September’s retail sales, industrial production, & new housing construction; August’s business inventories

Major reports released this past week included Retail Sales for September and the corresponding Business Sales and Inventories report for August from the Census Bureau, Industrial production and Capacity Utilization for September from the Fed, the September report on New Residential Construction from the Census Bureau, and the Regional and State Employment and Unemployment report for September from the Bureau of Labor Statistics, which breaks down the two surveys of the monthly employment report by state and region….this week also saw the release of the first two regional Fed manufacturing surveys for October: the Empire State Manufacturing Survey for October from the New York Fed, which covers New York and northern New Jersey, reported their headline general business conditions index rose from +2.0 in September to +4.0 in October, suggesting that First District manufacturing has been growing at a snail’s pace, while the Philadelphia Fed Manufacturing Survey for October, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions fell from +12.0 in September to +5.6 in October, also suggesting pretty slow growth in that region’s manufacturing… 

Retail Sales Decreased by 0.3% in September after August Sales were Revised Higher

Seasonally adjusted retail sales fell 0.3% in September after retail sales for August were revised 0.2% higher after retail sales for July were revised 0.1% lower…the Advance Retail Sales Report for September (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $525.6 billion during the month, which was 0.3 percent (±0.5%) lower than August’s revised sales of $526.9 billion, but 4.1 percent (±0.7 percent) above the adjusted sales in September of last year…August’s seasonally adjusted sales were revised from $526.1 billion to $526.9 billion, while July sales were revised lower, from $524.2 billion to $523.9 billion, with this release….unadjusted sales estimates, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 8.8%, from $547,674 million in August to $499,369 million in September, while they were up 3.8% from the $481,094 million of sales in September a year ago…

Since it’s the end of the quarter for retail sales, we’ll include the entire table from this report showing retail sales by business type, including the quarter over quarter data…again, to explain what it shows, the first double column below shows us the seasonally adjusted percentage change in sales for each kind of business from the August revised figure to this month’s September “advance” report figure in the first sub-column, and then the year over year percentage sales change since last September in the 2nd column; the second double column pair below gives us the revision of the August advance estimates (now called “preliminary”) as of this report, with the new July to August percentage change under “Jul 2019 (r)” (revised) and the August 2018 to August 2019 percentage change as revised in the 2nd column of the pair; for your reference, the table of last month’s advance estimate of August sales, before this month’s revisions, is here…. then, the third pair of columns shows the percentage change of the most recent 3 months of this year’s sales (July, August and September) from the preceding three months of the 2nd quarter (April, May and June) and then from the same three months (July, August and September) of a year ago….that first column of that pair gives us a snapshot comparison of 2nd quarter sales to third quarter sales which, after adjustment for price changes, can be useful in estimating the impact of this report on 3rd quarter GDP:

September 2019 retail sales table

To compute September’s real personal consumption of goods data for national accounts from this September retail sales report, the BEA will use the corresponding price changes from the September consumer price index, which we reviewed last week…to estimate what they will find, we’ll start by pulling out the usually volatile sales of gasoline from the other totals…from the third line on the above table, we can see that September retail sales excluding the 0.7% drop in sales at gas stations were down by 0.2%….then, subtracting the figures representing the 0.1% decrease in grocery & beverage sales and the 0.2% increase in food services sales from that total, we find that core retail sales were down by a bit more than 0.3% for the month….since the CPI report showed that the composite price index for all goods less food and energy goods was down 0.3% in September, that means the core sales decline was essentially price related, and we can thus figure that real retail sales excluding food and energy were on average little changed over the month…however, the adjustment 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 down by 0.9%, the price index for transportation commodities other than fuel was down 0.7%, as prices for used cars and trucks fell 1.6% while new car prices fell 0.3%; that would suggest that real unit sales at auto & parts dealers would only be on the order of 0.2% lower…similarly, while sales at clothing stores were 1.3% higher in September, the apparel price index was 0.4% lower, which means that real sales of clothing actually rose around 1.7%….on the other hand, since sales at furniture stores were up 0.6% while the price index for household furnishings and supplies increased by 0.3%, that would suggest that real sales at furniture stores only rose 0.3%…meanwhile, while nominal sales at sporting goods, hobby, music and book stores fell 0.1%, the price index for recreational commodities rose 0.2%, so real sales of recreational goods were down roughly 0.3%…

In addition to figuring those core retail sales, to make a complete estimate of real July PCE, we’ll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do….the September CPI report showed that the food price index was 0.1% higher in September, with the price index for food purchased for use at home unchanged, while prices for food bought for eating away from home were 0.3% higher… hence, with nominal sales at food and beverage stores 0.1 lower, real sales of food at groceries would also be roughly 0.1% lower.…on the other hand, the 0.2% decrease in nominal sales at bars and restaurants, once adjusted for 0.3% higher prices, suggests that real sales at bars and restaurants fell by 0.5%…meanwhile, while sales at gas stations were down 0.7%, there was a 2.4% decrease in the retail price of gasoline, which would suggest real sales of gasoline were up on the order of 1.6%, with the caveat that gasoline stations do 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 September will show that real personal consumption of goods rose 0.1% in September, after rising by a revised 0.6% in August and by a revised 0.6% in July…that would follow 2nd quarter figures which showed real personal consumption of goods rose 0.4% in June, after rising by 0.6% in May and by 0.6% in April, which would thus result in a quarter over quarter increase at a 5.8% annual rate, which would be enough to add 1.18 percentage points to 3rd quarter GDP….at the same time, the 0.5% decrease in real sales at bars and restaurants will have a small negative impact on September’s real personal consumption of services..

Industrial Production Fell 0.4% in September

The Fed’s G17 release on Industrial production and Capacity Utilization indicated that industrial production decreased by 0.4% in September after rising by 0.8% in August, revised from the 0.6% increase reported a month ago; at the same time, the percentage change from June to July was revised from down 0.1% to down 0.2%…the industrial production index, with the benchmark now set for average 2012 production to equal to 100.0, fell from an unrevised 109.9 in August to 109.5 in September; at the same time, the index for July was revised from the previously reported 109.2 to 109.1, the index for June was revised from the previously reported 109.4 to 109.3, while the May index was revised from 109.2 to 109.3, while leaving the percentage increases for May and June unchanged from the previous report….for the 3rd quarter as compared to the 2nd quarter, industrial production rose at a 1.2% annual rate, while total industrial production was still 0.1% lower than in September a year earlier, due to production decreases in the first and second quarter of this year….

The manufacturing index, which was impacted by the GM strike, decreased by 0.5% in September, from 105.2 in August to 104.8 in September, after increasing by 0.6% in August, decreasing by 0.4% in July and increasing by 0.6% in June, and is now 0.9% lower than a year ago…meanwhile, the mining index, which includes oil and gas well drilling, fell from 133.5 in August to 131.8 in September, after the August index was revised down from 133.6, and is now just 2.6% higher than it was a year ago….finally, the utility index, which often fluctuates due to above or below normal temperatures, rose 1.4% to 106.8 in September, after the August index was revised 105.2 to 105.1, and is now 1.2% higher than in September of 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 fell from 77.9% in August to 77.5% in September, after rising from 77.4% in July….capacity utilization of NAICS durable goods production facilities fell from 76.1% in August to 75.4% in September, while capacity utilization for non-durables producers fell from 76.3% to 76.0%…capacity utilization for the mining sector fell to 88.9% in September from 90.5% in August, which was the same as was originally reported, while utilities were operating at 77.7% of capacity during September, up from their 76.8% of capacity during August, which was revised up from 76.7%…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 Rose 0.2% in August; Business Inventories were Unchanged

After the release of the September retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for August (pdf), which incorporates the revised August retail data from that September report and the earlier published August wholesale and factory data 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 $1,463.9 billion in August, up 0.2 percent (±0.1%) from July’s revised sales, and up 1.1 percent (±0.4 percent) from August sales of a year earlier….note that total July sales were concurrently revised down from the originally reported $1,462.9 billion to $1,461.641 billion, now a 0.2% increase from June….manufacturer’s sales were 0.1% lower at $502,957 million in August, while retail trade sales, which exclude restaurant & bar sales from the revised August retail sales we reported earlier, were were 0.6% higher at $461,874 million, and wholesale sales were statistically unchanged at $499,053 million…

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,042.1 billion at the end of August, statistically unchanged (±0.1%) from July, but 4.2 percent (±0.4%) higher than in August a year earlier…the value of end of July inventories were revised to $2,041.782 billion from the $2,042.6 billion reported last month and is now a 0.3% increase from June…seasonally adjusted inventories of manufacturers were estimated to be valued at $695,881 million, statistically unchanged from July, while inventories of retailers were valued at $665,549 million, 0.1% less than in July, and inventories of wholesalers were estimated to be valued at $680,702 million at the end of August, 0.2% higher than in July…

For GDP purposes, all inventories, including retail, are adjusted for inflation with appropriate component price indices of the producer price index…while we reviewed the September index last week, the producer price index for August indicated that aggregate prices for finished goods were down 0.5% in August, that prices for intermediate processed goods were down 0.4%, and that prices for unprocessed goods were 1.4% lower….retail inventories are all finished goods, as are the majority of wholesale inventories, while factory inventories, which we looked at two weeks ago, are roughly evenly split between the three stages of production…hence, although the nominal value of August inventories was unchanged, real inventories increased by something on the order of 0.5%…however, that increase followed an increase in July inventories that was entirely price related, meaning real July inventories were marginally lower…since the recent GDP report showed that real private inventories grew at an inflation adjusted $69.0 billion annual rate in the 2nd quarter, any real inventory increase in the 3rd quarter would have to top that increase in order to avoid subtracting from 3rd quarter GDP…

Housing Starts and Building Permits were Both Lower in September

The September report on New Residential Construction (pdf) from the Census Bureau reported that their widely watched estimate of new housing units that were started during the month was at a seasonally adjusted annual rate of 1,256,000, which was 9.4 percent (±9.4 percent)* below the revised August estimated annual rate of 1,386,000 housing unit starts, but was 1.6 percent (±11.6 percent)* above last September’s pace of 1,236,000 housing starts a year…the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month, or even over the past year, with the figure in parenthesis the most likely range of the change indicated; in other words, September’s housing starts could have been unchanged month over month, or down by as much as 18.8% from those of August, with a 10% chance that the actual change could have even been outside of that wide range….in this report, the annual rate for August housing starts was revised from the 1,364,000 reported last month to a post recession record 1,386,000, while July starts, which were first reported at a 1,191,000 annual rate, were revised down from last month’s initial revised figure of 1,215,000 annually to a 1,204,000 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 112,900 housing units were started in September, down from the 122,200 units started in August…of those housing units started in September, an estimated 80,700 were single family homes and 31,100 were units in structures with more than 5 units, down from the revised 81,800 single family starts in August, and down from the 39,100 units started in structures with more than 5 units in August…

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, which is also impacted by the weather…in September, Census estimated new building permits were being issued at a seasonally adjusted annual rate of 1,387,000 housing units, which was 2.7 percent (±1.3 percent) below the revised August rate of 1,425,000 permits, but was 7.7 percent (±2.4 percent) above the rate of building permit issuance in September a year earlier…the annual rate for housing permits issued in August was revised from an annual rate of 1,419,000 to 1,425,000 annually….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 114,300 housing units were issued in September, down from the revised estimate of 127,800 new permits issued in August…the September permits included 70,600 permits for single family homes, down from 79,100 single family permits in August, and 40,600 permits for housing units in apartment buildings with 5 or more units, down from 44,800 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 decreased to 1.256 Million Annual Rate in September and Comments on September 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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