February’s retail sales and producer prices, January’s wholesale sales, business inventories and Mortgage Monitor

the most widely watched release this past week was on retail sales for February from the Census Bureau; but there were also two Census reports on January inventories which will contribute to that major component of first quarter GDP: January wholesale trade and January business inventories…furthermore, we also saw the release of 2 price indexes that will be used in computing the deflators for 1st quarter GDP; the import and export price index for February and the producer price index for February, both from the Bureau of Labor Statistics…this week also saw and the Job Openings and Labor Turnover Survey (JOLTS) for January from the BLS, which indicated the most seasonally adjusted job openings in 14 years, and the Mortgage Monitor for January from Black Knight Financial Services (formerly LPS data & analytics) which we’ll also look at today…

February Retail Sales Down 0.6% on a 2.6% in Auto Sales

retail sales fell for the 3rd month in a row in February, but unlike the past two months, sales of lower priced gasoline wasn’t the major factor…the Advance Retail Sales Report for February (pdf) from the Census Bureau estimated that our total seasonally adjusted retail and food services sales were at $437.0 billion for the month, which was a decrease of 0.6 percent (±0.5%) from the January sales of $439.5 billion, but 1.7 percent (±0.9%) above sales in February of last year…January’s sales were revised down by less than 0.1%, from $439.8 billion, but the reported percentage decline from December to January remained unchanged at 0.8% lower…estimated unadjusted sales in January, extrapolated from surveys of a small sampling of retailers, indicated actual sales fell 2.8%, from $401,097 million in January to $389,679 million in February, but were up 1.2% from the $384,985 million of sales in February a year ago…

once again we’ll include the table of monthly and yearly percentage changes in sales by business type taken from the Census pdf…..the first double column below gives us the seasonally adjusted percentage change in sales for each type of retail business type from January to February in the first sub-column, and then the year over year percentage change for those businesses since last February in the 2nd column; the second pair of columns gives us the revision of last month’s January’s advance monthly estimates (now called “preliminary”) as revised in this report, likewise for each business type, with the December to January change under “Dec 2014 revised” and the revised January 2014 to January 2015 percentage change in the last column shown…for reference, here is what those January percentage changes looked like before this month’s revision….

February 2015 retail sales

looking at the details for February sales in the first column above, it’s fairly clear that the seasonally adjusted 2.5% decrease in motor vehicle and parts sales to $88,636 million was a major reason for the unexpected decrease in sales for the month, and when that’s excluded, the overall decrease was just 0.1%…then what’s left was likely boosted a bit artificially by the 1.5% increase in gas station sales, undoubtedly due at least in part by somewhat higher gasoline prices…take those gas station sales away from the total, and all other retail sales are down 0.24%…but the three other business types seeing the largest declines, building materials and garden supply stores, which saw sales drop 2.3%, and general merchandise and electronic and appliance stores, where sales fell 1.2%, may well have been effected by the colder and snowier than normal February in a large portion of the eastern US…and while such weather may impact retail, spending may have been directed into other sectors, such as utilities and snow removal…and with a 0.2% decline overall, we can’t tell if real retail sales have fallen or not until the February consumer price index is released; it may be that even though consumers spent less, they might have bought more goods…and if they bought more goods, that means more goods were produced, which would add to GDP…

January Wholesale Sales Drop 3.1%, Wholesale Inventories Rise 0.3%

the first release we saw on sales and inventories this week was the Wholesale Trade, Sales and Inventories Report for January (pdf) from the Census Bureau, which estimated that seasonally adjusted sales of wholesale merchants fell 3.1 percent (+/-0.5%) to $433.7 billion from the revised December estimate of $447.4 billion, and was down 1.0 percent (+/-0.9%) from January a year earlier…the December preliminary sales estimate was revised down $2.4 billion or 0.5%, and hence is now 0.9% lower than November…wholesale sales of durable goods were down 1.4 percent (+/-0.9%) from December but were up 5.2 percent (+/-1.2%) from January a year ago, as wholesale sales of electrical equipment and appliances, metals and minerals, and miscellaneous durable were all down by more than 4%, while wholesale sales of automotive equipment rose 2.5%…seasonally adjusted wholesale sales of nondurable goods were down 4.6 percent (+/-0.9%) from December and down 6.7 percent (+/-1.2%) from last January, as wholesale sales of petroleum and petroleum products fell by 13.5% for the month and 37.1% year over year, largely due to lower prices…however, even excluding oil sales, wholesale sales of non durable goods were still down 2.2% in January, as all wholesale sales of nondurable goods other than paper and alcohol were lower….

this release also reported that seasonally adjusted wholesale inventories were valued at $548.7 billion at the end of January, 0.3% (+/-0.4%)* higher than the revised December level and 6.2% (+/-0.7%) above last January’s level, while December’s preliminary inventory estimate was revised down by $0.7 billion, or 0.1%…wholesale durable goods inventories were up 0.6 percent (+/-0.4%)  from December and up 7.7 percent (+/-1.1%) from a year earlier, as inventories of electrical equipment and appliances rose 2.4% and automotive inventories rose 1.6%….inventories of nondurable goods were down 0.1 percent (+/-0.4%)* from December while they were up 3.7% (+/-1.1%) from last January, as wholesale inventories of farm products fell 4.6% while wholesale inventories of paper and paper products were 3.0% higher and drugs and drugstore sundries inventories were up by 1.7%….note that the asterisks where included here indicate that Census does not yet have sufficient statistical evidence to determine whether inventories actually rose of fell for the periods indicated…due in part to the distortion caused by lower petroleum prices, the closely watched inventory to sales ratio of merchant wholesalers rose to 1.27, up from 1.22 in December and up from the inventory to sales ratio of 1.18 in January of last year, as the inventory to sales ratio for petroleum and petroleum products, which was originally about 12% of wholesale sales but just 3% of wholesale inventories, rose from 0.34 to 0.39…

in judging how this report might affect GDP, we have to remember that GDP only includes adjusted final sales and inventory as a means of measuring of our output of goods and services, so the value of wholesale products exchanged is not a GDP factor itself, but only insofar as the value of the trading margin extracted, which would be included in PCE under “other services”….however, the change in private inventories is a major factor, but that has proven to be not as easy to compute as we have done in the past…the problem is that some inventories may be “on the shelf”, so to speak, for more than one month, the value of which is not changed for GDP accounting purposes while it sits there…in addition, different companies use a wide variety of accounting methods in valuing their inventories, such as LIFO, FIFO, average cost or weighted average cost, all of which the BEA adjusts for before including that in the their totals (see the National Income and Product Accounts Handbook, Chapter 7 (22 pp pdf), for details)..so our blanket deflating of wholesale inventories with an appropriate index from the producer price index does not capture all of these adjustments, which led us to a big miss when we tried to gauge the impact of December inventories on 4th quarter GDP revisions…so while an increase of 0.3% in January wholesale inventories deflated with the 2.1% decrease in prices for January wholesale goods would seem to imply a 2.4% monthly increase in real inventories, or growth at a 33% annual rate, we now know that an undetermined amount of those inventories were accounted for in prior months, and adjusted for accounting methods and inflation appropriately at that time, and the information we’d need to mimic the same calculation is not available to us on any BEA site we know about..

January Business Sales Fall 2.0%, Business Inventories Unchanged

following the release of retail and wholesale reports, Census released the composite Manufacturing and Trade Inventories and Sales report for January, which is covered in the media as the “business inventories” report, and which includes the wholesale sales and inventory report we just reviewed, the factory shipments and inventories we reviewed last week, and retail sales and inventories, the later of which is also available as an excel file here…this report estimated the combined value of seasonally adjusted distributive trade sales and manufacturers’ shipments was at $1,302.5 billion in January, down 2.0% (±0.2%) from December, and down 0.3% (±0.3%) from the total monthly sales of January of last year…to recap, manufacturers sales were estimated at $479,126 million, down 2.0%, retailer’s sales were estimated down 0.9% at $389,684 million and, as previously noted, sales of merchant wholesalers were down 3.1% and accounted for $433,730 million of the overall total….once again, much of the drop in business sales was associated with January’s lower oil prices, as even manufacturer’s sales are more than 10% shipments from refineries…

meanwhile, total manufacturer’s and trade inventories were estimated to have been unchanged (±0.2%)* from December to a seasonally adjusted $1,761.7 billion at the end of December, which was up 3.9 percent (±0.5%) from January a year earlier…seasonally adjusted inventories of manufacturers were estimated to be valued 0.4% lower at $650,469 million, inventories of retailers were estimated to be valued at $562,520 million, statistically unchanged from December’s $562,601 million, and inventories of wholesalers were estimated to be valued at $548,720 million at the end of January, up 0.3% from December…the month end total business inventories to total sales ratio, the metric which is widely watched to determine if inventories are becoming excessive, was at 1.35, up from 1.33 December and up from 1.30 in January a year ago, again likely distorted by record high petroleum inventories… nonetheless, many are becoming excited about the historical trend of this ratio shown below:

January 2015 inventory to sales ratio

now, as we’ve pointed out, the dynamic of this ratio changes when oil and oil products fall in price precipitously, because much more oil products are sold than are inventoried, and hence overall business sales go down more than inventories do when oil prices drop…if we look at retail inventories, however, we note that this ratio is actually falling year over year for every business type except for food stores, clothing stores and gas stations, which means most retail inventories are lower than last year…the ratio for types of wholesalers is more mixed, with hardware and metal wholesalers seeing relatively large inventory to sales increases, but again price might play a role in the later..a similar mixed situation exists with factory inventories, but the overall inventory to shipments ratio for manufactures has only risen to 1.36 from 1.34 a year ago, despite the distortion caused by the rising ratio for refineries…

Producer Prices Turn Negative Year over Year in February on Largest Ever Drop in Demand for Services

the Producer Price Index for February from the Bureau of Labor Statistics now indicates that producer prices have fallen by 0.6% from a year earlier, the first negative year over year reading since the depth of the recession, as the seasonally adjusted producer price index for final demand fell 0.5% in February, after falling 0.8% in January, 0.2% in December, and 0.3% in November…unlike those previous months, however, the price of oil & oil products was not a major factor, as lower prices for final demand for services, down 0.5%, accounted for 70% of the February drop, while final demand for energy was unchanged…

the price index for final demand for goods, aka ‘finished goods’, fell by 0.4% in February, moderating after falling 2.1% in January and 1.1% in December, as the price index for final demand for foods fell 1.6%, in part due to a 17.1% drop in prices for wholesale fresh and dry vegetables while only wholesale fresh eggs, up 12.5%, saw a double digit price increase…the index for energy prices was unchanged as a 1.5% increase in wholesale gasoline prices was offset by a 1.5% drop in wholesale diesel fuel, while wholesale home heating oil rose 9.9% and residential natural gas fell 2.1%…the index for final demand for core goods also fell by 0.1% in February, as producer prices for mens and boys clothing fell 3.0% while wholesale women’s and girls clothing prices rose 1.7%…

meanwhile, the index for final demand for services fell by 0.5%, as both the margins for final demand for trade services and the index for final demand for transportation and warehousing services dropped 1.5%, while the index for final demand for services less trade, transportation, and warehousing services rose 0.3%…big swings in the services included a 16.2% increase in margins for TV, video, and photographic equipment retailers and a 13.4% drop in margins for fuels and lubricants retailers such as gas stations…

this report also showed the price index for processed goods for intermediate demand fell by 0.6% in February, after a 2.8% drop in January, leaving intermediate processed goods 6.4% lower priced than a year ago….that included a 1.9% drop in the index for processed foods and feeds, a 0.6% decrease in prices for intermediate energy goods, and a 0.4% decrease in the price index for processed goods for intermediate demand less food and energy…in addition, the price index for intermediate unprocessed goods fell by 3.9%, after falling 9.4% in January and 6.4% in December and is now 25.0% below the level of a year ago, on a 6.7% drop in the index for unprocessed foodstuffs and feedstuffs  led by a 21.9% drop in prices for slaughter hogs, while even the index for other raw materials fell 1.6% on a 19.3% drop in scrap iron and steel prices and a 11.2% drop in raw natural gas prices…..

finally, the price index for services for intermediate demand rose 0.1% in February, as a 0.8% decrease in the index for transportation and warehousing services for intermediate demand was offset by a 0.2% increase in prices for intermediate services less trade, transportation, and warehousing and a 0.1% increase in the index for trade services for intermediate demand…over the 12 months ended in February, the price index for services for intermediate demand has risen 1.2%…

Foreclosure Starts Rise 5.5% in January; Foreclosure Pipeline Still Well Over 4 Years

the Mortgage Monitor for January (pdf) from Black Knight Financial Services (BKFS, formerly LPS Data & Analytics) reported that there were 814,513 home mortgages, or 1.61% of all mortgages outstanding, remaining in the foreclosure process at the end of January, which was down from 820,177, which was also 1.61% of all active loans that were in foreclosure at the end of December, as the active loan count fell by a like percentage; nonetheless, this was still down 31.42% from the 1,175,470, or 2.35% of all mortgages that were in foreclosure in January of last year…these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and this recent “foreclosure inventory” remains the lowest percentage of homes that were in the foreclosure process since early 2008… new foreclosure starts, however, rose to 94,347 in January, the highest level since December 2013. up from 89,357 the prior month and from 73,862 in November, and up from the 94,075 foreclosures started in January a year ago…

in addition to homes in foreclosure, January BKFS data showed that 5.56% of all mortgages, or 2,813,257 mortgage loans, were at least one mortgage payment overdue but not in foreclosure, down from 5.64% of homeowners with a mortgage who were more than 30 days behind in December, and down from the mortgage delinquency rate of 6.27% a year earlier…of those who were delinquent in January, 1,111,816 home owners, or 2.20% of those with a mortgage, 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…thus, a total of 7.17% of homeowners with a mortgage were either late in paying or in foreclosure at the end of January, and 3.81% of them were in serious trouble, ie, either “seriously delinquent” or already in foreclosure at month end… 

as you know, the Mortgage Monitor (pdf) is a mostly graphics presentation that covers a variety of mortgage related issues each month; today we’ll pull a few of the graphics from this month’s section on foreclosures…

the first graph below, from page 6 of the mortgage monitor, shows the count of foreclosure starts as they occurred in each month since the beginning of 2008, wherein each bar represents a month and within each bar we have foreclosure starts on mortgages that have never been in trouble previously in blue, and in red foreclosure starts on mortgages that had been in foreclosure at least once before, resolved that prior to a completed foreclosure sale either through a modification, or by making a payment to get caught up on their loan, only to fall behind on payments again and end up in foreclosure yet another time…the green line on the graphs then shows repeat foreclosures as a percentage of total foreclosure starts for the month, which has once again risen to more than half of all foreclosures, as a large number of those who’ve had their mortgage modified are in foreclosure again…as the callout on the graph notes, repeat foreclosures, being up 11% over December’s level, was the primary reason that January foreclosure starts rose…nonetheless, both new and repeat foreclosures were at a 12 month high..

January 2015 LPS new and repeat foreclosures

the next graph, from page 8 of the mortgage monitor, shows us the difference between first time foreclosures and repeat foreclosures in the average length of a mortgage delinquency for each until a foreclosure is initiated, again since early 2008…the blue line shows the average number of months that a previously foreclosed home had been delinquent before a second (or additional) foreclosure was initiated over that period; the red line shows the average number of months that a previously unencumbered home mortgage was delinquent before the first foreclosure was started on it over that same time span, and the black line shows the average number of months the total universe of foreclosed homes was delinquent over the period from 2008 to the present…you can see that prior to 2013, the time of delinquency until the first foreclosure was averaging 6 or 7 months, then, after the issuance of dual tracking regulation by the CFPB, which prohibited the industry practice of foreclosing on homeowners while a mortgage modification was being worked out, after which time it jumped to 14.6 months…however, the time the industry will work with homeowners for a solution has now dropped back to 9.1 months as of this report….

January 2015 LPS average days delinquent of foreclosure start

the next graph, also from page 8 of the mortgage monitor, shows on the left margin the number of mortgages that had a foreclosure initiated against them for each month over the same time period covered by the previous graphs, with the foreclosures starts occurring over that period divided into the number of months delinquent for each indicated by a color coded line…thus, the brown line show the number of 2 month delinquent mortgages that had a foreclosure started on them each month, the purple line show the number of 3 month delinquent mortgages that had a foreclosure started on them each month, the teal blue line show the number of 4 month delinquent mortgages that had a foreclosure started, the orange line show the number of 5 month delinquent mortgages that had a foreclosure started, and the darker blue line show the number of mortgages that were delinquent for 6 months or more before they had a foreclosure started against them…here we can see that prior to 2010, the large majority of foreclosures were being initiated after 3 months of delinquency, with only a few homeowners going 5 or 6 months before a foreclosure notice was delivered, but that after 2010, the lion’s share of mortgages were delinquent for 6 months or more before they had a foreclosure started…also note that after dual tracking legislation was put in place, the number of 3 month delinquent mortgages that saw foreclosure fell precipitously, and mortgages being foreclosed after just 2 months without a house payment virtually stopped…

January 2015 LPS months delinquent at foreclosure start

the next graph, as its heading indicates, shows the foreclosure pipeline ratio over time, in this case going back to 2005…you might recall that the pipeline ratio is a mortgage industry metric indicating how many months the average troubled home loan typically remains in the foreclosure process in each state, and it is computed by adding those homes that are seriously delinquent to those already in foreclosure and dividing that sum by the average number of completed foreclosures per month in each state over the previous 6 months….what that results in is the average number of months a problem home loan would be in the “foreclosure pipeline” at the current pace of foreclosure in each state, before the foreclosure process on all seriously delinquent homes would be completed….so the graph below, from page 10 of the Mortgage Monitor, shows the historical pipeline ratio for judicial states, where a court proceeding is necessary to complete a foreclosure, in blue, and the same ratio in non-judicial states, where such a proceeding isn’t necessary for the banks to take possession of the home, in red….obviously, early on in the crisis, the process was much longer for judicial states, with their average reaching 118 months and the foreclosure pipeline ratios reaching 50 years for New York and New Jersey, but as we can see on the graph, the difference between the types of states has closed, as judicial states have moved to speed up the process…even so, the pipeline ratio now averages more than 4 years for both types of states; 58 months for judicial states, and 53 months for non-judicial states, and the time has generally rising for both types of foreclosure process over the last year…the reason for the increase in the foreclosure pipelines recently is not so much delays in court anymore, but procrastination on the part of the mortgage servicers and banks, possibly because of defective titles, but also possibly because they’ve experienced quite a bit of deterioration in the properties they’ve already seized, and would rather leave them occupied by delinquent homeowners than vacant and ravaged by vandals…

January 2015 LPS pipeline ratio over time

last, we’ll again include part of the Mortgage Monitor table showing the monthly count of active home mortgage loans and their delinquency status, which comes from page 15 of the pdf….the columns here show the total active mortgage loan count nationally for each month given, number of mortgages that were delinquent by more than 90 days but not yet in foreclosure, the monthly count of those mortgages that are in the foreclosure process (FC), the total non-current mortgages, including those that just missed one or two payments, and then the number of foreclosure starts for each month the past year and for each January shown going back to January 2008….in the last two columns, we see the average length of time that those who have been more than 90 days delinquent have remained in their homes without foreclosure, and then the average number of days those in foreclosure have been stuck in that process because of the lengthy foreclosure pipelines…notice that the average length of delinquency for those who have been more than 90 days delinquent without foreclosure has begun to increase slightly and is now at 515 days, while the average time for those who’ve been in foreclosure without a resolution is off its record high but still nearly three years at 1009 days…  

January 2015 LPS loan counts and days delinquent table B
NB: a copy of the full version of the above table, which also shows the monthly loan counts for 30 and 60 day delinquencies, is here..

(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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