A Better Q2, Solid Sentiment (So Far): What We Learned During the Week of August 24-28

Extreme stock market volatility overshadowed the stream of largely positive U.S. economic news released last week.  Here are the 5 things we learned from U.S. economic data released during the week ending August 28.graphic 082815

#1 Q2 was a better much quarter for economic growth than previously believed. The Bureau of Economic Analysis sharply revised upward its estimate of seasonally adjusted annualized growth in the Gross Domestic Product (GDP) from +2.3% to +3.7%. This follows the +0.6% SAAR economic expansion during the first 3 month of the year. The upward revision was the result of improved results for nonresidential fixed investment, private inventory investment, state & local government spending and consumption, along with a downward revision to imports. The same report featured the first estimate of Q2 corporate profits—profits from current production (which is corporate profits with inventory valuation and capital consumption adjustments) increased 2.4%, its first gain after 2 consecutive quarterly declines. The BEA will revise its estimate of Q2 GDP once again at the end September.

#2Personal spending grew modestly in July, thanks to strong car sales. The BEA estimates “real” consumer spending grew 0.2% during July, following no change in June and a 0.5% increase during May. Real spending on durable goods jumped 1.3%, boosted by a 2.6% gain in spending for motor vehicles, while spending on both nondurables and for services each edged up 0.1%. Over the past year, real consumer spending has grown 3.2%, boosted by a 6.2% jump in durable goods spending and 2.8% increases on both nondurables and services. Nominal spending (not adjusted for price variation) grew 0.3% for the month and was up 3.5% over the past year. The increased spending was funded by a 0.4% gain in personal income (“real” personal income also grew by 0.4%). Personal income has increased 4.3% over the past year. The savings rate for July of +4.7% was up 2/10ths of a percentage point from June.

#3Following last week’s report on previously owned homes, new home sales grew in July. The Census Bureau put the seasonally adjusted annualized sales rate of new homes at 507,000 units, up 5.4% for the month and 25.8% above year ago levels. Sales grew during the month in 3 of 4 Census regions, with a 6.9% drop in the Midwest being the exception. Builders were still maintaining a tight inventory of homes—there were 218,000 unsold new homes at the end of June, up 6.9% versus a year earlier but still representing only a 5.2 month supply. Nevertheless, the median sales price of $285,900 was up only 2.0% from a year earlier (although this is likely reflective of a greater percentage of smaller (less expensive) homes sold during the period).

#4Durable goods orders gained for a 2nd straight month in July. The Census Bureau reported new orders for durable goods were at a seasonally adjusted $241.1 billion, a 2.0% gain for the month. Transportation goods orders increased 4.7% during the month, despite drops of 6.0% and 13.1% for civilian and defense aircraft orders, respectively. Motor vehicle orders gained 4.0%. Net of transportation goods, new orders grew 0.6%, thanks to a 2.0% increase in orders for computers/electronic products, a 1.5% gain in machinery orders and a 1.3% improvement in orders for electrical equipment/appliances. Orders for non-defense capital goods excluding aircraft (a closely watched measure of business investment) increased 2.2% during the month.

#5One measure of consumer sentiment prospered in August while another showed the detrimental effects of stock market volatility. The Conference Board’s Consumer Confidence Index surged 10.5 points during August to a seasonally adjusted 101.5 (1985 = 100), its best reading since January. The present conditions bounced up 11.1 points to 115.1 (its best since November 2007) while the expected conditions index added 10.2 points to 92.5. The press release links the jump in sentiment to “a more favorable appraisal of the labor market” but also notes that income expectations “were little improved.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment lost 1.2 points during August to a seasonally adjusted reading of 91.9 (1966 Q1 = 100). Even with the drop, the index remained well above the August 2014 reading of 82.5. The current conditions index lost 2.1 points (to 105.1) while the expectations index inched down by 7/10ths of a point to 83.4. The press release said the drop was “mainly due to the recent volatility in stock market,” even though the survey results do not reflect the rollercoaster nature of the markets over the past week or so.  The press release said the survey results indicated real consumer spending will grow “a still healthy” 2.9% for all of 2015, although warning that “consumer sentiment must be carefully monitored in the months ahead.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 22, 2015): 271,000 (-6,000 vs. week earlier); 4-week moving average: 272,500 (+1,000 vs. week earlier).
Chicago Fed National Activity Index (July 2015): +0.34 (up 41-basis points vs. June). 3-month moving average: -0.08 (up 9-basis points vs. June)
Pending Home Sales (July 2015): 110.9 (up 0.5 vs. June, 2001 = 100)

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

Firming Housing Market, Caution About Future Economic Activity: What We Learned During the Week of August 17-21

Last week featured several housing market metrics at post-recession highs and a forward looking measure of economic activity that softened in July. Here’s the U.S. economic data you missed during the week ending August 21.

#1Sales of previously owned homes edged up in July, despite tight inventories and rising prices. The National Association of Realtors reports existing home sales grew 2.0% during the month to a seasonally adjusted annualized rate (SAAR) of 5.59 million units. This was up 10.3% from the same month a year ago and the best sales pace since February 2007, when the then hoped for “soft landing” for the cooling housing market was quickly turning into a hard crash. July’s gains were centered in the South (+4.1%) and the West (+3.2%), while sales were unchanged in the Midwest and eased 2.8% in the Northeast. NAR noted that the share of transactions comprising of first-time buyers fell by 2 percentage points to 28%, blaming both tight inventories and rising prices. At the end of the month, there were 2.24 million homes for sale (off 4.7% from a year earlier and the equivalent to a 4.8 month supply). The median sales price of $234,000 was 5.6% above year ago levels.

#2 Housing starts and homebuilder sentiment are at post-recession highs. The Census Bureau’s SAAR estimate for housing starts for July of 1.206 million units was virtually unchanged from June but was 10.1% above the July
2014 reading and its highest point since October 2007. (Note that housing starts remained well below the 1.5-2.0 million pace we saw for years before the last recession.) Starts of single-family homes jumped 12.8% during the month to 782,000 units (+19.0% vs. July 2014) while those for
multi-family units slumped 17.3% to 424,000 units (-3.2% vs. July 2014). Looking into the  future, permitting activity suggests that we may see a slowdown in starts over the short-term. The SAAR count of issued construction permits fell 16.3% during July to 1.119 million permits. Even with the drop, this was 7.5% above year ago levels, with positive 12082115graphic-month comparables for both single-family and multi-family permits. The number of
housing units completed during the month grew 2.4% to 987,000 units, up 14.6% from a year earlier.

With a 1-point gain during August, the Housing Market Index (HMI) from the National Association of Home Builders grew to its best reading since November 2005 at 61. The measure of homebuilder confidence has been above a reading of 50—where a greater percentage of survey respondents characterize housing market conditions as being “good” rather than “poor”—for 14 straight months. The HMI grew in 3 of 4 Census regions, but fell in the Northeast. Indices for current sales of single-family homes and traffic of potential buyers both improved from their July readings while the index for expected sales over the next 6 months was unchanged for the month. NAHB’s press release was largely positive, noting that the results were “consistent” with “a gradual strengthening of the single-family housing sector in 2015.”

#3Consumer prices remained largely in check in July. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) had its smallest monthly increase since April with a seasonally adjusted 0.1% gain. Energy CPI also grew 0.1% as the gasoline index increased 0.9% but indices for fuel oil (-3.4%), utility delivered natural gas (-1.4%) and electricity each fell (-0.4%). (Note that this report does not reflect the price drops we are now seeing at the gas pump.) Meanwhile, food CPI increased 0.2%. Net of both energy and food, core CPI grew 0.1% for the month and was up 1.8% over the past year. Growing were prices for apparel (+0.3%) and shelter (+0.4%) while prices for new vehicles (-0.2%) and used vehicles (-0.6%) both fell.

#4A measure of leading economic indicators unexpectedly fell in July, but we probably should not be too concerned about the drop. The Conference Board’s Leading Economic Index slid 3/10ths of a point to 123.3. While 7 of the index’s 10 components improved during the month, it was the aforementioned sharp decline in housing permits during July that pulled the LEI down. The coincident index added 2/10ths of a point to 112.5, with all 4 of the index’s components making positive contributions while the lagging index grew by 4/10ths of a point to 118.1 (4 of 7 index components gained during the month). The Conference Board’s press release indicated that the group was not alarmed by the drop in the leading index, stating that the LEI “…is still pointing to moderate economic growth through the remainder of the year.”

#5 2/3rds of states enjoyed gains in nonfarm payrolls in July. The Bureau of Labor Statistics reports 34 states saw nonfarm payrolls increase during the month, led by California (+80,700), Texas (+31,400) and Florida (+30,500). Employment fell in the other 16 states and in the District of Columbia, with the biggest drops occurring in New Jersey (-13,600), Louisiana (-4,500) and Kansas (-4,300). Over the past year, nonfarm payrolls have increased in 47 states, led by Utah (+4.4%), Nevada (+3.7%) and Florida (+3.5%). Compared to July 2014 levels, employment contracted in West Virginia (-2.5%) and North Dakota (-0.6%) and was unchanged in Alaska.

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending August 15, 2015): 277,000 (+3,000 vs. week earlier); 4-week moving average: 271,500 (+5,500 vs. week earlier).
– Minutes from the most recent meeting of the Federal Open Market Committee.

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

A Better Retail Story, Manufacturing Still Uneven: What We Learned During the Week of August 10-14

July featured both a pick up in retail sales and continued uneven activity in the manufacturing sector. Here’s the U.S. economic data you missed during the week ending August 14.

  1. July was a solid month at 081415graphicthe cash register. The Census Bureau says retail sales totaled $446.5 billion (seasonally adjusted), up 0.6% from the previous month. Some of the rise reflected strong vehicle sales—sales at auto dealers and parts stores jumped 7.4%. Net of auto dealer/parts stores activity, retail sales grew for the 4th time in 5 months (+0.4%). Sales improved across most retail segments, including at stores focused on sporting goods/hobbies (+0.9%), furniture (+0.8%) and building materials (+0.7%), in addition to a 1.5% gain at non-store retailers (think the “Black Friday in summer” promotions offered by some online retailers during the month) and a 0.7% increase in sales at restaurants/bars. Yet even with July’s gains, the sector remains soft so far in 2015. Retail sales were only 2.4% above year ago levels, with the 12-month comparable jumping to a better but still not great +3.8% after removing both vehicle and gasoline sales.
  2. Manufacturing output grew in July at its fastest pace since last November, but most of the gains were confined to the auto sector. The Federal Reserve estimates manufacturing production grew 0.8% during the month, split between gains of +1.2% and +0.4% for durable and non-durable goods, respectively. The former benefited from a 10.6% surge in motor vehicle production—in fact, durable goods production net of vehicles slipped 0.2%. The non-durables figure was boosted by gains of at least 1.0% for apparel, paper and plastics/rubber products. Overall industrial production gained 0.6% during July (only its 2nd increase in 2015) as mining production eked out a 0.2% increase and output at utilities slowed 1.0%. Industrial production has only grown 1.3% over the past year, with the 12-month comparable for the manufacturing sector at a tepid +1.5%.
  3. The count of job openings remains at a near post-recession high. The Bureau of Labor Statistics’seasonally adjusted count of job openings was at 5.249 million, off 108,000 from May but up a robust 11.4% from a year earlier. Industries with the biggest year-to-year percentage gains were professional/business services (+29.6%), health care/social services (+23.6%) and retail (+16.2%). Hiring increased by 117,000 during the month to 5.177 million, which was up 9.0% from a year earlier (and with positive year-to-year percentage gains across every major industry grouping). Separations grew by 132,000 for the month to 4.931 million, up 9.0% from a year earlier. A positive sign is the 11.3% year-to-year gain in the number of people who voluntarily quit their jobs, although the count of layoffs was 4.2% above its year ago pace.
  4. Wholesale prices grew at a slower pace in July, thanks to a reversal in energy prices. Following gains of 0.5% and 0.4% during May and June, respectively, the BLS’s final demand Producer Price Index (PPI) grew by only 0.2% during July. PPI for final demand goods shed 1/10th of a percentage point, with the energy index dropping 0.6%. PPI for final demand food cooled 0.1%, which includes a 24.8% drop in the price for eggs that had been shooting up recently. Net of energy and food, core final demand goods PPI was unchanged for the month. Meanwhile PPI for final demand services grew at its fastest pace since last October with a 0.4% increase, with more than 40% of the gain tied to higher prices for guestroom rental. Over the past year, final demand PPI has contracted 0.8% with the final demand goods index having fallen 3.5% over the same 12 months. We will learn about July consumer prices on Wednesday.
  5. Small business owner sentiment regained in July some of what it had lost in June. The Small Business Optimism Index from the National Federation of Independent Business increased 1.3 points during the month to a reading of 95.4, following a 4.2 point drop in June. 7 of 10 index components improved during the month, with the biggest increases coming from indices tracking economic conditions expectations, plans to increase inventories, plans to increase employment and whether it is a good time to expand. The NFIB characterized the report as showing the “most grudging gains in the Index’s history,” noting that the measure remained below its 42-year average.

Other data released over the past week that you might find of interest:
Productivity (2nd Quarter 2015): +1.3% vs. Q1 2015; +0.3% vs. Q2 2014.
Jobless Claims (week ending August 8, 2015): 274,000 (+5,000 vs. week earlier); 4-week moving average: 266,250 (-1,750 vs. week earlier).
Import Prices (July 2015): -0.9% vs June; -10.4% vs. July 2014. Nonfuel imports: +0.5% vs. June; -2.6% vs. July 2014.
Business Inventories (June 2015): +0.8% vs. May 2015; +3.0% vs. June 2014.
University of Michigan Surveys of Consumers (August 2015–preliminary): 92.9 (1966 Q1 = 100) (-0.2 vs. final July 2015).
Mortgage Delinquencies (2nd Quarter 2015): 5.40% (-24-basis points vs. Q1 2015; -74-basis points vs. Q2 2014).

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