Record Existing Home Sales, Strengthening Business Activity: What We Learned During the Week of July 20-24

Sales of previously owned homes hit an 8-year high and several measures find business activity growing.  Here’s the U.S. economic data you missed during the week ending July 24.072415graphic

  1. Sales of previously owned homes grew in June to their fastest pace since before the last recession. The National Association of Realtors measure jumped 3.2% during the month to a seasonally adjusted annualized rate (SAAR) of 5.49 million units. This was 9.6% above the year ago pace and the fastest rate of existing home sales since February 2007. Sales grew during the month and on a year-to-year basis in all 4 Census regions, with double digit 12-month percentage gains in both the Midwest and Northeast. The inventory of unsold homes remained tight, growing only 0.4% from a year earlier to 2.30 million units. This translated into a 5.0 month supply (June 2014: 5.5 month supply). As a result, the median sales price of previously owned homes–$236,000–was 6.5% above year ago levels and exceeded the previous all-time high for homes prices achieved back in July 2006. NAR attributes the “wave of demand” to “steady job growth and an improving economy that’s giving more households the financial wherewithal and incentive to buy.”
  2. Meanwhile, new home sales dropped during the same month to its slowest pace of the year. The Census Bureau estimates sales of newly constructed homes fell 6.8% during June to 482,000 units (SAAR). Sales fell in 3 of 4 Census regions, including double digit percentage drops in the West and Midwest. Even with the drop, new home sales were up 18.1% from a year earlier, with positive year-to-year comparables in all 4 Census regions. Inventories eased a bit during the month—there was a 5.4 month supply of new homes available for sale at the end of June, up from 4.8 months in May and below the 6.1 month supply of a year earlier. Interestingly, the sales data contrasts with positive reports on both housing starts and homebuilder sentiment reported here last week.
  3. The Federal Reserve Bank of Chicago detects economic activity picking up during June. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, added 16-basis points to a reading of +0.08. This was the 1st time the CFNAI has been positive in 2015. The CFNAI’s 3-month moving average improved by 6-basis points to a near-neutral reading of -0.01, its best mark since January. A 3-month moving average at 0.00 is consistent with the U.S. economy growing at its normal historic rate. 48 of the 85-tracked economic indicators made a positive contribution to the CFNAI, with indices associated with production/income, employment and sales/orders/inventories improving from May.
  4. A forward looking economic measure suggests a strengthening business activity during the 2nd half of 2015. The Conference Board’s Leading Economic Index gained 7/10ths of a point to 123.6 (2010 = 100). 6 of 10 components made positive contributions to the leading index, led by the interest rate spread, building permits and consumer expectations on business conditions. The coincident index inched up 2/10ths of a point to 112.5, boosted by positive contributions from all 4 index components. The lagging index added 8/10ths of a point to 117.6, with 4 of 7 index components making positive contributions. The press release noted that the LEI was gaining “more momentum with another large increase in June pointing to continued strength in the economic outlook for the remainder of the year.”
  5. Layoff activity slowed even more in mid-July. The Department of Labor reports that the number of 1st time claims made for unemployment insurance benefits fell by 26,000 during the week July 18 to a seasonally adjusted 255,000. The 4-week moving average dropped by 4,000 to 278,500—the moving average from a year earlier was at 303,000. One should be cautious in reading too much into single week variations as the data series is quite volatile week-to-week and this drop may be tied to seasonal adjustments not accurately picking up the timing of scheduled model changeover auto plant retooling shutdowns. But even if the count of jobless claims rises in the coming weeks, it is clear that layoff activity has remained relatively muted this summer.

Other data released over the past week that you might find of interest:
FHFA House Price Index (May 2015):  +0.4% vs. April 2015, +5.6% vs. May 2014.
Regional & State Employment (June 2015): Nonfarm payrolls expanded in 31 states.

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

Hot Housing, Cool Retail Sales and Manufacturing: What We Learned During the Week of July 13-17

Housing’s heating up while retail sales and manufacturing both remain cool.  Here’s the U.S. economic data you missed during the week ending July 17.071915

1. Housing construction remained strong this spring—at least by post-recession standards. The Census Bureau puts housing starts during June at a seasonally adjusted annualized rate (SAAR) of 1.174 million units, up 9.8% from May and 26.6% from a year earlier. The month-to-month change came from the 29.4% bump in starts for multi-family units (note this data series tends to be quite volatile month-to-month). Starts of single-family homes slipped 0.9% for the month but remained 14.7% above the June 2014 pace. Starts were well above year ago levels in 3 of 4 Census regions, with only the Midwest suffering a decline in starts from their June 2014 pace. Looking forward, the SAAR of issued housing construction permits grew 7.4% for the month to 1.343 million permits, with much of the gain seen for permits to construction of multi-family units. There were 30.0% more issued construction permits in June than there were a year earlier.

Consistent with the more robust housing sector activity, homebuilders are the most confident they have been in nearly ten years. The National Association of Home Builders’Housing Market Index came in at a seasonally adjusted 60. While this matched June’s reading, the NAHB upwardly revised last month’s reading by a point to its highest reading since November 2005. Further, the index has been above a reading of 50 for 13 straight months (and for the 21sttime over the past 26 months), which indicates a greater percentage of builders see the housing market as “good” than see it as “poor.” Also improving during July were measures for current (up a point to 66) and expected (up 2 points to 71) sales of single-family homes, while the index for traffic of potential buyers slipped a point to 43. In response to the survey results, the NAHB said “we should expect a continued recovery of the housing market” during the second half of 2015.

2. Retail sales wilted in the summer heat during June. The Census Bureau estimates retail sales fell 0.3% during the month to a seasonally adjusted $442.0 billion, up a tepid 1.4% from a year earlier. After removing the 1.1% drop in sales at auto dealers/parts stores and the 0.8% gain in sales at gas stations (resulting from higher gasoline prices), core retail sales slipped 0.2% for the month and were up a modest 2.7% from June 2014 levels. Sales fell at stores focused on apparel and building materials, along with non-store retailers and restaurants/bars. Sales improved during the month at electronics/appliance stores and general merchandisers.071915

3. Manufacturing output stagnated for a 2nd consecutive month in June. The Federal Reserve estimates manufacturing production was unchanged for the month and was up only 1.8% from a year earlier (its worst 12-month comparable in 1.5 years). Production of durable goods slipped 0.1% for the month, hurt by a 3.7% drop in motor vehicle production (its 1st decline since February) and slower production of wood products. On the positive side, computer/electronics and furniture production gained during the month. Output of nondurables gained 0.2%, boosted by higher production of chemical products. Overall industrial production grew 0.3% during June, as output in both the mining sector (+1.0%) and at utilities (+1.5%) improved from their May marks.

4. Consumer and producer prices grew again in June, with gasoline not the only culprit. The Bureau of Labor Statistics estimates the Consumer Price Index (CPI) increased 0.3% during June, the 5th consecutive monthly increase albeit slightly smaller than May’s 0.4% rise. Energy CPI grew 1.7% during June, propped up by a 3.4% hike in gasoline CPI and smaller gains in prices for utility delivered natural gas (+0.3%) and electricity (+0.2%). Food prices grew 0.3%, its largest single-month gain of the year with eggs responsible for 3/4ths of the gain. Net of energy and food, core CPI grew 0.2% during the month, with prices of core services up 0.3% and those of core goods off 0.1%. Even with June’s gain, consumer prices were only 0.2% above year ago levels (as gasoline prices remain well below year ago levels). The core measure has grown 1.8% over the past year, just below the Federal Reserve’s 2% inflation target.

Meanwhile, wholesale prices gained for a 2nd straight month. Final demand Producer Price Index (PPI) grew 0.4% during June following a 0.5% gain during May. PPI for final demand goods jumped 0.7%, with 30% of the increase attributed to a 4.3% increase in gasoline prices. PPI for final demand energy was up 2.4% for the month and that for final demand food grew 0.6% (which included the impact of a 69.6% surge in egg prices). Net of energy and food, the PPI for final demand core goods grew 0.4% (its largest single-month percentage gain since January 2014), featuring substantial gains in prices for pharmaceutical preparations, industrial chemicals and cigarettes. Even the PPI measure for services saw its largest gain of the year with a 0.3% increase.

5. Regional Federal Reserve Banks report improving business conditions during the latter half of the spring. The opening paragraph of the Beige Book, a compendium of comments and anecdotal information on economic conditions collected by each of the 12 regional Federal Reserve Banks, noted that “economic activity expanded from Mid-May through June.” Gains in consumer spending were “varied,” with some areas seeing greater spending because of lower energy costs while spending was hurt elsewhere by the strong dollar. Nonfinancial services enjoyed “moderate growth” while transportation was “mixed across the country.” Home sales grew in most regions while residential construction “varied across most of the country.” While employment levels were “increased or…steady” in most industries, most regions reported only “modest wage pressures.”

Other reports released over the past week that you might find of interest:
Jobless Claims (week ending July 11):  281,000 (-15,000). 4-week moving average 282,250 (+3,000).
Business Inventories May 2015:  +0.4% vs. April 2015, -2.2% vs. May 2014.
University of Michigan Consumer Sentiment preliminary July 2015: 93.3 (-2.8 points vs. June 2015).

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

JOLTS, International Trade, Service Sector Activity: What We Learned During the Week of July 6-10

Employers are creating more job openings, the service sector remains robust and the trade deficit is expanding.  Here’s the U.S. economic data you missed during the week ending July 10.071015graphic

  1. The number of job openings edged up during May while hiring activity slightly slowed. The Bureau of Labor Statistics reports there were a seasonally adjusted 5.363 million job openings on the final day of May, up only 29,000 from April but also 16.4% above year ago levels. Strong year-to-year gains in the creation of job openings was widespread, including in retail (+25.9%), professional/business services (+24.5%), health care/social assistance (+19.3%), manufacturing (+18.8%) and government (+18.8%). A seasonally adjusted 5.000 million people were hired during May, which was down 34,000 from April but up 4.1% from the May 2014 pace. The biggest year-to-year percentage gains in hiring were in the government (+14.9%), education/health care (+10.4%) and accommodation/food services (+7.0%). Increased worker confidence in labor conditions led to an 8.2% year-to-year gain in the count of people voluntary quitting their job while the count of layoffs was off slightly (-0.4% versus year ago levels).
  2. Continued weakness in exports resulted in a wider trade deficit during May. The U.S. Census Bureau and the U.S. Bureau of Economic Analysis say that the goods and trade deficit expanded by $1.2 billion during the month to a seasonally adjusted -$41.9 billion. This was slightly smaller than the May 2014 trade deficit of -$42.1 billion. Exports dropped by $1.5 billion during May to $188.6 billion (-4.4% versus May 2014), where a strong U.S. dollar hurt exports of capital goods (including civilian aircraft). Imports slowed $0.4 billion to $189.2 billion (-3.7% versus May 2014). The U.S. saw its goods deficit grow by $1.2 billion to -$61.5 billion while the services surplus was essentially unchanged at +$19.6 billion. The trade story looks even worse after controlling for price changes. The “real” trade deficit, using 2009 chained dollars, grew by $1.4 billion to -$58.4 billion. The same measure was at -$51.3 billion a year earlier. The U.S. had its largest goods deficits with China, the European Union, Germany, Japan and Mexico.
  3. The service sector grew during June at roughly the same pace that it had enjoyed in May. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business eked out a 3/10ths of a percentage point gain to a reading of 56.0. This was the 65th straight month in which the measure was above a reading of 50.0, consistent with an expanding service sector. Three of four index components improved from their May readings: business activity (+2.0 points to 61.5), supplier deliveries (+1.5 points to 51.5) and new orders (up 4/10ths of a point to 58.3). The employment index shed 2.6 points to 52.7. The press release noted that a “majority of respondents’ comments are positive about business conditions and the economy.”
  4. There were more first-time jobless claims made in early July than there had been in any week since February. But there is little reason to be concerned. First, the cause of the gain appears related to the timing of temporary auto factory shutdowns for model year changeovers. Second, this data series tends to be very volatile week-to-week, so it is important to note that one week’s data does not indicate a trend. Whatever the case, the Department of Labor estimates there were a seasonally adjusted 297,000 first time claims made for unemployment insurance benefits made during the week ending July 4. This was up by 15,000 claims from the week before but off by 10,000 claims from the same week a year earlier. The resulting 4-week moving average grew by 4,500 claims to 279,500. The moving average was at 311,500.
  5. Consumers added to their consumer debt holdings at their slowest pace in 4 months during May as households kept their credit cards in their wallets. The Federal Reserve estimates outstanding credit balances (not including mortgages and other real estate backed loans) grew by $16.1 billion to a seasonally adjusted $3.401 trillion, up 6.5% from a year earlier. Outstanding balances of non-revolving credit (e.g., student loans, car loans) expanded by $14.5 billion to $2.500 trillion (+7.8%, its smallest year-to-year gain since February 2014). Meanwhile, revolving credit balances (e.g., credit cards) increased $1.6 billion to $901.0 billion (+3.2% versus May 2014 balances).

Other reports released over the past week that you might find of interest:
– CoreLogic Home Price Index May 2015:  +1.7% (+1.4% net of distressed sales)
– Wholesale Inventories May 2015:   +0.8% versus April 2015, +5.0% versus May 2014
– The Federal Reserve released the minutes to its June Federal Open Market Committee meeting.

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