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

Widely watched reports released during the past week included the Retail Sales report for May and its companion the Business Sales and Inventories report for April, both from the Census Bureau; the May report on Industrial Production and Capacity Utilization from the Fed, and the May report on New Residential Construction also from the Census Bureau..

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 fell to –16.0 June, from –9.2 in May, indicating that a larger plurality of that district’s manufacturers are experiencing a slowdown than were a month ago..…meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported their broadest diffusion index of manufacturing conditions remained unchanged at -4.0 in June, indicating that a small plurality of that district’s manufacturers are continuing to experience a slowdown, or, as they specify: “25 percent of the firms reported increases in general activity this month (up from 19 percent last month), while 28 percent reported decreases (up from 23 percent); 44 percent reported no change (down from 58 percent)”

Retail Sales Fell 0.9% in May After March and April Sales Were Revised Lower

Seasonally adjusted retail sales fell 0.9% in May after retail sales for March and April were revised lower….theAdvance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $715.4 billion for the month, which was a decrease of 0.9 percent (±0.5%) from April’s revised sales of $722.0 billion, but still 3.3 percent (±0.5 percent) above the adjusted sales of May of last year….April’s seasonally adjusted sales were revised from the $724.1 billion reported last month to $722.0 billion, while March sales were revised from $723.7 billion to $722.6 billion, which combined meant that March to April percent change was revised from the 0.1 percent (±0.5 percent)* increase that was reported a month ago to a decrease of 0.1 percent (±0.2 percent)* ….the $1.1 billion downward revision to March sales would reduce nominal first quarter PCE at around a $4.4 billion annual rate and subtract about 0.07 percentage points, give or take, from 1st quarter GDP when the 3rd estimate is released on May 26th….estimated sales before seasonal adjustments, which were extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 4.3% before the adjustment, from $722,097 million in April to $753,158 million in May, while they were up 3.1% from the $730,332 million in actual sales of 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 2025 r” (revised) and the revised April 2024 to April 2025 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….

To compute May’s real personal consumption of goods data for national accounts from this May retail sales report, the BEA will initially use the corresponding price changes from the May consumer price index, which we reviewed last week….to estimate what they will find, we’ll first separate out the volatile sales of gasoline from the other totals…from the third line on the above table, we can see that May retail sales, excluding the 2.0% decrease in sales at gas stations, were down by 0.8%…then, by subtracting the actual dollar amounts representing the 0.7% decrease in grocery & beverage sales and the 0.9% decrease in food services sales from the dollar amounts behind that change, we find that core retail sales were down by 0.8% for the month….since the May CPI report showed that the composite price index of all goods less food and energy goods was unchanged in May, we can thus figure that the change in real retail sales excluding food and energy sales would be a decrease of 0.8% from April…however, note that 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 and parts stores were down 3.5% in May, the May price index for transportation commodities other than fuel was was 0.2% lower, which would suggest that real unit sales of auto dealers and parts stores were 3.3% lower, once the price decrease is taken into account… similarly, while nominal sales at clothing stores were 0.8% higher in May, the apparel price index was 0.4% lower, which suggests that real sales of clothing actually rose around 1.2%…

In addition to figuring those core retail sales, to make an estimate of the month’s change in real sales, we’ll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do.…the May CPI report showed that the food price index was 0.3% higher, as the price index for food purchased for use at home rose 0.3%, while the index for food bought away from home was also 0.3% higher, with average prices at both fast food outlets and full service restaurants 0.3% higher.…thus, with nominal sales at food and beverage stores 0.7% lower, real sales of food and beverages would have been around 1.0% lower after accounting for higher prices…meanwhile, the 0.9% decrease in nominal sales at bars and restaurants, once adjusted for 0.3% higher prices, suggests that real sales at bars and restaurants were roughly 1.2% lower during the month….on the other hand, while sales at gas stations were down 2.0%, there was also a 2.6% decrease in the price of gasoline during the month, which would suggest that real sales of gasoline were on the order of 0.6% higher, with a caveat that gasoline stations do sell more than gasoline, products which should not be adjusted with gasoline prices…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 May will show that real personal consumption of goods fell by roughly 0.7% in May, after falling by a revised 0.5% in April, but after rising by a revised 1.4% in March, after rising by 0.2% in February and falling by 1.7% in January…at the same time, the 1.3% decrease in real sales at bars and restaurants would subtract about 8 basis points from the growth rate of May’s real personal consumption of services….

Industrial Production Fell 0.2% in May After Production for Five Prior Months was Revised Lower

Industrial production decreased in May after production for March and April was revised lower…the Fed’s G17 release on Industrial production and Capacity Utilization for May reported that industrial production decreased 0.2% in May after rising by a revised 0.1% in April and falling by a revised 0.2% in March, which left total output 0.6% higher than a year ago, down the 1.5% year over year increase reported for April a month ago…the industrial production index, which is benchmarked for average 2017 production to be equal to 100.0, fell from a revised 103.8 in April to 103.6 in May, after the April reading for the index was revised down from 103.9 to 109.8, the March index was revised down from 103.9 to 1037, the February index was revised down from 104.1 to 104.0, the January index was was revised down from 103.2 to 102.9, and the December index was revised down from 103.1 to 103.0….

The manufacturing index, which accounts for about 77% of the total IP index, rose 0.1%, from a revised 99.9 in April to to 100.0 in May, after the April manufacturing index was revised from 100.0 to 99.9, the March manufacturing index was revised but remained at 100.4, the February manufacturing index was revised from 100.0 to 99.8, the January manufacturing index was revised from 98.9 to 98.6, and the December manufacturing index was unrevised at 98.9, leaving manufacturing output 0.5% higher than it was a year ago… meanwhile, the mining index, which includes oil and gas well drilling, rose 0.1% from 121.5 in April to 121.7 in May, after the April index was revised up from the originally reported 120.5, leaving the mining index 2.9% higher than it was a year earlier….finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 2.9% to 105.3 in May, after the April index was revised from a 3.3% increase to 109.2 to an increase of 4.9% to 108.5, which came after the March utility index was revised from a 6.2% decrease to 105.7 to an 8.3% decrease to 103.4, leaving the utility index 1.6% below its 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 fell to 77.4% in May from 77.7% in April, with capacity utilization for April unrevised up from a month ago….capacity utilization for all manufacturing industries was unchanged at 76.7% in May, as utilization of NAICS durable goods production facilities rose from a downwardly revised 75.1% in April to 75.3% in May, while capacity utilization for non-durables manufacturers fell from 78.4% to 78.2%…at the same time, capacity utilization for the mining sector rose to 91.1% in May, from 91.0% in April, which was originally reported as 90.5%, while utilities were operating at 68.5% of capacity during May, down from 70.5% of capacity during April, which was was originally reported at 71.3%….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 0.1% April; Business Inventories were Unchanged

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 $1,922.8 billion in April, down 0.1 percent (±0.2 percent)* from March revised sales, but up 3.8 percent (±0.3 percent) from April sales of a year earlier…March sales were revised from the originally reported $1,919.9 billion to $1,924,9 illion, but the March increase from February was revised from 0.7% to 0.6%….manufacturer’s sales were down 0.3% from March at $598,876 million in April, and retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, were down 0.2% to $623,726 million, while wholesale sales rose 0.1% to $700,179 million..

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,656.5 billion at the end of April, statistically unchanged (±0.1 percent)* from March, and 2.2 percent (±0.3 percent) higher than in April a year earlier…the value of end of March inventories was revised from the $2,578.1 billion reported last month to $2,655.7 billion with this release, but is still a 0.1% increase from February…seasonally adjusted inventories of manufacturers were estimated to be valued at $943,562 million, 0.1% lower than in March, inventories of retailers were valued at $804,272 million, statistically unchanged from March, and inventories of wholesalers were estimated to be valued at $908,699 million at the end of April, up 0.2% from March.

With the release of the factory inventory data two weeks ago, we judged that the real change in April’s factory inventories, after adjusting for inflation, would have a major negative impact on the growth rate of 2nd quarter GDP, first by reversing the first quarter increase, then by subtracting the modest second quarter decrease, from the growth rate of 2nd quarter GDP; meanwhile, with the release of the wholesale inventory data, we felt the real increase in 2nd quarter real wholesale inventories was much smaller than that of the first quarter, and would subtract from 2nd quarter GDP by an amount equal to the difference between those quarterly inventory increases…..since the April producer price index reported that prices for finished goods were on average 0.2% higher, that means that there was likely a real decrease in retail inventories of around 0.2% for the month….sincethe key source data and assumptions (xls) for the second estimate of 1st quarter GDP indicated that 1st quarter real retail inventories had accounted for about 10% of the record 1st quarter inventory increase, any decrease in the 2nd quarter’s real retail inventories would first reverse the first quarter increase, then subtract the modest second quarter decrease from the growth rate of 2nd quarter GDP…

New Housing Starts Reported at a 5 Year Low in May; Permits also Lower

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 1,256,000 in May, which was a 59 month low, 9.8 percent (±9.3 percent) below the revised April estimated annual rate of 1,392,000 housing unit starts, and was 4.6 percent (±8.3 percent)* below last May’s rate of 1,316,000 housing starts a year…the asterisk indicates that Census does not have sufficient data to determine whether housing starts actually rose or fell from a year ago, 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 up by 3.7% or down by as much as 12.9% from those of last May, with even larger revisions to this month’s data possible over time…in this report, the annual rate for April’s housing starts was revised from the 1,361,000 estimated last month to 1,392,000, while March housing starts, which were first reported at a 1,324,000 annual rate, were revised from last month’s initial revised annual figure of 1,339,000 up to 1,355,000 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 115,200 housing units were started in May, down from the 126,600 units started in April but up from the 112,900 units started in March… of those housing units started in May, an estimated 85,300 were single family homes and 28,400 were units in structures with more than 5 units, up from the revised 84,500 single family starts in April, but down from the 40,600 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, is 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 1,393,000 housing units, which was 2.0 percent below the revised April permit rate of 1,422,000 units, and 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 1,412,000 reported a month ago…

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 125,000 housing units were issued in May, down from the revised estimate of 129,900 new permits issued in April, but up from the 124,200 housing units permitted in March….the May figure included permits for an estimated 84,000 single family units, down from 88,300 in April, and permits for 36,200 units in structures with more than 5 units, up from 36,000 in April….

For graphs and commentary on this report, see the following posts by Bill McBride at Calculated Risk: Housing Starts Decreased to 1.256 million Annual Rate in May and Newsletter: Housing Starts Decreased to 1.256 million Annual Rate in May, which links to his in depth free newsletter article on the same subject…

 

 

(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 chosen from the aforementioned GGO posts, contact me…)