GDP Grows During Q3, Consumer Sentiment Falls: What We Learned During the Week of October 24-28

Q3 was the best quarter for GDP growth in 2 years, but consumer confidence slipped during the final days of the 2016 election. Here are the 5 things we learned from U.S. economic data released during the week ending October 28.

#1Q3 featured the fastest pace of economic growth in 2 years, although it was not overly robust. The Bureau of Economic Analysis’ first estimate of Q3 Gross Domestic Product (GDP) finds the U.S. economy grew 2.9% on a seasonally adjusted annualized rate. This followed 3 straight quarter of sub 2% growth and the fastest rate of economic expansion since a 5.0% gain during Q3 2014. Most major components of the economy made positive contributions to GDP growth. This included a 147-basis positive contribution from the 2.1% increase in personal spending, an improved net exports picture (+83-basis points), and increases in both private inventories (61-basis points) and government expenditures (+9-basis points). Fixed investment, and more precisely housing, was a drag on GDP during the quarter. A 6.2% annualized drop in residential fixed investment cost 24-basis points in GDP growth while nonresidential fixed investment added 15-basis points to the quarter’s economic expansion. The BEA will revise its estimate of Q3 GDP twice over the next 2 months.gdp-growth-2013-2016-102916

#2Economic activity improved during September, but growth remained below its historic growth rate. The Chicago National Activity Index (CFNAI), a weighted index of 85 economic indicators, improved by 58-basis points to a reading of -0.14. The Federal Reserve Bank of Chicago’s index is designed so a reading of 0.00 indicates economic growth at the historic rate. A negative reading between zero and -0.70 suggests below average growth while a reading below -0.70 for more than 3 months suggests an economic contraction. 41 of the 85 economic indicators made a positive contribution to the CFNAI, with all 4 of major categories of indicators (production/income, employment, personal consumption/housing, and sales/orders) improving from their August readings. The CFNAI’s 3-month moving average shed 7-basis points to a reading of -0.21, its lowest reading since last May.

#3Durable goods orders slipped in September, pulled down by a sharp decline in sales of defense aircraft. The Census Bureau estimates new orders for manufactured durable goods was at a seasonally adjusted $227.3 billion, down 0.1% from August. Orders for transportation goods fell 0.8% as new orders for defense aircraft plummeted 44.8% (orders for civilian aircraft improved by 12.55% while motor vehicle orders gained 1.2%). Net of transportation goods, new durable goods orders increased 0.2%. Growing were orders for electrical equipment/appliances (+1.5%) and machinery (+1.2%). Falling were new orders for computer/electronic products, fabricated metal products (-0.4%), and primary metals (-0.3%). Shipments of durable goods grew for the 3rd time in 4 months with a 0.8% bump up to $234.5 billion. Shipments of transportation goods jumped 2.3%, while shipments net of transportation goods eked out a 0.1% increase.

#4Consumer confidence weakened during October. The Conference Board’s Consumer Confidence Index lost 4.9 points during the month to a seasonally adjusted reading of 98.6 (1985=100), its lowest reading in 3 months. Both the current and expectation conditions indices fell from their September readings. The former dropped 7.3 points to a reading of 120.6 while the latter shed 3.3 points to 83.9. The percentage of survey respondents who felt that jobs were “plentiful” decreased 3.3 percentage points to 24.3% while the percentage saying jobs were “hard to get” slipped 1.2 percentage points to 22.1%. The press release said the survey results suggest that the U.S. economy “will continue to expand in the near-term, but at a moderate pace.”

Also giving back points in October was the Index of Consumer Sentiment from the University of Michigan, which lost 4.0 points to a seasonally adjusted reading of 87.2 (1966Q1=100). This was consumer sentiment measure’s lowest reading in 13 months. The current conditions index lost a full point to 103.2 while the expectations index plummeted 5.9 points to 76.8. While half of the survey respondents anticipate an economic downtown within the next 5 years, the press release attributed some of the sudden anxiety to “uncertainty caused by the election.” The same press release also indicated that the results point to “real” consumer spending growing at an annualized 2.5% rate through the middle of next year.

#5The last set of September housing data shows higher sales activity. The Census Bureau reports that new home sales grew 3.1% during September to a seasonally adjusted annualized rate of 593,000 units. This was 29.8% above the year ago rate. Sales grew during the month in 3 of 4 Census regions (Northeast, Midwest, South) with 12-month comparables greater than 25% in all 4 regions. Inventories of unsold homes were at a very tight 4.8 month supply, or 235,000 units. The median sales price of new homes of $313,500 was up 1.9% from a year earlier.

The Pending Homes Sales Index edged up 1.5% during September to an index reading of 110.0 (100=2001). This put the National Association of Realtors’ measure of home purchase contract signing activity 2.4% above its year ago mark. The index gained in 2 of 4 Census regions—West (+4.7%) and South (+1.9%)—but fell in the Northeast (-1.6%) and Midwest (-0.2%). The index had a positive 12-month comparable in 3 of 4 Census regions:  Northeast (+7.7%), West (+4.0%), and South (+1.7%). Contract signing activity, however, was off 1.0% in the Midwest versus a year earlier. NAR’s press release noted that buyers’ demand was “holding up impressively” with “much stronger foot traffic.”

Other data released over the past week that you might find of interest:
Jobless Claims (week ending October 22, 2016, First-Time Claims, seasonally adjusted): 258,000 (-3,000 vs. previous week; -7,000 vs. the same week a year earlier). 4-week moving average: 253,000 (-4.4% vs. the same week a year earlier).
Case-Shiller Home Price Index (August 2016, 20-City Index, seasonally adjusted): +0.2% vs. July 2016, +5.1% vs. August 2015.
FHFA House Price Index (August 2016, Purchase-Only Index, seasonally adjusted): +0.7% vs. July 2016, +6.4% vs. August 2015.
Bankruptcy Filings (12-month Period Ending September 30, 2016): 805,580 (-6.3% vs. 12 month period ending September 30, 2015).

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

Manufacturing and Home Sales Inch Out Gains in September: What We Learned During the Week of October 17 – 21

September featured moderate growth in manufacturing, existing home sales, and in leading economic indicators. Here are the 5 things we learned from U.S. economic data released during the week ending October 21.

#1September saw modest growth in manufacturing activity. The Federal Reserve reports that manufacturing sector output grew 0.2% on a seasonally adjusted basis during the month. With the small gain, manufacturing output matched that from September 2015. Durable goods production was unchanged for the month but output of nondurables grew 0.5%. The former was pulled down by falling production of primary metals, machinery, and aerospace/miscellaneous transportation equipment. In the case of the latter, all major categories of nondurable enjoyed output growth, with the largest percentage production gains seen for printing and petroleum/coal products. Overall industrial production inched up 0.1% but remained 1.0% below year ago levels. Utility output fell 1.0% during the month while mining production grew 0.4%. The latter increased during Q3, the 1st quarterly gain in mining output (which includes oil extraction) after 6 straight quarterly declines. industrial-production-data-102116

#2Leading indicators signal moderate economic expansion over the near-term. The Leading Economic Index from the Conference Board added 3/10ths of a point during September to a seasonally adjusted 124.4 (2010=100). This followed a decline in August. 5 of the 10 components that make up the leading index pointed towards improved business activity; including, building permits, the interest rate spread, and jobless claims. The coincident index added 2/10ths of a point to 114.2, as all its components (nonfarm payrolls, person income transfer payments, manufacturing/trade sales, and industrial production) made positive contributions to the index. The lagging index grew by 2/10ths of a point to 122.3, with 4 of 7 index components making a positive contribution at the backward looking measure. The press release stated the gain in the leading index suggests the U.S. economy will grow at a “moderate pace” into early next year.

#3Sales of previously owned homes grew in September following declines during the 2 prior months. Existing home sales were at a seasonally adjusted annualized rate of 5.47 million units, up 3.2% from August and 0.6% from a year earlier. The National Association of Realtors measure grew during the month in all 4 Census regions: Northeast (+5.7%), West (+5.0%), Midwest (+3.9%), and South (+0.9%). Only the Midwest and West, however, had positive 12-month comparables in terms of sales activity. Inventories of unsold homes remained tight—there were 2.04 million previously owned homes available for sale at the end of September, up 1.5% for the month but 6.8% below year ago inventory levels. The resulting 4.5 month supply prompted a 5.6% gain in the median sales price versus a year earlier (to $234,200). NAR’s press release noted that a third of home sales were from first-time home buyers, the highest percentage of first-time buyers in over four years. 

#4Housing starts slowed in September, centered with multi-family units. The Census Bureau estimates housing starts were at a seasonally adjusted annualized rate of 1.047 million units. This was 9.0% decline for the month and 11.9% below year ago levels. The pace of starts for multi-family units (5+ units) plummeted 38.9% for the month and was 42.5% below year ago levels, while starts of single-family units jumped 8.1% during September to 783,000 units (SAAR, +5.4% vs. September 2015). Permit activity suggests that starts activity should grow over the intermediate term. The 1.225 million issued construction permits (SAAR) was 6.3% above the previous month’s pace and was 8.5% over September 2015 levels. The annualized count of permits was up 4.4% for single-family units and was 17.2% above September 2015’s pace for permits for 5+ unit properties. The rate of completions, however, slowed to their lowest level for 2016: down 8.4% for the month to 951,000 units.

#5Energy, shelter, and medical commodities sparked higher consumer prices in September. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) grew a seasonally adjusted 0.3% during the month, its largest single-month increase since April. Prices for food held steady during the month, while energy CPI jumped 2.9%. The latter, which was its largest monthly gain since April, resulted from a 5.8% surge in gasoline prices, a 2.4% hike in fuel oil prices, a 0.8% increase in prices for utility delivered natural gas, and a 0.7% gain in electricity price. Net of energy and food, core CPI increased 0.1% (down from August’s 0.3% gain). Core commodity prices slipped 0.1% while those for core services increased 0.2. Prices grew for medical care commodities (+0.6%) and shelter (+0.2%) but fell for apparel (-0.7%), used cars (-0.3%), and new cars (-0.1%). Headline CPI was increased 1.5% over the past year while the core index was 2.2% above its September 2015 level.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending October 15, 2016, First-Time Claims, seasonally adjusted): 260,000 (+13,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 251,750 (-6.0% vs. the same week a year earlier).
Housing Market Index (September 2016, Index (>50 = “good” housing market), seasonally adjusted): 63 (August 2016: 65, September 2015: 65).
State Employment (September 2016, Nonfarm Payrolls, Seasonally Adjusted):  Vs. August 2016: Payrolls grew in 14 states, contracted in 3 states and essentially was unchanged in 33 states and in the District of Columbia. Vs. September 2015: Payrolls grew in 35 states and in the District of Columba, fell in 1 state and was essentially unchanged in 14 states.
Beige Book
Treasury International Capital Flows (August 2016, U.S. Securities Purchased by Foreign Investors): +$30.4 billion (vs. July 2016:  +$71.4 billion, vs. August 2015: -$28.1 billion).

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

Retail Sales Bounce Back, Federal Budget Deficit Expands: What We Learned During the Week of October 10 – 14

Retail sales rebounded in September while the federal budget expanded by a third during FY2016. Here are the 5 things we learned from U.S. economic data released during the week ending October 14.

#1Retail sales bounced back in September. The Census Bureau puts the value of retail and food services sales at a seasonally adjusted $459.8 billion, up 0.6% for the month and 2.7% above the year ago pace. This followed a 0.2% slowdown in August. Sales at auto dealers (and parts stores) gained 1.1% during the month. Net of auto dealers and parts stores, retail sales gained 0.5% during the month and 2.7% from a year earlier. Sales grew at a number of different retail segments, led by a 2.4% jump at gas stations (reflective of gasoline prices not falling as much as they typically do in September). Other retail sectors enjoying sales increases were sporting goods/hobby stores (+1.4%), building material retailers (+1.4%), furniture stores (+1.1%), restaurants/bars (+0.8%), and grocery stores (+0.2%). But other retailers were not as fortunate. Sales fell at electronics/appliance stores (-0.9%), department stores (-0.7%), and health/personal care retailers (-0.5%). Nonstore retailers (e.g., internet retailers) saw sales grow 0.3% during the month, putting activity 10.6% above their year ago pace.retail-sales-september16-101416

#2While the number of job openings fell during August, the pace of hiring held steady. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 5.443 million job openings at the end of August, down 388,000 from July and its lowest point in 8 months. Even with the decline, the count of job openings was 2.5% above that from a year earlier. Roughly 57% of the drop in job openings was centered in professional/business services, although a number of other industries suffered significant declines too (including, wholesale trade, manufacturing, construction, and the government). On the flip side, the largest year-to-year percentage gains in job openings were in construction (+21.9%), transportation/warehousing/utilities (+21.0%), and retail (+9.3%). Nonfarm employers hired 5.210 million people during August, down 48,000 from July but up 3.0% from a year earlier. Industries with the largest 12-month percentage gains in hiring including professional/business services (+10.4%), mining/logging (+7.4%), government (+5.1%), financial activities (+4.9%), and manufacturing (+4.5%). Separations slipped by 37,000 to 4.954 million (essentially unchanged from August 2015). Of this, the count of people who voluntarily quit their jobs was up 5.1% from a year earlier while the pace of layoffs was 6.5% below that of August 2015.

#3Wholesale prices rose at their fastest pace since June, but year-to-year gains remain in check. The Producer Price Index (PPI) for final demand goods and services grew 0.3% during September and were 0.7% above prices in September 2015. The Bureau of Labor Statistics also reports that its core measure for final demand PPI (net of energy, food, and trade services) increased 0.3% during the month and was 1.5% above its year ago levels. PPI for final demand goods jumped 0.7%, which included gains of 2.5% and 0.7% for energy and food goods. A 5.3% increase in gasoline prices boosted the former while higher prices for fresh and dry vegetables pulled up the latter. Net of energy and food, PPI for core final demand goods increased 0.3%. PPI for final demand services inched up 0.1% despite a 0.4% decline in the price measure for trade services (which tracks retailer and wholesaler margins).

#4The U.S. budget deficit grew by a third during FY 2016. The Treasury Department’s Bureau of the Fiscal Service reports that the budget deficit for the just completed FY2016 was -$587.4 billion, up from the $439.1 billion deficit during FY2015 (+33.8%). The deficit equaled 3.2% of the GDP, up from 2.5% for FY2015. Receipts totaled $3.249 trillion for the full year, a mere 0.5% increase from FY2015. What did grow significantly were outlays—FY2016’s total of $3.854 trillion was 4.9% above the previous fiscal year’s spending. The biggest sources of spending increases were in Health & Human Services, the Social Security Administration, Veteran Affairs, and on the interest paid to service Treasury debt securities.

#5Small business owner confidence slipped slightly during September. The National Federation of Independent Business’ Small Business Optimism Index lost 3/10ths of a point to a seasonally adjusted 94.1 (1986 = 100). This was down 1.9 points from a year earlier, keeping the index in the low-to-mid 90s range that where it has been every month since the winter of 2015 and more or less over the past few years. Just 4 of the index’s 10 components improved during the month, led by a robust 12 point jump in the measure for expected economic conditions. Also improving from August were indices for expected real sales, earnings trends, and plans to add workers. Falling were indices for plans to increase inventories, current job openings, current inventories, expected credit conditions, whether it is a good time expand, and plans to make capital outlays. The press release lays blame for the weakened sentiment on the “divisive” presidential election that “offers little promise of a bipartisan effort” to solve critical issues.

Other data released over the past week that you might find of interest:
Jobless Claims (week ending October 8, 2016, First-Time Claims, seasonally adjusted): 246,000 (Unchanged vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 249,250 (-7.4% vs. the same week a year earlier).
FOMC minutes
Import Prices (September 2016, not seasonally adjusted): +0.1% vs. August 2016, -1.1% vs. September 2015. Nonfuel imports: unchanged vs. August 2016, -0.7% vs. September 2015.
Export Prices (September 2016, not seasonally adjusted): +0.3% vs. August 2016, -1.5% vs. September 2015.
University of Michigan Index of Consumer Sentiment (October 2016-preliminary, Index (1966Q1=100), seasonally adjusted): 87.9 (-3.3 points vs. September 2016, -2.1 points vs. October 2015).
Business Inventories (August 2016, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.817 trillion (+0.2% vs. July 2016, +0.7% vs. August 2015).

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