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.