December retail sales and consumer prices and their impact on 4th quarter GDP; November Mortgage Monitor

this week we’ll start by looking at the Advance Monthly Retail Sales Report for December from the Census Bureau, which estimated that our total seasonally adjusted retail and food services sales were at $431.9 billion, which would be 0.2 percent (±0.5%)* higher than November sales…before the seasonal adjustment, December’s sales were estimated at $488.7 billion, up 13.2% from November’s $431.8 billion, as we would expect for December…the adjusted increase in November sales was revised from a +0.7 percent (±0.5%) increase from October to a 0.4 percent (±0.2%) increase, so on net this report reflects a 0.1% contraction from what was previously reported…also note the range of accuracy for December of ±0.5% and the Census asterisk, which advises us that they have insufficient data to determine whether sales actual rose or not in December, but that they’re 90% confident the change in sales from November to December was between a decrease of 0.3% and an increase of 0.7%, and like the November report, will likely be revised when a larger sample of retail establishment sales are included in the next estimate…despite the high degree of uncertainty in the data, this is a widely watched indicator, and ultimately will be used to generate real goods consumption for the first estimate of the 4th quarter GDP, so we’ll play along and look at these estimates as if they were exact…

we’ll begin by including below a picture of the table of monthly sales percentage changes by business type from the Census pdf…there are essentially three double columns in that table, and we’ll use them all today; the first double column gives us the percentage change in sales from November to December in the first sub-column, and then the year over year percentage change since last December in the 2nd column; the second double column set below gives us the revision of November’s advance estimates (now “p = preliminary”) as of this report, with the October to November percentage change under “October 2013 revised” and the November to November percentage change as revised in the 2nd column of the pair (our picture of what those November percentages looked like before this revision is here)…the third pair of columns shows the percentage change of the last 3 months – October, November and December sales – from the preceding three months (July through September) for each business type listed; this is effectively the percentage change in retail sales from the 3rd quarter to the 4th quarter overall…and finally, the last column shows the year over year percentage change in retail sales from the 4th quarter of last year (Oct 2012 to Dec 2012) to the 4th quarter of this year…

December 2013 retail sales

we’ll be starting with the current month over month changes, as shown in the first column above…as has been the case in the two previous months, the change in vehicle sales were a major factor in the overall December change; seasonally adjusted sales at motor vehicle and parts dealers were at $81,690 million, down 1.8% from November sales of 83,229 million; without the fall in automotive sales, all other retail sales were up a respectable 0.7%, led by a 2.0% increase to $55,580 million at food and beverage stores; there must have been more holiday partying than normal…sales at clothing stores were up 1.8%, from 21,180 million to $21,562 million, while gasoline station sales rose 1.6% to $45,327 million, with their year over year sales turning positive at up 0.6%…non-store or online retailers also had a sizable December sales increase, as their sales rose 1.4% from 38,613 million in November to $39,141 million in December…several retail sectors saw sales fall; seasonally adjusted sales at electronics and appliance stores fell 2.5%, from $8,578 million in November to $8,364 million in December; department store sales, not including leased departments, were down 0.7% to 14,453 million, although the entire general merchandise group rose 0.1% to $55,384 million…sales at specialty shops, such as sporting goods, book and music stores, also fell 0.6%, from $7,812 million to $7,766 million, while sales at furniture stores fell 0.4% to $8,703 million…and sales at building material and garden supply stores aslo fell 0.4%, from 25,880 to 25,780…understand that these are the seasonally adjusted sales, meaning sales rose or fell by that percentage over a normal December; ie,  building material sales as reported were down 6.7% to $22,988, as you’d expect for a colder month, while electronics sales rose 24.2%, as you would expect before the holidays; what the seasonally adjusted change tells us is that building materials normally only fall 6.3% in December, while electronics sales were expected to rise 26.7%…

the pie graph below, from Robert Oak at the economic populist, puts the sales of each of these business types in this report in perspective; clearly, motor vehicles sales at 19% have the largest impact on the report; but note there are two large wedges that relate to food sales; grocery stores at 13% and restaurants and bars at 11% of sales, so almost a quarter of retail sales is food and drink…and also note that the big box stores still command a significant portion of sales at 13%, while sales at specialty stores (ie books, sporting goods), electronic and appliance stores, and furniture stores, at 2% of sales each, rarely change enough in one month to impact the overall report…

December 2013 retail pie via robert oak

Revisions Leave December Retail Sales 0.1% Below November Advance Report

as we mentioned, there were major revisions to November sales as well, as we originally reported they increased by 0.7% only to find the increase has been revised to a 0.4% gain…since the change in seasonally adjusted vehicle and parts sales was unrevised as an 1.8% increase, the retail sales change ex-autos was revised down from a 0.4% increase to just a 0.1% sales gain….major changes from what we reported last month include sales at electronic and appliance stores, which were originally reported to have shown a 1.1% increase in November, have now been revised to show a 2.1% decrease; that, combined with what was apparently a good December last year, has turned year over year sales for electronic stores negative; in November, they had been showing a 6.8% year over year sales increase, while they’re now showing a now showing a 1.4% annual decrease from December 2012…sales at furniture stores, which were originally reported up 1.2% over October, are now seen to have fallen 0.2%; building material and garden supply stores, which were originally thought to have seen sales increase by 1.8%, have now seen their November sales gain cut to 0.4%…in addition, November sales at gasoline stations have been revised to show a 1.5% from the 1.1% drop first reported, the sales decrease at clothing stores was revised from 0.2% to 0.5%, drug store sales fell 0.3% instead of being unchanged, and non-store (online) sales were reported up 2.2%; they’re now seen as having risen only 1.6%….however, sales at sporting goods, hobby book and music stores, which were first reported to have increased only 0.1%, have been revised to show November sales 1.1% over October’s, and miscellaneous store retailers, whose sales were first reported to have dropped 1.3%, have been revised to show a sales increase of 0.8% in November..

it’s also apparent from the new sales totals of the past three months that there have been notable downward revisions to October retail sales as well, which had been revised to a preliminary $429.4 billion with the November report; they are now shown to be just $429.0 billion, which means that the percentage increases for both November and December were off a lower base…as of that November report, we were led to believe that retail sales had risen 0.6% in October and 0.7% in November, which led us to believe that we’d see a decent 4th quarter boost to GDP from personal consumption expenditures…however, as we can now see from the third column of the initial table that we included above, the total growth in sales for all three months over the third quarter is now just 1.0%, which doesn’t even match the growth we previously thought we had out of just two months….of course, to determine the effect of this weaker report on GDP, consumption of goods for the 4th quarter GDP will need to be adjusted for inflation…the excel formula used by the BEA to do that is somewhat complex, however, and their process is certainly automated…we can, however, get a fair approximation of real consumption by arithmetically adjusting retail sales with the consumer price index…since that report was also released this week, we’ll look at those numbers next, before we get back to adjusting retail…

Consumer Prices Rise Most in 6 Months on Higher Fuel Costs

the seasonally adjusted December Consumer Price Index for for All Urban Consumers (CPI-U) from the Bureau of Labor Statistics indicated that overall prices rose by 0.3% in December, the largest increase in the index in 6 months, mostly due to increases in fuel prices and rent…prices were up 1.5% over the year, up from an annual inflation reading of a bit over 1.2% last month…the monthly increase was entirely in the seasonal adjustment; the unadjusted price index, which is based on 1982-84 prices equal to 100, was at 233.049, down fractionally from the 233.069 reading in November; last December the index stood at 229.601…the seasonally adjusted Core CPI, which is all items except for food and energy, rose just 0.1%, with its year over at 1.72% (rounded to 1.7%), unchanged from November…similarly, the December index value for core CPI before seasonal adjustment was below November’s 235.243 at 235.000…

a 2.1% increase in the energy index drove the overall CPI index higher…prices for energy commodities were 3.4% higher than November, with gasoline prices 3.1% higher, fuel oil up 2.4%, and propane and kerosene up 4.1%…prices for energy services were 0.2% higher, with electric rates up 0.4% and utility gas down by the same amount…for the entire year, however, the energy index only increased by half a percent, with the energy commodity index down 0.8% while energy services were 3.4% higher; gasoline in december cost 1.0% less than a year ago, while fuel oil was 1.8% lower…piped utility gas was 0.1% lower for the year as well, but the national average of electric rates has risen 3.2% since last December….

the food price index rose 0.1% in December, the same tiny increase as logged in November and in October; the food at home index was unchanged for the third time in four months, while the food away from home index rose by 0.1%, as full service restaurants saw prices rise 0.2%, while prices at fast food restaurants rose just 0.1%…of the major food at home groupings, prices for cereal & bakery products were 0.1% lower, as prices for white bread fell 1.0%, rice, pasta and cornmeal were 1..4% lower, while flour was 0.9% higher and the price of crackers rose 1.4%…the price index for meats, poultry, fish, and eggs rose 0.3% on pork prices that were 1.1% higher with breakfast sausage seeing a 4.7% price jump, while fish and seafood prices were 0.4% lower on a 1.7% drop in prices for fresh seafood…dairy products also rose by 0.4% in December as milk prices rose 0.9%, cheese and ice cream prices rose by 0.5%, and prices for other dairy products were unchanged… the fruit and vegetable index, however, was down 1.5% for the month, its largest drop in five years, as prices for fresh vegetables fell by 2.7% led by a 4.2% drop in lettuce prices, while prices for processed fruits and vegetables rose 0.4%..meanwhile, beverage prices rose 0.5% as noncarbonated juices and drink prices rose 1.8% while coffee prices were off 0.4%, and prices for other food at home rose by 0.3% on butter prices that were 2.6% higher, prepared frozen foods that rose 1.2%, and sugar prices that were 1.2% lower…for the year, the cost of food at home has risen by a very modest 0.4%, with declines in prices for dairy products, fruits and vegetables, and beverages…only meats, poultry, fish, and eggs saw a sizable rise rise of 2.9% for 2013, with pork up 4.5%, poultry up 3.0%, seafood up 4.6% and egg prices 5.8% higher than a year ago…

other price changes in December were modest, with prices for many commodities drifting lower…the index for shelter, which is nearly 32% of the CPI, rose 0.2%, with rent of shelter rising 0.3%, as rents rose 0.3% and owner’s equivalent rent rose 0.2%…prices for apparel, which had been down 0.3% year to date, rose 0.9% on a 2.1% increase in prices for women’s clothing while footware prices fell 0.5%…meanwhile, the index for medical care was unchanged in December for the third month in a row , with medical care commodities falling 0.8% on drug prices that were 1.0% lower, while medical care services rose 0.3% on 0.4% higher fees for physicians services and hospital services that were 0.5% higher in price….prices for transportation commodities not including fuel were 0.1% lower as prices of new cars and new trucks fell 0.1% and used car and truck prices were 0.2% lower, while prices for transportation services were off 0.4% on vehicle leasing costs that were 1.4% lower than November and air fares that fell 4.7%…in addition, the recreation price index was down 0.3% as recreation commodities fell 0.7% on TV prices that were 1.6% lower and toy prices that fell 0.8% while recreation services fell 0.1% as prices for video and audio services fell 0.3%, gym dues fell 0.2%, and pet services rose 0.6%…lastly, the education and communication index rose 0.2% on the month, as education and communication commodities rose 0.3% on an 0.8% increase in prices for personal computers and peripheral equipment and educational books that were 0.6% higher, while education and communication services rose 0.2% on a 0.4% rise in college tuitions…

the pie graph below from Doug Short shows the weighting of the CPI index components that go into calculating the overall CPI…obviously, the housing price index, at just over 41% of the CPI, dominates this calculation, and includes not only rent equivalents, but also utilities and maintenance, home insurance, and a handful of other housing associated expense categories…the apparel index is the only major category below without a service index component; the food wedge combines indexes for both food at home and away from home, and each of the other wedges are the representative size of the major indexes we described above except transportation, in which the index weighting below includes the prices for motor fuels…notice there’s no energy index; in this take, energy costs are mostly included in the housing and transportation indexes…

CPI-categories via d.short

We Find Real Retail Sales Up 1.4% in the 4th Quarter and Estimate They Add 1.32% to 4th Quarter GDP

next, we’ll take a stab at adjusting retail sales over the entire 4th quarter for inflation over that same time span…we want to do that because we want to estimate the impact of personal consumption expenditures on 4th quarter GDP….it’s important to understand that GDP is not a dollar measure, although it is usually quoted in dollars; it’s a measure of the growth rate of our national product in UNITS of goods and services produced…every dollar denominated component of GDP is adjusted with an inflation gauge in order to arrive at the quarter over quarter change in units of production; in the case of goods sold at retail, the BEA computes a PCE price index for goods to do this, which as we’ve noted is a complex calculation…to simply our calculation, we’ll use the simple one decimal place CPI fractional changes as adjusters, and round number percentages as shown in Robert Oak’s retail sale pie graph above for the percentage of each of the retail components included in the total….imposing any more math than that on figures that are subject to further revision would be a fool’s errand…

we’ll start with the largest component of retail sales, which is motor vehicle and parts dealers, which according to the table above, were up 1.2% from the third quarter (July thru Sept) to the 4th quarter (Oct to Dec); we’ll adjust that with the price index for “transportation commodities less motor fuel” which includes weighted prices for new and used vehicles and tires and parts; that index was unchanged in October and November and down 0.1% in December…using our simple math, we’ll adjust the 1.2% dollar value change in motor vehicle and parts sales with the cumulative 0.1% price decrease to find that real unit sales of motor vehicles and parts were up 1.3% in the 4th quarter…going down the table of the quarter sales changes, we find furniture store sales in dollars were up 2.2%; we adjust that with price changes for “household furnishings and supplies” over three months and find that unit sales of furniture were up 2.4%; next, we have sales at electronics and appliance stores up 0.4% for the quarter; adjusted with the weighted price indexes for appliances and for video and audio products, we find that unit sales at electronics and appliance stores were actually up 1.6%; meanwhile, dollar value sales at building material and garden supply stores were down 2.1% for the quarter; we’ll adjust that with the price index for “tools, hardware, outdoor equipment and supplies” for 3 months and find that unit sales of building material and garden supplies were only down 0.5% over that period…next on the table we see sales at food & beverage stores increased 0.9% for the month; since the food at home index was up 0.1% over three months, those unit food sales are reduced to an 0.8% increase…next, sales at health & personal care stores, which are more commonly referred to as drug stores, were up 1.7% for the quarter; adjusting those sales with the price index for medical care commodities indicates that unit sales at drug stores were really up 2.2%…next are sales at gas stations, which were down 0.8% in dollars for the 4th quarter, while the monthly price changes for all types of gasoline were down 2.9% in October, down another 1.6% in November, but up 3.1% in december; with a bit of compounding, we’ll say gasoline prices fell 1.5% for the quarter and thus unit sales at gas stations were up 0.7% over the quarter…clothing store sales were up 2.0%, adjusted with the apparel index which was essentially unchanged leaves us real sales of clothing at 2.0%…sales at sporting goods, hobby, book & music stores were up 3.1% in the 4th quarter; we’ll adjust them with the recreational commodity price index and find that real sales of sporting goods, books & music were up 3.8%….sales at general merchandising stores were up 0.4% in the quarter, adjusting them with the quarterly change in the price change for retail commodities less food and energy commodities indicates real sales at general merchandising stores rose 0.6% for the quarter, we’ll adjust the nominal 0.5% increase in sales at miscellaneous stores with the same index and call their real sales up 0.7%…meanwhile, sales at non-store retailers were up 2.3% for the quarter; we’ve previously decided to adjust those mostly online sales with a weighted combination of software and book prices, consumer electronics prices, and the apparel price index which would result a 2.9% increase in real online sales ..lastly, sales at bars and restaurants were up 3.0% during the 4th quarter; adjusting that for the half percent rise in prices for food away from home means real restaurant sales rose 2.5%…

now, we have to add all those real price changes together with their proper weighting to get the real price change for all retail sales…as we originally said, instead of using exact percentages for weighting, we’re using the whole number percentages shown in Robert Oak’s pie graph; thus, as vehicle sales are 19% of retail, we multiply the 1.3% increase in real motor vehicles and parts sales by that to get their portion of the increase in retail…so, to take a shortcut directly to the math, the change in real retail sales = 19% * 1.3% + 2% *  2.4% + 2% * 1.6% + 6%* -.5% + 13% * 0.8% + 6% * 2.2% + 10% *.7% + 5% * 2%  + 2% * 3.8%  + 13% * 0.6% + 2% * .7% + 9% * 2.9% + 11% * 2.5% equals 1.407% if we’ve done our math right – someone check that and get back to me…so our real personal consumption of goods appears to have risen 1.4% in the 4th quarter, which would be at a 5.75% annual rate….since  personal consumption of goods is approximately 23% of GDP, we can estimate that real retail sales will add roughly 1.32% to 4th quarter GDP

Mortgage Delinquencies Rose 2.6% in November as Foreclosure Starts Fell to a Post Crisis Low

another monthly report that was released this week that we want to review is the Mortgage Monitor for November from LPS (pdf) which includes quite thorough and detailed graphics covering the spectrum of information on US mortgages…as per usual, we’ll be focusing on mortgage delinquencies and foreclosures, which are the crisis aspects of his report…with this release, LPS (Lender Processing Services), a company involved in mortgage servicing, has split off their Data & Analytics division, which publishes the Mortgage Monitor, into a separate unit that now goes by Black Knight Financial Services…however, as this report still being published from the LPS website, we’ll continue to refer to this report as from LPS until such time as the new moniker becomes entrenched..

as of November, LPS reports that 1,256,000 home mortgages, or 2.50% of all mortgages outstanding, remained in the foreclosure process, meaning that a foreclosure notice had been served but the title had not yet been auctioned back to the bank; this is down from 1,276,000, or 2.54% of mortgages, that were in the foreclosure process at the end of October, and down from 1,767,000, or 3.51% of loans that were in the foreclosure process in November a year ago…in addition, 3,241,000​ mortgage loans, or 6.45% of all mortgages, were at least one housepayment delinquent but not in foreclosure in November, up from 3,152,000 homeowners, or 6.28% of those with a mortgage, who were delinquent in October, but that’s still down from the 3,583,000, or 7.12% of mortgages, reported delinquent but not in foreclosure last November…of those who were delinquent in November, 1,283,000 properties were seriously delinquent, which means they were 90 or more days delinquent, but not in foreclosure at the end of the month, which when combined with foreclosure indicates that 5.05% of homeowners with a mortgage remained in trouble at the end November…new foreclosure starts fell to 104,939 for November, which is the lowest number of new foreclosures since 2006…

the first graph below, from page 4 of the mortgage monitor pdf, shows the percentage of active loans that have been delinquent monthly since 1995 in red and the percentage that have been in the foreclosure process in green over that same time period…clearly, the percentage of homes in foreclosure has been falling fairly rapidly over the last year and a half and at 2.50% is now down 42% from the October 2011 peak of 4.29% of mortgages in the foreclosure process, which is also known as the foreclosure presale inventory…but that’s still more than four times the pre-crisis foreclosure inventory of 0.44% of December 2005 highlighted on the graph, so we still have a long way to go to return to normalcy…similarly, with delinquent mortgages shown in red at 6.45% of all mortgage outstanding, we’re down significantly from the 10.57% of mortgages that were delinquent but not in foreclosure in January of 2010, but still 51% above the precrisis delinquency percentage of 4.27% of December 2005…

Nov LPS delinquencies and foreclosures monthly

the next graph, from page 25 of the Mortgage Monitor, which is the data summary page, zeroes in on the percentage of mortgage that were delinquent each month over the past year…it’s clear that the percentage of mortgages delinquent has been bouncing up & down over the past 6 months, after falling quickly from 7.17% in February to 6.08% in May, and then jumping back up to 6.68% in June…there is a seasonality to mortgage delinquencies, which you can also see clearly on the graph above, wherein they usually peak at year end, when most people get overextended on their payments during the holidays, and then decline over the first few months of each year as homeowners catch up, but LPS doesn’t seasonally adjust their data…we’d expect a higher delinquency rate with some new delinquencies in December, and then expect a decline in total delinquencies in the new year…

Nov LPS summary stats

the next graphic, from page 5 of the pdf, is a map with breakdown of the total percentage of non-current mortgages by state; these percentages include those mortgages that are in the foreclosure process as well as all delinquent mortgages…the darkest red indicates states where the total percentage of delinquent mortgages is above 12%, while the lighter red indicates states where 9% to 12% of mortgages are late on their payments…for the states shaded light green, the delinquency rates range from 5.9% for Nebraska to 8.7% for Washington, while the darkest green states all have total mortgage delinquency rates lower than 5.5%…those low current rates doesn’t mean those states haven’t had a problem; in the case of Arizona and California, for instance, it just means that those homeowners who fell behind on their mortgages were quickly foreclosed on…

Nov LPS percentage non current state map

after years of Florida being ground zero for the mortgage crisis, you can see Mississippi now has the most non-current mortgages at 15.4% as Florida has also cleared much of its backlog through foreclosure and now sees 14.6% of its homeowners not current on their mortgage payments, which is now the same percentage as New Jersey…but unlike Florida and New Jersey, which still have over 7% of their mortgaged homeowners in foreclosure, Mississippi’s problem seems to be persistent late payments, as only 2.1% of their homeowners have progressed to foreclosure, which you’ll see in the table showing the exact percentages delinquent and in foreclosure that follows, which comes from page 26 of the pdf

NOv LPS states non-current table

in the above table, the first column shows the delinquency rate (Del%), for each state, which on this table is the percentage of mortgages in each state that are at least one month behind and not yet in foreclosure…the second column is the percentage in each state that are in foreclosure (FC%), while the total percentage of mortgages that aren’t current with their payments (NonCurr%) is shown in the 3rd column, which is the sum or the first two….then in the last column, they’ve included  the year over year change in the total percentage of non-current mortgages…note that those states that have a judicial foreclosure process, where the bank must prove their right to foreclose on a homeowner in court, are marked by a red asterisk…most of the states with the largest foreclosure backlog are judicial, led by Florida at 7.5% and new jersey at 7.2%…although this mortgage monitor did not include data on the pipeline ratio, as of last month they showed that at the rate foreclosures are being processed in judicial states, it would take 47 months to clear the backlog..

the last graph, below, is from page 6 of the pdf, shows the number of foreclosure starts and foreclosure sales monthly since the beginning of 2005; foreclosure starts are indicated for the month that the loan servicer refers a delinquent mortgage to its attorneys for foreclosure, and are usually initiated with an official notice of delinquency or foreclosure depending on state regulations…for the months subsequent to the foreclosure start and before the foreclosure sale, the mortgage is then counted in the foreclosure inventory, or as we’ve referred to them as “in the foreclosure process”(terms are on page 30 of the pdf)….the definition of a foreclosure sale is less intuitive; it’s the legal auction wherein the bank buys the title after the foreclosure completes; after a foreclosure sale, the home moves into the bank’s property inventory…you can see that foreclosure starts have been well ahead of foreclosure sales from the duration of the mortgage crisis, which means a lot of foreclosures were started that were never completed…the national average length of time for homes remaining in the foreclosure inventory rose to a record 905 days in November…typically, that means the homeowners have continued to live in their homes without making payments for the duration…for the 1,283,000 seriously delinquent homes, the average length of time they have remained delinquent without moving into foreclosure is now at 500 days; these homeowners have also not been making payments over that period…as noted earlier, the total of these two stranded groups of seriously compromised mortgages is still greater than 5% of all mortgages outstanding nationally…

Nov LPS foreclosure starts and sales

(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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