Tame Inflation in September: October 7 – 11

Tame Inflation in September: October 7 – 11

Kevin Roth

The running theme of last week’s economic data was softness. Here are the five things we learned from U.S. economic data released during the week ending October 11.

#1Consumer prices held steady in September. The Consumer Price Index (CPI) failed to increase for the first time since January and was up by “only” 1.7 percent over the past year, per the Bureau of Labor Statistics. Food prices edged up 0.1 percent while energy prices fell 1.4 percent (gasoline prices: -2.4 percent versus September 2018). Net of food and energy, core CPI grew 0.1 percent, its smallest increase since May. Despite the softness, the core measure has risen 2.4 percent over the past year. Prices jumped 0.4 percent for health care services and 0.3 percent for shelter and transportation services. Prices slumped for used trucks/cars (-1.6 percent), health care commodities (-0.6 percent), apparel (-0.4 percent), and new vehicles (-0.1 percent).

#2…While wholesale prices slid. The Producer Price Index (PPI) for final demand fell 0.3 percent on a seasonally adjusted basis in September, its biggest decline since January. The Bureau of Labor Statistics’ core measure—which removes food, energy, and trade services—held steady during the month after rising 0.4 percent in August. Wholesale energy prices fell 2.5 percent versus August (gasoline: -7.2 percent), while food prices increased (boosted in part by higher meat prices). Core goods prices slipped 0.1 percent. Over the past year, PPI has risen 1.4 percent while the core measure also remained below the two percent target at +1.7 percent.

#3The number of available jobs fell to a 1.5-year low in August. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 7.051 million open jobs at the end of the month, down 123,000 from July and 4.0 percent from a year earlier. (Some context: even with the drop, the number of openings remained quite strong by historical standards.) The private sector was responsible for 6.320 million job openings, off 4.4 percent from August 2018 levels. Weighing down the number of job openings were year-to-year drops in wholesale trade (-17.9 percent), financial activities (-16.3 percent), accommodation/food services (-10.7 percent), professional/business services (-8.4 percent), retail (-8.2 percent), and manufacturing (-3.4 percent). Hiring also slowed—falling by 199,000 jobs to 5.779 million (-0.8 percent versus August 2018)—as did separations, with 228,000 fewer people departing their jobs in August (and off 2.4 percent from a year earlier). The count of people leaving their jobs—a proxy for workers’ confidence in the labor market—slowed by 142,000 during the month (but still 1.5 percent ahead of the year-ago pace) to 3.526 million. Layoffs, however, were essentially unchanged for the month at 1.787 million (-1.2 percent versus August 2018).

#4Small business owner sentiment moderated slightly in September. The Small Business Optimism Index, from the National Federation of Independent Business, shed 1.3 points during the month (after losing 1.8 points in August) to a seasonally adjusted 104.7 (1986=100). The measure was 6.1 points below its year-ago mark. Seven of the ten index’s components fell during the month, led by declines on whether it is a good time to expand, plans to increase employment, and expectations for the economy to improve. The press release noted that the index remained at high levels but that the tariffs were “adversely affecting many small firms.”

#5Growth in consumer credit slowed as summer ended. The Federal Reserve reports that consumer had a seasonally adjusted $4.141 trillion in outstanding debt balances at the end of August, up $17.9 billion for the month and 5.0 percent over the past year. This was down from the $23.0 billion increase in July. (These figures do not include mortgages and other real estate-backed debt). Outstanding balances of nonrevolving credit (e.g., auto and student loans) expanded by $19.9 billion to $3.062 trillion (+5.5 percent versus August 2018). Contracting, however, were revolving credit balances (e.g., credit cards), which shrank by $2.0 billion to $1.079 trillion (+3.8 percent versus August 2018).

Other U.S. economic data released over the past week:
– Jobless Claims (week ending October 5, 2019, First-Time Claims, seasonally adjusted): 210,000 (-10,000 vs. previous week; -2,000 vs. the same week a year earlier). 4-week moving average: 213,750 (+0.1% vs. the same week a year earlier).
– University of Michigan Surveys of Consumers (October 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 96.0 (vs. September 2019: 93.2, vs. October 2018: 98.6).
– Import Prices (September 2019, All Imports, not seasonally adjusted): +0.2% vs. August 2019, -1.6% vs. September 2018. Nonfuel Imports: -0.1% vs. August 2019, -1.1% vs. September 2018.
– Export Prices (September 2019, All Exports, not seasonally adjusted): -0.2% vs. August 2019, -1.6% vs. September 2018. Nonagricultural Exports: -0.1% vs. August 2019, -1.9% vs. September 2018.
– Wholesale Trade (August 2019, Merchant Wholesalers Inventories, seasonally adjusted): +0.2% vs. July 2019, +6.2% vs. August 2018.
– FOMC Minutes

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

Payroll Growth Moderated: September 30 – October 4

Payroll Growth Moderated: September 30 – October 4

Kevin Roth

The U.S. economy continued to create jobs in September, albeit at a more restrained rate. Here are the five things we learned from U.S. economic data released during the week ending October 4.

#1Job creation slowed, but the unemployment rate fell to a 50-year low in September. Nonfarm payrolls expanded by a seasonally adjusted 136,000 during the month, its smallest increase in four months and below 2018’s 223,000 average monthly job gain. The same Bureau of Economic Analysis report upwardly revised previously reported job gain estimates by 7,000 for July and 38,000 for August. The private sector added 114,000 workers in September, with all but 5,000 of the added job gains coming from the service sector. Industries added the most jobs were health care/social assistance (+41,400), professional/business service’s (+34,000), leisure/hospitality (+21,000), and transportation/warehousing (+15,700). Meanwhile, retailers shed 11,400 workers. Average weekly earnings of $966.30 were up 2.6 percent from a year earlier.

A separate household survey finds the unemployment rate falling by 2/10ths of a percentage point to 3.5 percent, its lowest reading since December 1969. 117,000 people entered the job market during the month, leading the labor force participation rate at 63.2 percent (the measure for adults 25 to 54 also held steady during the month at 82.6 percent). Also, mostly unchanged was the count of part-time workers seeking full-time work (4.350 million people) while the median length of unemployment grew by a half week to 9.4 weeks. Dropping to a data series low was the broadest measure of labor underutilization (the “U-6” series), shedding 3/10ths of a point to 6.9 percent.

#2Purchasing managers report that manufacturing contracted again in September while the service sector’s advance was less robust. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business failed to exceed 50.0—the threshold between an expanding and contracting manufacturing sector—for a second straight month. The PMI came in at 47.9, off 1.3 points from August as only one of five PMI components made a positive contribution (new orders). Dragging down the PMI were lower readings for inventories, production, employment, and supplier deliveries. Only three of 18-tracked manufacturing industries expanded in September: “miscellaneous” manufacturing, food/beverage/tobacco, and chemical products. The press release noted that “global trade remains the most significant issue” affecting manufacturing with sentiment being “cautious regarding near-term growth.”

The headline measure from the Non-Manufacturing Report on Business stayed above a reading of 50.0 as it has for the past 116 months. But the NMI slumped by 3.8 points to a reading of 52.6, its worst mark since August 2016. The supplier deliveries index was the only one of the four NMI components to make a positive contribution, as new orders, business activity/production, and employment lost ground in September. Thirteen of 18 tracked industries reported growth during the month, led by utilities, retail, construction. The press release noted that “respondents are mostly concerned about tariffs, labor resources and the direction of the economy.”

#3Factory orders edged down in August. The Census Bureau estimates new orders for manufactured goods slipped 0.1 percent during the month to a seasonally adjusted $499.8 billion. New factory orders over the first eight months of 2019 also off 0.1 percent of that of the same period in 2018. Durable goods spending increased 0.2 percent during August but orders on nondurables pulled back 0.3 percent. Net of transportation goods, core factory orders held steady during the month while orders of core civilian nonaircraft capital goods—a proxy for business investment—declined 0.4 percent. Shipments fell for a second straight month, losing 0.1 percent to $503.0 billion. Unfilled orders, on the other hand, gained for a second consecutive month (+0.1 percent to $1.163 trillion). Inventories contracted by less than 0.1 percent to $695.9 billion.

#4The trade deficit widened in August. The Census Bureau and the Bureau of Economic Analysis reports that while exports grew 0.2 percent (to a seasonally adjusted $207.9 billion, virtually matching that of August 2018) during the month, imports bloomed 0.5 percent (to $262.8 billion, also essentially matching that of a year earlier). The resulting trade deficit of -$54.9 billion was 1.6 percent greater than that of July but equaled that of the same month a year ago. The goods deficit expanded by $0.8 billion to -$74.4 billion (2.7 percent versus August 2018) while the services surplus narrowed by less than $0.1 billion to +$19.5 billion (-9.6 percent versus August 2018). Rising were exports of fuel oil, nonmonetary gold, and soybeans, while civilian aircraft exports slowed. On the import side, there were increases for consumer goods (including cell phones) and capital goods but also a substantial decline for industrial supplies/materials.

#5Construction spending was soft in August. The Census Bureau places the seasonally adjusted annualized value of construction put into place during the month at $1.287 trillion, up 0.1 percent from July but 1.8 percent under the year-ago pace. Private sector spending mostly held steady in August at $955.0 billion (-4.0 percent versus August 2018), with residential sector spending rising 0.9 percent but nonresidential spending slumping 1.0 percent during the month. Public sector construction spending gained 0.4 percent in August to an annualized $332.3 billion, up 4.6 percent from a year earlier.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending September 28, 2019, First-Time Claims, seasonally adjusted): 219,000 (+6,000 vs. previous week; +1,000 vs. the same week a year earlier). 4-week moving average: 212,500 (Unchanged vs. the same week a year earlier).

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

Consumer Spending & Sentiment Signal Uncertainty: September 23 – 27

Consumer Spending & Sentiment Signal Uncertainty: September 23 – 27

Kevin Roth

Consumer spending, a critical contributor to GDP growth, wobbled in August. Here are the five things we learned from U.S. economic data released during the week ending September 27.

#1Personal spending growth weakened in August. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) increased by only 0.1 percent (seasonally adjusted) during the month, its slowest growth rate since a decline in February. Spending on goods rose 0.3 percent, split between a 0.9 percent bounce for durable products and nondurable goods eking out a 0.1 percent increase. Spending on services held steady during the month. Nominal (not adjusted for inflation) consumer spending also grew 0.1 percent, funded by a 0.4 percent increase in nominal personal income and sharp gains for both nominal (+0.5 percent) and real (+0.4 percent) disposable income. The savings rate edged up by 3/10ths of a percentage point to +8.1 percent. Real personal spending has risen 2.3 percent over the past year, while real disposable income has grown 3.0 percent.Real Personal Consumption Expenditures data August 2018 - August 2019

#2The third estimate of Q2 GDP continued to indicate modest growth earlier this year, held up by consumer spending. The Bureau of Economic Analysis’ third estimate of gross domestic product (GDP) has the U.S. economy expanding 2.0 percent on a seasonally adjusted annualized rate (SAAR) of +2.0 percent. This matched the second estimate reported a month earlier and was slower than the 3.1 percent annualized growth estimate for the first three months of 2019. Consumers and government spending drove Q2’s economic expansion—the former contributed 303-basis points to GDP growth while government expenditures (both federal and state/local) added 82-basis points. Dragging down economic activity were net exports (shedding 98-basis points to GDP growth), changes in private inventories (-91-basis points), fixed business investment (-25-basis points), and fixed residential investment (-11-basis points). The same report finds corporate profits rose 3.8 percent during Q2, although they were up by a more moderate 1.3 percent compared to the same quarter a year earlier. We will see the first estimate of Q3 GDP on October 30. 

#3A snapshot of economic measures suggests business activity picked up in August. A weighted index of 85 economic measures, the Chicago Fed National Activity Index (CFNAI), jumped by 51-basis points during the month to a reading of +0.10. Since a 0.00 reading for the CFNAI suggests the U.S. economy is expanding at its historical rate, the positive mark here indicates above-average economic growth during August. The CFNAI’s three-month moving average crept up by eight-basis points to -0.06 (its best reading since January). Forty-four of the 85 indicators made positive contributions to the headline index. All four major categories of indicators improved during the month: production (up 42-basis points to +0.16), sales/orders/inventories (up five-basis points to -0.02), employment (up three-basis points to -0.02), and personal consumption/housing (up a basis point to -0.02).

#4Consumer sentiment measures in September reflected uncertainty. The Conference Board’s Consumer Confidence Index shed 9.2 points during the month to a seasonally adjusted reading of 125.1 (1985=100). Both the current and expected conditions indices fell—the former lost 7.0 points to 169.0 while the latter slumped by 10.6 points to 95.8. While 37.3 percent of survey respondents view current economic conditions as “good” (versus 12.7 percent seeing them as “bad), only 19.0 percent expect conditions will be “better” six months from now (versus 14.3 percent expecting them to “worsen”). The press release said that the “escalation in trade and tariff tensions in late August appears to have rattled consumers,” leading to a “plateauing” of consumer confidence.

Meanwhile, the University of Michigan’s Index of Consumer Sentiment added 3.4 points in August to a seasonally adjusted 93.2 (1966Q1=100). Even with gain over the past month, the measure was 6.9 percent below that of a year earlier, reflecting a “slow erosion” in sentiment. Both the current and expected conditions indices advanced during the month (although each had negative 12-month comparables): current conditions (up 3.2 points to 108.5—September 2018: 115.2) and anticipated conditions (up 3.5 points to 83.4—September 2018: 90.5). The press release noted “rising levels” of uncertainty—some “rooted in partisanship” and some based on trade tensions.

#5Durable goods gained thanks to defense aircraft orders. The Census Bureau estimates new orders for durable manufactured goods increased 0.2 percent in August to a seasonally adjusted $250.7 billion. Even as orders for defense aircraft surged 30.3 percent, transportation goods orders fell 0.4 percent (hurt by a 17.1 percent drop for civilian aircraft and a 0.8 percent decline for motor vehicles). Net of transportation goods, core orders increased 0.5 percent—but the data shows mixed results. New orders rose for primary metals (+1.5 percent), fabricated metals (+1.3 percent), and machinery (+0.6 percent) but fell for electrical equipment/appliances (-1.3 percent) and computers/electronics (-0.3 percent). Also giving pause is the 0.2 percent slip in orders for civilian non-aircraft capital goods, a proxy for business investment.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending September 21, 2019, First-Time Claims, seasonally adjusted): 213,000 (+3,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 212,000 (+0.7% vs. the same week a year earlier).
– New Home Sales (August 2019, New Single-Family Home Sales, seasonally adjusted annualized rate): 713,000 (+7.1% vs. July 2019, +18.0% vs. August 2018).
– Pending Home Sales (August 2019, Index (2001=100), seasonally adjusted): 107.3 (vs. July 2019: 105.6, vs. August 2018: 104.7).
– Agricultural Prices (August 2019, Prices Received by Farmers (Index: 2011=100)): +0.8% vs. July 2019, +0.9% vs. August 2018.

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