Retail Sales Pause, Productivity Declines Again: What We Learned During the Week of August 8 – 12

Retail sales took a summer break during July while productivity’s losing streak stretched into a 3rd straight quarter. Here are the 5 things we learned from U.S. economic data released during the week ending August 12.

#1Retail sales stayed cool in the summer heat during July. The Census Bureau places its estimate of retail/food sales at a seasonally adjusted $457.7 billion, essentially matching June’s levels and up a moderate 2.3% over the past year. Some of the stagnation reflected lower gasoline prices that led to a 2.7% drop in sales at gas stations (the retail sales measure is not adjusted for price variations). Removing sales at gas stations and at auto dealers and parts stores (which enjoyed a 1.1% sales gain), core retail sales dropped 0.1% during the month but were up 3.8% from a year earlier. Sales fell across most retail sectors; including, sporting goods/hobby stores (-2.2%), grocery stores (-0.9%), building materials retailers (-0.5%), department stores (-0.5%), and restaurant/bars (-0.2%). Furniture retailers and health/personal care stores eked out gains of 0.2% and 0.1%, respectively. Finally, sales at “nonstore” retailers (e.g., internet retailers) jumped 1.2% for the month and were 14.1% above  year ago levels. 081216

#2The count of job openings and the pace of hiring rebounded in June. The Bureau of Statistics estimates there were a seasonally adjusted 5.624 million job openings at the end of the month, up 110,000 from May and 8.8% above year ago levels. Industries with the largest year-to-year percentage gains in job openings were construction (+33.3%), manufacturing (+32.7%), finance/insurance (+25.5%), government (+15.1%), leisure/hospitality (+11.4%), and health care/social assistance (+10.5%). Hiring increased by 84,000 jobs to 5.131 million. This was down 0.3% from a year earlier. While there were healthy year-to-year percentage hiring gains in leisure/hospitality (+9.7%), the government (+9.6%), health care/social assistance (+8.5%), and manufacturing (+5.6%), hiring declined in construction (-12.4%), wholesale trade (-10.9%), retail (-8.7%), and professional/business services (-4.9%). Americans were still voluntarily quitting jobs at a faster rate than that of a year earlier (2.909 million, +5.9% vs. June 2015) while layoffs were 7.9% below year ago levels at 1.643 million.

#3Food and energy goods pulled down July wholesale prices. The Bureau of Labor Statistics’ Producer Price Index (PPI) for final demand dropped 0.4% during the month, its 1st decline since March. Net of food, energy, and trade services, core final demand PPI was flat during the month. Prices for final demand goods decreased 0.4%, led by falling wholesale prices for energy and food. The former declined because of lower gasoline prices. The latter reflected the 9.8% drop in prices for beef/veal, along with lower prices for corn and oil seeds. PPI for final demand trade dropped 0.3% as trade PPI (essentially margins for wholesalers and retailers) slumped 1.3%, including a sharp 6.0% fall for the apparel/jewelry retail sector. Over the past year, final demand PPI has fallen 0.2%, with the core final demand index up a still weak 0.8% since July 2015.

#4Productivity declined for a 3rd consecutive quarter. The Bureau of Labor Statistics reports that nonfarm business output per hour declined 0.5% on a seasonally adjusted annualized basis during the 2nd quarter, following contractions of 0.6% and 2.4% during the 2 preceding quarters. The Q2 drop in productivity was the product of an annualized 1.8% gain the number of hours worked leading to only a 1.2% increase in output. Productivity slowed 0.4% over the past year with gains in hours worked and output of 1.5% and 1.1%, respectively. Weak productivity has been a hallmark of the current economic recovery, with frail productivity gains of 0.3%, 0.8%, and 0.9% during 2013, 2014, 2015, respectively. Manufacturing sector productivity slowed 0.2% during Q2, as a 4.1% contraction in nondurable manufacturing outpaced the 2.6% gain in durable manufacturing.

#5Confidence among small business owners held steady in July. The Index of Small Business Optimism from the National Federation of Independent Business. inched up by 1/10th of a point to a seasonally adjusted reading of 94.6 (1986 = 100). While the index has been above a reading of 90.0 for 42 consecutive months, it has remained within a tight range near the mid-90s for virtually all of those months. Only 4 of the index’s 10 components improved during the month, including that for expected business conditions and on plans to increase inventories. 4 other index components declined during the month, including those for the current number of job openings, earnings trends, plans to make capital outlays, and expected gains in real sales. The press release said that “there is little hope for a surge in the small business sector anytime soon,” as it noted there was “high” uncertainty, “low” expectations for the future, and “weak” future business investments.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 6, 2016, First-Time Claims, seasonally adjusted): 266,000 (-1,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 262,750 (-2.6% vs. the same week a year earlier).
Import Prices (July 2016, not seasonally adjusted): +0.1% vs. June 2016, -3.7% vs. July 2015. Nonfuel imports: +0.3% vs. June 2016, -1.2% vs. July 2015.
Export Prices (July 2015, not seasonally adjusted): +0.2% vs. June 2016, -2.6% vs. July 2015.
University of Michigan Index of Consumer Sentiment (August 2016-preliminary, Index (1966 Q1 = 100, seasonally adjusted): 90.4 (July 2016: 90.0, August 2015: 91.9).
Federal Budget (July 2016, surplus/deficit): -$112.8 billion (vs. June 2016: +$6.5 billion, vs. July 2015: -$149.2 billion).
Manufacturing & Trade Inventories (June 2016, seasonally adjusted): $1.814 trillion (+0.2% vs May 2016, +0.5% vs, June 2015).
Mortgage Delinquencies (2nd Quarter 2016, Delinquency Rates for 1-4 Unit Residential Properties, seasonally adjusted): 4.66% (vs. Q1 2016: 4.77%, vs. Q2 2015: 5.30%).

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

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