A Bright Outlook for 2020 (At Least So Far): February 17 – 21

Signs indicate the economic expansion should continue this year. Here are the five things we learned from U.S. economic data released during the week ending February 21.

#1Forward-looking economic data improved in January. The Leading Economic Indicators (LEI) rose by 9/10ths of a point during the month to a reading 112.1 (2016=100). This left the Conference Board measure up 0.9 percent from a year earlier (reflecting the general weakness in the LEI over most of the past year). Eight of ten LEI components made positive contributions, led by jobless claims, building permits, and stock prices. The coincident index added 1/10th of a point to a reading of 107.3 (+1.1 percent versus January 2019), with three of four components making positive contributions (led by nonfarm payrolls). The lagging index held steady at 108.7 (+1.7 percent versus January 2019), with three of seven components making a positive contribution. The press release said the results were consistent with a two percent GDP growth rate, although “the COVID-19 outbreak may impact manufacturing supply chains in the U.S. in the coming months.”

#2Tight supplies continued to constrain home sales. The National Association of Realtors tells us that existing home sales declined 1.3 percent in January to a seasonally adjusted annualized rate (SAAR) of 5.46 million units. Home sales were 9.6 percent above their year-ago sales pace. Sales grew during the month in the Midwest (+2.4 percent) and South (+0.4 percent), held steady in the Northeast, and slumped in the West (-9.4 percent). While inventories of unsold homes increased 2.2 percent to 1.42 million units, they were 10.7 percent below year-ago levels and represented a mere 3.1 month supply. As a result, the median sales price of $266,300 was up 6.8 percent from a year earlier. 

#3Housing starts slowed in January while permitting activity rose. The Census Bureau finds starts of privately-owned homes declined 3.6 percent during the month to a seasonally adjusted rate of 1.567 million units. Even with the drop, starts were a robust 21.4 percent ahead of their year-ago pace. Starts of single-family homes fell 5.9 percent while those for buildings of at least five units gained 3.0 percent. Looking towards the future, the annualized rate of issued building permits grew to an almost 13-year high at 1.551 million permits, up 9.2 percent for the month, and 17.9 percent from a year earlier. Versus a year earlier, permitting for single-family and multi-family units were up 20.2 percent and 16.0 percent, respectively. Completions slowed 3.3 percent to an annualized 1.280 million homes (+1.5 percent versus January 2019). 

#4Homebuilder sentiment slipped in February. The National Association of Home Builders’ Housing Market Index (HMI) lost a point during the month to a seasonally adjusted reading of 74. This was the 68th straight month in which the HMI was above a reading of 50, indicative of more homebuilders’ viewing the housing market as being “good” versus being “poor.” The HMI grew in the Northeast and South but lost ground in both the Midwest and West. Shedding a single point each were measures for single-family home sales (80), expected sales (79), and traffic of prospective buyers (57). The press release noted that “[s]teady job growth, rising wages, and low-interest rates are fueling demand” but that higher costs were weighing on builders.

#5Trade services led to a rise in wholesale prices in January. The Producer Price Index (PPI) for final demand rose a seasonally adjusted 0.5 percent during the month, its largest single-month increase in 15 months. The Bureau of Labor Statistics notes that 90 percent of the rise came from the 0.7 percent jump in services prices, with much of the increase from higher margins at retailers focused on apparel, jewelry, footwear, and accessories. Trade services, reflecting retailer and wholesaler margins, jumped 1.2 percent. PPI for final demand goods grew by a more modest 0.1 percent. This reflects a 0.2 percent increase in foods PPI, a 0.7 percent decline energy wholesale prices, and a 0.3 percent bounce in core PPI. Wholesale prices have grown 2.1 percent over the past year, while the core measure (net of food, energy, and trade services) has advanced 1.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 15, 2020, First-Time Claims, seasonally adjusted): 210,000 (+4,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 209,000, -8.9% vs. the same week a year earlier).
Treasury International Capital (December 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.7 billion (vs. November 2019: +$8.1 billion, vs. December 2018: -$87.7 billion).
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Retailers Had a Good Start to 2020: February 10 – 14

Consumers continued to spend in January while manufacturing remained soft. Here are the five things we learned from U.S. economic data released during the week ending February 14.

#1Retail sales picked up the pace in January. The Census Bureau estimates retail and food services sales grew 0.3 percent during the month to a seasonally adjusted $529.8 billion. Sales at auto dealers & parts store rose 0.2 percent but fell 0.5 percent at gas stations (as prices at the pump mellowed). Net of activity at auto dealers/parts stores and gas stations, core retail sales advanced 0.4 percent, just off December’s 0.5 percent bounce. Sales grew at retailers focused on building materials (+2.1 percent), furniture (+0.6 percent), groceries (+0.3 percent), and sporting goods/hobbies (+0.1 percent). Also, restaurants and bars reported a 1.2 percent sales jump. Losing momentum in January were clothing stores (-3.1 percent), electronics/appliance retailers (-0.5 percent), and health/personal care stores (-0.4 percent). Over the past year, retail sales have risen 4.4 percent, while the 12-month comparable for core retailers was +3.3 percent.

#2A slowdown in aircraft production slowed January manufacturing activity. The Federal Reserve reports that manufacturing production fell for the first time in three months with a seasonally adjusted 0.1 percent decline. Durable goods output sank 0.5 percent, hurt by a 7.4 percent drop in aerospace transportation equipment (think the shutdown of 737 MAX production). Nondurables output weakened 0.6 percent. Overall industrial production shed 0.3 percent, its fourth decline in five months. While mining output gained 1.2 percent, moderate winter weather slackened utilities’ output by 4.0 percent. Both manufacturing and overall industrial production were both 0.8 percent below their year-ago paces.

#3A drop in prices at the pump kept inflation at bay in January. The Bureau of Labor Statistics finds the Consumer Price Index (CPI) increased 0.1 percent on a seasonally adjusted basis, following three consecutive 0.2 percent monthly increases. Food prices grew 0.2 percent while energy CPI declined 0.7 percent (gasoline: -1.6 percent). Net of food and energy, core CPI rose 0.2 percent. Increasing were prices for apparel (+0.7 percent), shelter (+0.4 percent), transportation services (+0.3 percent), and medical services (+0.3 percent). Prices declined for used cars/trucks (-1.2 percent) and medical care commodities (-0.6 percent). Over the past year, CPI has risen 2.5 percent while core CPI has a 12-month comparable of +2.3 percent.

#4The count of job openings narrowed as 2019 ended. Nonfarm employers had a seasonally adjusted 6.423 million unfilled jobs on the final day of 2019, down 364,000 from November and 14.1 percent from a year earlier. The Bureau of Labor Statistics also tells us that were 5.739 million open private-sector jobs, down 16.3 percent from December 2018 levels. Substantial year-to-year percentage declines in job openings were widespread across the economy. This included drops in retail (-29.2 percent), financial activities (-20.3 percent), construction (-20.1 percent), and manufacturing (-17.2 percent). Edging up was the count of hired workers, including by 80,000 to 5.907 million (+3.0 percent versus December 2018), with private sector hiring growing 3.9 percent from a year earlier to 5.563 million. Separations inched up by 21,000 to 5.730 million (+4.8 percent versus December 2018), with 3.488 million people quitting their jobs (up 2.9 percent from a year earlier) and 1.895 million people laid off (up 8.2 percent from a year earlier).

#5Small business owner sentiment solidified in January. The Small Business Optimism Index from the National Federation of Independent Business added 1.6 points during the month to a seasonally adjusted reading of 104.3. The measure has been above a reading of 100 (benchmarked to 1986 sentiment) for 38 straight months. Making positive contributions were six of 10 index components, led by expected real sales, earnings trends, current job openings, and whether it is a good time to expand. The press release said that “2020 is off to an explosive start for the small business economy.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 8, 2020, First-Time Claims, seasonally adjusted): 205,000 (+2,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 212,000, -7,4% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (February 2020-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 100.9 (January 2020: 99.8, February 2019: 93.8).
Import Prices (January 2020, All Imports): Unchanged vs. December 2019, +0.3% vs. January 2019. Nonfuel Imports: +0.2% vs. December 2019, -0.9% vs. January 2019.
Export Prices (January 2020, All Exports): +0.7% vs. December 2019, +0.5% vs. January 2019. Nonagricultural Exports: +0.7% vs. December 2019, +0.2% vs. January 2019.
Business Inventories (December 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.040 trillion (+0.1% vs. November 2019, +2.2% vs. December 2018.
Monthly Treasury Statement (January 2020 (First 4 Months of FY2020, Federal Budget Deficit): -$389.2 billion (vs. First 4 months of FY2019: -$310.3 billion).

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

Hiring and Business Activity Rose in January: February 3 – 7

Both the labor market and business sentiment started 2020 on a high note. Here are the five things we learned from U.S. economic data released during the week ending February 7.

#1Hiring continued in January. The Bureau of Labor Statistics finds nonfarm payrolls expanded by a seasonally adjusted 225,000 in January, following gains of 261,000 and 147,000 in November and December, respectively. Private-sector employers added 206,000 workers, split between 32,000 in the goods-producing side of the economy and 174,000 in the service sector. Industries adding the workers in January included health care/social assistance (+47,200), construction (+44,000), leisure/hospitality (+36,000), transportation/warehousing (+28,300), and professional/business services (+21,000). (The same report featured a revision to 2019 payrolls data that now shows employers added 2.096 million workers during the year, down 12,000 from the prior estimate). Hourly wages averaged $28.44 in January, up 3.1 percent from a year earlier.

A separate household survey finds the unemployment rate edging up 1/10th of a percentage point to a still very low 3.6 percent. The labor force participation rate jumped 2/10ths of a percentage point to 63.4 percent. The participation rate for adults aged 25-54 rose by 2/10ths of a percentage point to 83.1 percent, its best reading since September 2008. The median length of unemployment inched up 3/10ths of a week to 9.3 weeks, while the count of part-time workers seeking full-time work grew by 36,000 to 4.182 million. The broadest measure of labor underutilization—the U-6 series—added 2/10ths of a point to 6.9 percent (still very close to its post-recession low).

#2A slowdown in trade activity led to a trade deficit contraction in 2019. Per the Census Bureau and the Bureau of Economic Analysis report that 2019 exports totaled $2.500 trillion (off $1.5 billion from 2018) while imports summed to $3.117 trillion (off $12.5 billion from 2018). The resulting trade deficit for 2019 of -$616.8 billion was $10.9 billion smaller than that of 2018, its first decline since 2013 and the equivalent to 2.9 percent of U.S. GDP. The goods deficit for all of 2019 narrowed by $21.4 billion to -$866.0 billion while the services surplus shrank by $10.4 billion to +$249.2 billion. These figures include the December trade data, which found the trade deficit growing by $5.2 billion during the month to a seasonally adjusted -$48.9 billion.

#3Purchasing managers indicate that business activity gained in January. The Institute for Supply Management’s PMI—the headline index from its Manufacturing Report on Business—surged by 3.1 points to a reading of 50.9. This was the first time since last July that the PMI was above a reading of 50.0, the threshold between an expanding and contracting manufacturing sector. Four of five PMI components advanced in January: production (up 9.5 points to 54.3), new orders (up 4.4 points to 52.0), employment (up 1.4 points to 46.6), and supplier deliveries (up 7/10ths of a point to 52.9). The inventories component shed 4/10ths of a point to 48.8. Only eight of 18-tracked manufacturing industries expanded during the month, led by furniture, wood products, and food/beverage goods. The press release noted that “global trade remains a cross-industry issue” for many companies.

The NMI—the headline index from the ISM’s Non-Manufacturing Report on Business—added 6/10ths of a point in January to 55.5, its best reading since last summer. Two of four NMI components improved during the month:  business activity (up 3.9 points to 60.9) and new orders (up 9/10ths of a point to 56.2). Slumping were measures for inventories (down 4.5 points to 46.5) and supplier deliveries (down 8/10ths of a point to 51.7). Twelve of 18 service sector industries expanded during the month, led by agriculture, management of companies/support services, and health care/social assistance. While “mostly positive” about business conditions, survey respondents noted that they “continue to have difficulty with labor resources.” 

#4Factory orders expanded for the second time in three months in December. The Census Bureau indicates new orders for manufactured goods rose 1.8 percent during the month to a seasonally adjusted $499.3 billion. Durable goods orders jumped 2.4 percent while those for nondurables advanced 1.1 percent. A proxy for business investment—civilian non-aircraft orders—fell 0.8 percent. Shipments increased or a third straight month with a 0.5 percent rise, including a 1.1 percent bounce in nondurables shipments (durable shipments, however, fell 0.2 percent). Unfilled orders mostly held steady at $1.156 trillion while inventories expanded for the 12th time in 13 months (rising 0.5 percent to $704.9 billion). Even with December’s advance, last year was not a great year for manufacturing: factory orders totaled $5.957 trillion for all of 2019, down 0.6 percent from 2018.

#5Productivity improved as 2019 ended. The Bureau of Economic Analysis reports that nonfarm business sector labor productivity grew 1.4 percent during the fourth quarter of 2019, an improvement over the 0.2 percent contraction in Q3. Output increased 2.5 percent during the quarter, fueled by a 1.1 percent gain in hours worked. Manufacturing sector productivity, however, contracted during Q4. The 1.2 percent drop in manufacturing sector productivity was split by declines for durable and nondurable goods of -0.8 percent and -2.2 percent, respectively. Over the past year, nonfarm productivity jumped 1.8 percent (its best annual gain since 2010), while manufacturing productivity slumped 0.7 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 1, 2020, First-Time Claims, seasonally adjusted): 202,000 (-15,000 vs. previous week; -28,000 vs. the same week a year earlier). 4-week moving average: 211,750 -6.1% vs. the same week a year earlier).
Wholesale Trade (December 2019, Total Inventories of Merchant Wholesalers, seasonally adjusted): $674.5 billion (-0.2% vs. November 2019, +2.1% vs. December 2018).
Construction Spending (December 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.328 trillion (-0.2% vs. November 2019, +5.0% vs. December 2018).
Consumer Credit (December 2019, Outstanding Non-Real Estate Consumer Credit Balances, seasonally adjusted): $4.197 trillion (+$22.1 billion vs. November 2019, +4.7% vs. December 2018).
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The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.