CBO budget forecast, April’s retail sales, CPI, PPI, and industrial production, Q1 household debt & credit

on Tuesday, the Congressional Budget Office (CBO) released their Updated Budget Projections for Fiscal Years 2013 to 2023 (pdf; summary here); which, in creating their ten year forecast, assumes that current laws on taxes & spending do not change and no surprises intervene over the duration, chances of which happening are between slim and none; at any rate, this report is a quarterly update to the mandated Budget and Economic Outlook that they published in February, & is remarkable if only for the massive shift in their fiscal projections in such a short time (the sequester was already assumed in that forecast)…expecting revenues to rise more rapidly than spending over the short term, the CBO estimates that the budget deficit will shrink to $642 billion this fiscal year (ending Sept 30) down from their earlier estimate of $845 billion, which will make it the smallest deficit since 2008; this is a 24% reduction in their deficit projection of just 3 months ago, which was due in part to the unexpected profitability of federal mortgage giant Fannie Mae, which will contribute $59.4 billion, including a one time recredit of $50.6 billion in deferred-tax assets, after reporting a record quarterly profit, and a record $50.6 billion profit from student loans, 43% higher than expected in February…the result, according to the CBO, will be a further reduction in the relative size of the deficit to 4.0% of GDP, which will shrink further to 3.4% of GDP in 2014 and then to 2.1% of GDP in 2015, by which time they expect a GDP of $17,632 billion with the economy growing at a 5.9% annual rate…later in the decade, however, deficits are expected to rise again due to costs associated with the aging baby boomers and increased interest on new Treasury script…over the entire ten year period, CBO now forecasts the cumulative deficit to be $618 billion less than it forecast in February…to the right, we have a chart from Bill McBride wherein he has graphed the actual budget deficits as a percentage of GDP since 1980 in purple, and then added the CBO projections for the next ten years in blue…it’s fairly clear that if the CBO projections play out, the deficits of the next ten years will be no greater than those of the last 22, and certainly less than the last 10 years of Reagan-Bush…and in a prospect of an even more austere future, the CBO also scored Obama’s budget proposal (pdf) on Friday, with this report as a baseline, and found that it would take an additional $1.146 trillion from the deficit over 10 years…

US Federal Government Budget Surplus Deficit

the key economic release of the past week was the Advance Report on Retail Sales for April from the Census Bureau (pdf); as reported, the estimated seasonally adjusted retail and food services sales “were $419.0 billion, an increase of 0.1 percent (±0.3%)* from March”, which is footnoted with “Census Bureau does not have sufficient statistical evidence to conclude that the actual change is different than zero”, so we should keep that uncertainty in mind as we examine the details of the report, eg, the sales decline for March was revised down to a negative 0.5%;…the major factor impacting this month’s report a 4.7% decline in gas station sales, from a seasonally adjusted $46,014 million in March to $43,869 million, without that, retail sales would have been up 0.7% for the month….total April sales were 3.7% (±0.7%) above those of April 2012, and year to date sales amounted to $1,606,433 million, 3.3% higher than the same period last year; unadjusted sales for the month amounted to $416.5 billion, so seasonal adjustments weren’t a significant factor in this month’s report…sectors showing significant sales gains include car & parts dealers, where sales rose a seasonally adjusted 1.0%, from $77,861 million to $78,644 million, building & garden supplies dealers, where sales rose 1.5%, from $25,108 million to $25,497 million, clothing & accessories stores, where sales rose 1.2%, from $20,374 million to $20,624 million, general merchandise stores, where sales increased 1.0%, from $51,661 million to $52,182 million, and non-store retailers (internet & catalog) where sales were up 1.4% to $40,938…other than gasoline, the only retail sectors where sales fell in April were food & beverage, where sales fell 0.8% to $53,686 million, and drugstores, where sales were off 0.1% to $22,830 million…on a year over year basis, nonstore or internet sales were up 15.4%, car dealers saw sales rise 8.8%, and clothing stores saw sales rise 5.7%…sectors seeing sales slip since last April included gas stations, which sold 4.6% less by dollar value, department stores, whose sales were off 3.6%, general merchandise stores, where sales slipped 0.7%, and drugstores, where sales declined 0.9% over the past year…the chart we have included here from Doug Short tracks the year over year change in monthly retail sales since 1995 (you may have to click to enlarge to see the scale)…note that while YoY sales have remained positive, the increase has generally been declining since its recent peak in June 2011…he also highlights the month before each recession (grey bars) with a red dot, showing YoY sales at those times to be in the same range as those of this current month…

 Click to View

as was the case with retail sales, the sharp decrease in the price of gasoline was the major factor in the lower April consumer price index; the Bureau of Labor Statistics reported the seasonally adjusted price index for all urban consumers (CPU-U) fell 0.4% from March to April, reducing the one year overall change in prices to 1.1%…as was the case in March, the decline in the energy index turned the broader index negative; decreases of 8.1% in the price of gasoline and 4.4% in the price of fuel oil overwhelmed the increases of 0.5% in the price of electricity and 4.4% in the cost of natural gas to leave the April energy index 4.3 % lower than March and also 4.3% lower than a year ago; otherwise, prices changes for other components were fractional and mixed; food prices were up 0.2%, as the index for food away from home rose 0.3% and the food at home index rose 0.1%, with a 1.4% decline in fruits and vegetables offsetting larger increases in other food categories; the index for all items less food and energy, aka core CPI, increased 0.1%, same as in March, leaving it 1.7% higher than a year ago; the index for shelter, the largest component of the CPI at 31.5% of the total index, was up 0.2%, with lodging away from home up 0.3% and insurance down 1.0%, while among transportation index components, prices of new cars were up 0.3%, prices of used vehicles were up 0.6%, and transportation services were down 0.2%; medical care services were also down a bit, 0.1%, as hospital costs were down 0.7% while prices doctors services rose 0.4%; medical care commodities, which includes drugs & equipment, on the other hand, were up 0.1%…the cost of recreation was down 0.1%, the relatively small component of apparel was down 0.3%, while prices for education and communication commodities fell 0.6%…below, we’ve created a fairly busy FRED graph from the CPI-U and selected components, using the percentage change monthly in lieu of the index for most of them…using the scale on the left, the black line traces the monthly percentage change in the CPI, the bright blue line traces the percentage changes in the medical care services index, the red line traces the food at home index, and the green line shows the monthly changes in the shelter index…the blue line is the actual gasoline prices index, with the scale on the right; based on gasoline prices between 1982 & 1984 = 100; we could not show the month over month price changes in this index because if it was on the same chart as the rest, the other indexes would all appear as straight lines in comparison to the gas index, which has more than doubled since the recession bottomed…

FRED Graph

the BLS also released the Producer Price Indices for April, which is also often referred to as wholesale prices; this release includes 3 main indexes; the price index for finished goods fell 0.7%, the price index for intermediate goods in earlier stages of processing declined 0.6%, while prices of crude goods fell 0.4%…over 80% of the price decrease in finished goods, which are now up only 0.6% in price over the past year, was the result of the 2.5% decrease in prices for finished energy goods, led by a 6.0% decrease in the whole price of gasoline; in addition, wholesale prices for finished foods were off 0.8% in April on the back of a 10.6% decrease in prices for fresh & dried vegetables, which meant that prices for core finished goods (less food and energy) were actually up 0.1%; pharmaceuticals, up 0.6%, led the core prices increase…as with the CPI and finished goods, two-thirds of the decrease in the intermediate goods price index can be accounted for by declining prices for intermediate energy goods, which dropped 2.1% in April; the index for intermediate foods and feeds also fell, by 0.9%, as did the core intermediate index, which was off 0.2%; prices for intermediate goods are now 1.0% lower than a year ago…in contrast to the other major indexes, the crude energy index was actually up by 3.7%, led by a 15.5% spike in the price of natural gas; lower overall prices for crude materials, which are now down 3.2% over the past three months, were led by lower prices for crude foods and feeds, which fell 2.6% in April; about 70% of that was due to an 11.5% decrease in the price of corn, although price indexes for hay, hayseeds, and oilseeds and fresh vegetables also declined; meanwhile, the index for crude materials not including food and energy was off 2.8% in April; lower prices for copper scrap (-4.8%), paper waste (-4.5%), and non-ferrous metal ores (-3.7%) contributed to the decline

 FRED Graph another important release this week was on Industrial production and Capacity Utilization for April from the Fed, which showed the seasonally adjusted industrial production index fell 0.5% in April, the worst showing in eight months, largely because of a 3.7% decline in utility production, reflecting the partial unwinding of the 5.3% jump in utility production in a colder than normal March, which boosted that month’s total production to a 0.3% gain…the manufacturing index also fell, 0.4%, from 96.6 to 96.2, cutting it’s year over year increase to 1.3%, while the mining index, which includes gas & oil production, rose by .0.9%, from 115.9 to 116.9, and is now 4.2% above the level of last April…our above FRED graph shows the tracks of these major production indexes since 2005: the production index for all industry is in black, the manufacturing production index is in blue, the utility production index track is green, the mining production index is in red, and the grey bar marks the official recession (recall all industrial production indices were reset at the peak where 2007=100); in addition to these major industry groups, the Fed also reports industrial production by market group: production of consumer goods fell 0.6% in April, but the consumer goods index index is still a full point above its year end level at 94.2; production of consumer durable goods was off 0.8%, with output of cars, appliances, furniture, and carpeting all down significantly, and only consumer electronics showing a half percent increase; the index for consumer nondurables was down 0.5%, mostly due to a 3.1% drop in the output of consumer energy products; the index for non-energy nondurables rose 0.4%….production of business equipment was down 0.5%, with output of transportation, info processing, and industrial equipment all down by a similar fraction, while production of defense and space equipment slipped 0.3% after a 0.2% increase in March….within non-industrial supplies, output of construction supplies was down 0.8% after falling 1.5% in March while the output of business supplies fell a full percent after smaller gains in each earlier month this year; meanwhile, output of materials to be processed further fell 0.4% due to pullbacks in all major components, led by a 1.6% drop in output of consumer parts and a 1.5% drop in textile production…this release also reports on capacity utilization, which is given as a percentage of plant and equipment in use during the month; in April, capacity utilization for total industry decreased from a revised March figure of 78.3 percent to 77.8 percent, meaning at any given time during the month, over 22% of our plant and equipment was sitting idle…just 75.9% of our manufacturing capacity was in use, down from 76.3% in March and 76.1% a year ago, while capacity utilization for utilities was at 79.4%, down from 82.4% in March but up from 77.8% in April of last year, and capacity utilization for mining, which includes oil & gas, was at 88.0%, up from 87.5% in March and 87.9% a year ago

another report released this week was The 1st Quarter Report on Household Debt and Credit (pdf) from the NY Fed, which showed that aggregate consumer debt declined by $110 billion to $11.23 trillion in the first quarter, and is now down from the peak of $12.68 trillion in the 3rd quarter of 2008; most of the fall could be attributed to lower mortgage debt, which was down $101 billion from the 4th quarter to $7.93 trillion, although the portion of that which was discharged through foreclosure or short sales apparently wasn’t noted; home equity lines of credit dropped $11 billion, or 2.0%, and stood at $552 billion as of March 31st; outstanding student loan balances rose by $20 billion and had reached $986 as of the end of the quarter, while auto loans outstanding rose by $11 billion, credit card balances fell by $19 billion and other consumer loan balances were $10 billion lower…co-incident with this report, the NY Fed released a special report on student indebtedness, The Geography of Student Debt, which broke down student debt by state and percentage delinquent and included an additional set of maps; they find 16.2% of americans are burdened with student debt, from a low of less than 12% in Hawaii to a high of more than 25% in the District of Columbia; outstanding balances average $24,810 nationally but the average 2013 graduate starts out life already $35,200 in debt, and while 90 day delinquency rates average 11.7% nationally, they vary widely regionally, from a low of 6.5% in North Dakota to levels approaching 18% in West Virginia and the deep south…the above bar graph from the NY Fed report shows the quarterly changes in each type of household debt over the past ten years; the orange codes for mortgage debt outstanding, gradually coming down but still 71% of the total, above that in purple is home equity lines of credit, amounting to 5% of outstanding debt; the green represents auto loans outstanding, now at 7% of all debt outstanding, while the blue represents credit card debt, which has shrunk to 6% of the total, while the red indicates student indebtedness, now up to 9% of all consumer debt outstanding…at the top in grey is the last 3%, which the Fed classifies as “other”…

(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…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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