Thankful for a Q3 GDP Revision: What We Learned During the Week of November 23-27

An upgrade for GDP, lukewarm consumer spending and sentiment. Here are the 5 things we learned from U.S. economic data released during the week ending November 27.

#1The U.S. economy expanded at a faster pace than previously believed during Q3, although the pace was nothing to write home about. The Bureau of Economic Analysis now puts the seasonally adjusted annualized rate (SAAR) of growth of Gross Domestic Product (GDP) at +2.1%, up from the +1.5% estimate reported in late October. The major source for the higher GDP estimate was a smaller than previously believed reduction in private inventories. Nevertheless, the $23.3 billion contraction in private inventories remained the biggest drag on economic expansion during the quarter (costing 59-basis points in GDP growth). Continued weakness in exports translated in net exports costing112715 another 22-basis points in economic growth. On the other end of the spectrum, the biggest contributors to Q3 GDP growth were consumption (+205-basis points in GDP growth), fixed investment (+54-basis points) and government expenditures (+29-basis points). This revision to GDP report also included the 1st estimate of Q3 corporate profits and the story was not good. The SAAR estimate of corporate profits from current production of $2.060 trillion was down 1.1% from Q2 and 4.7% from the same quarter a year ago. The BEA will revise its estimates of Q3 GDP and corporate profits once again at the end of December.

#2While the largest contributor to GDP growth, consumer spending was stuck in low gear for a 2nd straight month in October. The BEA estimates “real” Personal Consumption Expenditures (PCE) were at a seasonally adjusted annualized rate (SAAR based on 2009 dollars) of $11.293 trillion during the month, up a mere 0.1% for the month and 2.7% from October 2014 levels. Spending on goods grew 0.2%, boosted by gains of 0.2% and 0.1% for durable and nondurable goods, respectively. Spending on services was unchanged for the month. The 12-month comparables for real spending on goods and services was +4.8% and +2.2%, respectively. Without adjustments for price variation, consumption was up 0.1% for the month and 3.0% from the same month a year earlier. The modest increase in spending was funded by a 0.4% bump in nominal personal income (with wages up 0.6% during the month). The savings rate grew by 3/10ths of a percentage point to +5.6%, its highest reading in nearly 3 years.

#3Mixed housing picture in October: existing home sales chilled while those of new homes rebounded. The National Association of Realtors estimates sales of previously owned homes slowed 3.4% during the month to a seasonally adjusted annualized rate (SAAR) of 5.36 million units. This was up 3.9% above the October 2014 rate and the 8th straight month in which the sales pace was above 5 million units SAAR. Sales failed to grow during the month in any of the 4 Census regions, but the 12-month comparables were positive in all 4 regions. Inventories of unsold homes remain tight: the 2.140 million homes for sale at the end of October was off 2.3% from September, 4.5% below the October 2014 count and represented a slim 4.8 month supply. The press release linked October’s weakness to tight inventories, “ongoing affordability concerns” in some markets and “mixed signals of economic slowing.”

New home sales rebounded 10.7% during October to a SAAR of 495,000 units (+4.9% vs. October 2014). The Census Bureau has new home sales up in 3 of 4 Census regions during the month (with the West being the exception) and in 2 of 4 Census regions versus a year earlier (with the Northeast and South seeing year-to-year gains). (Note that the NAR’s existing home sales series tracks actual closings while new home sales measures contract signings.) Inventories of unsold homes grew 1.3% during October to 226,000 units (+8.7% vs. October 2014), a 5.5 month supply.

#4Consumer sentiment has little forward momentum as the year winds up. The Conference Board Consumer Confidence Index slumped 8.7 points during November to a seasonally adjusted 90.4 (1985 = 100), its lowest reading since September 2014. The present conditions index dropped 6.5 points to 108.1 (its worst since July) while the expectations index lost 10.1 points to 78.6 (its worst since February 2014). Fewer survey respondents saw current economic conditions as “good” while the percentage seeing current conditions as “bad” expanded. Similarly, fewer consumers expect conditions will improve over the short-term, with survey respondents also less sanguine about expected labor market conditions. The press release noted that survey respondents were cautious about the labor market and expected little change in business conditions” in 2016.

While the Index of Consumer Sentiment from the University of Michigan was up 1.3 points during the month to 91.3 (1966 Q1 = 100), it represented a downward revision of 1.8 points from the preliminary November reading reported a few weeks ago. The current conditions index added 2.0 points to 104.3 while the expectations measure added 8/10ths of a point to 82.9. The headline, current conditions and expected conditions indices were all at their highest points since August. The press release noted that November’s gains largely came from middle and lower income households as “confidence retreated among households with incomes in the upper third of the distribution.”

#5Durable goods orders jumped in October, with aircraft order gains explaining much (but not all) of the increase. The Census Bureau indicated that new orders for manufactured durable goods gained 3.0% to a seasonally adjusted $239.0 billion (+0.5% vs. October 2014). Orders for transportation orders jumped 8.0% with orders for civilian aircraft surging 81.0% (motor vehicles new orders slowed 2.9%). Net of transportation goods, durable goods orders increased 0.5% during the month but remained 2.4% below year ago levels. Business investment—a measured by civilian capital goods orders net of aircraft—rose 0.5% in October, its 4th increase over the past 5 months. Shipments fell for the 2nd time in 3 months, with a 1.0% drop to $240.1 billion (SAAR). Unfilled orders expanded after 2 straight monthly drops (+0.3%) while inventories contracted for the 5th time in 6 months (-0.2%).

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending November 21, 2015, seasonally adjusted): 260,000 (-12,000 vs. previous week; -43,000 vs. same week a year earlier). 4-week moving average: 271,000 (-7.1% vs. same week a year earlier).
Chicago Fed National Activity Index (October 2015): -0.04 (+25-basis points vs. September 2015). 3-mo. moving average: -0.20 (-17-basis points vs. September 2015, -250-basis points vs. October 2014).
Case-Shlller Home Price Index (September 2015, 20-city index, seasonally adjusted): +0.6% vs. August 2015, +5.5% vs. September 2014.

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

Factory Output Gains, Inflation Moves Closer to a Target: What We Learned During the Week of November 16-20

A rarity: solid, broad-based gains in manufacturing activity. Here are the 5 things we learned from U.S. economic data released during the week ending November 20.

#1Manufacturing output expanded for only the 2nd time in 6 months during October. The Federal Reserve estimates manufacturing production grew 0.4% during the month on a seasonally adjusted basis, leading to a still tepid 1.9% year-to-year gain. The increase was spread out across most manufacturing categories. The production of durable goods expanded 0.5% during the month (+1.2% vs. October 2014), its 1st increase in 3 months. Growing by at least 1 percent were the production of nonmetallic mineral products, wood products, electrical equipment/appliances and primary metals. Auto production remained a bright spot in an overall uneven manufacturing sector, with a 0.7% gain during the month and being 10.9% above the 112015graphicyear ago pace. Nonduables production increased for a 4th consecutive month (+0.3%), with sizable gains seen for textiles and petroleum/coal products and a substantial drop in the output of apparel. Overall industrial output fell 0.2%, leaving the metric’s 12-month comparable up a puny 0.3% (its worst since December 2009). Drop offs in both oil well drilling and oil extraction led to a 1.5% decline in mining activity (-6.9% vs. October 2014). Moderating weather conditions resulted in a 2.5% drop in output at utilities.

#2A pickup in the prices for services led to a modest increase in overall consumer prices. The Consumer Price Index from the Bureau of Labor Statistics increased 0.2% on a seasonally adjusted basis during October and was 1.9% above year ago levels. Energy CPI edged up 0.3%, with moderate gains in the prices for gasoline (+0.4%, although they dropped 3.9% before seasonal adjustments) and electricity (+0.4%) but also a drop in the price for utility delivered natural gas (-0.7%). Food CPI grew at its slowest pace since May with a 0.1% increase. Core CPI (net of both energy and food) increased 0.2%, with a 12-month comparable near the Federal Reserve’s target of +1.9%. Prices for core goods slipped 0.1% (the 6th straight month in which it failed to increase), with prices for apparel (-0.8%), used vehicles (-0.3%) and new vehicles (-0.2%) all falling. Gaining were the prices for core services (+0.3%), which included the impact of higher prices for medical care services (+0.8%), shelter (+0.3%) and transportation services (+0.2%).

#3A forward leading measure of economic activity enjoyed a solid rebound in October. The Leading Economic Index (LEI) from the Conference Board gained 0.6% during the month, following 2 consecutive monthly declines, to a seasonally adjusted 124.1 (2010 = 100, +1.6% over the past 6 months). 9 of 10 index components made a positive contribution to the LEI, led by gains with the interest rate spread, stock prices and building permits. The coincident index added 2/10ths of a point to 113.0 (+0.9% vs. April 2015), with 3 of 4 components gaining during the month (nonagricultural payrolls, personal income less transfer payments and manufacturing/trade sales). The lagging indicator also gained 2/10ths of a point to 119.3 (+2.3% vs. June 2015), with 5 of 7 index components improving. The press release characterized business conditions as “improving,” noting that the U.S. economy “remains on track for continued expansion heading into 2016.”

#4While the October headline housing starts data looks bad, most of the decline was centered on multi-family units. The Census Bureau estimates housing starts were at a seasonally adjusted annualized rate of 1.060 million units, down 11.0% for the month and 1.8% from the same month a year earlier. Multi-family starts data tends to be very volatile month-to-month and October was no exception with a 25.1% drop. Meanwhile, starts of single-family homes slowed by a more modest 2.4%. Looking into the future, the number of permits issued for future construction grew 2.4% during the month to 1.105 million permits (SAAR, +2.7% vs. October 2014), with gains in permits for both single-family (+2.4%) and multi-family (+6.8%) homes. While the number of home completions slowed 6.0% during the month to a SAAR of 965,000 units, it remained 5.2% above year ago levels.

#5Homebuilder sentiment cooled slightly in November, but remained near 10-year highs. The Housing Market Index (HMI) from the National Association of Home Builders lost 3 points to a reading of 65. With the exception of October’s 68 reading, this was the best seen since October 2005. The index lost 5 points in the South and shed a point in the Midwest, but added a point in the West and was unchanged in the Northeast. While the index for current sales lost 3 points (to 67) and that for expected sales declined by 5 points (to 70), both remained near post-recession highs. Meanwhile, the index for index of potential traffic added a point to 48, its best reading in 10 years. The NAHB’s press release noted that the association expected the housing market should remain strong given both “a firming economy” and “affordable mortgage rates.”

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending November 14, 2015, seasonally adjusted): 271,000 (-5,000 vs. previous week; -21,000 vs. same week a year earlier). 4-week moving average: 270,750 (-5.9% vs. same week a year earlier).
Minutes from the October meeting of the Federal Open Market Committee
– Treasury International Capital Flows (September 2015, Net Long-Term Securities Purchases by Non-Americans): +$9.4 billion (vs. -$21.5 billion in August 2015)
Mortgage Delinquency Rate (3rd Quarter 2015, seasonally adjusted): 4.99% (-31-basis points vs. Q2 2015; -86-basis points vs. Q3 2014).

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

Retail Is Still Waiting for a Jump Start: What We Learned During the Week of November 9-13

Retail continues to wobble while the number of job openings remains strong. Here are the 5 things we learned from U.S. economic data released during the week ending November 13.

#1Retail sales grew modestly in October. The Census Bureau estimates retail sales increased 0.1% to a seasonally adjusted $437.4 billion during the month, up a mere 1.7% from the same month a year earlier. This was the smallest 12-month comparable for the headline retail sales metric since April. Net of sales at auto
dealers/parts stores (-0.5%) and gas stations (-0.9%, due to lower gasoline prices), core retail sales gained 0.3% during October and were up a still soft 3.5%. Sales grew during the month at retailers focused on building materials (+0.9%), furniture (+0.4%) and sporting goods/hobbies (+0.4), with gains also occurring at nonstore retailers (+1.4%) and 111315
restaurants/bars (+0.5%). Sales softened at general merchandisers (-0.4%), electronics/appliance retailers (-0.4%) and grocery stores (-0.1%).

#2While the number of job openings remained near post-recession highs, hiring was flat during September. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 5.526 million available nonfarm job at the end of September, up 149,000 for the month and 18.1% from a year earlier. The count of private sector job openings at the end of the month was at 5.020 million jobs (+19.7% vs. September 2014), with the largest positive 12-month comparables seen with professional/business services (+35.3%), health care/social assistance (+24.4%), construction (+18.4%) and manufacturing (+9.6%). But the large number of job openings is not translating into greater hiring activity. Hiring slipped by 32,000 jobs during September to a seasonally adjusted 5.049 million jobs (-0.2% vs. September 2014). The largest positive 12-month comparables were in accommodation/hospitality (+9.0%), construction (+7.2%) and retail (+6.7%) while hiring was slower than at the year ago pace at professional/business services (-8.3%) and health care/social assistance (-2.4%). Separations were off 0.2% from the year ago pace, with voluntary quits down 0.5% and layoffs up 2.2% from their September 2014 levels.

#3Wholesale prices fell once again in October. With a 0.4% drop, this was the 4th consecutive month in which the Bureau of Labor Statistics’ Producer Price Index (PPI) for final demand failed to increase. The resulting year-to-year change of -1.7% continued the trend we have been seeing during all of 2015 with negative 12-month comparables each month. PPI for final demand energy was flat during the month (PPI for gasoline grew 3.8%) while that for final demand food declined 0.8% (including egg prices falling 26.9%). Net of energy and food, PPI for core final demand goods declined 0.3% during October and was unchanged from a year earlier. Lower margins at retailers, particularly at gas stations, push PPI for final demand services down 0.3% during the month (+0.1% vs. October 2014 levels).

#4The U.S. government ran a $136.5 billion deficit during October. The Bureau of the Fiscal Services reports that receipts totaled $211.0 billion during the 1st month of FY2016, down 0.8% from the same month a year earlier. Up from a year earlier were individual tax receipts and social insurance & retirement receipts, while corporate tax collections were below year ago levels. Outlays totaled $347.6 billion, up 3.9% from October 2014, with Social Security and debt interest payments among the big gainers. The resulting deficit of -$136.5 billion was up 12.2% in comparison to the 1st month of the previous fiscal year.

#5Small business owner sentiment failed to improve after 3 monthly gains. The Small Business Optimism Index from National Federation of Independent Business stayed at a reading of 96.1 (1985 = 100). 5 of 10 index components improved during the month, led by expected retail sales, (+3), whether it is a good time to make capital outlays (+1), expected credit conditions (+1), current inventories (+1) and whether it was a good time to expand (+1). 3 index components deteriorated, including plans to grow inventories (-3), earning trends (-3) and plans to increase employment (-1). The press release noted that the Small Business Optimism Index remained below its historic average of 98.0 (as it has since before the last recession) and that employment indicators were for the 1st time in recent months not signifying gains in the labor market.

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending November 7, 2015, seasonally adjusted): 276,000 (unchanged vs. previous week; -13,000 vs. same week a year earlier).  4-week moving average: 267,750 (-6.5% vs. same week a year earlier).
University of Michigan Index of Consumer Sentiment (November 2015 (preliminary), 1966 Q1 = 100, seasonally adjusted): 93.1 (+3.1 vs. October 2015, +4.3 vs. November 2014).
Import Prices (October 2015): -0.5% vs. September 2015, -10.5% vs. October 2014.
Manufacturers’ and Trade Inventories (September 2015, seasonally adjusted): $1.818 trillion (+0.3% vs. August 2015, +2.5% vs. September 2014).

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