debt ceiling delayed, May’s retail sales and industrial production, April’s job openings & turnover

just so you don’t forget, we still have an inane debt ceiling hanging over our heads. whereby the Treasury is prohibited from issuing additional Treasury script to pay for the programs that congress has already mandated, until such time as congress votes to raise that artificial limit…you may recall that Congress had suspended that ceiling for three months earlier this year, only to have it reinstated on May 18th, at which time estimates were that the Treasury would run out of accounting tricks by August or September, necessitating some kind of grand bargain between the president & those in the House holding the country hostage before the fiscal year ended on September 30th…however, this week the Congressional Budget Office issued a report enumerating the higher than originally expected receipts, the accounting legerdemain that the Treasury had available to it, and the schedules of regular cash outflows from the Treasury, and determined that the extraordinary measures taken by the Treasury could postpone the day of reckoning until sometime in October or November, which would push the debt ceiling encounter beyond the September 30th cutoff date of the stop gap continuing resolution passed in late March, in a deal that also allowed the sequester to go into effect…what this now means is that the possibility of a complete government shutdown on Oct. 1st will likely come before the threat of a Treasury default when the ceiling is hit…as of yet, there hasnt been any indication of progress in resolving either; the latest we’ve seen was a threat from Obama last week to veto any bill that would shift spending unless both parties agreed on a broader budget plan, a threat Boehner said would only lead to a government shutdown

the Senate did finally move on the 2012 farm bill, and on Monday passed a $955 billion, 5 year bill that would curtail direct payments to farmers regardless of prices or crop yields; their bill would also cut food stamps by $4.1 billion over the next ten years; the bill now moves to the House, where $20.5 billion in food stamp cuts are being proposed, an apparent compromise with Paul Ryan’s 2013 budget which called for $135 billion in food stamp cuts…even the smaller amount will remove 2 million Americans, including children, from Supplemental Nutrition Assistance Program (SNAP) eligibility…on another issue, little progress has been made in coming to an agreement to avert the automatic July 1st increase in subsidized student loan rates from 3.4 percent to 6.8 percentElizabeth Warren’s bill to reduce student loans to the same rate banks borrow from the Fed was blocked by senate republicans, and with the government raking in $50 billion a year on this scheme, House members are likely to insist on offsetting cuts to other programs to make up the difference…

there were two important economic releases for May this past week; retail sales from the Census Bureau and Industrial Production from the Fed; together with GDP, employment and real income, they are followed by the NBER Business Cycle Dating Committee, official arbiters of recessions, in determining turning points in the economy…while neither was negative this month, industrial production has been weak year to date, with a negative reading in April, and retail sales fell in March, so they both bear watching…

May 13 retail the Advance Retail and Food Services Sales Report for May (pdf) from the Census Bureau showed that seasonally adjusted retail sales were at $421.147 billion in May, 0.6% higher than April’s $418.840 billion and 4.3% higher than year ago sales of $403.728 billion, in figures that are not adjusted for inflation; actual sales for May, from which the headline number was derived, were at $444.122 billion, up from actual April sales of $414.705 billion, as purchases of most items, even food, typically increases seasonally from May to April…these aggregate sales numbers are derived from questionnaires mailed or faxed to a probability sample of less than 5000 firms selected from the universe of 3 million retail and food services firms; and had a margin of error of ±0.5% for May’s figures; which means that Census is 90% confident that the seasonally adjusted change in sales from April to May was between 0.1% and 1.1%, so keep that in mind as we examine these apparently exact sales numbers….the overall increase in sales from April to May was led by a 1.8% increase in sales at car dealers, from a seasonally adjusted $77.675 billion in April to $79.083 billion in May, a total 8.5% higher than the $72.886 billion sales of a year ago; without those car sales, retail sales were only up 0.3% for the month…other major monthly percentage gains were registered by building material & garden supply stores, whose seasonally adjusted sales rose nine-tenths of a percent, from $26.158 billion in April to $26.387 billion in May, food & beverage stores, where sales rose 0.7% from $47.822 billion in April to $48.173 billion, non store retailers (mostly online), where May sales were 0.7% higher at $37.330 billion, and miscellaneous store retailers, whose sales total of $10.601 billion was 1.2% higher than April’s…retailers who saw sales decline in May included furniture stores, where seasonally adjusted May sales of $8.131 billion were 0.8% less than April’s $8.197 billion, restaurants and bars, where May sales declined 0.4% to $45.928 billion, electronic and appliance stores, where Mays sales of $8.380 billion were also off 0.4% from April’s $8.412 billion, and department stores, where May sales were off 0.2% to $14.713 billion…seasonally adjusted month over month percentage gains for these and all types of retailers can be seen on the above table from the report, which also shows the sales percentage gain from May of last year; as you can see, only nonstore, online retailers, who saw sales increase 11.3% from last year, and building & garden supply stores, who sales were up 10.1%, posted double digit year over year gains…meanwhile, year over year sales declined 0.5% at furniture stores and electronic and appliance stores, and 3.9% at department stores (not including their leased departments)…

below we have two FRED graphs which show the track of each of these major retail groups since the beginning of 2007, a date selected to show some of the prerecession sales trend for each….the first FRED graph shows seasonally adjusted monthly sales for motor vehicle & parts dealers in blue, sales for food & beverage stores in red, gasoline station sales in orange, sales at general merchandise stores in green, non-store, or online sales in violet. and sales at bars and restaurants in grey…you’ll easily note the collapse in aggregate auto sales, which was recession related, whereas the near halving of gasoline station sales resulted from a rapid fall of the price of gas from over $4 a gallon to below $1.90 nationally…before we look at the second FRED graph below, note the difference in the scale on the left of each graph; the first graph covers sectors with monthly sales amounts from $20 billion to $80 billion, while the second graph tracks sales of retail groups with monthly sales between $4 billion and $28 billion (click either for a larger view)…the second FRED graph shows seasonally adjusted monthly sales at building & garden supply retailers in blue, electronics and appliance store sales in red, furniture stores in green, clothing stores in orange, drug stores in violet, and stores specializing in sporting goods, hobbies, books or music in grey…remember, these seasonally adjusted sales amounts are not adjusted for inflation, so the apparent uptrend in any category may just reflect higher prices and not more unit sales…by rights, May’s sales gains should also be adjusted for inflation using the CPI, but the CPI for May will not be released until Monday…

FRED Graph

FRED Graph

with this May report, the basis for these monthly sales estimates were revised for the first time in two and half year to reflect the introduction of a new probability sample, based in part on the results of the 2011 Annual Retail Trade Survey; details on reliability of estimates for each kind of business are included at the end of the report (pdf)…as we mentioned, May’s overall sales figures had a margin of error of ±0.5% and are subject to a special report, doug short looked at the differences between the monthly advance estimate, which we have just covered, and the third estimate, released two months later, over the period from 2007 until the most recent 3rd revision; he found that over this period, there were 33 upward revisions and 41 downward revisions, with an average revision of 0.38%; the average upward adjustment was 0.30%, and the average downward adjustment was -0.44%…the chart he developed showing the dollar value of those revisions in millions is included below….

on Friday, the Fed released their report on Industrial production and Capacity Utilization for May, which showed seasonally adjusted industrial production unchanged from the April report; the industrial production index, which is benchmarked to 2007=100, stood at 98.7, still 0.2 lower than February, after a decline of 0.4% in April and an small rise of 0.2% in March…the manufacturing index was up 0.1% to 95.3 after declines of 0.3 in both March and April, bringing that index back to December’s levels, while the mining index, now largely tracking oil & gas production, rose 0.7% to 117.5…offsetting that was a 1.8% decrease in utility output which left the utility index at 98.7, which was nonetheless still 3.1 points higher than it’s year end reading of 95.6…unusual volatility in the utility index year to date, mostly due to a colder than normal  march which led to a 5.3% jump in utility output, has translated into misleading monthly readings on the overall index, which is up 1.6% year over year, with manufacturing output up 1.7%, mining up 4.8% and utility production still down 3.6% from last May, a month where well above normal temperatures led to increased use of air conditioning…in addition to the indexes for these major industry groups, this report also indexes industrial production by market group; the index for production of consumer goods, which accounts for 27.14% of the total IP index, slipped 0.1% in May to 93.9, after falling 0.7% in April; production of durable consumer goods rose 0.2%, with strength in automotive, electronics, and appliances and furniture; however, production of consumer non-durables, the larger component, saw its index slip 0.2 to 93.8, with weakness in food & tobacco, paper products and energy products more than offsetting increases in the indexes for clothing and chemical products…meanwhile, the May index for production of business equipment rose 0.2% to 102.2, as a 0.5% increase in the-production of transit equipment, primarily medium and heavy trucks, and a 1.2% increase in the index for information processing equipment to 101.5  more than offset a 0.3% decline in the index of industrial and other equipment to 100.9…in addition, the index for production of defense & space equipment extended its string of monthly declines to six as as it fell 0.7 points from 112.3 to 111.6…among non-industrial supplies, the index for output of construction supplies slipped another 0.2% in May and is now at 80.7, down 2.1 points since February, while the index for business supplies fell 0.3% to 90.3 and is now 0.7% below the reading of last May…meanwhile, the index for the output of materials to be processed further rose 0.2% to 104.7 as all major component indexes gained ground, with particular strength in the production of energy materials, chemicals, textiles, consumer durable parts and equipment parts…also reported with this release is the capacity utilization by the major industry groups; simply put, this is the percentage of plant and equipment that was being used during the month, analogous to an employment report for machines…seasonally adjusted capacity utilization for total industry in May slipped 0.1 percentage point to 77.6%, the lowest utilization since October; again, that monthly change was mostly a function of the pullback in utility operations as weather returned to seasonal norms, as a seasonally adjusted 77.3% of utility capacity was in use in May as contrasted with 78.7 in April and 81.3% in March; however, usage of our overall capacity continues to slip, and is now 0.2% below the 77.8% level of a year earlier; as of May, were only using 75.8% of our manufacturing capacity, and that’s 0.6% less than we were using at year end…essentially, that means we had 24.2% of our manufacturing plant and equipment idled in May, which also means unemployment of those who’d otherwise run those machines…usage of our mining equipment, which includes drilling rigs, is a bit better at 88.2%, up from 87.6% a year ago, and the year over year decline in utilization of our utility plants from 81.2% to 77.3% is likely more a function of the warm weather last year than of reduced industrial usage of gas & electricity…our FRED graph for this release below shows capacity utilization for total industry in pink, with the scale indicating percentage of capacity in use; it also shows the production index for all industry in black, the manufacturing production index in blue, the utility production index in green, and the mining production index in red; note that all these industrial production indices were reset at the peak where 2007=100, and the scale on the left also reflects this…it’s fairly obvious that the only significance industrial growth we’ve seen over the decade is in “mining”, driven by the extensive spread of hydraulic fracturing of the bedrock beneath our feet…

FRED Graph

something we didn’t expect to see at this stage of what should be a jobs recovery was a reduction in job openings, but that’s what the Job Openings and Labor Turnover Summary for April from the BLS showed; seasonally adjusted job openings in April fell to an estimated 3.757 million from 3.875 million in March, with most of the job opening losses occurring in manufacturing, health care and social assistance, and accommodation and food services, while job openings in retail increased slightly….the job openings rate, which is job openings as percent of total employment plus job openings, was at 2.7% percent at month end, and ranged from a low of 2.4% in the northeast to a high of 2.9% in the South; there were 3.1 officially unemployed per every job opening, and 5.8 if one includes those working part time who want full time work, neither of which includes the 7,193,000 of us not in the labor force who say they want a job….this report also includes estimates of the number and rate of hires, and fires, layoffs and quits by industry and by geographic region; both hires and total separations increased in April…a seasonally adjusted estimated total of 4.425 million were hired in April, compared to the 4.227 million hired in March and the 4.252 million hired in April 2012; the hiring rate, expressed as a percentage of those working, increased from 3.1% to 3.3%, with the hiring rate for construction falling from 5.5% to 4.9% and the hiring rate for professional and business services increasing from 4.5% to 5.1%; again, the hiring rate in the Northeast was lowest at 2.9% while the South saw a hiring rate of 3.6%…meanwhile, total separations rose from a seasonally adjusted 4.123 million in March to 4.279 in April, with the separations rate increasing from 3.0 in March to 3.2 in April (NB: hires minus separations should equal the revised April payroll number of 149,000 we saw last week, but it’s 3,000 less); a year earlier, there were 4.123 million separations…of those April job separations, a seasonally adjusted 2,251,000 quit their jobs for a quits rate of 1.7%, 1,653,000 were laid off or discharged for a layoffs & firing rate of 1.2%, and 375,000 were separated for other reasons, such as retirement, death, or disability, yielding an ‘other separations’ rate of 0.3%; the layoffs and firings rate was lowest in the Midwest at 1.0% and highest in the West at 1.4%, while the quits rate was highest in the South at 1.9% and lowest in the Northeast at 1.2%…our FRED graph below includes the track of each of these JOLTS metrics since 2005; total monthly job opening in thousands is tracked in blue, monthly hires are tracked in orange, total separations are tracked in violet, monthly layoffs and firings are tracked in red, and monthly quits are tracked in green…note that workers were much more likely to quit their jobs before the recession, and that the difference between hires & separations should correspond to the non farm payroll jobs added or subtracted in the corresponding month…

FRED Graph

(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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