Home Sales Stay Strong, But Tight Supplies Restrain the Market. What We Learned During the Week of March 20 – 24

Both existing and new home sales stayed near their post-recession highs in February while aircraft carried the day for durable goods orders. Here are the 5 things we learned from U.S. economic data released during the week ending March 24.

#1Rising prices and tight supplies weighed a bit on February existing home sales. The National Association of Realtors reports that sales of previously owned homes slowed 3.7 percent during February to a seasonally adjusted annualized rate of 5.48 million units. Even with the month-to-month slowdown in transactions, sales were 5.4 percent above their February 2016 pace and near their post-recession peak. Sales declined during the month in three of four Census regions: Northeast (-13.8 percent), Midwest (-7.0 percent), and West (-3.1 percent). Sales edged up 1.3 percent in the South during February. All four Census regions enjoyed positive 12-month comparables, with sales up 9.6 percent in the West, 5.9 percent in the South, 2.6 percent in the Midwest, and 1.5 percent in the Northeast. While inventories of unsold homes grew 4.2 percent to 1.75 million units, this was not only 6.2 percent below February 2016 inventories but also represented a ludicrously tight 3.8-month supply. Thus, it is not a surprise that the median sales price of $228,400 was up 7.7 percent from the same time a year ago. NAR’s press release stressed that that foot traffic of prospective buyers was high, but warned that a tight supply of affordable homes was “pushing up price growth and pressuring the budgets of prospective buyers.”

#2Meanwhile, new home sales heat up to their fastest pace since last summer. The Census Bureau estimates new home sales grew 6.1 percent during February to a seasonally adjusted annualized rate of 592,000 units. This was 12.8 percent above February 2016 new home sales and represented the best month for new home sales since last July. Sales grew during the month in three of four Census regions: Midwest (+30.9 percent), West (+7.5 percent), and South (+3.6 percent). There were 266,000 new homes available for sale at the end of February, up 1.5 percent from January and 9.9 percent from February 2016. This represented a still tight 5.4-month supply.Tight-Home-Supplies-032417

#3Durable goods orders jumped in February, but core business investment did not. Per the Census Bureau, new durable goods orders increased 1.7 percent during the month to a seasonally adjusted $235.4 billion. Durable goods orders during the first two months of 2017 totaled $430.5 billion, 1.6 percent above that for the same two months a year earlier. The headline number for February wwss pulled up by a 47.6 percent gain in orders for civilian aircraft. Aircraft orders tend to move sharply up and down each month…in fact, defense aircraft orders fell 12.8 percent during February. Overall transportation goods orders increased 4.3 percent during the month (motor vehicles & parts: -0.8%). Net of transportation goods, durable goods orders rose 0.4 percent during the month with orders during the first two months of 2017, 2.7 percent above that of the first two months of 2016. Orders increased in February for primary metals (+2.3 percent), electrical equipment/appliances (+2.2 percent), computers (+1.6 percent), and machinery (+0.1 percent). Falling during the month were orders for communications equipment (-3.8 percent) and fabricated metal products (-0.4 percent). Also declining were new orders for nondefense, non-aircraft capital goods (a proxy for business investment), slipping 0.1 percent during February. Orders for these goods during the first two months of 2017 were 1.3 percent above that for the first two months of 2016.

#4At least according to one measure, economic activity had improved to its fastest rate in more than two years. The Chicago Fed National Activity Index (CFNAI) jumped 36-basis points during February to a reading of +0.34. The measure is an average of 85 economic indicators, 55 of which had made a positive contribution to the CFNAI during February. All four broad categories of indicators showed improvement from their January readings, led by employment-related indicators (gaining 15-basis points to a contribution of +0.21). Also improving during the month were indicators related to sales/orders/inventories (up nine-basis points to +0.08), personal consumption/housing (up eight-basis points to -0.03), and production-related indicators (up five-basis points to +0.09). The CFNAI’s three-month moving average hit its highest reading since December 2014 with an 18-basis point gain to +0.25. A moving average for the moving average above a reading of 0.00 is indicative of economic growth greater than its historical average.

#5February’s gains in payrolls occurred largely in 11 states. The Bureau of Labor Statistics reports that 11 states enjoyed “statistically significant” nonfarm payroll increases during February, led by Illinois (+25,600), Ohio (+15,200), and New Jersey (+12,600). Payrolls essentially held the same in the other 39 states and the District of Columbia. Versus a year earlier, payrolls were up 31 states (led by California, Florida, and Texas), down in two states (Wyoming and Alaska), and held steady in 17 states and in the District of Columbia.  Meanwhile, the unemployment rate fell in ten states during February, with the largest month-to-month declines in West Virginia (down 4/10ths of a point to 5.2 percent), Mississippi (down 3/10ths of a point to 5.2 percent), Oregon (down 3/10ths of a point to 4.0 percent), and Maine (down 3/10ths of a point to 3.2 percent). The only state with a statistically significant increase in its unemployment rate during the month was Massachusetts (up 2/10ths of a point to 3.4 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 18, 2017, First-Time Claims, seasonally adjusted): 258,000 (+15,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 240,000 (-8.1% vs. the same week a year earlier).
FHFA House Price Index (January 2017, Purchase-Only Index, seasonally adjusted): Unchanged vs. December 2016, +5.7% vs. January 2016.

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

The Fed Acted Last Week and Intends to Do So Twice More in 2017. What We Learned During the Week of March 13 – 17

The Federal Reserve raised its short-term interest rate target last week and not for the final time this year. Here are the 5 things we learned from U.S. economic data released during the week ending March 17.

#1The Fed bumped up its short-term interest rate target and indicates it will do so two more times in 2017. The policy statement released following last week’s two-day meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was growing at a “moderate pace” and that the labor market had “continued to strengthen.” With job gains remaining “solid,” household spending rising “moderately,” and business investment having “firmed somewhat,” the statement noted that inflation was moving towards (but was still below) the Fed’s two-percent target. The policy statement also noted the committee’s view that the economy would continue to expand at a “moderate” pace and that inflation will continue to move towards the Fed’s target. As a result, the committee voted (with one dissenting vote) to bump up its fed funds target rate by 25-basis points to a range between 0.75 and 1.00 percent. The statement also reaffirmed previous statements that the FOMC expects to continue raising the fed funds target rate further, but that the target rate will remain “below levels that are expected to prevail in the longer run.”

The FOMC members also released updated economic forecasts that indicate continued moderate economic growth in 2017 and beyond.  The consensus forecast for the growth rate in the Gross Domestic Product (GDP) was now at +2.1% in both 2017 and 2018 and a slightly slower growth rate of +1.9% in 2019. The consensus forecast keeps the unemployment rate at 4.5% over the next three years while the anticipated inflation rate is at +1.9% in 2017 and at +2.0% for both 2018 and 2019.  As a result, the committee members’ median forecast for the fed funds target rate suggests two more rate hikes in 2017, with three rate hikes during both 2018 and 2019. Should this forecast hold, the fed funds target rate would be at 3.0% by the end of 2019.FOMC-Interest-Rate-Forecast-031717

#2Manufacturing output jumped for a second straight month in February. The Federal Reserve reports that the manufacturing output grew 0.5% during the month, matching January’s growth rate. Production of durable goods gained 0.6%, pulled up by higher output of nonmetallic mineral products, fabricated metal products, and machinery. Production slowed for electrical equipment/appliance/component industry and furniture. Nondurables production increased 0.4%, boosted by gains in the output of paper and plastics/rubber products. Manufacturing output was 1.2% above that of February 2016. Overall industrial production was unchanged during the month as the gain in manufacturing output and a 1.8% increase in mining output was counterbalanced by a sharp 5.7% decline in utility output (largely due to moderate winter weather lowering demand for heating). Capacity utilization edged down by 1/10th of a percentage point to 75.4% while factory utilization in manufacturing grew by 3/10ths of a percentage point to 75.6% (its highest reading since October 2015).

#3While cooling from their January pace, both consumer and producer prices move closer to the Fed’s targets. The Consumer Price Index (CPI) grew 0.1% on a seasonally adjusted basis during the month, its smallest monthly increase since last July. Pulling down the Bureau of Labor Statistics measure was the first monthly decline in gasoline prices (-3.0%) since last August. In all, energy CPI dropped 1.0% during the month as a result. Meanwhile, food CPI grew 0.2%, its biggest increase in more than 1.5 years, with 4 of 6 major grocery food groupings experiencing price increases. Net of energy and food, core CPI increased 0.2% during the month and has grown 2.2% over the past year. Rising during the month were prices for transportation services (+0.7%), apparel (+0.6%), shelter (+0.3%), and medical care services (+0.2%). Prices fell for used cars (-0.6%), new cars (-0.2%), and medical care commodities (-0.2%).

Meanwhile, the final demand Producer Price Index (PPI) grew 0.3% during February, half of the 0.6% gain in January.  Net of prices for food (+0.3%), energy (+0.6%), trade services (+0.4%), core final demand PPI also grew 0.3% during the month, up from a 0.2% increase in January. Final demand PPI was up 2.2% from a year earlier while the 12-month comparable for core final demand PPI +1.8%, its highest reading since last November. Prices for final demand goods increased 0.3% during February, with wholesale prices for core goods (net of energy and food) inched up 0.1%. Prices grew during the month for electric power, fresh and dry vegetables, jet fuel, liquefied petroleum gas, pharmaceutical preparations, and residual fuels. PPI for final demand services jumped 0.4% during the month.

#4The count of job openings and the pace of hiring both edged up in January. The Bureau of Labor Statistics tells us that there were a seasonally adjusted 5.626 million job openings at the end of January, up 87,000 from December but off 1.5% from a year earlier. Among the industries reporting year-to-year percentage gains in job openings were financial activities (+15.6%) and manufacturing (+4.6%). Job openings counts fell from January 2016 in wholesale trade (-12.6%), government (-9.4%), construction (-7.0%), accommodation and food services (-5.4%), retail (-3.3%), and health care/social assistance (-1.0%). The seasonally adjusted count of people hired grew by 137,000 during January to 5.440 million (+6.3% vs. January 2016). Among the industries with large year-to-year percentage increases in hiring were construction (+29.5%), transportation (+21.3%), health care/social assistance (+13.8%), accommodation/food services (+12.8%), financial activities (+10.8%), and manufacturing (+5.4%). Separations burst up by 174,000 during the month to a seasonally adjusted 5.258 million (+4.5% vs. January 2016). Voluntary quits continued to suggest job holders’ confidence in the labor market by surging to 3.220 million (+11.4% vs. January 2016). Layoffs were 3.5% below their year ago levels at 2.065 million.

#5Retail sales growth softened during February. According to the Census Bureau, retail sales inched up 0.1% on a seasonally adjusted basis to $446.8 billion. This was 5.7% higher than the February 2016 retail sales pace. Sales fell 0.2% at automobile dealers and parts stores. Net of auto and parts sales, retail sales grew 0.2% and were 5.7% above their February 2016 sales pace. Sales increased at retailers focused on building materials (+1.8%), furniture (+0.7%), and health & personal care (+0.7%). Sales fell at department stores (-1.1%), gas stations (-0.6%), apparel retailers (-0.5%), sporting goods/hobby stores (-0.4%), and restaurants/bars (-0.1%). Reflecting the continued shift in sales away from brick-and-mortar stores and towards internet retailers, nonstore sales grew 1.2% during the month and were 13.0% above their February 2016 pace.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 11, 2017, First-Time Claims, seasonally adjusted): 241,000 (-2,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 237,250 (-8.6% vs. the same week a year earlier).
New Residential Construction (February 2017, Housing Starts, seasonally adjusted annualized rate): 1.213 million units (-6.2% vs. January 2017, +4.4% vs. February 2016).
Housing Market Index (March 2017, Index (>50 = “Good” Housing Market), seasonally adjusted): 71 (vs. February 2017: 65, vs. March 2016: 58).
University of Michigan Index of Consumer Sentiment (March 2017-preliminary, Index (1966Q1 = 100), seasonally adjusted): 97.6 (vs. February 2017: 96.3, vs. March 2016: 91.0%).
Small Business Optimism Index (February 2017, Index (1986 = 100), seasonally adjusted): 105.3 (vs. January 2017: 105.9, February 2016: 92.9).
Business Inventories (January 2017, Manufacturing and Trade Inventories, seasonally adjusted): $1.842 trillion (+0.3% vs. December 2016, +2.3% vs. January 2016).
Regional/State Employment (January 2017, Change in Nonfarm Payrolls, seasonally adjusted): Vs. December 2016: Increased in 13 states, decreased in 1 state, essentially unchanged in 36 states and the District of Columbia, vs. January 2016: increased in 28 states, declined in 2 states, and essentially unchanged in 20 states and the District of Columbia.

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

Does Robust Job Creation Set Up a Fed Funds Rate Hike This Week? What We Learned During the Week of March 6 – 10

Hiring remained solid in February, but the trade deficit widened to a nearly 5-year high in January. And now we wait for the Fed to act. Here are the 5 things we learned from U.S. economic data released during the week ending March 10.

#1Job creation continued to chug along in February. Per the Bureau of Labor Statistics, nonfarm payrolls expanded by a seasonally adjusted 235,000 during the month, nearly matching the 238,000 added jobs in January and last December’s 155,000 payroll gain. Private sector employers added 227,000 workers during the month, split by 132,000 in the service sector (vs. 167,000 in January) and 95,000 jobs in the goods-producing side of the economy (vs. 54,000 in January). Industries that added the most workers during February were construction (+58,000), health care/social assistance (+32,500), manufacturing (+28,000), and leisure/hospitality (+26,000). The retail sector shed 26,000 workers during the month. The average number of hours worked during the week held steady at 34.4 hours while average weekly earnings grew by $2.07 to $897.50 (+2.5% vs. February 2016).Job-Creation-2010-2017-031017

Based on a separate household survey, the unemployment rate slipped by 1/10th of a percentage point to a seasonally adjusted 4.7% (vs. 4.9% in February 2016). 340,000 people entered the labor market during the month, while the labor force participation rate inched up by 1/10th of a percentage point to 63.0% (its best reading since last March, but still not far off from its recently achieved multi-decade low). The typical length of unemployment dropped to another post-recession low, shedding 2/10ths of a week to 10.0 weeks (February 2016: 11.3 weeks). The seasonally count of part-time workers who were seeking a full-time opportunity dropped by 136,000 to 5.704 million (February 2016: 6.019 million). The broadest measure of labor underutilization matched the post-recession low hit last December at 9.4% (February 2016: 9.8%). In all, the stability of the labor market would seem to give the Federal Reserve the final piece to the puzzle in deciding to bump up its short-term interest rate target at next week’s Federal Open Market Committee meeting.

#2January’s trade deficit was the largest in nearly five years. The Census Bureau and the Bureau of Economic Analysis estimate that exports totaled $192.1 billion during the month (+$1.1 billion vs. December 2016) while imports jumped $5.3 billion to $240.6 billion. The resulting deficit of -$48.5 billion was $4.2 billion larger than that of the prior month, up 9.7% than that of January 2016, and the largest single-month trade deficit since March 2012. The goods deficit expanded by $4.0 billion during the month to -$69.7 billion while the services surplus shrank by $0.3 billion to +$21.2 billion. Exports of supplies/materials (crude oil and petroleum products) and automotive vehicles grew during the month while capital goods exports slowed. Growing import goods categories included consumer goods (including cellular phones), industrial supplies/materials (including crude oil), and automotive vehicles. The U.S. had its largest goods deficits with China (-$30.2 billion), the European Union (-$13.4 billion), Germany (-$5.7 billion), Mexico (-$5.5 billion), and Japan (-$5.5 billion) during the month.

#3Factory orders increased during January. New orders for manufactured goods grew 1.2% during the month to a seasonally adjusted $470.2 billion, according to the Census Bureau. This was up 3.8% from a year earlier. Orders for durable goods rose 6.2%, thanks to big gains in orders for civilian aircraft (+69.8%), defense aircraft (+62.2%), and automobiles (+0.8%). Net of transportation goods, new orders for core manufactured goods increased 0.3% during January to $393.7 billion (+6.0% vs. January 2016). Orders for nondefense, non-aircraft capital goods orders (a proxy for business investment) slipped 0.1% during the month and was only 0.5% above its year ago reading. Shipments increased for the 10th time in 11 months with a 0.2% gain to $478.3 billion. Unfilled orders contracted for the 7th time in 8 months with a 4.0% decline to $1.114 trillion. Inventories expanded for the 6th time in 7 months (+0.2% to $627.9 billion). 

#4Productivity barely grew during 2016. The Bureau of Labor Statistics estimates nonfarm business labor productivity grew at a seasonally adjusted annualized rate of 1.3% during Q4, matching the BLS’s previous Q4 productivity estimate that it reported a month earlier but below the 3.3% gain reported for Q3. Manufacturing sector productivity grew 2.0% during Q4, with increases of 1.5% and 2.7% for durable and nondurable manufacturing, respectively. For all of 2016, labor productivity grew by only 0.2%, making last year the worst year for productivity gains since 2011. This is a particularly dubious achievement in that productivity growth has been weak throughout the current economic recovery.

#5Prices for both imports and exports increased during February. The Bureau of Labor Statistics reports that import prices grew 0.2% during the month, following gains of 0.6% and 0.4% during January and last December. The increase occurred despite a 0.7% decline in the price of imported fuels (prices for imported petroleum and natural gas fell 0.7% and 1.3%, respectively. Nonfuel import prices grew at their fastest rate since last May with a 0.3% gain, pulled up by rising prices for nonfuel industrial supplies/materials, consumer goods, and foods/feeds/beverages. Import prices have risen 4.6% over the past year while the 12-month comparable for nonfuel imports was up a much more modest 0.5%. Meanwhile, export prices grew 0.3% during the month and have risen 3.1% since February 2016. Rising during the month were prices for agricultural exports (+1.4%, including a 24.3% surge in vegetable export prices), nonagricultural industrial supplies, and capital goods.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 4, 2017, First-Time Claims, seasonally adjusted): 243,000 (+20,000 vs. previous week; -10,000 vs. the same week a year earlier). 4-week moving average: 236,500 (-9.0% vs. the same week a year earlier).
Consumer Credit (January 2017, Outstanding Non-Real Estate Backed Consumer Loan Balances, Seasonally Adjusted): $3.774 trillion (+$8.8 billion vs. December 2016, +6.3% vs. January 2016)
Monthly Treasury Statement(February 2017, Federal Government Budget Surplus/Deficit): -$192.0 billion (vs. January 2017: +$51.3 billion, February 2016: -$192.6 billion).
Wholesale Trade (January 2017, Wholesale Inventories, seasonally adjusted): $600.0 billion (-0.2% vs. December 2016, +2.2% vs. January 2016).

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