Monday, June 20, 2022

May's reports on retail sales, industrial production, producer prices and new home construction; April’s business inventories

Major economic reports released the past week included the Retail Sales report for May and its companion the Business Sales and Inventories report for April, as well as the May report on New Residential Construction, all from the Census Bureau; the report on Industrial Production and Capacity Utilization for May from the Fed, and the May Producer Price Index and the May Import-Export Price Index, both from the Bureau of Labor Statistics...the Bureau of Labor Statistics also released the Regional and State Employment and Unemployment Summary for May on Friday this week, which breaks down the two employment surveys from the monthly national jobs report by state and region....while the text of that report provides a useful summary of this data, the serious statistical aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands...

This week also saw the release of the first two Fed regional manufacturing reports for June: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index rose to -1.2 June, from -11.6 in May, indicating a leveling off of the contraction among First District manufacturing firms that began in May... meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions fell from +2.6 in May to -3.3, in June, indicating that a plurality of that district's manufacturers are also experiencing a slowdown..

Retail Sales Fell 0.3% in May After March and April Sales Were Revised Lower

Seasonally adjusted retail sales fell 0.3% in May after retail sales for April were revised 0.4% lower....the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $672.9 billion for the month, which was a decrease of 0.3 percent (±0.5%) from April's revised sales of $674.7 billion, but 8.1 percent (±0.7 percent) above the adjusted sales of May of last year...April's seasonally adjusted sales were revised from the record high $677.7 billion reported last month to $674.7 billion, while March sales were revised from $671.6 billion to $669,958 million, which meant that March to April percent change was revised from an increase of 0.9 percent (± 0.5 percent) to an increase of 0.7 percent (± 0.2 percent)...the $1.64 billion downward revision to March sales should reduce nominal first quarter PCE at around a $6.6 billion annual rate and subtract about 0.11 percentage points, give or take, from 1st quarter GDP when the 3rd estimate is released at the end of the month....estimated sales before seasonal adjustments, which were extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 2.4% before the adjustment, from $681,635 million in April to $697,715 million in May, while they were up 8.2% from the $644,652 million in actual sales of May a year ago...

Included below is the table of the monthly and yearly percentage changes in sales by business type taken from the Census pdf....the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business from April to May in the first sub-column, and then the year over year percentage change for those businesses since last May in the 2nd column; the second pair of columns gives us the revision of last month’s April advance monthly estimates (now called "preliminary") as revised with this report, likewise for each business type, with the March to April change under "Mar 2022 r" (revised) and the revised April 2021 to April 2022 percentage change in the last column shown...for your reference, our copy of the table of last month’s advance April estimates, before this month's revision, is here....

To compute May's real personal consumption of goods data for national accounts from this May retail sales report, the BEA will use the corresponding price changes from the May consumer price index, which we reviewed last week...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 May retail sales excluding the 4.0% increase in sales at gas stations were down by 0.7%...then, by subtracting the actual dollar amounts representing the 1.2% increase in grocery & beverage sales and the 0.7% increase in food services sales from that total, we find that core retail sales were down by 1.3% for the month....since the May CPI report showed that the composite price index of all goods less food and energy goods was 0.7% higher in May, we can thus figure that the change in real retail sales excluding food and energy sales will amount to a decrease of nearly 2.0%...however, the actual adjustment in national accounts for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were down 3.5% in May, the May price index for transportation commodities other than fuel was 1.4% higher, which would suggest that real unit sales at auto & parts dealers were probably on the order of 4.8% lower once price increases are taken into account... similarly, while nominal sales at clothing stores were 0.1% higher in May, the apparel price index was 0.7% higher, which suggests that real sales of clothing actually fell around 0.6%...

In addition to figuring those core retail sales, to make an estimate of the month's change in real sales, we'll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do.…the May CPI report showed that the food price index was 1.2% higher, as the price index for food purchased for use at home rose 1.4% while the index for food bought away from home was 0.1% higher...thus, while nominal sales at food and beverage stores were 1.2% higher, real sales of food and beverages would have been around 0.2% lower in light of the 1.4% higher prices…meanwhile, the 0.7% increase in nominal sales at bars and restaurants, once adjusted for 0.7% higher prices, suggests that real sales at bars and restaurants were roughly unchanged during the month...on the other hand, while sales at gas stations were up 4.0%, there was also a 4.1% increase in the price of gasoline during the month, which would suggest that real sales of gasoline were up on the order of 0.1% lower, with a caveat that gasoline stations do sell more than gasoline, products which should not be adjusted with gasoline prices…reweighing and averaging the real sales changes that we have thus estimated back together, and excluding food services, we can then estimate that the income and outlays report for May will show that real personal consumption of goods fell by nearly 1.6% in May% in May, after rising by a revised 0.7% in April and being virtually unchanged in March, but after falling by 1.0% in February and rising by 3.6% in January...at the same time, since real sales at bars and restaurants were unchanged, they will add nothing to the growth rate of May's real personal consumption of services....

Industrial Production Rose 0.2% in May After March Output Revised 0.4% Lower

Industrial production increased in May after production for March and April was revised lower...the Fed'sG17 release on Industrial production and Capacity Utilization for May reported that industrial production increased 0.2% in May after rising by a revised 1.4% in April and by a revised 0.5% in March, which left total output 5.8% higher than a year ago, down from last month's +6.4% year over year figure...the industrial production index, which is benchmarked for average 2017 production to be equal to 100.0, rose from a revised 105.5 in April to 105.7 in May, after the April reading for the index was revised down from 105.6 to 105.5, the March index was revised down from 104.5 to 104.1, the February index was revised but remained at 103.6, and the January index was revised from 102.6 to 102.5....

The manufacturing index, which accounts for more than 77% of the total IP index, slipped 0.1% from an unrevised 103.2 in April to 103.1 in May, after the March manufacturing index was revised from 102.5 to 102.4, leaving manufacturing output 4.8% higher than it was a year ago... meanwhile, the mining index, which includes oil and gas well drilling, rose 1.3% or from 114.8 in April to 116.3 in May, after the April index was revised up from the originally reported 114.0, boosting the mining index to 9.0% higher than it was a year earlier....finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, rose 1.0% to 108.7 in May, after the April index was revised from an increase of 2.6% to 109.3 to an increase of 5.5% to 107.6, and after the March utility index was revised from a 0.3% decrease to 106.7, to a 4.7% decrease to 102.0, leaving the utility index 8.4% above it's year earlier level...

This report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry rose to 79.0% in May from 78.9% in April, after capacity utilization for April was revised down from the 79.0% reported a month ago....capacity utilization for all manufacturing industries slipped from a revised 79.2% in April to 79.1% in May, as utilization of NAICS durable goods production facilities fell from a downwardly revised 79.0% in April to 78.7% in May, while capacity utilization for non-durables manufacturers rose from 79.9% to 80.0%...at the same time, capacity utilization for the mining sector rose to 81.5% in May, from 80.7% in April, which was originally reported as 80.1%, while utilities were operating at 76.4% of capacity during May, up from 75.9% of capacity during April, which was was originally reported at 77.0%....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 0.8% in May; Record Annual Increase of 16.6% for Final Demand Goods

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.8% in May, as average prices for finished wholesale goods rose by 1.4% while final demand for services was 0.4% higher....that increase followed a revised 0.4% increase in April, when average prices for finished wholesale goods rose by 1.3% while final demand for services was 0.2% lower, a revised 1.6% increase in March, when average prices for finished wholesale goods rose by 2.4% and final demand for services rose 1.2%, a revised 1.1% increase in February, when average prices for finished wholesale goods rose by 2.2% while margins of final services providers rose 0.5%, and a revised 1.2% increase in January, when wholesale goods prices rose 1.6% and the price index for final demand for services rose 0.9%...on an unadjusted basis, producer prices are now 10.8% higher than a year ago, down from the revised 10.9 year over year increase now shown for April's producer prices, while the core producer price index, which excludes food, energy and trade services, rose by 0.5% for the month, and is now 6.8% higher than in a year ago, same as the revised year over year core PPI increase that is now indicated for April...note that the BLS is now revising the PPI going back five months, so the figures we cite for those months were revised, whether we note it or not..

As we noted, the producer price index for final demand for goods, which was previously aggregated as 'finished goods', was 1.4% higher in May, after being 1.3% higher in April, 2.4% higher in March, to 2.2% higher in February, to 1.6% higher in January, and after being 0.1% lower in December, 0.9% higher in November, 1.3% higher in October. 1.2% higher in September, 1.0% higher in August, 0.8% higher in July, 1.3% higher in June, 1.4% higher in May, and 1.0% higher in April of last year, and hence is now up by a record 16.56% from a year ago, topping April's 16.32% record annual increase....the finished goods price index rose 1.4%, as the price index for wholesale energy goods was 5.0% higher in May, after it had risen by a revised 1.6% in April, by a revised 6.5% in March, and by a revised 7.2% in February, while the price index for wholesale foods was unchanged, after rising by1.4%% in April and 2.4% in March, and while the index for final demand for core wholesale goods (excluding food and energy) rose 0.7% in May, after rising a revised by 1.1% in both March and April...wholesale energy prices averaged 5.0% higher on a 8.0% increase in wholesale prices for gasoline, a 10.6% increase in wholesale prices for home heating oil, and a 6.2% increase in wholesale prices for residential natural gas, while the final demand food price index was unchanged as a 6.0% increase in the wholesale price index for processed turkeys, a 4.6% increase in the wholesale price index for processed chickens, and a 3.5% increase in the wholesale price index for fresh and dry vegetables was offset by a 9.5% decrease in the wholesale price index for beef and veal, and a 7.6% decrease in the wholesale price index for pork....among core wholesale goods, the final demand price index for industrial chemicals rose 2.9%, the final demand price index for metal forming machine tools rose 2.6%, the final demand price index for transformers and power regulators rose 2.1%. the final demand price index for wholesale sporting and athletic goods rose 2.5%, the final demand price index for pumps, compressors, and related equipment rose 2.3%, and the wholesale price index for cigarettes rose 2.6%....

Meanwhile, the price index for final demand for services was 0.4% higher in May, after falling by a revised 0.2% in April, and rising by 1.2% in March, and is now up by 7.6% from a year ago, down quite a bit from the record 9.2% year over year increase that was reported for March....the price index for final demand for trade services rose 0.4%, the price index for final demand for transportation and warehousing services rose 2.9%, while the core index for final demand for services less trade, transportation, and warehousing services was 0.1% higher...among trade services, seasonally adjusted margins for lawn, garden, and farm equipment and supplies retailers rose 5.5%, margins for automobile retailers rose 3.3%, margins for furniture retailers rose 3.6%, and margins for apparel, jewelry, footwear, and accessories retailers rose 2.7%, while margins for fuel and lubricants retailers fell 21.7%....among transportation and warehousing services, average margins for airline passenger services rose 2.9%, margins for truck transportation of freight also rose 2.9%, and margins for rail transportation of freight and mail rose 2.7%...among the components of the core final demand for services index, the price index for arrangement of cruises and tours rose 5.1%, the price index for securities brokerage, dealing, investment advice, and related services rose 5.5%, and the price index for mining services rose 2.8%, while the price index for portfolio management fell 1.9%, the price index for traveler accommodation services fell 3.3%, and the price index for passenger car rental fell 5.6% …

This report also showed the price index for intermediate processed goods rose 2.3% in May, after rising a revised 2.0% in April, 2.3% in March, and by a 1.5% in February....the price index for intermediate energy goods rose 4.6% in April, as producer prices for natural gas to electric utilities rose 23.7%, producer prices for industrial natural gas rose 16.2%, refinery prices for jet fuel rose 12.0%, and refinery prices for gasoline rose 8.4%... at the same time, the price index for intermediate processed foods and feeds rose 0.9%, as the producer price index for processed poultry rose 5.1%, the producer price index for fats & oils rose 4.0% and the producer price index for prepared animal feeds rose 1.8%...meanwhile, the core price index for intermediate processed goods less food and energy goods rose 1.7% as the producer price index for paint materials rose 3.9%, the producer price index for nitrogenates rose 11.8%, the producer price index for steel mill products rose 10.7%, the producer price index for hardwood lumber rose 2.9%, the producer price index for paving mixtures and blocks rose 2.8%, and the producer price index for metal valves, except those for fluid power, rose 3.2%, while the producer price index for primary nonferrous metals fell 12.0%...average prices for intermediate processed goods are still 21.6% higher than in May a year ago, down from the 21.9% year over year increase shown for April, and down from.their 26.6% year over year increase in November, which had been a 46 year high....

At the same time, the price index for intermediate unprocessed goods rose 6.3% in May, after rising a revised 6.1% in April, by 2.7% in March, and by 10.0% in February....that was as the May price index for crude energy goods rose 16.3%, as unprocessed natural gas prices rose 39.7% and coal prices rose 3.9%, while crude oil prices fell 1.6% ...at the same time, the price index for unprocessed foodstuffs and feedstuffs was 0.9% higher on a 1.6% increase in producer prices for slaughter cattle, a 1.1% increase in producer prices for wheat, a 5.9% increase in producer prices for raw milk, a 10.1% increase in producer prices for alfalfa hay, and a 1.5% increase in producer prices for slaughter turkeys....meanwhile, the index for core raw materials other than food and energy materials was 4.2% lower, on a 11.8% decrease in the price index for iron and steel scrap, an 8.2% decrease in the price index for aluminum scrap, a 7.0% decrease in the price index for copper base scrap, and a 6.0% decrease in the price index for recyclable paper.....this raw materials index is now 48.5% higher than a year ago, down from the 50.8% year over year increase in April, and down from the record 59.2% annual increase in April 2021, and now the nineteenth consecutive year over year increase for this index, after the annual change on this index had been negative from the beginning of 2019 through October of 2020...

Lastly, the price index for services for intermediate demand was 0.6% higher in May, after being a revised 0.7% higher in April, 1.2% higher in March, and 0.2% higher in February, after rising 0.8% in January, by 0.8% in December, and by 0.6% in November….the price index for intermediate trade services rose 0.6%, as margins for machinery and equipment parts and supplies wholesalers rose 1.4%, margins for intermediate chemicals and allied products wholesalers rose 3.7%, and margins for intermediate metals, minerals, and ores wholesalers rose 3.1%...at the same time, the index for transportation and warehousing services for intermediate demand was 1.0% higher, as the intermediate price index for water transportation of freight rose 12.5%, the intermediate price index for truck transportation of freight rose 2.9%, the intermediate price index for air mail and package delivery services (not by USPS) rose 3.7%, the intermediate price index for transportation of passengers rose 2.8%, while the intermediate price index for arrangement of freight and cargo was 5.8% lower .... at the same time, the core price index for intermediate services other than trade, transportation, and warehousing services rose 0.6%, as the intermediate price index for radio advertising time sales rose 7.5%, the intermediate price index for securities brokerage, dealing, investment advice, and related services rose 5.5%, the intermediate price index for business loans rose 3.9%, and the intermediate price index for executive search services rose 3.3%....over the 12 months ended in May, the year over year price index for services for intermediate demand is now 7.7% higher than it was a year ago, the twentieth consecutive positive annual increase in this index change since it briefly turned negative year over year from April to August of 2020, while it is still down from the record 9.5% year over year increase indicated for July....

April Business Sales Up 0.4%, Business Inventories Up 1.2%

Following the release of the May retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for April(pdf), which incorporates the revised April retail data from that May report and earlier published wholesale and factory data to give us a complete picture of the business contribution to the economy for that month....note that revised historical data from the Manufacturers’ Shipments, Inventories, and Orders Survey were released on May 13, 2022 and are reflected in this month's report, which thereby revised the figures that were reported a month ago, even before the usual revisions to the prior month’s data that accompany this report...

According to the Census Bureau, total manufacturer's and trade sales were estimated to be valued at a seasonally adjusted $1,813.9 billion in April, up 0.4 percent (±0.2 percent) from March revised sales,and up 13.7 percent (±0.4 percent) from April sales of a year earlier...after the revisions to the historical data,, total March sales were revised from the originally reported $1,832.1 billion to $1,805,838 million, and the March increase from February was revised from 1.8% to 1.6%....manufacturer's sales were up 0.2% from March at $532,061 million in April, and retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, rose 0.5% to $590,259 million, while wholesale sales rose 0.7% to $691,605 million..

Meanwhile, total manufacturer's and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,345.1 billion at the end of April, up 1.2 percent (±0.1%) from March, and 16.6 percent (±0.5 percent) higher than in April a year earlier...the value of end of March inventories was revised from the $2,324.2 billion reported last month to $2,317.4 billion with this release, and is now a 2.4% increase from February...seasonally adjusted inventories of manufacturers were estimated to be valued at $786,052 million, 0.6% higher than in March, inventories of retailers were valued at $697,209 million, 0.7% more than in March, while inventories of wholesalers were estimated to be valued at $861,809 million at the end of April, up 2.2% from March.

With the release of the factory inventory data two weeks ago, we judged that the real change in April's factory inventories would have a major negative impact on the growth rate of 2nd quarter GDP, by falling after the first quarter increase; meanwhile, with the release of the wholesale inventory data last week, we felt the change in 2nd quarter real wholesale inventories was seriously negative and would subtract substantially from the growth rate of 2nd quarter GDP......since the April producer price index reported that prices for finished goods were on average 1.3% higher, that means that there was real decrease in retail inventories of around 0.6% for the month…since the key source data and assumptions (xls) for the second estimate of 1st quarter GDP indicated that 1st quarter real retail inventories had added $89 billion in 2012 dollars to the 1st quarter, the decrease so far in the 2nd quarter's real retail inventories would thus subtract that increase and also have a substantial negative impact on 2nd quarter GDP...

May's New Housing Starts Reported 14.4% Lower After April Starts Revised to 15 Year High

The May report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,549,000 in May, which was 14.4 percent (±8.9 percent) below the revised April estimated annual rate of 1,810,000 housing unit starts, and was 3.5 percent (±10.7 percent)* below last May's rate of 1,605,000 housing starts a year...the asterisk indicates that Census does not have sufficient data to determine whether housing starts actually rose or fell from a year ago, with the figure in parenthesis the most likely range of the change indicated; in other words, May’s housing starts could have just as easily been up by 7.2% or down by as much as 14.2% from those of last May, with even larger revisions to this month's data possible...in this report, the annual rate for April's housing starts was revised from the 1,724,000 estimated last month to 1,810,000, while March housing starts, which were first reported at a 1,793,000 annual rate, were revised from last month's initial revised annual figure of 1,728,000 down to 1,725,000 annually with this report....

The annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 138,300 housing units were started in May, down from the 163,400 units started in April and down from the 142,600 units started in March...of those housing units started in May, an estimated 93,600 were single family homes and 42,000 were units in structures with more than 5 units, down from the revised 107.400 single family starts in April, and down from the 55,000 units started in structures with more than 5 units at the same time...

As Bill McBride has noted, we've had a rising record number of houses under construction for months now, largely because builders have been unable to complete homes, with construction delays mostly due to supply chain problems, with many builders reporting delays as long as a year or more for components to be delivered...for May, the Census Bureau estimated that new housing units were being completed at a seasonally adjusted annual rate of 1,465,000, which was s 9.1 percent (±22.6 percent)* above the revised April estimated annual rate of 1,343,000 housing unit starts, and was 9.3 percent (±19.0 percent)* above the May 2021 rate of 1,340,000 housing completions a year...up until this month’s report, housing completions had been at average annual rates of around 1,300,000 monthly, while housing starts have been at an annual rate well over 1,700,000 over the past several months…since we can’t keep starting homes and not completing them indefinitely, it was obvious something had to give…...

The monthly data on new building permits, with a smaller margin of error and hence usually smaller revisions, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data...in May, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,695,000 housing units, which was 7.0 percent below the revised April permit rate of 1,823,000 units, but 0.2 percent above the rate of permit issuance in May a year earlier….the annual rate for housing permits issued in April was revised from the 1,819,000 reported a month ago to 1,823,000...quoting the report for the annualized figures on the types of permits being issued: “Single‐family authorizations in May were at a rate of 1,048,000; this is 5.5 percent below the revised April figure of 1,109,000. Authorizations of units in buildings with five units or more were at a rate of 592,000 in May.”

Again, the annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed that permits for roughly 148,900 housing units were issued in May, down from the revised estimate of 156,600 new permits issued in April, and down from the 169,000 housing units permitted in March....the May figure included permits for an estimated 95,000 single family units, down from 98,200 in April, and permits for 49,300 units in structures with more than 5 units, down from 53,600 in April….for graphs and commentary on this report, see the following posts by Bill McBride at Calculated Risk: Housing Starts Decreased to 1.549 Million Annual Rate in May and May Housing Starts: All-Time Record Housing Units Under Construction which links to his in depth free newsletter article on the same subject...

 

 

(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…)  

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