December’s retail sales, price indexes, industrial production; November’s business inventories and Mortgage Monitor

there was a full schedule of economic releases this week, including the Job Openings and Labor Turnover Survey for November from the Bureau of Labor Statistics (BLS), the Advance Retail sales report for December (pdf), and the Manufacturing and Trade Inventories and Sales report for November (pdf, aka “business inventories”),  both from the Census Bureau, the Import Export Price Indexes for December, the Producer Price Index for December and the Consumer Price Index for All Urban Consumers (CPI-U) for December, all from the BLS, and the December G17 release on Industrial Production and Capacity Utilization from the Fed…we also saw the releases of the first two Fed regional manufacturing surveys, the Empire State Manufacturing Survey (pdf) of New York and northern New Jersey from the New York Fed, and the Philadelphia Fed’s December Manufacturing Business Outlook Survey of Pennsylvania, southern New Jersey, and Delaware, which was particularly noteworthy because their broadest composite index has now fallen over 2 months from a 21 year record high reading of 40.8 in November to 6.3 in January, its lowest in a year…undoubtedly, this is indicative of the quick change in business sentiment in the Pennsylvania area in the face of lower prices for natural gas, which have fallen by 35% over the past few months…similarly, with oil prices down by over 50% over the past six months, we should not be surprised to see regional recessions develop in the oil dependent states, like North Dakota, Alaska, Oklahoma and Texas, while other parts of the country see an ongoing recovery stimulated by lower energy costs…

December Retail Sales Fell 0.9%

the December retail sales report was one of the more surprising reports of this past year, as it indicated a seasonally adjusted sales drop of 0.9%, while November’s sales were revised from down from up 0.7% to up just 0.4%…a drop of 6.5% in gasoline sales, due to lower prices, was a mitigating factor, but even taking sales at gas stations out of the picture, December’s seasonally adjusted  retail sales were still down 0.4%…remember also that December’s seasonal adjustment is the year’s largest: estimated unadjusted sales in December, extrapolated from surveys of a small sampling of retailers, indicated sales rose to $505,251 million in December from $442,348 million in November, and up from the $483,162 million of sales in December a year ago.. since those sales were adjusted down by more than 12% to $442,931 million, it’s evident that the seasonal adjustment could have been a factor in this report…in addition, the CPI report showed prices for goods less energy were 0.3% lower in December, so real retail sales of those goods were higher by that amount…nonetheless, the downward revision of November’s sales, combined with seasonally adjusted December sales that were even lower than that, still means that our estimate of the real PCE contribution to 4th quarter GDP was way off the mark, and will probably closer to half the 4.2% growth we had guessed at..

since you’re all familiar with the table from this report showing retail sales by business type that we’ve been including in this space for at least two years, we’ll again post a copy of it here…to once again explain what it shows,  the first double column shows us the percentage change in sales for each kind of business from the November revised figure to this month’s December “advance” report in the first sub-column, and then the year over year percentage sales change since last December in the 2nd column; the second double column pair below gives us the revision of the November advance estimates (now called “preliminary”) as of this report, with the new October to November percentage change under “Oct 2014 r” (revised) and the November 2013 to November 2014 percentage change as revised in the 2nd column of the pair….then, the third pair of columns shows the percentage change of the last 3 months of this year’s sales (October, November and December) from the preceding three months (July thru September) and from the same three months of a year ago….with an estimate for the change in sales of the 3 months of the 4th quarter vs the 3rd quarter now in place, combined with the consumer price data, we’re able to estimate the contribution of retail sales to 4th quarter GDP…  

December 2014 retail sales

in the first column above, you can see which business types other than gas stations that contributed to lower December sales, most notably building and garden supply dealers and electronic and appliance stores, and see the few that had an increase, in particular furniture stores, and bars and restaurants, both of which saw sales rise 0.8%…for the best coverage of this report, Robert Oak at the Economic Populist includes 7 FRED graphs and three proprietary graphs that show the monthly percentage change as above as a bar graph, the dollar value of each as a bar graph, and a pie graph that shows the relative contribution of each business type to total sales…no one, however, covers the revisions to November, so we’ll note a few of the more significant changes here…

so you all can follow along, here is a copy of the table from the advance report for November, as reported last month; the newly revised November sales are shown in middle two columns above…the first thing we note is that automotive sales weren’t revised much; originally reported as increasing by 1.7%, they’re still indicated 1.6% higher…hence, retail sales ex auto took a larger hit, revised from up 0.5% to up just 0.1%…by far the largest factor in that was a revision of November’s gas station sales, which were originally reported down 0.8%, and now are seen to have decreased by 3.0%…other business types seeing notable downward revisions include clothing stores, sales of which were reported up 2.2% and are now revised to a 1.2% increase, sales at electronic and appliance stores, which were reported up 0.9% and are now shown as up just 0.1%, November sales at drug stores, originally reported up 0.8%, now revised to a 0.4% increase, and sales at bars and restaurants, which were reported as increasing 0.7% and have now been revised to show a 0.3% increase…in addition, both furniture stores and non-store retailers sales were revised 0.3% lower, while November sales at miscellaneous stores were revised up, from an originally reported decrease of 1.7% to a decrease of just 0.8%…

December Prices and their Impact on GDP

the three releases on December prices are also noteworthy, because the headline numbers on all of them indicate prices are falling…import prices fell 2.5% in December, export prices fell 1.2%, producer prices fell 0.3%, and consumer prices fell 0.4%, the largest drop in six years…lower energy prices accounted for much of the declines in those indexes, but even stripping out energy, only producer prices eked out an increase…what’s important to realize about a falling price environment is that it changes the way we have to think about most of the other reports that we review, because any downturn they indicate may be just due to lower prices….for instance, last week we reported that November wholesale sales fell by 0.3%, while wholesale inventories rose by 0.8%; that was in part because wholesale petroleum sales fell by 2.1%, and despite the fact that wholesale petroleum inventories fell by 3.7%….but since wholesale crude oil prices were down 3.2% in November, that means actual sales of barrels of petroleum rose about 1.1%, while inventories, in barrels of oil, just fell 0.5%…with crude oil prices down 18.9% in December, it’s almost a certainty that wholesale sales and inventories of non-durable goods, denominated in dollars, will fall when that report is released three weeks from now…but even so, such a report would indicate a positive contribution to GDP if the actual quantity of goods produced and sold or inventoried increases, irregardless of the headline change…in fact, even if GDP falls in dollars in a given quarter, it’s still possible that quarter’s GDP will be recorded as an increase if the deflator is negative…

the Consumer Price Index Summary from the BLS is written as a press release so it’s a very readable overview.  note that a 9.4% drop in gasoline prices dragged down the energy index, which in turn pulled down overall prices, but even without food and energy, core prices were still unchanged…also note that “commodities less food and energy commodities” are now down 0.8% year over year, most of which came over the last two months…this means the average of all items bought at retail are dropping in price, and hence retail sales must be evaluated accordingly…at the end of the release are links to 7 tables, and an html version of the entire release…in reporting on this, we’ve focused on these three tables from that list:

Table 1 is just a brief summary, useful if you want to see the big picture; it includes the actual index value for each item listed, indexes which are based on prices of 1982 to 1984 equal to 100…thus, when we see that the gasoline index is now at 282.773, that means gasoline prices have gone up 282.8% over the past 30 years…table 1 also reports the unadjusted price change for each index, monthly and annually, and the seasonally adjusted percentage price change for each of the last three months…the “relative importance” column shows the percentage that each index contributes to the overall CPI…then Table 2 breaks those indexes down to show the monthly adjusted and unadjusted prices changes for roughly 200 line items; the first column shows the year over year price change, while the column on the far right is this month’s change; clearly, many cuts of meat are still up around 20% on the year, while many energy commodities are down by a similar percentage…other than food and energy, only televisions, which have fallen in price by 16.5%, personal computers and peripheral equipment, which are 10.5% lower, and film and photographic supplies, which have risen by 23.4%, have seen price changes greater than 10% over the past year…finally, Table 3 gives us composite price indexes for broad areas of consumer spending, such as the housing index, which includes rent, utilities, furniture and appliances, sewer and water bills and the like, or the transportation index, which includes everything from airfare to tires as well as gasoline car prices, and also special indexes such as “services less rent of shelter”…if you need your data a bit more predigested, Doug Short and Steve Hansen at the Global Economic Intersection have a good recap of the December report, complete with historical charts and graphics, and Robert Oak covers it with 11 FRED graphs

while the CPI release is very accessible, the new Producer Price Index News Release is nearly inscrutable, and hence no one covers this entire release in detail anymore…once thought of as just covering raw, intermediate and finished wholesale goods, a year ago the BLS added producer price indexes for services and several different classes of construction, and started describing their indexes in terms which might be technically correct but which almost no one understands…thus, within producer prices for services, we get price indices such as “producer prices for final demand services less trade, transportation, and warehousing”…it seems that the BLS wanted to create a core producer price index for services, so they isolated indices for trade, and for transportation and warehousing, into separate indices, leaving that monstrosity as their “core”…but unlike volatile food and energy indexes for goods, the separate indices for services are no more volatile than the overall index, and monthly price changes in producer prices for services might be driven by volatility in any sub-index..

in the producer price index release we have text describing the price changes, and tables showing them…i find it easier to read the tables, and the first one, “Table A. Monthly and 12-month percent changes in selected final demand price indexes, seasonally adjusted” shows the headline producer price index for each of the last 13 months under “total final demand”, and the rest of the table shows the goods and services components of that, except for the last column, which shows the year over year change…hence we can see the 0.3% drop in producer prices in December was driven by a 1.2% drop in prices for goods, which in turn included a 0.4% drop in wholesale food prices and a 6.6% drop in wholesale energy prices…we can also note that wholesale food prices have been down 5 out of the last 13 months, and note the ongoing monthly drop in energy prices, whereas producer prices for services, which is a measure in the change in the middleman’s margin, have been generally increasing slowly in all categories over the same period…

like all of the BLS press releases, the real details behind these producer price changes can be accessed through the tables at the bottom of the release…the first two, Table 1. Producer price indexes for final demand and Table 2. Producer price indexes for intermediate demand by commodity type are summary indices; but for those interesting in actual wholesale price changes, Table 4. Producer price indexes for selected commodity groupings by final demand category and Table 5. Producer price indexes for selected commodity groupings of intermediate demand by commodity, which also includes what were once called “raw goods”, are most useful…in Table 4, for instance, we can immediately spot a 40.3% increase in wholesale eggs in the far right “November to December” seasonally adjusted price change column, and note a 49.0% one month unadjusted increase in wholesale egg prices a few columns to the left…also note that for services listed here, the increases or decreases are not changes in the price of, for example, internet access service or consumer loans, but that they represent the change in the margin that the provider of such services had received during the period….

while we’ve rarely mentioned import and export prices, they are becoming increasingly important as they drop, because these drops create the appearance that imports and exports are falling when the trade report is released, when in fact they are not…once again, the press release on the Import Export Price Indexes for December is very readable, so there’s no point in my writing about it in my incomprehensible prose…just note that import prices were down by 2.5% in December, the 6th monthly drop in a row, largely because imported energy prices were down 15.1%; even so, non-fuel imports still fell in price by a small fraction for the 4th consecutive month…similarly, note that export prices fell 1.2% in December and are down 3.2% for the year, with agricultural export prices down 0.7% in December and 4.9% for the year…again, there are 8 tables at the bottom of the release with detailed price changes….these are important because each one of them is used in computing the deflator (or inflator) for imports and exports when computing GDP…thus, even though our imports and exports appear to be lower, once they’re adjusted for these price changes, we find out that both have risen..

December Industrial Production Falls 0.1% on Good Weather

the Fed’s G17 release on Industrial production and Capacity Utilization for December indicated that industrial production slipped 0.1% from a November reading which was 1.3% higher than October, which has been revised from 0.1% higher than September to now read unchanged…all the weakness was due to a warmer than normal December, which reduced utility production by a seasonally adjusted 7.3%; excluding utilities, all other industrial production was up by more than 0.6%, with manufacturing up 0.3% and mining, which includes oil & gas, up by 2.2%….remember, this report gives us no dollars values or units of production, rather all the data within this report is based on indexes, all of which were set to have their production of 2007 equal to 100…hence, the only way to report on it is to note the percentage change between the monthly, quarterly or annual index values….the landing page of the release, therefore, has a series of summary tables showing the monthly and annual index values and the percentage change between them; following that is a summary of percentage changes for industry groups, market groups, and capacity utilization data for both…at the end there are links to 3 charts and 14 more tables, which break the report down into detail…generally, in covering this report, we have accessed the following two of those: 

Table 1 gives the annual, quarterly, monthly, and year over year change in production for the three industry groups and dozens of market groups…it’s difficult to read because as you scroll down the page, the column headings scroll off the top, but most of the time all you’ll want to see are the two columns at the extreme right, which show the current month’s change and the year over year change…for December, however, we’d also want to peruse the quarterly figures, which will input into 4th quarter GDP…the easiest way to pick those columns out without a heading is by noting the magnitude of the numbers; the quarterly changes are expressed as growth at an annual rate, so the percentage increases for them are roughly 12 times the size of the monthly percentage change columns adjacent to them…thus, under “annual rate, 2014, Q4”, we see that output of final products and supplies grew at a 5.9% annual rate in the 4th quarter, with growth in consumer goods production at a 5.8% rate, as production of consumer durables grew at a 1.2% rate, production of non-energy consumer nondurables grew at a 5.0% rate, and production of consumer energy goods grew at a 13.9% rate in the 4th quarter…all other 4th quarter growth rates are in that same column, and they’re typically much larger numbers than the column to the right of them…

Table 7 shows the capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and a handful of other special catagories…this is the the percentage of our plant and equipment in each category that was in use during the month…the table shows the historical averages, the highs and the lows, but the amount of industrial capacity we have had at any given point in time has been skewed by investment tax incentives, so comparing today to a previous period is not very meaningful unless one knows all the factors that went into decisions to build plant or increase equipment over time..thus the current and recent capacity utilization figures are those we’d look at for each industry listed…

November Business Sales Down 0.2%, Inventories Up 0.2%

the Manufacturing and Trade Inventories and Sales report for November (pdf), most often referred to as the business inventories report, showed a 0.2 percent (±0.2%)* decrease in sales and a 0.2 percent (±0.1%)* increase in inventories…sales fell 0.6% for manufacturers, leaving them only 0.2% above the year ago sales…as earlier reported, sales for retailers were 0.4% higher, and sales for wholesalers were down 0.3%..factory inventories  were up 0.1%, retailer inventories fell 0.3%, while inventories at wholesalers rose 0.8%…again, all these figures must be adjusted for inflation or deflation as the case might be before they are included in national product accounts..

Mortgage Delinquencies Rise 11.8% in November

we’re also going to take a quick look at the the Mortgage Monitor for November (pdf) from Black Knight Financial Services (BKFS, formerly LPS Data & Analytics) this week, because it indicated a spike in mortgage delinquencies for the month, and also because it’s seldom covered by the blogs or media…BKFS reported that 3,088,462 mortgage loans, or 6.08% of all mortgages, were at least one mortgage payment overdue, but not in foreclosure at month end, up 11.8% from 2,759,053, or 5.44% of homeowners with a mortgage who were more than 30 days behind for October, but still down 5.7% from the delinquency rate of 6.45% a year earlier…of those who were delinquent in November, 1,162,841 home owners were considered seriously delinquent, which means they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month, while 1,422,073 were behind by only one payment…this was the largest month-over-month increase in mortgage delinquencies for any month since November 2008, which BKFS oddly attributes to two federal holidays and a month ending on a Sunday, reducing the number of payment processing days for the month…but as we’ve noted many times in the past, there is normally an increase in mortgage delinquencies in November and December, as homeowners defer mortgage payments while shopping for the holidays, and then get caught up on their bill paying in the first three months of the new year..

BKFS also reported there were 828,682 home mortgages, or 1.63% of all mortgages outstanding, remaining in the foreclosure process at the end of November, which was down from 857,824, or 1.69% of all active loans that were in foreclosure at the end of October, and down from 2.50% of all mortgages that were in foreclosure in November of last year…these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and November’s so-called “foreclosure inventory” was the lowest percentage of homes in foreclosure since early 2008… new foreclosure starts fell to 81,437 in October from 91,038 in October, the lowest number of new foreclosures since 2006 and well below the 104,939 foreclosures that were started in November of last year….adding foreclosures to delinquencies, we find that 7.71% of all homeowners with a mortgage were either late in paying or in foreclosure at the end of November, and also note that 3.86% of them were in serious trouble, ie, either “seriously delinquent” or already in foreclosure at month end…

the graph below shows the number of mortgages that were farther behind in their mortgage payments in each month since 2005 than they were in the prior month, divided into 4 types of mortgage delinquencies; those that were current in the prior month but became delinquent in the reporting month are shown in blue; those that transitioned from one month late to two months late are shown in red; while those that transitioned from two months late to 3 months late are shown in green…finally, of those who were more than 90 days delinquent in the prior month who were foreclosed on in each month is shown in purple… note the callout within the graph from BKFS indicating that November saw the most new 30 day delinquencies since June of 2013…

November 2014 LPS delinquency status

since we have not recently shown the table of non-current mortgages by state, we’ll include the current update to that table here as well…shown below for each state and the District of Columbia are the percentage of home loans that were delinquent (Del%) in November, the percentage of mortgages that were in the foreclosure process (FC%), the total percentage of mortgages that weren’t current with their payments (NonCurr%) and the year over year change in the number of non-current mortgages…note that 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, claimed by servicers as the reason that foreclosures have been taking so long….there are now only 4 states that still have more than 3% of their mortgaged homes in the foreclosure process, and all are judicial states: New Jersey with 5.4%, New York with 4.3%, Florida with 3.8%, and Hawaii with 3.7% of their homes with mortgages in foreclosure…

November 2014 LPS state non current table

for more on the November Mortgage Monitor, including several more graphs on all aspects of November’s mortgage servicing, see the “Closer Look at Delinquency Surge and Much More -Mortgage Monitor” from Mortgage News Daily; this is viewable in a browser window..

(the above is the synopsis that accompanied my regular 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 receiving my weekly emailing of selected links, most from the aforementioned GGO posts, contact me…)

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