GDP Growth Dimmed During Q4: What We Learned During the Week of January 23 – 27

A decline in exports (particularly for soybeans) pulled down economic growth during the final 3 months of 2016. Here are the 5 things we learned from U.S. economic data released during the week ending January 27.

#1GDP grew at only a modest pace during the final 3 months of 2016. The Bureau of Economic Analysis‘ first estimate of Q4 2016 Gross Domestic Product (GDP) has the U.S. economy expanding at a 1.9% seasonally adjusted annualized rate during the quarter. This was well below Q3’s +3.5% rate of economic expansion. Most components of the economy made positive contributions to Q4 GDP growth: consumption (adding 170-basis points to GDP growth), growth in private inventories (adding a full percentage point to GDP growth), fixed residential investment (+37-basis point contribution), fixed nonresidential investment (+30-basis point contribution), and state & local government (+28-basis point contribution). But it was net exports (as a drop in exports—particularly for soybeans—and a hike in imports cost 170-basis points in GDP growth) and the federal government (costing another 8-basis points) that slowed the GDP growth rate during the quarter. For all of 2016, the U.S. economy grew 1.6%, down from the 2.6% rate growth rate in GDP of 2015 and the worst year for economic expansion since 2011. The BEA will revise its Q4 GDP estimate twice over the next 2 months. gdp-growth-012717

#2Affordability and supply weighed on home sales during December. Per the National Association of Realtors, sales of previously owned homes slipped 2.8% during the month to a seasonally adjusted annualized rate (SAAR) of 5.49 million units. This was 0.9% above its year ago sales pace. Existing home sales fell in 3 of 4 Census regions during the month: Northeast (-6.2%), West (-4.8%), and Midwest (-3.8%), but held steady in the South. 3 of 4 Census regions enjoyed positive 12-month comparables: Northeast (+2.7%), Midwest (+2.4%), and South (+0.4%). Sales were 1.6% below their December 2015 pace in the West. Inventories of unsold homes tightened even further, shrinking 10.8% during the month to 1.65 million units (6.3% vs. December 2015). This was the smallest number of homes on the market since NAR started tabulating inventories of all home types back in 1999 and was the equivalent to a paltry 3.6 month supply. The median sales price has increased 4.0% over the past year to  $232,200. In its press release, NAR blamed “higher mortgage rates and home prices combined with record low inventory levels” for December’s sales decline.

Meanwhile, new home sales dropped 10.4% during the month to a seasonally adjusted annualized rate of 536,000 -0.4% vs. December 2015), according to the Census Bureau. Sales dropped in 3 of 4 Census regions during the month with the Northeast being the only region with a sales gain. Only 2 regions—the Northeast and West—had positive 12-month sales comparables. The inventory of unsold homes grew by 4.0% during December to 259,000 homes (+10.2%). This translated into a 5.8 month supply of new homes on the market. The median sales price of $322,500 was 7.9% above its year ago mark.

#3Durable goods orders slowed in December. The Census Bureau estimates that new orders for durable goods declined 1.0% during the month to a seasonally adjusted $227.0 billion. Orders for transportation goods fell 2.2% during the month, pulled down a 63.9% drop in defense aircraft orders. Orders increased for civilian aircraft (+42.4%) and automobiles (+2.0%). Net of transportation goods, durable goods orders grew 0.5% during the month with increased orders for computers/electronics (+2.4%), electrical equipment/appliances (+0.6%), and machinery (+0.4%). New orders fell for primary metals (-0.9%) and fabricated metal products (-0.8%). Shipments of durable goods increased for the 3rd time in 4 months with a 1.4% bump up to $238.0 billion. Net of transportation goods, shipments increased 0.8%. The value of unfilled orders declined for the 6th time in 7 months (-0.6% to $1.119 trillion) while inventories were virtually unchanged at $384.4 billion. 

#4Leading economic indicators point to accelerating business activity in December. The Consumer Board’s Leading Economic Index jumped by 6/10ths of a point to 124.6 (2010 = 100). While 6 of the leading index’s 10 components added to the index, the biggest positive contributors were the interest rate spread, stock prices, and consumer expectations for business conditions. The coincident index added 3/10ths of a point to 114.3, with all 4 index components making positive contributions, including industrial production and nonfarm payrolls. The lagging index grew by 4/10ths of a point to 123.4 with 4 of 7 components making positive contributions, including commercial & industrial loans outstanding, the average prime rate charged by banks, and the average length of unemployment. The press release said the U.S. economy “will continue growing at a moderate pace, perhaps even accelerating slightly in the early months of this year.”

#5Consumer confidence held firm in January. The University of Michigan Index of Consumer Sentiment added 3/10ths of a point to a seasonally adjusted reading of 98.5 (1966Q1 = 100). This was the measure’s best reading in 13 years as sentiment continued to improve following last November’s election. A year earlier, the Index of Consumer Sentiment was at 92.0. The current conditions index shed 6/10ths of a point during the month to a reading of 111.3 (January 2016: 106.4) while the expectations index added 7/10ths of a point to 90.3 (January 2016: 82.7). The press release indicated that the “highest proportion” of survey respondents in a decade “anticipated improved finances,” with the largest percentage of survey respondents since 2008 expecting income gains. The press release also noted that sentiment varied by one’s partisan views, with “Democrats becoming much more pessimistic and Republicans much more optimistic.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 21, 2017, First-Time Claims, seasonally adjusted): 259,000 (+22,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 245,500 (-12.6% vs. the same week a year earlier).
Chicago Fed National Activity Index (December 2016, Index (0.00 = historic growth rate, seasonally adjusted): +0.14 (vs. -0.33 in November 2016, vs. -0.21 in December 2015). 3-month moving average: -0.07 (vs. -0.14 in November 2016, -0.26 in December 2015).
Regional and State Employment (December 2016, Change in Nonfarm Employment, seasonally adjusted): Vs. November 2016: Up in 3 states, down in 5 states and essentially unchanged in 42 states and the District of Columbia. Vs. December 2015: Up 26 states and the District of Columbia, down in 2 states, and essentially unchanged in 22 states.
FHFA House Price Index (November 2016, Purchase-Only Index, seasonally adjusted): +0.5% vs. October 2016, +6.1% vs. November 2015.
Bankruptcy Filings (2016, Count of Filings): 794,960 (-5.9% vs. 2015), Business filings: 24,114 (-2.5% vs. 2015), Non-business filings: 770,846 (-6.0% vs. 2015).

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

Energy and Shelter Prices Firmed as 2016 Wrapped Up: What We Learned During the Week of January 16 – 20

During the final days of 2016, consumer prices continued to firm while factory output increased. Here are the 5 things we learned from U.S. economic data released during the week ending January 20.

#1Gasoline and shelter pulled up consumer prices during December. The Consumer Price Index (CPI) jumped 0.3% on a seasonally adjusted during the month and was 2.1% above year ago levels, per the Bureau of Labor Statistics. Energy prices increased for the 4th consecutive month with a 1.5% gain as gasoline prices surged 3.0%. Holding steady for a 6th straight month were food prices. Net of energy and food, core CPI grew 0.2% during the month with a year-to-year comparable just above the Federal Reserve’s target with a 2.2% gain. Increasing during the month were prices for transportation services (+0.6%), used cars/trucks (+0.5%), medical care services (+0.4%), shelter (+0.3%), new vehicles (+0.1%), and medical care services (+0.1%). Apparel prices, on the other hand, fell for the 3rd time in 4 months with a 0.7% decline.consumer-prices-012017

#2Manufacturing activity edged up during December. The Federal Reserve estimates manufacturing sector output grew 0.2% during the month, leaving it 0.2% above its year ago level. The output of durable goods increased 0.5%, with “sizable” gains in the production of automobiles (+1.8%) and primary metals (+1.4). Nondurable goods production fell 0.3%, pulled down by substantial output declines for textiles (-3.0%) and chemicals (-1.0%). Overall industrial production grew 0.8% during the month and was 0.5% above its December 2015 level. Mining output was unchanged during the month while utility production jumped 6.6% as winter weather increased heating demand. Factory usage also grew during December with capacity utilization increasing by 6/10ths of a percentage point to 75.5% while factory utilization in the manufacturing sector edged up 1/10th of a percentage point to 74.8%.

#3Thanks to a boost in the multi-family sector, housing starts rebounded in December. The Census Bureau reports that housing starts jumped 11.3% during the month to a seasonally adjusted rate of 1.226 million units (+5.7% vs. December 2015). Starts grew in the Midwest, West, and Northeast, but declined in the South. Starts of single-family homes declined for a 2nd straight month: -4.0% to 795,000 units (SAAR, +3.9% vs. December 2015). On the flip side, starts of multi-family units (5+ units) surged 53.9% during the month to 417,000 units (SAAR, +10.3% vs. December 2015). Looking towards future activity, the count of issued building permits slipped 0.2% during December to a SAAR of 1.210 million permits (+0.7% vs. December 2015). Finally, the SAAR of completed homes dropped 7.9% during the month to 1.123 million units. This was 8.7% above the pace of completions in December 2015.

#4Homebuilders’ confidence slipped slightly in January but nevertheless stayed strong. The Housing Market Index (HMI), from the National Association of Home Builders, shed 2 points during the month to a seasonally adjusted reading of 67. This was the 31st straight month in which the index was above a reading of 50, indicative of a greater percentage of homebuilders describing the housing market as “good” versus seeing it as being “poor.” The HMI contracted in 3 of 4 Census regions: West (down 9 points to 75), Northeast (down 5 points to 52), and South (down 3 points to 67). The HMI held steady at 66 in the Midwest. Also falling were indices for current sales of single-family homes (down 3 points to 72), expected sales (down 2 points to 76), and traffic of prospective buyers (off a point to 51). Per the press release, the trade group expects construction of new single-family homes to increase 10% during 2017.

#5Industries that made the largest contributions to Q3 2016 GDP growth were finance/real estate, wholesale trade, and professional/business services. As reported previously, Gross Domestic Product (GDP) grew 3.5% on a seasonally adjusted annualized basis during the quarter. The Bureau of Economic Analysis released a report that provides detail the contributions to economic by industry groups. The industry sectors making the largest contributions GDP growth were finance/insurance (64-basis point contribution), wholesale trade (48-bassi point contribution), professional/business services (47-basis point contribution), durable goods manufacturing (32-basis points), and the government (25-basis points). Overall, the private service sector added 286-basis points to Q3 GDP growth while the private goods-producing side of the economy was responsible for 41-basis points of GDP growth.

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 14, 2017, First-Time Claims, seasonally adjusted): 234,000 (-15,000 vs. previous week; -57,000 vs. the same week a year earlier). 4-week moving average: 246,750 (-12.9% vs. the same week a year earlier).
Treasury International Capital Flows (November 2016, Domestic Securities Purchased by Foreign Investors, not-seasonally adjusted): +$13.3 billion (vs. -$6.0 billion in October 2016, vs. +$44.3 billion in November 2015).
Beige Book

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

A Mixed Holiday Gift Bag for Retailers: What We Learned During the Week of January 9 – 13

December was only merry for some retail sectors, but small business owners did grow more confident. Here are the 5 things we learned from U.S. economic data released during the week ending January 13.

#12016 ended well for some but not all retailers. The Census Bureau estimates retail and food services sales increased 0.6% during December to a seasonally adjusted $469.1 billion. This was 4.1% above the year ago sales pace and was thanks partially to a 2.4% surge in sales at auto dealers and part stores. When you remove activity at auto dealers and parts stores, sales edged up only 0.2% (+3.4% vs. December 2015). Retail sales grew during the month at gas stations (+2.0%, thanks to higher prices at the pump), furniture stores (+0.5%), building material/garden stores (+0.5%), health & personal care stores (+0.3%), and sporting goods/hobby retailers (+0.2%). Sales slumped 0.6% at department stores while electronics/appliance retailers suffered a 0.5% sales decline. Restaurants and bars also saw sales dropping 0.8% during December. One bright spot was at nonstore retailers (e.g., internet sellers), where sales jumped 1.3% during the month and were 13.2% above the December 2015 pace. To get a sense of the health of the 2016 holiday season: retail sales between October and December were 4.1% above that for the same 3 months in 2015. Retail sectors with the largest year-to-year holiday sales comparisons were nonstore retailers (+12.8%), health/personal care (+6.6%), auto dealers/parts stores (+5.2%), and building materials/garden (+4.3%). Less merry during the holiday season were department stores (-7.6%), electronics/appliance stores (-3.7%), and sporting goods/hobby retailers (-2.1%).retail-sales-december-2016-011317

#2Both the count of job openings and the pace of hiring increased slightly in November. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 5.522 million job openings at the end of November, up 71,000 for the month and 6.2% above the November 2015 reading. Industries with the largest year-to-year percentage gains in job openings included construction (+82.2%), manufacturing (+36.1%), retail trade (+23.9%), mining (+13.3%), and government (+12.5%). Employers hired 5.219 million people during November, a 59,000 increase in hiring for the month but 0.6% below its year ago reading. Industries with the largest year-to-year percentage gains in hiring included transportation/warehousing (+14.5%), government (+6.3%), and leisure/hospitality (+4.9%). Separations increased by 62,000 during the month to 5.028 million (+1.4% vs. November 2015). Voluntary quits were 8.4% above their November 2015 level, suggesting workers were confident about their job prospects. Over the same 12-month period, the count of layoffs had declined 3.8%.

#3Wholesale prices continued to heat up in December. Per the Bureau of Labor Statistics, the final demand Producer Price Index (PPI) grew 0.3% on a seasonally adjusted basis during the month following a 0.4% gain in November. The measure has increased 1.6% over the past 12 months. The index same measure net of energy, food, and trade services grew at a more modest 0.1% (+1.7% vs. December 2015). Final demand PPI jumped 0.7% (its largest increase since last June) sparked by a 2.6% gain in energy PPI and a 0.7% bounce in food PPI. In the case of the former, wholesale gasoline prices surged 7.8%. Net of both energy and food, final demand PPI for core goods gained 0.3% during December. Meanwhile, PPI for demand services inched up 0.1%

#4Small business owner confidence surged in December. Matching gains in consumer sentiment and perhaps reflecting the political preferences of the survey’s sponsor, the Small Business Optimism Index jumped 7.4 points during the month to a seasonally adjusted reading of 105.8 (1986 = 100). The last time the National Federation Independent Business measure had been this high was back in 2004. 7 of 10 index components improved from the November readings, led by large gains for indices tracking expected economic conditions (up 38 points to +5), expected real sales (up 20 points to +31), whether “it is a good time to expand” (up 12 points to +23), and whether it is “a good time to make capital outlays” (up 5 points to +29). Only 2 of the index components declined during the month: current job openings (off 2 points to +29) and expected credit conditions (off a point to -6). The press release says that the findings indicate that “[s]mall business is ready for a breakout” as nearly half of the gain in the index due to expectations for “better business conditions” because of the election.

#5Consumer credit balances expanded by $24.6 billion during November. The Federal Reserve reports that outstanding consumer credit balances (net of mortgages and other real estate-backed loans totaled $3.750 trillion, up 6.3 from a year earlier. The expansion of revolving credit (e.g., credit cards) balances sped up during the month—they increased $11.0 billion during November following a $2.4 billion gain in October. The $992.4 billion total was 6.4% above its November 2015 reading. Nonrevolving credit balances grew by $13.5 billion during the month to $2.758 trillion (+6.2% vs. November 2015).

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 7, 2017, First-Time Claims, seasonally adjusted): 247,000 (+10,000 vs. previous week; -33,000 vs. the same week a year earlier). 4-week moving average: 256,500 (-7.7% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (January 2017-preliminary, Index (1966Q1 = 100, seasonally adjusted): 98.1 (-0.1 vs. December 2016, +6.1 vs. January 2016).
Business Inventories (November 2016, Manufacturing & Trade Inventories, seasonally adjusted): $1.828 trillion (+0.7% vs. October 2016, +1.5% vs November 2015).
Import Prices (December 2016, seasonally adjusted): +0.4% vs. November 2016, +1.8% vs. December 2015. Nonfuel imports: -0.2% vs. November 2016, -0.1% vs. December 2016.
Export Prices (December 2016, seasonally adjusted): +0.3% vs. November 2016, +1.1% vs. December 2015.

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