A Dovish Fed: March 18 – 22

A Dovish Fed: March 18 – 22

Kevin Roth

The Fed signals that it will not hike short-term interest rates this year. Here are the five things we learned from U.S. economic data released during the week ending March 22.

#1The Fed’s campaign of raising short-term interest rates is over (for now). The policy statement published after the past week’s Federal Open Market Committee (FOMC) noted that economic activity growth had “slowed from its solid rate” but that the labor market “remains strong.” Also decelerating were growth rates of both household spending and business investment. Inflation fell below the Fed’s two-percent target rate—largely due to lower energy prices—with core inflation closer to the target. As a result, the FOMC voted unanimously to keep the fed funds target rate at a range between 2.25 and 2.50 percent and (perhaps more notably) stated that it would be “patient” as to if/when it would again raise rates. The Fed bases its patience on “global economic and financial developments and muted inflation pressures.” Written another way, the Fed no longer expects to raise its interest rate target in 2019—not long ago up to three rate increases had been the consensus expectation for this year.

#2Forward-looking measures suggest economic activity was picking back up in early 2019. The Conference Board’s Leading Economic Index (LEI) added 2/10ths of a point during February to a reading of 111.5 (2016=100), its best reading since last September. This measure had sputtered along since last October—trading within a 2/10ths of a point range—but has risen 3.0 percent over the past year. Six of ten LEI components grew in February, with the most significant positive contributor being rising stock prices. The coincident index also added 2/10ths of a point to 105.9 (+2.5 percent versus February 2018) as all four index components making positive contributions. The lagging index held firm at 107.0 during February, growing by a modest 0.8 percent over the past year. The press release notes that the results—particularly, the recent sluggishness in the leading index—suggest economic growth “could decelerate by year end.” 

#3Existing home sales bounced back big in February. The National Association of Realtors reports that sales of previously owned homes surged 11.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.51 million units. This was the best month for existing home sales since last March but still left sales 1.8 percent behind the year-ago sales pace. Sales expanded in three of four Census regions in February: West (+16.0 percent), South (+14.9 percent), and Midwest (+9.5 percent). Meanwhile, sales in Northeast matched January’s pace. There were 1.63 million homes available for purchase at the end of February, up 2.5 percent from January and 3.2 percent from a year earlier. Nonetheless, inventories represented a very tight 3.5 month supply. The median sales price of $249,500 was up 3.6 percent from a year earlier. NAR’s press release tie February’s strong housing report to “a powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence.”

#4Homebuilders sentiment was stable in March. The National Association of Homebuilders’ Housing Market Index (HMI) remained at a seasonally adjusted reading of 62. This was the 57th consecutive month the HMI was above a reading of 50, indicative of a higher percentage of survey respondents viewing the housing market as “good” as opposed to being “poor.” The HMI improved in three of four Census regions, with only the Midwest seeing a decline in the sentiment measure. Improving during the month with indices measuring present sales of single-family homes (up two points to 68) and expected home sales (up three points to 71, while the measure tracking the traffic of prospective buyers lost four points to 44. The press release noted that homebuilders are challenged by a “skilled worker shortage, lack of buildable lots and stiff zoning restrictions in many major metro markets.”

#5Factory orders grew slightly in January. The Census Bureau reports that new orders for manufactured goods increased for a second straight month, albeit at a modest 0.1 percent to a seasonally adjusted $500.5 billion. Net of transportation goods, factory orders slowed 0.2 percent while core capital goods orders (which are nondefense capital goods net of aircraft) jumped 0.8 percent. Durable goods orders gained 0.3 percent those of nondurables pulled back 0.2 percent. Shipments dropped for the fourth straight month with a 0.4 percent decline to $503.1 billion while nontransportation goods shipments slowed by a more modest 0.2 percent. Unfilled orders swelled for the first time in four months with a 0.1 percent bump to $1.182 trillion while inventories grew 0.5 percent to $685.7 billion (its 26th gain in 27 months).

Other U.S. economic data released over the past week:
– Jobless Claims (week ending March 16, 2019, First-Time Claims, seasonally adjusted): 221,000 (-9,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 225,000 (Unchanged vs. the same week a year earlier).
– State Employment (February 2019, Nonfarm Payrolls, seasonally adjusted): Vs. January 2019: Increased in 2 states and was essentially unchanged in 48 states and the District of Columbia. Vs. February 2018: Grew in 22 states and was essentially unchanged in 28 states and the District of Columbia.
– Wholesale Trade (January 2019, Merchant Wholesalers’ Inventories, seasonally adjusted): $669.9 billion (+1.2% vs. December 2018, +7.7% vs. January 2018). 

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

Retailers and Manufacturers Started 2019 in Different Directions: March 11 – 15

Retailers and Manufacturers Started 2019 in Different Directions: March 11 – 15

Kevin Roth

Retail sales improved in January but manufacturing output struggled in February. Here are the five things we learned from U.S. economic data released during the week ending March 15.  

#1Retail sales modestly rebounded in January. The Census Bureau estimates U.S. retail and food services sales grew 0.2 percent during the month to a seasonally adjusted $504.4 billion. This compares favorably to December’s 1.6 percent sales slump (revised from a previously reported 1.2 percent drop) and places sales 2.3 percent ahead of January 2018 levels. Sales fell a sharp 2.4 percent at auto dealers/parts stores and 2.0 percent at gas stations. Net of sales at auto dealers/parts stores and gas stations, core retail sales jumped 1.2 percent following a 1.6 percent drop in December and have grown 3.2 percent since January 2018. Growing during the month were sales at sporting goods/hobby retailers (+4.8 percent), building material/garden stores (3.3 percent), health/personal care stores (+1.6 percent), grocery stores (+1.2 percent), general merchandisers (+0.8 percent), and restaurants/bars (+0.7 percent). Sales declined at stores focused on apparel (-1.3 percent), furniture (-1.2 percent), and electronics/appliances (-0.3 percent).

#2Manufacturing production dropped for the second straight month in February. The Federal Reserve reports the manufacturing output fell 0.4 percent on a seasonally adjusted basis, following a 0.5 percent drop in January. Durable goods production slipped 0.1 percent (matching the modest decline in motor vehicle production) while nondurable goods output declined 0.7 percent as production fell for petroleum/coal products, apparel, and printing. Overall industrial production increased 0.1 percent as the manufacturing slowdown was counterbalanced by increased utilities (+3.7 percent) and mining (+0.3 percent) output. Over the past year, manufacturing output has grown a modest 1.0 percent while overall industrial production has risen 3.5 percent. 

#3Employers continued struggling to fill open jobs during January. There were a seasonally adjusted 7.581 million open nonfarm jobs at the end of January, up 102,000 from December and 15.0 percent above year-ago levels. Further, the Bureau of Labor Statistics’ count of open positions was well above the 6.535 million people who had reported being unemployed during the same month. Among the industries reporting large year-to-year percentage increases in job openings were wholesale trade (+32.5 percent), construction (+23.3 percent), health/social assistance (+21.0 percent), professional/business services (+19.5 percent), accommodation/food services (+19.1 percent), and financial activities (+15.3 percent). Lagging behind the growth in new job openings was hiring, which grew by 84,000 to 5.801 million workers. This was 5.0 percent ahead of the January 2018 pace of hiring. 5.550 million people left their jobs in January, up 81,000 for the month and 4.4 percent from a year earlier. Indicative of confident workers, 3.490 million quit their jobs voluntarily (+15.5 percent versus January 2018) while the count of people laid off—1.723 million—was 10.9 percent year-ago layoff activity

#4Inflation measures remained under control in February. The Bureau of Labor Statistics reports the Consumer Price Index (CPI) grew 0.2 percent on a seasonally adjusted basis during the month, its first increase since October. Pulling up the headline number were 0.4 percent gains for both food and energy. The latter included the first increase in gasoline prices since October (+1.5 percent). Net of food and energy, core CPI advanced 0.1 percent, its smallest increase since last August. While prices for shelter and apparel each grew 0.3 percent, falling were prices for medical care commodities (-1.0 percent), used cars/trucks (-0.7 percent), new vehicles (-0.2 percent), and transportation services (-0.1 percent). Over the past year, CPI has risen 1.5 percent while the core measure has a 12-month comparable of +2.1 percent.

Meanwhile, the Producer Price Index (PPI) for final demand grew for the first time in four months with a 0.1 percent seasonally adjusted increase in February, per the Bureau of Labor Statistics. The core measure of wholesale prices, which removes the impact of energy, food and trade services, also grew 0.1 percent for the month. Energy prices increased for only the third time in eight months with a 1.8 percent gain (including a 3.3 percent advance in wholesale gasoline prices). PPI for final demand food slumped 0.3 percent. PPI for final demand goods gained 0.4 percent while that for final demand services was unchanged. Final demand PPI has risen 1.9 percent, the first time since June 2017 in which the 12-month comparable has fallen under two percent. The core measure for wholesale prices has grown 2.3 percent over the past year.

#5Durable goods orders grew for a third straight month in January. The Census Bureau tells us that new orders for manufactured durable goods grew 0.4 percent to a seasonally adjusted $255.3 billion. Transportation goods orders rose 1.2 percent, with increases for civilian (+15.9 percent) and defense aircraft (+4.5 percent) and a 1.0 percent slowdown in motor vehicle orders. Net of transportation goods, durable goods orders slipped 0.1 percent. Rising were orders for computers (+7.6 percent), communications equipment (+3.8 percent), electrical equipment/appliances (+1.7 percent), and machinery (+1.4 percent). New orders for primary metals slumped 1.5 percent. New orders for civilian non-aircraft capital goods—a proxy for business investment—gained 0.8 percent.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending March 9, 2019, First-Time Claims, seasonally adjusted): 229,000 (+6,000 vs. previous week; +3,000 vs. the same week a year earlier). 4-week moving average: 223,750 (+0.4% vs. the same week a year earlier).
– Import Prices (February 2019, All Imports, not seasonally adjusted): +0.6% vs. January 2019, -1.3% vs. February 2018. Nonfuel Imports: Unchanged vs. January 2019, -0.6% vs. February 2018.
– Export Prices (February 2019, All Exports, not seasonally adjusted): +0.6% vs. January 2019, +0.3% vs. February 2018. Nonagricultural Exports: +0.7% vs. January 2019, +0.3% vs. February 2018.
– State Employment (January 2019, Nonfarm Payrolls, seasonally adjusted): Vs. December 2018: Payrolls grew in 13 states and were essentially unchanged in 37 states and the District of Columbia. Vs. January 2018: Payrolls grew in 26 states and were essentially unchanged 24 states and the District of Columbia.
– New Home Sales (January 2019, New Homes Sold, seasonally adjusted annualized rate): 607,000 (-6.9% vs. December 2018, -4.1% vs. January 2018).
– Business Inventories (December 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.995 trillion (+0.6% vs. November 2018, +4.8% vs. December 2017).
– Small Business Optimism Index (February 2019, Index (1986=100), seasonally adjusted): 101.7 (vs. January 2019: 101.2, vs. February 2018: 107.6).
– Construction Spending (January 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.279 trillion (+1.3% vs. December 2018, +0.3% vs. January 2018).
– University of Michigan Surveys of Consumers (March 2019-preliminary, Index of Consumer Sentiment (100=1966Q1), seasonally adjusted): 97.8 (vs. February 2019: 93.8, vs. March 2018: 101.4).

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

Employers Slammed on the Brakes: March 4 – 8

Employers Slammed on the Brakes: March 4 – 8

Kevin Roth

The U.S. economy had its worst month for job creation in a year and a half in February. Here are the five things we learned from U.S. economic data released during the week ending March 8.

#1Job creation slowed to a crawl in February. The Bureau of Labor Statistics reports that nonfarm employers added a mere 20,000 workers to their payrolls in February, the fewest jobs added in a single month since September 2017 (then caused by hurricanes disrupting economic activity). Over the past three months, payroll gains have averaged 186,000. Private sector employers added 25,000 workers, split between a 57,000 increase in the service sector and a 32,000 job loss in the goods-producing side of the U.S. economy. Among the industries reporting job gains were professional/business services (+42,000), health/social assistance (+22,500), and wholesale trade (+10,900). Dragging down the payrolls report was the 31,000 jobs lost in construction (following a 53,000 gain in January) and an unchanged count of workers in leisure/hospitality following January’s 89,000 gain. The same report finds average hourly wages growing by 11 cents to $27.66 (up 3.4 percent over the past year) and average weekly earnings increasing by $1.02 to $951.50 (up 3.1 percent over the past year).

A separate survey of households paints a better employment picture, including showing that the unemployment rate declined by 2/10ths of a percentage point to 3.8 percent—the measure has stayed within a tight band between 3.7 percent and 4.0 percent over the past year. While 45,000 people left the labor market during the month, the labor force participation rate remained at 63.2 percent. Labor force participation among adults aged 25 to 54 lost a tenth of a percentage point to 82.5 percent, just off from its highest point since April 2010. The count of part-time workers seeking a full-time opportunity dropped to a post-recession low at 4.310 million while the broadest measure of labor underutilization (the “U-6” series) declined to its lowest point since 2001 at 7.3 percent.labor force participation 2008-18 030819

#2The trade deficit widened in 2018. The Census Bureau and the Bureau of Economic Analysis report that export activity slowed by $3.9 billion in December to $264.9 billion (virtually unchanged from December 2017) while imports accelerated by $5.5 billion to $264.9 billion (+3.1 percent versus December 2017). This left the goods and services trade deficit at -$59.8 billion, its largest since 2008. The goods deficit grew by $9.0 billion to -$81.5 billion while the services surplus shrank by $0.5 billion to +$21.8 billion. The trade deficit for all of 2018 totaled -$621.0 billion, up 12.5 percent from 2017 and the equivalent to 3.0 percent of the U.S. gross domestic product (GDP). The 2017 trade deficit of -$552.3 billion was the equivalent to 2.8 percent of that year’s GDP. Export activity grew $118.5 billion in 2018 to $1.672 trillion while imports were $2.563 trillion (up $292.2 billion from their 2017 total). 

#3The service sector expanded more robustly in February. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business, jumped three full points to a reading of 59.7. This was the NMI’s 109th straight month with a reading above 50.0, the threshold between an expanding and contracting service sector. Three of the NMI’s four components improved during the month: new orders (up 7.5 points), business activity/production (up 5.0 points), and supplier deliveries (+2.0 points). The component tracking employment shed 2.6 points during the month. All 18 nonmanufacturing sectors expanded during February, led by transportation/warehousing, management of companies/support services, and wholesale trade. While staying “most optimistic,” survey respondents were “concerned about the uncertainty of tariffs, capacity constraints and employment resources.”

#4Construction spending slowed in December. The Census Bureau places the seasonally adjusted annualized value of construction put into place at $1.293 trillion, representing a 0.6 percent drop from November but still a 1.6 percent advance from a year earlier. Private sector construction spending also slowed 0.6 percent in December to an annualized rate of $991.2 billion (+0.8 percent versus December 2018). Private residential construction spending slumped 1.4 percent while nonresidential spending edged up 0.4 percent. Public sector construction spending suffered a matching 0.6 percent drop during the month to an annualized $296.0 billion (+4.8 percent December 2017).

#5New home sales rebounded in December. The partial federal government shutdown delayed report on December new home sales found the annualized count of transactions grew 3.7 percent during the month to 621,000 units. While this was the best month for the Census Bureau data series since last May, new home sales remained 2.4 percent below the year-ago pace. Sales grew during the month in three of four Census regions during December, with the Midwest being the negative outlier. There were 344,000 new homes available for purchase at the end of December, up 3.0 percent for the month and 17.0 percent from December 2017 and the equivalent to a 6.6 month supply. The former was dragged down by declines in exports of petroleum/crude oil and aircraft while the latter blossomed because of increased imports of computers/accessories and consumer goods.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending March 2, 2019, First-Time Claims, seasonally adjusted): 223,000 (-3,000 vs. previous week; -7,000 vs. the same week a year earlier). 4-week moving average: 226,250 (+0.7% vs. the same week a year earlier).
– Monthly Treasury Statement (January 2019, Federal Government Budget Surplus/Deficit): +$8.7 billion. First 4 months of FY19: -$310.3 billion (76.6% larger than the deficit from the first 4 months of FY18).- New Home Starts (January 2019, Privately-Owned Housing Starts, seasonally adjusted annualized rate): 1.230 million (+18.6% vs. December 2018, -7.8% vs. January 2018).
– Productivity (Q4 2018, Nonfarm Labor Productivity, seasonally adjusted annualized rate): +1.9% vs. Q3 2018, +1.8% vs. Q4 2017.
– Consumer Credit (January 2019, Outstanding Non-Real Estate Backed Debt, seasonally adjusted): $4.035 trillion (+$17.0 billion vs. December 2018, +5.0% vs. January 2018).
– Beige Book

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