Mixed Data as a Curve Inverts: August 12 – 16

Mixed Data as a Curve Inverts: August 12 – 16

Kevin Roth

In a week where the yield curve momentarily inverted, economic data pointed in different directions. Here are the five things we learned from U.S. economic data released during the week ending August 16.

#1On the good news side, retail sales flourished in July. The Census Bureau estimates U.S. retail and food services sales increased 0.7 percent during the month to a seasonally adjusted $523.5 billion, up 3.4 percent from a year earlier. Sales at car dealers/parts stores slumped 0.6 percent but rose 1.8 percent at gas stations (thanks to higher prices at the pump). Net of both, core retail sales jumped 0.9 percent in July and 4.2 percent over the past year. Rising were sales at department stores (+1.2 percent) and restaurants/bars (+1.1 percent) and at retailers focused on electronics/appliances (+0.9 percent), apparel (+0.8 percent), groceries (+0.7 percent), furniture (+0.3 percent), and building materials (+0.2 percent).

#2But manufacturing production fell in July. The Federal Reserve estimates manufacturing output dropped 0.4 percent on a seasonally adjusted basis, its first decline in three months. Durable goods production slowed 0.2 percent, with output declines of greater than one percent for wood products, nonmetallic products, and machinery. Nondurable goods production plummeted 0.5 percent, hurt by greater than one percent drops for plastic/rubber, textiles, and printing. Manufacturing has slumped 0.5 percent over the past year. Overall industrial production slipped 0.2 percent during July but remained a half percentage ahead of the year-ago pace. During the month, mining output slowed 1.8 percent (oil and gas well drilling: -3.3 percent) while production at utilities surged 3.1 percent (think hot summer weather).

#3Consumer inflation bloomed in July. The Bureau of Labor Statistics reports that the consumer price index (CPI) grew 0.3 percent on a seasonally adjusted basis during the month, its fastest increase since April. Prices for energy jumped 1.3 percent, pulled up by a 2.5 percent surge in gasoline prices. Food CPI, however, held steady in July. Net of both energy and food, core CPI grew 0.3 percent for a second consecutive month. Rising were prices for used cars/trucks (+0.9 percent), medical care services (+0.5 percent), apparel (+0.4 percent), shelter (+0.3 percent), transportation services (+0.3 percent), and medical care commodities (+0.2 percent). Over the past year, CPI has risen 1.8 percent while core CPI had a 12-month comparable of +2.2 percent.

#4Housing starts slowed in July, or at least they did for condos. The Census Bureau indicates starts of privately-owned homes slid 4.0 percent during the month to a seasonally adjusted annualized rate of 1.241 million units. Despite the decline, housing starts were 0.6 percent ahead of their year-ago pace. July’s drop in starts was on the multi-unit side, which saw a 17.2 percent slump compared to a 1.3 percent increase for single-family home starts. Looking towards the future, the annualized count of issued building permits rose 8.4 percent in July to 1.336 million (+1.5 percent versus July 2018), with monthly gains for both single-family homes (+1.8 percent) and multi-family units (+24.8 percent). The annualized count of completed homes jumped 7.2 percent to 1.250 million, up 6.3 percent from the same month a year earlier.

#5And despite it all, small business owners remained confident in July. The Small Business Optimism Index from the National Federation of Independent Business added 1.4 points during the month to a seasonally adjusted reading of 104.7 (1986=100). This followed a 1.7 point drop during June. Seven of the index’s ten components improved during the month, led by higher readings for expected real sales, expectations for the economy to improve, plans to increase employment, and earnings trends. Only two components—current inventories and expected credit conditions—declined in July. The press release noted the dichotomy of “many are talking about a slowing economy” and the general optimism among its survey respondents and stated that “the small business sector remains exceptional.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending August 10, 2019, First-Time Claims, seasonally adjusted): 220,000 (+9,000 vs. previous week; +5,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-1.4% vs. the same week a year earlier).
– Import Prices (July 2019, All Imports): +0.2% vs. June 2019, -1.8% vs. July 2018. Nonfuel Imports: -0.1% vs. June 2019, -1.3% vs. July 2018.
– Export Prices (July 2019, All Exports): +0.2% vs. June 2019, -0.9% vs. July 2018. Nonagricultural Exports: +0.2% vs. June 2019, -1.5% vs. July 2018.
– Housing Market Index (August 2019, Index (>50 = More Homebuilders See the Housing Market as “Good” versus “Poor,” seasonally adjusted):  66 (vs. July 2019: 65, vs. August 2018: 68.
– Monthly Treasury Statement (July 2019, Federal Budget Surplus/Deficit Over First 10 Months of FY2019): -$866.8 billion (+26.9% vs. First 10 Months of FY2018)
– Productivity (2019 Q2, Nonfarm Business Labor Productivity, seasonally adjusted): 2.3% vs. 2019 Q1, +1.8% vs. 2018 Q2).
– University of Michigan Surveys of Consumers (August 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted):  92.1 (vs. July 2019: 98.4, vs. August 2018: 96.2).
– State Employment (July 2019, Nonfarm Payrolls, seasonally adjusted): Vs. June 2019: Increased in 5 states and essentially unchanged in 45 states and the District of Columbia. Vs. July 2018: Increased in 25 states and essentially unchanged in 25 states and the District of Columbia.
– Treasury International Capital Flows (June 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$63.8 billion (vs. May 2019: -$4.6 billion, vs. June 2018: -$45.6 billion).
– Business Inventories (June 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.036 trillion (Unchanged vs. May 2019, +5.2% vs. June 2018).

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

Open Jobs Remained Open in June: August 5 – 9

Open Jobs Remained Open in June: August 5 – 9

Kevin Roth

Employers continued to seek workers, but producer prices and service sector growth both staggered. Here are the five things we learned from U.S. economic data released during the week ending August 9.

#1Job openings continued to outpace the number of unemployed Americans in June. The Bureau of Labor Statistics tells us that there were a seasonally adjusted 7.348 million jobs available on the final day of June. While this was a decline of 36,000 from May and 0.6 percent from a year earlier, job openings remained near record-high levels. Further, job openings well outpaced the 5.975 million unemployed people the BLS had reported previously. Compared to a year earlier, industries reporting substantial percentage increases in open jobs included government (+12.2 percent), construction (+7.4 percent), manufacturing (+5.9 percent), professional/business services (+4.6 percent), and health care/social assistance (+3.5 percent). Hiring slowed by 58,000 to 5.702 million jobs (-2.2 percent versus June 2018). Also taking a step back was the number of people separated from their jobs: 5.481 million (down 76,000 from May and 1.5 percent from a year earlier). Voluntarily quits were up 2.4 percent from a year earlier to 3.478 million while layoff activity was off 7.7 percent from the year-ago pace (at 1.702 million).Job Openings and Unemployed 2014-9 080919.png

#2Core wholesale prices contracted in July. Final demand producer price index (PPI) grew a seasonally adjusted 0.2 percent during the month, its largest single-month gain since April. But much of the increase in the Bureau of Labor Statistics measure resulted from a 5.2 percent jump in wholesale gasoline prices. Netting out the impact of gains in energy goods (+2.3 percent), foods (+0.2 percent), and trade services (+0.2 percent), core PPI fell 0.1 percent during the month, its first decline in nearly four years (October 2015). Final demand PPI for goods grew 0.4 percent following two consecutive declines while final demand for PPI for services gained 0.2 percent. The 12-month comparables for both headline PPI and core PPI were +1.7 percent, lowest levels for each since late 2016 or early 2017.

#3Expansion in the service sector mellowed in July. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business, shed 1.4 points during the month to a reading of 53.7. While this was the 114th straight month in which the NMI was above a reading of 50.0 (indicative of an expanding service sector), it was its lowest reading since August 2016. Of the NMI’s four components, two pulled back in July: business activity/production (down 5.1 points) and new orders (down 1.7 points). While the employment component added 1.2 points during the month, the supplier deliveries component held steady. Thirteen of 18 tracked nonmanufacturing industries report growth, led by accommodation/food services, professional/scientific/technical services, and real estate. The press release noted “concerns related to tariffs and employment resources.”

#4Consumers took on more debt in June, all nonrevolving. The Federal Reserve reports that outstanding consumer credit balances grew by $14.6 billion during the month to a seasonally adjusted $4.102 trillion (+5.3 percent versus June 2018). Outstanding balances of nonrevolving credit (e.g., auto loans, college loans) widened by $14.7 billion to $3.031 trillion (+5.6 percent versus June 2018). Revolving credit balances (e.g., credit cards), however, contracted by $0.1 billion to $1.072 trillion (+4.6 percent versus June 2018).

#5Wholesale inventories held steady in June. The Census Bureau estimates merchant wholesalers’ inventories were at a seasonally adjusted $679.7 billion. While essentially matching May’s reading, this represented a 7.6 percent increase over the past year. Inventories of durable goods expanded by 0.3 percent, with increases of at least one percent for computer equipment, furniture, and lumber. Nondurables inventories shrank 0.4 percent, pulled down by sizable for drugs and chemicals. The inventory-to-sales ratio of 1.36 was unchanged from May but was up 10-basis points from a year earlier.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending August 3, 2019, First-Time Claims, seasonally adjusted): 209,000 (-8,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 212,250 (-1.7% vs. the same week a year earlier).
– Senior Loan Officer Opinion Survey

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

Hiring Held Steady, The FOMC Did Not: July 29 – August 2

Hiring Held Steady, The FOMC Did Not: July 29 – August 2

Kevin Roth

The Fed lowered its interest rate target even as the labor market continued to create jobs. Here are the five things we learned from U.S. economic data released during the week ending August 2.

#1Job creation continued in July. The Bureau of Labor Statistics indicates that nonfarm payrolls expanded by a seasonally adjusted 164,000 jobs during the month. While off from June’s downwardly revised 193,000 job gain, this was 106th straight month of payroll expansion. Private-sector employers added 148,000 workers during the month, split between 15,000 in the goods-producing sector and 133,000 in the service sector. Industries adding the most workers in July were health care/social assistance (+50,400), professional/business services (+38,000), financial activities (+18,000), and manufacturing (+16,000). Average hourly earnings have risen 3.2 percent over the past year to $27.98.

A separate household survey kept the unemployment rate of 3.7, which was just above its multi-decade low of 3.6 achieved back in May. 370,000 people entered the labor market, pushing the labor force participation rate up a 1/10th of a percentage point to 63.0 percent. The same measure for adults aged 25 to 54 fell by 2/10ths of a percentage point to 82.0 percent. Falling to post-recession lows were the median length of unemployment (8.9 weeks, matching the business cycle low hit in January), the count of part-time workers seeking a full-time job (3.984 million), and the broadest measure of labor underutilization, the “U-6” series (7.0 percent).

#2The Fed cuts its short-term interest rate target. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted continued strength in the labor market and household spending. Yet the FOMC remained concerned about “soft” business investment and inflation compensation that had “remain[ed] low.” Due to “implications of global developments for the economic outlook as well as muted inflation pressures,” the FOMC voted to cut the fed funds target rate by 25-basis points to a range between 2.00 and 2.25 percent. Two FOMC voting members (George and Rosengren) both opposed the target rate cut. The dissents and the somewhat muted statement about how it will “act as appropriate” in the future leaves up in the air expectations on potential additional rate cuts.

#3Growth in personal spending slowed in June. The Bureau of Economic Analysis reports real personal consumption expenditures (PCE) rose a seasonally adjusted 0.2 percent. While this was the fourth consecutive monthly increase, it was its smallest gain of the four. Consumer spending on goods jumped 0.4 percent as expenditures on nondurable goods rose 0.7 percent and that on durables slipped 0.1 percent. Services spending on edged up 0.1 percent. Funding the increased spending was a 0.3 percent gain in real disposable income. The savings rate edged up 1/10th of a percentage point to +8.1 percent. Over the past year, real consumer spending has risen 2.5 percent, boosted by a 3.3 percent jump in real disposable income.

#4The trade deficit held steady in June. Per the Census Bureau and the Bureau of Economic Analysis, exports dropped by $4.4 billion to $206.3 billion (-2.2 percent versus June 2018) while imports fell by $4.6 billion to $261.5 billion (+1.2 percent versus June 2018). The resulting trade deficit of -$55.2 billion was $0.2 smaller than that of May but 16.3 percent greater than that of a year earlier. The goods deficit narrowed by $0.8 billion to -$75.1 billion (+8.2 percent versus June 2018) while services surplus shrank by $0.6 billion to +$20.0 billion (-9.3 percent versus June 2018). The former was the product a $3.9 billion drop in exported goods (including for consumer goods, capital goods, and automobiles) and a $4.7 billion slowdown in imported goods (including for crude oil, petroleum products, and consumer goods).

#5One measure of consumer sentiment rebounded in July, another was steady. The Conference Board’s Consumer Confidence Index jumped by 11.4 points during the month to a seasonally adjusted reading of 135.7 (1985=100), reversing a sharp drop in June and hitting a 2019 high point. The current conditions index added 7.6 points to a reading of 170.9 while the expectations index rose by 14.6 points to 112.2. 40.1 percent of survey respondents characterized current business conditions as good versus 11.2 percent that saw them as being “poor.” Similarly, 46.2 percent of consumers report that jobs were “plentiful” versus just 8.7 percent that felt jobs were “hard to get.” The press release said the results suggest “robust spending in the near-term despite slower growth in GDP.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment came in at a seasonally adjusted 98.4. This matched the preliminary July reading reported a few weeks ago and represented a mere 2/10ths of a point gain from June and a half point increase from a year earlier. The present conditions index shed 1.2 points during the month to a reading of 110.7 (July 2018: 114.4) while the expectations index added 1.2 points to 90.4 (July 2018: 87.3). While noting that sentiment had remained “remarkably stable” over the past few years, the press release wonders whether the recently announced expansion in tariffs on Chinese imports may lessen “overall consumer confidence.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending July 27, 2019, First-Time Claims, seasonally adjusted): 215,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 211,500 (-1.7% vs. the same week a year earlier).
– Factory Orders (June 2019, New Orders, seasonally adjusted): $493.8 billion (+0.6% vs. May 2019, -1.2% vs. June 2018.
– ISM Manufacturing Report on Business (July 2019, PMI (Index>50 = expanding manufacturing sector): 51.2 (vs. June 2019: 51.7).
– Construction Spending (June 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.287 trillion (-1.3% vs. May 2019, -2.1% vs. June 2018).
– Pending Home Sales (June 2019, Index (2001=100), seasonally adjusted): 108.3 (vs. May 2019: +2.8%, vs. June 2018: +1.6%).

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