Home Sales Remain Firm, Moderate Economic Growth on Target for 2017: June 19 – 23

Home sales improved during May while forward-looking economic indicators suggest moderate economic growth during the rest of this year. Here are the 5 things we learned from U.S. economic data released during the week ending June 23.

#1Existing home sales crept up during May. The National Association of Realtors reports that sales of previously owned homes grew 1.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.62 million homes. This was 2.7 percent above the year ago annualized sales pace and just below its post-recession sales peak. Sales grew in three of four Census regions during May: Northeast (+6.8 percent), West (+3.4 percent), and South (+2.2 percent). Sales fell 5.9 percent in the Midwest. The 12-month comparables followed the same pattern, with sales growing in the Northeast, South, and West, but falling in the Midwest. There remained a dearth of homes on the market. A mere 4.2 month supply of homes were available for sale at the end of May, with the 1.96 million homes on the market representing 8.4 percent decline from a year earlier. As a result, the median sales price of existing home sales jumped 5.8 percent from a year earlier to $252,800. The press release noted that “[t]he job market in most of the country is healthy and the recent downward trend in mortgage rates continues to keep buyer interest at a robust level.”

#2New home sales also bounced up during May. The Census Bureau estimates the seasonally adjusted annualized sales rate for new homes was at 610,000 units, up 2.9 percent for the month and 8.9 percent from a year earlier. Sales surged in both the West and South by 13.3 percent and 6.2 percent, respectively, but cooled in both the Midwest (-25.7 percent) and Northeast (-10.8 percent). Homebuilders had 268,000 new homes available for sale at the end of May, up 1.5 percent from the previous month and 11.2 percent from a year earlier. This translated into a still tight 5.3 month supply of new homes. The median sales price for new homes jumped 16.8 percent over the past year, although some of the “increase” reflects larger (and therefore more expensive) homes sold.

#3Leading economic indicators point to 2017 economic growth of two percent or more. The Conference Board’s Leading Economic Index grew 0.3 percent during May to a seasonally adjusted reading of 127.0 (2010 = 100). This was up 3.5 percent from a year earlier. Eight of the leading index’s components made positive contributions to the measure during May, led by the interest rate spread, new orders for manufactured goods, and consumers’ expectations for business conditions. The coincident economic index edged up 1/10th of a point to 115.3 (+2.2 percent vs. May 2016) as three of four index components making positive contributions (personal income net of transfer payments, nonfarm payrolls, and manufacturing/trade sales). The lagging economic index also added 1/10th of a point to 124.2 (+2.1 percent vs. May 2016) with only three of seven index components making a positive contribution during the month. The press release noted that the leading indicators suggest “the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2 percent growth for the remainder of the year.”

#4Layoff activity remained light during mid-June. Per the Department of Labor, there were a seasonally adjusted 241,000 first-time claims made for unemployment insurance benefits during the week ending June 17, up 3,000 for the week but 21,000 below the number of claims from the same week a year earlier. The jobless claims count has been below 300,000 for 120 consecutive weeks, a feat not seen since 1970(!). The four-week moving average of first-time claims of 244,750 was 8.3 percent below that of a year earlier. 1.817 million people were receiving some form of unemployment insurance benefits during the week ending June 3, 10.2 percent below the count of a year ago.

#5Americans’ household debt service remained relatively low in early 2017. The Federal Reserve indicates that financial obligations represent 15.47 percent of households’ disposable personal income during the first quarter of 2017. The financial obligations ratio was down one basis point from the previous quarter but up a basis point from a year earlier. This ratio has been consistently below 16 percent since 2011 (contrasting with ten years ago when the percentage was consistently nearly 18 percent) and has stayed near 30-year lows. The debt service ratio held steady at 10.04 during Q1 and was up two basis points from a year earlier. By comparison, this measure was above 13 percent ten years ago. Nondebt financial obligations (e.g., rent, leases) represented 5.43 percent of disposable income, down 1-basis point from the previous quarter but keeping the measure near its highest levels in 30 years.Financial Obligations Ratio--06232017

Other U.S. economic data released over the past week:
FHFA House Price Index (April 2017, Purchase-only Index, seasonally adjusted): +0.7% vs. March 2017, +6.8% vs. April 2016.

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

The Fed Moves, Inflation Does Not: June 12 – 16

The Federal Reserve raised short-term interest rates even though inflation remains below where the Fed wants it to be. Here are the 5 things we learned from U.S. economic data released during the week ending June 16.

#1The Federal Reserve bumped up its short-term interest rate target for the second time in 2017. The policy statement released following the conclusion of last week’s meeting of the Federal Open Market Committee (FMOC) reaffirmed its view that the economy was “rising moderately,” the labor market had “continued to strengthen,” and that risks to economic growth were “balanced.” At the same time, it noted that inflation had “declined recently” and was tracking below the Fed’s two-percent target rate. Nevertheless, the FOMC voted (with one dissension) to raise the fed funds target rate by 25-basis points to a range of +1.00 percent and +1.25 percent, a level that the statement noted was still “accommodative” and would promote “further strengthening in the labor market.” The FOMC also agreed to gradually begin reducing the central bank’s holdings of Treasury securities and agency mortgage-back securities by slowing its reinvestment of the principal payments that it receives on these holdings.

The Fed also released updated economic forecasts from FOMC meeting participants. The group continues to expect modest economic growth over the coming years with median forecasts for annual GDP growth at +2.2 percent, +2.1 percent, and +1.9 percent for 2017, 2018, and 2019 respectively. At the same time, they now anticipate low unemployment rates of 4.3 percent this year and 4.2 percent in both 2018 and 2019. The group also expects the core personal consumption expenditures (PCE) deflator, a measure of inflation, to be at +1.7 percent for this year before creeping up to +2.0 percent during both 2018 and 2019. Finally, the FOMC meeting participants predict one more hike in the fed funds target rate this year and then three hikes per year in both 2018 and 2019.FOMC Fed Funds Target Forecasts--061617

 #2Inflation took the month of May off. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) slipped 0.1 percent on a seasonally adjusted basis during the month, leaving it 1.9 percent above its May 2016 reading. The decline was partially the result of a pullback in gasoline prices (-6.4 percent) that weighed on the energy price index -2.7 percent. Meanwhile, food CPI grew 0.2 percent during the month. Net of both energy and food, core CPI eked out a 0.1 percent increase, giving it a 12-month comparable of +1.7 percent. Rising during the month were prices for medical care commodities (+0.4 percent), transportation services (+0.3 percent), and shelter (+0.2 percent). Prices fell for apparel (-0.8 percent), both new and used vehicles (-0.2 percent), and medical care services (-0.1 percent).

Falling wholesale gasoline prices also kept wholesale prices in check during May. Final demand Producer Price Index (PPI) held steady during the month but was still up 2.4 percent from a year earlier. The core measure of final demand wholesale prices (net of energy, food, and trade services) declined 0.1 percent for the month and had a 12-month comparable of +2.1 percent. PPI of final demand goods dropped 0.2 percent as wholesale price declines for energy (-3.0 percent) and food (-0.2 percent) outweighed the 0.1 percent increase in prices for core goods. PPI for final demand services grew 0.3 percent during May as the price index for trade services (i.e., retailer and wholesaler margins) jumped 1.1 percent.

#3Manufacturing output fell in May. The Federal Reserve’s report on industrial production finds manufacturing output declining 0.4 percent on a seasonally adjusted basis during the month following a 1.1 percent gain in April. This left manufacturing output growing by an unexceptional 1.4 percent from a year earlier. Durable goods production slumped 0.8 percent during May, with declines across all major product categories, while nondurables output gained 0.3 percent, led by a “large gain” in the production of chemicals. Overall industrial production was unchanged for the month as a drop in manufacturing output was counterbalanced by production gains in mining (+1.6 percent) and at utilities (+0.4 percent)

#4Retail sales sputtered in May. Per the Census Bureau, retail sales declined 0.3 percent during the month to a seasonally adjusted $473.8 billion. Nevertheless, sales paced 3.8 percent ahead of their year-ago level. Sales net of those at auto dealers & parts stores (-0.2 percent vs. April 2017) shared the same comparbles of -0.3 percent vs. April 2017 and +3.8 percent vs. May 2016. Some of the decline in retail sales during May was the result of lower gasoline prices that had pushed down sales at gas stations 2.8 percent (this data series does not adjust for price changes). Sales also fell at electronic stores (-2.8 percent), department stores (-1.0 percent), sporting goods/hobby retailers (-0.6 percent), and restaurants/bars (-0.1 percent). Having a better month were furniture stores (+0.4 percent), apparel retailers (+0.3 percent), and grocery stores (+0.1 percent). Consumers continued to shift away from brick and mortar stores to online retailers as sales at nonstore retailers jumped 0.8 percent during the month and were 10.2 percent ahead of their May 2016 pace.

#5Employers expect to expand payrolls during Q3. Twenty-four percent of the more than 11,000 employers Manpower interviewed intend to expand payrolls during the three-month period of July, August, and September, while four percent expect to shed workers. Taking the difference of +20 and adjusting for seasonal variation gives you the Manpower Net Employment Outlook Index of +17, which was unchanged from the second quarter forecast and up two points from the same quarter a year earlier. The index was positive in all 13 industries tracked, with the highest outlook index reading coming in for leisure/hospitality (+25), transportation/utilities (+22), and wholesale/retail trade (+21). The press release said that “[e]mployers across the country are optimistic but don’t want to get ahead of themselves.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 10, 2017, First-Time Claims, seasonally adjusted): 237,000 -8,000 vs. previous week; -36,000 vs. the same week a year earlier). 4-week moving average: 243,000 (-9.5% vs. the same week a year earlier).
Import Prices (May 2017, All Imports, not seasonally adjusted): -0.3% vs. April 2017, +2.1% vs. May 2016. Nonfuel imports: unchanged vs. April 2017, +0.8% vs. May 2016).
Export Prices (May 2017, All Exports, not seasonally adjusted: -0.7% vs. April 2017, +1.4% vs. May 2016.
Housing Starts (April 2017, Housing Starts, seasonally adjusted annualized rate): 1.172 million (-2.6% vs. March 2017, +5.7% vs. April 2016).
Housing Market Index (June 2017, Index (>50 = “Good” Housing Market, seasonally adjusted): 67 (vs. May 2017: 69, vs. June 2016: 60).
University of Michigan Consumer Sentiment (June 2017-preliminary, Index of Consumer Sentiment (1966Q1 = 100), seasonally adjusted): 94.5 (vs. May 2017: 97.1, June 2016: 93.5).
Regional & State Employment (May 2017, States with Significant Changes in Nonfarm Payrolls Vs. Previous Month, seasonally adjusted): Increased in 9 states and the District of Columbia and decreased in 4 states. Vs. May 2016: Increased in 28 states and no states suffered significant declines.
Business Inventories (April 2017, Manufacturing & Trade Inventories, seasonally adjusted): $1.854 trillion (-0.2% vs. March 2017, +2.3% vs. April 2016).

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

Employers’ Inability to Find Qualified Candidates Slows Hiring: June 5 – 9.

A lack of qualified candidates weighed on hiring during April. Here are the 5 things we learned from U.S. economic data released during the week ending June 9.

#1Even with a record number of job openings, hiring slowed in April. The Bureau of Labor Statistics estimates there were a seasonally adjusted 6.044 million job openings at the end of the month, up 259,000 for the month, 7.1 percent from a year earlier, and the highest count ever recorded in the 16+ year history of the data series. The private sector had 5.464 million jobs available, up 240,000 from March and 6.7 percent from April 2016. Among the industries reporting significant year-to-year percentage gains in job openings were professional/business services (+15.0 percent), accommodations/food services (+13.3 percent), financial activities (+11.0 percent), leisure/hospitality (+10.6 percent), and construction (+10.3 percent). Employers continued to experience significant difficulty in filling these jobs. Employers hired 5.051 million people during April, down 253,000 from March and up a measly 0.3 percent from a year earlier. Private sector companies brought 4.718 million people onto their payrolls during the month, up 0.7 percent from a year earlier. Also slowing during the month were the number of job separations with 4.973 million people leaving their jobs during the month, a 225,000 decline from March. This included voluntary quits sinking by 109,000 to 3.027 million (+4.3 percent vs. April 2016). Layoffs decreased by 71,000 to 1.590 million, 4.7 percent below the year ago levels.

job openings and hiring 2011-2017-060917

#2New factory orders contracted during April for the first time in 2017. Census Bureau data indicate that new orders for manufactured goods declined 0.2 percent during the month to a seasonally adjusted $469.0 billion. This was up 3.8 percent from a year earlier. April’s decline following month-to-month increases of 0.8 percent and 1.0 percent in February and March, respectively. Transportation goods orders fell 1.4 percent as a 9.1 percent drop civilian aircraft orders outweighed a 0.6 percent gain in orders of automobiles. Net of transportation goods, new orders edged up 0.1 percent during April to $390.6 billion (+6.0 percent vs. April 2016). Orders for computers/electronic products jumped 1.6 percent during the month while falling were orders of electrical equipment/appliances (-2.0 percent), fabricated metals (-1.0 percent), primary metals (-0.7 percent), machinery (-0.7 percent), and furniture (-0.2 percent). Orders of civilian nonaircraft capital goods (a proxy for business investment) inched up 0.1 percent during the month and was 3.0 percent above year earlier levels.

#3The service sector hummed along at a slightly slower growth rate in May. The headline index from the Institute for Supply Management’s Report on Business for the nonmanufacturing sector of the economy decreased by 6/10ths of a point to 56.9. The NMI has been above a reading of 50.0—indicative of an expanding service sector—for 89 consecutive months. Three of the four index components declined during the month: new orders (down 5.5 points to 57.7), business activity (down 1.7 points to 60.7), and supplier deliveries (down 1.5 points to 51.5). On the flipside, the employment index surged 6.4 points to 57.8. Seventeen of the 18 tracked nonmanufacturing sectors expanded during the month, led by real estate, construction, and accommodation/food services. The press release noted that survey respondents were “continu[ing] to indicate optimism about business conditions and the overall economy.”

#4Productivity gains were nonexistent during Q1, but that is an improvement from a previous estimate. The Bureau of Labor Statistics raised its previously published estimate of labor productivity from saying it had shrunk 0.6 percent on a seasonally adjusted annualized rate (SAAR) to now reporting it had held steady during the quarter. This was the result of output and the number of hours worked both having grown at an annualized rate of 1.7 percent during the quarter. Over the past year, labor productivity increased an anemic 1.2 percent with output expanding 2.5 percent and hours worked growing 1.3 percent. Also increasing was productivity in the manufacturing sector, with the previously reported 0.4 percent bump raised to a 0.5 percent increase during Q1. Productivity gained 2.7 percent for nondurable goods manufacturing but contracted 0.7 percent for durable goods manufacturing.

#5Consumer debt levels grew at a slower pace during April. Per the Federal Reserve, outstanding consumer debt balances (net of mortgages and other real estate-backed debt) totaled $3.821 trillion at the end of April, up $8.2 billion for the month and 5.8% from a year earlier. This was the smallest single-month gain in credit balances since December 2015. Nonrevolving credit balances grew by $6.7 billion to $2.810 trillion. While this also was their smallest single-month increase since late 2015, nonrevolving credit balances (e.g., college loans, car loans) have expanded 5.7 percent over the past year. Revolving credit balances (e.g., credit cards) grew at its slowest pace in three months (+$1.5 billion) to $1.010 trillion (+5.7 percent vs. April 2016).

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 3, 2017, First-Time Claims, seasonally adjusted): 245,000, -10,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 242,000 (-10.2 percent vs. the same week a year earlier).
Wholesale Trade (April 2017, Wholesale Inventories, seasonally adjusted): $591.0 billion (-0.5% vs. March 2017, +1.6% vs. April 2016).

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