Small Q2 GDP Upgrade, Slower Growth in August: What We Learned During the Week of September 21-25

Yes, GDP growth was revised slightly upward but most of the other data released last week was not nearly as strong. Nevertheless, Fed Chair Janet Yellen said in a speech on Thursday that she anticipates it being “appropriate” to raise the fed funds target rate before the year is out. Here are the 5 things we learned from U.S. economic data released during the week ending September 25.

#12nd Quarter GDP was stronger than previously thought thanks to higher levels of consumer spending and business investment. The Bureau of Economic Analysis’ 3rd estimate of Q2 GDP raised its seasonally adjusted annualized rate of economic expansion to +3.9%, versus the +3.7% estimate released a month earlier and the initial +2.3% gain reported in late July. All of the major components of GDP made positive contributions to the measure of economic activity. The biggest contributors to Q2 GDP growth were consumption (adding 242-basis points to GDP growth, with nearly equal contributions coming from spending on goods and services), fixed nonresidential investment (adding 53-basis points), government expenditures (+46-basis points) and fixed residential investment (+30-basis points). Current consensus has the economic expansion being slower during the current quarter, with growth forecasts ranging from the mid-to-upper 1% range to lower 2%. The personal consumption expenditure (PCE) deflator, a measure of inflation, jumped 2.2% during the quarter, its fastest pace of growth since the final months of 2012. Blame the rebound in energy prices for some of the inflation. Net of energy and food, the core PCE deflator grew 1.9%.

#2Economic growth appears to have slowed during August because of soft manufacturing activity. The Chicago Fed National Activity Index (CFNAI), a weighted metric of business activity based on 85 economic indicators, plummeted by 92-basis points to a reading of -0.41. Much of the drop can be tied to the 66-basis drop in index components related to production/income, although the other 3 major categories of indicators also lost a step during the month: employment (down 19-basis points), sales/orders/inventories (down 6-basis points) and consumption/housing (down 2-basis points). The 3-month moving average for the CFNAI only lost a single basis point to +0.01. This reading is consistent with an economy that is growing near its historic growth rate.

#3Mixed housing news for August: slower existing home sales and higher new home sales. The National Association of Realtors’ seasonally adjusted annualized measure of previously owned homes slumped 4.8% during the month to 5.31 million units. Sales slowed in 3 of 4 Census regions but were unchanged in the Northeast. Even with the decline, existing home sales were 6.2% above year ago levels and still close to its post-recession high. The 2.29 million homes on the market at the end of August (+1.3% vs. July 2015, -1.7% vs. August 2014) represented a tight 5.2 month supply. The median sales price of $228,700 was up 4.7% from a year earlier. The press release suggested the decline in home sales was because “the persistent summer theme of tight inventory levels likely deterred some buyers.”

Meanwhile, new home sales grew 5.7% during the same month to 552,000 units (SAAR). The Census Bureau estimates new home sales grew in 3 of 4 Census regions—Northeast (+24.1%), South (+7.4%) and West (+5.4%)—but declined 9.1% in the Midwest. New home sales have grown 21.6% over the past year, with double digit percentage gains in all 4 Census regions. Inventories of unsold new homes remained tight—the 216,000 new homes available for sale at the end of August (+0.5% vs. July 2015, +5.4% vs. August 2014) represented a 4.7 month supply.

#4Durable goods orders fell in August, hurt by fewer orders for aircraft and slowing business investment. The Census Bureau estimates durable goods orders were at a seasonally adjusted $236.3 billion, down 2.0% for the month and 2.3% from a year earlier. Transportation goods orders were their typical volatile self, having fallen 5.8% for the month due to a 5.9% drop in civilian aircraft orders and a 1.6% decline in automobile orders. Net of transportation goods, durable goods orders were unchanged during August at $157.6 billion. The closely watched proxy for business investment—nondefense capital goods orders net of aircraft—slipped 0.2% for the month. Shipments were virtually unchanged for the month at $243.2 billion, unfilled orders declined 0.2% to $1.195 trillion and inventories was essentially unchanged at $401.4 billion.

#5Consumer confidence softened during September, likely due to recent stock market volatility. The Index of Consumer Sentiment from the University of Michigan lost 4.7 points during the month to a seasonally adjusted 87.2 (1966 Q1 = 100). This actually was a 1.5 point improvement from the preliminary September reading released earlier in the month. The current conditions index lost 3.9 points to 101.2 while the expectations index shed 5.2 points to 78.2. Regardless of whether September’s step back was fleeting or a trend, it is noteworthy that all three measures were still sitting above their year ago readings. The press release links the rebound in sentiment during the latter half of the month to consumers increasingly [concluding] that the stock market declines had more to do with international conditions than the domestic economy.” The group expects consumer spending will grow at an annualized rate of 2.9% during the final months of 2015 and through 2016.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending September 19, 2015): 267,000 (+3,000 vs. week earlier); 4-week moving average: 271,750 (-750 vs. week earlier).
FHFA House Price Index (July 2015): +0.6% vs. June 2015, +5.8% vs. July 2014.

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

The Fed Didn’t Act; Manufacturing & Retail Don’t Impress: What We Learned During the Week of September 14-18

The Fed didn’t act last week…but many believe they will before 2015 is over. Little from last week’s economic data releases pressures the FOMC to make a move soon. Here are the 5 things we learned from U.S. economic data released during the week ending September 18.

#1FOMC decided to stay put last week, thanks to concerns overseas. The policy statement released following last week’s meeting of the Federal Open Market Committee noted that the U.S. economy was still “expanding at a moderate pace,” with “moderately” growing household spending and business fixed investment. It also noted the improving labor market “with solid job gains and declining employment.” But it also remarked that inflation had remained below its 2-percent target rate and that net exports “have been soft.” Thegraphic091815 committee was particularly concerned that “[r]ecent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term.” As a result, it voted to maintain the near-zero percent fed funds target rate and said it would “be appropriate” to begin raising rates only when it sees further improvements in the labor market, has greater confidence that inflation is moving towards it long-term targets and sees more economic stability overseas. So, when will that be? The statement did not answer that question but, at her press conference on Thursday, Fed Chair Janet Yellen noted that most FOMC participants still expect the committee will vote for its first rate hike before the end of the year. Interestingly, a quick glance of the FOMC participant’ economic forecasts finds 4 participants anticipating no rate hike in 2015 (with one forecasting a rate cut).

#2Retail sales were only ‘meh’ in August. According to the Census Bureau, retail sales inched up 0.2% to a seasonally adjusted $447.7 billion. This was up only 2.2% from the same month a year earlier. This number includes the impact of the 0.7% jump in sales at automobile dealers/parts retailers. Net of activity at car dealers and at gas stations (where sales fell 1.3% due to lower prices), retail sales grew 0.3% during August and were up a more robust 4.0% from a year earlier. The biggest sales gains were enjoyed at health/personal care stores (+0.8%), grocery stores (+0.7%), restaurants/bars (+0.7%), general merchandisers (+0.4%) and apparel retailers (+0.4%). Slowed at retailers focused on building materials/garden supplies (-1.8%) and at furniture retailers (-0.9%).

#3Manufacturing output declined for the 3rd time in 4 months in August. The Federal Reserve reports that seasonally adjusted manufacturing output fell 0.5% during the month and was up a modest 1.4% from a year earlier. Production of durable goods slowed 0.9%, hurt by a sharp 6.4% drop in automobile production (although this likely reflects stronger than normal auto production levels in July). Net of automobiles, durables output edged up 0.1%, with sizable gains in the production of nonmetallic mineral products and machinery. Production of nondurables was unchanged for the month, with gains seen in the output of both food/beverages and plastics/rubber products and declines suffered for petroleum/coal products and chemicals. Overall industrial production slowed 0.4% and was up only 0.9% from July 2014 levels. Output grew 0.6% at utilities (support late summer air conditioning needs) but slowed 0.6% in mining.

#4Lower prices at the gas pump led to a decline in overall consumer prices in August. The Bureau of Labor Statistics’ Consumer Price Index (CPI) slipped 0.1% on a seasonally adjusted basis during the month and was up a mere 0.2% from a year earlier. Energy CPI dropped for the 1st time since April with a 2.0% decline as gasoline prices fell 4.1% during August (following 3 months of gains). Meanwhile food prices increased 0.2%, sparked by a 7.7% surge in egg prices and a 1.5% increase in the prices for fruits/vegetables. Net of energy and food, core consumer prices increased 0.1% for the month and were 1.8% above year ago levels. Increasing were prices for apparel (+0.3%), medical care commodities (+0.3%) and shelter (+0.2%) while declining were prices for used cars/trucks (-0.4%) and transportation services (-0.3%).

#5While housing starts slowed in August, homebuilder confidence further strengthened in September. The Census Bureau’s seasonally adjusted annualized estimate of housing starts of 1.126 million units was down 3.0% for the month but still up a robust 16.6% from the August 2014 pace. Starts for both single-family and multi-family units also fell 3.0%, with positive 12-month comparables for the 2 measures at +14.9% and +19.8%, respectively. Looking forward, the SAAR count of issued housing permits grew 3.5% to 1.170 million permits (SAAR, +12.5% vs. August 2014). The number of homes completed fell 6.1% during August to 935,000 units (SAAR), which nevertheless remained 3.3% above the year ago pace.

Meanwhile, the Housing Market Index (HMI) from the National Association of Home Builders hit a nearly 10-year high in September as it added a point to 62. This was the 14th straight month in which the HMI was above 50, meaning a greater percentage of homebuilders report that housing market conditions were “good” versus being “poor.” The HMI grew in 3 of 4 Census regions but was unchanged in the West. The index for present sales of single-family homes added a point to 67 while the expected sales index shed 2 points to 68. A signal for a brightening future is the 2 point gain in the index measuring traffic of prospective buyers (to 47). The NAHB press release said the group is forecasting 1.1 million starts for all of 2015 but noted that its “members continue to tell us that they are concerned about the availability of lots and labor.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending September 12, 2015): 264,000 (-11,000 vs. week earlier); 4-week moving average: 272,500 (-3,250 vs. week earlier).
Leading Indicators (August 2015): 123.7 (2010=100) (vs. July 2015: 123.6; August 2014: 118.5).
Business Inventories (July 2015): +0.1% vs. June; +2.6% vs. July 2014.
Regional/State Employment (August 2015): Payrolls gained in 32 states, declined in 18 states & Washington, DC.

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

Record Levels of Job Openings, Hiring Not So Hot: What We Learned During the Week of September 7-11

Record levels of job openings and employers indicating they will hire more workers in Q4. Here are the 5 things we learned from U.S. economic data released during the week ending September 11.

#1The number of job openings blossomed while hiring slowed in July. The Bureau of Labor Statistics (BLS) estimates there were a seasonally adjusted 5.723 million job openings at the end of July. This was up 8.1% from June, 21.7% above year ago levels and (by far) the highest count of job openings in the 25-year history of the data series. The number of private sector job openings was 23.7% above July 2014 levels, with the industries having the largest year-to-year percentage gains in job openings being professional/business services (+46.1%), retail (+26.5%), accommodation/leisure (+22.8%) and education/health services (+20.3%). But employers are not necessarily finding people to fill these jobs. Hiring decelerated 3.8% during the month to a seasonally adjusted 4.982 million jobs (off 0.3% from a year earlier). Also declining during the month were the count graphic091115of separations, falling 3.9% for the month to 4.716 million (essentially unchanged from a year earlier). The good news is the count of layoffs was 11.2% below year ago levels, while the measure of voluntary quits was 6.0% above the year ago pace (a sign of worker confidence).

#2And hiring is anticipated to strengthen during Q4. 21% of U.S. employers surveyed by the ManpowerGroup expect to expand payrolls during the final 3 months of 2015 while 6% anticipate shedding workers. The resulting difference of +15 turns into +18 after seasonal adjustments. This was the highest reading for the seasonally adjusted Net Employment Outlook since the 4th quarter of 2007. The index grew in the Northeast (+16) and the Midwest (+17), but softened in the South (+17) and West (+17). The index also was positive in all 13-tracked industries, with the highest readings seen in leisure/hospitality, wholesale/retail trade, professional/business services and transportation/utilities. The press release characterized the labor market as having “broad-based, stable growth.” The company that warned employers were having “difficulty finding skilled candidates,” noting that this was partially the result of the low labor market participation rate.

#3Wholesale prices were flat in August, even as oil prices dropped. The Producer Price Index (PPI) for final demand was unchanged during the month after increasing for 3 consecutive months. Per the BLS, PPI for final demand goods declined 0.6% while that for services grew 0.4%. On the goods side, energy PPI had its biggest single-month decline since January (-3.3%) as wholesale gasoline prices fell 7.7%. PPI for final demand food grew 0.3%, boosted by a 32.3% surge in the price for eggs “for fresh use.” Net of energy and food, core final demand wholesale prices declined 0.2%. On the services side, trade prices zoomed up 0.9% (boosted by higher margins at apparel retailers). Over the past year, final demand PPI has fallen 0.8% while the index for core goods was up a still paltry 0.7%.

#4Small business owner optimism held steady in August. The Small Business Optimism Index from the National Federation of Independent Business added a half point to 95.9 (1986 = 100). With few exceptions, the index has consistently remained in the low-to-mid 90s range since the spring of 2013. Five of 10 index components improved during the month, led by 4-point gains in indices for current job openings and earning trends. Three index components fell by 2 points: expected economic conditions, expected credit conditions and whether it was a good time to expand.

#5Consumers took on debt at their slowest pace in 3 months during July. According to the Federal Reserve, consumers had $3.453 trillion in outstanding credit (not including real estate-backed loans—e.g. mortgages) at the end of July, an increase of $19.1 billion for the month and a 6.8% gain over the past year. Revolving credit balances (i.e., credit cards) increased $4.3 billion during the month to $914.6 billion (+3.9% vs. July 2014, its biggest 12-month comparable in 7 years). Meanwhile, outstanding nonrevolving credit balances (e.g., car/truck loans, college loans) expanded by $14.8 billion to $2.539 trillion (+7.9%, its smallest 12-month comparable since February 2014).

Other data released over the past week that you might find of interest:
– Jobless Claims (week ending September 5, 2015): 275,000 (-6,000 vs. week earlier); 4-week moving average: 275,750 (+500 vs. week earlier).
– University of Michigan Index of Consumer Sentiment (September 2015—preliminary): 85.7 (vs. August 2015: 91.9; September 2014: 84.6)
– Wholesale Inventories (July 2015):  -0.1% vs. June; +4.9% vs. July 2014.
– Treasury Budget Surplus/Deficit (August 2015): -$64.4 billion (FY15 year-to-date: -$529.96 billion, -10.0% vs. FY14 year-to-date)
– Import Prices (August 2015): -1.8% vs. July 2015; -11.4% vs. August 2014.

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