January’s retail sales and industrial production reports

results from both of the key reports for January released this week, on retail sales and industrial production, were likely adversely influenced by the colder than normal weather in the eastern US and the series of winter storms that both tracked farther south than usual and also curtailed activity in the heavily populated east coast corridor; quantifying the effects of weather, however is another matter…first, almost all reports are reported with seasonal adjustments, which come from programs that take the raw data on sales, production, employment, housing, inventories and a host of other economic metrics and compare the month being reported on to data from similar months over at least the last 5 years, and then generate a result that’s supposed to show us how much the current month’s economic activity deviated from the norm for that month vis-a-vis the previous month or quarter…some seasonal adjustments are needed for obvious reasons; ie, changes in farm or construction employment in the spring, school district employment in the fall, and the spike in retail sales around the holidays; incorporating them into the data allows the economic reports to be published without needing someone to manually go back each month and compare the change in employment, department store sales, or whatever from month to month in previous years to try to make sense of this years data…but these adjustments are only as good as are the averages they’re derived from, and how close the current months under observation are to those averages…so although there’s already a seasonal adjustment baked into January data that allows for some slowdown because of the cold and winter storms that always occur in January, that seasonal adjustment only takes into account the effect of what the average January has produced in terms of economic disruption over the past handful of years…so despite the fact that the seasonal adjustment for January utility usage, for instance, considers that it will normally be greater in January due to home heating, it does not adjust for the nearly month long string of below zero weather in the upper Midwest or the much colder than normal temps in the deep South…and while we’d expect a colder than normal month to depress even seasonally adjusted restaurant sales, the equal shortfall in seasonally adjusted online sales that occurred in January does indicate widespread weakness…

January Retail Sales Fall 0.4% After December Sales are Revised Down 0.3%

the Advance Retail Sales Report for January (pdf) from the Census Bureau estimated that our total seasonally adjusted retail and food services sales for the month were at $427.8 billion, which was a decrease of 0.4 percent (±0.5%)* from December’s revised sales of $429.6 billion, which were originally reported at $431.9 billion…the November to December 2013 percentage change was revised from a gain in sales of 0.2 percent (±0.5%)* to a 0.1 percent (±0.3%)* sales decline, where the figures in parenthesis indicate the 90% confidence ranges for the percentage change in sales and the asterisk indicates that the Census Bureau does not yet have sufficient data to conclude whether sales actually rose or fell in either month…before the seasonal adjustment, the extrapolation from raw data showed January’s total sales were estimated to be $392,332 million, down 19.3% from December’s seasonally elevated sales of $485,885 million, but still up 3.0% from the sales of $392,332 million in January a year ago…as retail sales are approximately 23% of GDP, the decline in January sales has led forecasters to write down their forecasts for the 1st quarter GDP, and with the major revision to December sales we can also expect another negative revision to last year’s 4th quarter numbers..

to break down the details in this report further, we’ll start with a picture of the table from the report showing the sales percentage changes by business type for January and December; the first double column gives us the percentage change in sales for each type of retail business type from December to January in the first sub-column, and then the year over year percentage change for those businesses since last January in the 2nd column; the second pair of columns gives us the revision of December’s advance estimates (now called “preliminary”) as of this report, likewise for each business type, with the November to December percentage change under “Nov 2013 revised” and the revised December 2012 to December 2013 percentage change in the last column shown…our picture of what those December percentages looked like before month’s this revision is here, and since there were significant changes, we’ll review those after we look at the new January estimates…

January 2014 retail sales

as was the case in most months in 2013, the January change in car sales was the major factor in the direction of final retail sales change for the month…seasonally adjusted sales at motor vehicle and parts dealers were at $80,089 million, down 2.1% from December’s slightly revised sales of $81,805 million; before the seasonal adjustment, January’s vehicle and parts sales were off 3.8% at $71,662 million…without the drop in automotive sales, all other retail sales were down by a seasonally adjusted $44 million to $347,740 million, or statistically unchanged…a few business sectors saw increased sales in January, as you can see in the first column in the above table; sales at building material and garden supply stores were up a seasonally adjusted 1.4% to $26,354 million; gasoline stations sales increased 1.1% to $45,777 million, likely on higher gasoline prices; sales at electronic and appliance stores were up 0.4% to $8,099 million, and sales for the food and beverage group were at $55,617 million, up 0.2% from December…on the other hand, sales at specialty shops, such as sporting goods, book and music stores, fell 1.4% to $7,556 million and sales at clothing stores were off 0.9% to $20,985 million….also, sales at furniture stores fell 0.6% to $8,315 million, while sales at restaurants and bars fell by the same percentage to $46,687 million and sales at non-store (primarily online) retailers also fell by 0.6% to $38,689 million…in addition, sales in the large general merchandise store category were down 0.1% in January to $54,974 million, dragged down by the 1.5% decline in sales at department stores to $14,197 million…

we’ve taken our standard FRED pie graph for retail sales, which we created to give us a sense of the relative size of sales of each of the retail groups covered by this report, and modified it so the text listings for the business types represented by the pie wedges are adjacent to the pie, rather than on top as in a normal FRED graph…our new pie graph below shows motor vehicles and parts sales at 19.2% of total retail sales as a deep blue wedge, the next largest group, general merchandise stores at 13.3% of retail as a red wedge, followed counterclockwise by food and beverage stores in green at 13.3%, restaurants and bars in mauve at 11.2% of sales, gas stations in orange at 11.0%, non-store or online retailers at 9.3% in sky blue, building materials and garden supply stores in light green at 6.3%, drug stores in mauve at 5.8%, clothing stores in pink at 5.0% of sales, electronics and appliance stores at 1.9% 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 limited us to a maximum of 12 pie slices per graph…(click to view larger at FRED)

January 2014 retail pie slices

as we mentioned earlier, there were also major revisions to sales changes reported for the various business groups in December, as a result of the downward revision of total seasonally adjusted sales to $429.6 billion for the month, from the originally reported $431.9 billion…the 1.8% decrease in sales for the automotive group was little revised from the originally reported $81,690 million at $81,805 million; thus there were major downward revisions in sales for many other retail groups…December sales at electronic and appliance stores, originally reported to be down 2.5% from November, are now seen to have been down 4.4% from November…furniture store sales, first reported to be down 0.4%, have been revised to show 3.0% lower sales…restaurant and bar receipts for December, reported up 0.5% from November last month, are now showing a 0.7% decrease, while sales at clothing stores, reported as having increased by 1.8% in the Advance report for December, have been revised to a smaller 0.7% increase, and the 1.6% increase in sales at gasoline stations has been revised down to a 1.1% increase…in addition, sales at sporting goods, book and music stores, first reported as down 0.6%, are now seen down 0.9%, while sales by the food & beverage group, which was reported up 2.0%, was revised to a 1.7% increase, and sales by general merchandise stores, which were reported up 0.1% last month, have been revised to show a 0.4% sales decrease…there was also a downward revision of 0.2% to December sales at drug stores, a 0.1% downward revision to nonstore sales, while miscellaneous store sales were unchanged by the revision…the lone positive revision to December sales estimates was for building material and garden supply stores sales, which were originally reported as off 0.4%, and now show no change in seasonally adjusted December sales…

January Industrial Production Falls 0.3% After December Production is Revised Down 0.4%

the other important release of the week was on January Industrial Production and Capacity Utilization from the Fed, which surprised forecasters who were expecting a 0.3% to 0.6% increase in industrial production with a decrease of the same magnitude…the seasonally adjusted industrial composite index, which is benchmarked at 2007 equal to 100, fell from a revised 101.4 in December to 101.0 in January, reversing the increase in the index from last month…the industrial production index for December was revised down from the originally reported 101.8, and the index for November, which had read 101.5, was marked down to 101.0…all told, this leaves the increase in industrial production at 2.9% since last January…

of the three subindexes that make up the industrial production index,.the manufacturing index, the largest at almost 75% of the total, was down 0.8% in January, from 97.2 to 96.4, which the Fed said was due to the severe weather that curtailed production in some regions of the country…however, the increases in the manufacturing index for the previous three months were also revised downward; manufacturing output for December was revised from an increase of 0.4% to 0.3%, the increase for November was revised from 0.6% to 0.3%, and the increase for October was revised from 0.6% to 0.4%, as a result, manufacturing output in the 4th quarter is now estimated to have grown at a 4.6% annual rate rather than the 6.2% originally reported…in addition, the mining index, which includes oil and gas production and accounts for more than 15% of all industrial activity covered here, was also down in January, by 0.9% to 122.8, after being up 1.8% to 123.8 in December, while the utility index, at less that 10% of industrial production, was up 4.1 to 107.1, due to an increase in demand for gas and electric heating…even seasonally adjusted, utility output is quite volatile, as it changes on deviations from normal temperatures in the most populated areas of the country; up 3.1 in September on warmer than normal weather, it was up 2.9 more in November on a colder than normal month, and is now 9.3% above the mild January of a year ago…meanwhile, the manufacturing index has increased just 1.3% since then, while the mining index 6.7 points higher than a year ago on increased gas and oil production…

in addition to the breakdown of industrial production into its three industry groups, this G-17 release from Fed also reports on industrial production by market group…among final products and nonindustrial supplies, which accounted for 53.21% of industrial output in 2013, January production of consumer goods fell 0.5% after 5 months of solid gains; seasonally adjusted production of durable goods was down 2.6%, largely because of a 5.1% pullback in production of automotive products, while production of electronics rose 1.1% and production of home furnishings and appliances fell 0.6%..meanwhile, production of non-durable goods was up 0.2%, but that was all due to an increase in energy output, which rose 2.8%; output of non energy nondurable goods fell 0.8%, with food and tobacco production down 1.0%, chemical products output down 0.3%, paper products production down 0.6%, while clothing output rose 0.5%…on an annual basis, the production of durable goods has increased 4.7% since last January, on 5.1% greater automotive production and increases in output of all other durable goods categories, while the output of nondurable goods increased 2.1%, again mostly due to a 10.1% increase in energy output, with output of paper products 2.0% lower than last year, chemical products production off 1.3%, food production 0.1% lower, while only clothing saw a year over year production increase of 2.5%...on an index basis, where 2007 production is equal to 100, the consumer goods production index is at 95.8, with only automotive products production at 109.2 and energy production at 110.0 higher than the pre-recession level…

production of business equipment also fell in January, for the third consecutive month, although only by 0.1%, with production of transit equipment down by 1.3%, production of industrial equipment off 0.1%, while production of information processing equipment rose 1.3%…since last January, production of business equipment has risen 2.4%, with production of transit equipment up 2.8%, production of industrial equipment up 2.4%, and production of information 1.9% higher than last year…the business equipment production index was at 102.9, with all components above their prerecession level…meanwhile, production of defense and space equipment fell 1.0% in January to an index reading of 113.9; which was still 1.1% higher than a year earlier..in addition, production of construction supplies fell 1.0% in their worst month since May, while they grew at 1.7% clip over the last year, while output of business supplies slipped 0.1% and posted a year over year growth rate of 2.8%…both supply indexes remain well below their prerecession levels with the construction supply index at 82.3 and the business supply index at 93.2..

the other major market group, the production intermediate and raw materials that will be processed further in the industrial sector, accounted for 46.79% of the total industrial production index in 2013, and production for that group fell 0.3% in January…among non-energy materials, production of those to be used in the manufacture of durable goods fell 0.6%, with production of parts for consumer durables off 1.5%, parts for equipment down 0.2%, and production of parts for other durables down 0.6%…for the one year period, production of inputs into durable goods increased 2.4% on the strength of a 4.1% increase in the production of equipment parts…meanwhile, production of inputs into non-durable finished products fell by 0.8% rate in January, with the output of chemicals for use in non-durables down 0.4%, textiles production down 1.6%, and output of paper materials off 0.3% for the month… output of non-durable inputs are down 1.0% since last January, with production of textiles down 3.9%, the production of raw paper down 1.0%, and the production of chemicals used in non-durable goods unchanged over the preceding year..

with industrial production down, capacity utilization, which is the percentage of our plant and equipment that was in use during the month, likewise fell by 0.5%, from 78.9% in December to 78.5% in January and is now 0.6% below the 79.1% capacity utilization figure of January last year…just 76.0% of our manufacturing plant and equipment was in use during January, down from 76.7% in December and 77.6% a year earlier; however, capacity utilization for manufacturing in December had previously been reported at 77.2%, and like industrial production it was revised down, along with capacity utilization for every month since September…of those manufacturing industries with an NAICS classification, capacity utilization for durable goods manufacturers fell 0.8% in January to 76.0%; factory utilization by manufacturers of fabricated metal products was the highest at 86.6%, while manufacturers of non-metallic mineral products were only using 60.1% of their equipment; the largest decrease in capacity utilization was seen by manufacturers of motor vehicles and parts, whose operating rate fell from 78.4% in December to 74.3% in January, while manufacturers of machinery put 0.3% more of their equipment to use in January with a capacity utilization rate of 80.8%…the operating rate for NAICS classified non-durable manufacturing fell 0.7% in January, from 78.1% to 77.4%, as capacity utilization for textile mills fell from 72.7% to 71.6%, utilization of equipment by manufactures of food, beverage, and tobacco products fell from 81.0% to 80.0%, and the operating rate for printers fell from 71.8% to 70.9%, while capacity utilization for manufactures of of apparel and leather goods rose from 74.7% to 75.0%….in addition, the operating rate for industries not normally classified as manufacturing but included as such in this report (primarily publishing and logging) fell from 60.6% to 59.9%…meanwhile, the operating rate for mining equipment, which includes gas and oil rigs, fell from 90.3% in December to 89.2% in January, and as we’d expect with a jump in utility output, capacity utilization for utilities rose from 80.1% in December to 83.3% in January…over the preceding year, manufacturers added 1.6% to their plant and equipment, mining saw a 4.6% growth in capacity as more drilling rigs were put into operation, and utilities increased their plant base by 0.8%… 

our FRED graph for this report below 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; it’s pretty clear that only the mining index is significantly above it’s prerecession peak, largely due to the explosion of fracking gas and oil rigs over much of the country…also shown below 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 we’re tracking 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…)

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s