Business Activity Builds Momentum: November 20 – 24

Business activity appears to be firming during the final months of 2017. Here are the five things we learned from U.S. economic data released during the week ending November 24.

#1Forward-looking economic data suggest robust economic growth in the coming months. The Conference Board Leading Economic Index (LEI) jumped by 1.5 points during October to a reading of 130.4 (2010=100). This was up a sharp 5.2 percent from a year earlier. Nine of the ten components of the LEI made a positive contribution during the month, led by jobless claims, building permits, and new orders for manufactured goods. The coincident index added 4/10ths of a point to 116.2, +1.9 percent versus October 2017. All four components of the coincident index made positive contributions, including industrial production and nonfarm payrolls. The lagging economic index added 3/10ths of a point to 125.5, up 2.5 percent from October 2016. Four of seven index components made positive contributions; including, the average duration of unemployment and the change in prices for services. The press release said that “[t]he growth of the LEI, coupled with widespread strengths among its components, suggests that solid growth in the US economy will continue through the holiday season and into the new year.”

#2Economic activity picked up during October. The Chicago Fed National Activity Index (CFNAI) gained 29-basis points to +0.65. This was the best reading for the index of 85 economic indicators since January 2012. The CFNAI is set so that a reading of 0.00 indicates economic growth at the historical average. Forty-three of the 85 indicators improved during the month, but only one of the four major categories of indicators gained during the month: production-related indicators made a +0.53 contribution, up from +0.18 in September. Indicators related to employment (off two-points to +0.11), sales/orders inventories (off three basis points to +0.05), and consumption/housing (off two-basis points to -0.04) all made smaller contributors than they had during September. The CFNAI’s three-month moving average jumped by 27-basis points to +0.28, its highest reading since April 2014.CFNAI-2011-2017-112417

#3Existing home sales gained in October. Sales of previously owned homes grew 2.0 percent during the month to a seasonally adjusted annualized rate (SAAR) to 5.48 million units, according to the National Association of Realtors. While this was off 0.9 percent from the sales pace of a year earlier, existing home sales have remained within a tight mid-five million range for the past year. Sales grew in all four Census regions during the month, but the 12-month sales comparable was only positive in the West. Holding back sales was the continued relative lack of homes on the market. Just 1.80 million homes were available for sale at the end of October, down 3.2 percent from September, 10.4 percent from a year earlier, and represented only a 3.9 month supply. The press release noted that homes typically stayed on the market for 34 days in October, down from 41 days during October 2016. As a result, the median sales price rose 5.5 percent over the past year to $247,000.

#4Durable goods orders fell during October. The Census Bureau estimates new orders for manufactured durable goods were at a seasonally adjusted $236.0 billion during the month, down 1.2 percent from September. Much of the decline reflects the 18.6 percent drop in new orders for civilian aircraft and the 11.3 percent slump in new orders for defense aircraft. Overall transportation orders fell 4.3 percent (new orders for motor vehicles grew 1.7 percent during the month). Net of transportation goods, new durable goods gained 0.4 percent during October to $158.9 billion. New orders grew during the month for primary metals (+1.3 percent), electrical equipment/appliances (+0.8 percent), machinery (+0.6 percent), computers/electronics (+0.4 percent). Orders for fabricated metal products fell 0.9 percent while those of civilian, non-aircraft capital orders (a proxy of business investment) dropped 0.5 percent. Shipments of durable goods edged up 0.1 percent to $241.0 billion (its fifth gain in six months). The dollar value of unfilled orders was essentially unchanged at $1.135 trillion while inventories increased for the 15th time in 16 months (+0.1 percent to $404.1 billion). 

#5Consumer sentiment softened slightly but remained firm during November. The University of Michigan’s Index of Consumer Sentiment lost 2.2 points during the month to a seasonally adjusted reading of 98.5 (1966Q1=100). Despite declining from October, this reading was a 7/10ths of a point improvement from the preliminary November number reported a few weeks earlier and a 4.7 point increase over the past year. Both the current and expected conditions indices slipped from their October marks: the former lost 3.0 points to 113.5 (November 2016: 107.3) while the latter decreased by 1.6 points to 88.9 (November 2016: 85.2). The statement released with the report notes that “consumers have voiced greater certainty about their expectations for income, employment, and inflation” and that the data is consistent with “an expected gain of 2.7% in real consumption expenditures in 2018.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 18, 2017, First-Time Claims, seasonally adjusted): 239,000 (-13,000 vs. previous week; -9,000 vs. the same week a year earlier). 4-week moving average: 239,750 (-3.9% vs. the same week a year earlier).
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The opinions expressed here are not necessarily those of Kevin’s current and previous employers. No endorsements are implied.

Inflation Solidifies and Manufacturing Rebounds: November 13 – 17

Inflation measures continued to converge towards the Fed’s target. Here are the five things we learned from U.S. economic data released during the week ending November 17.  

#1Topline consumer inflation was modest in October. The Consumer Price Index (CPI) inched up 0.1 percent during the month, per the Bureau of Labor Statistics. This followed gains of 0.4 percent and 0.5 percent during August and September, respectively. Holding down the headline index was the 1.0 percent drop in energy prices as gasoline prices declined 2.3 percent. Food CPI was unchanged for the month. Net of both energy and food, core CPI grew 0.2 percent during October and has risen 1.8 percent over the past 12 months. This was the largest 12-month comparable for core consumer prices since April as it gradually edges closer to the Federal Reserve’s two-percent target inflation rate. Used car/truck prices jumped 0.7 percent, with prices also rising for shelter (+0.3 percent), medical services (+0.3 percent), and transportation services (+0.2 percent). Falling during the month were prices for new vehicles (-0.2 percent) and apparel (-0.1 percent).CPI October 2017--111717

#2Meanwhile, wholesale prices repeated the prior month’s increase in October. The Producer Price Index (PPI) for final demand grew at a seasonally adjusted 0.4 percent rate during the month, matching September’s increase and doubling August’s rise. The Bureau of Labor Statistics’ core measure of wholesale prices (removing energy, food, and trade services) grew 0.2 percent for the third consecutive month. PPI for final demand energy was unchanged during the month (as wholesale gasoline prices fell 4.6 percent) while that for final demand food jumped 0.5 percent, its biggest single-month increase since June. PPI for core goods (net of energy and food) grew 0.3 percent, impacted by a 2.1 percent jump in the price for pharmaceutical preparations. PPI for final demand services jumped 0.5 percent, including a 1.1 percent rise in trade services PPI (largely retailer and wholesaler margins). Final demand PPI has risen 2.8 percent over the past year while the 12-month comparable for the core measure has gained 2.3 percent, the fifth time over the past seven months that it has been at or above two-percent.

#3Manufacturing output grew faster than it has in any month since April. The Federal Reserve reports manufacturing production jumped 1.3 percent on a seasonally adjusted basis during October, following a 0.4 percent gain in September. The Fed attributes much of the gain to activity returning to normal levels following disruptions caused by the hurricanes in August and September. Output of durables increased 0.4 percent (including a 1.0 percent rise in automobile production) while nondurables output surged 2.3 percent. Production grew by more than one percent for chemicals, petroleum/coal products, textiles, and apparel. Manufacturing output has gained 2.5 percent over the past year. Overall industrial production increased 0.9 percent (also its largest single-month gain since April), putting output 2.9 percent above its October 2016 mark. Output at utilities gained 2.0 percent while mining output fell 1.3 percent (later caused by temporary disruptions in oil drilling due to Hurricane Nate).

#4Retail sales expanded at a slower pace during October. Following a hurricane preparation and recovery fueled 1.9 percent surge during the previous month, retail and food services sales grew a far more modest 0.2 percent during October. The Census Bureau estimates sales were at a seasonally adjusted $486.6 billion, which was 4.6 percent ahead of its year-ago pace. Sales at auto dealers/parts stores jumped 0.7 percent while activity fell 1.2 percent at gas stations (primarily because of declining prices at the pump). Net of both, core retail sales increased 0.3 percent. Sales grew at 1.5 percent at sporting goods/hobby stores, 0.8 percent at both apparel stores and bars, 0.7 percent at both furniture and appliance/electronics retailers, and 0.6 percent at grocery stores. Sales fell 1.2 percent at building material stores and 0.3 percent at nonstore retailers.

#5Housing starts rose to their highest level in a year during October. The Census Bureau reports that housing starts grew 13.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.290 million units. This was the highest level of housing starts since October 2016, when starts were at an annualized rate of 1.328 million units. Starts of single-family units increased 5.3 percent during the month while multi-family units surged 37.4 percent in October. Starts grew in three of four regions with only the West experiencing a decline. Looking towards the future, the number of issued building permits rose 5.9 percent in October to a SAAR of 1.297 million permits, 0.9 percent above the year-ago rate. The annualized rate of home completions blossomed 12.6 percent during October to 1.232 million homes with a 12-month comparable of 15.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 11, 2017, First-Time Claims, seasonally adjusted): 249,000 (+10,000 vs. previous week; +10,000 vs. the same week a year earlier). 4-week moving average: 237,750 (-5.4% vs. the same week a year earlier).
Import Prices (October 2017, All Imports, not seasonally adjusted): +0.2% vs. September 2017, +2.5% vs. October 2016. Nonfuel imports: +0.2% vs. September 2017, +1.4% vs. October 2016.
Export Prices (October 2017, All Exports, not seasonally adjusted): Unchanged vs. September 2017, +2.7% vs. October 2016. Nonagricultural Exports: -0.3% vs. September 2017, +2.5% vs. October 2016.
State Employment (October 2017, Nonfarm Payrolls, seasonally adjusted): 9 states with significant month-to-month increases in payrolls and 3 states had significant month-to-month employment decreases. 27 states had significant year-to-year increases in payrolls.
Small Business Optimism (October 2017, Index (1986=100), seasonally adjusted): 103.8 (vs. September 2017: 103.0; October 2016: 94.9).
Treasury International Capital Flows (September 2017, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.8 billion (vs. August 2017: +$40.4 billion, vs. September 2016: -$51.4 billion).
Monthly Treasury Statement (October 2017, Budget Surplus/Deficit): -$63.2 billion (vs. October 2016: -$45.8 billion).
Business Inventories (September 2017, Manufacturers’ and trade inventories, seasonally adjusted): $1.889 trillion (unchanged vs. August 2017, +3.5% vs. September 2016).

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

One More Look at September Labor Market Trends: November 6 – 10

The latest Job Openings and Labor Turnover report finds hiring slowed during September. Here are the five things we learned from U.S. economic data released during the week ending November 10.

#1The pace of hiring slowed a bit in September even with the number of job openings remaining at record highs. The Bureau of Labor Statistics indicates that employers had a seasonally adjusted 6.093 million job openings at the end of September, up a mere 3,000 from August but 7.5 percent ahead of the year-ago count. Industries with substantially large year-to-year percentage gains in job openings included wholesale trade (+31.4 percent), manufacturing (+30.4 percent), transportation (+21.8 percent), and health care/social assistance (+9.8 percent). On the other hand, both the federal government (-20.6 percent) and retailers (-2.7 percent) reported having fewer open positions than they did back in September 2016. Employers hired a seasonally adjusted 5.273 million workers during September, down 147,000 from August but still up 1.8 percent from the September 2016 count. Hiring rose over the past year in manufacturing (+20.2 percent), construction (+18.9 percent), financial activities (+9.6 percent), and health care/social assistance (+6.8 percent). Hiring fell versus a year earlier in retail (-9.2 percent) and the government (-4.6 percent). 5.240 million people left their jobs during September, off 33,000 from August but still 6.0 percent ahead of the year-ago pace. The number of people who had quit their job increased by 89,000 during the month to 3.182 million (+3.4 percent versus September 2016) while layoffs slowed by 78,000 to 1.703 million (+12.3 percent versus September 2016).job openings and hiring-2003-2017 111017

#2Wholesalers added to their inventories add a slower rate during September as sales jumped. The Census Bureau reports that merchant wholesaler inventories grew 0.3 percent during the month to a seasonally adjusted $609.5 billion. While this was down from August’s 0.8 percent gain, it leaves wholesale inventories up 4.6 percent from September 2016 levels. Stockpiles of durables expanded 0.3 percent during September while those of nondurables increased 0.4 percent. Wholesaler sales surged 1.3 percent during September—following a 1.9 percent gain in August—to a seasonally adjusted $480.5 billion (+8.5 percent). Durable goods sales jumped 0.7 percent during the month while those of nondurables rose 1.8 percent (including a 12.6 percent surge in petroleum sales).

#3Layoff activity remained muted during the first days of November. The Department of Labor estimates there were a seasonally adjusted 239,000 first-time claims made for unemployment insurance benefits during the week ending November 4. This was up 10,000 from the prior week but down 11,000 from the same week a year ago. The four-week moving average of first-time claims slipped by 1,250 to 231,250. The four-week moving average was 9.7 percent below that of the same week a year ago. During the week ending October 21, 1.639 million people were receiving some form of unemployment insurance benefits, 8.1 percent below the count receiving the same during the same week a year earlier.

#4Consumers added to their debt load in September. Per the Federal Reserve, consumers had a seasonally adjusted $3.788 trillion in outstanding consumer debt (not including mortgages and other real estate backed debt) at the end of September, this was up $20.8 billion from August and 5.6 percent from a year earlier. Nonrevolving debt balances (e.g., auto and college loans) jumped by $14.4 billion to $2.782 trillion (+5.6 percent versus September 2016). Revolving debt balances (e.g., credit cards) crossed over the trillion dollar mark for the first time at $1.006 trillion. This represented a $6.4 billion bump up from August and was 5.6 percent ahead of year-ago levels.

#5Bankers report easing leading standards to their commercial customers during Q3. A “modest net percentage” of banks responding to the Federal Reserve’s October 2017 Senior Loan Officer Opinion Survey on Bank Lending Practices indicated that they had eased lending standards for the commercial and industrial (C&I) loans in recent months. These “eased” standards took the form of expanded credit lines, lower costs for credit lines, narrowed spreads of loan rates over the banks’ cost of funds, eased loan covenants, and lower interest spreads. Increased competition among lenders was the most significant driver for the relaxed lending standards to commercial borrowers. Banks were more likely to have maintained their current lending standards for their residential real estate loan offerings while tightening standards and terms on credit cards and car loans. Demand for residential real estate loans, credit cards, and auto loans all have weakened during the past quarter.

Other U.S. economic data released over the past week:
University of Michigan Index of Consumer Sentiment (November 2017-preliminary, Index (1966Q1=100, seasonally adjusted):  97.8 (vs. October 2017: 100.7; November 2016: 93.8).

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