May’s reports on retail sales, industrial production; and new home construction; April’s business inventories

Major releases of the past week included the reports on Retail Sales for May and Business Sales and Inventories for April, both from the Census bureau; the report on Industrial Production and Capacity Utilization for May from the Fed, and the May report on New Residential Construction, also from the Census Bureau…in addition, this week also saw the release of the Regional and State Employment and Unemployment Summary for May from the Bureau of Labor Statistics, a report which breaks down the two employment surveys from the monthly national jobs report by state and region….while the text of this report provides a useful summary of this data, the serious statistics aggregation can be found in the tables linked at the end of the report, where one can find the civilian labor force data and the change in payrolls by industry for each of the 50 states, the District of Columbia, Puerto Rico, and the Virgin Islands…

this week also saw the release of the first two Fed regional manufacturing reports for June: 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 rose to -0.2 in June, up from -48.5 in May, indicating that the contraction in First District manufacturing has stabilized at a depressed level… meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions rose from -43.1 in May to +27.5 in June, its first positive reading since February, a change which they explain was because “Forty-six percent of the firms reported increases [in their manufacturing activity] this month (up from 15 percent last month), while 19 percent reported decreases (down from 58 percent).” …understand that after a lockdown, just turning on a light switch would represent an increase in activity for some of those companies…

May Retail Sales Rose 17.7% After April Sales Were Revised 2.2% Higher

Seasonally adjusted retail sales rose a record 17.7% in May after retail sales for April were revised 2.2% higher….the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $485.5 billion for the month, which was an increase of 17.7 percent (±0.5%) from April’s revised sales of $412.6 billion but 6.3 percent (±0.7 percent) below the adjusted sales of May of last year…April’s seasonally adjusted sales were revised from the $403.9 billion reported last month to $412.6 billion, while March sales were revised from $483.5 billion to $481.5 billion, which meant that March to April percent change was revised from a decrease of 16.4 percent (±0.5%) to a decrease of 14.7 percent (± 0.2 percent)…. estimated sales before seasonal adjustments, which were extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 23.1% before adjustment, from $410,190 million in April to $504,802 million in May, while they were down 7.7% from the $547,130 million of sales in May a year ago…

Included below is the table of the 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 from April to May in the first sub-column, and then the year over year percentage change for those businesses since last May in the 2nd column; the second pair of columns gives us the revision of last month’s April advance monthly estimates (now called “preliminary”) as revised with this report, likewise for each business type, with the March to April change under “Mar 2020 r” (revised) and the revised April 2019 to April 2020 percentage change in the last column shown…for your reference, our copy of the table of last month’s advance April estimates, before this month’s revision, is here….

May 2020 retail sales table

While this month’s 17.7% increase in sales was a record jump, we have to realize it was from the depressed level of April, which followed on the heels of the widespread coronavirus shuttering of many retail establishments in March….hence, while sales at furniture stores rose 89.7% in May, their sales were still down 21.5% from a year ago…similarly, while sales at electronics and appliance stores were up 50.5% in May, they were still 29.9% lower than in May a year ago….and in an even more extreme example, even though sales at clothing stores jumped by 188% in May, they were still 63.4% lower than sales in clothing stores a year ago…however, there are some business types which saw a year over year improvement…even after elevated sales in March and April, grocery stores sales were still 14.4% higher than in May of last year; since it’s unlikely that Americans are eating that much more than a year ago, this suggests ongoing at home stockpiling of essentials after the shortages of some items in March and April…sales at building material and gardens supply stores were also up 16.4% year over year, suggesting that those stuck at home are spending more on their own houses and property…similarly, sales at sporting goods, musical instrument, book stores, and other recreational stores were up 4.9% year over year, suggesting we’re still spending to keep ourselves entertained during this period of reduced social activity…

To compute May’s real personal consumption of goods data for national accounts from this May retail sales report, the BEA will use the corresponding price changes from the May consumer price index, which we reviewed last week…we would normally make an attempt to estimate that figure by using the broad composite price index of all goods less food and energy goods to adjust the majority of May’s retail sales increases for inflation, but given the wide range of changes in each of the types of sales in this month’s report, our shortcut method would be prone to introduce more inaccuracies than tolerable in our estimation, so we’ll forego that effort this month…to get a more accurate estimation of the change in May’s personal consumption of goods, we would need to adjust each of the types of sales shown above by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were up 44.1% in May, the May price index for transportation commodities other than fuel was 0.1% higher, which would mean that real sales at auto & parts dealers were 44.0% higher. once the price increase is taken into account…on the other hand, while nominal sales at clothing stores rose 188.0%, the apparel price index was 2.3% lower at the same time, which means that the 188% increased cash outlay bought even more clothes in May, and hence real sales of clothing for national accounts purposes rose by nearly 195%

another reason to be cautious about reading too much into this one month jump in retail sales is that not all of it will make it to the bottom line of GDP…for instance, if the rebound of auto sales all came out of inventories of vehicles that were not sold in March and April, the corresponding reduction of inventories will subtract from GDP by the same amount that the increased sales added to it…similarly, if all the increased furniture, TVs and clothing that sold in May came from imported goods, the corresponding imports of furniture, TVs and clothing will subtract from GDP by the same amount that the increased sales of those goods added to it….the only way that increased retail sales adds to GDP without an offset is if it indicates an increase in the amount of goods produced for those sales domestically; in general, goods in that catagory would include in the increased sales of groceries, gasoline, and building materials…much more important to the ultimate trajectory of GDP will be personal consumption of services, which accounts for 47% of each month’s GDP….here we’d have to know if health care services, transportation services, recreation services and food services and accommodations have increased over the month; indications are they have not; most hospitals were still restricting elective procedures, jet fuel demand was still down by more than two thirds, no baseball was played in May, restaurants were only only cautiously reopening and hotel occupancy was still down by more than 50%…

Industrial Production Up 1.4% in May After April Revised Down 1.4%; Capacity Utilization Up 0.8% After 0.9% Downward Revision

Industrial production increased in May after production for April was revised lower…the Fed’s G17 release on Industrial production and Capacity Utilization for May reported that industrial production increased 1.4% in May after falling by a revised 12.5% in April and by a revised 4.6% in March, which left total output 15.3% lower than a year ago, down from last month’s -15.0% year over year figure…the industrial production index, which is benchmarked for average 2012 production to be equal to 100.0, rose from a revised 91.3 in April to 92.6 in May, after the April reading for the index was revised down from 92.6 to 91.3, the March index was revised up from 104.3 to 104.4, the February index was revised from 109.3 to 109.4, the January index was revised from 109.1 to 109.2, and the December index was revised from 109.6 to 109.7…

The manufacturing index, which accounts for more than 77% of the total IP index, increased by 3.8%, from 84.0 in April to 87.3 in May, after the April manufacturing index was revised from 85.5 to 84.0, the March index was revised from 99.1 to 99.4, the February manufacturing index was revised from 104.9 to 105.0, and the January manufacturing index was also revised from 104.9 to 105.0, leaving manufacturing output 16.5% lower than it was a year ago… meanwhile, the mining index, which includes oil and gas well drilling, fell from 122.7 in April to 114.3 in May, after the April index was revised down from from the originally reported 123.4, which left the mining index 14.1% lower than it was a year earlier….finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 2.3% to 96.8 in May, after April’s index was revised from 99.3 to 99.1, leaving the utility index 8.0% below it’s year earlier level…

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 rose to 64.8% in May from 64.0% in April, after capacity utilization for April was revised down from the 64.9% reported a month ago….capacity utilization for all manufacturing industries rose from a downwardly revised 60.0% in April to 62.2% in May, as utilization of NAICS durable goods production facilities rose from a revised 54.0% in April to 57.1% in May, while capacity utilization for non-durables manufacturers rose from 67.1% to 68.5%…at the same time, capacity utilization for the mining sector fell to 75.4% in May, from 81.2% in April, which was originally reported as 81.7%, while utilities were operating at 69.1% of capacity during May, down from the revised 70.9% of capacity during April, which was was originally reported at 71.1% ….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….  

New Housing Starts Higher, New Permits Much Higher in May

The May 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 974,000 in May, which was  4.3 percent (±15.5 percent)* above the revised April estimated annual rate of 934,000 housing unit starts, but was 23.2 percent (±6.2 percent) below last May’s rate of 1,286,000 housing starts a year…the asterisk indicates that Census does not have sufficient data to determine whether housing starts actually rose or fell from April to May, with the figure in parenthesis the most likely range of the change indicated; in other words, May’s housing starts could have just as easily been down by 11.2% or up by as much as 19.8% from those of April, with even larger revisions possible…in this report, the annual rate for April’s housing starts was revised from the 891,000 estimated last month to 934,000, while March housing starts, which were first reported at a 1,216,000 annual rate, were revised from last month’s initial revised annual figure of 1,276,000 down to 1,269,000 annually 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 canvassing Census field agents, which estimated that 89,300 housing units were started in May, up from the 84,800 units started in April but down from the 104,500 units started in March…of those housing units started in May, an estimated 62,600 were single family homes and 26,000 were units in structures with more than 5 units, identical to the revised 62,600 single family starts in April, but up from the 21,300 units started in structures with more than 5 units at the same time…

The monthly data on new building permits, with a smaller margin of error and hence usually smaller revisions, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in May, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,220,000 housing units, which was 14.4 percent (±1.1 percent) above the revised April permit rate of 1,066,000, but 8.8 percent (±1.0 percent) below the rate of permit issuance in May a year earlier….the annual rate for housing permits issued in April was revised from the 1,074,000 reported a month ago to 1,066,000…quoting the report for the annualized figures on the types of permits: “Single-family authorizations in May were at a rate of 745,000; this is 11.9 percent (±1.9 percent) above the revised April figure of 666,000. Authorizations of units in buildings with five units or more were at a rate of 434,000 in May. .”

Again, the annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed that permits for roughly 105,100 housing units were issued in May, up from the revised estimate of 96,000 new permits issued in April, but down from the 115,900 units permitted in March….the May figure included permits for an estimated 66,100 single family units, up from 63,600 in April, and permits for 35,700 units in structures with more than 5 units, up from 29,800 in April….for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts increased to 974 Thousand Annual Rate in May and Comments on May Housing Starts

April Business Sales Down 14.4%, Business Inventories Down 1.3%

Following the release of the May retail sales report, the Census Bureau released the composite Manufacturing and Trade Inventories and Sales report for April (pdf), which incorporates the revised April retail data from that May report and earlier published 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 $1,184.8 billion in April, down 14.4 percent (±0.2 percent) from March revised sales,and down 18.4 percent (±0.3 percent) from April sales of a year earlier…note that total March sales were revised from the originally reported $1,386.1 billion to $1,384.1 billion, and as a result the March decrease from February increased from 4.9% to 5.1%….manufacturer’s sales were down 13.5% from March at $406,763 million in April, and retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, fell 12.7% to $382,654 million, while wholesale sales fell 16.9% to $395,355 million..

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $1,981.2 billion at the end of April, down 1.3 percent (±0.1%) from March, and 2.2 percent (±0.4 percent) lower than in April a year earlier…the value of end of March inventories was revised from the $2,012.5 billion reported last month to $2,007.0 billion with this release, now a 0.3% decrease from February…seasonally adjusted inventories of manufacturers were estimated to be valued at $686,476 million, 0.4% lower than in March, inventories of retailers were valued at $644,366 million, 3.7% less than in March, while inventories of wholesalers were estimated to be valued at $650,398 million at the end of April, up 0.3% from March.

With the release of the factory inventory data two weeks ago, we judged that the real change in April factory inventories would have a very large positive impact on the growth rate of 2nd quarter GDP; likewise, with the release of the wholesale inventory last week, we felt wholesale inventories would also have a substantial positive impact on the growth rate of 2nd quarter GDP…….since the April producer price index reported that prices for finished goods were on average 3.3% lower, that means that the real decrease in retail inventories was only around 0.4% for the month…however, since real retail inventories saw a substantial increase in the first quarter, albeit more than offset by decreases in factory and wholesale inventories, the real decrease in April retail inventories would thus have a substantial negative impact on 2nd quarter GDP, again partly offsetting the positive impact of factory and wholesale inventories..


(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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