More Homes Featured Sold Signs in January: What We Learned During the Week of February 20 – 24, 2017

Home sales held firm in January, but overall economic activity may have slightly softened. Here are the 5 things we learned from U.S. economic data released during the week ending February 24.

#1Existing home sales hit another post-recession high in January. The National Association of Realtors reports that sales of previously owned homes increased 3.3% during the month to a seasonally adjusted annualized rate of 5.69 million homes (+3.8% vs. January 2016). Existing home sales have not been this strong since February 2007. Sales grew in the same 3 of 4 Census regions on both a month-to-month and year-to-year basis. Sales only slowed in the Midwest (-1.5% vs. December 2016, -0.8% vs. January 2016). As has been the trend in recent years, inventories of previously owned homes remained very tight during the month with only 1.69 million homes available for sale. While inventories had grown 2.4% during the month, it was off 7.1% from January 2016 and the equivalent to a ridiculously tight 3.6 month supply of homes. The median sales price blossomed 7.1% over the past year to $228,900. The press release links the robust housing market to “strong hiring and improved consumer confidence at the end of last year” but also warns tight inventories were “deteriorating affordability conditions.”home-sales-jan17-022517

#2New home sales rebounded in January. The Census Bureau estimates new home sales grew 3.7% during the month to a seasonally adjusted annualized rate of 555,000 units. This had followed a 7.0% drop in December and left new home sales 5.5% above its January 2016 sales pace. Sales grew during the month in 3 of 4 Census regions: Northeast (+15.8%), Midwest (+14.8%), and the South (+4.3%). Sales slowed 4.4% in the West. 3 of 4 regions also had positive 12-month comparables, with the negative outlier being in the South (-1.0% vs. January 2016). Inventories of new homes have been gradually growing in recent months, expanding 3.5% in January to 265,000 units (+10.9% vs. January 2016). This was equivalent to 5.7 month supply. The median sales price of $312,900 was 7.5% above that of a year earlier.

#3It appears the rate of economic growth slowed during January. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic measures, was at -0.05 during January, down 23-basis points from the previous month. An index reading of 0.00 indicates economic growth at its historic rate, so January’s slightly negative CFNAI reading signified slower than normal growth. Among the 4 major categories of components to CFNAI, those associated with production made the biggest negative contribution to the overall index. Production-related indicators made a contribution to CFNAI of -0.07, down 25-basis points from its December 2016 contribution. Indicators tied to personal consumption and housing cost 5-basis points to the CFNAI, down from a -0.03 contribution a month earlier. Meanwhile, making small positive contributions to the CFNAI were those associated with employment (+0.06, up 7-basis points from a month earlier) and sales/orders/inventories (+0.02, down 2-basis points from December). The 3-month moving average slipped by a basis point to -0.03. A year earlier, this moving average was at -0.19.

#4Consumer sentiment slipped but remained solid in February. The Index of Consumer Sentiment from the University of Michigan lost 2.2 points during the month to a seasonally adjusted 96.3 (1966Q1 = 100). This was up 6/10ths of a point from the preliminary February reading reported several weeks ago and up 4.6 points from a year earlier. February’s decline was the product of lowered expectations for the future—the expectations index shed 3.8 points to a reading of 86.5 (February 2016: 81.9). The current conditions index edged up 2/10ths of a point to 111.5 (February 2016: 106.8). The press release noted that the 3-month moving average was at its highest point “in more than a decade” but also said that there was a significant partisan split in results with Democrats expecting a recession and Republicans anticipating “renewed robust economic growth.”

#5First-time jobless claims remain at 40+ year lows. Per the Department of Labor, there were 244,000 first-time claims made for unemployment insurance benefits during the week of February 18. This was up 6,000 from the previous week but 20,000 under the year ago count. The 4-week moving average of jobless claims of 241,000 was 9.8% below the moving average of a year earlier and its lowest point since July 21, 1973. In all, 2.508,785 people were receiving some form of unemployment insurance benefits during the week ending February 4 (-7.4% vs. a year earlier).

Other U.S. economic data released over the past week:
FHFA House Price Index (December 2016, Purchase-Only Index, seasonally adjusted): +0.4% vs. November 2016, +6.2% vs. December 2015.
FOMC meeting minutes

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

Inflation Perking Up, Retail Sales Firm: What We Learned During the Week of February 13 – 17

Inflation made its presence felt in January while manufacturing output grew despite a decline in automobile production. Here are the 5 things we learned from U.S. economic data released during the week ending February 17.

#1Both consumer and wholesale prices jumped during January. Per the Bureau of Labor Statistics, the Consumer Price Index (CPI) surged 0.6% on a seasonally adjusted basis during the month, its biggest 1-month gain since February 2013. Energy prices grew for a 5th straight month with a 4.0% increase as gasoline prices swelled 7.8% on a seasonally adjusted basis (without adjustments for seasonal variation, gas prices grew 5.3%). Other energy goods experiencing price increases during January included utility delivered natural gas (+1.5%) and fuel oil (+3.5%). Food prices grew for the 1st time since last April albeit with a tepid 0.1% gain. Net of energy and food, core CPI grew 0.3% during the month and had a 12-month comparable of +2.3%, which was above the Federal Reserve’s 2% inflation target rate. Rising during the month were prices for apparel (+1.4%), new vehicles (+0.9%), transportation services (+0.6%), and medical commodities (+0.3%).

Meanwhile, the Producer Price Index (PPI) for final demand goods and services jumped 0.6% on a seasonally adjusted basis during January. This was the wholesale price measure’s largest single-month increase since March 2011, leaving PPI 1.6% above its January 2016 reading. Net of the typically volatile prices for energy, food, and trade services, core PPI grew 0.2% during the month with a 12-month comparable of +1.6%. Wholesale prices for final demand goods rose 1.0% (its biggest single-month gain since last June), with 3/4ths of the gain attributed to a 4.7% surge in energy goods PPI (gasoline: +12.9%). Food prices were flat for the month. Net of energy and food, the core PPI measure for final demand gained 0.4% during January, led by price increases for pharmaceutical preparations and iron & steel scrap. Prices for final demand services jumped 0.3% as trade prices (i.e., retailer and wholesaler margins) increased 0.9%.consumer-producer-prices-021717

#2Manufacturing output grew modestly in January. The Federal Reserve reports that manufacturing production increased 0.2% during the month and was 0.3% above its January 2016 pace. The increase in manufacturing output was held down by a 2.9% slowdown in automobile production—net of autos, manufacturing output rose 0.5% during the month. Outside of motor vehicles, most other categories of durable goods production increased during January with machinery manufacturing growing the most. Production of nondurables rose 0.6%, with gains exceeding 1.0% for textiles, petroleum/coal products, and chemicals. Overall industrial production slowed 0.3% during January as warm winter weather pulled down output at utilities by 5.7%. Mining output grew 2.8%. Factory utilization in manufacturing edged up 1/10th of a percentage point to 75.1%. Overall industrial capacity utilization, however, slipped 3/10ths of a percentage point to 75.3%.

#3Retail sales started the new year on a strong note. The Census Bureau estimates retail and food services sales were at a seasonally adjusted $472.1 billion in January, up 0.4% from the prior month and 5.6% from a year earlier. (Note that the year-to-year comparable were helped a bit by a relatively weak sales report back in January 2016). Sales at auto dealers & parts stores fell 1.4% while those at gas stations surged 2.3% due to higher prices at the pump. Net of those two retailer classes, core retail sales grew 0.7% during January. Sales grew by at least 1% at sporting goods/hobby retailers (+1.8%), electronics/appliance stores (+1.6%), restaurants/bars (+1.4%), department stores (+1.2%), and apparel retailers (+1.0%). While sales at nonstore retailers (e.g., internet retailers) were unchanged for the month, they were a robust 12.0% above the January 2016 sales pace.

#4Housing starts slowed during January. The Census Bureau estimates housing starts were at a seasonally adjusted annualized rate of 1.246 million units, down 2.6% from the December pace. Starts activity slowed sharply in both the West (-41.3%) and Midwest (-17.9%) but grew healthily in both the Northeast (+55.4%) and South (+20.0%). Even with January’s decline, housing starts were 10.5% ahead of their January 2016 pace, indicative of a still solid construction market. Starts of single-family units were at a SAAR of 823,000 units, up 1.9% for the month and 6.2% from a year earlier. Looking towards the future, there were 1.285 million issued residential construction permits (SAAR), +4.6% vs. December 2016 and +8.2% vs. January 2016. Housing completions slowed 5.6% during the month to 1.047 million units. This was off 0.9% from the January 2016 completions pace.

#5Leading indicators signal economic expansion for the coming months. The Leading Economic Index from the Conference Board added 8/10ths of a point during January to a reading of 125.5 (2010 = 100). This was up 2.5% from a year earlier. 8 of the measure’s 10 components made positive contributions, led by the interest rate spread, building permits, and jobless claims. The coincident index edged up 1/10th of a point to 114.4 (+1.6 vs. January 2016). 3 of 4 coincident index components made positive contributions, including nonfarm payrolls and personal income net of transfer payments. The lagging index added 4/10ths of a point to 123.7 (+3.3% vs. January 2016), with 4 of 7 index components making a positive contribution. The press release noted should the indices’ trends continue, “the U.S. economy may accelerate in the near term.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 11, 2017, First-Time Claims, seasonally adjusted): 239,000 (+5,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 244,250 (-9.2% vs. the same week a year earlier).
Housing Market Index (February 2017, Index (Greater than 50 = “Good” Housing Market, seasonally adjusted): 65 (vs. January 2017: 67, vs. February 2016: 58).
Small Business Optimism Index (January 2017, Index (1986 = 100), seasonally adjusted): 105.9 (vs. December 2016: 105.8, vs. January 2016: 93.9).
Business Inventories (December 2016, Manufacturing & Trade Inventories, seasonally adjusted): $ 1.836 trillion (+0.4% vs. November 2016, +2.0% vs. December 2015).
Treasury International Capital Data (December 2015, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$13.9 billion (vs. November 2016: +$15.9 billion, vs. December 2015: -$43.4 billion).

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