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.

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