Manufacturing Grows, Retail Sales Pause: March 12 – 16

Moderate winter weather appears to have boosted manufacturing in February, less so for retail. Here are the five things we learned from U.S. economic data released during the week ending March 16.  

#1Manufacturing grew at its fastest pace in four months during February. The Federal Reserve reports that manufacturing output increased a seasonally adjusted 1.1 percent during the month, after having contracted 0.2 percent during the prior month. Manufacturing production has expanded 2.5 percent over the past year. The rebound in manufacturing was widespread with durable goods output jumping 1.8 percent in February while that for nondurables gaining 0.7 percent in February. There were output jumps of at least one percent in orders for business equipment, defense/space equipment, and construction supplies. Overall industrial production increased 1.1 percent during February as mining jumped 4.3 percent (due to improvements in gas/oil extraction and coal mining) and utilities output slumped 4.7 percent (with more moderate weather lessening the demand for heating). Overall capacity utilization hit a three-year high at 78.1 percent (up 7/10ths of a percentage point for the month) while utilization in manufacturing jumped by 9/10ths of a percentage point to 76.9 percent.Capacity Utilization 031618.png

#2Retail sales sputtered for a third straight month. The Census Bureau estimates retail and food services sales slipped 0.1 percent during February to a seasonally adjusted $492.0 billion. This was 4.0 percent ahead of the year-ago sales pace. Dragging down the headline number were slumping sales at auto dealers and parts stores (-0.9 percent). Net of vehicles/parts, retail sales increased 0.2 percent during the month and were 4.4 percent ahead of February 2017 sales. Sales grew at retailers focused on sporting goods/hobbies (+2.2 percent), building materials (+1.9 percent), and apparel (+0.4 percent). Sales also inched up 0.2 percent at restaurants/bars. Falling were sales at gas stations (-1.2 percent), department stores (-0.9 percent), furniture retailers (-0.8 percent), health/personal care retailers (-0.4 percent), and grocery stores (-0.2 percent). Immune from the sluggish activity were nonstore retailers (e.g., web retailers) where sales gained 1.0 percent during February and have risen 10.1 percent over the past year.

#3Inflation cooled off in February. The Consumer Price Index (CPI) gained 0.2 percent on a seasonally adjusted basis after having risen 0.5 percent in January, per the Bureau of Labor Statistics. The slower pace of inflation resulted from lower prices for gasoline (-0.9 percent) and fuel oil (-3.6 percent) after having surged during the previous month. As a result, energy CPI grew by only 0.1 percent after a 3.0 percent bump in January. Food CPI was unchanged for the month. Net of energy and food, core CPI increased 0.2 percent (after a 0.3 percent gain in January). Rising were prices for apparel (+1.5 percent), transportation services (+1.0 percent), and shelter (+0.2 percent) while losing stream were prices for new vehicles (-0.5 percent), used cars (-0.3 percent), and medical care commodities (-0.3 percent). Over the past year, consumer prices have risen 2.2 percent while core CPI has grown 1.8 percent.

The Producer Price Index (PPI) for final demand sliced in half its increase from January with a 0.2 percent gain during February. Net of food, energy and trade services, core PPI increased 0.4 percent, matching its January gain. Reversing course was PPI for final demand goods, dropping 0.1 percent after having surged 0.7 percent during the previous month. Wholesale prices for both energy (-0.5 percent) and food (-0.4 percent) declined, but PPI net of energy and food grew 0.2 percent. PPI for final demand services gained 0.3 percent (matching January’s increase), featuring a 0.9 percent bump in prices for transportation/warehousing services. Final demand PPI has risen 2.8 percent over the past year with a still robust +2.7 percent 12-month comparable after removing the impact of energy, food, and trade services.

#4The number of unfilled job openings grew ever larger in January. There were a seasonally adjusted 6.312 million job openings on the final day, surging by 645,000 from December and 15.9 percent from a year earlier. This is the greatest number of job openings measured since the start of the Bureau of Labor Statistics measure in 2000. The report shows that there were 5.751 private sector job openings at the end of January, up 608,000 from December and 15.7 percent from January 2017. Industries with the largest year-to-year percentage increases in job openings included transportation (+63.1 percent), construction (+57.2 percent), retail (+28.6 percent), leisure/hospitality (+20.8 percent), government (+18.4 percent), professional/business services (+17.2 percent), wholesale trade (+17.2 percent), and manufacturing (+17.0 percent). Hiring grew at a far more modest pace, increasing by 59,000 to 5.583 million jobs (+2.3 percent versus January 2017) while private sector hiring gained 71,000 to 5.244 million jobs (+2.7 percent versus January 2017). Industries with the greatest percentage year-to-year gains in hiring included manufacturing (+16.9 percent), professional/business services (+6.5 percent), health care/social assistance (+4.8 percent), and retail (+4.2 percent). More people left their jobs during January, growing by 95,000 during the month to 5.409 million people (+3.5 percent versus January 2017). The number of people quitting their jobs slipped by 69,000 to 3.271 million workers (+3.2 percent versus January 2017) while layoffs grew by 107,000 to 1.762 million (+6.2 percent versus January 2017).

#5Housing starts slowed in February, especially for multifamily units. The Census Bureau places the seasonally adjusted annualized rate of housing starts at 1.236 million units, down 7.0 percent from the prior month and 4.0 percent behind the year-ago pace. The decline was solely on the multifamily side of the market (e.g., condos), where starts plummeted 28.0 percent during February. Single-family home starts increased 2.9 percent during the month (and from a year earlier) to 902,000 units. Less sanguine was the count of issued building permits, which dropped 5.7 percent during the month to an annualized rate of 1.298 million (+6.5 percent versus February 2017). Permits for multifamily units slumped 14.6 percent during the month while the decline for single-family home permits was a much more modest 0.6 percent. Rising was the annualized count of completed homes, jumping 7.8 percent to 1.319 million homes. This was 13.6 percent ahead of its February 2017 pace. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 10, 2018, First-Time Claims, seasonally adjusted): 226,000 (-4,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 221,500 (-9.1% vs. the same week a year earlier).
Import Prices (February 2018, All Imports, not seasonally adjusted): +0.4% vs. January 2018, +3.5% vs. February 2017. Nonfuel imports: +0.5% vs. January 2018, +2.1% vs. February 2017.
Export Prices (February 2018, All Exports, not seasonally adjusted): +0.2% vs. January 2018, +3.3% vs. February 2017. Nonagricultural exports: +0.2% vs. January 2018, +3.6% vs. February 2017.
Small Business Optimism (February 2018, Optimism Index (1986=100), seasonally adjusted): 107.6 (highest since 1983) (vs. January 2018: 106.9; February 2017: 105.3).
Housing Market Index (March 2018, Index (>50=”Good” Housing Market, seasonally adjusted): 70 (February 2018: 71, March 2017: 71).
Monthly Treasury Statement (February 2018, Surplus/Deficit): -$215.2 billion (vs. February 2017: -$192.0 billion). First 5 months of FY18: -$391.0 billion (vs. first 5 months of FY17: -$350.6 billion).
Business Inventories (January 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.917 trillion (+0.6% vs. December 2017, +3.7% vs. January 2017).
University of Michigan Consumer Sentiment (March 2018-preliminary, Index (1966Q1=100), seasonally adjusted): 102.0 (vs. February 2018: 99.7, vs. March 2017: 96.9).
Treasury International Capital Flows (January 2018, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$63.2 billion (vs. December 2017: +$31.0 billion, vs. January 2017: +$17.1 billion.
State Employment (January 2018, Change in Nonfarm Payrolls, seasonally adjusted):  Vs. December 2017: 3 states had significant increases in payrolls 1 had a significant decrease. Vs. January 2017: 21 states had payrolls increases.

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

Job Creation and the Trade Deficit Both Grow: March 5 – 9

Payroll growth surprised to the upside while the trade deficit widened once again. Here are the five things we learned from U.S. economic data released during the week ending March 9.

#1Employers accelerated their pace of hiring during February. Nonfarm payrolls grew by a seasonally adjusted 313,000 workers during the month, the most jobs added since June 2016. Further, the Bureau of Labor Statistics upwardly revised its estimates of December and January job gains by a combined 54,000. Nonfarm employers have added 2.281 million people to their payrolls over the past year, for a monthly average of 190,083 jobs. Private sector employers added 287,000 jobs to their payrolls in February, split between 100,000 in the goods-producing side of the economy and 187,000 in the service sector. The industries adding the most workers during the month included construction (+61,000), retail (+50,300), professional/business services (+50,000), manufacturing (+32,000), health care/social assistance (+29,100), and financial activities (+28,000). The average workweek inched up by 1/10th of an hour to 34.5 hours (February 2017: 34.4) while average weekly earnings grew by $4.06 to $922.88 (up 2.9 percent over the past year).Growth in Employment-030918

Based on a separate survey of households, the employment rate remained at its post-recession low of 4.1 percent for a third consecutive month. An impressive 806,000 people entered the labor force, leading to a 3/10ths of a percentage point increase in the labor force participation rate to 63.0 percent, its highest point since last September. The labor force participation rate for adults aged 25 to 54—arguably a better measure of the number of adults in their prime working years—rose by half of a percentage point to a post-recession high of 82.2 percent. The typical length of unemployment slipped by 1/10th of a week to 9.3 weeks (February 2017: 10.1 weeks). 5.160 million people held a part-time job but were seeking a full-time opportunity, down from the 5.670 million at the same time a year earlier. The broadest measure of labor underutilization published by the BLS—the U-6 series—held firm at 8.2 percent (February 2017: 9.2 percent).

#2The U.S. trade deficit widened for a fifth consecutive month. The Census Bureau and the Bureau of Economic Analysis reports that exports declined 1.3 percent to a seasonally adjusted $200.9 billion while imports shrank by less than 0.1 percent to $257.5 billion. The resulting trade deficit expanded by 5.0 percent to -$56.6 billion. The trade deficit has grown by 16.2 percent over the past year. The goods deficit jumped by $2.8 billion to -$76.5 billion while the services surplus eked out a $0.1 billion increase to +$19.9 billion. The former resulted from a $3.3 billion decrease in exported goods (thanks to a decline in exports of both civilian aircraft and industrial supplies/materials). The U.S. had its largest goods deficits with China (-$35.5 billion), the European Union (-$15.0 billion), Germany (-$6.3 billion), Mexico (-$5.6 billion), and Japan (-$5.6 billion).

#3The service sector continued growing at a solid if slightly slower rate in February. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business shed 4/10ths of a point to a reading of 59.5. This was the 97th straight month in which the NMI was above a reading of 50.0, indicative of an expanding service sector. The NMI slipped because of a sharp 6.6 point drop in the index component associated with employment (to a still expanding reading of 55.0). Two other index components grew during February (business activity/production (up 3.0 points) and new orders (up 2.1 points)) while that for supplier deliveries held firm. Sixteen of 18 tracked nonmanufacturing industries expanded during the month, led by education services, transportation/warehousing, and utilities. The press release noted that a “majority of respondents continue to be positive about business conditions and the economy.”

#4Even with a small upward revision for Q4, productivity gains continued to disappoint. The Bureau of Economic Analysis raised its estimate of nonfarm labor productivity during the final three months of 2017from a 0.1 percent decrease to being unchanged on a seasonally adjusted basis. This was the outcome of output growing 3.2 percent and the number of worked gaining 3.3 percent. Manufacturing sector productivity surged 6.0 percent during Q4, thanks to a 6.6 percent increase in output resulting from a mere 0.5 percent increase in the number of hours worked. Durable goods manufacturing productivity jumped 8.1 percent while that for nondurable goods manufacturing increased 3.4 percent. For all of 2017, nonfarm business productivity gained by a feeble 1.2 percent, which was nevertheless an improvement from being unchanged for all of 2016. Manufacturing sector productivity inched up 0.6 percent during 2017 after having gained by only 0.4 percent and 0.3 percent in 2016 and 2015, respectively.

#5Consumers took on credit card debt at a slower rate in January. The Federal Reserve indicates that outstanding consumer credit balances (net of any real estate related loans—e.g., mortgages, home equity loans) totaled a seasonally adjusted $3.855 trillion at the end of the month, up $13.9 billion from December and 5.3 percent from a year earlier. Balances of nonrevolving credit (e.g., student loans, college loans) jumped by $12.8 billion during the month to $2.825 trillion (+5.0 percent versus January 2017). Not rising as much were outstanding revolving credit balances (e.g., credit cards), which inched up by $0.7 billion to $1.030 trillion (+6.1 percent versus January 2017). Revolving balances had risen by $6.1 billion and $11.3 billion during December and November, respectively.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 3, 2018, First-Time Claims, seasonally adjusted): 231,000 (+21,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 222,500 (-8.6% vs. the same week a year earlier).
Factory Orders (January 2018, New Orders for Manufactured Goods, seasonally adjusted):$491.7 billion (-1.4% vs. December 2017, -6.6% vs. January 2017).
Wholesale Trade (January 2018, Inventories of Merchant Wholesalers, seasonally adjusted): $619.1 billion (+0.8% vs. December 2017, +4.8% vs. January 2017).
Beige Book

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

Small Q4 GDP Revision, Consumers Take a Rest: February 26 – March 2

A modest downward revision to Q4 GDP growth while consumers slowed down in January. Here are the five things we learned from U.S. economic data released during the week ending March 2.

#1The U.S. economy grew at a slightly slower pace during Q4 than previously believed. The Bureau of Economic Analysis’ (BEA) second estimate of October-December 2017 Gross Domestic Product (GDP) has the U.S. economy expanding at a 2.5 percent seasonally adjusted annualized rate. This was just below the 2.6 percent gain reported a month ago and reaffirms the final three months of 2017 served as the slowest quarter of economic expansion since Q1 2017. GDP grew 2.3 percent for all of 2017, an improvement over the 1.5 percent growth rate for 2016 but below 2015’s 2.9 percent gain. The positive contributors to Q4 economic growth were personal spending (adding 258-basis points to GDP growth), exports (+84-basis points), nonresidential fixed investment (+82-basis points), government expenditures (+49-basis points), and residential fixed investment (+47-basis points). A 14 percent gain in imports produced a 197-basis point drag on Q4 GDP growth. BEA will revise its estimate of Q4 GDP growth once again later this month.GDP 2014-2017 030218

#2Consumers slowed down their spending in January, opting to put away more money. The Bureau of Economic Analysis (BEA) estimates “real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis following gains of 0.2 percent and 0.5 percent during the two previous months. Pulling down the inflation-adjusted measure of spending was a sharp 1.6 percent decline in spending on durable goods. Nondurable goods spending was unchanged during the month while that on services eked out a 0.1 percent gain. Over the past year, real PCE has grown 2.7 percent, led by a 7.1 percent increase in durable goods spending, along with gains for nondurables and services of 2.9 percent and 2.0 percent, respectively. January’s pause in spending occurred even as real disposable personal income jumped 0.6 percent, in part reflecting the lowered federal tax withholding. Real disposable personal income has risen 2.3 percent over the past 12 months. Instead of driving more spending, the increased disposable income appears to have gone into the bank as the savings rate jumped by 7/10ths of a percentage point to +3.2 percent (its highest point since last August).

#3Durable goods orders declined in January. New orders for manufactured durable goods dropped 3.7 percent during the month to a seasonally adjusted $239.7 billion, per the Census Bureau. Plummeting were new orders for civilian aircraft (-26.4 percent) and defense aircraft (-45.6 percent), pulling down transportation goods orders 10.0 percent (motor vehicles orders edged up 0.1 percent). Net of transportation goods, new orders decreased 0.3 percent in January following gains of 0.7 percent and 0.4 percent in December and November, respectively. Rising during the month were orders for computers/electronic products (+0.6 percent) and fabricated metal products (+0.5 percent) while orders for primary metals (-0.9 percent), electrical equipment/appliances (-0.8 percent), and machinery (-0.4 percent). Orders for nondefense capital goods net of aircraft (a proxy of business investment) slowed for a second straight month with a 0.2 percent drop. Durable goods shipments grew for the eighth time in nine months (+0.2 percent) to $247.0 billion. Unfilled orders contracted for the fourth consecutive month with a 0.3 percent decrease to $1.141 trillion while inventories expanded for the 18th time in 19 months with a 0.3 percent increase to $408.5 billion.

#4Consumer confidence rises in February. The Conference Board’s Consumer Confidence Index jumped 6.5 points to a seasonally adjusted 130.8 (1985=100), the sentiment measure’s highest reading since November 2000. Improving during the month were measures for both current conditions (up 7.7 points to 154.7) and expected conditions (adding 5.7 points to 109.7). 35.8 percent of survey respondents characterize current business conditions as “good” versus only 10.8 percent seeing them as “bad.” 25.8 percent of respondents expect conditions will improve over the next six months versus a mere 9.4 percent expecting a deterioration. The press release said that “consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan jumped four full points to a seasonally adjusted reading of 99.7 (1966Q1=100), its second best reading since 2004. The same measure was at 96.3 a year earlier. The current conditions index added 4.4 points to 114.9 (February 2017: 111.5) while the expectations index added 3.7 points to 90.0 (February 2017: 86.5). The press release tied the strong sentiment to Americans’ “favorable assessments of jobs, wages, and higher after-tax pay.” Further, the group indicates that current levels of optimism suggest real personal spending will grow 2.9 percent during 2018.

#5New home sales slumped for a second straight month. The Census Bureau reports that new home sales fell 7.8 percent in January to a seasonally adjusted annualized rate (SAAR) of 593,000 units. This left new home sales 1.0 percent below its year-ago pace. Sales plummeted during the month in the Northeast (-33.3 percent) and the South (-14.2 percent) but gained in the Midwest (+15.4 percent) and West (+1.0 percent). Inventories of unsold new homes improved, growing 2.4 percent during the month to 301,000 homes. This was 15.3 percent above the year-ago inventory and translated into a 6.1 month supply. The median sales price of new homes sold has grown 2.5 percent over the past year to $323,000 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 24, 2018, First-Time Claims, seasonally adjusted): 210,000 (-10,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-8.0% vs. the same week a year earlier).
Chicago Fed National Activity Index (January 2018, Index (0.00=U.S. expanding at its historical rate, seasonally adjusted): +0.12 (down 2-basis points vs. December 2017, up 31-basis points vs. January 2017).
Pending Home Sales (January 2018, Index (2001=100), seasonally adjusted): 104.1 (vs. December 2017: 109.8, vs. January 2017: 108.7).
Vehicle Sales (February 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.08 million vehicles (-0.5% vs. January 2018, -2.1% vs. February 2017).
Construction Spending (January 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.263 trillion (essentially unchanged vs. December 2017, +3.2% vs. January 2017).
ISM Report on Business—Manufacturing (February 2018, Purchasing Managers Index (>50=expanding Manufacturing Activity): 60.8 (vs. January 2018: 59.1, February 2017: 57.7).
FHFA House Price Index (December 2017, Purchase-Only Index, seasonally adjusted): +0.3% vs. November 2017, +6.5% vs. December 2016.
Case-Shiller Home Price Index (December 2017, 20-City Index, seasonally adjusted): +0.6% vs. November 2017, +6.3% vs. December 2016).
Agricultural Prices (February 2017, Prices Received by Farmers): -6.2% vs. December 2017, +0.2% vs. January 2017.

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