Manufacturing Slowing, Weak Retail Sales, Fewer Job Openings: What We Learned During the Week of October 12-16

Continued weakness in manufacturing and retail, along with a drop in job openings, were last week’s highlights.  Here are the 5 things we learned from U.S. economic data released during the week ending October 16.

#1Manufacturing production eased for the 3rd time in 4 months in September. The Federal Reserve indicates manufacturing output slipped 0.1% during the month and was only 1.4% above year ago levels. This was the worst 12-month comparable in terms of manufacturing output since February 2014. Production of durable goods slowed 0.2% during September even though motor vehicle output had edged up 0.2%. Falling by at least 1% were the production of electrical equipment/appliances, nonmetallic mineral products and wood products. Durable goods production was only 1.2% above year ago levels, its smallest year-to-year comparable since January 2014. Nondurable goods output was unchanged for the month and was up 2.0% vs. September 2014 levels.

More broadly, overall industrial production declined for a 2nd straight month with a 0.2% drop. Production at utilities grew 1.3% (thanks to warm weather in parts of the U.S. that drove up demand for air conditioning) but slowed 2.0% in the mining sector (with “sizable cuts” in the extraction of crude oil and the drilling of oil and gas). Capacity utilization at manufacturing plants eased during the month, slipping 2/10ths of a percentage point to 75.9%. The same measure was at 75.7% a year earlier.

#2The number of job openings fell but hiring activity held steady in August. The Bureau of Labor Statistics estimates there were a seasonally adjusted 5.370 million job openings at the end of August, down 298,000 job openings from July but still up 9.0% from a year earlier. Private sector job openings were 8.9% above year ago levels at 4.878 million, led by strong year-to-year percentage gains in professional/business services (+20.1%), health care/social assistance (+12.5%), trade/transportation/utilities (+9.3%), manufacturing (+8.8%) and construction (+8.7%). Government sector job openings totaled 493,000, up 10.3% from a year earlier.

There were a seasonally adjusted 5.078 million hires made during August, essentially unchanged from July but up 6.0% from August 2014 levels. The biggest year-to-year percentage gains in hiring were seen in health care/social assistance (+16.8%), leisure/hospitality (+13.6%), retail (+10.2%) and manufacturing (+9.5%). Separations totaled 4.846 million, up 50,000 for the month and 6.1% from a year earlier. Voluntary quits were essentially unchanged for the month at 2.741 million (+8.9% vs. August 2014) while layoff activity grew by 42,000 to 1.688 million (+1.5% vs. August 2014).

#3Retail sales were weak in September. The Census Bureau estimates retail sales were at a seasonally adjusted $447.7 billion during the month, up 0.1% from September and 2.4% from a year earlier. The story deteriorates after removing the 1.7% gain in sales at auto dealers & parts stores—net of sales at auto dealers and gas stations (where lower prices pushed down sales 3.2%), core retail sales were unchanged for the month. Growing during the month were sales at retailers focused on101615 sporting goods/hobbies (+0.9%), apparel (+0.9%) and furniture (+0.6%), along with a 0.7% gain in sales at restaurants/bars. But sales cooled at grocery stores (-0.3%), building materials retailers (-0.3%), electronics/appliance stores (-0.2%) and general merchandisers (-0.1%).

#4A drop in gasoline prices weighed on consumer and wholesale prices in September. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) dropped for a 2nd straight month during September (-0.2%) and was unchanged versus a year earlier. Energy CPI dropped 4.7% during September and was 18.4% below year ago levels. Yes, gasoline prices slumped 9.0% during the month, but the energy index also was pulled down by drops in prices for fuel oil (-2.4%), electricity (-0.5%) and utility delivered natural gas (-0.3%). Meanwhile, food CPI grew at its fastest pace since May 2014 (+0.4%), with gains seen in prices for dairy products, fresh fruit and fresh vegetables. Net of energy and food, core CPI grew 0.2% for the month and was 1.9% above year ago levels. Rising during the month were prices for shelter, medical care services and transportation services.

Meanwhile, disinflation was more widespread with wholesale prices. The Producer Price Index (PPI) for final demand fell 0.5%, its largest drop since January. The price index for final demand goods declined for a 3rd straight month with a 1.2% drop. Falling were wholesale prices for both energy (-5.9%, including a 16.6% drop in gasoline prices) and food (-0.8%). Net of both energy and food, core final demand PPI was unchanged for the month and was up a mere 0.2% from a year earlier. Wholesale prices for final demand services declined 0.4% during the month and were 1.0% above year ago levels.

#5The Federal Government’s budget deficit contracted to its smallest level since 2007. According to the Bureau of the Fiscal Service, the unified budget deficit totaled $438.9 billion for the recently completed FY2015, down 13.9% from the previous fiscal year. The deficit represented 2.4% of GDP, its smallest relation to GDP since FY2007. Receipts totaled $3.249 trillion, up 7.6% from the prior fiscal year. Individual income tax receipts paced 10.5% above those of FY2014 while corporate tax receipts jumped 7.2%. Outlays totaled $3.688 trillion, up 5.2% from the prior year.

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending October 10, 2015, seasonally adjusted): 255,000 (-7,000 vs. previous week), 4-week moving average = 265,000 (-2,250 vs. previous week & the lowest reading since December 1973).
University of Michigan Index of Consumer Sentiment (October 2015, preliminary, 1966 Q1 = 100, seasonally adjusted):  92.1 (+4.9 vs. September 2015, +5.2 vs. October 2014).
NFIB Small Business Optimism Survey (September 2015, 1986 = 100, seasonally adjusted): 96.1 (+0.2 vs. August 2015, +0.8 vs. September 2014).
Business Inventories  (August 2014, seasonally adjusted): $1.811 trillion, 0.0% vs. July, +2.4% vs. August 2014.
Beige Book October 14, 2015 release

The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

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