December CPI and its effect on PCE, December industrial production and new home construction

the major reports released this week were the December Consumer Price Index from the Bureau of Labor Statistics, the December report on Industrial Production and Capacity Utilization from the Fed, and the November report on New Residential Construction, from the Census Bureau… the week also saw the release of the first two regional Fed manufacturing surveys for January: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, one county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index slipped from a revised +7.6 in December to 6.5 in January, still suggesting ongoing modest growth in First District manufacturing….meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from a revised reading of +19.7 in December to + 23.6 in January, indicating a large plurality of the region’s manufacturing firms reported increases in their activity this month…

December Consumer Prices Rise 0.3% on Higher Gasoline, Shelter

the consumer price index increased by 0.3% in December, as higher prices for fuel and housing were only slightly offset by lower prices for groceries…the Consumer Price Index Summary from the Bureau of Labor Statistics indicated that the seasonally adjusted price index for urban consumers rose 0.3% in December after it had risen 0.2% in November, 0.4% in October, 0.3% in September, and 0.2% in August….the unadjusted CPI-U, which was set with prices of the 1982 to 1984 period equal to 100, rose to 241.432 in December from 241.353 in November, which left it statistically 2.075% higher than the 236.525 index reading of last December, which is reported as a 2.1% YoY increase….regionally, prices for urban consumers have risen by 2.5% in the West, by 2.0% in the South, 1.9% in the Northeast and by 1.8% in the Midwest over the past year, with generally greater price increases within regions in cities of more than 1,500,000 people…with higher prices for gasoline partially responsible for the increase in the index, seasonally adjusted core prices, which exclude food and energy, rose by 0.2% for the month, with the unadjusted core index rising from 249.227 to 249.134, which left it 2.197% ahead of its year ago reading of 243.779…

the volatile seasonally adjusted energy price index increased by 1.5% in December, after it had risen by 1.2% in November, 3.5% in October, and 2.9% in September…as a result, energy prices are now 5.4% higher than a year ago, after seeing negative YoY comparisons through most of 2015 and 2016…prices for energy commodities were 3.0% higher while the index for energy services fell by 0.1%, same as in November ….the increase in the energy commodity index included a 3.0% increase in the price of gasoline, the largest component, and a 6.0% increase in the price of fuel oil, while prices for other fuels, including propane, kerosene and firewood, rose by an average of 2.0%…within energy services, the index for utility gas service fell by 0.4% for a second month, after increasing by 0.9% in October, 0.8% in September, 2.1% in August and by 3.1% in July, and hence utility gas is still priced 7.8% higher than it was a year ago, while the electricity price index was unchanged, as it was in November…energy commodities are now priced 9.0% above their year ago levels, with gasoline prices averaging 9.1% higher than they were a year ago.…meanwhile, the energy services price index is now 2.2% higher than last December, as even electricity prices have increased by 0.7% over that period..

the supposedly volatile seasonally adjusted food price index was unchanged in December, just as it was in July, in August, in September, in October and in November, as 0.2% lower prices for food purchased for use at home offset 0.2% higher prices for food bought to eat away from home, where we saw average prices at fast food outlets rise 0.1% while average prices at full service restaurants rose 0.3%…the food price index is still 0.2% lower than a year ago, as a 2.0% drop in the price of food at home has been mostly offset by a 2.3% increase in prices for food away from home, which included a 2.5% increase in prices of food at employee sites and schools…

in the food at home categories, the price index for cereals and bakery products decreased by 0.1% as 0.9% higher prices for cookies and a 0.8% increase in prices for fresh biscuits, rolls, muffins were more than offset by a 1.0% decrease in prices for rice and a 1.5% decrease in prices for flour and prepared flour mixes…the price index for the meats, poultry, fish, and eggs group fell by 0.4% as beef prices fell 0.8% and egg prices fell 3.9%, while the index for dairy products was 0.4% higher on a 1.3% increase in prices for milk….the fruits and vegetables index was 1.1% lower on a 2.2% drop in prices for fresh fruits, a 2.5% drop in prices for dried beans, peas, and lentils, and a 1.6% cut in prices for frozen vegetables…the beverages index was 0.3% lower as coffee prices saw a 1.0% average decrease…lastly, prices in the other foods at home category were on average 0.3% higher, as peanut butter prices rose 3.8% and salad dressings were priced 2.7% higher…..among food at home line items, only eggs, which are now priced 33.8% lower than a year ago, and lettuce, which is 16.9% lower than last year, have seen a price change greater than 10% over the past year…the itemized list for price changes in over 100 separate food items is included at the beginning of Table 2, which gives us a line item breakdown for prices of more than 200 CPI items overall

among the seasonally adjusted core components of the CPI, which rose by 0.2% in December after rising by 0.2% in November, 0.1% in October, 0.1% in September, 0.3% in August, 0.1% in July and by 0.2% in April, in May and in June, the composite of all goods less food and energy goods was unchanged, while the more heavily weighted composite for all services less energy services was 0.3% higher….among the goods components, which will be used by the Bureau of Economic Analysis to adjust December retail sales for inflation in national accounts data, the index for household furnishings and supplies fell by 0.4% as the index for window and floor coverings and other linens was down 2.2%, and dishes and flatware were 3.3% cheaper, while the appliances index fell 0.3% despite a 5.1% increase in prices for laundry equipment…the apparel price index was 0.7% lower on a 2.3% decrease in prices for women’s outerwear, a 2.1% decrease in prices for boy’s apparel, and a 1.5% decrease in prices for girl’s apparel….prices for transportation commodities other than fuel were up 0.3%, as prices for new cars rose 0.1%, prices for used cars and trucks rose 0.5% and prices for motor oil, coolant, and fluids were 2.2% higher…meanwhile, prices for medical care commodities were 0.4% higher on a seasonal adjustment, as none of the unadjusted line items rose more than 0.2%…meanwhile, the recreational commodities index fell 0.2% on a 2.5% drop in TV prices, which more than offset a price increase of 1.5% for photographic equipment….on the other hand, the education and communication commodities index was 0.1% higher as a 0.9% cut in prices for computer software and accessories was more than offset by a 0.5% increase in prices for personal computers and peripheral equipment….lastly, a separate price index for alcoholic beverages was up 0.1% on 0.3% higher prices for distilled spirits other than whiskey bought for drinking at home, while the price index for ‘other goods’ was up 0.2% on a 1.1% increase in prices for tobacco products other than cigarettes…

within core services, the price index for shelter rose 0.3% on a 0.3% increase in rents, a 0.3% increase in owner’s equivalent rent, and a 1.1% increase in lodging away from home at hotels and motels, while all household operation line items also increased….meanwhile, the index for medical care services was up 0.1% as prices for hospital outpatient services rose 0.3%…in addition, the transportation services index was 0.6% higher on a 6.5% increase in intercity train fare, a 5.8% increase in intercity bus fare, a 1.9% increase in airline fares, and a 0.8% increase for motor vehicle insurance…at the same time, the recreation services price index was up 0.1% as admissions to sporting events rose 1.2%, and the index for education and communication services rose 0.2% as delivery services increased prices 1.0% and college tuition and fees rose 0.5%…lastly, the index for other personal services was up 0.2% as prices for laundry and dry cleaning services were 0.5% higher…among core prices, only televisions, which are now 24.5% cheaper than a year ago, and computer software and accessories, which are down by 11.0% since last December, have seen prices drop by more than 10% over the past year, while only car and truck rental, which has seen a 10.5% increase, has seen prices rise by that double digit magnitude..

Estimating the Real Change in December Retail Sales Using the December CPI

with this CPI release for December, we can now attempt to estimate the economic impact of the December retail sales figures which were released last week, which saw nominal sales rise 0.6%…for the most accurate estimate, and the way the BEA will be figuring 4th quarter GDP at the end of this month, we would have to take each type of retail sales and adjust it with the appropriate change in price to determine real sales; for instance, December’s clothing store sales, which were unchanged in dollars, should be adjusted with the price index for apparel, which indicated prices for clothing were down by 0.7%, which tells us that real retail sales of clothing were actually up by 0.7% December…then, to get a GDP relevant quarterly change, we’d have to compare such adjusted real clothing sales for October, November and December with the similarly adjusted real clothing consumption for the 3 months of the third quarter (July, August and September), and then repeat that process for each other type of retailer, obviously quite a tedious task to undertake manually.  The short cut we usually take to get a quick and dirty estimate of the change in real sales for the month is to apply the composite price index of all commodities less food and energy commodities, which was unchanged in December, to retail sales less grocery, gas station, and restaurant sales, which accounts for nearly 70% of aggregate retail sales… in dollars, those core sales were up by 0.9% in December, while their composite price index was unchanged, meaning that real retail sales excluding food and energy sales were up by around 0.9%.  then, for the rest of the retail aggregate, we find sales at food and beverage stores were down 0.3% in December, while prices for food at home were down 0.2%, suggesting a real decrease of around 0.1% in the quantity of food & beverages purchased for the month.  Next, sales at bars and restaurants were down 0.8% in dollars, while those dollars also bought 0.2% less “food away from home”, so real sales at bars and restaurants were actually down by around 1.0%.  And while gas station sales were up 2.0%, gasoline prices were up 3.0%, also suggesting a 1.0% real decrease in the amount of gasoline sold, with the caveat that gas stations sell more than gasoline, and we don’t have a detailed breakout on those sales.  Weighing the food and energy components at roughly 30% of total retail sales, and core sales at 70%, we can estimate that the aggregate of real retail sales in December were up by more than 0.4% from those of November, and closer to 0.5% if we omit the uncertain gas station sales decrease…

next, to see how the change in real December sales impacts the change in 4th quarter GDP, we have to compare those real December sales to those of the 3rd quarter…now, to get an approximation of the real adjusted changes for December vis a vis the 3 months of the third quarter, we should adjust the December percentage changes for the upward revision to October and November sales that were included in the December retail report, which saw October sales revised from $456.1 billion to $456.3 billion and November’s sales revised from $465.5 billion to $466.2 billion…the increase in November sales would mean that real December sales are actually nearly 0.2% higher vis-a-vis previously published figures, while the aggregate $0.9 billion increase to those previously published figures would have to incorporated into our new estimates…so, using Table 7 from the pdf for the November personal income and outlays report, which gives us the most current inflation adjusted changes for the prior months, we find that real sales of goods were down 0.5% in August, up 1.0% in September, up 0.7% in October and up 0.1% in November….that means real December sales, up 0.4% from November, were up about 0.7% from October after the 0.2% upward revision is included, and then up 1.4% from September, 2.4% from August, and 1.9% from July, or up about 1.9% from the average of the 3rd quarter….finally, after adjusting annualized October and November sales that are shown on line 2 in Table 7 of the November income and outlays report for the aforementioned revisions, and aggregating them with real December goods sales as 100.4% of those in November, we compare the new 4th quarter average that we get from that calculation to real 3rd quarter goods sales shown in Table 8, and we find that real good sales grew 1.53% from the 3rd quarter to the 4th, or at a 6.25% annual rate, a pace that would add at approximately 1.38 (+/-10%) percentage points to 4th quarter GDP from the goods component of personal consumption expenditures alone.. 

Industrial Production Rises 0.8% in December After November Output Revised Lower

the Fed’s G17 release on Industrial production and Capacity Utilization indicated that industrial production rose by 0.8% in December after falling by a revised 0.7% in November and after rising by a revised 0.2% in October, which nonetheless left it down at a 0.6% annual rate in the 4th quarter….the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, rose to 104.6 in December from 103.7 in November, which was revised from the 102.9 reported last month, while at the same time the index for October was revised from 104.3 to 104.4….year over year industrial production is now up 0.5%, in contrast to last month’s 0.6% year over year decrease….

the manufacturing index, which accounts for more than 77% of the total IP index, was unchanged at 103.2 in December but was reported 0.2% higher, after the November index was revised down to 103.0, while indices for prior months went statistically unrevised….meanwhile, the mining index, which includes oil and gas well drilling, rose from 107.0 in November to 107.1 in December after the November index was revised down from 107.4, which left the mining index 2.8% lower than it was a year earlier…finally, the utility index, which often fluctuates due to above or below normal temperatures, rose by 6.6% in December,  from 97.6 to 104.0, after the November utility index was revised from 97.7 to 97.6…since December 2015 was somewhat warmer, meaning less heating, the utility index is now 6.2% higher than it was a year ago…

this report also includes capacity utilization data, which is expressed as the percentage of our plant and equipment that was in use during the month, and which indicated that seasonally adjusted capacity utilization for total industry rose to 75.5% in December from 74.9% in November, which was revised from the 75.0% reported last month …capacity utilization of NAICS durable goods production facilities rose from a downwardly revised 75.8% in November to 76.2% in December, while capacity utilization for non-durables producers rose from an unrevised 74.5% to 74.2%…capacity utilization for the mining sector rose to 78.1% in December from 77.9% in November, which was originally reported as 78.2%, while utilities were operating at 79.1% of capacity during November, up from their 74.3% of capacity during November, which was previously reported at 74.4%…for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories…. 

December Housing Starts Up from November, Permits Little Changed

the December report on New Residential Construction (pdf) from the Census Bureau estimated that their widely watched count of new housing units started in December was at a seasonally adjusted annual rate of 1,226,000, which was 11.3 percent (±10.4%) above the revised November estimated annual rate of 1,102,000 housing units started, and was 5.7 percent (±12.0%)* above last December’s rate of 1,160,000 housing starts a year…the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, December housing starts could have been down by 6.3% or up by as much as 17.7% from those of last December, with revisions of a greater magnitude in either direction possible…in this report, the annual rate for November housing starts was revised from the 1,090,000 reported last month to 1,102,000, while October starts, which were first reported at a 1,323,000 annual rate, were revised from last month’s initial revised figure of 1,340,000 annually back down to a 1,320,000 annual rate with this report….

those annual rates of starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 83,100 housing units were started in december, down from the 83,800 units that were started in November…of those housing units started in December, an estimated 52,100 were single family homes and 30,100 were units in structures with more than 5 units, down from the revised 60,600 single family starts in November but up from the 22,800 units started in structures with more than 5 units in November…

the monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in December, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,210,000, which was 0.2 percent (±1.8%)* below the revised November rate of 1,212,000 permits, but was 0.7 percent (±1.6%)* above the rate of building permit issuance in December a year earlier…the annual rate for housing permits issued in November was revised up from the originally reported 1,201,000….again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 90,000 housing units were issued in December, down from the revised estimate of 91,300 new permits issued in November…the December permits included 54,600 permits for single family homes, down from 55,900 single family permits issued in November, and 32,600 permits for housing units in apartment buildings with 5 or more units, up from 32,400 such multifamily permits a month earlier… for more graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 1.226 Million Annual Rate in December and Comments on December Housing Starts


(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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