Manufacturing Rebounds in April, Leading Indicators Point Up: May 15 – 19

Manufacturing output bounced up in April, led by a boost in automobile production. Leading indicators suggest economic growth in the coming months. Here are the 5 things we learned from U.S. economic data released during the week ending May 19.

#1Manufacturing output jumped in April. The Industrial Production report from the Federal Reserve tells us that manufacturing output gained 1.0 percent during the month, following a 0.4 percent decline in March. This was the measure’s biggest single-month increase since February 2014. Production of durable and nondurable goods each grew at a 1.0 percent rate during April. The former was led by a 5.0 percent bump in motor vehicles output and 1.8 percent gain in the production of electrical equipment and appliances. Nondurables production benefited from higher output of food/beverage/tobacco products, textiles, and printing. Manufacturing output has risen 1.7 percent over the past year. Overall industrial production also gained 1.0 percent during April and has grown by 2.2 percent over the past year. Mining output rose 1.2 percent during the month, thanks to increased coal mining. Increased air conditioning usage boosted utility production 0.7 percent. Overall factory capacity utilization jumped by 6/10ths of a percentage point to 76.7 percent (its highest reading since August 2015). Manufacturing sector capacity utilization grew by 7/10ths of a percentage point to 75.9 percent, its best reading since December 2014.Increased Manufacturing Output-April2017-051917

#2Forward-looking indicators point to economic expansion over the coming months. The Conference Board’s Leading Economic Indicators grew by 4/10ths of a point during April to a seasonally adjusted 126.9. This was 3.2 percent above its year-ago reading. Eight of the ten components of the leading index made positive contributions to the leading index, led by the interest rate spread, jobless claims, and consumers’ expectations for the economy. The coincident index added 3/10ths of a point to 115.2 (+2.0 percent versus April 2016) as all four index components made positive contributions (including, industrial production and nonfarm payrolls). The lagging economic index increased by 4/10ths of a point to 124.1 (+2.5 percent versus April 2016) as five of seven components improved during the month (including the average length of unemployment and the prime interest rate charged by banks). The press release said that the data suggest that Q1 weak GDP report was “temporary hiccup as the economy returns to its long-term trend of about [a] 2 percent” growth rate.

#3Housing starts cooled slightly during April. The Census Bureau reports that starts of new housing construction fell 2.6 percent during the month to a seasonally adjusted annualized rate of 1.172 million units. Even with the decline, this was 0.7 percent above its year-ago pace and the 25th straight month in which the measure was above an annualized rate of 1 million units. Starts of single-family homes sped up slightly during the month (0.9 percent) and were 8.9 percent above their pace of starts in April 2016. Starts of multifamily residences (those with at least five units) dropped 9.6 percent during the month and were 14.6 percent below the starts rate of a year earlier. Looking towards the future, the annualized rate of issued building permits was at 1.172 million. While this was off 2.5 percent from March, it remained 5.7 percent above April 2016’ SAAR of issued permits. Finally, the annualized rate of housing completions dropped 8.6 percent during April to 1.106 million homes. This was 15.1 percent above the April 2016 pace.

#4Homebuilders remain optimistic. The Housing Market Index (HMI) grew by two points during May to a seasonally adjusted reading of 70, according to the National Association of Home Builders. The measure of homebuilder sentiment has remained above a reading of 50—indicative of a greater percentage of builders characterizing the housing market as “good” as opposed to being “poor—ever since July 2013. This also was the HMI’s second best reading since before the last recession (the best being only two months earlier). The HMI grew in three of four Census regions: Northeast (up five points to 50), West (up three points to 80), and South (up two points to 72). The measure slipped by two points in the Midwest to 65. Also growing was the indices for single-family home sales (up two points to 76) and the expected sales index (up four points to 79, its best reading since 2005). Meanwhile, the measure of the traffic of prospective buyers slipped by a point to a reading of 51. The press release noted the results indicated a housing market that was “solidifying.”

#5Nonfarm payrolls grew in nine states during April . Per state-level employment data released by the Bureau of Labor Statistics, nonfarm payrolls increased significantly in nine states during April, led by increases in Texas (+30,400), Minnesota (+15,100), and Wisconsin (+14,800). Only one state—Indiana—had suffered a significant decrease in nonfarm payrolls (-11,300). Versus a year earlier, 28 states enjoyed significant payrolls gains, with the largest year-to-year percentage gains in Utah (+3.3 percent), Florida (+2.6 percent), Georgia (+2.6 percent), and Idaho (+2.6 percent each). Similarly, 19 states saw significant declines in their unemployment rates, with the biggest declines occurring in Illinois, Oregon, West Virginia, and Wyoming. No state had a significantly higher employment rate in April versus what it had a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending May 13, 2017, First-Time Claims, seasonally adjusted): 232,000 (-4,000 vs. previous week; -45,000 vs. the same week a year earlier). 4-week moving average: 243,500 (-12.5% vs. the same week a year earlier).
Treasury International Capital Flows (March 2017, Net Purchase of Domestic Securities by Foreign Investors, not seasonally adjusted): +$30.8 billion (vs. February 2017: +$35.7 billion, March 2016: +$65.3 billion).

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

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