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

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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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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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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.

Largest Payroll Gain in 2016, Other Data Not as Robust: What We Learned During the Week of August 1 – 5

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The July employment report was a bit of an antidote to the disappointing Q2 GDP data released a week earlier. Surveys of purchasing managers and data on construction spending did not provide additional relief. Here are the 5 things we learned from U.S. economic data released during the week ending August 5.

#1Employers are continuing to add workers this summer. The Bureau of Labor Statistics estimates nonfarm payrolls expanded by a seasonally adjusted 255,000 jobs during July, the largest single-month gain since last December. After including the impact of a combined 18,000 jobs added to previously reported job estimates for May and June, you get a 3-month job gain of 190,333. This was the 3-month moving average’s highest point since March, but still below the averages seen in all of 2014 and 2015. Government employers added 38,000 jobs during the month while private sector payrolls expanded by 217,000. Industries adding the most workers during July included professional/business services (+70,000), health care/social assistance (48,800), leisure/hospitality (+45,000), financial services (+18,000), retail (+14,700), and construction (+14,000). The average number of hours worked inched up 1/10th of an hour to 34.5 hours (July 2015: 34.6) while average hourly earnings added 8 cents to $25.69 (+2.6% vs. July 2015). Average weekly earnings of $886.31 were up 2.3% from the same month a year earlier.080516

A separate survey of households keeps the unemployment rate unchanged for the month at 4.9% (July 2015: 5.3%). 407,000 people entered the labor force during the month, resulting in a 1/10th of a percent point increase in the labor force participation rate to 62.8%. This remains well below pre-recession levels and near an almost 4-decade low. The number of “involuntary” part-time workers grew by 97,000 to 5.940 million (-5.7% vs. July 2015) while the median length of unemployment bounced up 1.3 weeks to 11.6 weeks (July 2015: 11.4 weeks). Finally, while the broadest measure of labor underutilization from the BLS (the U-6 series) increased by 1/10th of a percentage point to 9.7%, this was down from 10.4% a year earlier and from its peak during the last recession of 17.1% (April 2010).

#2“Real” personal spending increased for a 3rd straight month. The Bureau of Economic Analysis places its estimate of real personal consumption expenditures (PCE) (based on 2009 chained dollars) at $11.514 trillion. This was up 0.3% for the month and 2.8% from a year earlier. Spending on goods and services also each grew at a 0.3% pace, with 12-month comparables for both at +3.6% and +2.4%, respectively. Durable goods spending gained 0.4% while that for nondurables increased 0.3%. Without adjustments for price variations, nominal consumer spending increased 0.4% during June.

The increased spending was funded, in part, by the 4th consecutive monthly rise in nominal personal income (+0.2% vs. May 2016, +2.7% vs. June 2015). Nominal and real disposable income grew 0.2% and 0.1%, respectively, during the month and expanded 3.1% and 2.2%, respectively, over the past 12 months. Also funding the growth in spending was a decline in savings. The savings rate of +5.3% was down 2/10ths of a percentage point from May and a half point from a year earlier. Finally, the same report shows still a moderate level of inflation. The PCE deflator grew 0.1% and was up only 0.9% over the past year. Removing both energy and food from the analysis finds the core PCE deflator up 0.1% for the month with the 12-month comparable below the Federal Reserve’s 2-percent target at 1.6%.

#3The trade deficit widened during June. The Census Bureau and the Bureau of Economic Analysis report that exports grew $0.7 billion to a seasonally adjusted $183.2 billion (-3.8% vs. June 2015) while imports expanded $3.2 billion to $227.7 billion (2.4% vs. June 2015). The resulting trade deficit of -$44.5 billion was up $3.6 billion for the month, 3.6% larger than that of a year earlier, and at its widest point since last August. The goods deficit expanded by $3.8 billion to $66.0 billion (+1.0% vs. June 2015) while the services surplus grew by $0.2 billion to +$21.5 billion (-3.9% vs. June 2015). The growth in the former was the result of higher imports for industrial supplies/materials (including crude oil), consumer goods (including pharmaceutical preparations and cell phones), and capital goods. Based on chained 2009 dollars, the “real” goods deficit grew by $3.8 billion to -$64.7 billion (+7.2% vs. June 2016). The U.S. had its largest goods deficits with China (-$28.0 billion), European Union (-$12.7 billion), and Japan (-$6.0 billion).

#4Two surveys of purchasing managers suggest slower business growth in July. The Purchasing Managers Index (PMI) shed 6/10ths of a point to a seasonally adjusted reading of 52.6, according to the Institute for Supply Management. This was the 5th straight month in which the PMI was above 50.0, which means the manufacturing sector grew during the month but the decline in the PMI suggests slower growth. 2 of 5 index components improved during the month (production and inventories) while the other 3 declined (supplier deliveries, employment, and new orders). 11 of 18 manufacturing sectors expanded during the month, led by textile mills and printing.

Meanwhile, the ISM’s measure for the service sector declined by a full point to a seasonally adjusted 55.5. The index has been above 50.0—indicating service sector expansion—for 78 straight months. 3 of 4 index components fell versus their June readings: supplier deliveries, employment, and business activity. Only the index component for new orders improved during the month. 15 of 18 nonmanufacturing industry expanded during the month; including, arts/entertainment, education services, and accommodation/food services. ISM’s press release noted that survey participants’ comments “reflect stability and continued growth for their respective companies and a positive outlook on the economy.”

#5Construction spending slowed for a 3rd straight month during June. The Census Bureau estimates the value of construction put into place during the month was at seasonally adjusted annualized rate (SAAR) of $1.134 trillion. This was down 0.6% from May but up 0.3% above year ago levels. Private sector construction spending also declined at a 0.6% rate during June to $856.6 billion (+2.5% vs. June 2015). Residential sector spending was unchanged for the month even as spending on new single-family and multifamily residential property fell 0.5% and 1.5%, respectively. Private construction spending dropped 1.3%, pulled down by lower spending in manufacturing, education, health care, commercial, and power. Public sector construction spending slumped 0.6% to $282.5 billion (-6.0% vs. June 2015).

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 30, 2016, First-Time Claims, seasonally adjusted): 269,000 (+3,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 260,250 (-4.0% vs. the same week a year earlier).
Vehicle Sales (July 2016, seasonally adjusted annualized rate): 17.88 million (+6.8% vs. June 2016, +1.6% vs. July 2015)
Factory Orders (June 2016, New Orders, seasonally adjusted): $447.4 billion (-1.5% 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.

Q2 GDP Growth Was Well Below Forecasts: What We Learned During the Week of July 25 – 29

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Ok, the first estimate of Q2 economic growth was not “decent” after all. Actually, the word “disappointing” is more appropriate. Here are the 5 things we learned from U.S. economic data released during the week ending July 29.

#1The U.S. economy grew at a far slower pace during Q2 than expected. The Gross Domestic Product (GDP) estimate from the Bureau of Economic Analysis showed only a 1.2% gain on a seasonally adjusted annualized basis. This was well below consensus forecast that had expected a gain in the range of 2.0% and 2.5% for the months of April, May, and June. Even worse, the BEA lowered its estimates for Q1 2016 and Q4 2015 economic expansion to just +0.8% and +0.9%, respectively. The weak Q2 report occurred despite consumption growing at its fastest pace in 6 quarters (+4.2%, SAAR). Also making a positive contribution to GDP growth was net exports, with exports increasing 1.4% and imports slowing 0.4%. Drags on GDP growth included fixed investment (residential: -6.1%, nonresidential: -2.2%) and government expenditures (-0.9%). Further, the tepid pace of private inventory accumulation of “just” $18.4 billion cost 116-basis points in GDP growth just by itself. Private inventory accumulation has been a drag on GDP growth for the past 5 consecutive quarters. The BEA will update its Q2 GDP report twice over the next 2 months.072916

#2The Fed decides to not make a move, but once again opens the door for a possible rate hike later this year. The policy statement released following the conclusion of the Federal Open Market Committee meeting noted that the U.S. economy was growing “at a moderate rate” and that the labor market had “strengthened,” with signs that there had been “some increase in labor utilization.” Household spending was growing, but business spending was “soft” and inflation remained below the Fed’s 2% target (although this was largely because of previous declines in energy prices). As a result, the FOMC voted to maintain the .25%-.50%, which the statement described as “accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.” The statement stressed that the downside risks to the economy had “diminished” and that it Fed expects inflation to move closer to its 2% target as energy and import prices firm and the “labor market strengthens further.” (Note that the FOMC policy statement was released on Wednesday, 2 days before the release of the disappointing GDP report referenced above.)

#3Durable goods sputtered gain in June. The Census Bureau reports that new orders for durable goods slumped 4.0% during the month to a seasonally adjusted $219.8 billion (-6.4% vs. June 2015). A major culprit was the typically volatile aircraft segments: civilian aircraft orders plummeted 58.8% while defense aircraft orders slowed 7.4%. Those declines were only marginally counterbalanced by a 2.6% bump up in motor vehicles orders. Net of transportation goods, new orders dropped 0.5% during the month and were 3.6% below the year ago pace. Most other durable goods categories suffered from declining new orders; including, computers/electronics (-2.2%), primary metals (-1.3%), and fabricated metal products (-0.3%). One bright spot was a 0.8% increase in orders for electrical equipment/appliances. Meanwhile, shipments of durable goods grew for the 2nd time in 3 months with a 0.4% increase to $235.5 billion (-2.0% vs. June 2015). Net of transportation goods, durable goods shipments slipped 0.2% for the month and were 3.2% below the year ago pace.

#4On the heels of last week’s existing home sales report, new home sales hit an 8-year high in June. The Census Bureau reports that the seasonally adjusted annualized sales pace for new home sales of 592,000 was up 3.5% from May, 25.4% from a year earlier and the highest reading since February 2008. Sales grew during June in the West (+10.9%), and Midwest (+10.4%), but slowed in the Northeast (-5.6%) and South (-0.3%). All 4 Census regions had positive double-digit percentage gains versus their June 2015 paces. While inventories of unsold homes remained at a tight 4.9 month supply, the 244,000 new homes available for sale at the end of June was up 1.2% from May 2016 and 13.0% from June 2015. The median sales price of $306,700 was 6.1% above year ago levels.

#5One measure of consumer sentiment was essentially flat in July, another one fell. The Conference Board Consumer Confidence Index slipped by 1/10th of a point to a seasonally adjusted 97.3 (1985=100). The present conditions index added 1.7 points to 118.3 (its best reading in 10 months) while the expectations index lost 1.3 points to 83.3. 28.1% of survey respondents described current business conditions as “good” while 19.0% said that they were “bad.” Nearly matching were the percentages of consumers who agreed that jobs were either “plentiful” (23.0%) and “hard to get” (22.3%). The press release stated that the results “[suggest] will continue to expand at a moderate pace.”

More glum were the results from the University of Michigan Index of Consumer Sentiment, which shed 3.5 points in July to a seasonally adjusted 90.0 (1966Q1=100). While this was the measure’s lowest reading since April, it represented a half point improvement from the preliminary July reading reported a few weeks ago. Indices for both current and expected conditions, with the former off 1.8 points to 109.0 and the latter down 4.6 points to 77.8. The press release suggests that drop in sentiment was the product of “uncertainties surrounding global economic prospects and the presidential election.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 23, 2016, First-Time Claims, seasonally adjusted): 266,000 (+14,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 256,500 (-6.8% vs. the same week a year earlier).
Pending Home Sales (June 2016, Index (2001=100), seasonally adjusted): 111.0 (+0.2% vs. May 2016, +1.0% vs. June 2015).
Case-Shiller Home Price Index (May 2016, 20-City Index, seasonally adjusted): -0.1% vs. April 2016, +5.2% vs. May 2015.
Agricultural Prices (June 2016, Prices Received by Farmers, seasonally adjusted): -1.4% vs. May 2016, -10.6% vs. June 2015.
Bankruptcy Filings (12-month period ending June 30 2015): 819,159 (-6.9% vs 12-month period ending June 30, 2015). Business filings: 25,277 (+0.7% vs. 12-month period ending June 30, 2015). Nonbusiness filings: 793,932 (-7.1% vs. 12-month period ending June 30, 2015).

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

Perhaps Decent Economic Growth in Q2: What We Learned During the Week of July 18 – 22

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A series of economic data released last week finds moderate economic growth during the tail end of Q2. Here are the 5 things we learned from U.S. economic data released during the week ending July 22.

#1Economic activity expanded in June. The Chicago Fed National Activity Index (CFNAI) jumped 72-basis points to a seasonally adjusted reading of +0.16. This was only the 2nd time this year in which the economic activity measure based on 85 indicators as tracked by the Federal Reserve Bank of Chicago was in positive territory. 3 of 4 major categories of index components improved during the month, led by those dealing with production/income, employment, and sales/orders. Also improving was the CFNAI’s 3-month moving average, as it gained by 27-basis points to -0.12. While this 17th time over the past 18 months in which the moving average was negative (indicative of below average but still positive economic growth), this was its best reading since February.072216

#2A measure of leading economic indicators also perked up in June. The Conference Board’s Leading Economic Index gained 3/10ths of a point during the month to 123.7 (2010=100). This was only the 2nd increase in 8 months for the measure. 8 of the LEI’s 10 components improved during the month, led by initial jobless claims and the interest rate spread. The coincident index also added 3/10ths of a point during June, rising to a reading of 113.8. All 4 index components improved during the month, including nonagricultural payrolls and industrial production. Finally, the lagging index slipped 1/10th of a point to 121.9, with only 3 of 7 index components advancing. The press release stated that the leading index remains consistent with “moderating economic growth,” but nevertheless the “expansion still appears resilient enough to weather volatility in financial markets and a moderating outlook in labor markets.”

#3June was the best month for existing home sales since February 2007. The National Association of Realtors estimates sales of previously owned homes were at a seasonally adjusted annualized rate of 5.57 million units. This was up 1.1% from May 2016 and 3.0% from a year earlier. Sales grew in the Midwest (+3.8%) and West (+1.7%), held steady in the South but slowed 1.3% in the Northeast. Inventories of previously owned homes shrank 0.9% during June to 2.12 million units (-5.8% vs. June 2015). The resulting tight 4.6 month supply promoted a 4.8% year-to-year gain in the median sales price to $247,700. NAR’s press release also noted that the percentage of homes purchased by first-time buyers hit a 4 year high at 33% while the share of purchases by investors dropped to its lowest point since July 2009 at 11%.

#4While gaining during June, housing starts remained mired within a tight range. The Census Bureau’s housing starts estimate of 1.189 million units (seasonally adjusted annualized rate) was up 4.8% for the month but off 2.0% from a year earlier. Over the past year, the rate of housing starts has stayed with a range between 1.073 million and 1.214 million units. Starts of single-family home units gained 4.4% to 778,000 units (+13.4% vs. June 2015) while the multi-family rate gained 5.4% to 411,000 units (-22.0% vs. June 2015). Looking towards future activity, there were 1.153 million issued permits (SAAR), up 1.5% from May 2016 but -13.5% below year ago levels. The rate of issued permits for single-family homes edged up 1.0% to 738,000 (+5.1% vs. June 2015) while that for multi-family units gained 2.5% to 415,000 (-34.3% vs. June 2015. Completions jumped 12.3% during June to 1.147 million units (SAAR). This was 18.7% above year ago levels.

#5Homebuilder confidence remained solid in July. The National Association of Home Builders’ Housing Market Index (HMI) slipped by a point during the month to a seasonally adjusted 59. This was the 25th straight month in which the HMI was above a reading of 50 (meaning more builders describe the housing market as “good” than describe it as “poor”) with every reading since June 2015 being at or above 58. The index improved in 3 of 4 Census regions (Northeast, Midwest, and West), but lost ground in the South. Also moving backward were measures of current sales (down a point to 63) and expected sales of single-family homes (down 3 points to 66) along with the prospective buyers traffic index (off a point to 45). While the press release expressed expectations “for continued slow, steady growth in the housing market,” it noted that some homebuilders reported “scatter softness in some markets, due largely to regulatory constraints and shorts of lots and labor.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 16, 2016, First-Time Claims, seasonally adjusted): 253,000 (-1,000 vs. previous week; -10,000 vs. the same week a year earlier). 4-week moving average: 264,750 (-7.3% vs. the same week a year earlier).
Treasury International Capital Flows (May 2016, Net Foreign Purchases of U.S. Securities): +$11.5 billion (vs. April 2016: -$53.5 billion, vs. +$82.0 billion).
FHFA Home Price Index (May 2016, Purchase Only Index, seasonally adjusted): +0.2% vs. April 2016, +5.6% vs. May 2015.
Regional and State Employment (June 2016, seasonally adjusted):  Nonfarm payrolls grew vs. May 2016 in 18 states, decreased in 3 states & District of Columbia, and was essentially unchanged in 29 states. Payrolls grew over the past 12 months in 35 states, declined in 2 states, and were essentially unchanged in 13 states & District of Columbia.

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

Manufacturing, Retail Gains: What We Learned During the Week of July 11 – 15

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June was a good month for both manufacturing and retail sales. Meanwhile, prices firmed a bit. Here are the 5 things we learned from U.S. economic data released during the week ending July 15.

#1A jump in motor vehicle production led to the 2nd increase in manufacturing activity in 3 months during June. The Federal Reserve estimates manufacturing output gained 0.4% during the month with production up a matching 0.4% from a year earlier. Production of durable goods gained 0.9%, boosted by a 5.9% surge in motor vehicle output, along with sizable gains in the production of machinery, electrical equipment, and appliances. Production of nondurables slipped 0.1%, hurt by lower output of apparel, paper, chemicals, and plastics/rubber. More broadly, overall industrial production gained 0.6% during the month but remained 0.7% below year ago levels. Mining output enjoyed a 2nd straight monthly gain but remained 10.5% below June 2015 levels. Utility output increased 2.4% and was 0.5% above year ago levels. Factory utilization recovered from a drop in May—overall capacity utilization gained a half point in June to 75.4%, with manufacturing capacity utilization adding 3/10ths of a point to 75.1%.071516

 #2Retail sales heated up in June. The Census Bureau puts the seasonally adjusted value of retail sales at $457.0 billion, a 0.6% increase from May and 2.7% above year ago levels. An often clearer view of retail sales involves eliminating sales at gas stations (+1.2%) and auto dealers/parts stores (+0.1%) from the analysis. This measure of “core” retail sales grew 0.7% during June and was 4.7% above the year ago pace. Virtually every major retail segment saw sales improve during the month, led by building materials (+3.9%), sporting goods/hobby retailers (+0.8%), department stores (+0.7%), health/personal care stores (+0.7%), furniture retailers (+0.5%), and grocery stores (+0.3%). Sales also gained 1.1% at nonstore retailers (e.g., internet retailers) and were 14.2% above year ago levels. The laggards during June were apparel stores (-1.0%) and restaurants/bars (-0.3%)

#3Consumer prices grew at a moderate pace in June. The Consumer Price Index (CPI) increased 0.2% on a seasonally adjusted pace during the month and was 1.1% above year levels, according to the Bureau of Labor Statistics. Energy PPI grew for a 4th straight month with a 1.3% gain, led by 3.3% bump in both gasoline and fuel oil prices. Food CPI decreased for the 3rd time in 4 months (-0.1%), pulled down by lower prices for meats/poultry/fish/eggs, nonalcoholic beverages, dairy goods, and fruits/vegetables. Net of energy and food, core PPI gained 0.2% and was 2.3% above year ago levels (the 8th straight month in which the 12-month comparable was at/above 2.0%). Rising were prices for services (including, shelter, transportation, and medical care) while declining were prices for new & used vehicles and apparel.

#4Led by gains in energy goods and select services, wholesale prices grew at their fastest pace in more than a year. The Bureau of Labor Statistics estimates final demand Producer Price Index (PPI) grew 0.5% on a seasonally adjusted basis during June and was 0.3% above year ago levels. Core final demand PPI gained 0.3% and was 0.9% above year ago levels. Wholesale prices for final demand goods gained 0.8%, led by increases of 4.1% and 0.9% for energy and food, respectively. The former was pulled up by a 9.9% gain in gasoline prices. Net of energy and food, final demand PPI was unchanged for the month. PPI for final demand services increased 0.4% during the month, thanks to higher prices for trade services (i.e., margins for wholesalers and retailers, +0.7%) and transportation/warehousing (+0.5%).

#5The count of job openings and the pace of hiring both declined in May…but then we already knew that. Following the path of weak employment report from May (which has since been followed by a strong June), the Bureau of Labor Statistics reports that the seasonally adjusted count of job openings fell by 345,000 during the month to a seasonally adjusted 5.500 million. This was nevertheless 2.1% above May 2015 levels. Private sector industries with the largest percentage year-to-year gains in job openings include health care/social assistance (+10.4%), retail (+10.2%), manufacturing (+7.0%), construction (+6.2%), and accommodation/food services (+5.7%). 5.036 million people were hired during the month, down 49,000 jobs from April and 1.5% from a year earlier. Sizable month-to-month declines in hiring occurred in construction, trade/transportation/utilities, and professional/business services. The count of people leaving the jobs declined by 63,000 during May to 4.952 million workers (+1.7% vs. May 2015). A positive sign remains the count of people voluntarily leaving their jobs (because it is a sign of optimism)—quits totaled 2.895 million, up 5.0% from a year earlier. Meanwhile, layoffs were 2.1% below May 2015 levels at 1.667 million workers.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 9, 2016, First-Time Claims, seasonally adjusted): 254,000 (unchanged vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 264,750 (-7.6% vs. the same week a year earlier).
Import Prices (June 2016, not seasonally adjusted): +0.2% vs. May 2016, -4.8% vs. June 2015. Net of fuel: -0.3% vs. May 2016, -1.8% vs. June 2015.
Export Prices (June 2016, not seasonally adjusted): +0.8% vs. May 2016, -4.8% vs. June 2015. Net of agricultural exports: +0.5% vs. May 2016, -3.8% vs. June 2016.
University of Michigan Index of Consumer Sentiment (July 2016-preliminary, Index (1966Q1 = 100), seasonally adjusted): 89.5 (-4.0 points vs. June 2016, -3.6 points vs. July 2015).
NFIB Small Business Optimism Index (June 2016, Index (1986 = 100), seasonally adjusted): 94.5 (+7/10ths of a point from May 2016, -1/10th of a point from June 2015).
Federal Budget (June 2016, Surplus/Deficit): +$6.3 billion (vs. May 2016: -$52.5 billion, vs. +$50.5 billion). Deficit 1st 9 months of FY16: -$400.8 billion (+26.7% vs. 1st 9 months of FY15).
Beige Book

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