QE4, November’s retail sales, CPI, and industrial production, and October’s trade

at least for much of the economic blogosphere, the story that garnered the most attention this past week had to have been the announcement of an expanded round of quantitative easing by the Fed, following their two day FOMC meeting midweek; a move of some magnitude was widely expect, as operation twist (wherein the Fed exchanged short term for longer term bonds) was winding down…but even some of the most fervent believers in the efficacy of monetary intervention were surprised by the magnitude of the policy change…through the vehicle of the FOMC statement, the Fed announce that it would convert the $45 billion a month operation twist program into an outright monthly purchase of Treasury securities in the same amount, which would also include short term notes, and which would be in addition to the $40 billion of outright MBS (mortgaged backed securities) purchases initiated by QE3, which was launched 3 months ago… moreover, the Fed affirmed that this $85 billion of monthly bond buying would continue at least until one of two thresholds was crossed; either unemployment falling under 6.5% or annual inflation expectations rising above 2.5%, at which time the bond buying policy would be re-evaluated; thus hitting neither threshold would trigger an end to what is now being called QE4, but merely a reassessment of the policy…interest rates will also be maintained near zero indefinitely; 14 of the 19 Federal Open Market Committee members believe a rate increase will not come until 2015 or later…as a result of this “money printing”, the size of the Fed’s balance sheet will expand to at least $4 trillion by the end of 2013 from the current $2.9 trillon, which is already almost quadruple the pre-recession levels below $800 billion, which is illustrated in the above zero hedge graph, and its size will expand by a trillion a year after that, or at least until the thresholds are reached and the fat lady sings…

pie chart breakdown of retail sales

there were several economic releases on November data this week, and a couple reflected a rebound from what was said to be Sandy related weakness in October; the first of these that we’ll look at is the advance estimate of retail sales for November from the census bureau (pdf), which did for the most part reverse the 0.3% sales decline posted in October…according to the census, the seasonally adjusted advance estimate of retail and food service sales for November came in at $412.4 billion, an increase of 0.3%  (±0.5%) from the adjusted $411.3 billion sales of October and 3.7% (±0.7%) above November a year ago; note that no adjustment is made for price changes in this report…the lion share of the gains were scored by the auto sector, which saw a 1.4% gain over October’s Sandy weakened sales, increasing to a seasonally adjusted $75.6 billion sales from the $74.6 billion sales of last month, as some whose cars were damaged by the storm likely found replacements… electronics & appliance stores were also strong, up a seasonally adjusted 2.5% over October, although the aggregate November sales of $8.439 billion are still only a small part of the total…other areas showing strength in this report were non-store retailers, which includes catalog & online sales, with a MoM gain of 3.0%, increasing their YoY sales gain to 11.1%, and building matls & garden centers, whose sales increased 1.6% over October’s…meanwhile, the biggest drag on November’s aggregate sales was at gasoline stations, who saw sales decline 4.0% in November as the national average price of gasoline fell 11.9 cents; ex-gasoline, aggregate November sales were up 0.8%; meanwhile, general merchandise stores saw another relatively significant sales decline of 0.9%, while the subset of department stores ex large discounters were off 0.8%…food and beverage stores were the only other area that saw a seasonally adjusted sales decline in November, with grocery store sales off 0.5%robert oak at the economic populist presents an illustrative pie graph with his thorough november post on this report which is useful in showing us the size of each type of business categorized by the census for this report; clearly the automotive sector in dark blue with 18% of sales dominates; other business categories accounting for more than 10% of retail sales include department stores with 13% in light purple, food & beverage in the teal wedge, also with 13%, restaurants & bars represented by light blue with 11%, and gasoline in medium blue with 11%…

on Friday, following the November retail sales report, the Bureau of Labor Statistics released the Consumer Price Index for November; with the gasoline price index falling 7.4% from October’s level on a seasonally adjusted basis , the Consumer Price Index itself also showed a decline of 0.3% for November, the largest one month decline in the index since December 2008; the core CPI, which includes prices of all components except food and energy, still showed a 0.1% month over month gain, with the unadjusted 12 month change in core prices increasing 1.9%…you might recall from the pie chart on the CPI that we posted in October that the components are quite different than those shown for retail sales; housing counts for 41% of the total index, with food & beverages over 15% and transportation nearly 17%, while prices for education and medical services also garner 7% each of the total index…in constructing the index, BLS gathers prices on roughly 80,000 items monthly, which are then divided into about 200 categories…in addition to the energy index, which fell 4.1% in November, price declines were also registered in used cars and trucks, prices of which fell 0.5% over the month, apparel, prices for which declined 0.6%, and medical care commodities, where prices fell 0.4%, meanwhile the large housing component was up 0.2%, as was the food index, new cars, and transportation services, while medical services rose 0.3%…..the FRED graph that we’ve added here has the track of the overall consumer price index since January 2000 in a thin black line; the blue graph line tracks the monthly price of gasoline over that same time period, the green graphs the price index for shelter, which you’ll notice shows none of the volatility of housing prices, while the red line tracks the price of food at home, and the orange shows the elevated index for medical care services.. FRED Graph
the CPI has garnered some attention in recent weeks as suggestions are being made on a “grand bargain” between the fiscal conservative in the white house and the fiscal conservatives in congressit’s thought that using the CPI when computing cost of living adjustments (COLAs) for government programs doesnt adequately allow for adjustments or substitutions consumers might make; for instance, if beef went up in price, one might buy chicken…by allowing for such substitutions, it’s figured that the government could save 0.3% from COLA increases each year…of course, that aint to say that chicken wont become too expensive for senior citizens next year, forcing us to substitute dog food for our daily protein ration… 

another important release of the week was on Industrial production and Capacity Utilization for November from the Fed, which along with retail sales, personal income, and unemployment, make up the four major indicators that the NBER Business Cycle Committee uses when dating recessions; again, a rebound from Sandy related production shutdowns at the end of October was in play here; the Fed reported that overall industrial production increased 1.1% in November after having fallen a revised 0.7% in October; manufacturing output rebounded from a decline of 1.0% in October to increase by 1.1% in November; with automotive production rising 3.4%, its first increase in five months; in addition, the output of utilities increased by 1.0% over October, which itself was revised upward to show no change; meanwhile, production at mines, which includes oil & gas rigs, rose 0.8%, while October’s production gain was revised down to 0.3%…led by gains in the aforementioned autos, production of durable goods rose 1.6%, with output increasing in all major categories except computer and electronic products, and aerospace and miscellaneous transportation equipment; gains of more than 2% were seen by wood products; by primary metals; by electrical equipment & appliances, and components; and by motor vehicles and parts...output of nondurables rose 0.5 percent, with most major categories of nondurables showing small gains, except for the indexes for petroleum and coal products and for chemicals, which both edged down 0.2%…the percentage of our installed industrial base that was in use also rose in November; along with the increases in production; capacity utilization for total industry increased 0.7% over October to 78.4%, which was still 1.9 percentage points below its long-run average; capacity utilization of manufacturing facilities rose by the same 0.7%, from 75.9% in october to 76.6% in november; capacity utilization for durable goods manufacturing was at 76.7%, while capacity utilization for nondurable manufacturing was at 77.9%capacity utilization for utilities was up 0.6%, from 74.7% to 75.3%, while 91.1% of our “mining” equipment, which includes drilling rigs, was in use in November, representing a 0.5% increase over october’s usage rate…and total plant capacity continued to grow as well; we now have 1.5% more production capability than a year ago…on the adjacent FRED we’ve included capacity utilization as a percentage of total capacity traced in blue, and the industrial production index used by the Fed for these G-17 reports traced in red…

FRED Graph

in another report, Commerce Dept released the data on our international trade in goods and services for October, showing disappointing results across the spectrum of the data; aggregate exports for October were valued at $180.5 billion, $6.8 billion less than September exports of $187.3 billion, a decline of 3.6% MoM…imports were down as well, from $227.6 billion in September to $222.8 billion…with exports falling by a larger amount than imports, the trade deficit for the month rose to $42.2 billion, which was up from a revised $40.3 billion in September, which led Goldman to downgrade its forecast for 4th quarter GDP to 1.0%; in addition, our trade deficit with China alone, primarily from imports of computers, toys, games, and sporting goods, set a new one month record at $29.466 billion, which almost assures that our deficit with them will exceed the 2011 record deficit, which subtracted 3.7% off our GDP last year…other major october deficits were recorded with the European Union at $10.6 billion up from $8.6 billion in september, with OPEC at $8.6 billion, an increase from $7.1 billion, with Japan, where our deficit rose to $7.0 billion from $4.8 billion, another $5.4 billion deficit with Germany, $4.4 billion with Mexico, $1.9 billion with Canada, $1.8 billion with Ireland, $1.8 billion with Nigeria, $1.8 billion with Venezuela, $1.6 billion with Korea, and  $1.4 billion with Taiwan; meanwhile, we recorded October surpluses with Hong Kong of $1.9 billion, with Australia of $1.8 billion, with Singapore of $0.5  billion  and with Egypt of $0.2  billion…overall, the September to October change in exports of goods reflected decreased exports of industrial supplies and materials to the tune of $2.855 billion, a decline in sales of $0.370 billion in automotive vehicles, parts, and engines, $1.432 billion less exports of food, feeds, and beverages, and a decline of $0.390 billion in foreign sales of capital goods, while exports of a catch all category of other goods rose by $0.190 billion; the change in imports of goods reflected decreases in imports of consumer goods of $3.6 billion, automotive vehicles, parts, and engines at $0.5 billion, foods, feeds, and beverages at $0.4billion; capital goods at $0.4 billion, while a $0.4 billion increase occurred in imports of industrial supplies and materials…the chart included here from zero hedge shows our monthly trade deficit with china since january 2000, as it grew from below $5 billion to over $29.5 billion; the seasonal toy buying binge is self evident…

(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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