Bounce in Housing, Economic Activity Wobbles: What We Learned During the Week of April 18-22

Economic activity remained slow in March, even though existing home sales bounced back. Here are the 5 things we learned from U.S. economic data released during the week ending April 22.

#1Existing home sales rebounded in March. The National Association of Realtors reports that sales of previously owned homes jumped 5.1% during the month to a seasonally adjusted annualized rate of 5.33 million units. This follows February’s 7.3% sales drop and leaves the sales pace 1.5% above that of a year earlier. Sales grew on a month-to-month basis in all 4 Census regions, led by the Northeast (+11.1%) and Midwest (+9.8%). 3 of 4 Census regions also had positive 12 month comparables: Northeast (+7.7%), South (+2.3%) and Midwest (+0.8%). Sales were 2.5% below their March 2015 levels in the West. There were 1.98 million previously owned homes on the market at the end of March, up 5.9% from February yet still 1.5% below 042216graphicMarch 2015 levels. This translated into a tight 4.5 month supply. The median sales price of $222,700 was up 5.7% from a year earlier. The press release noted that “buyer demand remains sturdy in most areas this spring.”

#2Yet, housing starts dropped in 3 of 4 Census regions in March. The Census Bureau estimates starts of new home construction declined 8.8% during the month to a seasonally adjusted annualized rate of 1.089 million units, which was still 14.2% above year ago levels. (This is where we point out that while NAR’s existing home sales data series measures closed transactions of previously owned homes, the Census Bureau’s new home sales measures only contract signings for new homes.) Sales dropped 25.4% in the Midwest, 15.7% in the West and 8.4% in the South, while they rose 61.3% in the Northeast. The month-to-month declines were split between a 9.2% drop for single-family units (to 764,000) and a 7.9% decline in multi-family units (to 325,000). Looking towards the future, the SAAR of issued construction permits dropped 7.7% during March to 1.086 million units. Permits for single-family homes slipped 1.2% to 727,000 (SAAR) while those for multi-family units slumped 18.6% to 359,000. The annualized count of completed homes improved 3.5% to 1.061 million units, 31.6% above the year ago pace.

#3Despite the drop in starts, homebuilders’ confidence remained solid. The Housing Market Index from the National Association of Home Builders maintained a seasonally adjusted reading of 58 for a 3rd straight month in April. The index has remained above a reading of 50—which means more builders view the housing market as “good” rather than “poor”—for 22 consecutive months. The index held steady in both the West (67) and South (59), but softened in the Midwest (56) and Northeast (41). The single-family sales index lost 2 points to a reading of 63 while the index for expected sales over the next 6 months added a point to 62. Also gaining a point was the index for traffic of potential buyers (44). The press release noted that “builders remain cautiously optimistic about construction growth in 2016.” 

#4U.S. economic growth was below normal again in March. The Chicago Fed National Activity Index shed 6-basis points during the month to a reading of -0.44. This was the 9th month over the past 11 in which the index of 85 economic indicators calculated by the Federal Reserve Bank of Chicago came in negative. Among the 4 major categories of index components, the biggest drag on the CFNAI remained those associated with production/income (with a reading of -0.31). Measures associated with consumption/housing (-0.09) and employment (-0.04) also pulled down the CFNAI, while index components associated with sales/orders/inventories had a neutral impact. The 3-month moving average for the CFNAI lost 7-basis points to -0.18. This was the 7th straight month in which the moving average was negative, indicative of below average economic growth. In fact, the moving average has not been positive since January 2015 (the moving average was at 0.00 last August).

#5Forward looking economic indicators improved for the 1st time in 4 months in March. The Conference Board’s Leading Economic Index added 3/10ths of a point to 123.4 (2010 = 100). 6 of 10 of the leading index’s components improved during the month, led by stock prices and the interest rate spread. The coincident index held steady with a reading of 113.3 even as 3 of 4 components made a positive contribution to the index (the one laggard was industrial production). The lagging index gained a half point to 120.9 as 4 of 7 index components made positive contributions. The press release said the leading index “still points to slow, although not slowing, growth in the coming months.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending April 16, 2016, First-Time Claims, seasonally adjusted): 247,000 (-42,000 vs. previous week; -36,000 vs. the same week a year earlier). 4-week moving average: 260,500 (-7.5% vs. the same week a year earlier).
FHFA House Price Index (February 2016, Purchase-Only Index, seasonally adjusted): +0.4% vs. January 2016, +5.6% vs. February 2015).

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

Industrial Output and Retail Sales Slump: What We Learned During the Week of April 11-15

Spring weather blossomed across parts of the U.S. last week. The same could not be said about the industrial production and retail sales data released last week. Here are the 5 things we learned from U.S. economic data released during the week ending April 15.

#1Industrial production slowed in March, with declines in all 3 sectors. The Federal Reserve reports that industrial output contracted 0.6% for a 2nd consecutive month, leaving it 2.0% below year ago levels. Also falling for a 2nd straight month was manufacturing output, with a 0.3% drop. Output of durable goods slumped 0.4% while that for nondurables slipped 0.1%. The former was hurt by roughly 1.5% decreases in the output for both automobiles and electrical equipment/appliances. On the flip side, production of computer and electronic products expanded by nearly 1%. Mining output fell by another 2.9%, its largest single-month drop since September 2008 as coal mining and oil/gas extraction continued to slow. Utility output decreased 1.2%, its 5th decline in 7 months. Overall capacity utilization dropped by a half percentage point to 74.8%, its lowest reading since August 2010. For the manufacturing sector, capacity utilization contracted by 3/10ths of a point to 75.1%, its lowest point since April 2014.

#2Retail sales continued to dither in March. The Census Bureau estimates retail sales were at a seasonally adjusted $446.9 billion, down 0.3% for the month and up a relatively tepid 1.7% from a year earlier. Some of the weakness can be linked to the 2.1% drop in sales at auto dealers and parts stores, which have cooled a bit from their record pace of a few months ago. Net of sales at auto dealers and at gas stations (which saw sales gain 0.9% due to recent prices gains), core retail sales eked out a 0.1% increase for the month and were 3.9% above March 2015 levels. Growing during the month were sales at building material retailers (+1.4%), general merchandisers (+0.5%), furniture stores (+0.3%) and sporting goods/hobby retailers (+0.2%). Sales declined at apparel retailers (-0.9%) and at restaurants/bars (-0.8%). Grocery store sales were flat in comparison to February.

#3The recent bump up in gasoline prices pulled up consumer prices. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) increased 0.1% during March and was 0.9% above year ago levels on a seasonally adjusted basis. Energy CPI gained 0.9%, its 1st positive reading since last November. Gasoline prices jumped 2.2% during March, following drops of 13.0%, 4.8% and 4.8% over the previous 3 months. Also increasing were prices for fuel oil and electricity, while the price for utility delivered natural gas fell 0.7%. Meanwhile, food CPI dropped 0.2%, with the food at home index (i.e., prices at grocery stores) showed its largest single-month price decline since April 2009
(-0.5%). Net of energy and food, core CPI increased 0.1% during March and was 2.2% above year ago levels. Rising were prices for shelter, transportation services and medical care commodity/services. Meanwhile, apparel prices fell 1.1% during the month.041516

#4Lower prices for services pulled down wholesale prices during March. The BLS’ Producer Price Index (PPI) for final demand slipped 0.1% on a seasonally adjusted basis (its 2nd consecutive monthly decline) on both a month-to-month and year-to-year basis. Prices for final demand goods gained 0.2%, its 1st increase since last June. Leading the way was a 1.8% rebound in wholesale energy prices (gasoline PPI: +7.1%). Food PPI fell 0.9%, as wholesale prices of fresh and dry vegetables fell 12.0%. Net of energy and food, final demand PPI inched up 0.1% for the month and was 0.4% above year ago levels. Meanwhile, PPI for final demand services declined 0.2%, as trade PPI (which measures margins of retailers and wholesalers) fell 0.5%.

#5Small business owners grow more pessimistic (again) in March. The Small Business Optimism Index from the National Federation of Independent Business shed 3/10ths of a point to a seasonally adjusted 92.6 (100 = June 1986). This was the measure’s 4th decline over the past 5 months and its lowest reading in 25 months. 6 of the index’s 10 components fell during the month, including drops in the measures for current inventories, current job openings and whether it is a good time to expand. The other 4 index components improved during the month, including a sizable gain in the measure capturing expectations on future economic conditions. The press release was it typical pessimistic self, noting that with recent declines, next month’s survey readings could signal whether the U.S. economy is creeping into a recession.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending April 9, 2016, First-Time Claims, seasonally adjusted): 253,000 (-13,000 vs. previous week; -36,000 vs. the same week a year earlier). 4-week moving average: 263,250 (-5.5% vs. the same week a year earlier).
Import Prices (March 2016): +0.2% vs. February 2016, -6.2% vs. March 2015. Nonfuel prices: -0.1% vs. February 2016, -2.5% vs. March 2015.
Export Prices (March 2016): Unchanged vs. February 2016, -6.1% vs. March 2015. Nonagricultural prices: +0.3% vs. February 2016, -5.6% vs. March 2015.
University of Michigan Index of Consumer Sentiment (April 2016-preliminary, Index 1966 Q1 = 100, seasonally adjusted):  89.7 (March 2016: 91.0, April 2015: 95.9).
Federal Budget  (March 2016, Surplus/Deficit):  -$108.043 billion (+104.2% vs. March 2015) 1st six months of FY2016: -$461.0 billion (+5.0% vs. 1st six months of FY2015).
Beige Book

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

A Post-Recession High in Hiring: What We Learned During the Week of April 4-8

The labor market remains a bright spot as hiring jumped to a post-recession high during February. Meanwhile, global demand for U.S. goods weighed on the trade deficit. Here are the 5 things we learned from U.S. economic data released during the week ending April 8.

#1The count of job openings slipped but the pace of hiring surged in February. The Bureau of Labor Statistics says there were a seasonally adjusted 5.445 million jobs available at the end of February, down 159,000 from January but still 6.1% above the February 2015 count. Industries with the largest year-to-year percentage gains in job openings were construction (+27.0%), retail (+14.5%), professional /business services (+14.1%) and education/health care (+8.3%). Meanwhile, there were a seasonally adjusted 5.422 million people hired during the month, up 297,000 from January, a 6.5% gain from a year earlier and its fastest pace since the fall of 2006. The largest year-to-year percentage gains in hiring occurred in retail (+18.6%), trade/transportation/utilities (+12.1%) and leisure/hospitality (+11.1%). Hiring outpaced departures. A seasonally adjusted 5.050 million people left their jobs during the month, up 73,000 from January and 6.5% from a year earlier. 040816Another positive labor market trend is that more people voluntarily left their jobs (presumably because either they had another job or were optimistic about their job prospects). Voluntary quits have grown 9.1% over the past year to 2.95 million. Meanwhile, layoffs held virtually unchanged during the month at 1.715 million. This was up 1.9% from a year earlier.

#2Weak global demand for U.S. goods continued to weigh on the trade deficit. The Census Bureau and Bureau of Economic Analysis reports that the U.S. trade balance for February was at -$47.1 billion, up $1.2 billion from January. While exports increased by $1.8 billion during the month to $178.1 billion, this was still the 2nd lowest reading since June 2011 and it was down 4.2% from a year earlier. February’s growth in exports was sparked by a $1.1 billion gain in consumer goods (particularly for gem diamonds and pharmaceutical preparations) while the gain in imports was led by increased exports for consumer goods (particularly for pharmaceutical preparations and toys/games/sporting goods) and automobiles. The goods deficit widened by $0.8 billion to -$64.7 billion (February 2015: -$58.1 billion) while the services surplus contracted by $0.3 billion to +$17.7 billion (February 2015: +$19.5 billion). Based on 2009 chained dollars, the “real” goods deficit expanded by $1.6 billion to -$63.3 billion (February 2015: $52.3 billion).

#3As we saw with the previous week’s durable goods orders report, new factory orders slumped during February. The Census Bureau reports new orders for manufactured goods fell for the 3rd time in 4 months with a 1.7% drop to a seasonally adjusted $454.0 billion (-3.0% vs. February 2015). Durable goods fell 3.0% during the month while those for nondurable goods slowed 0.4%. Declining during the month were orders for transportation goods (-6.2%, including declines of 27.2% and 28.0% for civilian and defense aircraft, respectively), electrical equipment/appliances (-3.6%), machinery (-3.4%), computer/electronics (-1.7%) and fabricated metal products (-1.0%). Nondefense capital goods excluding aircraft—a proxy for business investment—declined 2.5% during the month while new orders for consumer goods slumped 0.7%. Shipments fell for the 10th time in 11 months with a 0.7% decline, unfilled orders decreased for the 2nd time in 3 months with a 0.3% decline and inventories contracted for a 8th straight month with a 0.4% drop.

#4Service sector activity expanded at a faster pace during March. The headline index from the Institute for Supply Management’s Report on Business—Nonmanufacturing added 1.1 points to a seasonally adjusted 54.5. This was the measure’s 1st gain following 4 straight monthly declines and was the 74th consecutive month above a reading a 50.0, the threshold between a growing and contracting service sector. All 4 index components improved during the month and were above a reading of 50.0: business activity (59.8), new orders (56.7), supplier deliveries (51.0) and employment (50.3). 12 of 18 service sector industry segments expanded during the month, led by education, information and wholesale trade. The press release noted that survey participants had indicated “that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth.”

#5Wholesalers continued to shed inventory during February. The Census Bureau estimates merchant wholesalers held $583.3 billion in inventories at the end of February, down 0.5% for the month and just 0.6% above year ago levels. Smaller inventories of lumber/construction goods (-1.6%) helped pull down overall durable goods inventories 0.1%. Drops in holdings of farm product raw materials and drugs/druggists’ sundries led to a 1.1% contraction in nondurable goods inventories. Wholesale sales declined 0.2% during February to a seasonally adjusted $427.6 billion (-3.1% vs. February 2015). As a result, the inventory-to-sales ratio slipped a basis point to 1.36. The same measure was at 1.31 a year ago.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending April 2, 2016, First-Time Claims, seasonally adjusted): 267,000 (-9,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 263,250 (-4.7% vs. the same week a year earlier).
Consumer Credit (February 2016, Outstanding non-real estate consumer debt, seasonally adjusted):  $3.568 trillion (+$17.2 billion vs. January 2016, +6.6% vs. February 2015).
FOMC meeting minutes

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