The Fed Holds, GDP Nearly Pauses & Manufacturing Slumps: What We Learned During the Week of January 25-29

The Fed decides to hold steady as we learn that GDP sputtered at the end of 2015 and durable goods orders plummeted in December. Here are the 5 things we learned from U.S. economic data released during the week ending January 29.

#1After making a move in December, the Federal Reserve declines making another hike in January. The statement released by the Federal Open Market Committee, following its 2-day meeting last week, noted that “labor market conditions improved” while “economic growth slowed” at the end of last year. Housing, consumer spending and business investment improved as 2015 was wrapping up while net exports and business inventory builds each softened. Finally, inflation remained below the Fed’s 2-percent target rate. These findings, along with the recent turbulence seen with China and energy commodities, led the committee to keep the federal funds target rate at between 0.25% and 0.50%, which it states is “accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.” The policy statement also reaffirmed the FOMC members’ belief that rate hikes will likely only be “gradual,” keeping rates below their historic long-term normal levels. The decision was unanimously agreed upon by the FOMC voting members. The FOMC meets next in mid-March.

#2Q4 GDP was just like Q1 GDP: Weak. The Bureau of Economic Analysis released its first estimate of Q4 2015 Gross Domestic Product on Friday, which showed the U.S. economy expanded at a seasonally adjusted annualized rate (SAAR) of only 0.7%. This was down from the 2.0% increase during Q3 and the 2.1% bump during the final 3 months of 2014. 4 major components of GDP dragged down economic expansion during Q4: a drop in exports (costing 31-basis points in GDP growth), a slower increase in private
inventories (costing 45-basis points in GPD growth), a drop in fixed 012916nonresidential investment (costing 24-basis points in GDP growth) and a gain in imports (costing 16-basis points in GDP growth). A slower increase in consumer spending (+2.2% vs. +3.0% in Q3) led to a smaller positive contribution to GDP (+146-basis points). Making more modest positive contributions to economic growth in Q4 were fixed residential investment (+27-basis points) and government expenditures (+12-basis points). For all of 2015, GDP grew 2.4%, matching the growth rate in 2014 and above the 1.5% gain during 2013. The BEA will revise its estimate of Q4 GDP twice over the next 2 months.

#3Sales of new homes zoomed up in December. The Census Bureau measure of new home sales jumped 10.8% during the month to a seasonally adjusted annualized rate (SAAR) of 544,000 units (+9.9.% vs. December 2014). Sales were up in all 4 Census regions, including percentage gains exceeding 20% in 3 of 4 Census regions (sales were “only” up 0.4% in the South). Versus a year earlier, sales were up 21.9% and 38.9% in the West and Midwest, respectively, unchanged in the South and down 6.5% in the Northeast. The count of unsold homes crept up 2.6% during the month to 237,000 units, the equivalent to a 5.2 month supply. One interesting tidbit is that mix of homes sold in December appears to have included a greater percentage of less expensive homes: the median sales price was $288,900, down 4.3% from December 2014.

#4Another month, another feeble durable goods report. The Census Bureau estimates new orders for manufactured durable goods plummeted 5.1% during December to a seasonally adjusted $225.4 billion (-0.6% vs. December 2015). This was the 4th decline over the past 5 months. Transportation orders were in a freefall with a 12.4% decline, which included a 29.4% drop in civilian aircraft orders, a 69.1% decrease in military aircraft and a 0.4% slowdown in car/truck orders. Net of transportation goods, new orders fell 1.2% during the month and were 3.2% under year ago levels. New orders fell in December for fabricated metal products, machinery and computers/electronics and nondefense/non-aircraft capital goods (a proxy for business investment). Shipments declined for the 2nd time over the past 3 months with a 2.2% drop (although they were unchanged net of transportation goods). The value of unfilled orders for durable goods shrank 0.5% during December while inventories expanded 0.5%.

#52 consumer confidence surveys show modest changes in sentiment during January. The Conference Board’s Consumer Confidence Index gained 1.8 points during December to 98.1 (1985=100), its best reading since October. While the present conditions index was unchanged during the month at 116.4, the expectations index added 2.9 points to 85.9. 22.8% of survey respondents described that the number of available jobs was “plentiful” versus 23.4% that find them to be “hard to get.” Further, 18.1% of consumers expect income will increase over the near terms versus 10.8% anticipating a decline. The press release noted that consumers “do not foresee the volatility in financial markets as having a negative impact on the economy.”

Another survey slightly disagrees. The Index of Consumer Sentiment from the University of Michigan slipped 6/10ths of a point to 92.0 (1966 Q1=100). This was down 1.3 points from the preliminary January reading released several weeks ago with the decline attributed to the recent volatility in the stock market. The expectations index held steady from December (with a reading of 82.7) while the present conditions index shed 1.7 points to 106.4. Per the press release, consumers are expecting a slowdown in economic growth “accompanied by smaller wage gains and slight increases…in unemployment by the end 2016.” The researchers say the data suggest real consumer spending will increase 2.7% in 2016.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending January 16, 2016, seasonally adjusted): 278,000 (-16,000 vs. previous week; +11,000 vs. same week a year earlier). 4-week moving average: 283,000 (-3.0% vs. same week a year earlier).
Pending Home Sales (December 2015, Index (2001=100), seasonally adjusted): 106.8 (+1/10th of a point vs. November 2015, +4.3 points vs. December 2014).
State Employment (December 2015, Change in Nonfarm Payrolls, seasonally adjusted): vs. November 2015: grew in 36 states and the District of Columbia, decreased in 14 states. vs. December 2014: 43 states and the District of Columbia, fell in 7 states.

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

Housing Rebounded Yet Business Activity Chilled in December: What We Learned During the Week of January 18-22

A series of reports released last week finds November’s drop in housing sales was an aberration but also that overall business activity had remained feeble in December. Here are the 5 things we learned from U.S. economic data released during the week ending January 22.

#1Sales of previously owned homes bounced back in December as delayed transactions from the previous month were able to close. The National Association of Realtors estimates existing home sales surged 14.7% during the month to a seasonally adjusted annualized rate (SAAR) of 5.46 million units. You may remember November’s sharp 10.5% drop in sales was the product of the launch of the “Know Before You Owe” paperwork requirements that led to longer closing times. Sales were 7.7% above year ago levels and grew in all 4 Census regions on both a month-to-month and year-to-year basis. Meanwhile, inventories of unsold homes sharply contracted to 1.79 million units (-12.3% vs. November 2015 and -3.8% vs. December 2014). This translated to a mere 3.9 month supply. As a result, the median sales price of $224,100 was 7.6% above a year ago levels. The 5.26 million units sold for all of 2015 represented the best year for sales of previously owned homes since 2006. NAR warned that the housing market will struggle to replicate the same rate of growth in 2016 because of constrained inventories, “tepid economic expansion, rising mortgage rates and decreasing demand for buying in oil-producing metro areas.”

#2Housing starts slipped but remained near post-recession highs in December. The Census Bureau estimates housing starts slowed 2.5% during the month to a seasonally adjusted annualized rate (SAAR) of 1.149 million units. Even with the decline, this was 14.4% above year ago levels. Starts of single-family units declined 3.3% while those for multi-family properties slipped 1.0%. For all of 2015, there were 1.111 million homes started, up 12.0% from 2014’s count. Also slowing during the month were the number of issued housing permits, declining 3.9% in December to a SAAR of 1.232 million units (+14.4% vs. December 2014). Permits for single-family units grew 1.8% during the month while those for multi-family units dropped 11.4%. The SAAR of housing completions grew 5.6% during the month to 1.013 million units. For all of 2015, there were 965,000 homes completed, a 9.3% increase from the 2014 count.

#3Consumer prices slipped in December as prices for energy, food and core goods all dropped. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) declined 0.1% during the month and was up a mere 0.7% for all of 2015. Energy dropped for the 4th time in 5 months with a 2.4% decline (-12.6% vs. December 2014) with the prices for every major energy category decreasing; including, gasoline (-3.9%), fuel oil (-7.8%), utility delivery natural gas (-2.3%) and electricity (-0.4%). Food CPI slipped 0.2%, which included the impact of sharp declines in prices for meats/poultry/fish/eggs. Net of both energy and food, core CPI increased 0.1%, split between a 0.2% price bump for core services (including higher prices for transportation services, shelter and medical care services) and a 0.1% drop in prices for core goods. The former was pulled down by price drops for apparel (-0.2%), new vehicles (-0.1%) and medical care commodities (-0.1%). Core CPI has increased 2.1% over the past year, the largest year-to-year gain in core prices in 3.5 years.

#4A monthly measure of economic activity finds the U.S. economy continued to grow at a slower than normal rate during December. The Chicago Fed National Activity Index (CFNAI), a measure of 85 economic indicators, improved by 14-basis points to -0.22. The Federal Reserve Bank of Chicago’s measure has been negative for 5 consecutive months but has remained above -0.70, meaning that the U.S. economy has been growing at a below average pace since August. The 3-month moving average for the CFNAI slipped 5-basis 012216graphicpoints to -0.24, the 3rd straight month in which the moving average has been negative and its lowest reading since last March. Improving during December were index components associated with production/income and sales/orders/inventories, while those for consumption/housing dipped slightly and those for unemployment were unchanged during the month. 35 of 85 tracked economic measures made a positive contribution to December’s CFNAI reading.

#5A forward looking measure of economic activity failed to increase for the 4th time in 6 months. The Leading Economic Index from the Conference Board slipped 2/10ths of a point during December to a seasonally adjusted reading of 123.7 (2010 = 100). Only 4 of 10 index components made a positive contribution to the leading index; including, the interest rate spread, non-aircraft capital goods orders and new factory orders for consumer goods. The coincident index inched up 1/10th of a point to 113.0 with 3 of 4 index components improving during the month: nonagricultural payrolls, personal income net of transfer payments and manufacturing/trade sales. The lagging index added 2/10ths of a point to 119.9 with 4 of 7 components increasing during the month. The press release notes that a decline in housing permits and “weak” factory order pulled down the leading index. It also said that it was “too early” to view the “decline” in the growth rate in the leading index as a “substantial rise in the risk of a recession.”

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending January 16, 2016, seasonally adjusted): 293,000 (+10,000 vs. previous week; -8,000 vs. same week a year earlier). 4-week moving average: 285,000 (-4.4% vs. same week a year earlier).
Treasury International Capital Flows (November 2015, Net Domestic Purchases by Foreign Investors): +$41.0 billion (vs. -$50.2 billion in October 2015 and +$59.2 billion in November 2014).
Gross Domestic Product by Industry (Third quarter 2015: Leading Industries Contribution to GDP Growth): Retail Trade, Education/Health Care and Agriculture/Forestry.

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

A Not So Merry Retail Season: What We Learned During the Week of January 11-15

Retailers did not receive much holiday joy as 2015 was wrapping up. Here are the 5 things we learned from U.S. economic data released during the week ending January 15.

#1Holiday retail sales sputtered. According to the Census Bureau, retail sales slipped 0.1% during the month to a seasonally adjusted $448.1 billion. This was up a mere 2.2% from year ago levels. These figures are a disappointment as consumer sentiment survey and preliminary sales data seemed to have suggested a more robust sales season. Whatever the case, some of the weakness reflected a small 0.1% gain at car dealers and falling gas prices that led to a 1.1% drop in gas station sales. But net of sales at both car dealers and gas stations, core retail sales were flat for the month and up a moderate 3.2% from the December 2014 pace. Looking at the full holiday season, 4th quarter retail sales011516 were flat in comparison to Q3 sales and were up by only 1.2% from the Q4 2014. Retailers seeing the biggest sales gains during December were those focused on furniture/home furnishings (+0.9%), sporting goods/hobbies (+0.9%), building materials (+0.7%) and nonluxury department stores (+0.3%). Sales also jumped 0.8% at restaurants/bars and gained 0.3% at nonstore (e.g., internet) retailers. Meanwhile, moderate winter weather apparently put a check on sales at clothing stores (-0.9%).

#2Industrial production chilled during December. The Federal Reserve reports that industrial production fell for a 3rd consecutive month with a seasonally adjusted 0.4% decline. Output was 1.8% below year ago levels. Manufacturing declined 0.1% for a 2nd straight month with output up by only 0.8% over the past year. Durable goods production inched up 0.1% even as production of both automobiles and primary metals each fell by more than 1.5%. Electrical equipment/appliances and computers/electronics both enjoyed 1.5% output gains. Slower production for petroleum/coal products and for paper pulled down nondurable goods production 0.2%. Relatively moderate winter weather led to a 2.0% drop in production at utilities while a drop in coal mining pulled down mining output 0.8% (its 4th consecutive monthly decline). Capacity utilization dropped by 4/10ths of a percentage point to 76.5%. This was well below the 79.0% reading of a year ago, with much of the decline seen at utilities and mining (think oil). In the manufacturing sector, capacity utilization slipped 1/10th of a point to 76.0%. The same measure was at 76.3% in December 2014.

#3Job openings remained near post-recession highs in November as hiring picked up a bit. The Bureau of Labor Statistics estimates there were a seasonally adjusted 5.431 million job openings at the end of November, up 82,000 from October and 11.2% from the same month a year earlier. The private sector was responsible for 4.926 million of these job openings (+11.3% vs. November 2014), with the largest positive 12-month comparables seen in the health care/social assistance (+34.2%), accommodation/food services (+22.2%), professional/business services (+9.8%) and retail (+7.0%) sectors. Meanwhile, the number of open manufacturing job openings was 11.4% below year ago levels. There were 5.197 million hires made during November, up 29,000 from October and 3.4% from a year earlier. The biggest positive year-to-year hiring gains were in accommodation/food services (+14.2%), government (+10.6%) and construction (+10.1%). 4.930 million people left their jobs during the month (+6.5% vs. November 2014) with both voluntary quits (+6.3%) and layoffs (+6.0%) above year ago levels.

#4Lower oil prices led to the 4th monthly drop in wholesale prices over the past 5 months in December. The Bureau of Labor Statistics reports that the final demand Producer Price Index (PPI) declined 0.2% during the month and had dropped 1.0% over the previous 12 months. Wholesale prices for final demand goods fell 0.7% (-3.9% vs. December 2014), with the indices for both energy (-3.4%) and foods (-1.3%). The former included an 8.3% drop in PPI for gasoline while the latter was pulled down by falling prices for meat, eggs and fresh fruit. Net of both energy and food, core goods prices edged up 0.1%. PPI for final demand services increased 0.1%, even though the measures for final demand trade services and final demand transportation/warehousing each fell 0.4% during the month.

#5Despite concerns about future economic growth, small business owner optimism improved slightly in December. The Index of Small Business Optimism from the National Federation of Independent Business added 4/10ths of a point to a seasonally adjusted 95.2 (1986=100). Even with the increase, the index was below both the December 2014 reading of 100.4 and the 12-month average of 96.2. 6 of 10 index components gained during the month, led by healthy increases in indices for sales expectations (+9) and plans to increase employment (+4). Declining during the month were indices for expected economic conditions (-7), whether it is a good time to expand (-3) and expected credit conditions (-2).

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending January 9, 2016, seasonally adjusted): 284,000 (+7,000 vs. previous week; -20,000 vs. same week a year earlier). 4-week moving average: 278,750 (-4.9% vs. same week a year earlier).
University of Michigan Index of Consumer Sentiment (January 2016-preliminary, index (1966 Q1 = 100)): 93.3 (vs. December 2015=92.6, vs. January 2015=98.1).
Import Prices (December 2015): -1.2% vs. November 2015, -8.2% vs. December 2014.
Export Prices (December 2015): -1.1% vs. November 2015, -6.5% vs. December 2014.
Treasury Budget: (December 2015, Surplus/Deficit): -$14.4 billion (vs. November 2015: -$64.6 billion, vs. December 2014: +$1.9 billion).
Beige Book

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