Q2 GDP Growth Was Well Below Forecasts: What We Learned During the Week of July 25 – 29

Ok, the first estimate of Q2 economic growth was not “decent” after all. Actually, the word “disappointing” is more appropriate. Here are the 5 things we learned from U.S. economic data released during the week ending July 29.

#1The U.S. economy grew at a far slower pace during Q2 than expected. The Gross Domestic Product (GDP) estimate from the Bureau of Economic Analysis showed only a 1.2% gain on a seasonally adjusted annualized basis. This was well below consensus forecast that had expected a gain in the range of 2.0% and 2.5% for the months of April, May, and June. Even worse, the BEA lowered its estimates for Q1 2016 and Q4 2015 economic expansion to just +0.8% and +0.9%, respectively. The weak Q2 report occurred despite consumption growing at its fastest pace in 6 quarters (+4.2%, SAAR). Also making a positive contribution to GDP growth was net exports, with exports increasing 1.4% and imports slowing 0.4%. Drags on GDP growth included fixed investment (residential: -6.1%, nonresidential: -2.2%) and government expenditures (-0.9%). Further, the tepid pace of private inventory accumulation of “just” $18.4 billion cost 116-basis points in GDP growth just by itself. Private inventory accumulation has been a drag on GDP growth for the past 5 consecutive quarters. The BEA will update its Q2 GDP report twice over the next 2 months.072916

#2The Fed decides to not make a move, but once again opens the door for a possible rate hike later this year. The policy statement released following the conclusion of the Federal Open Market Committee meeting noted that the U.S. economy was growing “at a moderate rate” and that the labor market had “strengthened,” with signs that there had been “some increase in labor utilization.” Household spending was growing, but business spending was “soft” and inflation remained below the Fed’s 2% target (although this was largely because of previous declines in energy prices). As a result, the FOMC voted to maintain the .25%-.50%, which the statement described as “accommodative, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.” The statement stressed that the downside risks to the economy had “diminished” and that it Fed expects inflation to move closer to its 2% target as energy and import prices firm and the “labor market strengthens further.” (Note that the FOMC policy statement was released on Wednesday, 2 days before the release of the disappointing GDP report referenced above.)

#3Durable goods sputtered gain in June. The Census Bureau reports that new orders for durable goods slumped 4.0% during the month to a seasonally adjusted $219.8 billion (-6.4% vs. June 2015). A major culprit was the typically volatile aircraft segments: civilian aircraft orders plummeted 58.8% while defense aircraft orders slowed 7.4%. Those declines were only marginally counterbalanced by a 2.6% bump up in motor vehicles orders. Net of transportation goods, new orders dropped 0.5% during the month and were 3.6% below the year ago pace. Most other durable goods categories suffered from declining new orders; including, computers/electronics (-2.2%), primary metals (-1.3%), and fabricated metal products (-0.3%). One bright spot was a 0.8% increase in orders for electrical equipment/appliances. Meanwhile, shipments of durable goods grew for the 2nd time in 3 months with a 0.4% increase to $235.5 billion (-2.0% vs. June 2015). Net of transportation goods, durable goods shipments slipped 0.2% for the month and were 3.2% below the year ago pace.

#4On the heels of last week’s existing home sales report, new home sales hit an 8-year high in June. The Census Bureau reports that the seasonally adjusted annualized sales pace for new home sales of 592,000 was up 3.5% from May, 25.4% from a year earlier and the highest reading since February 2008. Sales grew during June in the West (+10.9%), and Midwest (+10.4%), but slowed in the Northeast (-5.6%) and South (-0.3%). All 4 Census regions had positive double-digit percentage gains versus their June 2015 paces. While inventories of unsold homes remained at a tight 4.9 month supply, the 244,000 new homes available for sale at the end of June was up 1.2% from May 2016 and 13.0% from June 2015. The median sales price of $306,700 was 6.1% above year ago levels.

#5One measure of consumer sentiment was essentially flat in July, another one fell. The Conference Board Consumer Confidence Index slipped by 1/10th of a point to a seasonally adjusted 97.3 (1985=100). The present conditions index added 1.7 points to 118.3 (its best reading in 10 months) while the expectations index lost 1.3 points to 83.3. 28.1% of survey respondents described current business conditions as “good” while 19.0% said that they were “bad.” Nearly matching were the percentages of consumers who agreed that jobs were either “plentiful” (23.0%) and “hard to get” (22.3%). The press release stated that the results “[suggest] will continue to expand at a moderate pace.”

More glum were the results from the University of Michigan Index of Consumer Sentiment, which shed 3.5 points in July to a seasonally adjusted 90.0 (1966Q1=100). While this was the measure’s lowest reading since April, it represented a half point improvement from the preliminary July reading reported a few weeks ago. Indices for both current and expected conditions, with the former off 1.8 points to 109.0 and the latter down 4.6 points to 77.8. The press release suggests that drop in sentiment was the product of “uncertainties surrounding global economic prospects and the presidential election.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 23, 2016, First-Time Claims, seasonally adjusted): 266,000 (+14,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 256,500 (-6.8% vs. the same week a year earlier).
Pending Home Sales (June 2016, Index (2001=100), seasonally adjusted): 111.0 (+0.2% vs. May 2016, +1.0% vs. June 2015).
Case-Shiller Home Price Index (May 2016, 20-City Index, seasonally adjusted): -0.1% vs. April 2016, +5.2% vs. May 2015.
Agricultural Prices (June 2016, Prices Received by Farmers, seasonally adjusted): -1.4% vs. May 2016, -10.6% vs. June 2015.
Bankruptcy Filings (12-month period ending June 30 2015): 819,159 (-6.9% vs 12-month period ending June 30, 2015). Business filings: 25,277 (+0.7% vs. 12-month period ending June 30, 2015). Nonbusiness filings: 793,932 (-7.1% vs. 12-month period ending June 30, 2015).

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

Perhaps Decent Economic Growth in Q2: What We Learned During the Week of July 18 – 22

A series of economic data released last week finds moderate economic growth during the tail end of Q2. Here are the 5 things we learned from U.S. economic data released during the week ending July 22.

#1Economic activity expanded in June. The Chicago Fed National Activity Index (CFNAI) jumped 72-basis points to a seasonally adjusted reading of +0.16. This was only the 2nd time this year in which the economic activity measure based on 85 indicators as tracked by the Federal Reserve Bank of Chicago was in positive territory. 3 of 4 major categories of index components improved during the month, led by those dealing with production/income, employment, and sales/orders. Also improving was the CFNAI’s 3-month moving average, as it gained by 27-basis points to -0.12. While this 17th time over the past 18 months in which the moving average was negative (indicative of below average but still positive economic growth), this was its best reading since February.072216

#2A measure of leading economic indicators also perked up in June. The Conference Board’s Leading Economic Index gained 3/10ths of a point during the month to 123.7 (2010=100). This was only the 2nd increase in 8 months for the measure. 8 of the LEI’s 10 components improved during the month, led by initial jobless claims and the interest rate spread. The coincident index also added 3/10ths of a point during June, rising to a reading of 113.8. All 4 index components improved during the month, including nonagricultural payrolls and industrial production. Finally, the lagging index slipped 1/10th of a point to 121.9, with only 3 of 7 index components advancing. The press release stated that the leading index remains consistent with “moderating economic growth,” but nevertheless the “expansion still appears resilient enough to weather volatility in financial markets and a moderating outlook in labor markets.”

#3June was the best month for existing home sales since February 2007. The National Association of Realtors estimates sales of previously owned homes were at a seasonally adjusted annualized rate of 5.57 million units. This was up 1.1% from May 2016 and 3.0% from a year earlier. Sales grew in the Midwest (+3.8%) and West (+1.7%), held steady in the South but slowed 1.3% in the Northeast. Inventories of previously owned homes shrank 0.9% during June to 2.12 million units (-5.8% vs. June 2015). The resulting tight 4.6 month supply promoted a 4.8% year-to-year gain in the median sales price to $247,700. NAR’s press release also noted that the percentage of homes purchased by first-time buyers hit a 4 year high at 33% while the share of purchases by investors dropped to its lowest point since July 2009 at 11%.

#4While gaining during June, housing starts remained mired within a tight range. The Census Bureau’s housing starts estimate of 1.189 million units (seasonally adjusted annualized rate) was up 4.8% for the month but off 2.0% from a year earlier. Over the past year, the rate of housing starts has stayed with a range between 1.073 million and 1.214 million units. Starts of single-family home units gained 4.4% to 778,000 units (+13.4% vs. June 2015) while the multi-family rate gained 5.4% to 411,000 units (-22.0% vs. June 2015). Looking towards future activity, there were 1.153 million issued permits (SAAR), up 1.5% from May 2016 but -13.5% below year ago levels. The rate of issued permits for single-family homes edged up 1.0% to 738,000 (+5.1% vs. June 2015) while that for multi-family units gained 2.5% to 415,000 (-34.3% vs. June 2015. Completions jumped 12.3% during June to 1.147 million units (SAAR). This was 18.7% above year ago levels.

#5Homebuilder confidence remained solid in July. The National Association of Home Builders’ Housing Market Index (HMI) slipped by a point during the month to a seasonally adjusted 59. This was the 25th straight month in which the HMI was above a reading of 50 (meaning more builders describe the housing market as “good” than describe it as “poor”) with every reading since June 2015 being at or above 58. The index improved in 3 of 4 Census regions (Northeast, Midwest, and West), but lost ground in the South. Also moving backward were measures of current sales (down a point to 63) and expected sales of single-family homes (down 3 points to 66) along with the prospective buyers traffic index (off a point to 45). While the press release expressed expectations “for continued slow, steady growth in the housing market,” it noted that some homebuilders reported “scatter softness in some markets, due largely to regulatory constraints and shorts of lots and labor.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 16, 2016, First-Time Claims, seasonally adjusted): 253,000 (-1,000 vs. previous week; -10,000 vs. the same week a year earlier). 4-week moving average: 264,750 (-7.3% vs. the same week a year earlier).
Treasury International Capital Flows (May 2016, Net Foreign Purchases of U.S. Securities): +$11.5 billion (vs. April 2016: -$53.5 billion, vs. +$82.0 billion).
FHFA Home Price Index (May 2016, Purchase Only Index, seasonally adjusted): +0.2% vs. April 2016, +5.6% vs. May 2015.
Regional and State Employment (June 2016, seasonally adjusted):  Nonfarm payrolls grew vs. May 2016 in 18 states, decreased in 3 states & District of Columbia, and was essentially unchanged in 29 states. Payrolls grew over the past 12 months in 35 states, declined in 2 states, and were essentially unchanged in 13 states & District of Columbia.

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

Manufacturing, Retail Gains: What We Learned During the Week of July 11 – 15

June was a good month for both manufacturing and retail sales. Meanwhile, prices firmed a bit. Here are the 5 things we learned from U.S. economic data released during the week ending July 15.

#1A jump in motor vehicle production led to the 2nd increase in manufacturing activity in 3 months during June. The Federal Reserve estimates manufacturing output gained 0.4% during the month with production up a matching 0.4% from a year earlier. Production of durable goods gained 0.9%, boosted by a 5.9% surge in motor vehicle output, along with sizable gains in the production of machinery, electrical equipment, and appliances. Production of nondurables slipped 0.1%, hurt by lower output of apparel, paper, chemicals, and plastics/rubber. More broadly, overall industrial production gained 0.6% during the month but remained 0.7% below year ago levels. Mining output enjoyed a 2nd straight monthly gain but remained 10.5% below June 2015 levels. Utility output increased 2.4% and was 0.5% above year ago levels. Factory utilization recovered from a drop in May—overall capacity utilization gained a half point in June to 75.4%, with manufacturing capacity utilization adding 3/10ths of a point to 75.1%.071516

 #2Retail sales heated up in June. The Census Bureau puts the seasonally adjusted value of retail sales at $457.0 billion, a 0.6% increase from May and 2.7% above year ago levels. An often clearer view of retail sales involves eliminating sales at gas stations (+1.2%) and auto dealers/parts stores (+0.1%) from the analysis. This measure of “core” retail sales grew 0.7% during June and was 4.7% above the year ago pace. Virtually every major retail segment saw sales improve during the month, led by building materials (+3.9%), sporting goods/hobby retailers (+0.8%), department stores (+0.7%), health/personal care stores (+0.7%), furniture retailers (+0.5%), and grocery stores (+0.3%). Sales also gained 1.1% at nonstore retailers (e.g., internet retailers) and were 14.2% above year ago levels. The laggards during June were apparel stores (-1.0%) and restaurants/bars (-0.3%)

#3Consumer prices grew at a moderate pace in June. The Consumer Price Index (CPI) increased 0.2% on a seasonally adjusted pace during the month and was 1.1% above year levels, according to the Bureau of Labor Statistics. Energy PPI grew for a 4th straight month with a 1.3% gain, led by 3.3% bump in both gasoline and fuel oil prices. Food CPI decreased for the 3rd time in 4 months (-0.1%), pulled down by lower prices for meats/poultry/fish/eggs, nonalcoholic beverages, dairy goods, and fruits/vegetables. Net of energy and food, core PPI gained 0.2% and was 2.3% above year ago levels (the 8th straight month in which the 12-month comparable was at/above 2.0%). Rising were prices for services (including, shelter, transportation, and medical care) while declining were prices for new & used vehicles and apparel.

#4Led by gains in energy goods and select services, wholesale prices grew at their fastest pace in more than a year. The Bureau of Labor Statistics estimates final demand Producer Price Index (PPI) grew 0.5% on a seasonally adjusted basis during June and was 0.3% above year ago levels. Core final demand PPI gained 0.3% and was 0.9% above year ago levels. Wholesale prices for final demand goods gained 0.8%, led by increases of 4.1% and 0.9% for energy and food, respectively. The former was pulled up by a 9.9% gain in gasoline prices. Net of energy and food, final demand PPI was unchanged for the month. PPI for final demand services increased 0.4% during the month, thanks to higher prices for trade services (i.e., margins for wholesalers and retailers, +0.7%) and transportation/warehousing (+0.5%).

#5The count of job openings and the pace of hiring both declined in May…but then we already knew that. Following the path of weak employment report from May (which has since been followed by a strong June), the Bureau of Labor Statistics reports that the seasonally adjusted count of job openings fell by 345,000 during the month to a seasonally adjusted 5.500 million. This was nevertheless 2.1% above May 2015 levels. Private sector industries with the largest percentage year-to-year gains in job openings include health care/social assistance (+10.4%), retail (+10.2%), manufacturing (+7.0%), construction (+6.2%), and accommodation/food services (+5.7%). 5.036 million people were hired during the month, down 49,000 jobs from April and 1.5% from a year earlier. Sizable month-to-month declines in hiring occurred in construction, trade/transportation/utilities, and professional/business services. The count of people leaving the jobs declined by 63,000 during May to 4.952 million workers (+1.7% vs. May 2015). A positive sign remains the count of people voluntarily leaving their jobs (because it is a sign of optimism)—quits totaled 2.895 million, up 5.0% from a year earlier. Meanwhile, layoffs were 2.1% below May 2015 levels at 1.667 million workers.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending July 9, 2016, First-Time Claims, seasonally adjusted): 254,000 (unchanged vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 264,750 (-7.6% vs. the same week a year earlier).
Import Prices (June 2016, not seasonally adjusted): +0.2% vs. May 2016, -4.8% vs. June 2015. Net of fuel: -0.3% vs. May 2016, -1.8% vs. June 2015.
Export Prices (June 2016, not seasonally adjusted): +0.8% vs. May 2016, -4.8% vs. June 2015. Net of agricultural exports: +0.5% vs. May 2016, -3.8% vs. June 2016.
University of Michigan Index of Consumer Sentiment (July 2016-preliminary, Index (1966Q1 = 100), seasonally adjusted): 89.5 (-4.0 points vs. June 2016, -3.6 points vs. July 2015).
NFIB Small Business Optimism Index (June 2016, Index (1986 = 100), seasonally adjusted): 94.5 (+7/10ths of a point from May 2016, -1/10th of a point from June 2015).
Federal Budget (June 2016, Surplus/Deficit): +$6.3 billion (vs. May 2016: -$52.5 billion, vs. +$50.5 billion). Deficit 1st 9 months of FY16: -$400.8 billion (+26.7% vs. 1st 9 months of FY15).
Beige Book

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