Personal Consumption Expenditures and Outlays Report - October 28th

The BEA released the Personal Income and Outlays, September 2022, this morning.

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Not real sure where the money for personal consumption expenditures is coming from, given the fall off of disposable income. Credit? Of course it is a factor, and not sure how resilient the consumer will be in the coming months, against higher interest rates.

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The pink is slowly receding from this chart, but that is more about base effects of Year over Year measurements. The Month on Month projections for October inflation are expected to be the highest... since June. 

Available stats for October would have gasoline rising +2.6%, after falling since June. According to my own personal expense tabulations... food sure isn't slowing. Of course the month is not over and something dramatic could happen to lower those two. It would take free giveaways of food and gasoline, which is not impossible... but highly improbable.

GDP Thoughts, Natural Gas Summary

Today, we were blessed with the Advance Estimate of 3rd Quarter GDP Release, from the BEA.

You can read the report and check the data. Here are some of my thoughts. I can clearly see the GDP in 2012 dollars, increased by $126.4B. The drag of our trade imbalance slid by -$156.5B. In other words... if the trade imbalance had remained steady, everything else was negative. Throw in the gain for consumer spending of +$59.5B and the everything else is very negative.

I am not exactly optimistic going forward and fail to see much to be enthusiastic in this report. The first and second quarter trade imbalance, which had jumped dramatically was a result of early ordering to ensure on time delivery and early ordering to beat the port strike, that never materialized. 

Not sure the consumer can continue to accelerate spending in the 4th quarter, as inflation headwinds are starting to seriously erode purchasing power. 

As for the impact on GDP by inflation...

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I read the term re-balancing being used for the big change in import/export numbers. That rebalance will be not be so prevalent in the 4th quarter. Which means the consumer needs to pick up the pace to have a positive 4th quarter. I cannot see that happening. Further I have previously stated the GDP numbers for 1st and 2nd quarters were badly distorted by the trade imbalance. 

Without the trade distortions, the 1st and 2nd quarter may have been positive and the 3rd quarter slightly negative, as in that much ballyhooed 1st of 2 consecutive quarters of GDP shrinkage.

On to natural gas, with today's update from EIA.GOV.

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Inventory is still improving and pricing is also showing some declines. The latter being a result of European facilities being nearly full and LNG tankers stacking up off shore of Spain, etc. 

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This trend will not continue, as we haven't gotten to cold weather. Europe will need to be refilled for the following winter, which means another round of upward prices. Add in the addition of LNG facilities on both sides of the Atlantic, as well as many more LNG carriers... the price hikes could be steep on the USA side, although some abatement in Europe.

Review of EIA's This Week in Petroleum, October 26 2022

Another week, another report. This Week in Petroleum from the EIA.gov.

Click to Enlarge*The Net- U.S. only is adjusted for 5,070,000 barrels deducted from the SPR. 

From last week, the crude inventory increased 2.6M barrels; distillates rose 170K; gasoline inventory slipped 1.5M barrels. 

For the reporting period, WTI was $85.32, compared to year ago of $84.68. Up 64¢ or +0.08%.

Gasoline at the pump, however was $3.769 compared to last year's $3.383, a difference of +38.3¢ or +11.3% . Spot prices last year was $2.517, compared to this year's $2.916 a difference of 39.9¢ or +15.8%.

When it comes to highway diesel the current period's price is $5.316, compared to last year's $3.611. A whopping difference of $1.705 or +47.3%.

The problem with diesel fuel is inventory being low throughout much of the country, but is significantly lower in the Northeast and Central Atlantic...

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Not seeing any relief until demand falls a bit further, which only makes more available for export.

Review of EIA's This Week in Petroleum, October 19 2022

Here is the report.

Here is some of the stuff I track...

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From last week, the crude inventory slipped 1.7M barrels; distillates rose 124K; gasoline inventory slipped 114K. 

For the reporting period, WTI was $85.61, compared to year ago of $82.28. Up $3.33 or +4.0%.

Gasoline at the pump, however was $3.871 compared to last year's $3.332, a difference of +53.9¢ or +16.2% . Spot prices last year was $2.435, compared to this year's $2.6309 a difference of 19.59¢ or +8.0%.

When it comes to highway diesel the current period's price is $5.339, compared to last year's $3.671. A whopping difference of $1.668 or +45.4%.

It should be noted that those stocks are down significantly along the east coast, especially New England.

The Administration has ordered up another 15M barrels from SPR... to supposedly keep the lid on gasoline prices. That brings the total announced and pending sales to 230M barrels, even though the data has that size of reduction already having taken place, with 1M barrel a day having 17 more days. Clearly, I missed a memo.

Considering the normal crude inventory is 9M barrels above last year's mark, not sure what is hoped to be achieved. Gasoline inventories are down 8.5M from this time last year, which would suggest refineries are the bottleneck... and therefore the pricing issue.

But then we have exported 60.8M barrels of gasoline more than we have imported. (48M barrels since March). Last year was the reverse and then some, (57.8M imports more than exports) during the March to current.

A lot can be explained away as supporting our allies by filling the gap left from Russian Sanctions. Releasing more SPR doesn't seem to be the right choice, although we are expected to be gullible enough to swallow that rationale. 

I doubt the officials are as dumb as their constituents. I suspect the Ukrainian war and subsequent sanctions were the impetus for much of this, but I suspect the focus has shifted to a convenient cover to wrest the nation off fossil fuels, by depleting the SPR. Just my opinion. 

I had opined in an earlier column the SPR should be reduced, but I was thinking in terms of 10~15 years, NOT the current pace of 2~3 years. 

As I have previously stated, this 15M barrel dump will likely be the last for awhile. IF the republicans take the house, I would expect a massive drive to build the SPR back up, which would increase gas prices and the republicans can take the blame. 

This is politics, as practiced by both of parties. 

Some Random Thoughts on 10-18-2022

Let's see if I can get through a post without any charts or graphs.

I had previously mentioned the likelihood of heating costs being a shock in late January or February. Maybe next month, as this current cold snap might be a wakeup call. Of course, the bills won't come before the election.

I hear rumblings of another SPR release. Seeing as the current release is scheduled to end at the end of the month and the election is 8 days later... I doubt it happens. Got to save some ammunition for 2024.

Uh oh... I feel a chart coming on...

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I do recall a couple of releases, such as 30M barrels for late 2021 and the 1M barrel per day release starting on May 1st and ending on October 31st. The latter indicating another 40M barrels to go and the ending number at 370M barrels. Somehow the numbers aren't adding up. When they say 14M, do they really mean 20M? About half of the SPR will have been drained in 2 years. It should all be gone by 2024. 

Somehow the crude oil inventory of the U.S. is 12M barrels higher than this time last year, with crude prices less than 1% higher. The gasoline inventory is 12M barrels lighter than this time last year, with gasoline prices 16.4% higher. So is it a crude problem or a refining problem? 

The American people are easily misled and manipulated, so crazy statements will not called out by anyone and certainly not our press. If the TRUTH were a woman, our nation's press (and politicians) would be called misogynists, for their mistreatment, disregard and abuse of the truth.

In any case, the American people have an abundance of gullibility, for the politicians to exploit. 

I don't really know who is going to win, but I am becoming sick of those January 6th hearings and they would end if the republicans take the house. Then I will become sick of the Hunter Biden hearings for 2 years. That's about the only change I can see happening.

Is there anyone out there... that is worth a damn?

What's Up With Natural Gas?

It's been awhile since commenting on the Natural Gas situation in the United States.

From the EIA.GOV...

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Clearly the swing in storage is upward and a bit ahead of the curve, yet still about 4% below this time last year, although at 12 Bcf above last November's lower range peak. Don't expect it to get anywhere near the higher range peak, as that ship has sailed. Literally... LNG exports.

Much has been written and said about heating costs for the United States this year... as in rising. 

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Just a quick glance at the chart would make one wonder how come prices are rising in the United States, when the October 2021 to October 2022 prices are very similar. I probably should have put the 7/1/2022 pricing in the chart. (Too lazy) [See edit at bottom of post.]

The bulk of the natural gas contracted during the summer of 2021 and by October 2021, was priced in the $4 range averages. The contract pricing for the similar period this year, was closer to $7.50. At one point it was near $10.

A lot of natural gas in storage was priced accordingly. This would indicate heating at 30% more than last year, as well as electricity, by maybe 15%. Going into the cold season, will financially strap a lot of people, in my opinion. Which the CPI states has already happened. But volume used becomes the issue

In Europe, the strain will be much worse, although various programs are being enacted in attempts to ease consumer stress. Not sure how they are working, but just a visual of European news... the consumers are becoming less and less happy.

I did do a bit of in depth research on U.K. energy and was able to match the same predictions that Ofgem came up with. At one point it was predicted, the average energy bill would be in a range of £3,600 ~ £5,400. To protect the consumer, a £2,500 cap was announced, with promises of government money to the energy companies to fill the gap.  That £2,500 was £500 above the previous cap. 

Amazing and thoughtful, until you run the same numbers based on current projections and get a range of £2,500~£3,600. It seems to be shifting from relief for the consumer, to a subsidy for the energy companies. But as the old adage goes, worry about your own issues and let others worry about theirs. Considering how thin skinned the Brits are in normal times... good advice, when they are raw.

Back to the U.S. We will likely pinpoint the drop in consumer spending for all things other than energy, about the time the energy bills roll in... after that first blast of cold air. I'm not a weatherman, but this will likely occur in the January/early February timeframe. 

Good luck!

Edited at 5PM on October 16th, 2022...

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Will the Consumer Continue to Carry the U.S. Economy?

Hmmm... The real earnings are almost healed compared to February 2020...

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with unemployment rate, now matching that date as well...

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As well as the number of employed near the same number or slightly higher...

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So, everything should be hunky-dory... right? Even when counting in the various stimuli and inflation adjusted retail trade...

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Everything almost matches up, when considering the consumer credit...

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Except the real earnings are inflation adjusted, the retail trade has been inflation adjusted, but the consumer credit is nominal. Which is ever so slightly slipping behind, when factoring inflation. At least that is my take.

Of course, the graph does not capture all credit numbers.  From the Federal Reserve. 

In August, consumer credit increased at a seasonally adjusted annual rate of 8.3 percent. Revolving credit increased at an annual rate of 18.1 percent, while nonrevolving credit increased at an annual rate of 5.1 percent.

The inflation rate from the CPI was 8.3 percent annually for this period. Revolving credit has jumped 2.5% since June and nonrevolving was 0.9% during that period. We all know that interest rates are moving up, but which would have the higher interest rates? Revolving or nonrevolving?

In normal times, the revolving credit would increase roughly 3.6% annually and nonrevolving credit would edge up about 5% annually. So the 2 month jump in nonrevolving of 0.9%, does stay within the norms. That 2.5%, 2 month revolving credit jump does not translate very well to annual... 15%. It's basically four times higher, against a backdrop of increasing interest rates. 

Those believing the consumer can keep the economy going... are living on borrowed time. It will not be long, before the evidence of a consumer spending decline is clear. 

My guess would be the month following the first cold shock and those higher heating bills arrive. 

Retail Trade Report for September 2022

The Census Bureau has once again graced us with their monthly Retail Report for September 2022.

Advance estimates of U.S. retail and food services sales for September 2022, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $684.0 billion, virtually unchanged (±0.5 percent)* from the previous month, but 8.2 percent (±0.7 percent) above September 2021. 

Total sales for the July 2022 through September 2022 period were up 9.2 percent (±0.5 percent) from the same period a year ago. The July 2022 to August 2022 percent change was revised from up 0.3% (±0.5 percent)* to up 0.4 percent (±0.2 percent). Retail trade sales were down 0.1 percent (±0.4 percent)* from August 2022, but up 7.8 percent (±0.7 percent) above last year. 

Gasoline stations were up 20.6 percent (±1.6 percent) from September 2021, while Non-store retailers were up 11.6 percent (±1.1 percent) from last year

Allow me to give my interpretation. They revised the August data upward and September's advance estimate is almost no change, against an anticipated 2% rise. Which factoring in inflation, means "stuff bought index" was -0.2% less than August. 

So to really be clear, the money spent since September, 2021 has risen 8.23%, yet the stuff bought has edged up 0.02%.

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With every report, there are "winners" and "losers". It would be premature to see any trends, but I just can't help myself.

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It would almost seem the spending is closer to home, as in personal type things. We're slowing down on vehicles, furniture, electronics, building material, sporting good and focusing on feeding our bellies, dressing in style, beautifying ourselves, eating out and drinking away our misery.

What does it all mean? I have not a clue, which is why I am asking. BUTT, I just can't help myself and must opine some meaningless nonsense.

Just about everyone is screaming a recession is near. Just like that phrase "build it and they will come", saying recession over and over by enough people will bring on a recession. At this point, it is almost a certainty. The only things to determine are when, depth and duration.

I think a lot of people are altering their spending habits in preparation.

Breakdown of the CPI DATA and Real Earnings reports for September 2022

It is that time of month, to survey the damage from inflation. The BLS report was released this morning and it was a surprise. (historical releases)

This is what I projected for the month...

For next month's projection, another wide range... 7-8%~8.3%, with month to month of -0.1~ up to 0.3%. The drop in gasoline failed to cover all the other areas, and the drop in gasoline for September will be much smaller, in my opinion.

Hmm... 

The Consumer Price Index for All Urban Consumers (CPI-U) rose 0.4 percent in September on a seasonally adjusted basis after rising 0.1 percent in August, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.2 percent before seasonal adjustment.

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My own personal CPI was 8.1% year over year and up 0.3% from last month.

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The C.O.L.A. for 2023 is set at 8.7%...

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Last month I had stated the likelihood of 8.7%, but then got antsy an edged up the forecast to 8.8%. I really did not anticipate the CPI-W would underperform, compared to the CPI-U. That string since the start of covid has apparently ended. In any case, it almost was 8.8%, as pushing out a couple of digits was 8.746%. That 291.854 was just off the 291.879 to edge it to 8.750% and rounding to 8.8%. 

That was me trying to justify my errors. Close only counts in horseshoes and hand grenades. 

As for the Real Earnings ...

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It still has not gotten back to pre-covid purchasing power and slipped last month. Of course that is for hourly workers, while the earnings for production and non supervisory employees was actually up $.03 hourly, from pre-covid and $3.68 weekly. So, the working stiffs are healing faster.

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Real earnings are already adjusted for inflation.

And an apples to apples comparison can also be made as unemployment now matches February 2020.

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We should remember Covid hit the lower wage earners the hardest, as they were originally deemed non-essential and sent home, thus distorting the hourly and weekly rate. The higher wage earners were able to "work from home" while masturbating on zoom calls, etc. Until they realized that some of those non essentials were actually a bit more essential than first thought.

In any case, a fair apples to apples is now compared to February 2020. At least that is my opinion.

Seemed like I was going to mention petroleum. Crude Oil inventory up nearly 10M barrels, with Gasoline up 2M barrels, and uh oh... distillates down 4.8M barrels. Natural Gas inventories are starting to gain ground as well.

Tomorrow is the retail report, which should be interesting.

Oh yeah... next month CPI at 8.1%~8.2%, with m/m of +0.8%.

Producer Price Index for September 2022

Isn't this exciting... the BLS has released the September Producer Price Index Report. (historical releases)

The Producer Price Index for final demand increased 0.4 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.2 percent in August and 0.4 percent in July. (See table A.) On an unadjusted basis, the index for final demand advanced 8.5 percent for the 12 months ended in September.

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After two months of declines, it popped back up. The CPI remained flat those two months, so it would not be unreasonable to think tomorrow CPI, to show a gain.

Far greater minds than I have indicated the Food and Energy Index, is moving upwards and sticky prices (core) have become stuck. I mean we have forecasts from really smart people, saying September CPI will advance +0.3% and October at +0.8%. That with core stagnating at +0.5% for each month.

So gasoline is back in the picture, as pump prices are on the rise. The average for October is +3.5%, after falling in July by -7.7%; August by -10.1%; and September at -5.2%. That helped cover up a lot of sins. Supposedly, weaker demand would drive down prices. However, the actual data, points to demand slightly increasing, the past 3 weeks and back to August levels.

Having followed EIA.gov weekly reports on energy for over 15 years, I was amazed at the discrepancies in last week's report. I would expect some wild swings in tomorrow's report. More on that... tomorrow.

Food is near and dear to my heart (Stomach and heart are less than a foot apart, and that is foot in measurements, not that other body part. Less than 30CM.)...

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There does not seem to be much relief in the food category either. The index is up 11.9% from last year, and +1.2% for the month. The latter being +14.4% annualized and not a good indicator of things to come. I would expect the annualized to slip below the year to year actual, for relief to be seen.

What does all this mean? OPEC+ is supposedly dropping production by 2 million BPD, beginning November the 1st., although Russia says they have already done half of that. That 180 million barrel SPR release is slated to end on October 31st. 

Biden has suggested another SPR release, but I doubt it... as he needs to save some ammunition for the 2024 election. The mid terms are November the 8th. 

The advance GDP for 2022 3rd quarter comes out at end of October. However the CPI comes out tomorrow and I cannot help but think, it will be a disappointment for those expecting some dramatic easing (stock markets). 

Possibly the Real Earnings report from tomorrow, might get some positive spin, but still likely not to get back to pre-covid level. 

Retail Sales comes out on Friday and I do not expect happy news either, ONCE you factor the inflation in. This report is always in current dollars, NOT chained dollars or adjusted for inflation.

We have 26 days of political theater, before the mid-terms. Then it revolves around 2024. So prepare to clean your B.S. meter very quickly after November the 8th and possibly consider a major upgrade, with expanded capacity. It will be needed.