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

Widely watched reports released last 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..

The 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, an adjacent county in Connecticut, Puerto Rico and northern New Jersey, reported their headline general business conditions index fell to +5.7 June, down from +19 .6 in May, indicating that a significantly smaller plurality of that district’s manufacturers are experiencing business growth 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 rose to +10.3 in June from –0.4 in May, indicating that a modest plurality of that district’s manufacturers are now experiencing improvement, or, as they specify: “Over 32 percent of the firms reported increases (up from 22.5%), exceeding the 22 percent reporting decreases (down from 22.5%); while 45 percent of the firms reported no change in current activity. (down from 55%) ”

Retail Sales Rose 0.9% in May After March Sales Were Revised Higher

Seasonally adjusted retail sales rose 0.9% in May after retail sales for March and April were revised lower….the Advance Retail Sales Report for May (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $763.7 billion for the month, which was an increase of 0.9 percent (±0.4%) from April’s revised sales of $757.0 billion, and was 6.9 percent (±0.5 percent) above the adjusted sales of May of last year….April’s seasonally adjusted sales were revised from the $757.1 billion reported last month to $757.0 billion, while March sales were revised from $753.4 billion to $754.0 billion, which combined meant that the March to April percent change was revised from the 0.5 percent (±0.4 percent)* increase that was reported a month ago to an increase of 0.4 percent (±0.2 percent) ….the $0.6 billion upward revision to March sales would increase nominal first quarter PCE at around a $2.4 billion annual rate and add about 0.04 percentage points, give or take, to 1st quarter GDP when the 3rd estimate is released on May 25th….estimated sales before seasonal adjustments, which were extrapolated from surveys of a small sampling of retailers, indicated sales actually rose 5.0% before the adjustment, from $792,825 million in April to $754,755 million in May, while they were up 5.2% from the $753,313 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 2026 r” (revised) heading, and the revised April 2025 to April 2026 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 estimate 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 3.4% increase in sales at gas stations, were up by 0.7%…then, by subtracting the actual dollar amounts representing the unchanged grocery & beverage sales and the 0.1% decrease in food services sales from the dollar amounts behind that change, we find that core retail sales were up by more than 0.9% for the month….since the May CPI report showed that the composite price index of all goods less food and energy goods was 0.1% lower in May, we can thus figure that the change in real retail sales, excluding food and energy sales, would be an increase of about 1.0% 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 up by 1.2% in May, the May price index for transportation commodities other than fuel was was 0.1% lower, which would suggest that real unit sales of auto dealers and parts stores were 1.3% higher, once the price decrease is taken into account… on the other hand, while nominal sales at clothing stores were 0.3% higher in May, the apparel price index was 0.3% higher, which suggests that the May sales increase was due to higher prices and that real sales of clothing were actually unchanged…

In addition to figuring those core retail sales, to make an estimate of the month’s change in real sales, we’d 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 0.2% higher, as the price index for food purchased for use at home rose 0.1%, while the index for food bought away from home was 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 unchanged, real sales of food and beverages would have been around 0.1% lower after accounting for slightly higher prices…meanwhile, the 0.1% 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 0.4% lower during the month….on the other hand, while sales at gas stations were up 3.4%, there was also a 7.0% increase in the price of gasoline during the month, which would suggest that real sales of gasoline were on the order of 3.4% lower, 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 rose by nearly 0.5% in May, after falling by a barely revised 0.1% in April, but after rising by a revised 0.8% in March, after rising by 0.8% in February and falling by 0.6% in January…at the same time, the 0.4% decrease in real sales at bars and restaurants would subtract about 2 basis points from the growth rate of May’s real personal consumption of services….(note: we have little confidence in our PCE goods estimate because of the aberrant gasoline adjustment we used; without gasoline, our estimate would show that May’s real PCE goods would be nearly 0.8% higher..)

Industrial Production Rose 0.1% in May After Production for Three Prior Months was Revised Lower

Industrial production increased in May after production for January, February and March was revised lower…the Fed’s G17 release on Industrial production and Capacity Utilization for May reported that industrial production increased 0.1% in May after rising by a revised 0.9% in April and falling by a revised 0.3% in March, which left total output 1.7% higher than a year ago, up from the 1.4% 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, rose from a revised 102.5 in April to 102.6 in May, after the April reading for the index was revised but remained at 102.5, the March index value was revised down from 101.8 to 101.6, the February index was revised down from 102.1 to 101.9, and the January index was was revised down from 101.5 to 101.1….

The manufacturing index, which accounts for about 77% of the total IP index, was statistically unchanged at 97.9 in May, after the April manufacturing index was revised from 97.9 to 97.8, the March manufacturing index was revised from 97.3 to 97.1, the February manufacturing index was revised from 97.3 to 96.9, the January manufacturing index was revised from 96.9 to 96.3, and the December manufacturing index was revised from 96.3 to 96.2, leaving manufacturing output 1.4% higher than it was a year ago… meanwhile, the mining index, which includes oil and gas well drilling, rose 1.3%, from 121.2 in April to 122.9 in May, after the April index was revised up from the originally reported 120.4, leaving the mining index 2.0% higher than it was a year earlier….finally, the seasonally adjusted utility index, which often fluctuates due to above or below normal temperatures, fell 0.4% to 111.1 in May, after the April index was revised from a 1.9% increase to 111.8 to an increase of 2.4% to 111.6, leaving the utility index 3.1% above 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 rose to 76.2% in May from 76.1% in April, with capacity utilization for April unrevised up from a month ago….capacity utilization for all manufacturing industries was unchanged at 75.6% in May, as utilization of NAICS durable goods production facilities rose from a downwardly revised 74.8% in April to 75.4% in May, while capacity utilization for non-durables manufacturers fell from 76.5% to 75.7%…at the same time, capacity utilization for the mining sector rose to 85.5% in May, from 85.3% in April, which was originally reported as 84.6%, while utilities were operating at 71.0% of capacity during May, down from 70.6% 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….

Business Sales Rose 1.2% April; Business Inventories Rose 0.5%

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 $2,086.0 billion in April, up 1.2 percent (±0.2 percent) from March revised sales, and up 8.7 percent (±0.4 percent) from April sales of a year earlier…March sales were revised from the originally reported $2,059.2 billion to $2,062.1 billion, and the March increase from February was revised from 2.1% to 2.2%….manufacturer’s sales were up 1.0% from March at $641,012 million in April, and retail trade sales, which exclude restaurant & bar sales from the revised April retail sales reported earlier, were up 0.3% to $655,933 million, while wholesale sales rose 2.0% to $789,054 million..

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,726.6 billion at the end of April, up 0.5 percent (±0.1 percent) from March, and 2.7 percent (±0.5 percent) higher than in April a year earlier…the value of end of March inventories was revised from the $2,709.7 billion reported last month to $2,712.9 billion with this release, and is now a 1.0% increase from February…seasonally adjusted inventories of manufacturers were estimated to be valued at $959,125 million, 0.3% higher than in March, inventories of retailers were valued at $826,577 million, up 0.7% from March, and inventories of wholesalers were estimated to be valued at $946,792 million at the end of April, up 0.6% from March.

With the release of the factory inventory data two weeks ago, we judged that after adjusting for inflation, the real decrease in April’s factory inventories was close to that of the first quarter, and its eventual impact on the growth rate of 2nd quarter GDP would be determined by which quarter ends up with the larger decrease…meanwhile, with the release of the wholesale inventory data last week, we figured the real decrease in 2nd quarter real wholesale inventories would subtract from 2nd quarter GDP, first by subtracting the first quarter increase, then by subtracting the 2nd quarter’s decrease..…..since the April producer price index reported that prices for finished goods were on average 1.9% higher, that means that there was likely a real decrease in retail inventories of around 1.2% for the month….since the key source data and assumptions (xls) for the second estimate of 1st quarter GDP indicated that 1st quarter real retail inventories had accounted for all of the 1st quarter inventory increase, any decrease in the 2nd quarter’s real retail inventories would first reverse the first quarter increase, then subtract the second quarter decrease from the growth rate of 2nd quarter GDP…

New Housing Starts Reported at a 6 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 1,177,000 in May, which was a 6 year low, 15.4 percent (±9.8 percent) below the revised April estimated annual rate of 1,392,000 housing unit starts, and was 8.7 percent (±8.2 percent) below last May’s rate of 1,392,000 housing starts a year…the figure in parenthesis indicates the most likely range of the change indicated; in other words, May’s housing starts could have just as easily been down by 5.6% or down by as much as 25.2% 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 1,465,000 estimated last month to 1,392,000, while March housing starts, which were first reported at a 1,502,000 annual rate, were revised from last month’s initial revised annual figure of 1,507,000 up to a 1,522,000 annual rate 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 107.000 housing units were started in May, down from the 127,000 units started in April, and down from the 128,600 units started in March… of those housing units started in May, an estimated 81,600 were single family homes and 24,400 were units in structures with more than 5 units, down from the revised 82,600 single family starts in April, and down from the 43,700 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 repeatedly revised housing starts data…in May, Census estimated new building permits were being issued for a seasonally adjusted annual rate of 1,413,000 housing units, which was 0.7 percent below the revised April permit rate of 1,423,000 units, and 0.2 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 1,442,000 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 120,900 housing units were issued in May, down from the revised estimate of 129,400 new permits issued in April, and down from the 126,200 housing units permitted in May of last year….the current May figure included permits for an estimated 78,700 single family units, down from 84.500 in April, and permits for 37,600 units in structures with more than 5 units, down from 40,100 in April…

>> (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…)