delayed reports on September retail sales, consumer prices, and industrial production

it’s been a fairly busy week for economic data, with releases this past week and the next for the most part being of reports that were delayed during the shutdown, with a tighter schedule continuing in some cases into December…Monday saw the release of the September report on Industrial Production from the Fed, which was originally scheduled to be released October 17th; on Tuesday we had the September report on retail sales, originally scheduled for October 11th, the September producer price index, and August business inventories and sales, both also originally scheduled October 11th; Wednesday saw the release of the Consumer Price Index for September, which should have been released October 16th, and September real hourly earnings, also scheduled on the 16th; and Friday saw the third quarter report on Weekly Earnings of Wage and Salary Workers (pdf) which should have been released October 18th….in addition, the October report on Texas area manufacturing from the Dallas Fed was released on Monday, and we saw the privately prepared reports on pending home sales from the NAR on Monday, the Case Shiller home price indexes from S&P and the Conference Board’s consumer confidence index on Tuesday, the ADP Employment Report for October on Wednesday, the October Chicago Purchasing Managers Index on Thursday, and the Markit manufacturing PMI, the ISM manufacturing PMI, and vehicle sales for October all on Friday…the October Employment report from the BLS, which should have been released on Friday, will be delayed until next Friday, and the first estimate of 3rd quarter GDP, also scheduled for this week, will also be delayed till next week

September Retail Sales Fall on 2.4% Drop in Auto Sales

we’ll start today by taking a look at the Census Bureau advance report on retail sales for September (pdf), which estimated that seasonally adjusted retail and food service sales fell 0.1% (±0.5%)*, down from the revised $426.3 billion in August, to $425.9 billion in September; August sales were revised down slightly from the originally reported $426.6 billion…as this is only the “advance” report based on a small sampling of retail establishments, census includes the asterisk to let us know that they do not have sufficient data to determine whether sales rose or not in September, and that the actual likely change in sales for the month might be anything from a decrease of 0.6% to an increase of 0.4%, and revisions will be forthcoming…similarly, seasonally adjusted sales in September were 3.2 percent (±0.7%) above the $412.6 billion sales of September a year ago…the estimates of unadjusted sales upon which they base their seasonally adjusted estimate were sales of $442,656 million in August and sales of $402,624 million in September, up from $390,169 million in September 2012…

driving the apparent decline in September sales was a 2.2% decrease in motor vehicles and parts sales, as they fell from a seasonally adjusted $81,544 million in August to $79,773 million in September; note the raw data indicates cars and parts sales fell from $88,835 million to $74,878 million…because volatile car sales are such a large fraction of reported retail sales overall, data without the motor vehicle component are also reported, which indicated September retail sales increased 0.4% ex-autos; you can see that in the first column on the 2nd line of the table from the report below, which also shows the change in sales from September a year ago in the second column; (‘(p)’ indicates preliminary and (r) indicates revised)…you can also see the business types with the largest seasonally adjusted sales increases in September: food and beverage store sales rose 0.9% from $54,283 million in August to $54,746 million in September, with grocery stores, up 1.0%, accounting for $48,751 million of that…sales at restaurant and bars (aka food service and drinking places) also grew by 0.9%, from $45,919 million in August to 46,351 million in September, and electronic and appliance stores also fared well for the month, with September sales of $8,521 million up 0.7% from August, although they’re a laggard on a year over year basis, up just 1.8%…general merchandise stores, which had not see much sales growth over the past year, also improved to see sales increase 0.4% to $55,196 million, although the department store component of that category remained weak, falling 0.9% to $14,352 million in September, with sales down 6.0% from a year ago that month…other than that and autos, the only other retailing group that saw sales decline in September was clothing stores, where sales were down 0.5% to $20,901 million…in addition, the usually volatile sales at gasoline stations, which typically generate aberrant swings in this report, were virtually unchanged at $45,470 million in September, up just a bit from August’s $45,450 million…
September retail sales 2
our FRED pie graph below will give us a sense of the relative size of sales of each of the retail groups covered by this report; counterintuitively, the order of slices from the largest starts at 3 o’clock with the deep blue wedge representing motor vehicles and parts sales at 19.2% of the total and continues counterclockwise from there…the next largest group, in red, is general merchandise stores in red at 13.3%, followed by food and beverage stores in green at 13.2%, restaurants and bars in mauve at 11.2% of sales, gas stations in orange at 11.0%, non-store or online retailers at 9.1% in sky blue, building and garden supply stores in light green at 6.4%, drug stores in mauve at 5.7%, clothing stores in in pink at 5.0%, electronics and appliance stores at 2.1% of the total in purple, furniture stores in yellow at 2.0%, and stores specializing in sporting goods, books or music in the pale blue wedge representing 1.8% of retail sales…note that this pie graph does not include the miscellaneous store retailers indicated in the table above who account for roughly 2.0% of sales, because FRED limits us to a maximum of 12 pie slices per graph…(click to enlarge)
FRED Graph
now, also notice that the initial table we included above also shows the 3 month change in sales from the 2nd quarter to the 3rd quarter in the third column, and the change from the 3rd quarter a year ago in the 4th column; notice that seasonally adjusted sales for the July to September period are up 1.1% over the April to June period, and up 4.4% over the July to September period of a year earlier….when adjusted for inflation, we can use this data to give us a precursor of how these sales will affect GDP…as we’ve often noted, roughly 70% of GDP is personal consumption expenditures, and although the lion’s share of that is spending for services, durable goods accounts for roughly 11% of personal consumption and spending for non-durables, such as food, gasoline, and drugs, makes up 23% of PCE…however, to get a rough approximation how 3rd quarter retail sales, as shown above, might impact real GDP, we’ll have to adjust those sales for inflation…coincidentally, the bureau of labor statistics released the consumer price index on Wednesday, the day after commerce released the advance retail sales data..

Adjusting Retail Sales for Inflation with the Consumer Price Index

so, the BLS reported that the seasonally adjusted CPI for all urban consumers rose 0.2% (or at a 2.2% annualized rate) in September, with energy accounting for about half of the month’s price increase…thus, in a very crude estimate, we can say that real retail sales declined 0.3% over the month; as dollar value sales fell 0.1% and the amount a dollar could purchase fell 0.2%….in fact, that simple metric is included in the data that the NBER Business Cycle Dating Committee weighs when they make official recession calls…but we’d like to take this inflation data and apply it to how quarterly retail sales would be included in the GDP…as we saw in the retail table, retail sales were up 1.1% in the 3rd quarter…so we have to apply the corresponding inflation data to that… when we check the first CPI table, under the heading “Seasonally adjusted percent change“, we see the CPI rose 0.2% in July, 0.1% in August, and, as reported, 0.2% in September…so in a likewise very crude estimation, we could say that real retail sales rose 0.6% over the quarter (1.1% minus 0.5%)…but in addition to the inexactness of this estimate, we;d also have to add the caveat that since the CPI also includes prices for services, such as medical care, using the CPI isn’t really the right method to use to adjust retail sales for inflation…for a proper adjustment, we’d have to do is break out the quarterly sales of each item sold separately, and apply the price change data for that item to those sales to get real sales of that item….by way of example, retail sales for auto and other motor vehicle dealers we reported up 1.6% for the quarter (see the table)….the CPI data overview shows that prices of new cars were up 0.1% in July, 0.0% in August, and 0.2% in September, while prices for used vehicles were down 0.4% in July, down 0.1% in August, and unchanged in September…so over the 3rd quarter, new car prices were up around 0.3%, while used car prices were down around 0.5%…we can also weigh their relative importance, as new car prices account for 3.133% of the CPI, and used car prices account for 1.910% of the, in the aggregate, prices realized by motor vehicle & parts dealers were down by a statistically insignificant fraction over the quarter, and that means the entire 1.6% increase in sales at motor vehicle & parts dealers will contribute to the durable goods increase in the computation of GDP personal consumption expenditures…in like manner, to figure the contribution of sales at grocery stores to real non-durable goods PCE, one would have to adjust the 1.2% quarterly gain with the “food at home” component of the price index, which was up 0.2% for the quarter, and to figure the contribution of restaurant and bar receipts to the real PCE increase, it would be adjusted with “food away from home” prices, and so on…of course, we wont do all of that here; we’ll leave that to the computers at the BEA, which will release the data next week..

Modest Changes in Consumer Prices for September

at any rate, the seasonally adjusted September CPI was 0.2% above August’s, and just 1.2% above it’s level of a year ago; the unadjusted index, based on 1982 to 1984 prices equal to 100, was at 234.149, up from 233.877 in August and 231.407 a year earlier…the energy index was up 0.8% for the month, but still remained 3.1% below it’s September 2012 level; gasoline was up 0.8%, fuel oil prices increased 0.9%, electricity cost 0.5% more, and utility natural gas rose 1.8% from August’s level…meanwhile the food price index was unchanged for the month, as both the food at home and food away from home registered no aggregate change; of  the foods purchased for use at home, cereals and baked goods increased by 0.2% as white bread prices rose 0.7% and prices for the rice, pasta, and cornmeal group fell 0.9%, the meat group prices rose 0.1%, with hot dogs up 2.7%, fresh fist up 2.1%, beef and veal down 0.3%, and eggs down 2.5%; dairy products were also up 0.1%, with whole milk down 0.2% and ice cream up 1.0%, while prices for fruits and vegetables fell 0.9% for the month, with apples down 3.7%, oranges down 1.7% and tomatoes up 3.1% over August’s seasonally adjusted prices…meanwhile, aggregate prices for beverages were down 0.2% and the catch all “other foods” group rose 0.4%…with the food index accounting for just over 14% of the CPI and the energy index over a tenth of the total, that left the core price index, which is all items except food and energy, up 0.1% for September and 1.7% above the level of a year earlier…

  the core prices that increased in September included the cost of shelter, which was up 0.2% over August as both major components, rent and homeowner’s equivalent rent, increased by that same 0.2%, while prices for lodging away from home fell 0.4%; medical care services rose 0.3% as doctor’s fees rose 0.1% and hospital changes rose 0.7%, while medical commodities were up just 0.1% as prescription drug prices rose 0.2%; transportation services rose 0.3% as maintenance and repair costs rose 0.2%, public transportation rose 0.9%, car insurance rose 0.2% and vehicle fees were unchanged, while the price index for transportation commodities rose 0.1% as new car prices were up 0.2% and prices for used vehicles were unchanged…the education and communication price index was also up 0.1% in September, as education commodities rose 0.4% behind a 1.5% price increase for college textbooks, while education and communication services edged up 0.1% as college tuition fell 0.3%; of the major price indexes that declined in September, the recreation index edged down 0.1% as prices for recreation commodities fell 0.7% with TVs down 1.3% and photographic equipment down 2.5%, while recreation services rose 0.3%, led by a 1.7% hike in pet services; finally, the clothing index fell by 0.5%  for the month, as women’s and girls’ apparel prices fell 1.0% and footwear prices were 0.7% lower…our FRED graph below shows the historical track of these major aggregate price indexes going back to 1997, when the education and recreation indexes were reset…price indexes based on prices from 1982 to 1084 = 100 include the price index for food and beverages shown in blue, the composite price index for housing, which includes rent or equivalent, maintenance, and utilities and accounts for 41.1% of the CPI, in red, and the clothing and apparel index in violet…also based on prices from 1982 to 1084, the rising orange line is the medical care composite index, which is now now at 428.026, an increase of more than fourfold from the index years; next, in light green, we have the volatile transportation index, which reflects the gyrating cost of gasoline and fuel related costs of transportation services, moderated by the slow steady rise in the cost of vehicles; lastly, we have our two indexes benchmarked to 1997 prices equal to 100: education and communication price changes are shown in dark green, while the recreation index is shown in bright blue…  

FRED Graph

we should also note that with the release of the September CPI, it was possible for the Social Security administration to calculate the Cost of Living Adjustment (COLA) for this coming year, which is based on the price change of the CPI for Urban Wage Earners and Clerical Workers (CPI-W), (which is a subset of the CPI-U that tracks prices paid by 29 percent of the US population) for the months of July, August and September when compared to the CPI-W for the same months last year…that price change worked out to be 1.5%, so the 58 million seniors on Social Security, as well as millions of disabled veterans, federal retirees and those poor who get Supplemental Security Income will see a meager 1.5% increase in their stipends for next year; for some, that will barely make up what they lost with the food stamp cuts that went into effect on Friday…in addition, the wage threshold for payroll taxes, which fund social security, will increase to $117,000 next year…there will also be an inflation adjusted 1.7% increase in the income tax brackets, which means that the highest marginal tax rate of 39.6% wont kick in until taxable income of an individual exceeds $406,750 in 2014…and the dead will get an even greater increase than the elderly and the rich, as the individual estate-tax exclusion, which is now pegged permanently to inflation, will be $5.34 million in 2014, up from $5.25 million currently…

September Industrial Production Rises 0.6% on Warm Weather

one other important report we should take a look at is the September report on Industrial Production and Capacity Utilization from the Fed, which showed that industrial production rose a seasonally adjusted 0.6% in August, the largest monthly increase since February, while the seasonally adjusted industrial composite index, which is benchmarked at 2007 equal to 100, hit that pre-recession benchmark for the first time since the recession began…on the heals of a 0.4% increase in August, this increase brings the annualized rate of increase for industrial production to 2.3% for the 3rd quarter, despite the decrease of 0.1% in July…however, manufacturing output, which accounts for roughly three-quarters of the index, slipped to a 0.1% monthly increase, down from the 0.5% spot it put up in August, as the manufacturing index edged up to 96.0…the mining index, which includes gas and oil drilling and is now at 121.9, also grew slower, at 0.2% in September vs 0.6% in August…driving the increase in the overall September production index was a 4.4% increase in utility output, which had been down each of the previous 5 months…

the jump in utility output was almost certainly due to a much warmer than normal September, the 6th warmest on record, which followed on the heels of a generally mild spring and summer nationally; thus, once seasonally adjusted, the air conditioning usage in September seemed to spike vis a vis the lower use than normal in the earlier part of the summer, resulting in the seasonally adjusted increase in output…the weather plays an oversized role in utility production and hence has a large impact on the overall index, even though it’s only a tenth of total industrial production…the same thing happened in March, when a much colder than normal month boosted utilities usage 6.4% and carried the overall index into positive territory….but with the following months moderate otherwise, we gave back all that utility “production” index, as the utility index fell back to normal levels…we should watch for the same to happen in subsequent months if the winter is mild…

in addition to the breakdown of industrial production into its three industry groups, the Fed also reports industrial production by market group; among final products and nonindustrial supplies, which accounts for 53.46% of industrial output, September production of consumer goods rose 0.8%, but showed a 1.1% decrease from the 2nd quarter to the 3rd; production of durable goods was up 0.7% on the strength of a 1.8% increase in automotive products, while production of home furnishings appliances and electronics all fell by 0.5%…production of non-durable goods was up 0.9%, but that was all energy production; non energy nondurables fell 0.2%, with chemical products, foods and tobacco down 0.3% for the month while paper products production was up 0.3% and clothing output rose 1.6%…for the quarter, the production of durable goods increased at a seasonally adjusted annual rate of 2.1%, while the output of nondurable goods fell at a 2.0% annual rate; notable outliers were production of home electronics, which fell at an annual rate of 16.7% in the 3rd quarter, and production of clothing, which rose at a 9.0% clip…

production of business equipment rose 1.2% in September and was also up at a 1.2 annual rate for the 3rd quarter…production of transit equipment was up 2.3% in September but was down at a 4.0% rate for the quarter; output of information processing equipment inched up 0.1% for the month but logged a 2.4% increase rate for the quarter, while industrial and other equipment rose 1.2% in September, as it grew at a 3.0% annual rate in the quarter just ended…meanwhile, production of defense and space equipment rose 0.4% in September on the way to a quarterly increase at a 4.2% annual rate…production of construction supplies increased 0.6% for the month, and grew at an annual rate of 4.8% in the third quarter, while output of business supplies rose 0.7% and logged an annual growth rate of 2.3% in the quarter…generally, except for the weakness in nondurable goods output, none of these 3rd quarter figures suggest bad news from the GDP report we’ll be getting next week…

the production of of materials to be processed further in the industrial sector actually accounts for 46.54% of the aggregate IP index and that output increased 0.3% in September and grew at an annual rate of 4.2% for the third quarter; again, most of that gain could be chalked up to a 1.0% increase in the production of energy materials, as production of non-energy materials fell 0.2% for the month, although that output still increased at an annual rate of 1.2% for the 3rd quarter; output of durable inputs was flat, with production of consumer parts up 0.1%, equipment parts down 0.2% and production of other materials for use in durable goods also up 0.1%; for the quarter, production of durable materials grew at a 4.1% annual rate…meanwhile, production of inputs into non-durable finished products fell at a 0.4% rate in September and a 0.9 rate for the quarter; output of chemicals for use in non-durables fell 0.6%, textile production was off 1.0%, and output of paper materials was unchanged for the month…

capacity utilization for total industry, which is the percentage of our plant and equipment that was in use during the month, rose 0.4% from 77.9% in August to 78.3% in September, which bring us up from an operating rate of 77.2% in September of last year…76.1% of our manufacturing capacity was in use during the month, unchanged from August; manufacturer of durable goods were operating at 76.4% of capacity in September, up from 76.2%, with only fabricated metal products production at 85.0%, producers of machinery at 82.2% and manufactures of appliances and electrical equipment at 81.2% with operating rates above 80%…meanwhile, the operating rate for manufacturers of non-durable goods fell from 77.3% in August to 77.0% in September and remained below the 77.3% operating rate of a year earlier…only manufactures of petroleum and coal products at 83.2% and paper products at 82.2% were operating at over 80% of capacity…meanwhile, the operating rate for mining equipment slipped from 90.1 in August to 90.0% in September, and as we’d expect with the jump in utility output, capacity utilization for those companies rose from 75.9% in August to 79.3% in September…over the preceding year, manufacturers added 1.6% to their plant and equipment, mining saw a 4.2% growth in capacity, which likely reflects more drilling rigs being put into operation, and utilities increased their potential output by 1.0%…

our FRED graph below shows shows the industrial 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 from the beginning of the index year of 2007, at which time they were all benchmarked to equal 100.0; we can see the industrial production index has finally reached the pre-recession level of 100, while manufacturing lags and the mining index continues to hit new highs, as domestic oil & gas operations expand…also shown is the track of capacity utilization for total industry since 2007 in pink; note that it’s a percentage, rather than an index number like the other metrics tracked on the same graph…

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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