Smaller Q2 GDP Estimate, Perhaps Improvement in July: What We Learned During the Week of August 22 – 26

Even with a lower estimate for Q2 GDP, economic activity appears to have picked up in July. Here are the 5 things we learned from U.S. economic data released during the week ending August 26.

#1A small downward revision in Q2 GDP growth. The Bureau of Economic Analysis now says Gross Domestic Product (GDP) grew at a tepid seasonally adjusted annualized rate (SAAR) of +1.1%. This was off from the +1.2% annualized gain reported a month ago. The downward revision was the product of smaller than previously believed levels of state/local government spending and slower private inventory accumulation. As we saw with last month’s report, Q2 GDP growth was largely the result of higher consumption, which added 294-basis points to the rate of economic growth, with net exports the only other positive contributor to GDP growth. Drags on economic activity were fixed residential and nonresidential investment, private inventory accumulation, and government expenditures. The Personal Consumption Expenditures (PCE) deflator, a measure of inflation, was at +2.0% (SAAR) during the quarter. The core PCE deflator, which removes both energy and food from the analysis, was at +1.8%. Corporate profits (after adjustments for inventory valuation and capital consumption) slumped 1.2% during the quarter and was 4.9% below year ago levels. Look for another Q2 GDP revision next month.082616

#2July was the best month for economic activity in a year, at least according to one measure. The Chicago Fed National Activity Index (CFNAI) added 22-basis points during the month to a seasonally adjusted reading of +0.27. The Federal Reserve Bank of Chicago’s index of 85 economic indicators has not been this high since July 2015. Most of the gain came from indicators associated with production/income, with its contribution to the CFNAI increasing by 16-basis points during the month to +0.23. Also making positive contributions were indicators associated with employment (+0.09) and sales/orders (+0.01), while indicators tied to consumption/housing made a small negative contribution (-0.06). 53 of 85 individual indicators made a positive contribution to the CFNAI, as 49 of CFNAI’s indicators improved from their June readings. The 3-month moving average for the CFNAI added 9-basis points to -0.10. While this was the moving average has been negative territory for 18 consecutive months (which is indicative economic growth below its historic average), this was the moving average’s best reading since February.

#3Tight inventories slowed existing homes during July, even as new home sales hit another post-recession high. The National Association of Realtors reports that sales of previously owned homes dropped 3.2% during the month to a seasonally adjusted annualized rate (SAAR) of 5.39 million units. While this was off 1.6% from a year earlier, the SAAR for home sales remained above 5 million units every month in 2016. Sales fell in 3 of 4 Census regions on both a month-to-month (Northeast, Midwest and South) and year-to-year (Northeast, South, and West) basis. There were 2.13 million homes available for sale at the end of July (+0.9% vs. June 2016 and -5.8% vs. July 2015), equivalent to a tight 4.7 month supply. The median sales price of $244,100 was 5.3% above year ago levels. The press release linked what it called the “considerable sales slump” during the month to a “severely restrained inventory” and its resulting impact on affordability.

Meanwhile, new home sales jumped 12.4% during July to a SAAR of 654,000 units. This was up 31.3% from the July 2015 sales pace and its highest point for the Census Bureau measure since the fall of 2007. Sales improved in 3 of 4 Census regions during the month (the 1 outlier, the West, had sales matching its June pace). Sales were up by double-digit percentages on a year-to-year basis in all 4 regions. New home inventories tightened further—there were 233,00 new homes available for sale at the end of the July, which represented a mere 4.3 month supply.

#4July was a good month for durable goods orders. The Census Bureau estimates the value of manufactured durable goods grew by 4.4% during the month to a seasonally adjusted $228.9 billion. Even with the gain, this was 3.3% below year ago levels. A part, but not all, of the increase was tied to a bounce in the typically volatile transportation sector (+10.5%), with big gains in both civilian (+89.9%) and defense (+20.3%) aircraft. Net of transportation goods, new orders grew 1.5%. There were higher new orders for computers/electronics (+3.6%), electrical equipment/appliances (+2.6%), machinery (+1.6%), fabricated metal products (+1.5%), and primary metals (+1.4%). A proxy for business investment—new orders for nondefense, non-aircraft capital goods—increased 1.6% during July. Durable goods shipments edged up 0.2% during the month to $232.9 billion (-2.2% vs. July 2015). Non-transportation durable goods shipments were up 0.4% during the month. Unfilled orders slowed 0.1% while inventories expanded for the 1st time in 7 months with a 0.3% increase.

#5One measure of consumer confidence takes a very small step back in August. The Index of Consumer Sentiment from the University of Michigan slipped 2/10ths of a point during the month to a seasonally adjusted index reading of 89.8 (1966Q1 = 100). This was 6/10ths of a point below the preliminary August reading published just a few weeks ago and off 2.1 points from the final August 2015 mark. The sentiment of current and expected conditions moved in different directions during the month. The current conditions index lost 2.0 points to a reading of 107.0 (August 2015: 105.1) while the expectations index added 9/10ths of a point to 78.7 (August 2015: 83.4). Expectations for inflation slipped during the month—1-year expectations shed 2/10ths of a percentage point to +2.5% while 5-year expectations declined by a 1/10th of a point also to +2.5%. The press release stressed that even with the small drop, “consumer confidence remains at a reasonably high level.” Further, they anticipate that the “strengthen in personal finances and low interest rates will maintain the growth in real consumption at 2.6% through mid 2017.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 20, 2016, First-Time Claims, seasonally adjusted): 261,000 (-1,000 vs. previous week; -11,000 vs. the same week a year earlier). 4-week moving average: 265,250 (-3.7% vs. the same week a year earlier).
FHFA House Price Index (June 2016, Purchase Only Index, seasonally adjusted): +0.2% vs. May 2016, +5.6% vs. June 2015.

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

Factory Output Up, Consumer Prices Steady: What We Learned During the Week of August 15 – 19

July featured a 2nd straight month of increased manufacturing output while consumer prices held steady. Here are the 5 things we learned from U.S. economic data released during the week ending August 19.

#1Manufacturing output picked up in July. The Federal Reserve indicates manufacturing production expanded 0.5% during the month following a 0.3% gain in June. Output of durable goods increased 0.6%, led by gains of 1% or greater for automobiles and wood products. Nondurables production increased 0.5%, with gains of at least 0.8% for oil/coal, chemicals, plastics/rubber. Despite the recent increased activity, manufacturing output was only 0.2% above year ago levels. More broadly, overall industrial production increased 0.7% during July but was 0.5% below year ago levels. Mining output grew for only the 2nd time in 5 months (+0.7%) while hot summer weather led to a 2.1% increase in output at utilities. Factories were operating at their fastest pace of the year—capacity utilization was at 75.9%, up a half point from June. Capacity utilization in the manufacturing sector added 4/10ths of a point to 75.4%.081916

#2Consumer prices moderated in July. According to the Bureau of Labor Statistics, the Consumer Price Index (CPI) was unchanged on a seasonally adjusted basis during the month and was up only 0.9% from a year earlier. Energy CPI fell for the 1st time since February (-1.6%) as gasoline and fuel oil prices dropped 4.7% and 1.3%, respectively. Energy CPI was 10.9% below year ago levels. Food prices were unchanged for the month and were up a modest 0.8% from a year earlier. Net of both energy and food, core CPI grew 0.1% (its slowest pace since February) and was 2.2% above year ago levels. Increasing during the month were prices for medical care services (+0.5%), medical care commodities (+0.4%) new vehicles (+0.2%), and shelter (+0.2%). Meanwhile, prices for both used vehicles (-1.0%) and transportation services (-0.2%) fell.

#3Leading indicators grew for the 3rd time in 4 months. The Conference Board’s Leading Economic Index added a half point during July to a seasonally adjusted 124.3 (2010=100). This was up 1.2% from a year earlier. July’s gain came as 8 of 10 index components made positive contributions, led by average weekly manufacturing hours, the interest rate spread, stock prices, and jobless claims. The coincident index increased by 4/10ths of a point to 113.9 (+1.6% vs. July 2015), boosted by positive contributions for all 4 index components. The lagging index grew by 1/10th of a point to 121.8 (+3.0% vs. July 2015) with only 2 in 7 index components making a positive contribution. The press release indicates that “moderate economic growth should continue through the end of 2016.”

#4Housing starts grow but the count of issued housing permits flattens. The Census Bureau puts the seasonally adjusted annualized rate (SAAR) of housing starts for July at 1.211 million units, up 2.1% from the previous month and 5.6% from a year earlier. Starts of single-family homes inched up 0.5% while those for multifamily units jumped 5.0%. Starts were up in 3 of 4 Census region on both a month-to-month and year-to-year basis (the West being the exception for the former and the Northeast the negative outlier for the latter). Looking towards the future, the SAAR of issued housing permits slipped 0.1% during the month to 1.152 million units (+0.9% vs. July 2015). The rate of issued permits for single-family homes was off 3.7% from a year earlier while the 12-month comparable for multi-family unit permits was up 6.3%. Housing completions was at a SAAR of 1.026 million units, down 8.3% from the previous month but up 3.2% from a year earlier.

#5Homebuilder confidence rises to its highest point since January. The Housing Market Index from the National Association of Home Builders added 2 points in August to a seasonally adjusted reading of 60. This was the 26th consecutive month in which the measure of homebuilder sentiment was above a reading of 50, which means more builders saw the housing market as “good” versus being “poor.” The index improved in the Northeast and South but fell in the Midwest and West. Gaining were indices for present single-family home sales (up 2 points to 65) and expected sales over the next 6 months (up a point to 67) while the measure for the traffic of potential buyers shed a point to 44. In its press release, the NAHB noted continued confidence that new home sales would remain “on an upward path during the rest of the year.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 13, 2016, First-Time Claims, seasonally adjusted): 262,000 (-4,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 265,250 (-3.0% vs. the same week a year earlier).
Regional/State Employment (July 2016, Nonfarm Payrolls): Vs. June 2016: Payrolls grew in 15 states, fell in 1 state. Vs. July 2015: Payrolls grew in 34 states, fell in 2 states.
Treasury International Capital Data (June 2016, Net Domestic Securities Purchased by Foreign Investors): +$7.6 billion (vs. May 2016: +$12.2 billion; +$89.3 billion).
FOMC Minutes

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

Retail Sales Pause, Productivity Declines Again: What We Learned During the Week of August 8 – 12

Retail sales took a summer break during July while productivity’s losing streak stretched into a 3rd straight quarter. Here are the 5 things we learned from U.S. economic data released during the week ending August 12.

#1Retail sales stayed cool in the summer heat during July. The Census Bureau places its estimate of retail/food sales at a seasonally adjusted $457.7 billion, essentially matching June’s levels and up a moderate 2.3% over the past year. Some of the stagnation reflected lower gasoline prices that led to a 2.7% drop in sales at gas stations (the retail sales measure is not adjusted for price variations). Removing sales at gas stations and at auto dealers and parts stores (which enjoyed a 1.1% sales gain), core retail sales dropped 0.1% during the month but were up 3.8% from a year earlier. Sales fell across most retail sectors; including, sporting goods/hobby stores (-2.2%), grocery stores (-0.9%), building materials retailers (-0.5%), department stores (-0.5%), and restaurant/bars (-0.2%). Furniture retailers and health/personal care stores eked out gains of 0.2% and 0.1%, respectively. Finally, sales at “nonstore” retailers (e.g., internet retailers) jumped 1.2% for the month and were 14.1% above  year ago levels. 081216

#2The count of job openings and the pace of hiring rebounded in June. The Bureau of Statistics estimates there were a seasonally adjusted 5.624 million job openings at the end of the month, up 110,000 from May and 8.8% above year ago levels. Industries with the largest year-to-year percentage gains in job openings were construction (+33.3%), manufacturing (+32.7%), finance/insurance (+25.5%), government (+15.1%), leisure/hospitality (+11.4%), and health care/social assistance (+10.5%). Hiring increased by 84,000 jobs to 5.131 million. This was down 0.3% from a year earlier. While there were healthy year-to-year percentage hiring gains in leisure/hospitality (+9.7%), the government (+9.6%), health care/social assistance (+8.5%), and manufacturing (+5.6%), hiring declined in construction (-12.4%), wholesale trade (-10.9%), retail (-8.7%), and professional/business services (-4.9%). Americans were still voluntarily quitting jobs at a faster rate than that of a year earlier (2.909 million, +5.9% vs. June 2015) while layoffs were 7.9% below year ago levels at 1.643 million.

#3Food and energy goods pulled down July wholesale prices. The Bureau of Labor Statistics’ Producer Price Index (PPI) for final demand dropped 0.4% during the month, its 1st decline since March. Net of food, energy, and trade services, core final demand PPI was flat during the month. Prices for final demand goods decreased 0.4%, led by falling wholesale prices for energy and food. The former declined because of lower gasoline prices. The latter reflected the 9.8% drop in prices for beef/veal, along with lower prices for corn and oil seeds. PPI for final demand trade dropped 0.3% as trade PPI (essentially margins for wholesalers and retailers) slumped 1.3%, including a sharp 6.0% fall for the apparel/jewelry retail sector. Over the past year, final demand PPI has fallen 0.2%, with the core final demand index up a still weak 0.8% since July 2015.

#4Productivity declined for a 3rd consecutive quarter. The Bureau of Labor Statistics reports that nonfarm business output per hour declined 0.5% on a seasonally adjusted annualized basis during the 2nd quarter, following contractions of 0.6% and 2.4% during the 2 preceding quarters. The Q2 drop in productivity was the product of an annualized 1.8% gain the number of hours worked leading to only a 1.2% increase in output. Productivity slowed 0.4% over the past year with gains in hours worked and output of 1.5% and 1.1%, respectively. Weak productivity has been a hallmark of the current economic recovery, with frail productivity gains of 0.3%, 0.8%, and 0.9% during 2013, 2014, 2015, respectively. Manufacturing sector productivity slowed 0.2% during Q2, as a 4.1% contraction in nondurable manufacturing outpaced the 2.6% gain in durable manufacturing.

#5Confidence among small business owners held steady in July. The Index of Small Business Optimism from the National Federation of Independent Business. inched up by 1/10th of a point to a seasonally adjusted reading of 94.6 (1986 = 100). While the index has been above a reading of 90.0 for 42 consecutive months, it has remained within a tight range near the mid-90s for virtually all of those months. Only 4 of the index’s 10 components improved during the month, including that for expected business conditions and on plans to increase inventories. 4 other index components declined during the month, including those for the current number of job openings, earnings trends, plans to make capital outlays, and expected gains in real sales. The press release said that “there is little hope for a surge in the small business sector anytime soon,” as it noted there was “high” uncertainty, “low” expectations for the future, and “weak” future business investments.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending August 6, 2016, First-Time Claims, seasonally adjusted): 266,000 (-1,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 262,750 (-2.6% vs. the same week a year earlier).
Import Prices (July 2016, not seasonally adjusted): +0.1% vs. June 2016, -3.7% vs. July 2015. Nonfuel imports: +0.3% vs. June 2016, -1.2% vs. July 2015.
Export Prices (July 2015, not seasonally adjusted): +0.2% vs. June 2016, -2.6% vs. July 2015.
University of Michigan Index of Consumer Sentiment (August 2016-preliminary, Index (1966 Q1 = 100, seasonally adjusted): 90.4 (July 2016: 90.0, August 2015: 91.9).
Federal Budget (July 2016, surplus/deficit): -$112.8 billion (vs. June 2016: +$6.5 billion, vs. July 2015: -$149.2 billion).
Manufacturing & Trade Inventories (June 2016, seasonally adjusted): $1.814 trillion (+0.2% vs May 2016, +0.5% vs, June 2015).
Mortgage Delinquencies (2nd Quarter 2016, Delinquency Rates for 1-4 Unit Residential Properties, seasonally adjusted): 4.66% (vs. Q1 2016: 4.77%, vs. Q2 2015: 5.30%).

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