Retail Sales Jumped, Factory Output Slowed in July: August 14 – 18

Retail Sales Jumped, Factory Output Slowed in July: August 14 – 18

Kevin Roth

The summer of 2017 is shaping up better for retail sales than previously believed. Here are the five things we learned from U.S. economic data released during the week ending August 18.

#1Retail sales heated up in July (and the picture in June was better than previously reported). The Census Bureau tells us that retail/food services sales totaled a seasonally adjusted $478.9 billion, up 0.6 percent from May and 4.2 percent from a year earlier. The same report presented a significant upward revision to its estimate for June, raising the previously reported 0.2 percent sales decline to a 0.3 percent rise. After removing the impact of sales at auto dealers/parts stores (+1.2 percent) and gas stations (-0.4 percent), retail sales increased 0.5 percent during July. Most retail segments enjoyed sales gains during the month, led by home materials/garden stores (+1.2 percent), non-luxury department stores (+1.0 percent), furniture retailers (+0.4 percent), bars/restaurants (+0.3 percent), and sporting goods/hobby retailers (+0.3 percent). Sales slumped 0.5 percent at electronics/appliance stores and 0.2 percent at apparel retailers during July. Nonstore retailers (including web retailers) sales continued to blossom, with sales rising 1.3 percent for the month and 11.5 percent from the same month a year earlier.July17 Retail Sales-081817

#2Factory output slowed in July. The Federal Reserve’s industrial production report finds manufacturing output slipped 0.1 percent during the month, leaving factory output up a modest 1.2 percent from a year earlier. Durable goods production declined 0.5 percent while that of nondurables advanced 0.4 percent. The former was pulled down by a sharp 3.5 percent drop in motor vehicle production, along with decreases in output greater than one percent for both furniture and primary metals. Production increases greater than one percent of both apparel and chemicals led the growth in nondurables output. Overall industrial production grew 0.2 percent, putting it 2.2 percent its July 2016 level. Greater oil and gas extraction led to a 0.5 gain in mining output (+10.2 percent versus July 2016) while higher demand for electricity due to warm summer weather pushed up the production at utilities by 1.6 percent (-0.6 percent versus July 2016). Capacity utilization held steady during the month at 76.7 percent, which remained 3.2 percentage points below the measure’s long-run average.

#3Forward-looking indicators point towards continued economic growth during the remainder of the year. The Conference Board’s Leading Economic Index (LEI) added 4/10ths of a point during July to a seasonally adjusted 128.3 (2010=100). The measure has grown 3.9 percent over the past year. Eight of ten components of the LEI made positive contributions, led by the interest rate spread, new manufacturing orders, and consumers’ expectations for future business conditions. The coincident index added 3/10ths of a point to 115.7, up 1.9 percent from a year earlier. All four components of the coincident index made positive contributions, including nonfarm payrolls and industrial production. The lagging index eked out a 1/10th of a point gain to 124.8, up 2.5 percent over the past year. Three of the lagging index’s seven components made positive contributions, led by the prime interest rate charged by banks. The press release said the results imply “the U.S. economy may experience further improvements in economic activity in the second half of the year.”

#4Housing starts slowed during July. Per the Census Bureau, housing starts declined 4.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.155 million units. This was off 5.6 percent from a year earlier. Most of the decline during July came from a sharp 17.1 percent in multi-family units (5+ units) in starts (-35.2 percent from the same month a year ago). Single-family home starts slipped 0.5 percent during July but nevertheless remained 10.9 percent above the July 2016 pace. Looking towards the future, there were 1.223 million issued building permits (SAAR), down 4.1 percent from June but up 4.1 percent from the same month a year ago. While the SAAR for single-family home issued permits held firm during July, they declined 12.1 percent for multi-family home permits. Housing completions slowed 6.2 percent during July to a SAAR of 1.175 million units. This was up 8.2 percent from the July 2016 pace.

#5And yet, homebuilders grew more optimistic during August. The Housing Market Index (HMI) from the National Association of Home Builders (NAHB) added four points during the month to a seasonally adjusted reading of 68. This was up nine points from a year earlier and represented the 38th consecutive month in which the homebuilder sentiment measure was above a reading of 50, meaning more builders saw the housing market as “good” versus being “poor.” The index grew in all four Census regions: South (up seven points to 70), West (up five points to 79), Northeast (up three points to 51), and Midwest (up a point to 65). All growing during the month were indices for sales of single-family homes (up four points to 74), expected sales of single-family homes (up five points to 78), and the traffic of prospective buyers (up a point to 49). The NAHB attributes builders’ more positive outlook to “ongoing job and economic growth, attractive mortgage rates, and growing consumer confidence.” 

Other U.S. economic data released over the past week:
– Jobless Claims (week ending August 12, 2017, First-Time Claims, seasonally adjusted): 232,000 (-10,000 vs. previous week; -29,000 vs. the same week a year earlier). 4-week moving average: 240,500 (-8.7% vs. the same week a year earlier).
– Business Inventories (June 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.869 trillion (+0.5% vs. May 2017, +2.8% vs. June 2016).
– University of Michigan Consumer Sentiment (August 2017-preliminary, Index of Consumer Sentiment (1966Q1=100, seasonally adjusted): 97.6 (vs. July 2017: 93.4, vs. August 2016: 89.8).
– Treasury International Capital Flows (June 2017, Net Purchases of U.S. Securities by Foreign Investors, not seasonally adjusted: +$35.3 billion (vs. May 2017: +$95.5 billion, vs. June 2016: -$1.6 billion).
– FOMC Minutes

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

Job Openings Hit a New Record: August 7 – 11.

Job Openings Hit a New Record: August 7 – 11.

Kevin Roth

Employers have many unfilled jobs while inflation remains subdued. Here are the five things we learned from U.S. economic data released during the week ending August 11.

#1Even with a record level of job openings, the pace of hiring sputtered in June as employers are unable to fill Thomas roles. There were a seasonally adjusted 6.163 million job openings on the final day of June, up 461,000 from May, 11.3 percent from a year earlier, and the most reported in the 17-year history of the Bureau of Labor Statistics data series. This included 5.588 million private sector job openings, which represented a 12.0 percent increase from June 2016. Industries reporting the largest percentage gains in job openings over the past year include construction (+31.6 percent), wholesale trade (+28.5 percent), financial activities (+22.6 percent), professional/business services (+16.0 percent), and accommodation/food services (+11.9 percent). Yet, employers were struggling to fill those positions. Hiring declined by 103,000 during the month to 5.356 million. This was up 3.5 percent from the number of people hired during June 2016. Private sector employers hired 5.026 million people during the month, up 4.3 percent from a year earlier. The industries with the largest year-to-year percentage increases in hiring included manufacturing (+25.2 percent), construction (+15.0 percent), and professional/business services (+14.6 percent). 5.224 million people left their job during June, off by 21,000 for the month, but 5.7 percent the year ago count. 3.314 million people voluntarily quit their jobs (+5.2 percent versus June 2016) while the 1.701 million people laid off was up 5.7 percent from the same month a year earlier.Nonfarm Job Openings 2007-2017 081117

#2Consumer prices eke out a small gain during July. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) increased 0.1 percent during the month, after having been unchanged during June. Energy CPI declined for the fifth time in six months, albeit with a small 0.1 percent drop. Gasoline prices were unchanged during July while electricity prices grew 0.4 percent. Food prices gained 0.2 percent during July, the fifth time over the past six months with a monthly increase of at least 0.2 percent. Net of energy and food, core CPI gained 0.1 percent for a fourth consecutive month. Growing were prices for medical care commodities (+1.0 percent), medical care services (+0.3 percent), apparel (+0.3 percent), and transportation services (+0.2 percent). Meanwhile, prices for both new and used cars/trucks dropped 0.5 percent. Both headline and core CPI have grown 1.7 percent over the past year, each under the Federal Reserve’s two-percent target rate for inflation.

#3Wholesale prices declined during July. The final demand Producer Price Index (PPI) slipped 0.1 percent during the month, following a 0.1 percent increase in June. The core measure, which nets out energy, food, and trade services, held steady during the month. PPI for final demand goods edged down 0.1 percent. The measure for wholesale energy goods decreased 0.3 percent (wholesale gasoline prices fell 1.3 percent) while that for food was unchanged during July. Meanwhile, final demand PPI for services dropped 0.2 percent, pulled down by declines for transportation/warehousing (-0.8 percent) and trade (i.e., retailer and wholesaler margins, -0.5 percent). Over the past year, both the headline and core measure of final demand PPI has grown just under the Federal Reserve’s target with a 1.9 percent increase.

#4Productivity growth was soft during Q2, which was an improvement over Q1’s stagnation. The Bureau of Labor Statistics finds nonbusiness labor productivity edged up 0.9 percent on a seasonally adjusted annualized basis during April, May, and June, a gain from the productivity being unchanged during the first quarter. Output grew 3.4 percent during the quarter while hours worked gained 2.5 percent. Unit labor costs edged up 0.6 percent during the quarter. Over the past year, nonfarm productivity grew by a tepid 1.2 percent. The manufacturing sector presented a bright picture with a 2.5 percent productivity gain, led by a sharp 3.8 percent surge in durable goods manufacturing productivity. Productivity of nondurable manufacturing slipped 0.1 percent during Q2.

#5Small Business Owner Sentiment Rebounded During July. The Small Business Optimism Index from the National Federation of Independent Business improved for the first time in six months with a 1.6 point increase to a seasonally adjusted 105.2 (1986 = 100). This was the measure’s best reading since February and up 10.6 points from a year earlier. Seven of the index’s ten components improved from their June readings, led by measures for current job openings (up five points), expected real sales (up five points), plans to increase employment (up four points), and expected future economic conditions (up four points). Only two of the index components declined during the month: plans to make capital outlays (down two points) and expected credit conditions (off a point). The press release noted that “Main Street was buoyed by stronger customer demand despite the dysfunction in Washington, D.C.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending August 5, 2017, First-Time Claims, seasonally adjusted): 244,000 (+3,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 241,000 (-8.2% vs. the same week a year earlier).
– Consumer Credit (June 2017, Outstanding Consumer Credit Balances (net of mortgages and other real-estate backed debt, seasonally adjusted): $3.856 trillion (+$12.4 billion vs. May 2017, +5.7% vs. June 2016).
– Federal Government Treasury Budget (June 2017, Surplus/Deficit): -$42.9 billion (vs. June 2016: -$90.2 billion, July 2017 -$112.8 billion). 1st ten months of FY2017: -$566.0 billion (vs. 1st ten months of FY2016: -$512.0 billion).
– Wholesale Inventories (June 2017, Inventories of Merchant Wholesalers, seasonally adjusted): $599.4 billion (+0.7% vs. May 2017, +2.8% vs. June 2016).

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

Companies Continue to Hire, But Wage Growth Lags: July 31 – August 4

Companies Continue to Hire, But Wage Growth Lags: July 31 – August 4

Kevin Roth

Employers continued to expand their payrolls during July, but they were stingier with pay hikes. Here are the five things we learned from U.S. economic data released during the week ending August 4.

#1The pace of job creation remained solid in July, pay raises were not. The Bureau of Labor Statistics tells us that nonfarm payrolls grew by a seasonally adjusted 209,000 during the month. While off from the 231,000 jobs added during June, it still beat the average monthly job gain of 179,833 over the past 12 months. Private sector employers added 205,000 workers during the past month, split between 183,000 new jobs in the service sector and 22,000 in the goods producing side of the economy. Industries adding the most workers during the month were leisure/hospitality (+62,000), professional/business services (+49,000), health care/social assistance (+45,000), and manufacturing (+16,000). Less positive was the slow growth in hourly earnings, which grew by only nine cents during July to $26.36. While the average number of hours worked per week held steady during the month at 34.5 hours (July 2016: 34.4), average weekly earnings have grown a good but not great 2.8 percent over the past year to $909.42.Monthly Job Creation 2011-2017-080417

Based on a separate survey of households, the unemployment rate slipped back down to its post-recession low of 4.3 percent. (-1/10th of a percentage point from June and -6/10ths of a percentage point from July 2016). 349,000 people entered the labor force during the month, leading to the labor force participation rate to increase by 1/10th of a percentage point to 62.9 percent (July 2016: 62.8 percent). While the typical length of unemployment grew by a full week during July to 10.6 weeks, this was down from 11.5 weeks during July 2016. The number of part-time workers seeking a full-time opportunity declined by 42,000 to 5.282 million (-11.0 percent versus July 2016). Finally, the broadest measure of labor underutilization published by the BLS (the U-6 series) was at 8.6 percent for the third time over the past four months. A year earlier, the same measure was at 9.7 percent.

#2Exports increased during June, leading to a narrowing of the trade deficit. The Census Bureau and Bureau of Economic Analysis report that exports grew by $2.4 billion during the month to a seasonally adjusted $194.4 billion (+5.8 percent versus June 2016) while imports shrank by $0.4 billion to $230.0 billion (+4.6 percent vs. June 2016). This left the trade deficit at -$43.6 billion, $2.7 billion smaller than that of May and off 0.4 percent from a year earlier. The goods deficit contracted by $2.1 billion to -$65.2 billion (June 2016: +$65.2 billion) while the goods surplus expanded by $0.6 billion to +$21.6 billion (June 2016: +21.4 billion). Exports of goods grew by $1.7 billion, including gains by capital goods (+$0.8 billion) and soybeans (+$0.6 billion). Goods imports slowed by $0.4 billion, pulled down by declines of both crude oil (-$1.4 billion) and consumer goods (-$0.9 billion). The United States had its largest goods trade deficits with China (-$31.3 billion), the European Union (-$12.5 billion), and Germany (-$12.5 billion).

#3Personal spending sputtered in June while it turns out that Americans were not saving as much as previously believed. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) were unchanged during the month, leaving them up 2.4 percent from a year earlier (the softest 12-month comparable in 2017). Real spending on goods fell 0.2 percent, with decreases of 0.1 percent and 0.2 percent for durable and nondurable goods, respectively. Spending on services inched up 0.1 percent. Nominal (not adjusted for inflation) PCE was at $13.818 trillion on a seasonally adjusted annualized basis, up 0.1 percent for the month. Both personal and disposable income held steady during June, with real disposable income down 0.1 percent. The savings rate slipped by 1/10th of a percentage point to +3.8 percent. This data reflected the annual revision to the entire data series, which resulted in a lower savings rate than previously reported. Finally, the PCE deflator, a measure of inflation, was unchanged for the month with the core measure (net of energy and food) up a mere 0.1 percent. The year-to-year comparables for both price measures were below the Federal Reserve target of two percent at +1.4 percent and 1.5 percent, respectively.

#4Factory orders soared in June, in large part due to civilian aircraft orders. New orders for manufactured goods jumped 3.0 percent during the month to a seasonally adjusted $481.1 billion, per the Census Bureau. This was 9.8 percent greater the value of new factory orders from the same month a year earlier. Like with the prior week’s report on durable goods orders, the highlight was the 131.1 percent surge in orders for civilian aircraft. Combining that with a 0.3 percent slip in defense aircraft orders and a 0.1 percent bump in vehicle orders, new orders for transportation goods gained 19.0 percent during June. But net of transportation goods, new orders fell 0.2 percent to $389.4 billion, which was 5.0 percent ahead of the value during June 2016. Durable goods orders increased 6.4 percent (again, think civilian aircraft) while orders for nondurable slowed 0.3 percent. Shipments declined 0.2 percent to $471.5 billion (non-transportation goods shipments edged down 0.1 percent). Unfilled orders grew for the third time in four months with a 1.3 percent increase while inventories swelled for the seventh time in eight months with a 0.2 percent gain.

#5Both the manufacturing and service sectors grew at a slightly slower pace during July. The Institute for Supply Managements’ Purchasing Managers Index (PMI) shed 1.5 points during the month to a reading of 56.3. Even with the decline, the PMI has been above a reading of 50.0—consistent with an expanding manufacturing sector—for 11 consecutive months. Four of five components of PMI declined during the month: new orders (off 3.1 points to 60.4), employment (off 2.0 points to 55.2), production (off 1.8 points to 60.6), and supplier deliveries (off 1.6 points to 55.4). The inventories index, however, added a point during the month to a reading of 50.0. Fifteen of 18 tracked manufacturing industries expanded during the month, led by plastic/rubber products, electrical equipment/appliances, and wood products. The press release characterized purchasing managers’ comments as “reflect[ing] expanding business conditions.”

Meanwhile, the ISM’s measure of activity in the non-manufacturing side of the U.S. economy—the NMI—fell by 3.5 points to a reading of 53.9. While this was the NMI’s lowest reading since last August, represented the measure of service sector activity’s 91st straight month above the expansionary/contractionary threshold of 50.0. All four index components fell during the month: business activity/production (down 4.9 points to 55.9), new orders (down 5.4 points to 55.1), employment (down 2.2 points to 53.6), and supplier deliveries (down 1.5 points to 51.0). Fifteen of 18 tracked non-manufacturing industries expanded during the month; including, accommodation/food services, information, and education services. The press release stressed that “[t]he majority of respondents’ comments were mostly positive about business conditions and the state of the economy.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending July 29, 2017, First-Time Claims, seasonally adjusted): 240,000 (-5,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 241,750 (-7.1% vs. the same week a year earlier).
– Construction Spending (June 2017, Value of Construction Put in Place, seasonally adjusted): $1.206 trillion (-1.3% vs. May 2017, +1.6% vs. June 2016).
– Vehicle Sales (July 2017, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (0.4% vs. June 2017, -5.9% vs. July 2017).
– Agricultural Prices (June 2017, Prices Received by Farmers (Index: 2011=100): 98.1 (-0.1% vs. May 2017, +4.6% vs. June 2016).

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