PPI, Core Prices, Demand Services and Goods Increase

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November’s retail sales, industrial production, producer prices, & new home construction; October’s business inventories,

Summary: Record 9.6% Annual Increase in November Producer Price Index; Record 6.9% YoY Increase in Core Prices; Record 7.1% YoY Increase for Final Demand Services, Record YoY 14.9% Increase for Final Demand Goods, and a 46+ year Record for Prices of Intermediate Goods

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.8% in November, as prices for finished wholesale goods rose 1.2% while margins of final services providers were 0.7% higher…that increase followed a revised 0.6% increase in October, when prices for finished wholesale goods rose 1.3% while margins of final services providers were 0.2% higher, a revised 0.6% increase in September, when prices for finished wholesale goods rose 1.1% while margins of final services providers were 0.4% higher, a revised 0.6% increase in August, when prices for finished wholesale goods rose 0.9% and margins of final services providers rose 0.5%, and a re-revised July report that indicated the PPI was 0.9% higher, as prices for finished wholesale goods rose 0.5% while margins of final services providers rose 1.0%….on an unadjusted basis, producer prices are a record 9.6% higher than a year ago, up from the upwardly revised 8.8% year over year increase now shown for October’s producer prices, while the core producer price index, which excludes food, energy and trade services, rose by 0.7% for the month, and is now a record 6.9% higher than in a year ago, up from the upwardly revised 6.3% year over year increase that was indicated in October…beginning with this release, producer price index values are being computed to 3 decimal places and the data will continue to be revised for four months after initial publication; hence, all changes we’ll quote today will reflect those revisions….

As we noted, the price index for final demand for goods, previously called ‘finished goods’, was 1.2% higher in November, after being 1.3% higher in October. 1.1% higher in September, 0.9% higher in August, 0.7% higher in July, 1.2% higher in June, 1.5% higher in May, 0.7% higher in April, 1.5% higher in March, 1.6% higher in February, 1.6% higher in January, 0.9% higher in December, and 0.4% higher in November of last year, and hence is now up by a record 14.85% from a year ago….the finished goods price index rose 1.2% in November as the price index for wholesale energy goods was 2.6% higher, after it had risen by a revised 5.3% in October, 2.1% in September, by 0.6% in August, and by 2.4% in July, and as the price index for wholesale foods rose 1.2%, after falling by a revised 0.3% in October, rising by revised a 2.2% in September, by 2.1% in August, but after falling by a revised 1.3% in July, while the index for final demand for core wholesale goods (excluding food and energy) was 0.8% higher, after it had risen by 0.6% in October and by 0.5% in September…wholesale energy prices averaged 2.6% higher on a 7.3% increase in wholesale prices for gasoline, a 6.8% increase in wholesale prices for jet fuel, and a 2.0% increase in wholesale prices for residential natural gas, while the wholesale food price index rose 1.2% on 20.1% increase in the wholesale price index for fresh fruits and melons, an 11.5% increase in the wholesale price index for fresh and dry vegetables, a 6.3% increase in the wholesale price index for grains, and a 2.1% increase in the wholesale price index for pasta products….among core wholesale goods, the wholesale price index for iron and steel scrap rose 10.7%, the wholesale price index for mining machinery and equipment rose 5.8%, the wholesale price index for transformers and power regulators rose 5.5%, the wholesale price index for railroad equipment rose 3.7%, the wholesale price index for footwear rose 2.6%, the wholesale price index for travel trailers and campers rose 2.8%, and the wholesale price index for industrial chemicals rose 2.5%….

At the same time, the index for final demand for services rose 0.7% in November, after rising 0.2% in October, a revised 0.4% in September, a revised 0.5% in August, and by a revised 1.0% in July, and is now up by a record 7.1% from a year ago, up from the 5.9% year over year increase that was indicated in October….the index for final demand for trade services rose 0.6% and the index for final demand for transportation and warehousing services rose 1.9%, while the core index for final demand for services less trade, transportation, and warehousing services was 0.6% higher… among trade services, seasonally adjusted margins for fuels and lubricants retailers rose 8.3%, margins for lawn, garden, and farm equipment and supplies retailers rose 4.1%, margins for cleaning supplies and paper products retailers rose 5.9%, margins for flooring and floor coverings retailers rose 3.7%, and margins for furniture retailers rose 3.4%, while margins for TV, video, and photographic equipment and supplies retailers fell 10.4%…among transportation and warehousing services, average margins for airline passenger services rose 5.1%, margins for air transportation of freight rose 1.3%, margins for truck transportation of freight rose 1.0% and margins for courier, messenger, and U.S. postal services rose 0.7%…among the components of the core final demand for services index, the price index for price index for traveler accommodation services rose 5.1%, the price index for securities brokerage, dealing, investment advice, and related services rose 6.1%, the price index for portfolio management rose 2.9%, and the price index for gaming receipts rose 3.5%…

This report also showed the price index for intermediate processed goods rose 1.5% in November, after rising a revised 2.4% in October, a revised 1.1% in September, a revised 0.9% in August, a revised 1.6% in July, 1.8% in June, and rising 2.9% in May, 1.9% in April, 3.5% in March, 2.9% in February, and 1.8% in January, 1.4% in December, and 0.9% in November of last year….the price index for intermediate energy goods rose 3.6% in November, as producer prices for natural gas sold to electric utilities rose 27.7%, producer prices for industrial natural gas rose 2.6%, refinery prices for gasoline rose 7.3%, refinery prices for jet fuel rose 6.8%, and refinery prices for residual fuels rose 4.3%… meanwhile, the price index for intermediate processed foods and feeds fell 0.2%, as the producer price index for processed poultry fell 3.3%, the producer price index for prepared animal feeds fell 0.3%, and the producer price index for processed fruits and vegetables fell 0.2%…at the same time, the core price index for intermediate processed goods less food and energy goods rose 1.2%, as the producer price index for softwood lumber rose 6.9%, the producer price index for plywood rose 2.9%, the producer price index for steel mill products rose 2.4%, the producer price index for fabricated structural metal products rose 2.8%, the producer price index for motors, generators, motor generator sets rose 3.2%, the producer price index for secondary nonferrous metals rose 3.8%, the producer price index for asphalt felts and coatings rose 2.8%, the producer price index for paint materials rose 4.3%, the producer price index for basic organic chemicals rose 2.6%, the producer price index for phosphates rose 4.9%, and the producer price index for nitrogenates rose 9.2%, while the producer price index for primary nonferrous metals fell 3.9% …average prices for intermediate processed goods are now 26.5% higher than in November a year ago, the largest year over year price increase since the year ended December 1974, but just the twelveth increase after 19 consecutive year over year decreases, which had followed 29 months of year over year increases, which had been preceded by 16 months of negative year over year comparisons, as prices for intermediate goods fell every month from July 2015 through March 2016….

Meanwhile, the price index for intermediate unprocessed goods rose rose 4.8% in October, after rising by a revised 5.5% in October. a revised 2.7% in September, a revised 1.8% in August, a revised 2.9% in July, amd rising by 1.8% in June, by 7.2% in May, and by 2.0% in April, after falling by 4.2% in March, but after rising by 11.9% in February, and by 5.3% in January, 2.1% in December, and by 6.3% last November….that was as the November price index for crude energy goods rose 8.7% as crude oil prices rose 3.8%, unprocessed natural gas prices rose 14.3%, and coal prices rose 1.8%, while the price index for unprocessed foodstuffs and feedstuffs fell 0.7% on a 10.3% decrease in producer prices for raw milk, a 3.7% decrease in producer prices for slaughter hogs, a 6.2% decrease in producer prices for slaughter chickens, a 6.7% decrease in producer prices for slaughter turkeys, and a 1.8% decrease in producer prices for oilseeds, while producer prices for wheat rose 6.6% and producer prices for corn rose 6.1%…at the same time, the index for core raw materials other than food and energy materials was 4.5% higher, as the price index for raw cotton rose 12.9%, the price index for nonferrous metal ores rose 5.3%. and the price index for iron and steel scrap rose 10.7%….this raw materials index is now 52.5% higher than a year ago, down from the 54.9% year over year increase in October and the record 59.2% increase in April, and just the thirteenth year over year increase for this index after the annual change on this index had been negative from the beginning of 2019 through October of last year…

Lastly, the price index for services for intermediate demand rose 0.6% in November, after rising a revised 0.1% in October, a revised 0.6% in September, a revised 0.1% in August, a revised 0.6% in July, and rising by 1.2% in June, by 0.6% in May, by 1.3% in April, by 0.6% in March, by 0.3% in February, by 1.1% in January, and by 0.7% in December 2020, but after being unchanged last November….the price index for intermediate trade services was unchanged, as margins for intermediate machinery and equipment parts and supplies wholesalers rose 0.4% and margins for intermediate automotive parts and tire retailers rose 0.6%, while margins for intermediate building materials, paint, and hardware wholesalers fell 1.4% and margins for intermediate hardware, building material, and supplies retailers fell 1.6%…meanwhile, the index for transportation and warehousing services for intermediate demand was 0.7% higher, as the intermediate price index for transportation of passengers rose 5.0%, the intermediate price index for air transportation of freight rose 1.3%, the intermediate price index for truck transportation of freight rose 1.0%, and the intermediate price index for air mail and package delivery services excluding those by USPS rose 1.7%….at the same time, the core price index for intermediate services other than trade, transportation, and warehousing services rose 0.8%, as the intermediate price index for securities brokerage, dealing, investment advice and related services rose 6.1%, the intermediate price index for radio advertising time sales rose 6.1%, the intermediate price index for television advertising time sales rose 5.3%, the intermediate price index for truck, utility trailer, and RV rental and leasing rose 4.1%, the intermediate price index for traveler accommodation services rose 5.1%, and the intermediate price index for portfolio management rose 2.9%…over the 12 months ended in November, the year over year price index for services for intermediate demand is now 8.1% higher than it was a year ago, the fourteenth consecutive positive annual increase in this index change since it briefly turned negative year over year from April to August of last year, but is still down from the record 9.5% year over year increase now shown for July….* * * 

Retail Sales Rose 0.3% in November after September Sales were Revised Lower

Seasonally adjusted retail sales increased 0.3% in November after retail sales for September were revised lower…the Advance Retail Sales Report for November (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $639.8 billion during the month, which was 0.3 percent (±0.5 percent)* higher than October’s revised sales of $638.2 billion and 18.2 percent (±0.9 percent) above the adjusted sales in November of last year.…year to date sales have now totaled $6,701.6 billion, 19.6% higher than the same 11 months of 2020…October’s seasonally adjusted sales were revised but were statistically unchanged at $638.2 billion, while September’s sales were revised 0.1% lower, from $627.5 billion to $627.0 billion; so as a result, the September to October change was revised from up 1.7 percent (±0.5%) to up 1.8 percent (±0.2%), while the change in September’s sales was revised from an increase of 0.8% to an increase of 0.7%…assuming a similar inflation adjustment to the one used in earlier estimates, the $0.5 billion downward revision to September’s sales should reduce the previous estimate of the personal consumption expenditures contribution to 3rd quarter GDP by about 0.03 or 0.04 percentage points….unadjusted sales, extrapolated from surveys of a small sampling of retailers, were estimated to have risen 2.4%, from $633,897 million in October to $649,339 million in November, while they were up 19.5% from the $543,273 million of sales in November a year ago…

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the November Census Marts pdf….the first pair of columns below gives us the seasonally adjusted percentage change in sales for each kind of business from the October revised figure to this month’s November “advance” report figure in the first sub-column, and then the year over year percentage sales change since last November in the 2nd column…the second double column pair below gives us the revision of the October advance estimates (now called “preliminary”) as of this report, with the new September to October percentage change under “Sep 2021 r” (revised) and the revised October 2020 to October 2021 percentage change in the last column shown…for your reference, the table of last month’s advance estimate of October sales, before this month’s revisions, is here.…(NB click on table for a batter view)

To compute November’s real personal consumption of goods data for national accounts from this November retail sales report, the BEA will use the corresponding price changes from the November 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 this table, we can see that November retail sales excluding the 1.7% increase in sales at gas stations were up by 0.2%….then, subtracting the dollar figures representing the 1.3% increase in grocery & beverage sales and the 1.0% increase in food services sales from retail sales ex gas stations, we find that core retail sales were down by more than 0.2% for the month…since the CPI report showed that the composite price index for all goods less food and energy goods was 0.9% higher in November, we can thus approximate that real retail sales excluding food and energy will show an decrease of roughly 1.1%…however, the actual adjustment for each of the types of sales shown above will vary by the change in the related price index…for example, while sales at sporting goods, hobby, musical instrument, & book stores were up 1.3%, the recreational commodities price index was 0.3% higher, which would suggest that real sales at those stores rose about 1.0%….similarly, while nominal sales at clothing stores were 0.5% higher in November, the apparel price index was 1.3% higher, which would mean that real sales of clothing fell around 0.8%….in like manner, while nominal sales at motor vehicle & parts dealers fell 0.1%, the price index for transportation commodities other than fuel was 1.7% higher, so we can figure real sales of motor vehicle & parts were down roughly 1.8%…

In addition to figuring those core retail sales, to make a complete estimate of real November PCE, we’ll need to adjust food and energy retail sales for their price changes separately, just as the BEA will do.…the CPI report showed that the food price index was 0.7% higher in November, with the index for food purchased for use at home 0.8% higher, while prices for food bought for eating away from home (excluding food prices at employee sites and schools) averaged 0.7% higher… hence, with nominal sales at food and beverage stores 1.3% higher, real sales of food and beverages would be roughly 0.5% higher in light of the 0.8% higher prices…similarly, the 1.0% increase in nominal sales at bars and restaurants, once adjusted for 0.7% higher prices, suggests that real sales at bars and restaurants only rose about 0.3%…on the other hand, while sales at gas stations were up 1.7%, there was a 6.1% increase in the retail price of gasoline, which would suggest real sales of gasoline were down on the order of 4.2%, with the caveat that gasoline stations do sell more than gasoline, and we haven’t accounted for those other sales in our figure….by weighing and averaging the real sales changes that we have thus estimated back together, and excluding food services, we can estimate that the income and outlays report for November will show that real personal consumption of goods fell by more than 0.4% for the month, after rising by a revised 1.1% in October, by a revised 0.3% in September, and by 1.2% in August…at the same time, the 0.3% increase in real sales at bars and restaurants would have a modest positive impact on November’s real personal consumption of services…

With those estimates for the relative change in real PCE goods between the months of the 3rd and the 4th quarter, we should be able to also estimate the change in PCE goods between those two quarters….setting November’s real PCE goods as an index equal to 100, we can then say that October’s PCE goods equals 99.6 (100-0.4%); from that, we get a index value of 98.5 for September, 98.2 for August, and 97.0 for July….we then compute the quarter over quarter change in those index values at a quarterly rate to determine the probable change that would be applied to 4th quarter GDP… (((100 + 99.6)/2) / ((98.5 + 98.2 + 97.0 )/3)) ^4 = 1.0799, which means that real PCE goods are rising at an 8.0% annual rate over the 2 months of the forth quarter that we have estimates for…since 2 months of PCE goods is roughly 16% of GDP, that suggests that PCE goods over those two months would add roughly 1.28 percentage points to quarter GDP, with December’s contribution still to be determined…

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Housing Starts Reported 11.8% Higher in November; Building Permits Up 3.6%

The November 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 1,679,000 units during the month, which was 11.8 percent (±15.2 percent)* above the revised October estimated annual rate of 1,502,000 housing unit starts, and was 8.3 percent (±14.3 percent)* above last November’s rate of 1,551,000 housing starts a year…the asterisks indicate that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past month, or even over the past year, with the figures in parenthesis the most likely range of the change indicated; in other words, November housing starts could have been down by 3.4% or up by as much as 27.0% from those of October, with even larger revisions possible…in this report, the annual rate for October housing starts was revised from the 1,520,000 units reported last month to 1,502,000, while September starts, which were first reported at a 1,555,000 annual rate, were revised from last month’s initial revised figure of 1,530,000 back to 1,550,000 with this report….

Those annual rates of 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 129,400 housing units were started in November, up from the 128,700 units that were started in October…of those housing units started in November, an estimated 87,300 were single family homes and 40,900 were units in structures with more than 5 units, down from last month’s revised 89,700 single family starts, but up from the 38,100 units started in structures with more than 5 units in October…

The monthly data on new building permits, with a smaller margin of error, are probably a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in November, Census estimated new building permits were being issued at a seasonally adjusted rate of 1,712,000 housing units annually, which was 3.6 percent (±0.9 percent) above the revised October rate of 1,653,000 permits, and was 0.9 percent (±2.0 percent)* above the rate of building permit issuance in November a year earlier…the annual rate for housing permits issued in October was revised from the 1,650,000 that was originally reported….

Again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for 131,400 housing units were issued in November, down from the revised estimate of 136,400 new permits issued in October…the November permits included 80,100 permits for single family homes, down from 85,700 single family permits issued in October, and 47,200 permits for housing units in apartment buildings with 5 or more units, up from 46,100 such multifamily permits a month earlier…

For detailed graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk: Housing Starts Increased to 1.679 million Annual Rate in November and November Housing Starts: Most Housing Units Under Construction Since 1973, which links to his free housing newsletter article with the same title, and which discusses that the widely watched housing starts are not leading to housing completions, because of construction component shortages and other supply chain problems…