September retail sales, consumer prices, industrial production, residential construction, & existing home sales

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it’s been a fairly busy week for new economic releases, with several monthly reports we normal cover generally showing good headline numbers, yet each with its own caveats…we’ll start with the advance report on retail sales for September from the department of commerce, which headlined with a 1.1% seasonally adjusted sales increase over August’s sales, which themselves were revised from a 0.9% to a monthly increase of 1.2%; the confidence interval is ±0.5%…total retail and food service sales for September were $412.9 billion, which was 5.3 percent (±0.7%) above sales reported for September 2011…the first caveat to this better than average sales gain is that retail sales are reported without accounting for price changes, and as gas prices were up over the month, gas station sales, which now account for 15% of all retail sales, were up 2.5% by themselves…the other factor which made this month extraordinary was that sales at electronics and appliance stores, about 5% of the total, rose 4.5% over August sales, presumably on the strength of sales of the new iphone5…that boosted this september’s electronics sales to 3.6% over last septembers; in contrast, August electronics sales were 2.2% below the level of August 2011…the other strong sectors in this report were sales of automobiles, up 1.3% over August, and food & beverage, up 1.2% for the month…on the other side of the ledger, department stores saw sales fall at a 0.2% seasonally adjusted rate, while miscellaneous retailers were off 0.1%…comparative weakness was also seen in food services and health & drug stores, which both scored a small 0.4% monthly gain…on a year over year basis, car sales sales are up 9.3% and non store retail (which includes online sales) are up 15%, while department store sales are off 1.3% & general merchandise stores have seen their sales decline 1.1%…since this report shows retail sales up 24.6% from the bottom, and up 9.0% above the pre-recession peak, but doesnt take price changes into account, it’s useful to look at sales adjusted for inflation, which you’ll see in the above chart from doug short, starting 1992, when the census began tracking the retail data ..the top red graph is unadjusted retail sales as reported; you’ll see they’re nominally up 151.7% over the span; the next graphed line adjusts for population; on a per capita basis, sales are up 104.1%; the light blue line adjusts for inflation, which shows retail sales up 50.4% on that basis, while the bottom blue line adjusts for both population growth and inflation, leaving retail sales up only 22.0% over the past two decades…we must caution, though, that doug short uses the consumer price index to adjust for inflation, which is computed including housing and medical expenses, which are not included in retail sales…in correspondence, he indicates he does this to match the methodology used by FRED, which is also replicating the NBER’s method of tracking retail sales….(FRED is charting service of the StLouis Fed, NBER is the official arbiter of recessions) 

having mentioned the consumer price index, we’ll next look at what that popular measure of inflation did in september; the BLS reported that the “Consumer Price Index for All Urban Consumers” (CPI-U) increased 0.6% on a seasonally adjusted basis; this was the same rate that the price index increased by in August, and like August, almost the entirety of the increase could be attributed to the increase in the price of gasoline, which rose 7.0% in September after increasing 9.0% in August; this increase in prices more than offset the 0.3% increase in average hourly earnings for all employees, hence, in a related release, the BLS reported that average hourly earnings for all employees fell 0.3% from August to September, on a seasonally adjusted basis…the September food index was up just a tenth of a percent, and the core CPI, which eliminates the volatile prices for food & energy & is still watched by the Fed, was also up just 0.1%…since we mentioned it, we’ll include here a pie graph showing the weighting for each of the 8 major components that go into computing the CPI; starting at the vertical, and reading clockwise, the slices are for food, housing, apparel, transportation, medical care, recreation, education and communication, and other; clicking on the graph will link to doug short’s discussion of these components, with a larger copy of the same graph…alternate measures of core inflation are also provided from this release by the Cleveland Fed: the median CPI rose 0.2%, and the 16% trimmed-mean CPI, which excludes the most extreme 16% of price movements for the month, also increased 0.2%…on a annual basis, the median CPI rose 2.3%, and the trimmed-mean CPI rose 1.9%; doug short computes the annual change in the core CPI at 1.98%, and contrasts that to the annual change in core PCE (personal consumption expenditures) inflation at 1.58% in showing via long term graphs that the latter is less volatile, & hence is the Fed’s preferred measure…with this report, we are also able to compute the COLAs (Cost-Of-Living Adjustments) for the coming year, which are based on the year over year change in the 3rd quarter CPI-W (CPI for Urban Wage Earners and Clerical Workers); with 1982-84 equal to 100, the CPI-W increased to 228.184 in September, making Q3 average 226.936, which is 1.66% over the 3rd quarter of 2011 CPI-W average of 223.33; thus, social security recipients and others can expect a 1.7% increase in their monthly paychecks starting January

Industrial Productionthe 0.4% and 0.3% gains in Industrial production and Capacity Utilization for September as reported by the Fed on Tuesday were respectable, but they were tempered by the fact that much of the gain reflected resumption of oil drilling in the gulf after the shutdown caused by hurricane isaacindustrial production had fallen 1.4% in August, and although July’s gain was also respectable at 0.7%, it still left industrial production down for the quarter 0.4% at an annualized rate, the first quarterly decline since the depth of the recession in Q2 of 2009…of the major components of industrial production, there was strength in the output “mines”, which includes all resource extraction including oil, as the sector grew 0.9%, and in utilities, which grew 1.5% for the month…although the manufacturing sector was up 0.2% for the month, it still showed a 3rd quarter decline at an annual rate of 0.9%, which we should have seen coming in the contractionary PMI readings we’ve been watching…over the year ending september, manufacturing has been up 3.2%, the mining sector was up 3.8%, and output of utilities was down 1.4%, so apparently the diminished use during the warm winter & spring had a greater impact on utilities than the increased use of A/C during the summer heat waves…while total industrial production has increased 2.8% from a year ago, it’s still down 3.7% from the peak level of 5 years ago, which you can see on the above chart from bill mcbride, which shows manufacturing in red and total industrial production in blue…the other part of this release tells us that 78.3% of our  total industrial plant and equipment was in use during september, which was up 0.3% from the level of August, and 1.1% above the utilization level of a year ago…manufacturing capacity utilization is up 1.3% from a year ago to 76.8%, so called “mining” usage has increased 1.6% from a year  89.1%, but utility utilization has decreased -2.8% from a year ago to 74.8%…in the past year, manufacturing capacity has grown 1.4%, mining capacity is up 2%, and utilities have increased their capacity by 2.3%… 
Total Housing Starts and Single Family Housing Starts

there were also a couple of reports on housing this week; we’ll look at the release on new residential construction for September (pdf) from the census bureau first; including data for building permits and completed construction, this is mostly watched housing starts and often reported as gospel despite being very volatile & subject to considerable revision; census itself cautions “statistics in this release are estimated from sample surveys and are subject to sampling variability as well as nonsampling error including bias and variance from response, nonreporting, and undercoverage”, with that caveat, housing starts reportedly jumped 15% to an annual rate of 872,000 in September to their highest level in 4 years; with August starts revised from 750,000 to 758,000, the apparent increase is even larger, but the margin of error on this months report is ±12.1%, so we should be cautious rather than certain…the annual rate for housing starts in september of 2011 was 647000, so this report came in 34.8% higher than a year ago, but for that there’s even a greater margin of error, at ±18.2%included here is bill mcbride’s chart on housing starts; single family homes started are in blue, the total units started, including apartment housing, are in housing contributes to GDP directly as residential investment, and generates ancillary economic activity in areas such as building materials & furnishings, and should also show an increase in related employment; but checking the september payroll jobs total by selected industry, we find there were only 1100 more residential construction jobs than in august, and a decline of 13,700 home building jobs from a year ago…even worse, checking the unadjusted totals from the household jobs survey, we see 301,000 less employed in construction and related areas than a year ago, with an unemployment rate remaining intolerably high at 13.2%…so there really isnt anything to cheer about here yet…

the other major housing report this week was for september sales of previously occupied homes from the NAR (National Association of Realtors); according to the NAR, total existing-home sales fell 1.7% to a seasonally adjusted annual rate of 4.75 million in September from the revised annual rate of 4.83 million homes in August; nonetheless, this was still 11.0% than the 4.28 million-unit pace of last September…the national median selling price for all housing types was $183,900 in September, 11.3% higher than a year ago, and the 7th consecutive monthly year-over-year increase reported….the 30-year fixed-rate mortgage was reported by FreddieMac at a record low of 3.47 % in September, down from 3.60% in August and 4.11% a year earlier…according to the NAR, there were 2.32 million houses on the market at the end of september, a 5.9 month supply at the current sales pace; member realtors reported that the median time on the market for homes in September was 70 days, unchanged from August, but down from 101 days in September 2011; they reported that 32% of homes sold in September were on the market for less than a month, while 19% were on the market for six months or longer13 percent of homes sold were foreclosures, which were discounted an average of 21%, and 11% were short sales, which were discounted an average of 13%; total distressed homes accounted for 30% of sales a year ago…first time buyers accounted for 32% of sales, same percentage that first time buyers were at a year ago; 40% of sales to new homeowners would be close to normal…on the other hand, all-cash sales were at 28% of transactions in September, up from 27% in August; near to the 30 percent all cash buyers of September last yearinvestors, who often buy with cash, purchased 18% of homes sold in September, unchanged from August; and down a bit from the 19% of homes sold to investors a year agothe Atlanta Fed takes note of this trend, notes the big player participation  and wonders if it portends a more permanent change away from owner occupied housing…regional differences were notable; existing-home sales in the Northeast, the only area of the country where the unemployment rate is increasing, were weakest, falling 6.3% to an annual rate of 590,000 in September; the median price in the Northeast was $238,700, up 4.1% from last year; home sales in the Midwest slipped 0.9% in September but theyre 19.6% higher than a year ago, with a median price of $145,200, up 7.0% from a year ago, while home sales in the West fell 3.4% to an annual pace of 1.13 million, up only 0.9% on the year; this is being blamed on “inventory shortages in the region”, which served to jack the prices in the west 18.4% over last years, to a median of $246,300the South, meanwhile, saw existing-home sales increase a half percent to an annual rate of 1.93 million in September, 14.2 percent above last year’s rate, with a median price in the region at $163,600, 13.1% higher than a year ago…

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion, and also includes other links of interest…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)

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