Despite Continued Strength in Consumer Confidence, Economic Growth Slows: April 24 – 28

The U.S. economy slammed on its brakes during the first quarter as consumer spending faltered. Here are the 5 things we learned from U.S. economic data released during the week ending April 28.

#1Economic growth sputtered during the opening months of 2017. Per the Bureau of Economic Analysis, the Gross Domestic Product (GDP) grew by a paltry seasonally adjusted annualized rate (SAAR) of 0.7 percent during the first quarter of 2017. This was the slowest pace of economic expansion since the first quarter of 2014 when the U.S. economy had contracted 1.2 percent (although it is worth noting that GDP grew by only 0.8 percent during the same quarter a year ago). The feeble growth rate in the economy was largely the product of weakness in consumer spending, which increased only 0.7 percent) during the quarter. As a result, personal consumption expenditures contributed a mere 23-basis points in GDP growth during the quarter, versus a 240-basis point contribution during the previous quarter. Also making positive contributions to GDP growth during the quarter were nonresidential fixed investment (+112-basis point contribution), increased exports (+68-basis point contribution), and residential fixed investment (i.e., housing with a +50-basis point contribution). Drags on the U.S. economy were the decline in private inventories (costing 93-basis points in GDP growth), a rise in imports (costing 61-basis points in GDP growth), and a decrease in government spending (costing 30-basis points in GDP growth). The BEA will revise its estimate of Q1 GDP growth twice in the coming two months.Q1 GDP Contributors-042817

#2Still, there is a measure that suggests economic growth was just above its historical average in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators that tracks business activity, shed 19-basis points but remained positive at +0.08. More critically, the three-month moving average for the CFNAI came in at +0.03, which was down 13-basis points from February but also was the fourth straight month in which it was positive. A positive reading in the moving average suggests that the U.S. economy is expanding at a rate greater than its historic average. Forty-eight of the 85 components that make up the CFNAI made positive contributions to the index, with three of four major groupings of these indicators making positive contributions: sales/orders/inventories (adding seven-basis points to the index), production (adding four-basis points to the index), and employment (adding two-basis points to the index). Personal consumption/housing-related index components cost five-basis points in CFNAI growth. 

#3Transportation goods sparked growth in durable goods orders during March. New orders for manufactured durable goods gained 0.7 percent during the month to a seasonally adjusted $238.7 billion, its third consecutive monthly increase. The Census Bureau report indicates new orders for transportation goods rose 2.4 percent, with solid increases in orders for defense aircraft (+26.1 percent) and civilian aircraft (+7.0 percent). New orders for motor vehicles declined for a second straight month with a 0.8 percent contraction. Net of transportation goods, new orders for durable goods slipped 0.2 percent although orders for core capital goods orders inched up 0.2 percent. Growing during the month were new orders for primary metals (+0.8 percent) and electrical equipment (+0.4 percent) while orders fell for computers (-3.8 percent), communications equipment (-1.2 percent), fabricated metal products (-0.8 percent), and machinery (-0.2 percent).

#4New home sales hit an eight-year high in March. The Census Bureau reports that new home sales jumped 5.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 621,000. This was 15.6 percent above year-ago levels and its highest reading since last July (which itself was the post-recession high). Sales grew in three of four Census regions during the month—Northeast (+25.8 percent), West (+16.7 percent), and South (+1.6 percent)—but declined 4.5 percent in the Midwest. All four Census regions enjoyed positive year-to-year sales gains. There were 268,000 new homes available for sale at the end of March, up 1.1 percent from February and 9.8 percent from a year earlier. This translated into a still tight 5.2-month supply of new homes on the market.

#5Consumer sentiment remained near post-recession highs in April, although one measure pulled back during the month. The Conference Board’s Consumer Confidence Index fell by 4.6 points during April to a reading of 120.3 (1985=100). March’s reading was the best reading in the sentiment measure since December 2000. The current conditions lost 3.3 points (to 140.6) while the expectations index shed 5.6 points (to 112.3). 30.2 percent of survey respondents felt that current business conditions were “good” (versus 32.4 percent in March), while 13.8 percent saw them as “bad” (versus 13.1 percent in March). Looking towards the future, 24.8 percent of consumers believe business conditions will improve over the next six months while 10.9 percent expect them to worsen. Related, 23.0 percent of survey respondents expect there will be increased job availability in the coming months versus 13.1 percent anticipating a decline. The press release noted that despite a pullback in April, consumer confidence “still remains at strong levels” and that “consumers remain confident that the economy will continue to expand in the months ahead.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment edged up by 1/10th of a point to a seasonally adjusted reading of 97.0. Despite essentially holding steady during the month, this puts the index eight full points above its April 2016 reading and keeps it near its post-recession high. The current conditions index dropped by a half-point to 112.7 (April 2016: 106.7) while the forward-looking expectations index jumped 9.4 points to 87.0.  The press release noted that the “partisan divide” that this survey has been demonstrating in recent months narrowed during April, people who identified themselves as Democrats were far more pessimistic than those who are Republicans. The release also stated that the data points towards an anticipated 2.5 percent growth rate in real consumer spending during 2017.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 22, 2017, First-Time Claims, seasonally adjusted): 257,000 (+14,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 242,250 (-7.4% vs. the same week a year earlier).
Pending Home Sales (March 2017, Index (2001=100), seasonally adjusted): 99.1 (-2.9% vs. February 2017, +1.8% vs. March 2016).
Case-Shiller Home Price Index (February 2017, 20-City Index, seasonally adjusted): +0.7% vs. January 2017, +5.9% vs. February 2016.
FHFA House Price Index (February 2017, Purchase-Only Index, seasonally adjusted): +0.8% vs. January 2017, +6.4% vs. February 2016.
Agricultural Prices (March 2017, Prices Received by Farmers (Index: 2011=100), seasonally adjusted): 94.8 (+3.4% vs. February 2017, +2.4% vs. March 2016).

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

Home Sales Gain Again While Factory Output Slows. What We Learned During the Week of April 17 – 21

Home sales hit a ten-year high in March and housing starts remained solid.  But the manufacturing sector ends its recent winning streak. Here are the 5 things we learned from U.S. economic data released during the week ending April 21.

#1Existing home sales hit another post-recession high in March. The National Association of Realtors reports that existing home sales jumped 4.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.710 million homes. This was up 5.9 percent from a year earlier and represented the best month for sales of previously owned homes since February 2007. Sales grew in three of four Census regions: Northeast (+10.1 percent), Midwest (+9.2 percent), and South (+3.4 percent). Sales slipped 1.6 percent in the West. All four Census regions enjoyed positive 12-month sales comparables.  Even though inventories of unsold homes grew 5.8 percent during the month, the 1.830 million homes available for sale at the end of March was a 6.6 percent drop from a year earlier and represented a very tight 3.8 month supply. As a result, the median sales price for existing homes has risen 6.8 percent over the past year to $236,400. The press release described the spring home buying season as “promising,” but noted that “finding available properties to buy continues to be a strenuous task for many buyers.”

#2Housing starts slip but remained near post-recession highs in March. Per the Census Bureau, housing starts were at a seasonally adjusted annualized rate (SAAR) of 1.215 million units, down 6.8 percent for the month but still 9.2 percent its March 2016 pace. (Note that while housing starts were near their post-recession high, they remained well below the peak values seen during the early and middle part of the last decade.) While both the month-to-month and year-to-year comparables were equivalent for both single-family and multi-family properties, they did differ by region. Versus February, starts grew 12.9 percent in the Northeast but dropped 16.2 percent in the Midwest, 16.0 percent in the West, and 3.2 percent in the South. Starts have grown over the past year in the South (+19.4 percent) and West (+9.2 percent) while they have fallen in the Northeast (-14.9 percent) and Midwest (-2.5 percent). Looking towards the future, the SAAR of issued building permits grew 3.6 percent during March to 1.26 million permits (+17.0 percent). Permit issuance was up sharply in all four Census regions: Northeast (+26.1 percent), West (+24.5 percent), South (+14.6 percent), and Midwest (+4.9 percent). The annualized rate of housing completions grew 3.2 percent during the month to 1.168 million units. This was a healthy 13.4 percent above the March 2016 pace of completions.Housing Starts 2005-2017-042117

#3Industrial production rose during March, but manufacturing output did not. The Federal Reserve reports that industrial production grew 0.5 percent during March, following a tepid 0.1 percent increase during February and a 0.3 percent decline during January. The increase was largely the result of an 8.6 percent surge in output at utilities as weather conditions returned to their seasonal norms after an abnormally warm winter had suppressed demand for heating. Mining output edged up 0.1 percent during the month. On the flip side, manufacturing production fell 0.4 percent during March and was only 0.8 percent above its year ago level. This was the first monthly decline in manufacturing output since last August. The production of durable manufactured goods dropped 0.8 percent with all major categories of durable products reporting output declines (except for computers/electronics). Falling by at least one percent was the output of automobiles, electrical equipment/appliances, and primary metals. Production of nondurables eked out a 0.2 percent gain, with petroleum/coal products seeing the largest gain in output. Capacity utilization increased 4/10ths of a percentage point to 76.1 percent, but the same measure for the manufacturing sector saw factory utilization declining by 3/10ths of a percentage point to 75.7 percent.

#4Forward-looking data suggest continued economic growth for the remainder of this year. The Conference Board’s Leading Economic Indicators added a half point during March to a hit a seasonally adjusted 126.7 (2010=100). This left the measure 3.5 percent above where it was a year earlier. Eight of the leading index’s components improved during the month, led by the interest rate spread, purchasing managers’ report on new orders, and consumers’ expectations for future business conditions. The coincident index added 2/10ths of a point 114.9 (+2.0 percent vs. March 2016) with all 4 of the measure’s components making a positive contribution to the index (including, industrial production and personal income). The lagging index held firm at 123.6 during the month, which left the measure 2.3 percent above where it was a year ago. Three of the seven components of the lagging index made positive contributions, led by banks’ prime rate for loans. The press release stated the results suggest continued economic growth in 2017, “with perhaps an acceleration later in the year if consumer spending and investment pick up.”

#5A closer look at March employment data finds payrolls were unchanged in most states. The Bureau of Labor Statistics’ Regional and State Employment report indicates that there were statistically significant increases in nonfarm payrolls during the month in three states: Washington state (+10,000). Tennessee (+8,600), and Maine (+3,000). Payrolls declined in four other states: New Jersey (-17,500), Pennsylvania (-16,100), Missouri (-13,400), and Louisiana (-8,500). Payrolls did not significantly change in the other 43 states and in the District of Columbia during the month. Even with the relative stagnation during March, nonfarm payrolls have expanded in 27 states over the past year, with the largest percentage gains occurring in Utah, Florida, Georgia, and Nevada. Only two states—Alaska and Wyoming—suffered year-to-year payroll declines.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 15, 2017, First-Time Claims, seasonally adjusted): 244,000 (+10,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 247,250 (-8.4% vs. the same week a year earlier).
NAHB Housing Market Index (April 2017, Index (>50 = “Good” Housing Market Conditions), seasonally adjusted): 68 (vs. March 2017: 71, vs. April 2016: 58).
Bankruptcy Filings (12-month period through March 31, 2017): 794,492 (-4.7 percent versus 12-month period through March 31, 2016). Business bankruptcy filings: 770,901 (-4.7 percent vs. March 31, 2016), Nonbusiness bankruptcy filings: 23,591 (-4.9 percent versus March 31, 2016).
Treasury International Capital Flows (February 2017, Foreign Purchases of Domestic U.S. Securities, not seasonally adjusted): +$35.9 billion (vs. January 2017: +$14.8 billion., vs. February 2016; +$26.9 billion).
Beige Book

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

Retail Sales Pause Again, Inflation Takes a Spring Break. What We Learned During the Week of April 10 – 14

Retail sales unimpressed again during March while inflation reversed course. Here are the 5 things we learned from U.S. economic data released during the week ending April 14.

#1Retail sales softened again during March. The Census Bureau reports that retail and food services sales slipped 0.2 percent during the month to a seasonally adjusted $470.8 billion. Despite the recent weakness, sales were 5.2 percent above their year ago pace. After removing the 1.2 percent sales decline among auto dealers and parts stores, retail sales held steady during the month and were up 5.0 percent from a year earlier. Sales improved during the month at electronics/appliance stores (+2.6 percent), apparel retailers (+1.0 percent), grocery stores (+0.5 percent), and department stores (+0.2 percent). Sales during March fell at building material retailers (-1.5 percent), gas stations (-1.0 percent), sporting goods/hobby stores (-0.8 percent), and restaurants/bars (-0.6 percent). Meanwhile, nonstore retailers (including internet-based retailers) saw sales jump 0.6 percent during the month, putting them 11.9 percent above their March 2016 mark.Growth in Internet Sales-1992-2017-041417

#2Consumer prices declined for the first time in a year during March. Per the Bureau of Labor Statistics, the Consumer Price Index (CPI) sank 0.3 percent on a seasonally adjusted basis during the month, the first time since February 2016 in which the measure of consumer prices dropped. Some of the decrease was the product of a 3.2 percent drop in energy prices, reflecting lower prices for gasoline (-6.2 percent), fuel oil (-0.8 percent), utility delivered natural gas (-0.8 percent), and electricity (-0.1 percent). Food prices grew 0.3 percent (its largest single-month increase since May 2014) with four of six major grocery categories experiencing price increases. Net of energy and food, core CPI slipped 0.1 percent but remained 2.0 percent above that of a year earlier. While prices grew for transportation services (+0.4 percent), medical care commodities (+0.2 percent), shelter (+0.1 percent), and medical care services, they declined for used vehicles (-0.9 percent), apparel (-0.7 percent), and new vehicles (-0.3 percent).

#3Wholesale prices edged down during March. The Producer Price Index for final demand slipped 0.1 percent on a seasonally adjusted basis during the month, its first monthly decrease since last August. Core PPI for final demand (net of energy, food, and trade services) grew 0.1 percent. The former remained 2.3 percent above its year ago market while the latter’s 12-month comparable was +1.7 percent. PPI for final demand goods slipped 0.1 percent, with energy PPI down 2.9 percent and food PPI up 0.9 percent. An 8.3 percent drop in the wholesale price of gasoline helped pulled down the former while higher prices for meats and processed poultry were partially responsible for the latter’s increase. PPI for final demand services slipped 0.1 percent with wholesale prices for trade services and transportation/warehousing declining 0.1 percent and 0.2 percent, respectively.

#4The pace of hiring slipped during February even as the count of job openings grew. According to the Bureau of Labor Statistics, employers hired a seasonally adjusted 5.314 million workers during the month, down 90,000 from January and off 2.4 percent from a year earlier. Private sector employers added 4.968 million workers, off 99,000 from January and 2.5 percent from a year earlier. Industries with the largest year-to-year percentage increases in hiring included construction (+6.3 percent), manufacturing (+6.3 percent), transportation/warehousing (+4.8 percent), and health care/social assistance (+1.1 percent). Hiring slowed versus a year earlier in financial activities (-19.7 percent), retail (-9.0 percent), leisure/hospitality (-5.9 percent), and the government (-2.0 percent). Even if the pace of hiring chilled, the number of available jobs did not. There were a seasonally adjusted 5.743 million job openings at the end of February, up 118,000 from January and +3.2 percent from a year earlier. Private sector employers reported 5.235 million job openings, a 2.8 percent increase from a year earlier. Industries the largest positive 12-month comparables in terms of job openings included health care/social assistance (+21.1 percent), manufacturing (+19.0 percent), financial activities (+8.1 percent), and government (+7.0 percent). 5.701 million people left their jobs during March (-2.2 percent versus February 2016). Voluntary quits were up 3.4 percent from a year earlier to 3.084 million while layoffs plummeted 13.6 percent versus February 2016 to 1.584 million.

#5Small business owner sentiment held firm in March. The National Federation of Independent Business reports that its Small Business Optimism Index lost 6/10ths of a point to a seasonally adjusted reading of 104.7 (1986=100). Even with the decline, the index has remained above 100.0 for four straight months (essentially since last fall’s election), which kept it near its highest readings in a decade. Just two of the index’s ten components improved during the month: plans to make capital outlays (up three points) and plans to increase employment (up a point). Six other index components weakened during March: expected real sales (down eight points), earnings trends (down four points), current inventories (down three points), current job openings (down two points), plans to increase inventories (down a point), and expectations for the economy to improve (down a point). The press release characterized the survey results as “an excellent performance) but also noted that the group’s measure of uncertainty rose to its second highest level ever as small business owners are “having a difficult time anticipating the factors that affect their businesses, especially government policy.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 8, 2017, First-Time Claims, seasonally adjusted): 234,000 (-1,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 247,250 (-8.0% vs. the same week a year earlier).
University of Michigan Index of Consumer Sentiment (April 2017-preliminary, Index (1966Q1=100), seasonally adjusted: 98.0: (+1.1 points vs. March 2017, +9.0 points vs. April 2016).
Import Prices (March 2017, not seasonally adjusted): -0.2% vs. February 2017, +4.2% vs. March 2016.  Net of fuel: +0.2% vs. February 2017, +1.0% vs. March 2016.
Export Prices (March 2017, not seasonally adjusted): +0.2% vs. February 2017, +3.6% vs. March 2016.  Net of agricultural exports: +0.2% vs. February 2017, +3.3% vs. March 2016
Treasury Budget (March 2017, Budget Surplus/Deficit): -$176.2 billion (vs. February 2017:  -$192.0 billion, March 2016: -$106.5 billion).  First six months of FY2017: -$526.9 billion (+14.7% vs. first six months of FY2016).
Manufacturing & Trade Inventories (February 2017, seasonally adjusted): $1.840 trillion (+0.3% vs. January 2017, +2.8% vs. February 2016).

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