Industrial Production & Retail Sales Wilted, But Prices Perked Up in August: What We Learned During the Week of September 12 – 16

Industrial production and retail sales both shifted into lower gear as the weather heated up in August. Here are the 5 things we learned from U.S. economic data released during the week ending September 16.

#1Manufacturing output slowed in August. According to the Federal Reserve’s Industrial Production report, manufacturing output dropped 0.4% during the month and was 0.4% below year ago levels. Durable goods production fell 0.6%, while nondurables output slowed 0.2%. The declines in durable goods production were widespread, with output drops greater than 1.5% suffered for machinery (-1.9%), wood products (-1.6%), and electrical equipment (-1.6%). On the other hand, motor vehicle output gained 1.0% during August. A 2.1% drop in textiles production weighed on nondurable production. Overall industrial production slumped 0.4% in August and was 1.1% below that of August 2015. Mining output bounced up 1.0% during the month (reflecting increased oil and gas extraction) while production at utilities dropped 1.4%. There was a bit more downtime for factories during August—capacity utilization shed 4/10ths of a point to 75.5%. Manufacturing sector utilization also decreased by 4/10ths of a point to 76.2%.

#2Retail sales wilted in the heat of August. The Census Bureau estimates retail and food services sales declined 0.3% during the month to a seasonally adjusted $456.3 billion. This was 1.9% above year ago levels. Focusing on just retailers, sales dropped 0.5% during the month and were up a mere 1.4% from August 2015 levels. Suffering from sales declines were sporting goods/hobby stores (-1.4%), building material retailers (-1.4%), auto dealers (-1.0%), gas stations (-0.8%), furniture stores (-0.7%), and department stores (-0.6%). Retail sectors enjoying higher sales during the month were restaurants/bars (0.9%), apparel retailers (+0.7%), grocery stores (+0.4%), and electronic/appliance retailers (+0.1%). Sales at nonstore retailers (e.g., internet retailers) suffered a rare monthly decline with a 0.3% drop, which nevertheless remained 10.9% above their year ago sales pace.retail-sales-data-091616

#3Consumer prices ticked up, while wholesale prices stayed closer to recent trends. The Bureau of Labor Statistics reports the seasonally adjusted Consumer Price Index (CPI) increased 0.2% during August and were 1.1% above year ago levels. CPI for energy goods was unchanged during the month, as lower prices fuel oil (-2.5%) and gasoline (-0.9%), were counterbalanced by higher prices for utility delivered natural gas (+2.1%) and electricity (+0.5%). Food CPI held steady for the month. Net of both energy and food, core CPI grew 0.3% and was 2.3% above year ago levels (both at their highest point since February). The largest price gains during the month were with medical care commodities (+1.1%) and medical care services (+0.9%), with increases also seen for shelter (+0.3%), apparel (+0.2%), and transportation services (+0.1%). While prices for new vehicles were unchanged, they fell 0.6% for used cars and trucks.

Meanwhile, the final demand Producer Price Index (PPI) was unchanged for both the month and over the past 12 months. Net of energy (-0.8%) and food (-1.6%), core final demand PPI gained 0.3%, matching both January and June as its highest marks of the year. Nevertheless, core PPI was only 1.2% above year ago levels. A drop in wholesale food prices pulled down PPI for final demand goods 0.4% for the month. Net of energy and food, core final demand goods PPI edged up 0.1%. On the services side, PPI increased 0.1% for the month, even as price measures for trade (-0.6%) and transportation/warehousing (-0.4%) each declined. Earlier in the production cycle, wholesale prices continued to soften. Intermediate demand PPI for processed and unprocessed goods fell 0.1% and 2.8%, respectively, for the month with 12 month comparables at -3.1% and -8.4%, respectively.

#4 Employers, on net, plan to further expand payrolls during Q4. According to the Manpower Employment Outlook Survey, 22% of employers intend to increase staff levels during the final 3 months of 2016 while 6% plan to decrease staff levels.  The difference of +16% turns into +18% after seasonal adjustments. This was a 3-point gain from the Q3 forecast and matches the value from Q4 2015, which was the measure’s post-recession high. The Net Employment Outlook was slightly higher in the West (+19) and South (+18) versus that in the Northeast (+16) and Midwest (+16). The index was positive in all 13 tracked industries, with the biggest readings seen for leisure/hospitality (+30), wholesale/retail trade (+22), transportation/utilities (+20), and professional/business services (+17). The press release indicated that employers were “optimistic, though hesitant, with their hiring intentions.”

#5But then there is a contrarian view from small business owners, who had a less optimistic economic outlook. The Small Business Optimism Index from the National Federation of Independent Business slipped by 2/10ths of a point in August to a seasonally adjusted 94.4 (1986=100). This continued the trend, in which the index has stayed within a tight 2-point range for all of 2016. 5 of 10 index components increased from their July readings: current opening (+4), plans to make capital outlays (+3), current inventories (+2), plans to increase inventories (+1), and whether it is a good time to expand (+1). Declining were index components for expected economic conditions (-7), hiring plans (-3), expected real sales (-2), earnings trends (-2). The press release blames “uncertainty” and “the political climate” for the pessimistic views of small business owners.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending September 10, 2016, First-Time Claims, seasonally adjusted): 260,000 (+1,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 260,750 (-4.9% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (September 2016-preliminary, Index (1966 Q1=100), seasonally adjusted): 89.8 (unchanged vs. August 2016, +2.6 points vs. September 2015.
Business Inventories (July 2016, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.813 trillion (unchanged vs. June 2016, +0.5% vs. July 2015).
Import Prices (August 2016, not seasonally adjusted): -0.2% vs. July 2016, -2.2% vs. August 2015.
Export Prices (August 2016, not seasonally adjusted): -0.8% vs. July 2016, -2.4% vs. August 2015.
Federal Budget (August 2016, surplus/deficit): -$107.1 billion (66.3% larger than August 2015 deficit). For 1st 11 months of FY16: -$620.8 billion (17.1% larger than that for 1st 11 months of FY15).
Treasury International Capital Flows (July 2016, Foreign Purchases of U.S. Securities, Change From Previous Month): +72.6 billion (vs. June 2016: +$7.6 billion , vs. +$7.1 billion).

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

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