Business Activity Was Rocky This Spring: What We Learned During the Week of June 20 – 24

As the world considers the economic and political implications of the Brexit vote, we learned last week that U.S. economic activity lagged during the spring. Here are the 5 things we learned from U.S. economic data released during the week ending June 24.

#1Two indicators of economic activity show soft business conditions this spring. The Chicago Fed National Activity Index (CFNAI), a monthly index based on 85 economic indicators that tracks overall economic activity, dropped 56-basis points during May to a reading of -0.51. While all 4 major categories of index components deteriorated from their April readings, the bulk of decline was associated with production/income-related economic indicators. 062416These measures made a negative contribution to the CFNAI of 32-basis points (a 45-basis point drop from their April contribution of +0.13). The other 3 major categories of index components also losing stream during May were: consumption/housing (off 7-basis points to -0.09), employment (off 3-basis points to -0.09) and sales/orders (off a basis point to -0.01). The CFNAI’s 3-month moving average shed 11-basis points to -0.36. This was the moving average’s lowest reading in nearly 4 years. Nevertheless, the reading is not indicative of an U.S. economy that was in a recession since it remained above -0.70. Rather, the moving average reading of -0.36 is consistent with below average economic growth.

The Conference Board’s Leading Economic Index lost 2/10ths of a point during May to a reading of 123.7. The index was unchanged from 6 months earlier and was up by only 1.2% from a year earlier. 6 of 10 components made a positive contribution to May’s leading index reading, including the interest rate spread, factory orders for nondefense/non aircraft capital goods, and building permits. The main drag was a bump up in 1st time unemployment insurance claims. The coincident index was unchanged for the month and was up 1.9% from a year earlier. 3 of the coincident index’s 4 components improved during May. The lagging index added 3/10ths of a point during the month to 121.5 (+3.8% vs. May 2015), as 5 of 7 index components enjoyed gains. The press release said the index readings suggest “moderate” economic growth over the coming months but warns that “volatility in financial markets and a moderating outlook in labor markets could pose downside risks to growth.”

#2Sales of previously owned homes inched ahead to a post-recession high during May. Existing home sales were a seasonally adjusted annualized rate of 5.53 million units during the month, up 1.8% from April, up 4.5% from a year earlier, and the fastest sales pace since February 2007. According to the National Association of Realtors, sales of previously owned homes improved in 3 of 4 Census regions during the month: West (+5.4%), South (+4.6%), and Northeast (+4.1%). Sales slowed 6.5% in the Midwest. There were 2.15 million homes available for sale at the end of May, up 1.4% from April but off 5.7% from May 2015. The resulting tight 4.7 month supply led to a 4.7% year-to-year increase in the median sales price of previously owned homes to $239,700. While warning that first-time homebuyers were “still struggling to enter the market,” NAR’s press release did predict that home sales “have the potential to mostly maintain their current pace through the summer.”

#3Even with a drop in May, new home sales also remained their near post-recession highs. The Census Bureau reports that new home sales were at a seasonally adjusted annualized rate of 551,000 units. Despite being down 6.0% for the month, new home sales were 8.7% above their year ago pace. Sales slowed in 3 of 4 regions—the Northeast, West, and South—but improved in the Midwest. 3 of 4 Census regions—the Northeast, Midwest, and South had positive year-to-year sales gains. Homebuilders had 244,000 homes on the market at the end of May (+1.2% vs. April 2016, +16.2% vs. May 2015), the equivalent to a 5.3 month supply.

#4Durable goods orders stumbled in May following 2 monthly gains. The Census Bureau estimates the value of new orders for durable manufactured goods declined 2.2% to a seasonally adjusted $230.7 billion (+1.5% vs. May 2015). Transportation goods orders fell 5.6% during the month as orders for vehicles (-2.8%) and defense aircraft (-34.1%) both slowed. Civilian aircraft orders grew 1.0% in May following the previous month’s 69.4% surge. Orders for non-transportation durable goods declined 0.3% during the month following gains of 0.3% and 0.5% during the 2 previous months. While orders for communications equipment jumped 4.7%, orders dropped for computers (-2.5%), primary metals (-1.4%), and fabricated metals (-0.3%). Shipments declined for the 3rd time over the past 4 months with a 0.2% drop. Non-transportation goods shipments slowed 0.3%. The value of unfilled orders expanded for the 4th time in 5 months with a 0.2% increase while inventories of durable goods contracted for the 10th time in the past 11 months with a 0.3% decline.

#5One survey finds consumers are slightly less optimistic about economic conditions. The University of Michigan Index of Consumer Sentiment came in at a seasonally adjusted reading of 93.5 for June, off 8/10ths of a point from the preliminary June reading released a few week ago, 1.2 points from May, and 2.6 point from a year earlier. The drop from May was the result of a weaker outlook for future economic business conditions, with an index reading 82.4 being off 2.5 points from May and 5.4 points from a year earlier. The present conditions index edged up 9/10ths of a point during the month to 110.8 (+1.9 points vs. June 2015). The press release stated that consumers do not anticipate a recession but they “increasingly expect a slower pace of growth in the year ahead.” Further, the results are consistent with GDP growth of less than 2.0% and real consumer spending increased 2.6% for all of 2016.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending June 18, 2016, First-Time Claims, seasonally adjusted): 259,000 (-18,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 267,000 (-2.6% vs. the same week a year earlier).
FHFA House Price Index (April 2016, Purchase-Only Index, seasonally adjusted): +0.2% vs. March 2016, +5.9% vs. April 2015.

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

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