August’s trade deficit, wholesale trade, and Mortgage Monitor; a note on factory orders

it was a fairly light week for economic releases, with the report on our International Trade for August from the Commerce Dept really the only important report….other reports released this week included the August report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau and and the Consumer Credit Report for August from the Fed, which showed that overall credit expanded by a seasonally adjusted $16.0 billion, or at a 5.6% annual rate, as non-revolving credit expanded at a 5.3% rate to $2,551.2 billion and revolving credit outstanding rose at a 5.7% rate to $918.5 billion…in addition, this week also saw the Import and Export Price Indexes for September from the BLS, which we’ll use to adjust that month’s trade figures for price changes when they’re released the first week of November… privately issued reports this week included the release of the Mortgage Monitor for August (pdf) from Black Knight Financial Services, which we’ll take a look at shortly, and the September Non-Manufacturing Report On Business, from the Institute for Supply Management (ISM), who reported that their NMI (non-manufacturing index) dropped from 59.0% in August to 56.9% in September, indicating a smaller plurality of service industry purchasing managers reported expansion in various facets of their business last month than did so in August…

Census Says New Orders for Non-Durable Goods are Equal to Shipments of the Same

before we start with this week’s reports, i want to revisit the Full Report on Manufacturers’ Shipments, Inventories, & Orders for August (pdf) that was released last week and which we deferred detailed coverage of because we thought it was in error, as we noticed that the totals in the table for new orders for non durable goods were identical to the totals in the table for shipments of non durable goods…upset by what i thought was an error in that report which was still apparent on Monday, i called the Census Bureau department that handles factory orders that morning on the direct line to the woman who is responsible for the report…while she was not in, i told the person who answered the phone of my concern, as was told by that employee that the Census Bureau does not collect data on new orders for non durable goods, “because of the quick turnaround time”, meaning that they figure that non-durables such as food are shipped the same day they’re ordered, so they just use the shipments data as a proxy for new orders..hence, the new factory orders they report monthly are equal to new orders of durable goods plus shipments of non-durable goods, and the report is not in error; for non-durables, shipments = new orders…

although we can’t change what the Census reports, we’ll go on record that these widely watched new orders reports are thus inaccurate for what they allege to report…while we can see that non-durable factory output such as a skid of Cheerios or a tanker load of gasoline may well be shipped the same day that it’s ordered, other non-durable factory output such as printing almost certainly has to have a lag time between the time it’s ordered and the time that it’s shipped to the customer…furthermore, by using shipments data as a proxy for new orders, which is considered a forward looking economic indicator, we’re open to having delays in shipments, such as might arise from major dock strike or a east coast winter storm, interpreted as a downturn in orders and hence in demand…knowing how this report is constructed thus devalues it in our judgement, and while we’ll continue to report on it, we’ll probably have to insert that caveat in each report, just as we do with several other reports where the data is less than reliable…

August Trade Deficit Jumps by 15.6%, on Pace to Subtract 0.68 Percentage Points from 3rd quarter GDP

our August trade deficit rose by 15.6% from July as the value of our exports fell and the value of our imports rose…the Census report on our international trade in goods and services for August indicated that our seasonally adjusted goods and services trade deficit rose by $6.5 billion to $48.3 billion in August from a July deficit which was revised from $41.9 billion to $41.8 billion….the value of our August exports fell $3.7 billion to $185.1 billion as our exports of goods fell by $4.0 billion to $124.5 billion and our exports of services increased by less than $0.4 billion to $60.6 billion, while our imports rose $2.8 billion to $233.4 billion as our imports of goods rose by $2.5 billion to $192.4 billion and our imports of services increased by $0.3 billion to $41.1 billion…export prices averaged 1.4% lower in August, so the real growth in exports was higher by that percentage, while import prices were 1.8% lower, thus incrementally increasing real growth in imports by that percentage from the nominal dollar amounts reported here…hence, in July dollars, our August trade deficit rose to $49.9 billion, and was thus 19.3% greater than July’s in real term…

referencing the Full Release and Tables for August (pdf), Exhibit 7 reveals that a $2,189 million decrease to $35,218 million in the value of our exports of industrial supplies and materials accounted for more than half of the August decrease in our exports; that in turn was caused by a $566 million decrease in our exports of fuel oil, a $244 million decrease in our exports of plastics, a $216 million decrease in our exports of petroleum, and a $155 million drop in our exports of raw cotton, all of which saw lower prices for the month…other end use categories of exports that contributed to the August decrease included exports of consumer goods, which fell by $571 million to $15,755 million on a $274 million drop in our exports of jewelry and a $177 million decrease in our exports of art and antiques; exports of vehicles, parts, and engines, which were down by $499 million to $12,791 million, exports of foods feeds and beverages, which were down $269 billion to $10,403 million on a $228 million drop in our exports of soybeans; and exports of goods not categorized by end use, which were down by $592 million to $5,206 million…the only end-use category of exports that saw an increase in August was capital goods, which were up by $139 million to $44,465 million on a $1,372 million increase in our exports of civilian aircraft, which were mostly offset by a $296 million decrease in our exports of semiconductors and decreases greater than $100 million in our exports of medicinal equipment, measuring and control devices, electrical apparatuses, computers and other industrial machines not listed separately….

Exhibit 8 in the Full Release and Tables gives us details on our imports and shows us that a $4,028 million increase to $51,850 million in our imports of consumer goods was responsible for our increased August imports, as we imported $2,103 million more cellphones, $336 million more toys, games, and sporting goods, and $283 million more inorganic textiles than we did in July; our imports of furniture, televisions, gem diamonds, pharmaceuticals, jewelry, footwear, and cotton apparel all also increased by more than $100 million each…August also saw a $1,075 million increase to $50,339 million in our imports of capital goods, as we imported $403 million more telecommunications equipment, $214 million more generators, $213 million more computer accessories, and more than $100 million more in electrical apparatuses, medical equipment, computers and photo finishing equipment than we did in July…our imports of foods feeds and beverages also rose, by $166 million to $10,729 million, on a $138 million increase in our imports of meat products, as did our imports of goods not categorized by end use, which were up by $693 million to $7,719 million…partially offsetting those increases, our imports of industrial supplies and materials fell by $2,237 million to $40,080 million on a $1,177 decrease in our imports of crude oil, a $349 million decrease in our exports of fuel oil, a $437 million decrease in our imports of other petroleum products, a $266 million decrease in our imports of finished metal shapes, and $204 million decrease in our imports of gold, a $201 million decrease in our imports of copper, and large decreases in our imports of bauxite and aluminum and iron and steel mill products…we also imported automotive vehicles, parts, and engines valued at $29,721 million, which was $386 million less automotive equipment than we imported in July…

to gauge the impact of our July and August trade figures on 3rd quarter growth, the value of July and August imports and exports must first be adjusted for price changes and then compared to the similarly adjusted 2nd quarter figures… while the BEA would do this on an item by item basis with prices from the import export price index for those months, exhibit 10 in the pdf for this report gives us monthly goods trade figures by end use category and in total in chained 2009 dollars, the same inflation adjustment used by the BEA to compute trade figures for the GDP report, albeit they are not annualized here….from that table, we find that 2nd quarter real exports averaged 120,343 million monthly in chained 2009 dollars, while the inflation adjusted average of July and August exports was at 120,160 million using the same 2009  dollar quantity index…annualizing the change between the two figures, we find that 3rd quarter real exports are running at a 0.61% annual rate below those of the 2nd quarter, or at a pace that would subtract 0.08 percentage points from 3rd quarter GDP…in a similar manner, we find that our 2nd quarter real imports averaged 178,201 million monthly in chained 2009 dollars, while inflation adjusted July and August imports averaged at 179,929 million in those same 2009 dollars…that would indicate that so far in the 3rd quarter, our real imports are risng at a 3.9% annual rate over those of the 2nd quarter…since imports subtract from GDP because they represent that portion of our consumption or investment that occurred during the quarter that was not produced domestically, that 3.9% rate of decline would subtract 0.60 percentage points from 3rd quarter GDP….hence, if our September trade figures are similar to those of July and August thus far in the 3rd quarter, our worsening balance of trade would subtract 0.68 percentage points from the growth of 3rd quarter GDP…that is a 126 basis point reversal of our prior 3rd quarter estimate that was based on July trade data alone..

Wholesale Sales Down 1.0% in August; Inventories Rise 0.1%

wholesale sales were somewhat lower in August, in part due to lower prices, while inventories inched up…the August report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at $445.4 billion, 1.0 percent (+/-0.7) lower than the revised July level, and was 4.7 percent (+/-1.6%) lower than wholesale sales of a year earlier…the July preliminary estimate was revised upward $0.2 billion to $449.5 billion or less than a percent from the previously reported figure and hence remains 0.3% below the June level…August wholesale sales of durable goods fell 1.2 percent (+/-0.7%) from last month and are now down 1.9 percent (+/-1.9%)* from a year earlier, with wholesale sales of computers, peripheral equipment and software 5.1% lower than in July while wholesale sales of furniture rose 1.6%…wholesale sales of nondurable goods were down 0.7 percent (+/-0.7%)* from July and were down 8.0 percent (+/-1.9%) from last August, with wholesale sales of petroleum and petroleum products down 4.6% on lower prices while wholesale sales of apparel rose 1.9%…as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods sold….

on the other hand, the monthly change in private inventories is a major factor in GDP, as additional goods on the shelf represent goods that were produced but not sold, and this August report estimated that wholesale inventories were valued at $583.9 billion at month end, an increase of 0.1 percent (+/-0.2%)* from the revised July level and 4.1 percent (+/-1.6%) higher than August a year ago, with the July preliminary estimate revised downward $0.9 billion or more than 0.1 percent…inventories of durable goods were up 0.3 percent (+/-0.4%)* from July and were up 4.2 percent (+/-2.1%) from a year earlier, with inventories of computers, peripheral equipment and software up 1.9% while inventories of metals and minerals were down 1.7% on lower commodity prices…meanwhile, the value of wholesale inventories of nondurable goods were down 0.2 percent (+/-0.4%)* from July, but were up 4.0 percent (+/-1.8%) from last August, as the value of inventories of raw farm products was 3.1% lower while inventories of beer, wine, and distilled spirits were up 1.1%…

as you know, to approximate the contribution of wholesale inventories, valued here in current dollars, to the change in GDP, we must first convert these figures into an approximation of the change in the quantity of goods that were inventoried…the BEA does that by deflating the value of each of the categories of inventories with the appropriate sub-index from the producer price index for the same month, but since inventories are notoriously difficult to estimate without knowing the month that each subset of the total was inventoried, and since the BEA does not break out wholesale inventories from other business inventories in the GDP report, we’ll simply our approximation by using the producer price index for finished goods….so, in August, producer prices for finished goods fell 0.6%, largely on a 3.3% decrease in wholesale energy prices, after July’s producer prices for finished goods fell 0.1%, again on a 0.6% drop in wholesale energy prices…that suggests that the July change in real wholesale inventories was negative by about 0.2%, after which real wholesale inventories rose by about 0.7% in August…meanwhile, our previously computed real changes in 2nd quarter inventories were +0.8% in April, -0.2% in May and + 0.2% in June, suggesting a comparable growth rate of 0.8% in the 2nd quarter…since the GDP calculation looks at the change in the growth of inventories, the slower real growth in wholesale inventories in July and August appears it will be a significant subtraction from the 3rd quarter growth computation..

Mortgage Delinquencies and Foreclosures Increase in August; Mean Time in Foreclosure at 1015 Days

the Mortgage Monitor for August (pdf) from Black Knight Financial Services (BKFS, formerly LPS) reported that there were 695,548 home mortgages, or 1.37% of all mortgages outstanding, remaining in the foreclosure process at the end of August, which was down from 711,265, or 1.40% of all active loans that were in foreclosure at the end of July, and down from 1.80% of all mortgages that were in foreclosure in August of last year…these are homeowners who had a foreclosure notice served but whose homes had not yet been seized, and the August “foreclosure inventory” remains the lowest percentage of homes that were in the foreclosure process since late 2007… new foreclosure starts rose, however, from 75,404 in July to 80,500 in August, and while they were a bit lower than the 81,612 new foreclosures started in August of 2014, they’ve been volatile from month to month, and they have remained in a range from 73,500 to 95,000 monthly since the beginning of 2014, which is still in a range about twice the monthly number of new foreclosures we saw in the precrisis year of 2005…

in addition to homes in foreclosure, BKFS data showed that 2,446,900 mortgages, or 4.83% of all mortgage loans, or were at least one mortgage payment overdue but not in foreclosure in August, up from 4.71% of homeowners with a mortgage who were more than 30 days behind in July and the highest delinquency rate since May, but still down 18.2% from the mortgage delinquency rate of 5.64% in August a year earlier…of those who were delinquent in August, 865,435 home owners, or 1.71% of those with a mortgage, were considered seriously delinquent, meaning they were more than 90 days behind on mortgage payments, but still not in foreclosure at the end of the month…combining these totals, we find a total of 6.20% of homeowners with a mortgage were either late in paying or in foreclosure at the end of August, and 3.08% of them were in serious trouble, ie, either “seriously delinquent” or already in foreclosure at month end…

as you should recall, the Mortgage Monitor (pdf) is a mostly graphics presentation from what was once the Analytics division of Lender Processing Services that covers a variety of mortgage related issues each month…in addition to the summary data on delinquencies and foreclosures, this August monitor also includes graphics examining the potential impact of new guidelines from Fannie Mae and Freddie Mac that extended allowable foreclosure timelines and an analysis of refinance transactions vis a vis their prior loan counterparts in terms of interest rates, payment changes, term extensions, cash-out levels and servicer retention of refinance transactions over time…some explanation of what those graphics reveal can be found in the BKFS press release that introduces the August Mortgage Monitor titled Black Knight’s August Mortgage Monitor: Cash-Out Refinances Up 68 Percent Year-Over-Year…however, since those topics are outside of our normal purview, we’ll just include one graph below and that part of the Mortgage Monitor summary table showing the monthly count of active home mortgage loans and their delinquency status..

the graph that we’ll include here, from page 5 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 monthly foreclosure starts, and within each bar foreclosure starts on mortgages that have never been in foreclosure previously are indicated in blue, and foreclosure starts on mortgages that had been in foreclosure at least once before are in red…the latter therefore represent mortgages that were in foreclosure, resolved that earlier foreclosure prior to a completed foreclosure sale either through a modification, or by making payments 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 graph then shows such repeat foreclosures as a percentage of total foreclosure starts for the month, which has now risen to a record 57% of all foreclosure starts, as a large number of those who’ve had their mortgages modified previously are now in foreclosure again…such repeat foreclosures were up 13% in August and were the sole reason for the increase in foreclosure starts…notice how the blue portion of the bars below continues to shrink; of the 80,500 foreclosure starts in August, only about 35,000 were first time foreclosures, which except for April, was the lowest level of first time foreclosures since the crisis began….

August 2015 LPS new and repeat foreclosure starts

last, in the table below from page 15 of the pdf, the columns 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 a half 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…the average length of delinquency for those who have been more than 90 days delinquent without foreclosure, now at 525 days, is down from the April record of 544 days, while the average time for those who’ve been in foreclosure without a resolution is also off its record high of 1024 days reached in last October, but is still nearly three years at 1015 days…

August 2015 LPS loan counts days delinquent table

(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 theglobal 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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