June’s retail sales, industrial production and new housing construction; May’s business inventories

Major reports that were released this week included Retail Sales for June, the Business Sales and Inventories Report for May, and the June report on New Residential Construction, all from the Census Bureau, and the June report on Industrial Production and Capacity Utilization from the Fed…the week also saw the release of the the June Import-Export Price Index, and the Regional and State Employment and Unemployment Report for June from the Bureau of Labor Statistics, and the first two regional Fed manufacturing indexes for July: the Empire State Manufacturing Survey from the New York Fed, which covers New York state, southwestern Connecticut, and northern New Jersey, reported their headline general business conditions index rose from to -6.8 in June to +4.3 in July, suggesting a return to slow growth for First District manufacturing, while the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from +0.3 in June to +21.8 in July, suggesting a suddenly robust expansion of that region’s manufacturing…

June Retail Sales Up 0.4% After May Sales Revised 0.3% Lower

Seasonally adjusted retail sales rose 0.4% in June after retail sales for April and May were revised lower….the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $519.9 billion during the month, which was a increase of 0.4 percent (±0.5%)* from May’s revised sales of $517.7 billion, and 3.4 percent (±0.7 percent) above the adjusted sales of June of last year…May’s seasonally adjusted sales were revised from the $519.0 billion reported last month to $517.7 billion, while April sales were also revised lower, from $516.2 billion to $515.545 billion, and hence the change from April to May was revised to an increase of 0.4% from the 0.5% increase reported a month ago…the downward revision of nearly $2.0 billion in sales for those two months would subtract almost $8 billion from the reported annual rate of 2nd quarter PCE, which would in turn subtract roughly 17 basis points to our previous estimate of the contribution of April and May PCE to 2nd quarter GDP…estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 5.1% in June, from $547,255 million in May to $519,429 million in June, while they were up just 1.8% from the $510,029 million of sales in June a year ago…

Included below is the table of the monthly and yearly percentage changes in sales by business type taken from the retail Census pdf….the first pair of columns below gives us the seasonally adjusted percentage change in sales for each type of retail business from May to June and the year over year percentage change for those businesses since last June; the second pair of columns gives us the revised figures for May’s report, with April to May and the May 2018 to May 2019 change shown; for your reference, our copy of this table as it appeared in the May report, before this month’s revisions, is here….lastly, the third pair of columns shows the percentage change of the recent 3 months of sales (April, May and June) from the preceding three months (January, February and March) and from the same three months of a year ago….

June 2019 retail sales table

To compute June’s real personal consumption of goods data for national accounts from this June retail sales report, the BEA will use the corresponding price changes from the June consumer price index, which we reviewed last week….to estimate what they will find, we’ll first pull out the usually volatile sales of gasoline from the other totals…from the third line on the above table, we can see that June retail sales excluding the 2.8% drop in sales at gas stations were up by 0.7%….then, separating out the 0.5% increase in grocery & beverage sales and the 0.9% increase in food services sales out from that total, we find that core retail sales were also up by 0.7% for the month…since the June CPI report showed that the the composite price index of all goods less food and energy goods was 0.4% higher in June, we can thus figure that real retail sales excluding food and energy, or real core PCE, will show an increase of about 0.3% for the month…however, the actual adjustment in national accounts for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were up 0.8%, the June price index for transportation commodities other than fuel was 0.6% higher, which would suggest that real sales at auto & parts dealers were only 0.2% higher once price increases are taken into account… similarly, while nominal sales at clothing stores were 0.5% higher in June, the apparel price index was 1.1% higher, which means that real sales of clothing likely fell around 0.6%…

In addition to figuring those core retail sales, to make a complete estimate of real June PCE, we’ll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do…the June CPI report showed that the food price index was unchanged, as the price index for food purchased for use at home fell 0.2% while the index for food bought away from home was 0.3% higher…thus, while nominal sales at food and beverage stores were 0.5% higher, real sales of food and beverages would have been around 0.7% higher in light of the 0.2% decrease in prices…meanwhile, the 0.9% increase in nominal sales at bars and restaurants, once adjusted for 0.3% higher prices, suggests that real sales at bars and restaurants only rose around 0.6% during the month…at the same time, while sales at gas stations were down 2.8%, there was concurrently a 3.6% decrease in the price of gasoline during the month, which would suggest that real sales of gasoline were actually on the order of 0.8% higher, with a caveat that gasoline stations sell more than gasoline, and we haven’t accounted for those other sales…by averaging those estimated real sales figures with a sales appropriate weighting, and excluding food services, we’d estimate that the income and outlays report for June will show that real personal consumption of goods rose by around 0.4% in June, after rising by a revised 0.2% in May and by a revised 0.2% in April, after rising 2.1% in March, falling by 1.0% in February and rising by 1.1% in January…at the same time, the 0.6% increase in real sales at bars and restaurants should have a modest positive impact on June’s real personal consumption of services…

Industrial Production Unchanged in June on Cool Temperatures

The Fed’s G17 release on Industrial production and Capacity Utilization for June indicated that seasonally adjusted industrial production was unchanged in June after rising by 0.4% in May but falling by a revised 0.5% in April, and is now up just 1.3% from a year ago, as it fell at a 1.2% annual rate in the 2nd quarter, after falling at a 1.9% rate in the first quarter…to the extent that this report plays into GDP, that 2nd quarter decrease suggests a net subtraction from GDP of that magnitude across the components that this report covers…the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, was at 109.6 in both May and June, up from an unrevised 109.2 in April, after the March reading for the IP index was revised up from 109.6 to 109.7, and the February index was revised from 109.5 to 109.6…

The manufacturing index, which accounts for more than 77% of the total IP index, increased by 0.4%, from 104.8 in May to 105.2 in June, after the March index was revised from 105.1 to 105.2, and the February manufacturing index was revised from 105.1 to 105.3…meanwhile, the mining index, which includes oil and gas well drilling, increased for the 3rd consecutive month, rising from 133.7 in May to a record high of 134.0 in June, after the May index was revised up from the originally reported 132.9, which means it’s now 8.7% higher than it was a year ago….finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 3.6% to 101.9 June, after rising by a revised 2.4% to 105.7 in May, which means it’s now 2.6% below its year earlier reading…

This report also includes capacity utilization figures, which are expressed as the percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry fell to 77.9% in June from an unrevised 78.1% in May….capacity utilization for all manufacturing industries rose from 75.6% to 75.9%, as capacity utilization by NAICS durable goods production facilities rose from 75.6% in May to 75.8 in June, while capacity utilization for NAICS non-durables rose from 76.6% to 76.9%….capacity utilization for the mining sector slipped to 91.5% in June, from 91.7% in May, which was originally reported as 91.3%, while utilities were operating at 74.6% of capacity during June, down from a revised 77.6% May, which was originally published as 77.5%…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….

Business Sales Up 0.2% in May, Business Inventories Up 0.4%

Following the release of the June retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for May(pdf), which incorporates the revised May retail data from that June report and the earlier published wholesale and factory data for May to give us a complete picture of the business contribution to the economy for that month….according to the Census Bureau, total manufacturer’s and trade sales were estimated to be valued at a seasonally adjusted $1,461.4 billion in May, up 0.2  percent (±0.2 percent) from April’s revised sales, and up 1.5 percent (±0.4 percent) from May sales of a year earlier…note that total April sales were revised from the originally reported $1,462.0 billion to $1,459.04 billion but the decrease from March remained unchanged at -0.2%…manufacturer’s sales were up 0.1% from April at $504,263 million in May, and retail trade sales, which exclude restaurant & bar sales from the revised May retail sales reported earlier, rose 0.3% to $453,738 million, while wholesale sales rose 0.1% to $503,388 million…

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,036.4 billion at the end of May, up 0.3 percent (±0.1%) from April, and 5.3 percent (±0.4 percent) higher than in May a year earlier…the value of end of April inventories were revised but statistically unchanged from the $2,029.8 billion reported last month…seasonally adjusted inventories of manufacturers were estimated to be valued at $694,136 million, 0.2% more than in April, while  inventories of retailers were valued at $664,117 million, 0.4% more than in April, and inventories of wholesalers were estimated to be valued at $678,142 million at the end of May, also up 0.4% from April…

In national accounts reports, the various categories of business inventories will be adjusted for price changes using item appropriate price indexes from the producer price index….with the release of wholesale inventories data last week, we figured there would be at least a 0.6% real increase in May wholesale inventories after such an adjustment, following a small increase in April, while the adjusted factory inventory data from the prior week also indicated a real increase of a similar magnitude, following a decrease in April…with prices for finished goods on average 0.2% lower in May, this report suggests that real retail inventories also increased at a rate near 0.6%…however, since 1st quarter real business inventories had seen the largest jump since the second quarter of 2015, it still seems 2nd quarter inventory growth is unlikely to meet that pace and hence would have a modest negative impact on 2nd quarter GDP…

New Housing Construction and Building Permits Down in June

The June report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,253,000 in June, which was 0.9 percent (±7.9  percent)* below the revised May estimated annual rate of 1,265,000 units started, but  6.2 percent (±7.8 percent)* above last June’s pace of 1,225,000 housing starts a year…the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell from a month ago, or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, June’s housing starts could have been down by 1.6% or up by as much as 14.0% from those of a year ago, with eventual revisions outside of that range also possible…in this report, the annual rate for May housing starts was revised from the 1,269,000 units reported last month to 1,265,000, while April starts, which were first reported at a 1,235,000 annual rate, were revised down from last month’s initial revised figure of 1,281,000 annually to a 1,270,000 annual pace with this report…

The annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by Census field agents, which estimated that 117,500 housing units were started in June, down from the 118,400 units started in May but up from the 116,600 starts in April…of those housing units started in June, an estimated 81,600 were single family homes and 35,000 were units in structures with more than 5 units, up from the revised 78,100 single family starts but down from the the 39,300 units  started in structures with more than 5 units in May…

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 broadly revised housing starts data…in June, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,220,000 housing units, which was 6.1 percent (±1.2 percent) below the revised May rate of 1,299,000 permits, and 6.6 percent (±1.1 percent) below the rate of building permit issuance in June a year earlier…the annual rate of housing permits issued in May was revised from the 1,294,000 reported last month to 1,299,000….

Again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected by canvassing census agents, which showed permits for 110,100 housing units were issued in June, down from the revised estimate of 124,300 new permits issued in May…the June permits included 74,100 permits for single family homes, down from 80,600 in May, and 36,100 permits for housing units in apartment buildings with 5 or more units, down from 40,600 such multifamily permits a month earlier… for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts at 1.253 Million Annual Rate in June and Comments on June 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 picked from the aforementioned GGO posts, contact me…)       

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