May’s trade deficit and wholesale inventories; June’s existing home sales

Last week’s major economic releases included the Bureau of Economic Analysis’s report on our International Trade for May, the May report on Wholesale Trade, Sales and Inventories from the Census Bureau, and the June report on existing home sales from the National Association of Realtors (NAR)…the week also saw the Consumer Credit Report for May from the Fed, which indicated that total non-real estate consumer debt outstanding was virtually unchanged in May, as non-revolving credit grew at a 1.6% rate to $3,810.3 billion, while revolving credit outstanding shrunk at a 4.7% rate to $1,344.2 billion…

The most widely watched private report released last week was the June Services ISM Report On Business from the Institute for Supply Management, which saw their ISM Services index slip to 54.0% in June, down from a reading of 54.5% in May, indicating that a slightly smaller plurality of service industry purchasing managers reported improving conditions in various facets of their business in June than did in May…

US Trade Deficit Rose 42.2% in May on Drop in Exports, Jump in Imports; Subtracts ~36 Basis Pts from GDP

Our trade deficit was 42.2% higher in May as the value of our exports decreased while the value of our imports increased….the Commerce Department’s report on our international trade in goods and services for May indicated that our seasonally adjusted goods and services international trade deficit rose by a rounded $23.0 billion to $77.6 billion in May, from a April deficit of $54.6 billion, which was revised down from the $55.9 billion deficit reported for April last month….also in rounded totals, the value of our May exports fell by $10.5 billion or by 3.2% to $317.7 billion on an $11.3 billion decrease to $210.6 billion in our exports of goods, offset by an $0.8 billion increase to $107.1 billion in our exports of services, while our imports rose by $12.5 billion or by 3.3% to $395.3 billion on a $12.3 billion increase to $317.0 billion in our imports of goods, and an $0.2 billion increase to $78.2 billion in our imports of services…export prices were on average 1.3% higher in May, which means the decrease in our exports was despite higher prices and that real exports probably fell on the order of 4.5%, while import prices were 1.9% higher, meaning that increase in the value of our imports was partly price related, and that our real imports probably rose on the order of 1.4%..

The news release for this month’s report gives us a brief synopsis of Exhibits 7 and 8 in the Full Release and Tables pdf for May, which details the major reasons for the decrease in our exports and the increase in our imports:

Exports of goods on a Census basis decreased $11.6 billion.

• Industrial supplies and materials decreased $5.5 billion.
  • Nonmonetary gold decreased $6.2 billion.
  • Other precious metals decreased $1.3 billion.
  • Natural gas decreased $1.1 billion.
  • Crude oil increased $2.0 billion.
• Capital goods decreased $3.5 billion.
  • Computers decreased $2.1 billion.
  • Computer accessories decreased $2.0 billion.
• Consumer goods decreased $2.1 billion.
• Pharmaceutical preparations decreased $0.9 billion.

Imports of goods on a Census basis increased $12.1 billion.

• Consumer goods increased $3.5 billion.
  • Pharmaceutical preparations increased $1.9 billion.
  • Cell phones and other household goods increased $1.0 billion.
• Industrial supplies and materials increased $3.1 billion.
  • Crude oil increased $1.5 billion.
• Automotive vehicles, parts, and engines increased $2.2 billion.
  • Passenger cars increased $1.0 billion.
• Other goods increased $1.4 billion.
• Capital goods increased $1.1 billion.
• Computer accessories increased $1.2 billion.
• Semiconductors increased $1.0 billion.
• Computers decreased $3.4 billion.

That news release for this month’s report also summarizes Exhibit 19 in the pdf, which gives us surplus and deficit details on our goods trade with selected countries…

The May figures show surpluses, in billions of dollars, with Netherlands ($9.1), Hong Kong ($5.6), South and Central America ($4.8), Australia ($1.9), United Kingdom ($1.4), Brazil ($1.1), Singapore ($0.9), Belgium ($0.7), and Saudi Arabia ($0.3). Deficits were recorded, in billions of dollars, with Vietnam ($20.6), Mexico ($20.1), Taiwan ($19.4), China ($14.5), European Union ($9.3), Canada ($7.0), Germany ($5.7), Malaysia ($4.7), South Korea ($4.4), India ($4.1), Ireland ($4.0), Italy ($2.9), Switzerland ($2.3), Japan ($2.0), France ($1.5), and Israel ($0.4).

• The balance with Switzerland shifted from a surplus of $4.4 billion in April to a deficit of $2.3 billion in May. Exports decreased $6.9 billion to $2.0 billion and imports decreased $0.1 billion to $4.3 billion.
• The deficit with Mexico increased $5.3 billion to $20.1 billion in May. Exports decreased $1.5 billion to $33.4 billion and imports increased $3.9 billion to $53.5 billion.
• The deficit with France decreased $0.9 billion to $1.5 billion in May. Exports decreased less than $0.1 billion to $3.9 billion and imports decreased $0.9 billion to $5.4 billion.

To gauge the impact of April and May trade on 2nd quarter GDP growth figures, we use exhibit 10 in the pdf for this report, which gives us monthly goods trade figures by end use category and in total, already adjusted for inflation in chained 2017 dollars, the same inflation adjustment that’s used by the BEA to compute trade figures for GDP, with the only difference here being that the figures here are not annualized…. from that table, we can figure that the 1st quarter’s real exports of goods averaged 159,501 million monthly in 2017 dollars, while inflation adjusted April and May exports were at 165,252 million and 154,279 million respectively in that same 2017 dollar quantity index representation….after averaging those inflation adjusted April and May goods export figures and then computing the annualized change between that average and the average of the first quarter, we find that the 2nd quarter’s real exports of goods have been running at a 0.66% annual rate above those of the 1st quarter, or at a pace that would add about 0.04 percentage points to 2nd quarter GDP if were to continue at the same rate through June…..In a similar manner, we can figure that our 1st quarter real imports averaged 243,265.7 million monthly in chained 2017 dollars, while inflation adjusted April and May imports were at 249,535 million and 254,319 million in those same inflation adjusted dollars respectively….that would mean that so far in the 2nd quarter, our real imports of goods have increased at a 3.56% annual rate from those of the 1st quarter…since imports are subtracted from GDP because they represent the portion of consumption or investment that occurred during the quarter that was not produced domestically, their increase at an 3.56% rate would subtract about 0.40 percentage points from 2nd quarter GDP….hence, if our goods trade deficit at the April – May level is maintained through June, our deteriorating balance of trade in goods would subtract about 0.36 percentage points from  the growth of 2nd quarter GDP….

Note that we have not figured the impact of the usually less volatile change in services here because the Census does not provide inflation adjusted data on those, but that our exports of services increased by a nominal $0.8 billion while our imports of services increased $0.2 billion, which thus suggests that May’s trade in services would be moderately positive for 2nd quarter GDP, following what we judged would be a moderately negative impact on 2nd quarter GDP from the change in the balance of trade in services we saw in April….

Wholesale Sales Rose 3.4% in May; Wholesale Inventories Rose 0.1%

The May report on Wholesale Trade, Sales and Inventories (pdf) from the Census Bureau estimated that the seasonally adjusted value of wholesale sales was at “$817.4 billion, up 3.4 percent (±0.5 percent) from the revised April level and…up 18.1 percent (±0.9 percent) from the revised May 2025 level.”.. the April preliminary estimate of wholesale sales was revised from the $789.1 billion reported a month ago to $790.747 billion, which was enough to revise the March to April percent change “from the preliminary estimate of up 2.0 percent (±0.5 percent) to up 2.2 percent (±0.5 percent)”…..as an intermediate activity, wholesale sales are not included in GDP except insofar as they are a trade service, since the traded goods themselves do not represent an increase in the output of the goods produced or finally sold….

On the other hand, the monthly change in private inventories is a major factor in figuring GDP, as any goods left on the shelf or in intermediate storage theoretically represent goods that were produced but not sold, and this May report estimated that wholesale inventories were valued at a seasonally adjusted $941.8 billion at month end, up 0.1 percent (±0.2 percent)* from the revised April level, and 4.0 percent (±1.2 percent) higher than in May a year ago, with the April preliminary inventory estimate revised from $940.3 billion to $940.7 billion at the same time, now a 0.7% increase from March…

For national accounts purposes, May’s wholesale inventories will be adjusted for price changes by category with the appropriate components of the May producer price index, which indicated a 2.8% increase in prices for finished goods, a 3.5% increase in prices for intermediate goods, and a 4.9% increase in prices for unprocessed goods in May….with most of wholesale inventories finished goods, with the notable exceptions of commodity inventories, there will thus be a sizable real decrease in May wholesale inventories, following the real wholesale inventory decrease of around 1.3% we had figured for April…since the key source data and assumptions (xls) for the third estimate of 1st quarter GDP indicated that the 1st quarter’s real wholesale inventory change was modestly positive, accounting for about 20% of the quarter’s increase in inventories, any decrease in 2nd quarter real wholesale inventories will subtract from 2nd quarter GDP, first by subtracting the first quarter increase, then by subtracting the 2nd quarter’s decrease..…

Existing Home Sales Fell 2.7% in June on Record High Sales Prices

The National Association of Realtors (NAR) reported that existing home sales fell by 2.4% from May to June on a seasonally adjusted basis, projecting that 4.09 million homes would sell over an entire year if the June home sales pace were extrapolated over that year, a pace that was still up 2.8% the 3.98 million annual sales rate projected for June of a year ago…the June home sales decrease came after homes sold at an annual sales rate of 4.19 million in May, which was revised from the 4.17 million annual sales rate indicated by last month’s report….the NAR also reported that the median sales price for all existing-home types was at a record $440,600 in June, up 1.8% from the median $432,700 sales price in June a year earlier, which they report was “the 36th consecutive month of year-over-year price increases“…..the NAR press release, which is titled “NAR Existing-Home Sales Report Shows 2.4% Decrease in June“, is in easy to read plain English, so if you’re interested in the details on housing inventories, cash sales, distressed sales, first time home buyers, etc., you can easily find them in that press release…as existing properties are not new additions to our national output, neither these home sales nor the prices for which these homes sell are included in GDP, except insofar as real estate brokerage, local government and banking services are rendered during the selling process..

Since this report is entirely seasonally adjusted and at a not very informative annual rate, we usually look at the raw data overview (pdf), which gives us a close approximation of the actual number of homes that sold each month…this unadjusted data indicates that roughly 422,000 homes sold in June, up by 7.9% from the 391,000 homes that sold in May, in contrast to the decrease in sales than the seasonally adjusted figures indicate, and also up by 7.9% from the 391,000 homes that sold in June of last year….that same pdf indicates that the median home selling price for all housing types rose 2.2%, from a revised $431,200 in May to $440,600 in June, while the regional median sales prices ranged from a low of $346,600 in the Midwest to a high of $633,600 in the West..

(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…)