GDP Weak, Housing, Manufacturing & Sentiment Strengthen: What We Learned During the Week of May 23 – 27

Economic growth during the 1st 3 months of 2016 was abysmal, but last week also gave us good news on manufacturing, the housing market and consumer sentiment. Here are the 5 things we learned from U.S. economic data released during the week ending May 27.

#1The 2nd estimate for Q1 economic growth was not much better than the previously released estimate. The Bureau of Economic Analysis revised its Q1 gross domestic product (GDP) estimate, finding that the U.S. economy grew 0.8% on a seasonally adjusted annualized rate as opposed to a 0.5% growth rate that had been reported a month earlier. Even with the small upward revision—largely due to higher than previously estimated levels of private inventory accumulation, fixed residential investment (housing) and net exports—economic growth was at its slowest pace in a year. Only 3 major components
of the economy made positive contributions to GDP growth: consumption, fixed residential 052716graphicsinvestment and the government. Fixed nonresidential investment, private inventory accumulation and net exports were all drags on Q1 economic growth. Meanwhile, corporate profits from current production (that is, with inventory valuation and capital consumption adjustments) grew for only the 2nd time in 6 quarters with a 0.3% gain. 

#2Durable goods orders grew for a 2nd consecutive month in April. The Census Bureau estimates new orders for manufactured durable goods totaled a seasonally adjusted $235.9 billion during the month. This was up 3.4% for the month and 1.5% from April 2015. Much of the gain came from a jump in civilian aircraft orders, which surged 64.9% and a 2.9% gain in orders for motor vehicles. But even net of transportation goods orders, durable goods orders expanded for the 3rd time in 4 months with a 0.4% increase. Among goods categories enjoying new orders gains were computers (+6.9%), fabricated metal products (+3.1%), communications equipment (+1.0%) and electrical equipment/appliances (+0.5%). But all was not good, however. Orders for civilian capital goods net of aircraft (a proxy for business investment) slowed 0.8% and new orders for machinery dropped 1.9%.

#3Sales of new homes jumped to a post-recession high in April. Following several months of relative stagnation, new home sales surged 16.6% during the month to a seasonally adjusted annualized rate of 619,000 units. This was up 23.8% from a year earlier and was the highest point since January 2008 for the Census Bureau data series. Sales were up for the month in the Northeast (+52.8%), West (+18.8%) and South (+15.8%) but slipped 4.8% in the Midwest. Homebuilders continued maintaining tight inventories of new homes. The 243,000 new homes available for sale at the end of April was off 0.4% from March and equivalent to a 4.7 month supply. The median sales price of $321,100 was up 9.7% from a year earlier (although it is worth noting that home price comparisons can be tricky because the housing stock can vary significantly over time)

#4Buyers signed sales contracts to purchase existing homes during April at a pace not seen in 10 years. The Pending Home Sales Index from the National Association of Realtors added 5.6 points to a seasonally adjusted reading of 116.3 (2001 = 100). This was up 5.1 points from the April 2015 reading and was the highest point since February 2006 for the measure of signed contracts to purchase a previously owned home. Much of the month’s gains came from large gains in the West (+11.4%) and the South (+6.8%), while the index edged up 1.2% in the Northeast and slipped 0.6% in the Midwest. The index had positive 12-month comparables in all 4 Census regions. The press release notes that sales were a bit above expectations even with “affordability stresses and inventory squeezes affecting buyers in a number of markets.”

#5Consumer confidence hit a 1.5 year high in May, according to one survey. The University of Michigan’s Index of Consumer Sentiment jumped 5.7 points for the month to a seasonally adjusted reading of 94.7 (1966 Q1 = 100). While this was off 1.1 points from the preliminary May report released a few weeks ago, it was the highest final reading since December 2013 with only 4 months over the past 110 having a better reading than that reported for May. The current conditions index hit a post-recession high with a 3.2 point bump to 109.9 while the expectations index surged 7.3 points to 84.9. The press release attributes the strong survey results to “increased jobs and incomes as well as low inflation and interest rates,” along with higher home values. The researchers also said that the survey data suggests “real” consumption will growth 2.5% in 2016 and 2.7% in 2017.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending May 21, 2016, First-Time Claims, seasonally adjusted):268,000 (-10,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 278,750 (+1.5% vs. the same week a year earlier).
FHFA House Price Index (March 2016, Purchase Only Index, seasonally adjusted): +0.7% vs. February 2016, +6.1% vs. March 2015.

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

Existing Home Sales, Housing Starts Grow: What We Learned During the Week of May 16 – 20

Relatively speaking, last week featured solid if not particularly spectacular data on both housing and manufacturing activity. Here are the 5 things we learned from U.S. economic data released during the week ending May 20.

#1Home sales held near to post-recession highs in April. Sales of previously owned homes gained 1.7% during the month to a seasonally adjusted annualized rate (SAAR) of 5.45 million units. While sales were 6.0% above its year ago reading, the National Association of Realtors’ measure has consistently stayed in the low 5-million SAAR range for more than a year. For the month, sales jumped 12.1% in the Midwest and 2.8% in the Northwest, but slowed 2.7% in the South and 1.7% in the West. More owners are putting their properties on the market.052016 There were a seasonally adjusted 2.14 million homes for sale at the end of April, up 9.2% from March and the most since last September. But even with the gain, this still translated into a tight 4.7 month supply. As a result, the median sales price of previously owned homes of $232,500 was up 6.3% from a year earlier. Because of the price appreciation, NAR’s press release warned that “there’s growing concern a number of buyers will be unable to find homes at affordable prices if wages don’t rise and price growth doesn’t slow.”

#2Housing starts grow in April while home builder sentiment remains firm. The Census Bureau estimates April new home starts were at a seasonally adjusted annualized rate (SAAR) of 1.172 million units. While this was up 6.6% from March, it was off 1.7% from a year earlier with the data series remaining within a tight SAAR range of the low 1 million units since last spring. During the month, starts gained by double-digit percentages in both the Midwest and South, but chilled in the West and Northeast. Starts of single-family homes gained 3.3% while those for multi-family units jumped 13.9%. Looking forward, the count of issued construction permits increased 3.6% to a SAAR of 1.116 million units (-5.3% vs. April 2015). The SAAR of issued permits for single-family homes gained 1.5% during the month while those for multi-family units grew 8.0%. Softening was the SAAR of completed homes—at 933,000 units, it was off 11.0% for the month and 7.4% from the same month a year earlier.

Homebuilders remained confident about the housing market in May. The Housing Market Index from the National Association of Home Builders held steady a seasonally adjusted reading of 58 for a 4th straight month in May. For 23 straight months, the index has been above a reading of 50, which means more homebuilders view the housing market as “good” as opposed to being “poor.” The index gained in the Midwest (59) and South (60), held steady in the West (67) and fell in the Northeast (36). While the indices for present sales and the traffic of potential buyers were both unchanged (at readings of 63 and 44, respectively), the expected sales index added 3 points to 65. The press release stated that “job creation, low mortgage interest rates and pent-up demand will also spur growth in the single-family housing sector moving forward.”

#3Manufacturing output gained in April. According to the Federal Reserve, manufacturing production increased 0.3% during the month but was up a mere 0.4% from a year earlier. All of the gain was for durable goods production, which grew 0.6% during April with strong gains for machinery (approximately +2.5%) and automobile production (approximately +1.25%). Nondurable goods production was unchanged for the month, even though output grew for food/beverages and plastics/rubber products. Overall industrial production expanded for only the 2nd time in 8 months with a 0.7% increase but remained 1.1% below output from the same month a year earlier. While utility output surged 5.8%, mining output contracted for an 8th consecutive month with a 2.3% decline. The latter reflected ongoing declines in the extraction of oil, natural gas and coal. While capacity utilization gained a ½ percentage point to 75.4%, this was 4.6 percentage points below its 44-year average. Manufacturing factory utilization inched up 2/10ths of a percentage point to 75.3%, which was 3.2 percentage points below its historic average.

#4Consumer prices jumped in April and not only at the gas pump. The Bureau of Labor Statistics’ Consumer Price Index (CPI) grew a seasonally adjusted 0.4% during the month, its largest single-month increase since February 2013. Energy CPI jumped 3.4%, which includes an 8.1% bump in prices at the gas pump. Meanwhile, food prices gained 0.2%. Net of both energy and food, core CPI grew 0.2% during the month and was up 2.1% over the past year. Prices for core goods slipped 0.1%, pulled down by lower prices for apparel and both new and used vehicles (-0.3% for all three). Prices for core services gained 0.3%, which includes the impact of a 0.7% jump in transportation services prices (including higher prices for motor vehicle insurance and airplane tickets).

#5Measures of current and leading economic indicators improved during April. The Chicago Fed National Activity Index (CFNAI), a weighted measure of 85 economic indicators, surged by 65-basis points to a positive reading of +0.10. This was the measure’s best reading since January and indicative of above average economic activity as the measure was pulled up by a 58-basis gain in the index components tied to production/income (to a contribution to CFNAI of +0.19) Also improving, although by far smaller amounts, were index components associated with employment (contribution to CFNAI of -0.02), consumption/housing (contribution to CFNAI of -0.07) and sales/orders/inventories (contribution to CFNAI of 0.00). The CFNAI’s 3-month moving average lost 4-basis points to a reading of -0.22. This reading indicates below average economic activity over the past 3 months.

Meanwhile, the Conference Board’s Leading Economic Index advanced 8/10ths of a point in April to a reading of 123.9 (2010=100). Nine of 10 components made positive contributions to the index during the month, led by the interest rate spread, manufacturing hours worked, jobless claims and building permits. The coincident index added 3/10ths of a point to 113.6, with all 4 components making a positive contribution to the index. The lagging index grew by 4/10ths of a point to 121.5, with 4 of 7 index component making a positive contribution. The press release noted that “labor market and financial indicators, and housing permits all point to a moderate growth trend continuing in 2016.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending May 14, 2016, First-Time Claims, seasonally adjusted): 278,000 (-16,000 vs. previous week; +2,000 vs. the same week a year earlier). 4-week moving average: 275,750 (+1.9% vs. the same week a year earlier).
Treasury International Capital Flows (March 2016, Net Domestic Securities Purchased by Foreign Investors): +$64.7 billion (vs. +$28.9 billion in February 2016, vs. +$45.4 billion in April 2015).
FOMC meeting minutes (April 2016)

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

Retail Sales Bloomed in April: What We Learned During the Week of May 9 – 13

April was a good month for retailers, employers continued to seek workers and producer prices firmed. Here are the 5 things we learned from U.S. economic data released during the week ending May 13.

#1April featured broad-based retail sales gains. The Census Bureau reports that retail sales were at a seasonally adjusted $453.4 billion during the month, up 1.3% from March and 3.0% from a year earlier (the best 12-month comparable since late 2014). Some of the increase reflects the recent hikes in gasoline prices (note that retail sales data does not control for price changes) with sales at gas stations jumping 2.2% for the month. Net of sales at gas stations and at auto dealers/parts stores 051316(which enjoyed a robust 3.2% sales gain), core retail sales increased 0.6% in April and were 4.4% above year ago levels. Most retailer categories saw sales gains, led by monthly gains at apparel retailers (+1.0%), grocery stores (+0.9%), furniture retailers (+0.7%) and electronics/appliances stores (+0.5%). Nonstore retailers (e.g., internet retailers) continued to take on market share, with a 2.1% gain in sales during April and a 12-month comparable of +10.2%.

#2While the number of job openings remains strong, hiring softened in March. According to the Bureau of Labor Statistics, there were a seasonally adjusted 5.757 million job openings at the end of the month. This was up 149,000 job openings from February, an increase of 11.1% from March 2015, a post-recession high and the most in the 16-year history of the data series. Industries reporting the largest year-to-year percentage gains in job openings were financial activities (+28.7%), health care/social services (+21.8%), professional/business services (+15.3%), manufacturing (+14.5%), retail (+9.6%) and accommodation/food services (+8.1%). 5.292 million people were hired during the month, down 218,000 from February but still up 3.6% from a year earlier. So, what were the largest percentage gains in hiring over the past year? They include the government (+15.5%), accommodation/food services (+11.2%), financial activities (+10.2%) and construction (+9.6%). Separations totaled 5.045 million, up 1.2% from a year earlier, with voluntary quits (2.980 million) well outpacing layoffs (1.671 million). The former was 9.5% above year ago levels while layoffs were off a sharp 12.4%.

#3Wholesale prices firmed a bit in April. The Bureau of Labor Statistics estimates final demand Producer Price Index (PPI) grew 0.2% during the month, its largest single-month gain since January. Also hitting a 3-month high was core final demand PPI (net of both energy and food), which increased 0.3%. Wholesale prices for final demand goods increased 0.2%. PPI for final demand energy goods inched up 0.2% following a 1.8% gain in March (gasoline PPI increased 5.5%) while those for final demand food goods contracted for 3rd straight month with a 0.3% decline. Net of energy and food, PPI for final demand core goods increased 0.3%, its largest single-month increase since last June. PPI for final demand services grew 0.1%, its 1st monthly increase since January. Versus a year earlier, producer prices were up 0.1%, its 1st positive year-to-year comparable since late 2014. Net of energy and food goods, core PPI has grown 0.9% over the past 12 months.

#4Small business owners’ optimism improves in April. The Index of Small Business Optimism from the National Federation of Independent Business gained a full point during the month to a seasonally adjusted 93.6 (1986 = 100), its best reading since January. 5 of the index’s 10 components improved during the month, led by indices for current job openings, earning trends, plans to increase employment, plans to increase inventories and whether it is a good time expand. One index component—expected economic conditions—slipped during the month. Following the organization’s typically gloomy tone, the press release did not celebrate the gain in the index, noting that survey respondents “remain extremely pessimistic about the economy, and rightfully so.”

#5Business inventories grow during March at their fastest rate since last June. The Census Bureau estimates the value of manufacturers’ and trade inventories was at a seasonally adjusted $1.819 trillion at the end of March, a 0.4% increase from February and up 1.5% from a year earlier. This followed contractions of -0.1% during both January and February. All 3 of major categories of business inventories expanded during the month: retailers (+1.0%), manufacturers (+0.2%) and merchant wholesalers (+0.1%). Versus a year earlier, retail inventories were 6.7% larger while those of wholesalers were up 0.3%. Manufacturers’ inventories have contracted 2.1% over the past year. The inventory-to-sales (I/S) ratio was unchanged for the month at 1.41, which was up 4-basis points from a year earlier. In comparison to their March 2015 readings, the I/S ratio was up 8-basis points for retailers (1.52), 4-basis points for merchant wholesalers (1.36) and 3-basis points among manufacturers (1.37).

Other data released over the past week that you might find of interest:
Jobless Claims (week ending May 7, 2016, First-Time Claims, seasonally adjusted): 294,000 (+20,000 vs. previous week; +21,000 vs. the same week a year earlier). 4-week moving average: 268,250 (-2.0% vs. the same week a year earlier).
Import Prices (April 2016, not seasonally adjusted): +0.3% vs. March 2016, -5.7% vs. April 2015.
Export Prices (April 2016, not seasonally adjusted): +0.5% vs. March 2016, -5.0% vs. April 2015.
University of Michigan Index of Consumer Sentiment (May 2016—preliminary, Index (1966 Q1 = 100, seasonally adjusted): 95.8 (+6.8 points vs. April 2016, +5.1 points vs. May 2015).
Federal Treasury Budget (April 2016, Surplus/Deficit): +$106.5 billion (March 2016: -$108.0 billion, April 2015: +$156.7 billion). 1st 7 months of FY 2016: -$354.6 billion (vs. +25.4% vs. 1st 7 months of FY 2015).

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