Another GDP Revision, Housing & Manufacturing Slow: What We Learned During the Week of March 21-25

While GDP was a bit better than previously believed during the final days of 2015, housing and manufacturing data has the economy crawling early this year. Here are the 5 things we learned from U.S. economic data released during the week ending March 25.

#1Even with another upward revision, Q4 economic activity was unexceptional. The Bureau of Economic Analysis originally estimated Gross Domestic Product (GDP) grew at a seasonally adjusted annualized rate of 0.7% and then raised the growth estimate to +1.0% last month. The newest and “final” revision released this past week puts economic growth during the final 3 months of 2015 at +1.4%. This was still below Q3’s 2.0% growth rate and Q2’s expansion of +3.9% and leaves GDP growth for all of 2015 at +2.4%, matching 2014’s moderate rate of expansion. The latest upward revision to Q4 GDP was the product of higher than previously believed levels of personal spending and exports. In the same report, we learn that corporate profits plummeted 7.8%, its 4th drop in 5 quarters. 032516graphicsThis was the largest quarterly percentage drop in corporate profits (after adjustments for inventory valuations and capital consumption) since Q1 2011. Next month, we will get the 1st estimate of Q1 GDP, with current data suggesting that economic growth has continued to muddle along. 

#2For example, it appears that economic growth slowed in February. The Chicago Fed National Activity Index (CFNAI) dropped 70-basis points to a reading of -0.29. February’s loss essentially gave back January’s gain and represented the 6th month over the past 7 in which the CFNAI was negative. The 85 economic indicators that make up the CFNAI are categorized into 4 groups, all of which deteriorated from their January readings. Falling sharply from the previous month were indicators associated with production/income (down 50-basis points to -0.21) and employment (off 16-basis points to +0.03) while measures for consumption/housing (off 4-basis points to -0.09) and sales/orders/inventories (off a point to -0.03) slipped more modestly. Even with February’s sharp reversal, the CFNAI’s 3-month moving average improved by 5-basis points to -0.07. This was the 5th straight month in which the moving average was negative (albeit its best reading since last September), indicative of a U.S. economy growing at a below its historic trend rate.

#3Sales of previously owned homes slumped during February. Existing home sales declined 7.1% during the month to a seasonally adjusted annualized rate (SAAR) of 5.08 million units. Even with the drop, the National Association of Realtors reports that sales were still 2.2% above that of a year earlier. Sales activity slowed in all 4 Census regions, led by double digit percentage declines in the Northeast (-17.1%) and the Midwest (-13.8%). On the flipside, sales were above their year ago levels in 3 of 4 Census regions, with sales holding steady with their February 2015 pace in the Midwest. NAR attributes the sales weakness to continuing tight inventories. There were 1.88 million homes available for sale at the end of February, the equivalent to a 4.4 month supply. The resulting median sales price for homes sold during the month of $210,800 was 4.4% above year ago levels. Beyond tight inventories, the press release cites the January blizzard in the east coast and stock market volatility as “play[ing] a role in February’s lack of closings.”

#4Meanwhile, new home sales eked out a modest gain during the same month. The Census Bureau places new home sales at a seasonally adjusted annualized rate (SAAR) of 512,000 units. This was up 2.0% from January and the 4th straight month above a SAAR of 500,000 units but it was 6.1% below year ago levels. All of the sales gain occurred in the West with a 38.5% bump. Sales fell in the Northeast (-24.2%), Midwest (-17.9%) and South (-4.1%). Inching up were inventories of unsold new homes as there were 240,000 new homes available for sale at the end of February, up 1.7% from January and 17.6% from a year earlier. This was the equivalent to a 5.6 month supply, up from a 4.9 month supply of homes available for sale at the end of February 2015.

#5Durable goods orders weakened in February as January’s show of strength was fleeting. The Census Bureau reports new orders for durable goods dropped by $6.6 billion to a seasonally adjusted $229.4 billion (+1.8% vs. February 2015). Orders for transportation goods fell 6.2%, including sizable drops for the typically volatile data series for both civilian (-27.1%) and defense aircraft orders (-29.2%). Orders for motor vehicles grew 1.2%. Net of transportation goods, core durable goods orders dropped 1.0% during the month and were 0.5% below their year ago pace. Falling were orders for electrical equipment/appliances (-2.8%), machinery (-2.6%), fabricated metal products (-1.2%) and computers/electronics (-0.9%). Business investment, as measured by new orders for nondefense capital goods net of aircraft, dropped 1.8% during February. Also falling during the month were shipments of durable goods (-0.9%), non-transportation durable goods (-0.7%) and nondefense capital goods net of aircraft (-1.1%).

Other data released over the past week that you might find of interest: 
Jobless Claims (week ending March 19, 2016, First-Time Claims, seasonally adjusted): 265,000 (+9,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 259,750 (-12.2% vs. the same week a year earlier).
FHFA House Price Index (January 2016, Purchase Only Index, seasonally adjusted): +0.5% vs. December 2015, +6.0% vs. January 2015.
Regional and State Employment (February 2016): Number of states with nonfarm payrolls growth vs. January 2016: 36 and the District of Columbia.  Number of states with nonfarm payrolls growth vs. February 2015: 43 and the District of Columbia.

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

The Fed Continues to Take Its Time: What We Learned During the Week of March 14-18

The Fed now says to expect 2 rate hikes in 2016 while lower prices hurt retail sales in February. Here are the 5 things we learned from U.S. economic data released during the week ending March 18.

#1The Fed stays pat and signals it will make fewer rate hikes in 2016 than previously believed. The policy statement released following last week’s 2-day meeting of the Federal Open Market Committee noted that economic activity grew “at a moderate pace despite the global economic and financial developments of recent months.” Improving were household spending, housing and the labor market while business investment and net exports were “soft.” Inflation remained below the Fed’s 2-percent target, thanks to price drops for energy
goods and imports. As a result and to the surprise of no one, the FOMC voted to keep the fed funds target rate at 031816between ¼% and ½% (although one voting member—Esther George—wanted a quarter point rate hike). Economic projections released in conjunction with the policy statement has a median prediction for the year end fed funds target rate at 0.875%, which would indicate there will be just 2 rate hikes in 2016. The Fed forecast released back in December had projected 4 rates hikes. The more recent set of projections also has GDP growing 2.2% this year with the unemployment rate at 4.7% and inflation at 1.2%.

#2Manufacturing activity inched up during February. The Federal Reserve estimates manufacturing output grew 0.2% during the month, including a 0.4% increase in durable goods production. Sectors with the largest monthly gains in output were machinery and primary metals while the production of wood products and automobiles both declined. Nondurable goods production slipped 0.1%. Overall manufacturing output has grown a relatively modest 1.8% over the past year, including a +1.6% 12-month comparable for durable goods. Overall industrial production dropped 0.5% as the aforementioned increase in manufacturing output was outweighed by slowdowns at utilities (-4.0%) and in mining (-1.4%, with big drops in crude oil extraction, coal mining and oil/gas well drilling/servicing). Overall capacity utilization decreased by 4/10ths of a percentage point to 76.7%, while that at manufacturing factories held steady at 76.1%. The 2 measures were at 78.4 and 75.7, respectively, a year earlier.

#3Lower prices pull down retail sales in February. The Census Bureau puts the seasonally adjusted value of retail sales during February at $447.3 billion, off 0.1% from January but 3.1% above year levels. Beyond February’s decline, the Census lowered its estimate of January retail sales from a 0.2% gain to a 0.4% decline. Plummeting gasoline prices translated into a 4.4% drop in sales at gas stations (note that the retail sales data are not adjusted for price changes). Net of sales at gas stations and at auto dealers (where sales chilled 0.2%), core retail sales gained 0.3% and were 4.3% above year ago levels (its best 12-month comparable since last July). Sales fell at furniture retailers (-0.5%), department stores (-0.4%), grocery stores (-0.3%) and electronics/appliance stores (-0.1%). Growing were sales at building materials stores (+1.6%), sporting goods/hobby retailers (+1.2%), restaurant/bars (+1.0%) and apparel retailers (+0.9%).

#4Both consumer and wholesale prices dropped in February with energy prices again the reason. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) failed to increase for a 3rd straight month with a 0.2% decline. Energy CPI dropped 6.0%, its largest single-month decrease in 13 months as gasoline prices plummeted 13.0%. Also falling were prices for fuel oil (-2.9%) and electricity (-0.2%). Food CPI grew for the 1st time in 4 months with a 0.2% bounce (prices for fresh fruit jumped 2.3% while those for nonalcoholic beverage gained 0.6%). Net of energy and food, core CPI increased 0.3% for a 2nd consecutive month, with higher prices for apparel (+1.6%), medical care commodities (+0.6%), medical care services (+0.5%) and shelter (+0.3%). Core prices have grown 2.3% over the past year, its largest 12-month comparable since April 2012 with higher prices for shelter (+3.3%) and medical care (+3.5%) leading the way. It is worth noting that other price measures watched more closely by the Fed have not quite risen to the 2-percent target rate.

Final demand Producer Price Index (PPI) also declined 0.2% during February, its 5th drop over the past 7 months. Wholesale prices for final demand goods slumped 0.6%, pulled down by drops of 3.4% and 0.3% for energy and food, respectively. The former reflected the impact of a 15.1% drop in wholesale gasoline prices and a 9.8% decline in diesel prices. Net of energy and food, producer prices for final demand core goods edged up 0.1%. PPI for final demand services was unchanged for the month as wholesale trade and transportation/warehousing services declined 0.4% and 0.7%, respectively. Over the past year, PPI was unchanged while PPI net of energy, food and trade services has grown by a paltry 0.9% since February 2015.

#5Even with a large number of job openings, hiring activity softened in January. The Bureau of Labor Statistics estimates there were 5.541 million job openings at the end of the month, up 4.9% from December and 11.4% from a year earlier. The count of private sector job openings was 13.9% above year ago levels to 5.075 million job, with the large year-to-year percentage gains seen in construction (+35.0%), wholesale trade (+27.1%), health care/social assistance (+26.6%), retail (+24.9%), professional/business services (+22.4%). Meanwhile, hiring slowed 6.9% to 5.029 workers, (-0.5% vs. January 2015), while separations declined by 225,000 people to 4,903 million workers (+4.1% vs. January 2015). Layoffs were 5.3% below the year ago pace while voluntary quits were 1.2% above year ago levels.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending March 12, 2016, First-Time Claims, seasonally adjusted): 265,000 (+7,000 vs. previous week; -28,000 vs. the same week a year earlier). 4-week moving average: 268,000 (-12.2% vs. the same week a year earlier).
Housing Starts (February 2016, seasonally adjusted annualized rate): 1.178 million units (+5.2% vs. January 2016, +30.9% vs. February 2015).
Housing Market Index (March 2016, > 50 = “Good,” seasonally adjusted): 58 (vs. February 2016: 58, March 2015: 52).
University of Michigan Index of Consumer Sentiment (March 2016-preliminary, Index (1966 Q1 = 100, seasonally adjusted): 90.0 (vs. February 2016: 91.7, vs. March 2015: 93.0).
Leading Indicators (February 2016, Index: 2010 = 100, seasonally adjusted): 123.2 (vs. January 2016: 123.1, vs. February 2015: 120.9).
Manufacturers’ and Trade Inventories (January 2016, seasonally adjusted): $1.812 trillion (+0.1% vs. December 2015, +1.8% vs. January 2015).
Treasury International Capital Flows (January 2016, Domestic Securities Purchases by Foreigners): -$33.5 billion (vs. December 2015: -$43.4 billion, vs. January 2015: -$23.6 billion).

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

More Hiring During Q2, But Less Optimism: What We Learned During the Week of March 7-11

Employers say they intend to expand payrolls during Q2, but small business owners are not as confident. Here are the 5 things we learned from U.S. economic data released during the week ending March 11.

#1Employers plan to continue hiring this spring. 22% of the more than 11,000 companies participating in the Manpower Employment Outlook Survey reports they intend to expand payrolls between April and June while 4% expect to shed workers. The difference of +18 slips to +16 after seasonal adjustments. The seasonally adjusted reading was off a point from Q1 but matches that from a year earlier. The index was positive for all 13 tracked industries with the most positive readings seen for leisure & hospitality (+31), wholesale/retail trade (+22), transportation/utilities (+19) and professional/business services (+18). The measure also was positive for all 4 Census regions: Midwest (+17), South (+17), West (+16) and Northeast (+15). While the press release notes that the U.S. market is “strong compared to the global situation,” it warns that increased labor market volatility “may be here to stay.”

#2Small business owners sentiment deteriorated during February. The Small Business Optimism Index from the National Federation of Independent Business lost a full point to a seasonally adjusted reading of 92.9 (1986 = 100), its lowest reading in 2 years. 6 of 10 index components declined during the month; including indices for earnings trends, sales expectations and whether it is a good time to expand. 4 indices were unchanged during February, leaving no index components improving from their January readings. The press release describes the survey results as “ho hum,” noting that there is no strength exhibited by small businesses.

#3Import prices contracted for the 8th consecutive month in February. The Bureau of Labor Statistics reports import prices decreased 0.3% during the month, the smallest 1-month percentage decline since last October, with the non-seasonally adjusted measure down 6.1% from its February 2015 reading. Prices for fuel imports fell 3.9%, its smallest drop since last June. Prices for imported petroleum and natural gas prices decreased 4.0% and 6.3%, respectively. Prices for imported fuel have fallen a whopping 37.3% over the past 12-months with imported petroleum prices 38.5% below readings from a year earlier. (Obviously, this data does not reflect the recent rebound in the prices for crude oil and petroleum.) Prices for nonfuel imports slipped 0.1% during February and were 2.7% below year levels. Prices for imported consumer goods increased while those for food/beverages, automobiles and nonfuel industrial supplies/materials each declined.

#4Wholesalers expanded inventories 1st time since last fall during January. The Census Bureau estimates merchant wholesale inventories totaled $584.2 billion on a seasonally adjusted basis at the end of January, up 0.3% for the month and 2.0% above January 2015 levels. Inventories of durable goods contracted 0.3% during January and were 0.4% under year ago levels as stocks of electrical/electronic goods declined 3.6%. Nondurable goods inventories expanded 1.1% from December and were 5.9% above January 2015 levels, thanks to larger inventories of paper/paper products and drugs/druggists’ sundries. The inventory-to-sales ratio was at 1.35, up 2-basis points from December and 7-basis points from last January.

#5Consumers took on more debt but kept their credit cards in their wallets in January.  According to the Federal Reserve, outstanding consumer credit balances (net of mortgages and other real estate-backed debt) totaled $3.544 trillion at the end of January, up $10.5 billion for the month and 6.5% above year ago levels. Nonrevolving consumer credit balances—including student college loan debt and car loans—expanded by $11.5 billion during January to $2.608 billion, up 6.9% from January 2015 levels (its lowest 12-month comparable since July 2012). Revolving credit balances—e.g., credit cards—totaled $935.3 billion, which was down $1.1 billion for the month but remained 5.3% above its January 2015 reading. This was the highest year-to-year comparable for revolving credit balances since the early days of the last recession in July 2008.

Other data released over the past week that you might find of interest:                       
Jobless Claims (week ending March 5, 2016, First-Time Claims, seasonally adjusted): 259,000 (-18,000 vs. previous week; -34000 vs. same week a year earlier). 4-week moving average: 267,500 (-11.8% vs. same week a year earlier).
Treasury Budget (February 2016: Budget Surplus/Deficit): -$192.6 billion (vs. +$55.2 billion in January 2016 and -$192.4 billion in February 2015). 1st 5 months of FY2016: -$353.0 billion (8.7% smaller than the deficit of the 1st 5 months of FY2015).

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