 4th quarter GDP, after those sales are adjusted for price changes….

December 2020 retail sales table

To compute December's real personal consumption of goods data for national accounts from this December retail sales report, the BEA will use the corresponding price changes from the December consumer price index, which we reviewed above...to estimate what they will find, we'll first separate out the volatile sales of gasoline from the other totals...from the third line on the above table, we can see that December retail sales excluding the 6.6% price-related increase in sales at gas stations were down by 1.2%....then, subtracting the figures representing the 1.4% decrease in grocery & beverage sales and the 4.5% decrease in food services sales from that total, we find that core retail sales were down by almost 0.7% for the month...since the CPI report showed that the composite price index for all goods less food and energy goods was 0.1% higher in December, we can thus approximate that real retail sales excluding food and energy will show an decrease of roughly 0.8%... however, the actual 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 clothing stores were 2.4% higher in December, the apparel price index was 1.4% higher, which would mean that real sales of clothing only rose by around 1.0%.…similarly, while nominal sales at sporting goods, hobby, music and book stores fell 0.8%, the price index for recreational commodities rose 0.2%, so we can figure real sales of recreational goods were down roughly 1.0%...on the other hand, while nominal sales at motor vehicles and parts dealers were down 1.9%, the price index for transportation commodities other than fuel decreased by 0.2%, which would suggest that real sales at motor vehicles and parts dealers were down around 1.7%…

In addition to figuring those core retail sales, to make a complete estimate of real December PCE, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do.…the CPI report showed that the food price index was 0.4% higher in December, with both the index for food purchased for use at home and the index for food bought to eat away from home 0.4% higher... hence, with nominal sales at food and beverage stores 1.4% lower, real sales of food and beverages would be down around 1.8% in light of the 0.4% higher prices…likewise, the 4.5% decrease in nominal sales at bars and restaurants, once adjusted for 0.4% higher prices, suggests that real sales at bars and restaurants fell about 4.9%...meanwhile, while sales at gas stations were up 6.6%, there was an 8.3% increase in the retail price of gasoline, which would suggest real sales of gasoline were down around 1.7%, 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 excluding food services, we can estimate that the income and outlays report for December will show that real personal consumption of goods fell by more than 0.9% for the month, after falling by a revised 1.4% in November, but after being close to unchanged in October...at the same time, the 4.9% decrease in real sales at bars and restaurants will have a significant negative impact on December’s real personal consumption of services...

Industrial Production Rose 1.6% in December, With a Big Boost from Cold Temperatures

The Fed's G17 release on Industrial production and Capacity Utilization indicated that industrial production jumped by a seasonally adjusted 1.6% in December after rising by a revised 0.5% in November and 1.0% in October, which together meant that industrial production rose at a 8.4% annual rate in the 4th quarter, after rising by a revised 42.5% rate in the 3rd quarter, even as industrial production is still down 3.6% year over year, albeit an improvement from the 5.5% year over year decrease reported a month ago.....the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 105.7 in December from 104.1  in November, which was revised from the 104.0 reported last month, while at the same time the index for October was revised but remained at 103.6 but is now a 1.0% increase from September, rather than the 0.9% increase previously reported, while the IP index for September remained at 102.6...

The manufacturing index, which accounts for more than 75% of the total IP index, rose 0.9% to 102.2 in December, after the November index was revised from 101.1 to 101.3 and the October idex was revised from 100.3 to 100.5, while the manufacturing index is still 2.8% lower than it was a year ago....meanwhile, the mining index, which includes oil and gas well drilling, rose from 115.5 in November to 117.4 in December, after the November mining index was revised down from 116.0, still leaving the mining index at a level 12.3% lower than it was a year earlier...finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, rose by 6.2% in our cold December, from 100.0 to 106.3, after the November utility index was revised up from 99.9, now 4.5% lower than October...since December 2019 was a warmer than normal month, the utility index is now 2.7% higher than it was 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 rose to 74.5% in December from 73.4% in November, which was revised from the 73.3% reported last month...capacity utilization of NAICS durable goods production facilities rose from a upwardly revised 72.3% in November to 73.0% in December, while capacity utilization for non-durables producers rose from a upwardly revised 74.3% to 75.0%...capacity utilization for the mining sector rose to 80.5% in December from 79.0% in November, which was originally reported as 79.4%, while utilities were operating at 74.5% of capacity during December, up from 70.3% of capacity during November, which was previously reported at 70.2%...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 0.3% in December on Higher Wholesale Fuel Prices

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.3% in December, as prices for finished wholesale goods averaged 1.1% higher while margins of final service providers were on average 0.1% lower....that followed a November report that the PPI rose 0.1%, as prices for finished wholesale goods averaged 0.4% higher while margins of final service providers were unchanged, an October report wherein the PPI rose 0.3%, as prices for finished wholesale goods averaged 0.5% higher while margins of final service providers averaged 0.2% higher, a newly revised September report that showed the PPI had risen 0.4%, as prices for finished wholesale goods rose 0.4% and margins of final service providers averaged 0.5% higher, and a re-revised August report that indicates the PPI was 0.2% higher, as prices for finished wholesale goods averaged 0.3% higher while margins of final service providers averaged 0.1% higher....on an unadjusted basis, producer prices are 0.8% higher than a year ago, same as year over year increase 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 1.1% higher than in December a year ago, up from the 0.9% year over year increase shown in November...

As noted, the price index for final demand for goods, aka 'finished goods', was 1.1% higher in December, after being 0.4% higher in November, 0.5% higher in October, 0.4% higher in September, 0.3% higher in August, 0.7% 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, and 0.2% higher in December of last year....the finished goods price index rose 1.1% in December because the price index for wholesale energy goods was 5.5% higher, after it had risen by 1.2% in November, by 0.8% in October, fallen by a revised 0.4% in September, and risen by a revised 0.8% in August, by 4.6% in July, and by 9.6% in June, while the price index for wholesale foods fell 0.1%, after rising by 0.5% in November, 2.4% in October, and by a revised 1.4% in September, after falling 0.3% in August, while the index for final demand for core wholesale goods (excluding food and energy) was 0.5% higher, after rising 0.2% in November, being unchanged in October, 0.4% higher in September and 0.3% higher in July and August....wholesale energy prices averaged 5.5% higher due to a 16.1% increase in wholesale prices for gasoline, a 12.6% increase in wholesale prices for No.2 diesel fuel, and a 47.6% increase in wholesale prices for home heating oil, while the wholesale price for residential natural gas fell 1.5%...meanwhile, the wholesale food price index fell 0.1% on a 3.6% decrease in the wholesale price index for dairy products, an 5.0% decrease in the wholesale price index for fresh and dry vegetables, and a 24.9% decrease in wholesale price of eggs for fresh use....among core wholesale goods, the wholesale price index for industrial chemicals rose 3.4%, the wholesale price index for travel trailers and campers rose 0.8%, and the wholesale price index for iron and steel scrap rose 25.8% while the wholesale price index for computers and computer equipment fell 1.6% ..

At the same time, the index for final demand for services was 0.1% lower in December, after being unchanged in November, rising 0.2% in October, a revised 0.5% in September, a revised 0.1% in August, and 0.5% in July, as the index for final demand for trade services fell 0.8% and the index for final demand for transportation and warehousing services fell 0.1%, while the core index for final demand for services less trade, transportation, and warehousing services was 0.2% higher....among trade services, seasonally adjusted margins for hardware, building materials, and supplies retailers fell 8.2%, margins for RVs, trailers, and campers retailers fell 10.0%, and margins for fuels and lubricants retailers fell 6.6%... among transportation and warehousing services, average margins for airline passenger services fell 3.4% while average margins for air transportation of freight fell 1.4%...among the components of the core final demand for services index, the index for arrangement of cruises and tours rose 11.1%, the index for membership dues and admissions and recreation facility use fees rose 2.4%, margins for consumer loans rose 3.5%, while margins for deposit services (partial) fell 3.7%…

This report also showed the price index for intermediate processed goods rose 1.5% in December, after rising 1.4% in November, 0.3% in October, a revised 0.7% in September, a revised 0.9% in August, 1.4% in July, and 1.3% in June, but after being unchanged in May and falling the prior 5 months....the price index for intermediate energy goods rose 3.3%, as refinery prices for gasoline rose 16.1%, refinery prices for jet fuel rose 27.4%, and producer prices for lubricating oil base stocks rose 13.7%, while producer prices for natural gas to electric utilities fell 17.6%... meanwhile, the price index for intermediate processed foods and feeds rose 0.4%, as the producer price index for processed poultry rose 1.4%, the producer price index for meats rose 3.7% and the producer price index for prepared animal feeds rose 1.9%...at the same time, the core price index for intermediate processed goods less food and energy rose 1.2% as the producer price index for primary nonferrous metals rose 8.1%, the producer price index for copper and brass mill shapes rose 6.8%, and the producer price index for softwood lumber rose 12.5%, while the producer price index for plywood fell 3.5%...prices for intermediate processed goods are now 1.3% higher than in December a year ago, the first increase after 19 consecutive year over year decreases, which followed 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 2.2% in December, after rising 7.3% in November, 2.6% in October, a revised 4.0% in September, a revised 3.9% in August and .0% in July, and rising 5.1% in June and 8.6% in May, but after falling 12.6% in April and 8.5% in March....that was as the December price index for crude energy goods rose 2.5% as crude oil prices rose 17.5% while unprocessed natural gas prices fell 9.4%, and as the price index for unprocessed foodstuffs and feedstuffs rose 0.2% on an 11.6% jump in the price of raw milk, a 2.2% increase in the price of raw sugar cane, and a 0.8% increase in the price of unprocessed wheat...at the same time, the index for core raw materials other than food and energy materials rose 4.5%, as producer prices for recyclable paper rose 14.6%, the price index for iron and steel scrap rose 25.8%, the price for copper base scrap rose 10.0%, and raw cotton prices rose 8.6%... this raw materials index is now 1.5% higher than a year ago, the second annual increase in 2 years, as the year over year change on this index had been negative from the beginning of 2019 through October...

Lastly, the price index for services for intermediate demand rose 0.4% in December, after falling 0.1% in November, rising 0.8% in October, rising a revised 0.8% in September, a revised 0.9% in August, 0.4% in July, and 0.3% in June….the price index for intermediate trade services was 0.7% higher, as margins for metals, minerals, and ores wholesalers rose 7.0% and margins for intermediate building materials, paint, and hardware wholesalers rose 4.7%...meanwhile, the index for transportation and warehousing services for intermediate demand was 0.1% lower, as the intermediate price index for arrangement of freight and cargo fell 4.8% and the intermediate price index for transportation of passengers (partial) fell 3.3%...at the same time, the core price index for intermediate services less trade, transportation, and warehousing rose 0.4%, as the intermediate price index for business loans rose 6.2%, the intermediate price index for permanent job placement services rose 1.8% and the intermediate price index for portfolio management rose 1.7%...over the 12 months ended in December, the year over year price index for services for intermediate demand is 1.6% higher than it was a year ago, the fourth consecutive positive annual change since it turned negative year over year in April for the first time in the history of this index...

November Business Sales Down 0.1%: Business Inventories Up 0.5%

After the release of the December retail sales report, the Census Bureau released the composite Manufacturing and Trade, Inventories and Sales report for November (pdf), which incorporates the revised November retail data from that December report and the earlier published November 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 $1,480.8 billion in November, down 0.1 percent (±0.2%)* from October's revised sales, but up 1.5 percent (±0.4%) from November sales of a year earlier...note that total October sales were concurrently revised from the previously reported $1,482.3 billion  to $1,482.1 billion, still up 0.9% from September....manufacturer's sales rose 0.7% to $492,931 million in November; retail trade sales, which exclude restaurant & bar sales from the revised November retail sales reported earlier, fell 1.1% to $491,081 million, and wholesale sales rose 0.2% to $496,738 million..

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,959.9 billion at the end of November, up 0.5 percent (±0.1 percent) from October, but 3.2 percent (±0.5 percent) lower than in November a year earlier...at the same time, the value of end of October inventories was revised from the $1,948.7 billion reported a month ago to $1,950.354 billion, now an 0.8% increase from September.... seasonally adjusted inventories of manufacturers were estimated to be valued at $692,933 million, up 0.7% from October, and inventories of retailers were valued at $617,142 million, also 0.7% higher than in October, while inventories of wholesalers were estimated to be valued at $649,823 million at the end of November, statistically unchanged from October...

For GDP purposes, all inventories, including retail, will be adjusted for inflation with appropriate component price indices of the producer price index for November, which was up 0.4% for finished goods, including an increase of 0.2% ex food & energy...last week, we looked at real factory inventories with price adjustments for goods at various stages of production, and judged the negative change in those inventories would have a modest negative impact on 4th quarter GDP growth…also last week, we found that real wholesale inventories were at least 0.4% lower for the month, following a 0.5% real increase in October, and that they add to the growth of 4th quarter GDP largely because of the sharp drop in the 3rd quarter they were poised to reverse….since nominal retail inventories for November have now been shown to 0.7% higher, real retail inventories for the month, considering a 0.4% finished goods price adjustment, would have thus increased by 0.3% from October, after a real 0.4% increase in that month...since the third quarter saw a small real decrease in real retail inventories, these real inventory increases we now have indicated for the 4th quarter would necessarily add back that decrease, plus the amount of the real 4th quarter increase, to the growth of 4th quarter GDP...

Job Openings Lower in November; Hiring & Layoffs Rose, Quitting was Little Changed

The Job Openings and Labor Turnover Survey (JOLTS) report for November from the Bureau of Labor Statistics estimated that seasonally adjusted job openings decreased by 105,000, from 6,632,000 in October to 6,527,000 in November, after October’s job openings were revised 20,000 lower, from 6,652,000 to 6,632,000...November's jobs openings were also 3.9% lower than the 6,793,000 job openings reported in November a year ago, as the job openings ratio expressed as a percentage of the employed fell to 4.4% in November from 4.5% October, while it was up from 4.3% in November a year ago....the largest percentage decrease in November openings appears to be a 45,000 job opening decrease to 77,000 openings in the information sector, while the professional and business services sector saw job openings increase by 54,000 to 1,274,000 (see table 1 for more job openings 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 November, seasonally adjusted new hires totaled 5,979,000, up by 67,000 from the revised 5,912,000 who were hired or rehired in October, as the hiring rate as a percentage of all employed remained at 4.2% in November, while it was still up from 3.9% in November a year ago (details on hiring by region and by sector since July are in table 2)....meanwhile, total separations rose by 271,000, from 5,142,000 in October to 5,413,000 in November, as the separations rate as a percentage of the employed rose from 3.6% to 3.8%, and it was also up from 3.7% in November a year ago (see table 3)...subtracting the 5,413,000 total separations from the total hires of 5,979,000 would imply an increase of 566,000 jobs in November, somewhat more than the revised payroll job increase of 336,000 for November reported in the December 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 3,156,000 of us voluntarily quit our jobs in November, up by 6,000 from the revised 3,150,000 who quit their jobs in October, while the quits rate, widely watched as an indicator of worker confidence, remained unchanged at 2.2% of total employment, while it was down from 2.3% a year earlier (see job quitting details in table 4)....in addition to those who quit, another 1,971,000 were either laid off, fired or otherwise discharged in November, up by 295,000 from the revised 1,676,000 who were discharged in October, as the discharges rate rose from 1.2% to 1.4% of total employment, which was also up from the discharges rate of 1.2% in November a year ago....meanwhile, other separations, which includes retirements and deaths, were at 287,000 in November, down from 317,000 in October, for an 'other separations rate’ of 0.2%, which was the same rate as in October and as in November 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 easily using the links to tables at the bottom of the press release...

 

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

Sunday, January 10, 2021

December’s jobs report; November’s trade deficit, construction spending, factory inventories, and wholesale trade..

The major economic reports released the past week were the Employment Situation Summary for December from the Bureau of Labor Statistics, the November report on our International Trade from agencies within the Commerce Dept, and the November report on Construction Spending (pdf), the Full Report on Manufacturers' Shipments, Inventories and Orders for November and the November report on Wholesale Trade, Sales and Inventories (pdf), all from the Census Bureau....in addition, this week the Fed released the Consumer Credit Report for November, which showed that overall consumer credit, a measure of non-real estate debt, expanded by a seasonally adjusted $15.3 billion, or at a 4.4% annual rate, as non-revolving credit expanded at a 6.1% rate to $3,198.0 billion in November, while revolving credit outstanding shrank at a 1.0% rate to $978.8 billion...

Privately issued reports released this week included the ADP Employment Report for December, the light vehicle sales report for December from Wards Automotive, which estimated that vehicles sold at a 16.27 million annual rate in December, up from the 15.55 million annual pace of vehicle sales reported for November, but down from the 16.70 million vehicle sales rate reported for December of 2019,  and both of the widely followed purchasing manager's surveys from the Institute for Supply Management (ISM): the December Manufacturing Report On Business® indicated that the manufacturing PMI (Purchasing Managers Index) rose to 60.7% in December, up from 57.5% in November, indicating a more robust growth rate of US manufacturing during the month, and the December Services Report On Business, which saw the Services index rise to 57.2% in December, up from 55.9% in November, meaning a modestly larger plurality of service industry purchasing managers reported expansion in various facets of their business in December than in November...both of those ISM reports are easy to read and include anecdotal comments from purchasing managers from the 34 business types who participate in those surveys nationally...

Employers Cut 140,000 Jobs in December, Unemployment Rate Steady

The Employment Situation Summary for December indicated that employers reduced payrolls for the first time since April, but that the unemployment rate remained at 6.7% and the U-6 unemployment rate fell by 0.3% to 11.7%…estimates extrapolated from the seasonally adjusted establishment survey data projected that employers cut 140,000 jobs in December, after the previously estimated payroll job increase for November was revised up by 91,000, from 245,000 to 336,000, and the payroll jobs increase for October was revised up by 44,000, from 610,000 to 654,000…while that means that this report represents a net of just 5,000 fewer seasonally adjusted payroll jobs than were reported last month, it still leaves December's non-farm payrolls down by 9,812,000 jobs from the 152,436,000 seasonally adjusted jobs that were reported in February...the unadjusted data, meanwhile, shows that there were actually 328,000 fewer payroll jobs extent in December than in November, as the usual seasonal layoffs in areas such as construction and other outdoor services were normalized by the seasonal adjustments to show the job increases indicated..

December's seasonally adjusted job losses were concentrated in just a few sectors; the largest job decrease was in the leisure and hospitality sector, which lost 498,000 jobs, with the loss of 372,900 jobs in bars and restaurants, 91,900 more in amusements, gambling, and recreation and 23,600 fewer jobs in accommodation...in addition, private educational services cut 62,500 employees, while the government sector shed 45,000 jobs, with 31,500 of those from local governments excluding education and 19,900 jobs cut from state government education...meanwhile, seasonally adjusted job increases included 161,000 more jobs in the professional and business services sector, where 67,600 jobs were added by temporary employment services and 20,300 were added by computer systems design and related services...after a holiday related downward seasonal adjustment, retail sales still added 120,500 more workers, led by a 56,700 increase in those working in general merchandise stores, a 14,300 increase in jobs with non-store retailers, and a 13,400 job increase in those working for automobile dealers...after a upward seasonal adjustment of 154,000 jobs, the construction sector showed a 51,000 job increase, with 18,300 of those employed by nonresidential specialty trade contractors and another 15,000 added in heavy and civil engineering construction...the transportation and warehousing sector added 46,600 employees in December, of which 37,400 were 'couriers and messengers' (ie, package delivery), while employment in health care increased by 38,800 jobs during the month, as 31,500 more employees were added by hospitals...meanwhile, manufacturing employment increased by 38,000, as manufacturers of plastics and rubber products added 6,900 jobs, motor vehicles and parts factories added 6,700, and nonmetallic mineral products manufacturers added 6,100, while the wholesale trade sector saw the addition of 25,100 employees, with 11,400 of those in durable goods sales and 10,800 in sales of non-durable goods...at the same time, employment in the other major sectors, including utilities, financial activities, information, and resouce extraction, was little changed over the month..

With the aforementioned employment decreases of mostly lower paying jobs, the establishment survey thus showed that average hourly pay for all employees rose by 23 cents an hour to $29.81 an hour in December, after it had increased by a 9 cents an hour in November; at the same time, the average hourly earnings of production and nonsupervisory employees increased by 20 cents to $25.09 an hour......employers also reported that the average workweek for all private payroll employees was down by a tenth of an hour to 34.7 hours in December, while hours for production and non-supervisory personnel was unchanged at 34.2  hours...at the same time, the manufacturing workweek held steady at 40.2 hours, while average factory overtime rose 0.1 hour to 3.3 hours...

Meanwhile, the December household survey indicated that the seasonally adjusted extrapolation of those who reported being employed rose by an estimated 21,000 to 149,830,000, while the estimated number of those unemployed rose by 8,000 to 10,736,000; which together meant there was a rounded 30,000 increase in the total labor force....since the working age population had grown by 145,000 over the same period, that meant the number of employment aged individuals who were not in the labor force rose by 115,000 to 100,663,000...with the increase of those in the labor force just a bit below the increase in the civilian noninstitutional population, the labor force participation rate remained unchanged at 61.5% in December....meanwhile, the increase in number employed as a percentage of the increase in the population was not significant enough to change the employment to population ratio, which we could think of as an employment rate, as it was also unchanged at 57.4%...at the same time, the relatively small increase in the number considered unemployed was not enough to change the unemployment rate, which remained at 6.7% in December.. however, the number of those who reported they were forced to accept just part time work fell by 471,000, from 6,641,000 in November to 6,170,000 in December, which was enough to lower the alternative measure of unemployment, U-6, which includes those "employed part time for economic reasons", by 0.3% to 11.7% of the labor force in December, 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..

Trade Deficit Rose 8.0% in November on Higher Imports of Consumer Goods, Industrial Supplies and Capital Goods

Our trade deficit rose 8.0% in November as the value of our exports increased but the value of our imports increased by quite a bit more....the Commerce Dept report on our international trade in goods and services for November indicated that our seasonally adjusted goods and services trade deficit rose by a rounded $5.0 billion to $68.1 billion in November, from an October deficit of $63.1 billion, which was revised but remained statistically unchanged from the deficit reported for October a month ago....the value of our November exports rose by $2.2 billion to $184.2 billion on a $1.3 billion increase to $127.7 billion in our exports of goods and a $0.9 billion increase to $56.4 billion in our exports of services, while the value of our imports rose by $7.2 billion to $252.3 billion on a $6.3 billion increase to $214.1 billion in our imports of goods and an increase of $0.9 billion to $38.2 billion in our imports of services...export prices were on average 0.6% higher in November, which means the relative real increase in exports for the month was smaller than the nominal increase by that percentage, while import prices were 0.1% higher, meaning the increase in real imports was smaller than the nominal dollar increase reported here by that percentage...

The $1.3 billion increase in the value of our November exports of goods largely resulted from greater exports of industrial supplies and materials and of foods, feeds, and beverages...referencing the Full Release and Tables for November (pdf), in Exhibit 7, we find that the value of our exports of industrial supplies and materials rose by $830 million to $41,798 million on a $473 million increase in our exports of natural gas, and that our exports of foods, feeds and beverages rose by $538 million to $12,904 million on increased exports of soybeans, wheat, barley, sorghum, oats, meats and poultry...in addition, our exports of exports of consumer goods rose by $176 million to $16,375 million, and our exports of other goods not categorized by end use rose by $136 million to $5,007 million...partially offsetting the increases in those export categories, our exports of capital goods fell by $241 million to $38,904 million on a $291 million decrease in our exports of civilian aircraft engines, and our exports of automotive vehicles, parts, and engines fell by $125 million to $12,550 million on a $133 million decrease in our exports of trucks, buses, and special purpose vehicles...

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, industrial supplies and materials, and capital goods accounted for November's $6.3 billion increase in our imports...our imports of consumer goods rose by $4,003 million to $61,183 million on a $2,752 million increase in our imports of cellphones, a $300 million increase in our imports of household appliances and a $296 million increase in our imports of artwork, antiques and other collectibles, and our imports of industrial supplies and materials rose by $1511 million to $39,727 million, led by a $353 million increase in our imports of precious metals other than gold and a $222 million increase in our imports of crude oil, and our imports of capital goods rose by $1,203 million to $58,092 million on a $414 million increase in our imports of civilian aircraft, a $320 million increase in our imports of semiconductors, and a $264 million increase in our imports of photo servicing industry machinery...in addition, our imports of foods, feeds, and beverages rose by $53 million to $13,403 million, and our imports of other goods not categorized by end use rose by $706 million to $9,452 million....partly offsetting the increases in those import categories, our imports of automotive vehicles, parts and engines fell by $1,035 million to $31,168 million on a $1,054 million decrease in our imports of new and used passenger cars....

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 November figures show surpluses, in billions of dollars, with South and Central America ($3.0), Hong Kong ($1.8), OPEC ($1.2), Brazil ($1.2), United Kingdom ($1.1), Saudi Arabia ($0.2), and Singapore ($0.2). Deficits were recorded, in billions of dollars, with China ($30.0), European Union ($16.7), Mexico ($11.3), Japan ($6.6), Germany ($4.9), Italy ($3.5), Taiwan ($3.0), South Korea ($2.9), India ($2.4), Canada ($1.7), and France ($1.7).

  • The deficit with China increased $3.5 billion to $30.0 billion in November. Exports decreased $0.5 billion to $12.6 billion and imports increased $3.0 billion to $42.6 billion.
  • The deficit with the European Union increased $1.0 billion to $16.7 billion in November. Exports increased $0.9 billion to $20.4 billion and imports increased $2.0 billion to $37.1 billion.
  • The surplus with South and Central America increased $0.8 billion to $3.0 billion in November. Exports increased $0.2 billion to $11.0 billion and imports decreased $0.6 billion to $8.0 billion.

To estimate the impact of October's and November's trade in goods on the eventual 4th quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted in chained 2012 dollars, the same inflation adjustment used by the BEA to compute trade figures for GDP, with the exception that they are not annualized here....from that table, we can figure that we can figure that 3rd quarter real exports of goods averaged 136,611 million monthly in 2012 dollars, while similarly inflation adjusted October and November exports were at 143,883 million and 144,581 million respectively in that same 2012 dollar quantity index representation...annualizing the change between the average monthly real exports of the two quarters, we find that the 4th quarter's real exports of goods are running at a 24.25% annual rate above those of the 3rd quarter, or at a pace that would add about 1.32 percentage points to 4th quarter GDP if it were to continue at the same pace through December....in a similar manner, we find that the 3rd quarter's real imports of goods averaged 227,055.3 million monthly in chained 2012 dollars, while inflation adjusted October and November imports were at 233,736 million and 241,121 million in 2012 dollars respectively...those chained dollar representations of real goods imports would indicate that so far in the 4th quarter, real imports have been growing at annual rate of 19.565% from those of the 3rd quarter...since imports are subtracted from GDP because they represent the portion of the consumption and investment components of GDP that occurred during the quarter that was not produced domestically, their increase at a 19.656% rate would subtract about 1.36 percentage points from 4th quarter GDP....hence, if our October and November trade deficit in goods is maintained at these levels throughout December, our deteriorating balance of trade in goods would subtract a negligible 0.04 percentage points from the growth of 4th quarter GDP....(note, however, that we have not computed the impact on GDP of the usually less volatile change in services here, mostly because the BEA does not provide inflation adjusted data on those, but that the increases in November's imports and exports of services were statically similar, also suggesting a negligible impact on GDP)...

Construction Spending Rose 0.9% in November After Prior Months Were Revised Higher

The Census Bureau's report on construction spending for November (pdf) estimated that the month's seasonally adjusted construction spending would work out to $1,459.4 billion annually if extrapolated over an entire year, which was 0.9 percent (±0.8%) above the revised October annualized estimate of $1,446.9 billion and also 3.8 percent (±1.3 percent) above the estimated annualized level of construction spending in November of last year...at the same time, the annualized October construction spending estimate was revised nearly 0.6% higher, from $1,438.5 billion to $1,446.9 billion, while the annual rate of construction spending for September was revised almost 0.3% higher, from $1,420.4 billion to $1,423.963 billion...the $3.6 billion upward revision to September construction spending would imply that the 3rd estimate of 3rd quarter GDP growth was understated by roughly 0.03 percentage points, a change which will not be applied to published GDP figures until the annual revision is released in the middle 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 $1,111.8 billion, 1.2 percent (±0.5 percent) above the revised October estimate of $1,098.6 billion. Residential construction was at a seasonally adjusted annual rate of $658.1 billion in November, 2.7 percent (±1.3 percent) above the revised October estimate of $641.0 billion. Nonresidential construction was at a seasonally adjusted annual rate of $453.8 billion in November, 0.8 percent (±0.5 percent) below the revised October estimate of $457.6 billion.
  • Public Construction: In November, the estimated seasonally adjusted annual rate of public construction spending was $347.6 billion, 0.2 percent (±1.3 percent)* below the revised October estimate of $348.3 billion. Educational construction was at a seasonally adjusted annual rate of $86.7 billion, 0.3 percent (±1.2 percent)* above the revised October estimate of $86.5 billion. Highway construction was at a seasonally adjusted annual rate of $97.5 billion, 1.8 percent (±3.5 percent)* above the revised October estimate of $95.8 billion.

As you can infer from that summary, construction spending would be included in 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and in government investment outlays, for both state and local and Federal governments...however, getting an accurate read on the impact of November spending reported in this release on 4th quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price...that’s problematic because there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for the prices changes of all of those types of construction separately, we've opted to use the producer price index for final demand construction as an inexact shortcut to make an approximate price adjustment and thereby get a rough estimate of the real change in construction...

That price index showed that aggregate construction costs were up 0.1% in November after being unchanged in October, down 0.2% in September and down 0.3% in August...on that basis, we can estimate that construction costs for November were up 0.1% from September, down 0.1% from August, and down 0.4% from July, while they were obviously up 0.1% from October...we then use those percentage changes to adjust the spending figures for each of those 3rd quarter months against November, which is arithmetically the same as adjusting lower priced October and November construction spending upward, for purposes of comparison...annualized construction spending in millions of dollars for the third quarter months is given as $1,423,963 for September, $1,426,884 for August, and $1,398,952 for July, while it was at annual rates of $1,446,877 in October and $1,459,440 in November....thus to compare the difference between the inflation adjusted construction spending of the two recent 4th quarter months and those of the third quarter, our calculation would be ((1,459,440 + 1,446,877 * 1.001)/2) / ((1,423,963 *1.001 + 1,426,884 * .999 + 1,398,952 * .996) / 3) = 1.027672, meaning average real construction over the months of October and November was up 2.7672% vis a vis the 3rd quarter...in GDP terms, that means real construction for the 4th quarter has increased at an annual rate of 11.537% from that of the 3rd quarter so far, or at a pace that would add about 1.30 percentage points to 4th quarter GDP, should real December construction continue at the same pace as that of October and November…

Factory Shipments Up 0.7% in November, Factory Inventories Up 0.7%, Both on Higher Prices

The Full Report on Manufacturers' Shipments, Inventories, & Orders (pdf) for November from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $5.0 billion or 1.0 percent to $487.2 billion in November, following an increase of 1.3% to $482.2 billion in October, which was revised from the 1.0% increase to $480.8 billion that was reported for October a month ago....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 October advance report on durable goods we reported on two weeks ago...on those durable goods 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 November, up seven consecutive months, increased $5.0 billion or 1.0 percent to $487.2 billion, the U.S. Census Bureau reported today. This followed a 1.3 percent October increase. Shipments, also up seven consecutive months, increased $3.4 billion or 0.7 percent to $492.9 billion. This followed a 1.2 percent October increase. Unfilled orders, down eight of the last nine months, decreased $0.6 billion or 0.1 percent to $1,073.2 billion. This followed a 0.2 percent October decrease. The unfilled orders-to-shipments ratio was 6.40, up from 6.38 in October. Inventories, up three of the last four months, increased $5.1 billion or 0.7 percent to $692.9 billion. This followed a 0.3 percent October increase. The inventories-to-shipments ratio was 1.41, unchanged from October.
  • New orders for manufactured durable goods in November, up seven consecutive months, increased $2.3 billion or 1.0 percent to $244.4 billion, up from the previously published 0.9 percent increase. This followed a 1.8 percent October increase. Transportation equipment, up six of the last seven months, led the increase, $1.6 billion or 2.1 percent to $79.0 billion. New orders for manufactured nondurable goods increased $2.7 billion or 1.1 percent to $242.8 billion.
  • Shipments of manufactured durable goods in November, up six of the last seven months, increased $0.8 billion or 0.3 percent to $250.1 billion, unchanged from the previously published increase. This followed a 1.5 percent October increase. Miscellaneous products, up nine of the last ten months, led the increase, $0.4 billion or 2.5 percent to $15.5 billion. Shipments of manufactured nondurable goods, up seven consecutive months, increased $2.7 billion or 1.1 percent to $242.8 billion. This followed a 0.8 percent October increase. Petroleum and coal products, up six of the last seven months, led the increase, $1.8 billion or 4.4 percent to $41.6 billion.
  • Unfilled orders for manufactured durable goods in November, down eight of the last nine months, decreased $0.6 billion or 0.1 percent to $1,073.2 billion, unchanged from the previously published decrease. This followed a 0.2 percent October decrease. Transportation equipment, down nine consecutive months, drove the decrease, $3.4 billion or 0.5 percent to $713.4 billion. \
  • Inventories of manufactured durable goods in November, up three consecutive months, increased $3.8 billion or 0.9 percent to $426.5 billion, unchanged from the previously published increase. This followed a 0.3 percent October increase. Transportation equipment, up twenty-six of the last twenty-seven months, led the increase, $2.5 billion or 1.7 percent to $150.8 billion. Inventories of manufactured nondurable goods, up three of the last four months, increased $1.3 billion or 0.5 percent to $266.5 billion. This followed a 0.2 percent October increase. Petroleum and coal products, up following two consecutive monthly decreases, led the increase, $0.9 billion or 2.9 percent to $31.3 billion.

To gauge the impact of November factory inventories on 4th 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 November's finished goods inventories was 0.8% higher at $247,059 million; the value of work in process inventories was 1.0% higher at $219,930 million, and materials and supplies inventories were valued 0.4% higher at $236,198 million...the producer price index for November indicated that prices for finished goods increased 0.4%, that prices for intermediate processed goods were 1.4% higher, and that prices for unprocessed goods were on average 7.3% higher....assuming similar valuations for like types of inventories, those price changes would suggest that November's real finished goods inventories were up about 0.4%, that real inventories of intermediate processed goods were around 0.4% smaller, and around 6.9% smaller, with a caveat on that last figure because two-thirds of the increase in the index for unprocessed goods was due to a 48.9% jump in prices for unprocessed natural gas; even so, real raw material inventories were down at least 2% without that...those November inventory changes follow an October report that indicated real finished goods inventories were about 0.1% lower, that real inventories of intermediate processed goods were about 2.6% lower, and that real raw material inventory inventories were about 2.3% lower…since real factory inventories in the 3rd quarter were only slightly lower, any larger inventory decreases in the 4th quarter such as we see indicated here will subtract from GDP by the difference bewteen the 3rd quarter and 4th quarter decreases..

November Wholesale Sales Up 0.2%, Wholesale Inventories Unchanged

The November report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at "$496.7 billion, up 0.2 percent (±0.4 percent)* from the revised October level, but were down 0.2 percent (±1.1 percent)* from the revised November 2019 level."...October's sales were revised down to $495,974 million from the $496.6 billion reported last month, and as a result "The September 2020 to October 2020 percent change was revised from the preliminary estimate of up 1.8 percent (±0.4 percent) to up 1.7 percent (±0.4 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 left in a warehouse represent goods that were produced but not sold, and this November report estimated that wholesale inventories were valued at a seasonally adjusted "$649.8 billion at the end of November, virtually unchanged (±0.2 percent)* from the revised October level. Total inventories were down 2.1 percent (±1.1 percent) from the revised November 2019 level". ..the value of inventories at the end of October was revised to $649.8 billion from the $649.0 billion indicated by last month's report, which is now up 1.3% from September..

To estimate the impact of November wholesale inventories on 4th quarter GDP, we must first adjust them for changes in price with appropriate components of the producer price index...although details are not broken out in this report, we've previously estimated that about 2/3rd of wholesale inventories are finished goods, with notable exceptions such as inventories of crude oil and farm products...as we noted earlier, the producer price index for November indicated that prices for finished goods increased 0.4%, that prices for intermediate processed goods were 1.4% higher, and that prices for unprocessed goods were on average 7.3% higher; thus the lack of change in the nominal value of wholesale inventories was despite rising prices, and hence real wholesale inventories were at least 0.4% lower for the month, and that follows an October when real whole inventories were around 0.5% higher....since real wholesale inventories in the 3rd quarter were down sharply, the change real wholesale inventories in the 4th quarter would thus add to the growth of 4th quarter GDP by first reversing the 3rd quarter decline, and then by incrementing or decrementing that with the magnitude of the 4th quarter change...

 

 

(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…)