Small Upward GDP Revision, Consumer Spending Gains: What We Learned During the Week of February 22-26

GDP growth was not as poor as previously thought during Q4 2015 (although still quite weak) while there was a spark in consumer spending during January. Here are the 5 things we learned from U.S. economic data released during the week ending February 26.

#1Even with a small upward revision, economic growth softened as 2015 wrapped up. The Bureau of Economic Analysis released its second estimate of 4th Quarter 2015 Gross Domestic Product (GDP), which showed the U.S. economy had expanded 1.0% on a seasonally adjusted annualized basis. This was up from the 0.7% gain reported a month earlier. The slight bump in the GDP estimate was the result of a higher than previously thought pace of private inventory accumulation and lower than previously believed import activity during the quarter. Of the major components of GDP, only personal consumption and fixed residential investment (i.e., housing) made positive contributions to Q4 economic growth. Drags on economic growth included fixed nonresidential investment, inventory accumulation and net exports. GDP increased 2.4% for all of 2015, matching 2014’s growth rate and up from 2013’s +1.5% pace. Economic expansion was uneven during 2015 with growth rates during the first 3 quarters of the year being +0.6%, +3.9% and +2.0%. The Personal Consumption Expenditures (PCE) deflator, a measure of inflation, grew only 0.5% on a seasonally adjusted annualized rate during Q4. Removing energy and food from the measure finds core prices grew a still modest 1.4%. The BEA will update its estimate of Q4 GDP once again at the end of March.

#2January was the best month for consumer spending since last spring. The BEA estimates “real” personal spending grew 0.4% on a seasonally adjusted annualized basis during the month, following gains of 0.3% and 0.2% during November and December, respectively. Real spending on goods jumped 0.7% (following a 0.2% drop in December) with gains of +1.1% and 0.4% for durable and nondurable goods, respectively. The former reflected, in part, the continued strength of the car market. Spending on services increased by 0.3% for a 2nd consecutive month. Real consumer spending was up 2.9% from agraphic022616 year earlier, the best 12-month comparable since last September. “Nominal” (not adjusted for inflation) consumer spending grew 0.5% during the month and was 4.2% above the January 2015 pace. Nominal personal income increased 0.5% during the month, its fastest growth rate since last June and was up 4.3% over the past year. “Real” disposable income increased 0.4% in January but was up only 2.8% from a year earlier (the weakest year-to-year gains since the fall of 2014). Meanwhile, the savings rate held steady at +5.2%.

#3January saw a small gain in sales of previously owned homes but weakness in the West and Midwest pulled down new home sales. Existing home sales crept up 0.4% during the month to a seasonally adjusted annualized rate (SAAR) of 5.47 million units, according to the National Association of Realtors. Sales grew in the Midwest (+4.0%) and Northeast (+2.7%), were unchanged in the South and declined 4.1% in the West. The measure of closed transactions of previously owned homes was up 11.0% from the January 2015 pace, with positive 12-month comparables in all 4 Census regions, including double-digit percentage gains in the Northeast (+20.6%) and Midwest (+18.2%). While inventories expanded 3.4% during the month to 1.82 million units, this was still down 2.2% from a year earlier and represented a very tight 4.0-month supply. As a result, the median sales price for previously owned homes was 8.2% above year ago levels at $213,800. NAR claims in its press release that the strength of the housing market “will likely help the U.S. economy avoid a recession.”

Meanwhile, the Census Bureau indicates new home sales dropped 9.2% during January to a seasonally adjusted annualized rate of 494,000 units, down 5.2% from the January 2015 pace and the worst month for new home sales since last March. Sales plummeted by nearly a third in the West and slumped 5.9% in the Midwest during the month, but grew in both the Northeast (+3.4%) and the South (+1.8%). Inventories of unsold homes expanded 2.1% during January to 238,000 units, up 14.4% year ago levels and the equivalent of a 5.8 month supply.

#4Two measures of consumer sentiment ease during February. The Consumer Confidence Index from the Conference Board slid 5.6 points during February to a seasonally adjusted reading of 92.2 (1986 = 100), its lowest point since last July. The present conditions index lost 4.5 points to 112.1 (its worst reading since last November) while the expectations index shed 6.4 points to 78.9 (its lowest point since February 2014). The percentage of respondents who saw current business conditions as “good” declined 1.7 points to 26.0% while those that saw them as “bad” grew by a full percentage point to 19.8%. Similarly, fewer people expected conditions would improve over the next 6 months while anticipate they would “worsen.” The press release noted that while “continued turmoil” in the equity markets explained some of the deterioration in sentiment, the survey results suggest “the economy will continue to expand at a moderate pace in the near-term.”

Meanwhile, the Index of Consumer Sentiment from the University of Michigan slipped 3/10ths of a point to 91.7 (1966 Q1 = 100). This was a full 1-point improvement from the preliminary February figures released a few weeks earlier but down 3.7 points from the final February 2015 reading. The current conditions index added 4/10ths of a point to 106.8 (down 1/10th of a point from February 2015). The expectations index slipped 8/10ths of a point to 81.9 (down 6.1 points from February 2015). While acknowledging that confidence was down 6.5% from its January 2015 peak, the press release stated the decline “only indicates a somewhat slower pace of economic growth in 2016,” with their forecast for consumer spending growth at +2.7%.

#5Another report finds manufacturing activity increased in January. The Census Bureau estimates new durable goods orders were at a seasonally adjusted $237.5 billion, up 4.9% for the month and 1.8% from a year earlier. This follows the prior week’s Industrial Production report that indicated a bounce in manufacturing output. Transportation equipment orders soared 11.5%, boosted by sharp increases in aircraft orders (defense: +84.8% and civilian: +54.2%) and a 3.0% bump up in orders for automobiles. Non-transportation orders grew 1.8%, its biggest single-month increase since July 2014. Most segments of durable goods enjoyed orders gains; including, machinery (+6.9%), fabricated metals (+1.6%), computers/electronics (+0.8%) and primary metals (+0.7%). Growing by 3.9% was a proxy for business investment: nondefense, nonaircraft capita orders. Meanwhile, shipments grew for the 2nd time in 3 months with a 1.9% gain to $241.9 billion (+0.9% vs. January 2015). Net of transportation goods, shipments increased by a more modest 0.2%. Unfilled orders eked out a 0.1% gain to $1.188 trillion while inventories of durable goods contracted for the 6th time in 7 months with 0.1% decline to $396.3 billion.

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending February 20, 2016, seasonally adjusted): 272,000 (+10,000 vs. previous week; -36,000 vs. same week a year earlier). 4-week moving average: 272,000 (-7.8% vs. same week a year earlier).
Chicago Fed National Activity Index (January 2016 0.00 = normal economic growth rate): +0.28 (up 66-basis points from December 2015, up 42-basis points from January 2015). 3-month moving average: -0.15 (up 15-basis point vs December 2015, down 35-basis points vs January 2015).
Case-Shiller Home Price Index (December 2015, 20-City Index, Seasonally Adjusted): +0.8% vs. November 2015, +5.7% vs. December 2014.

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

Spark in Manufacturing Activity, Pick Up in Core Consumer Prices: What We Learned During the Week of February 15-19

Manufacturing had its largest single-month increase in activity since last summer (although the sector remains weak) while core consumer prices continue to pick up. Here are the 5 things we learned from U.S. economic data released during the week ending February 19.

#1Manufacturing output grew during January at its fastest pace since last July. The Federal Reserve estimates manufacturing output grew 0.5% during the month following 2 consecutive monthly 0.2% contractions. Even with January’s gain and because of the overall weak trends in the sector, manufacturing output was only 1.2% above year ago levels. Production of durable goods was up 0.5% while that for nondurables gained 0.4%. Among the sectors seeing the largest monthly gains in output include motor vehicles, food/beverages and chemicals while production fell for electrical equipment/appliances, apparel and printing. Overall industrial production increased 0.9% during January, its 1st monthly gain of at least 0.1% since last August and, as a result, the measure remained 0.7% below January 2015 levels. Mining output was unchanged following several months of sharp declines (think of slowing oil production) while the return of winter weather led to a 5.4% bounce in output at utilities. Factory usage increased during the month—capacity utilization increased 7/10ths of a point to 77.1%, its highest reading since October with utilization in manufacturing adding 3/10ths of a point to 76.1%.

#2Even as gasoline prices were in a freefall, core prices continued to firm in January. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) was unchanged on a seasonally adjusted basis during the month even though prices for energy goods fell 2.8% during the month. Prices for every major category of energy goods declined during the month, including fuel oil (-6.5%), gasoline (-4.8%), electricity (-0.7%) and utility delivered natural gas (-0.6%). Meanwhile, food CPI was unchanged during the month as price gains for food consumed away from home were counterbalanced by pricegraphic021916 drops for food consumed at home. Net of energy and food, core consumer prices grew 0.3% during January (its largest single-month gain in more than 4 years), and were 2.2% above year ago levels. Prices for core consumer goods gained 0.2%, led by increases for apparel (+0.6%), medical care commodities (+0.4%) and new vehicles (+0.3%). Prices for consumer services grew 0.3%, with price gains for medical care services (+0.5%), transportation services (+0.4%) and shelter (+0.3%). In all, the firming of core prices could give the Federal Reserve further impetus to push short-term interest rates at least once or twice sometime this year.

Meanwhile, final demand Producer Price Index (PPI) increased 0.1% in January, with the core index (net of food, energy and trade) growing 0.2%. The former was 0.2% below year ago levels while the 12-month comparable for the latter was at a still modest +0.8%. Wholesale prices for final demand goods dropped 0.7% for a 2nd straight month. This was largely because of the 5.0% decline in energy prices, with more of half of the drop tied to an 8.8% decrease in wholesale gasoline prices. Meanwhile, wholesale food prices increased 1.0%, its largest increase since last May as prices for fresh and dry vegetables surged 17.3%. PPI for final demand core goods (net of energy and food) was unchanged for the month. PPI for final demand services was up 0.5%, which includes a 0.9% jump for trade services (which measure margins at retailers and wholesalers).

 #3A measure of forward-looking economic measure declined for a 2nd straight month. The Leading Economic Index from the Conference Board lost 2/10ths of a point during January to a reading of 123.2 (2010 = 100, +2.2% vs. January 2015). Only 5 of 10 components to the leading index improved during the month, led by the interest rate spread, nondefense capital goods orders (net of aircraft) and hours worked in manufacturing. Pulling down the index were (among other things) lower stock prices and a recent hike in jobless claims. The coincident index added 3/10ths of a point 113.2, with all 4 index components gaining during the month. The lagging index grew 1/10th of a point to 120.0 with 5 of 7 components making a positive contribution to the index. As the Conference Board links much of the decline in the leading index to the aforementioned drop in stock prices and the recent hike in jobless claims (which has since cooled), the press release stated that recent trends in the measure do not “signal a significant increase in the risk of recession.”

Housing starts slowed for the 5th time in 7 months during January, but remains at a healthy pace (at least by post-recession standards). According to the Census Bureau, housing starts were at a seasonally adjusted annualized rate of 1.099 million units, down 3.8% from December but still 1.8% above the January 2015 pace. Starts of single-family and multi-family units fell during January by similar percentages (-3.9% and -3.7%, respectively) while overall starts fell in all 4 Census regions. Looking forward, the SAAR of issued housing permits slipped a modest 0.2% during the month but were a healthy 13.5% ahead of the pace of a year earlier at 1.202 million units. Permits for single-family units declined 1.6% during the month while those for multi-family homes gained 2.1%. The annualized count of completed homes was at 1.057 million units, up 2.0% for the month and 8.4% from its January 2015 pace.

#5Homebuilder sentiment slips slightly in February. The Housing Market Index, from the  National Association of Home Builders, lost 3 points to a reading of 58, its lowest mark since last May. Even with the drop, this was the 20th consecutive month in which the measure of homebuilder confidence surpassed a reading of 50, meaning more builders saw the housing market as “good” as opposed to being “poor.” The HMI fell in all 4 Census regions but remained above the critical reading of 50 in 3 of 4 regions (the Northeast being the exception). Also dropping were indices for current sales of single-family homes (off 3 points to 65) and the traffic of potential buyers (down 5 points to 39). The index for expected sales over the next 6 month inched up a point to 65. The press release noted that homebuilders were largely positive about market conditions, partially attributing the drop in the HMI to “the high cost and lack of availability of lots and labor.”

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending February 13, 2016, seasonally adjusted): 262,000 (-9,000 vs. previous week; -23,000 vs. same week a year earlier). 4-week moving average: 273,250 (-4.0% vs. same week a year earlier).
Mortgage Delinquencies (4th Quarter 2015, Percentage of Residential Mortgages that Are Delinquent, seasonally adjusted): 4.77% (-22-basis points vs. 2015 Q3, -91-basis points vs. 2014 Q4).
FOMC minutes (from January 2016 meeting)

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

Retail Rebounds, Prices Fall: What We Learned During the Week of February 8-12

There was a small bump in retail sales and near-record numbers of job openings. And yet, import and export price continue to fall. Here are the 5 things we learned from U.S. economic data released during the week ending February 12.

#1A modest sales gain during January and an upward revision for December paints a slightly better retail picture. The Census Bureau estimates sales for retail and food services were at a seasonally adjusted $402.2 billion, up 0.2% for the month and 3.4% from a year earlier. Further, the Census Bureau upwardly revised its estimate of December sales from a 0.1% drop to a 0.2% gain. January’s sales were boosted in part by a 0.5% gain in activity at car dealers.021216graphics After removing sales at both car dealers and gas stations (where low gas prices pushed down sales 3.1%), core retail sales grew 0.4% during the month and were 3.8% above year ago levels. Sales jumped at nonstore retailers (+1.6%), general merchandisers (+0.8%), building material retailers (+0.6%), food/beverage stores (+0.5%) and clothing retailers (+0.2%). Sales slowed at sporting goods/hobby stores (-2.1%), furniture retailers (-0.5%) and restaurant/bars (-0.5%).

#2Employers have many ‘help wanted’ signs in their windows. According to the Bureau of Labor Statistics, there were a seasonally adjusted 5.607 million job openings at the end of December. This was up 261,000 from November, 15.0% above December 2014 levels and near the all-time high count achieved just a few months earlier. Private sector employers had 5.086 million job openings, up 15.7% from a year earlier, with the largest positive 12-month comparables seen for construction (+47.9%), health care/social assistance (+21.4%), manufacturing (+17.7%), retail (+9.3%) and leisure/hospitality (+8.4%). As we have seen throughout most of the economic recovery, the growth in job openings was not matched by actual hiring activity. The seasonally adjusted count of hires of 5.361 million was up 105,000 from November and 2.3% from a year earlier. The biggest year-to-year gains in hires were in accommodations/food services (+13.7%), professional/business services (+7.1%) and health care/social assistance (+3.2%). A consistent sign of worker confidence is the continued growth in voluntary quits, which were up 12.5% from a year earlier to 3.055 million (another post-recession high). Meanwhile, layoffs were 6.8% below year ago levels at 1.607 million.

#3Import Prices fell for the 7th straight month in January. The Bureau of Labor Statistics reports that import prices dropped 1.1% during the month and were 6.2% below January 2015 levels. Prices for fuel imports plummeted 12.4% (its largest drop in 5 months) as prices for imported gasoline and natural gas fell 13.4% and 3.2%, respectively. But deflation was not just associated with the freefall in energy prices as nonfuel import prices also slumped 0.2%, including price drops for nonfuel industrial supplies/materials and capital goods. Rising were prices for imported food, automobiles and consumer goods. Meanwhile, export prices dropped for the 9th time in 10 months with a 0.2% decline (-5.7% vs. January 2015), with price drops across most product categories (automobiles were a notable exception).

#4Small business owner sentiment fell to a nearly 2-year low in December as their outlook for the future weakened. The Small Business Optimism Index from the National Federation of Independent Business lost 1.3 points to a seasonally adjusted reading of 93.9 (1986 = 100), it lowest reading since February 2014. Only 3 of the index’s 10 components improved from their December readings: current inventories (+2), whether it is a good time to expand (+2) and current job opening (+1). 6 other index components deteriorated during January: expectations for the economic to improve (-6), plans to increase employment (-4), expected real sales (-4), plans to expand inventories (-2), expected credit conditions (-1) and earnings trends (-1). Among other things, the press release links the weakness in small business owners’ outlook to “cartoonish” political races and the prospect of negative interest rates in the future.

#5A Federal Reserve report finds a small improvement in labor market conditions during January. The Labor Market Conditions Index inched up 4/10ths of a point on a seasonally adjusted basis during the month, its smallest gain since last April. The index, based on 19 employment indicators including measures of employment, unemployment, wages and job openings, is used by Fed staff to assess labor market conditions. The index has been positive—indicating overall improvement in the labor market—for the past 10 months.

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending February 6, 2016, seasonally adjusted): 269,000 (-16,000 vs. previous week; -33,000 vs. same week a year earlier). 4-week moving average: 281,250 (-2.5% vs. same week a year earlier).
Business Inventories (December 2015, seasonally adjusted): $1.813 trillion (+0.1% vs. November 2015, +1.7% vs. December 2014).
U.S. Government Budget (January 2016, Surplus/Deficit): +$55.2 billion (vs. -$14.4 billion in December 2015 and -$17.5 billion in January 2015). FY2016 deficit = -$160.4 billion (-17.4% vs. FY2015).
University of Michigan Index of Consumer Sentiment (February 2016-Preliminary, Index (1966 Q1 = 100): 90.7 (-1.3 points vs. January 2016, -4.7 points vs. February 2015).

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