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

Widely watched reports that were released this past week included the Retail Sales report for September and the corresponding Business Sales and Inventories report for August, both from the Census Bureau, the report on Industrial production and Capacity Utilization for September from the Fed, and the September report on New Residential Construction from the Census Bureau….

In addition, 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, northern New Jersey, and an adjacent county in Connecticut, reported their headline general business conditions index fell from +11.5 in September to -11.9 in October, meaning that a large plurality of Second District manufactures reported worsening conditions in various facets of their business in the current month…meanwhile the Philadelphia Fed Manufacturing Survey for October, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions rose from +1.7 to +10.3 in October, an index value they arrive at because “more than 24 percent of the firms reported increases in general activity this month, while 14 percent reported decreases; and 57 percent reported no change”

Retail Sales Rose 0.4% in September after July & August Sales were Revised Higher

The seasonally adjusted value of retail sales rose 0.4% in September after retail sales for July & August were revised a bit higher….the Advance Retail Sales Report for September (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $714.4 billion during the month, which was 0.4 percent (±0.5 percent) higher August’s revised sales of $699.9 billion, and 1.7% percent (±0.7 percent) above the adjusted sales in September of last year….August’s seasonally adjusted sales were revised less than 0.1% higher, from $710.8 billion to $711.3 billion, while July sales were also revised less than 0.1% higher, from $710.4 billion to $710.9 billion, and hence the July to August percent change was unchanged at up 0.1 percent (±0.2 percent)*.…. unadjusted sales estimates, extrapolated from surveys of a small sampling of retailers, indicated sales actually fell 7.5%, from $736,722 million in August to $681,456 million in September, while they were virtually unchanged from the $681,679 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 the change in retail sales by business type, including the quarter over quarter data…again, to explain what this table 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 2024 (r)” (revised) and the August 2023 to August 2024 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)…. lastly, the third pair of columns below 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….Note that the first column of that pair gives us a snapshot comparison of 2nd quarter sales to third quarter sales which, after adjustment for price changes, could be useful in estimating the impact of this report on 3rd quarter GDP….

To compute September’s real personal consumption of goods data for national accounts from this September retail sales report, the BEA will initially 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 1.6% price related decrease in sales at gas stations were up by 0.6%….then, subtracting the figures representing the 1.0% increase in grocery & beverage sales and the 1.0% increase in food services sales from that total, we find that core retail sales were up over 0.4% for the month….since the CPI report showed that the composite price index of all goods less food and energy goods was 0.2% higher in September, we can thus figure that real retail sales excluding food and energy were up by more than 0.2% month over 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 health and personal care stores stores were up 1.1%, the price index for medical care commodities was 0.7% lower, which would mean that real unit sales drug stores would have been around 1.8% higher…on the other hand, while sales at clothing stores were 1.5% higher in September, the apparel price index was 1.1% higher at the same time, which would suggest that real sales of clothing were only 0.4% higher…

In addition to figuring those core retail sales, to make a complete estimate of real September PCE, we would 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 0.4% higher in September, with the price index for food purchased for use at home 0.4% higher, while prices for food bought at restaurants averaged 0.3% higher… hence, while nominal sales at food and beverage stores were up 1.0%, real sales of food and beverages would be roughly 0.6% higher in light of 0.4% higher prices.…similarly, the 1.0% increase in nominal sales at bars and restaurants, once adjusted for 0.3% higher prices, suggests that real sales at bars and restaurants were 0.7% higher….on the other hand, while sales at gas stations were down 1.6%, there was a 4.1% decrease in the price index for gasoline, which would suggest real sales of gasoline were up on the order of 2.6%, with the caveat that gasoline stations do sell more than gasoline, products which should not be adjusted with gasoline prices, so the increase in real sales at gas stations was likely somewhat less than our imputed estimate…by reweighing and averaging the real sales changes that we have thus estimated back together, and excluding food services, we can then estimate that the income and outlays report for September will show that real personal consumption of goods rose almost 0.5% in September, after rising by a revised 0.1% in August and by a revised 1.0% in July, and after being unchanged in June, rising by 0.9% in May, and after falling by 0.4% in April…..at the same time, the 0.7% increase in real sales at bars and restaurants would have a modest positive impact on September’s real personal consumption of services…

Industrial Production Fell 0.3% in September after August Production was Revised Lower

The Fed’s G17 release on Industrial production and Capacity Utilization indicated that industrial production decreased by 0.3% in September, after increasing by a revised 0.3% in August, which was revised from the 0.8% increase previously reported, leaving industrial production 0.6% lower than in September a year ago, down from the unchanged year over year change reported a month ago…..the industrial production index, with the benchmark now set for average 2017 production to equal to 100.0, fell from a revised 102.9 in August to 102.6 September; after the index for August was revised from the previously reported 103.1 to 102.9, the index for July was revised from the previously reported 102.3 to 102.6, the index for June was revised from the previously reported 103.3 to 103.2, and the index for May was revised from the previously reported 103.2 to 103.1, while the April index of 103.2 was revised but unchanged from the previous report….

The manufacturing index, which was adversely impacted by two hurricanes and the strike at Boeing, decreased by 0.4% in September, from 99.5 in August to 99.1, after August’s manufacturing index was revised from 99.6 to 99.5, July’s manufacturing index was revised from 98.7 to 99.0, June’s manufacturing index was revised from 99.4 to 99.5, May’s manufacturing index was revised from 99.6 to 99.5, and April’s manufacturing index was revised from 99.6 to 99.5; that left manufacturing output 0.5% lower than a year earlier….meanwhile, the mining index, which includes oil and gas well drilling, fell by 0.6%, from 118.9 in August to 118.2 in September, after the August index was revised down from 120.1, and is now 2.2% lower than it was a year ago….finally, the utility index, which often fluctuates due to above or below normal temperatures because seasonal adjustment is to the norm, rose 0.7% to 106.8 in September, after the August index was revised from up 105.3 to 106.0, leaving the utility index 0.6% 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 77.8% in August to 77.5% in September, after August utilization rose from a revised 77.6% in July….capacity utilization of NAICS durable goods production facilities fell from 75.3% in August to 74.5% in September, while capacity utilization for non-durables producers was unchanged at 78.8%…capacity utilization for the mining sector fell to 88.7% in September from 89.1% in August, which itself was revised down from the previously reported 90.0%, while utilities were operating at 71.2% of capacity during September, up from their 70.9% of capacity during August, which was revised up from 70.5%…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 Fell 0.2% in August; Business Inventories Rose 0.3%

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 the month….according to the Census Bureau, total manufacturer’s and trade sales were estimated to be valued at a seasonally adjusted $1,876.8 billion in August, down 0.2 (±0.2)* from July’s revised sales, but up 1.3 percent (±0.3 percent) from August sales of a year earlier….note that total July sales were concurrently revised up from the originally reported $1,880.7 billion to $1,880.5 billion, but were still a 1.1% increase from June….

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,581.8 billion at the end of August, up 0.3 percent (±0.1 percent) from July, and 2.4 percent (±0.3 percent) higher than in August a year earlier…the value of end of July inventories were statistically unrevised at $2,574.9 billion, but they are now shown as a 0.3% increase from June, vs the 0.4% increase previously reported…seasonally adjusted inventories of manufacturers were estimated to be valued at $860,234 million, up 0.1% from July, and inventories of retailers were valued at $816,812 million, 0.6% more than in July, while inventories of wholesalers were estimated to be valued at $904,765 million at the end of August, 0.1% 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…when we reviewed the September index last week, the producer price index for August indicated that aggregate prices for finished goods were on average unchanged, that prices for intermediate processed goods were 0.2% lower, and that prices for unprocessed goods were 3.1% lower….retail inventories are all finished goods, as are about 70% of wholesale inventories, while factory inventories are roughly evenly split between the three stages of production… when we looked at factory inventories two weeks ago, we judged the ​real July​ inventory decrease to be larger than the August increase​, and hence a negative for 3rd quarter GDP… then, with the release of the wholesale inventory ​report last week, we figured that while real wholesale inventories so far in the quarter were higher, that came after a larger 2nd quarter increase, and hence also negative for 3rd quarter GDP…since the producer price index for August showed that prices for finished goods were on average unchanged, that means that real retail inventories were roughly 0.6% higher for the month…however, since real retail inventories saw a substantial increase in the second quarter, that small increase in real August retail inventories suggests that most of the big 2nd quarter increase will probably be given back in the 3rd quarter GDP report…

Housing Starts Little Changed in September, Building Permits were Lower

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 1,354,000, which was 0.5 percent (±13.0 percent)* below the revised August estimated annual rate of 1,361,000 housing unit starts, and was 0.7 percent (±16.1 percent)* below last September’s pace of 1,363,000 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 up by 12.5%, or down by as much as 13.5% 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 1,283,000 reported last month to 1,361,000, while July starts, which were first reported at a 1,238,000 annual rate, were revised from last month’s initial revised figure of 1,237,000 annually to a 1,262,000 annual rate with this report….

Those 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 116,300 housing units were started in September, down from the 120,000 units started in August…of those housing units started in September, an estimated 88,000 were single family homes and 27,500 were units in structures with more than 5 units, down from the revised 89,100 single family starts in August, and down from the 28,500 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 can also be impacted by unusual weather….in September, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,428,000 housing units, which was 2.9 percent below the revised August rate of 1,470,000 permits, and was 5.7 percent below the 1,515,000 rate of building permit issuance now reported for September a year earlier…the annual rate for housing permits issued in August was revised from an annual rate of 1,475,000 to 1,470,000 annually….

Again, these annualized estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 113,700 housing units were issued in September, down from the revised estimate of 131,900 new permits issued in August…the September permits included 77,300 permits for single family homes, down from 86,100 single family permits in August, and 31,400 permits for housing units in apartment buildings with 5 or more units, down from 49,500 such multifamily permits a month earlier…

 

 

(the above is the synopsis that accompanied my regular sunday morning news 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 of which are picked from the aforementioned GGO posts, contact me…)