September’s income and outlays, industrial production, and factory inventories..

Shutdown delayed economic reports that were released this past week included the September report on Personal Income and Spending from the Bureau of Economic Analysis, the September report on Industrial Production and Capacity Utilization from the Fed, and the Full Report on Manufacturers’ Shipments, Inventories and Orders for September from the Census Bureau…

The week’s major privately issued reports, released as scheduled , included the ADP Employment Report for November, wherein the payroll processor reported private US employers cut 32,000 jobs in November, the largest drop in more than 2 1/2 years; the light vehicle sales report for November from Wards Automotive, which estimated that such vehicles sold at a 15.6 million annual rate in November, up from the 15.3 million annual sales rate in October, but down from the 16.5 million annual rate in November a year ago, and both of the widely watched purchasing manager’s surveys from the Institute for Supply Management (ISM): the November Manufacturing Report On Business reported that their manufacturing PMI (Purchasing Managers Index) fell to 48.2% in November, down from 48.7% in October, which indicates that a larger plurality of manufacturing purchasing managers continued to report worse conditions in various facets of their business in November than a month earlier, while the November Services Report On Business saw the Services index edge up to 52.6 in November, from 52.4 in October, indicating that a slightly larger plurality of service industry purchasing managers reported improvement in various facets of their business in November than in October…

September Personal Income Rose 0.4%, Spending Rose 0.3%, PCE Price Index Rose 0.3%; 3 Months PCE Will Add 189 Basis Points to Q3 GDP

The release of the September Income and Outlays report would usually be concurrent with the 3rd quarter GDP release, but the 3rd quarter GDP report has been postponed until December 23rd, which should have been the date for the release of the third GDP estimate….since this report will feed into that GDP report, all the dollar values reported in this report are seasonally adjusted and at an annual rate, ie, they tell us what income, spending and saving would be for a year if September’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from August to September….

Thus, as they now partly explain in the opening line of the news release for this report “Personal income increased $94.5 billion (0.4 percent at a monthly rate) in September…“, which means that the annualized figure for all types of personal income in September, $26,397.5 billion, was $94.5 billion, or almost 0.4% more than the annualized personal income figure of $26,303.0 billion for August; the actual increase in personal income from August to September, which is about one-twelfth that amount, is not given….similarly, disposable personal income, which is income after taxes, rose by more than 0.3%, from an annual rate of $23,043.2 billion in August to an annual rate of $23,119.0 billion in September…the monthly contributors to the change in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are thus also annualized…in September, the main contributors to the $94.5 billion annual rate of increase in personal income were an annualized $48.3 billion increase in wages and salaries, an annualized $27.2 billion increase in interest and dividend income, and an $10.6 billion annualized increase in government social benefits to persons, while farm proprietors’ income fell at an $8.1 billion annual rate…

Meanwhile, seasonally adjusted personal consumption expenditures (PCE) for September, rose at a $65.1 billion annual rate to a $21,152.2 billion pace of consumer spending annually, more than 0.3% above that of August, after August‘s PCE was revised down from the previously reported annual rate of $21,111.9 billion to $21,087.1 billion….the current dollar increase in September personal spending included a $63.0 billion annualized increase to an annualized $14,599.3 billion in spending for services, but just a $2.1 billion increase to $6,552.9 billion in annualized spending for goods….total personal outlays, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $70.7 billion to an annualized $22,029.0 billion in September, which left personal savings, which is disposable personal income less total outlays, at a $1,090.1 billion annual rate in September, barely up from the revised $1,084.9 billion in annualized personal savings in August…as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, remained at 4.7% in September, after the August figure had been the second lowest personal savings rate since December 2022…

Before personal consumption expenditures can be used in the computation of GDP, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption…..the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2017 prices = 100….from Table 5 in the pdf for this report, we find that the PCE price index rose from 127.283 in August to 127.625 in September, giving us a month over month PCE inflation rate of +0.26869%, which the BEA reports as a 0.3% increase….also in this report,Table 7 gives us a year over year PCE price index increase of 2.8%, and a core price increase, excluding food and energy, also of 2.8% for the past year, both still above the Fed’s 2% inflation target….applying the September inflation adjustment to the change in September PCE shows that real PCE was up 0.03992%, which BEA reports as unchanged in their summary table.. .note that when those PCE price indexes are applied to a given month’s annualized current dollar PCE, it yields that month’s annualized real PCE in chained 2017 dollars, which aren’t really dollar amounts at all, but merely the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to another….those monthly figures are shown in table 4 of the report PDF, where we see that September’s chained dollar personal consumption total works out to 16,574.8 billion annually, 0.039835% more than August’s 16,568.2 billion, a difference that the BEA reports as unchanged…

However, to compute the impact of the change in real PCE on the change in GDP, month over month changes such as that don’t help us much, since GDP is reported quarterly…thus we have to compare July, August and September real PCE to the the real PCE of the 3 months of the second quarter….while this report reports real PCE for each of those months separately, we can get their annualized average from table 3 of the pdf for the revised 2nd quarter GDP report, where we find that the annualized real PCE for the 2nd quarter was represented by 16,445.7 billion in chained 2017 dollars….then, by averaging the annualized chained 2017 dollar figures for July, August and September, 16,527.7 billion, 16,568.2 billion, and 16,574.8 billion respectively, we get an equivalent annualized PCE for the three months of the 3rd quarter….when we compare that average of 16 556.9 billion to the 2nd quarter real PCE representation of of 16,445.7 billion, we find that 3rd quarter real PCE has grown at a 2.73% annual rate for the two months of the 3rd quarter that we have…{note the math we’ve used to get that annual growth rate: (((16,527.7 +16,568.2 +16,574.8) / 3) / 16,445.7) ^ 4 = 1.02732214 }…that’s a pace that will add 1.89 percentage points to the growth rate of the 3rd quarter, give or take any revisions to 3rd quarter data that might come with the October report…

Industrial Production Rose 0.1% in September after August Production was Revised 2.2% Lower

The Fed’s report on Industrial Production and Capacity Utilization saw a significant annual revision on November 24th, which lowered most previously published metrics considerably…the net effect of that revision, spread over the years going back to 2018, was to lower the industrial production index for August (the most recently published month at the time of the revision) by 2.2%, leaving the level of total industrial production in August 2025 roughly equal that of February 2020…the revisions that accompany this September report are to the annual revision data of November 24th; the IP metrics we last reported in mid-September have been superseded by the data issued at the time of the annual revision and are no longer available, so our synopsis will basically review the changes from that November 24th revision…

The Fed’s G17 release on Industrial production and Capacity Utilization for September indicated that industrial production increased by 0.1% in September, after decreasing by a revised 0.3% in August, which was revised from the 0.1% decrease most recently reported, leaving industrial production 1.6% higher than in September a year ago, in contrast with the 0.9% year over year increase reported on stronger data two months ago…..the industrial production index, with the benchmark still set for average 2017 production to equal to 100.0, rose from 101.3 in August to 101.4 in September; after the index for August was revised but unchanged from the previously reported 101.3, the index for July was revised from the most recently reported 101.3 to 101.6, the index for June was revised from the previously reported 101.6 to 101.4, the index for May was revised from the previously reported 101.1 to 101.0, and the April index was revised from 101.2 to 101.1….industrial production index values we reported in September, before the annual revision, were 103.9 in August, 103.8 in July, 104.2 in June, 103.7 in May, 103.6 in April, and 103.5 in March; downward revisions such as that are unprecedented, at least over the 15 years i’ve covered this report..

The manufacturing index, which was at 100.3 in August before the revision, is now shown as unchanged at 97.0 in July, August, and September, after June’s manufacturing index was revised from 97.0 to 96.8, May’s manufacturing index was revised from 96.7 to 96.6, and April’s manufacturing index was revised from 96.8 to 96.7; that still left manufacturing output 1.5% higher than a year earlier….meanwhile, the mining index, which includes oil and gas well drilling, was unchanged at 121.7 in September, after the August index was revised from 120.7 to 121.7, and is now 2.8% higher 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 1.1% to 107.7 in September, after the August index was revised from 106.9 to 106.5, leaving the utility index 1.4% 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 was unchanged at 75.9% in September, after August utilization was revised down from the 77.5% reported two months ago to 75.9% as part of the annual revision….capacity utilization of NAICS durable goods production facilities was unchanged at 74.0% in September, while capacity utilization for non-durables producers fell from 77.3% in August to 77.1% in September.…capacity utilization for the mining sector was unchanged at 85.4% in September, after August utilization was revised down from the previously reported 85.7%, while utilities were operating at 69.9% of capacity during September, up from their 69.4% of capacity during August, which was revised down from 69.7%…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…

Factory Shipments were Flat in September, Factory Inventories were Down 0.1%

The Full Report on Manufacturers’ Shipments, Inventories, & Orders (pdf) for September from the Census Bureau reported that the seasonally adjusted value of new orders for manufactured goods rose by $1.2 billion or 0.2 percent to $612.6 billion in September, following an increase of 1.3% to $611.5 billion in August, which was revised from the 1.4% increase to $612.0 billion that was reported for August two weeks ago….however, since the Census Bureau does not even collect data on new orders for non durable goods for this widely watched “factory orders report”, both the “new orders” and “unfilled orders” sections of this report are really only useful as revised updates to the September advance report on durable goods we reported on last week.…on those durable goods revisions, the Census Bureau’s own summary, which precedes their detailed spreadsheet of the metrics included in this report, is quite clear and complete, so we’ll just quote directly from that summary here:

• Summary: New orders for manufactured goods in September, up two consecutive months, increased $1.2 billion or 0.2 percent to $612.6 billion, the U.S. Census Bureau reported today. This followed a 1.3 percent August increase. Shipments, down two consecutive months, decreased $0.2 billion or virtually unchanged to $606.7 billion. This followed a 0.3 percent August decrease. Unfilled orders, up fourteen of the last fifteen months, increased $10.9 billion or 0.7 percent to $1,489.8 billion. This followed a 0.7 percent August increase. The unfilled orders-to-shipments ratio was 6.98, up from 6.93 in August. Inventories, down two consecutive months, decreased $0.8 billion or 0.1 percent to $946.8 billion. This followed a 0.1 percent August decrease. The inventories-to-shipments ratio was 1.56, unchanged from August.
• New Orders for manufactured durable goods in September, up two consecutive months, increased $1.6 billion or 0.5 percent to $313.7 billion, unchanged from the previously published increase. This followed a 3.0 percent August increase. Transportation equipment, also up two consecutive months, led the increase, $0.4 billion or 0.4 percent to $110.7 billion. New orders for manufactured nondurable goods decreased $0.4 billion or 0.1 percent to $298.9 billion.
• Shipments of manufactured durable goods in September, up nine of the last ten months, increased $0.2 billion or 0.1 percent to $307.8 billion, unchanged from the previously published increase. This followed a 0.1 percent August decrease. Machinery, up three of the last four months, drove the increase, $0.5 billion or 1.3 percent to $39.4 billion. Shipments of manufactured nondurable goods, down two consecutive months, decreased $0.4 billion or 0.1 percent to $298.9 billion. This followed a 0.4 percent August decrease. Petroleum and coal products, also down two consecutive months, drove the decrease, $0.6 billion or 1.1 percent to $53.7 billion.
• Unfilled Orders for manufactured durable goods in September, up fourteen of the last fifteen months, increased $10.9 billion or 0.7 percent to $1,489.8 billion, unchanged from the previously published increase. This followed a 0.7 percent August increase. Transportation equipment, up six of the last seven months, led the increase, $9.6 billion or 1.0 percent to $928.8 billion.
• Inventories of manufactured durable goods in September, down two consecutive months, decreased $0.6 billion or 0.1 percent to $589.7 billion, unchanged from the previously published decrease. This followed a 0.1 percent August decrease. Transportation equipment, down three of the last four months, drove the decrease, $1.5 billion or 0.8 percent to $186.4 billion. Inventories of manufactured nondurable goods, down two consecutive months, decreased $0.2 billion or 0.1 percent to $357.1 billion. This followed a virtually unchanged August decrease. Food products, down five of the last six months, led the decrease, $0.1 billion or 0.2 percent to $73.7 billion.

To gauge the effect of September’s factory inventories on 3rd quarter GDP, they must first be adjusted for changes in price with appropriate components of the producer price index…by stage of fabrication, the value of finished goods inventories was virtually unchanged at $333,112 million; the value of work in process inventories was 0.7% lower at $259,603 million, and the value of materials and supplies inventories was 0.3% higher at $354,096 million.…meanwhile, the producer price index for August indicated that prices for finished goods were on average 0.9% higher, that prices for intermediate processed goods were 0.4% higher, and that prices for unprocessed goods were 0.1% higher….assuming average valuations will be similar for like types of inventories, we could thus estimate that September’s real finished goods inventories decreased by 0.9%, that real inventories of intermediate processed goods were 1.1% lower, and that real raw material inventory inventories were about 0.2% greater…while on net it appears that September’s real inventories were thus about 0.6% lower, that follows August’s factory inventory change, when real inventories were about 0.2% higher, and July's decrease of about 0.8%…but since real NIPA factory inventories were down sharply in the 2nd quarter, accounting for over 80% the quarter’s record inventory decrease, that the 3rd quarter appears to indicate just a modest real decrease in aggregate factory inventories would therefore mean that the difference between the 2nd quarter decrease and the July decrease would be added to the 3rd quarter’s real growth in GDP..

 

 

(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…)