The Fed Stays Put Again (But Some Were Ready to Make a Move): What We Learned During the Week of September 19 – 23

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~ Kevin Roth ~ Leave a comment

Despite the dissent of 3 of its voting members, the FOMC keeps its interest rate target steady once again. Meanwhile, tight inventories clip home sales during August. Here are the 5 things we learned from U.S. economic data released during the week ending September 23.

#1Yes, the Federal Reserve held firm with its interest rate target …but some voting members were ready to make a move. The policy statement released following the conclusion of last week’s meeting of the Federal Open Market Committee noted that the labor market “has continued to strengthen” and that economic growth “has picked up from the modest pace” of the first half of 2016. It also characterized consumer spending as “growing softly” but did note that business investment “remained soft” and that inflation was below the Fed’s 2% target rate. The statement also reaffirmed FOMC members’ expectations that both economic growth and labor market conditions will continue to improve and that inflation will slowly move towards its 2% target rate. With all of that in the backdrop, the FOMC members’ maintained its 0.25%-0.50% target for the fed funds rate, although the committee “judge[d] that the case for an increase…has strengthened.” 3 voting members of the FOMC did not vote with the majority and instead wanted to hike the target rate by a ¼ point to 0.50%-0.75%.

Released in conjunction were the latest economic forecasts of the FOMC members, which showed only minor changes. The median forecast for 2016 GDP slipped by 2/10ths of a point to +1.8%. The 2017 and 2017 GDP forecasts held steady at +2.0%. While the median 2016 unemployment forecast inched up 1/10th of a point to 4.8%, the 2017 and 2018 remained at 4.6% and 4.5%, respectively. The Fed’s preferred measure of inflation, the personal consumption expenditure (PCE) deflator not expected to hit its target of 2.0% until 2018.  As a result, FOMC members anticipate one rate hike this year, 2 rates hikes in 2017, and 3 rate hikes in 2018.fomc-fed-funds-forecasts-092316

#2Existing home sales took a half step back for a 2nd straight month during August. The National Association of Realtors’ measure of sales of previously owned homes decreased 0.9% to a seasonally adjusted annualized rate (SAAR) to 5.33 million units (+0.8% vs. August 2015). Sales declined in 3 of 4 Census regions, with the Northeast (+6.1%) being the positive outlier. The press release links tight inventories of homes for a major reason for the lagging sales pace. Inventories of unsold homes totaled 2.040 million units, down 3.3% from July 2016, 10.1% below August 2015 levels, and a 4.6 month supply. As a result, the median sales prices was 5.1% above that of a year earlier at $240,200.

#3Housing starts slowed in August, but homebuilders grew more confident during September. The Census Bureau estimates housing starts declined 5.8% during August to a seasonally adjusted annualized rate (SAAR) of 1.142 million units. This was 0.9% above the year ago rate. Starts of single-family units declined 6.0% from the July rate to 768,000 units while multifamily properties with 5 or more units slowed 6.9% to 403,000 units. August’s slowdown was centered in the South, where starts declined 14.8% during the month. Starts improved in the Northeast (+7.6%), Midwest (+5.6%), and West (+1.8%). Looking towards the future, the number of issued construction permits slipped 0.4% during the month to 1.139 million units (SAAR), which was 2.3% below the August 2015 rate. The SAAR of issued permits for single-family units increased 3.7% during the month while the equivalent measure for multi-family units (5+ units) dropped 8.4%. While the SAAR of completions fell 3.4% during August to 1.043 million units, it represented an 8.3% gain from the August 2015 pace of completions.

Meanwhile, the Housing Market Index (HMI), a measure of homebuilder sentiment from the National Association of Home Builders, jumped 6 points to a seasonally adjusted reading of 65. This was the 27th straight month in which the index was above 50 (indicative of a greater percentage of surveyed homebuilders seeing the housing market as “good” rather than “poor”) and its highest reading since October 2005. The HMI improved in all 4 Census regions, with the highlight being a 14 points surge in the West to a reading of 82. The current and expected sales indices rose 5 and 6 points, respectively, to matching readings of 71.  The index tracking the traffic of prospective buyers added 4 points to 48. The press release said that a number of homebuilders were “ seeing more serious buyers, a positive sign that the housing market continues to move forward.”

#4Chicago Fed data indicate economic growth slowed in August. The Chicago Fed National Activity Index (CFNAI) plummeted by 79-basis points during the month to -0.55. The CFNAI is a weighted index of 85 economic index set so that a reading 0.00 indicates economic growth is at the historic average. Of those 85 indicators, just 19 made a positive contribution to the headline index while the other 66 made negative contributions. All 4 major categories of indicators were drags on the CFNAI, led by those associated with production that made a negative contribution of -0.33 (down sharply from a positive +0.15 contribution in July). All pulling down the CFNAI were indicators associated with employment (-0.09), consumption/housing (-0.08), and sales/orders (-0.05). Despite the big drop, the moving average actually improved by 2-basis points to -0.07. This reading is indicative of economic growth that is slightly below its historic average.

#5An index of leading economic indicators also slipped during August. The Conference Board’s Leading Economic Index declined by 2/10ths of a point to a seasonally adjusted 124.1. The decrease in August followed gains during the 2 prior months and left the index 1.1% above its year ago mark. Only 4 of the index’s 10 components improved from their July readings, including the interest rate spread and stock prices. The biggest drag on the index was the average weekly manufacturing hours. The coincident index eked out a 1/10th of a point increase to 114.1 (+1.6% vs. August 2015), with 3 of 4 index components gaining from their July readings (nonagricultural payrolls, personal income net of transfer payments, and manufacturing/trade sales). The adding index inched up 2/10ths of a point to 122.1 (+3.0% vs. August 2015) as 4 of 7 index components improving during the month. The press release stressed that data still “points to moderate economic growth in the months ahead” despite the decline in the leading index.

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending September 17, 2016, First-Time Claims, seasonally adjusted): 252,000 (-8,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 258,500 (-5.7% vs. the same week a year earlier).
– Regional/State Employment (August 2016, Nonfarm Payrolls, seasonally adjusted): vs. July 2016: increased in 4 states & District of Columbia, down in 3 states, and essentially unchanged in 43 states. Vs. August 2015: increased in 35 states, declined in 2 states and unchanged in 13 states and the District of Columbia.

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

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

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~ Kevin Roth ~ Leave a comment

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.

Companies Seek More Workers, Service Sector Sputters: What We Learned During the Week of September 5 – 9

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~ Kevin Roth ~ Leave a comment

The number of job openings hit another post-recession high in July. Yet, the same month was not so hot for the service sector. Here are the 5 things we learned from U.S. economic data released during the week ending September 9.

#1Employers posted more job openings during July but expanded payrolls at a slower pace. The Bureau of Labor Statistics reports that there were a seasonally adjusted 5.871 million job openings at the end of the month, up 228,000 from June, 1.4% above year ago levels, and the most in the 16+ year history of the data series. This included 5.358 million private sector job openings (+2.2% vs. July 2015), with positive 12-month comparables in construction (+41.7%), professional/business services (+12.9%), transportation/warehousing (+7.2%), retail (+3.8%), and manufacturing (+3.6%). The number of job openings was below year ago levels in mining/logging (-43.5%), wholesale trade (-21.4%), financial activities (-12.3%), and the government (-6.0%). The number of people hired during the month expanded by “only” 97,000 jobs to 5.227 million hires, 2.8% above year ago levels. Private sector hiring totaled 4.861 million, a 3.2% gain from July 2015. Industries with the largest year-to-year percentage gains in hiring were professional/business services (+13.7%), construction (+11.0%), leisure/hospitality (+10.4%), and manufacturing (+3.8%). Job separations were 3.0% above year ago levels at 4.937 million, with voluntary quits (+9.4%) higher and layoffs (-5.1%) below their July 2015 readings.job-openings-and-hires-090916

#2Service sector growth appreciably slowed in August. The headline index from the Institute for Supply Management’s Report on Business shed 4.1 points to a seasonally adjusted 51.4. While this was the 79th straight month in which the measure was above the expansionary/contractionary threshold of 50.0, it was its lowest reading since February 2010. 3 of 4 headline index components declined during the month (business activity, new orders, and employment) while the measure for supplier deliveries improved from its July mark. 11 of 18 tracked service sector industries expanded during the month, led by utilities, real estate, accommodation/food services, and finance/insurance. The press release notes that a “majority” of companies participating in the survey had reported a “slowing in the level of business.”

#3Consumers continued to take on additional debt in July, but the growth in credit card balances decelerated. Consumers had non-real estate backed outstanding credit balances of $3.661 trillion, up $17.7 billion for the month. The 6.0% increase in the Federal Reserve measure over the past year reflected a slightly smaller 12-month comparable in comparison to what we have seen over the past few years. Outstanding nonrevolving credit balances (e.g., auto and college loans) expanded by $14.9 billion during the month to $2.692 trillion (+6.0% vs. July 2015). Outstanding revolving credit balances (i.e., credit cards) edged up by only $2.8 billion (following gains of $9.2 billion and $4.6 billion during the 2 previous months) to $969.0 billion. This also was 6.0% ahead of July 2015 outstanding balances. 

#4Consistent with the report above, layoff activity remained relatively light during the final days of summer. The Department of Labor reports that were 259,000 1st time claims made for unemployment insurance benefits on a seasonally adjusted basis during the week ending September 3rd. Weekly 1st time claims have been under 300,000 every week for more than year and a half. This was down 4,000 from the prior week and 16,000 below the count from the same week a year earlier. The 4-week moving average slipped by 1,750 to 261,250 claims (-5.5% below year ago levels). 2.055 million people were receiving some form of unemployment insurance benefits during the week ending August 20, a 4.6% drop from the year ago count.

#5The latest Beige Book once again finds a moderate pace of economic expansion. The latest edition of the Federal Reserve’s compilation of anecdotal information and insights as collected by the 12 district banks characterizes economic activity as expanding “at a modest pace” during all of July and the first half of August. Further, most of the business contacts interviewed for the report “expect moderate economic growth” into the fall. Consumer spending was “little changed,” although spending on automobiles had slowed. Nonfinancial services “gained further momentum” while manufacturing “rose slightly.” Residential real estate “grew at a moderate pace,” although tight inventories were constraining sales activity in some markets. Labor market conditions were described as “tight” with “moderate” payrolls growth (although there were some “upward wage pressures.”) Nevertheless, price gains had “remained slight overall.” Continue reading →

151,000 New Jobs in August: What We Learned During the Week of August 29 – September 2

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~ Kevin Roth ~ Leave a comment

Employers added fewer jobs in August, while consumers continued to spend in July. Here are the 5 things we learned from U.S. economic data released during the week ending September 2.

#1The pace of hiring cooled slightly in August, probably starving off a Fed rate hike later this month. The Bureau of Labor Statistics estimates nonfarm payrolls grew by a seasonally adjusted 151,000 jobs during the month, down from gains of 271,000 and 275,000 in June and July, respectively. Private sector employers added 126,000 jobs during the month, including 150,000 new service sector jobs. The service sector industries with the largest employment gains were health care/social assistance (+36,100), leisure/hospitality (+29,000), professional/business services (+22,000), retail (+15,100), financial activities (+15,000), and transportation/warehousing (+14,900). The goods producing side of the economy shed 24,000 jobs, with payroll losses in manufacturing (-14,000), construction (-6,000), and mining/logging (-4,000). Public sector employment grew by 25,000 jobs. The average number of nonfarm hours worked dropped by 1/10th of an hour to 34.3 (August 2015: 34.6 hours) while average weekly nonfarm earnings dropped by $1.54 to $882.54 (+1.5% vs. August 2015).

The separate survey of households kept the unemployment rate at 4.9% for a 3rd consecutive month. 176,000 people entered the labor force with the labor force participation rate remaining at rather low 62.8% (August 2015: 62.6%). 6.053 million people held part-time jobs but were seeking a full-time opportunity (its highest in 3 months but down 6.6% from a year earlier). The median span of unemployment dropped by 4/10ths of a week to 11.2 weeks (August 2015: 12.1 weeks). Finally, the broadest measure of labor underutilization (the “U-6” series) remained at 9.7% (August 2015: 10.3%).

The next meeting of the Federal Open Market Committee will be on September 20 and 21, for which there had been speculation that an interest rate hike was on the table. Yet, voting FOMC members that were probably on the fence on whether to support a quarter point hike in the fed funds target rate will likely to use this softer pace of job creation to defer the hike to a future meeting. 

#2Real personal spending grew for a 4th straight month in July. The Bureau of Economic Analysis estimates “real” personal consumption expenditures (PCE) grew 0.3% during the month and were 3.0% above year ago levels. Spending on goods jumped 0.6% (its best month since April and up 3.8% vs. July 2015), split between a 1.9% increase in spending for durable goods and a 0.1% slip in spending on nondurables. The former was boosted by a healthy 4.5% bounce in spending for vehicles and a 1.0% gain in home furnishings expenditures whereas the latter was hurt by declines in spending for food and apparel. Spending on services gained 0.2% during July and was 2.6% above year ago levels. Without adjustments for price variations, nominal PCE grew 0.3% during the month to a seasonally adjusted annualized rate of $12.798 trillion. The increased in spending was funded by a 0.4% gain in personal income to a SAAR of $16.023 trillion. Both nominal and real disposable incomes gained 0.4% during the month, with the 12-month comparables for the two at +3.6% and +2.7%, respectively. The savings rate picked up 2/10ths of a percentage point to +5.7%. A year earlier, the savings rate was at +5.8%.

#3A boost in exports narrowed the trade deficit in July. The Census Bureau and the Bureau of Economic Analysis report that exports grew $3.4 billion to a seasonally adjusted $186.3 billion (-2.0% vs. July 2015) while imports slowed by $1.8 billion to $225.8 billion (-1.8% vs. July 2015). The resulting trade deficit of -$39.5 billion was down $5.2 billion from the previous month and 1.1% from the same month a year earlier. The goods deficit contracted by $5.3 billion to -$60.3 billion (-1.8% vs. July 2015) while the services surplus slipped $0.1 billion to +$20.9 billion. Goods exports grew $3.6 billion, reflecting a matching sized gain in soybeans exports. Goods imports slowed by $1.9 billion, with a decline in imports of consumer goods (including, pharmaceutical preparations and cell phones) and capital goods (largely civilian aircraft). The U.S. had its largest goods deficits with China (-$29.4 billion), European Union (-$11.8 billion), and Japan (-$6.0 billion).

#4Purchasing managers indicate manufacturing activity shrank in August. The Institute for Supply Management’s Purchasing Managers Index (PMI) dropped by 3.2 points to a reading of 49.4. This was the PMI’s lowest reading since January and the 1st time it was below the expansionary/contractionary threshold of 50.0 since March. All 5 index components declined from their July readings: new orders (-7.8 points to 49.1), production (-5.8 points to 49.6), employment (-1.1 points to 48.3), supplier deliveries (-9/10ths of a point to 50.9), and inventories (1/2 point to 49.0). Only 6 of 18 tracked manufacturing industries reported growth during the month, led by printing, nonmetallic mineral products, and computers/electronic products.

#5Construction spending held steady in July despite gains in the private sector. The Census Bureau puts the seasonally adjusted annualized value of construction put into place during the month at $1.153 trillion, essentially June’s pace and 1.5% above year July 2015’s rate. Private sector construction spending grew 1.0% during the month to a SAAR of $866.5 billion (+4.4% vs. July 2015), with gains of 0.3% and 1.7% in residential and nonresidential construction, respectively. The former’s gain occurred even though new construction of single-family and multifamily homes declined. Greater than 1% month-to-month gains on nonresidential spending resulted for lodging, manufacturing, educational, commercial, communications, and power. Public sector construction spending slowed 3.1% during the month and was 6.5% below the year ago pace.

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending August 27, 2016, First-Time Claims, seasonally adjusted): 263,000 (+2,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 263,000 (-4.7% vs. the same week a year earlier).
– Productivity (Q2 2016, Nonfarm Business Labor Productivity, seasonally adjusted): -0.6% vs. Q1 2016, -0.4% vs. Q2 2015.
– Vehicle Sales (August 2016, seasonally adjusted annualized rate): 17.00 million vehicles (-5.0% vs. July 2016, -4.4% vs. August 2015).
– Conference Board Consumer Confidence (August 2016, Index (1985=100), seasonally adjusted): 101.1 (+4.4 points vs. July 2016, -0.2 points vs. August 2015).
– Factory Orders (July 2016, New Orders, seasonally adjusted): $454.8 billion (+1.8% vs. June 2016, -3.5% vs. July 2015).
– Pending Home Sales (July 2015, Index (2001=100), seasonally adjusted): 111.3 (+1.3% vs. June 2016, +1.4% vs. July 2015).
– Case-Shiller Home Price Index (June 2016, 20-City Index, seasonally adjusted): -0.1% vs. May 2016, +5.1% vs. June 2015.
– Agricultural Prices (July 2016, Prices Received by Farmers, seasonally adjusted): -3.7% vs. June 2016, -10.0% vs. July 2015.

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

Smaller Q2 GDP Estimate, Perhaps Improvement in July: What We Learned During the Week of August 22 – 26

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~ Kevin Roth ~ Leave a comment

Even with a lower estimate for Q2 GDP, economic activity appears to have picked up in July. Here are the 5 things we learned from U.S. economic data released during the week ending August 26.

#1A small downward revision in Q2 GDP growth. The Bureau of Economic Analysis now says Gross Domestic Product (GDP) grew at a tepid seasonally adjusted annualized rate (SAAR) of +1.1%. This was off from the +1.2% annualized gain reported a month ago. The downward revision was the product of smaller than previously believed levels of state/local government spending and slower private inventory accumulation. As we saw with last month’s report, Q2 GDP growth was largely the result of higher consumption, which added 294-basis points to the rate of economic growth, with net exports the only other positive contributor to GDP growth. Drags on economic activity were fixed residential and nonresidential investment, private inventory accumulation, and government expenditures. The Personal Consumption Expenditures (PCE) deflator, a measure of inflation, was at +2.0% (SAAR) during the quarter. The core PCE deflator, which removes both energy and food from the analysis, was at +1.8%. Corporate profits (after adjustments for inventory valuation and capital consumption) slumped 1.2% during the quarter and was 4.9% below year ago levels. Look for another Q2 GDP revision next month.082616

#2July was the best month for economic activity in a year, at least according to one measure. The Chicago Fed National Activity Index (CFNAI) added 22-basis points during the month to a seasonally adjusted reading of +0.27. The Federal Reserve Bank of Chicago’s index of 85 economic indicators has not been this high since July 2015. Most of the gain came from indicators associated with production/income, with its contribution to the CFNAI increasing by 16-basis points during the month to +0.23. Also making positive contributions were indicators associated with employment (+0.09) and sales/orders (+0.01), while indicators tied to consumption/housing made a small negative contribution (-0.06). 53 of 85 individual indicators made a positive contribution to the CFNAI, as 49 of CFNAI’s indicators improved from their June readings. The 3-month moving average for the CFNAI added 9-basis points to -0.10. While this was the moving average has been negative territory for 18 consecutive months (which is indicative economic growth below its historic average), this was the moving average’s best reading since February.

#3Tight inventories slowed existing homes during July, even as new home sales hit another post-recession high. The National Association of Realtors reports that sales of previously owned homes dropped 3.2% during the month to a seasonally adjusted annualized rate (SAAR) of 5.39 million units. While this was off 1.6% from a year earlier, the SAAR for home sales remained above 5 million units every month in 2016. Sales fell in 3 of 4 Census regions on both a month-to-month (Northeast, Midwest and South) and year-to-year (Northeast, South, and West) basis. There were 2.13 million homes available for sale at the end of July (+0.9% vs. June 2016 and -5.8% vs. July 2015), equivalent to a tight 4.7 month supply. The median sales price of $244,100 was 5.3% above year ago levels. The press release linked what it called the “considerable sales slump” during the month to a “severely restrained inventory” and its resulting impact on affordability.

Meanwhile, new home sales jumped 12.4% during July to a SAAR of 654,000 units. This was up 31.3% from the July 2015 sales pace and its highest point for the Census Bureau measure since the fall of 2007. Sales improved in 3 of 4 Census regions during the month (the 1 outlier, the West, had sales matching its June pace). Sales were up by double-digit percentages on a year-to-year basis in all 4 regions. New home inventories tightened further—there were 233,00 new homes available for sale at the end of the July, which represented a mere 4.3 month supply.

#4July was a good month for durable goods orders. The Census Bureau estimates the value of manufactured durable goods grew by 4.4% during the month to a seasonally adjusted $228.9 billion. Even with the gain, this was 3.3% below year ago levels. A part, but not all, of the increase was tied to a bounce in the typically volatile transportation sector (+10.5%), with big gains in both civilian (+89.9%) and defense (+20.3%) aircraft. Net of transportation goods, new orders grew 1.5%. There were higher new orders for computers/electronics (+3.6%), electrical equipment/appliances (+2.6%), machinery (+1.6%), fabricated metal products (+1.5%), and primary metals (+1.4%). A proxy for business investment—new orders for nondefense, non-aircraft capital goods—increased 1.6% during July. Durable goods shipments edged up 0.2% during the month to $232.9 billion (-2.2% vs. July 2015). Non-transportation durable goods shipments were up 0.4% during the month. Unfilled orders slowed 0.1% while inventories expanded for the 1st time in 7 months with a 0.3% increase.

#5One measure of consumer confidence takes a very small step back in August. The Index of Consumer Sentiment from the University of Michigan slipped 2/10ths of a point during the month to a seasonally adjusted index reading of 89.8 (1966Q1 = 100). This was 6/10ths of a point below the preliminary August reading published just a few weeks ago and off 2.1 points from the final August 2015 mark. The sentiment of current and expected conditions moved in different directions during the month. The current conditions index lost 2.0 points to a reading of 107.0 (August 2015: 105.1) while the expectations index added 9/10ths of a point to 78.7 (August 2015: 83.4). Expectations for inflation slipped during the month—1-year expectations shed 2/10ths of a percentage point to +2.5% while 5-year expectations declined by a 1/10th of a point also to +2.5%. The press release stressed that even with the small drop, “consumer confidence remains at a reasonably high level.” Further, they anticipate that the “strengthen in personal finances and low interest rates will maintain the growth in real consumption at 2.6% through mid 2017.”

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending August 20, 2016, First-Time Claims, seasonally adjusted): 261,000 (-1,000 vs. previous week; -11,000 vs. the same week a year earlier). 4-week moving average: 265,250 (-3.7% vs. the same week a year earlier).
– FHFA House Price Index (June 2016, Purchase Only Index, seasonally adjusted): +0.2% vs. May 2016, +5.6% vs. June 2015.

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

Factory Output Up, Consumer Prices Steady: What We Learned During the Week of August 15 – 19

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~ Kevin Roth ~ Leave a comment

July featured a 2nd straight month of increased manufacturing output while consumer prices held steady. Here are the 5 things we learned from U.S. economic data released during the week ending August 19.

#1Manufacturing output picked up in July. The Federal Reserve indicates manufacturing production expanded 0.5% during the month following a 0.3% gain in June. Output of durable goods increased 0.6%, led by gains of 1% or greater for automobiles and wood products. Nondurables production increased 0.5%, with gains of at least 0.8% for oil/coal, chemicals, plastics/rubber. Despite the recent increased activity, manufacturing output was only 0.2% above year ago levels. More broadly, overall industrial production increased 0.7% during July but was 0.5% below year ago levels. Mining output grew for only the 2nd time in 5 months (+0.7%) while hot summer weather led to a 2.1% increase in output at utilities. Factories were operating at their fastest pace of the year—capacity utilization was at 75.9%, up a half point from June. Capacity utilization in the manufacturing sector added 4/10ths of a point to 75.4%.081916

#2Consumer prices moderated in July. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) was unchanged on a seasonally adjusted basis during the month and was up only 0.9% from a year earlier. Energy CPI fell for the 1st time since February (-1.6%) as gasoline and fuel oil prices dropped 4.7% and 1.3%, respectively. Energy CPI was 10.9% below year ago levels. Food prices were unchanged for the month and were up a modest 0.8% from a year earlier. Net of both energy and food, core CPI grew 0.1% (its slowest pace since February) and was 2.2% above year ago levels. Increasing during the month were prices for medical care services (+0.5%), medical care commodities (+0.4%) new vehicles (+0.2%), and shelter (+0.2%). Meanwhile, prices for both used vehicles (-1.0%) and transportation services (-0.2%) fell.

#3Leading indicators grew for the 3rd time in 4 months. The Conference Board’s Leading Economic Index added a half point during July to a seasonally adjusted 124.3 (2010=100). This was up 1.2% from a year earlier. July’s gain came as 8 of 10 index components made positive contributions, led by average weekly manufacturing hours, the interest rate spread, stock prices, and jobless claims. The coincident index increased by 4/10ths of a point to 113.9 (+1.6% vs. July 2015), boosted by positive contributions for all 4 index components. The lagging index grew by 1/10th of a point to 121.8 (+3.0% vs. July 2015) with only 2 in 7 index components making a positive contribution. The press release indicates that “moderate economic growth should continue through the end of 2016.”

#4Housing starts grow but the count of issued housing permits flattens. The Census Bureau puts the seasonally adjusted annualized rate (SAAR) of housing starts for July at 1.211 million units, up 2.1% from the previous month and 5.6% from a year earlier. Starts of single-family homes inched up 0.5% while those for multifamily units jumped 5.0%. Starts were up in 3 of 4 Census region on both a month-to-month and year-to-year basis (the West being the exception for the former and the Northeast the negative outlier for the latter). Looking towards the future, the SAAR of issued housing permits slipped 0.1% during the month to 1.152 million units (+0.9% vs. July 2015). The rate of issued permits for single-family homes was off 3.7% from a year earlier while the 12-month comparable for multi-family unit permits was up 6.3%. Housing completions was at a SAAR of 1.026 million units, down 8.3% from the previous month but up 3.2% from a year earlier.

#5Homebuilder confidence rises to its highest point since January. The Housing Market Index from the National Association of Home Builders added 2 points in August to a seasonally adjusted reading of 60. This was the 26th consecutive month in which the measure of homebuilder sentiment was above a reading of 50, which means more builders saw the housing market as “good” versus being “poor.” The index improved in the Northeast and South but fell in the Midwest and West. Gaining were indices for present single-family home sales (up 2 points to 65) and expected sales over the next 6 months (up a point to 67) while the measure for the traffic of potential buyers shed a point to 44. In its press release, the NAHB noted continued confidence that new home sales would remain “on an upward path during the rest of the year.”

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending August 13, 2016, First-Time Claims, seasonally adjusted): 262,000 (-4,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 265,250 (-3.0% vs. the same week a year earlier).
– Regional/State Employment (July 2016, Nonfarm Payrolls): Vs. June 2016: Payrolls grew in 15 states, fell in 1 state. Vs. July 2015: Payrolls grew in 34 states, fell in 2 states.
– Treasury International Capital Data (June 2016, Net Domestic Securities Purchased by Foreign Investors): +$7.6 billion (vs. May 2016: +$12.2 billion; +$89.3 billion).
– FOMC Minutes

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

Retail Sales Pause, Productivity Declines Again: What We Learned During the Week of August 8 – 12

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~ Kevin Roth ~ Leave a comment

Retail sales took a summer break during July while productivity’s losing streak stretched into a 3rd straight quarter. Here are the 5 things we learned from U.S. economic data released during the week ending August 12.

#1Retail sales stayed cool in the summer heat during July. The Census Bureau places its estimate of retail/food sales at a seasonally adjusted $457.7 billion, essentially matching June’s levels and up a moderate 2.3% over the past year. Some of the stagnation reflected lower gasoline prices that led to a 2.7% drop in sales at gas stations (the retail sales measure is not adjusted for price variations). Removing sales at gas stations and at auto dealers and parts stores (which enjoyed a 1.1% sales gain), core retail sales dropped 0.1% during the month but were up 3.8% from a year earlier. Sales fell across most retail sectors; including, sporting goods/hobby stores (-2.2%), grocery stores (-0.9%), building materials retailers (-0.5%), department stores (-0.5%), and restaurant/bars (-0.2%). Furniture retailers and health/personal care stores eked out gains of 0.2% and 0.1%, respectively. Finally, sales at “nonstore” retailers (e.g., internet retailers) jumped 1.2% for the month and were 14.1% above  year ago levels. 081216

#2The count of job openings and the pace of hiring rebounded in June. The Bureau of Statistics estimates there were a seasonally adjusted 5.624 million job openings at the end of the month, up 110,000 from May and 8.8% above year ago levels. Industries with the largest year-to-year percentage gains in job openings were construction (+33.3%), manufacturing (+32.7%), finance/insurance (+25.5%), government (+15.1%), leisure/hospitality (+11.4%), and health care/social assistance (+10.5%). Hiring increased by 84,000 jobs to 5.131 million. This was down 0.3% from a year earlier. While there were healthy year-to-year percentage hiring gains in leisure/hospitality (+9.7%), the government (+9.6%), health care/social assistance (+8.5%), and manufacturing (+5.6%), hiring declined in construction (-12.4%), wholesale trade (-10.9%), retail (-8.7%), and professional/business services (-4.9%). Americans were still voluntarily quitting jobs at a faster rate than that of a year earlier (2.909 million, +5.9% vs. June 2015) while layoffs were 7.9% below year ago levels at 1.643 million.

#3Food and energy goods pulled down July wholesale prices. The Bureau of Labor Statistics’ Producer Price Index (PPI) for final demand dropped 0.4% during the month, its 1st decline since March. Net of food, energy, and trade services, core final demand PPI was flat during the month. Prices for final demand goods decreased 0.4%, led by falling wholesale prices for energy and food. The former declined because of lower gasoline prices. The latter reflected the 9.8% drop in prices for beef/veal, along with lower prices for corn and oil seeds. PPI for final demand trade dropped 0.3% as trade PPI (essentially margins for wholesalers and retailers) slumped 1.3%, including a sharp 6.0% fall for the apparel/jewelry retail sector. Over the past year, final demand PPI has fallen 0.2%, with the core final demand index up a still weak 0.8% since July 2015.

#4Productivity declined for a 3rd consecutive quarter. The Bureau of Labor Statistics reports that nonfarm business output per hour declined 0.5% on a seasonally adjusted annualized basis during the 2nd quarter, following contractions of 0.6% and 2.4% during the 2 preceding quarters. The Q2 drop in productivity was the product of an annualized 1.8% gain the number of hours worked leading to only a 1.2% increase in output. Productivity slowed 0.4% over the past year with gains in hours worked and output of 1.5% and 1.1%, respectively. Weak productivity has been a hallmark of the current economic recovery, with frail productivity gains of 0.3%, 0.8%, and 0.9% during 2013, 2014, 2015, respectively. Manufacturing sector productivity slowed 0.2% during Q2, as a 4.1% contraction in nondurable manufacturing outpaced the 2.6% gain in durable manufacturing.

#5Confidence among small business owners held steady in July. The Index of Small Business Optimism from the National Federation of Independent Business. inched up by 1/10th of a point to a seasonally adjusted reading of 94.6 (1986 = 100). While the index has been above a reading of 90.0 for 42 consecutive months, it has remained within a tight range near the mid-90s for virtually all of those months. Only 4 of the index’s 10 components improved during the month, including that for expected business conditions and on plans to increase inventories. 4 other index components declined during the month, including those for the current number of job openings, earnings trends, plans to make capital outlays, and expected gains in real sales. The press release said that “there is little hope for a surge in the small business sector anytime soon,” as it noted there was “high” uncertainty, “low” expectations for the future, and “weak” future business investments.

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending August 6, 2016, First-Time Claims, seasonally adjusted): 266,000 (-1,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 262,750 (-2.6% vs. the same week a year earlier).
– Import Prices (July 2016, not seasonally adjusted): +0.1% vs. June 2016, -3.7% vs. July 2015. Nonfuel imports: +0.3% vs. June 2016, -1.2% vs. July 2015.
– Export Prices (July 2015, not seasonally adjusted): +0.2% vs. June 2016, -2.6% vs. July 2015.
– University of Michigan Index of Consumer Sentiment (August 2016-preliminary, Index (1966 Q1 = 100, seasonally adjusted): 90.4 (July 2016: 90.0, August 2015: 91.9).
– Federal Budget (July 2016, surplus/deficit): -$112.8 billion (vs. June 2016: +$6.5 billion, vs. July 2015: -$149.2 billion).
– Manufacturing & Trade Inventories (June 2016, seasonally adjusted): $1.814 trillion (+0.2% vs May 2016, +0.5% vs, June 2015).
– Mortgage Delinquencies (2nd Quarter 2016, Delinquency Rates for 1-4 Unit Residential Properties, seasonally adjusted): 4.66% (vs. Q1 2016: 4.77%, vs. Q2 2015: 5.30%).

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