As 2017 Ends, Jobless Claims Remain Low and Sentiment Eases: December 25 – 29

Employers issued relatively few pink slips during the final days of the year. Here are the five things we learned from U.S. economic data released during the week ending December 29.

#1First-time jobless claims remained near a 40+ year low as 2017 wrapped up. The Department of Labor reports that there were a seasonally adjusted 245,000 initial claims made for unemployment insurance benefits during the week ending December 23. This was unchanged from the week before and 13,000 below the number of first-time claims from the same week a year earlier. More remarkable, the jobless count has been below 300,000 claims every week since March 21,2015, with the measure remaining for much of 2017 near levels not consistently seen since 1973(!). The four-week average of first-time claims inched up by 1,750 to 237,750 claims. This was 7.2 percent below the moving average from a year ago. During the week ending December 9, 2.004 million people were receiving some form of unemployment insurance benefits, 6.4 percent below that a year earlier.First-Time Jobless Claims-2007-2017-122917

#2Another second measure of consumer sentiment eased during December. The Conference Board’s Consumer Confidence Index lost 6.5 points during the month to a seasonally adjusted 122.1 (1985=100). This was up from the 113.3 reading from December 2016. The decline occurred despite survey respondents growing slightly more confident about current business conditions—the present conditions index added 1.7 points during the month to 156.6. The expected conditions index, however, plummeted by 11.9 points to 99.1. 35.7 percent of survey respondents report that jobs are “plentiful” while 15.2 percent report them being “hard to get,” with the latter being a 16-year low. The press release noted that “consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.” During the previous week, we learned that the University of Michigan’s Index of Consumer Sentiment had lost 2.6 points to a seasonally adjusted reading of 95.9 (1966Q1=100).

#3Home purchase contract signings inched up during November. The Pending Home Sales Index (PHSI) from the National Association of Realtors added 2/10ths of a point during the month to a seasonally adjusted reading of 109.5. This was the PHSI’s highest point since June. The index jumped 4.1 percent in the Northeast and edged up 0.4 percent in the Midwest while pulling back modestly in both the West (-1.8 percent) and South (-0.4 percent). The PHSI has grown 0.8 percent over the past year, with positive 12-month comparables in the South (+2.0 percent), Northeast (+1.1 percent), and Midwest (+0.8 percent). Meanwhile, contract signings to purchase a previously owned home in the West were 2.3 percent below that of a year earlier. While the press release notes that the “housing market is closing the year on a stronger note,” it warned that potential buyers were being “stifled by tight supply and higher prices.”

#4Home prices continued to rise in October. The 20-city Case-Shiller Home Price Index grew 0.2 percent without seasonal adjusted and jumped 0.7 percent after adjustments for seasonal variation. The measure of home prices has risen 6.4 percent over the past year, putting the index just 1.3 percent below its pre-recession peak back in 2006. The index gained on a seasonally adjusted basis in all 20-tracked markets with increases greater than 1.0 percent in Las Vegas (+1.4 percent) and San Francisco (+1.2 percent). The press release states that rising home prices have been the result of “low interest rates, low unemployment and continuing economic growth” but also notes that higher prices are making renting “more attractive than buying.” 

#5Agricultural prices jumped in November. The Department of Agriculture reports that the prices received by farmers swelled 4.2 percent during the month, its first monthly gain since May. The measure has increased 9.1 percent since November 2016. The prices received for livestock production surged 8.1 percent (and was up 18.0 percent from the same month a year earlier), as poultry & egg prices jumped 15.0 percent and that of metal animals grew 7.2 percent. Dairy product prices increased 1.0 percent. Meanwhile, prices received for crop production slumped 1.0 percent during November but was still 1.1 percent above the prices received a year earlier. Prices fell for vegetables/melons (-6.1 percent) and grain/oilseed (-3.5 percent) but gained 1.4 percent for fruit/tree nuts.

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

Data Points to Firm Economic Growth as 2017 Ends: December 18 – 22

Data points to solid business conditions during the final months of 2017. Here are the five things we learned from U.S. economic data released during the week ending December 22.  

#1Even with a small downward revision, Q3 was the best quarter for the U.S. economy more than 2.5 years. The Bureau of Economic Analysis’ third estimate of Q3 Gross Domestic Product (GDP) shows the U.S. economy expanded 3.2 percent during the three month period of July, August, and September. This was down 1/10th of a percentage point from the previous estimate reported a month earlier and followed a GDP gain of 3.1 percent during the Q2. Positive contributors to Q3 GDP growth were personal spending (adding 149-basis points to GDP growth), the change in private inventories (+79-basis points), fixed nonresidential investment (+40-basis points), net exports (+36-basis points), and government expenditures (+12-basis point). Fixed residential investment was an 18-basis point drag on Q3 GDP growth. Corporate profits grew 4.3 percent during Q3 and have increased 5.3 percent over the past year.GDP contributors Q32017-122217.png

#2Indicators suggest solid economic growth during the current quarter. The Chicago Fed National Activity Index (CFNAI), an assemblage of 85 economic measures, fell by 61-basis points to a reading of +0.15. Even with the decline, this was the CFNAI’s third consecutive month with a positive reading, indicative of economic growth greater than the historical average. Forty-two of the 85 tracked measures made a positive contribution to the CFNAI, with three of four major categories of indicators making a positive contribution to the CFNAI: employment (11-basis point positive contribution), sales/orders/inventories (five-basis point positive contribution), and production (five-basis point contribution, which was sharply down from its October contribution of 66-basis points). Indicators related to personal consumption/housing were a six-basis point drag on the CFNAI. The CFNAI’s three-month moving average added ten basis points to +0.41, its highest reading since April 2014.

The Conference Board’s Leading Economic Index (LEI) added a half point during November to a reading of 130.9 (2010=100), which was a robust 5.5 percent above its November 2016 mark. Six of the ten components to the LEI made positive contributions to the index, led by manufacturing orders, consumers’ expectations for the economy, and the interest rate spread. The coincident index gained 3/10ths of a point to 116.5, up 2.1 percent from a year earlier. All four components of the coincident index made positive contributions; including, nonfarm payrolls and personal income net of transfer payments. The lagging index eked out a 1/10th of a point increase to 125.6 (+2.5 percent versus November 2016). Only two of the index’s seven components made positive contributions: average duration of unemployment and ratio of outstanding consumer installment credit to personal income. The press release says the LEI suggests “that solid economic growth will continue into the first half of 2018.”

#3Consumer spending strengthened in November. The Bureau of Economic Analysis estimates personal consumption expenditures (PCE) were at a seasonally adjusted annualized rate (SAAR) of $13.6 trillion, a 0.6 percent increase from October. After adjustments for inflation, PCE gained 0.4 percent during November after holding steady in October and a 0.6 percent gain in September. Real PCE has grown 2.7 percent over the past year. Real spending on goods rose 0.5 percent, with bumps of 0.2 percent and 0.7 percent, respectively, for durable and nondurable goods. Spending on services gained 0.4 percent during the month. Personal income increased 0.3 percent during November, while disposable income grew 0.4 percent. After adjusted the latter for inflation, real disposable income inched up 0.1 percent during November and has increased 1.9 percent since November 2016. Following recent trends, the savings rate fell 3/10ths of a percentage point to +2.9 percent, its lowest reading in ten years.

#4Sales of both existing and new homes zoomed to post-recession highs in November. The National Association of Realtors reports that existing home sales jumped 5.6 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.81 million units. This was 3.8 percent ahead of the sales of a year earlier and the strongest sales pace for previously owned homes since December 2006. Sales grew during the month in the Midwest (+8.4 percent), South (+8.3 percent), and Northeast (+6.7 percent), but slowed 2.3 percent in the West. Sales also up from a year earlier in three of four Census regions: Midwest (+6.8 percent), South (+4.0 percent), and West (+2.5 percent). Already tight inventories constricted even further during November, falling 7.2 percent for the month to 1.67 million homes for sale. This was the equivalent to a 3.4 month supply. As a result, the median sales price of $248,000 was up 5.8 percent from that of a year earlier. NAR’s press release credits “[f]aster economic growth in recent quarters, the booming stock market and continuous job gains” for the sales surge.

Meanwhile, new home sales surged 17.5 percent during November to a seasonally adjusted annualized rate (SAAR) of 733,000 units per the Census Bureau. This was a 26.6 percent increase from the same month a year earlier and the best annualized sales pace since July 2007. Sales increased during the month in all four Census regions: West (+31.1 percent), South (+14.9 percent), Northeast (+9.5 percent), and Midwest (+6.9 percent). Three of four Census regions enjoyed positive 12-month comparables, with the lone exception being flat sales versus a year earlier in the Midwest. Homebuilders held inventory levels of unsold homes firm with 283,000 units available for sale at the end of November, the equivalent to a 4.6 month supply.

#5Consumer confidence faded a bit in December. The Index of Consumer Sentiment from the University of Michigan shed 2.6 points during December to a seasonally adjusted 95.9 (1966Q1=100). While was the measure’s lowest point since September, it left the index’s average for all of 2017 the best for a year since 2000. The current conditions index edged up 3/10ths of a point to 113.8 (December 2016: 111.9) while the expectations index shed 4.6 points to 84.3 (December 2016 89.5). The press release points out that the decline in the headline index was primarily the result falling sentiment among lower-income households. Further, it also noted that the survey results suggest real personal spending will grow 2.6 percent in 2018. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 16, 2017, First-Time Claims, seasonally adjusted): 245,000 (+20,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 236,000 (-8.3% vs. the same week a year earlier).
Durable Goods (November 2017, New Orders, seasonally adjusted):$241.4 billion (+1.3% vs. October 2017).
Housing Starts (November 2017, Housing Units Started, seasonally adjusted annualized rate): 1.297 million (+3.3% vs. October 2017, +12.9% vs. November 2016).
Housing Market Index (December 2017, Index (>50=good housing market), seasonally adjusted): 74 (vs. November 2017: 69; December 2016: 69).
FHFA Housing Market Index (October 2017, Purchase-Only Index, seasonally adjusted): +0.5% vs. September 2017; +6.6% vs October 2016.
State Employment (November 2017, Nonfarm Payrolls):  Vs. October 2017: payrolls grew in 6 states and were essentially unchanged in 44 states and the District of Columbia.  Vs. November 2016: payrolls grew in 27 states and were essentially unchanged in 23 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.

Another Fed Rate Bump to End 2017: December 11 – 15

Just in time for the holidays, the Federal Reserve bumps up its short-term interest rate target. Meanwhile, retailers start the holiday season with signs of strength. Here are the five things we learned from U.S. economic data released during the week ending December 15.

#1One last hike in the short-term interest rate target for2017. As widely anticipated, the Federal Open Market Committee (FOMC) raised its fed funds target rate by a quarter percentage point to a range between 1.25 and 1.50 percent. Even though this was the target rate’s highest point in nine years, the Fed sees current rates as being “accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.” The FOMC policy statement noted that the U.S. economy “has been rising at a solid rate” and that “labor market continued to strengthen.” Nevertheless, concerns remained about low inflation as it remained below the Fed’s two-percent target. Two FOMC members opposed the rate hike: Charles Evans and Neel Kashkari. Looking towards the future, FOMC members forecast three more quarter-point rate hikes next year and either two or three more in 2019.FOMC Fed funds target projections 121517

#2Manufacturing output edged up in November. The Federal Reserve reports that manufacturing production increased 0.2 percent on a seasonally adjusted basis during the month following an upwardly revised estimate of a 1.2 percent gain in October. Durable goods production expanded 0.4 percent, with gains across most product sectors (including a 1.7 percent bump for primary metals and 0.7 percent increases for both fabricated metals and machinery). Nondurables output held steady for the month, with a 1.7 percent increase in plastics/rubber products being the largest gainer and a 1.0 percent drop in apparel production the biggest decliner. Overall industrial production inched up 0.2 percent during November following a 0.2 percent gain in October. Mining output jumped 2.0 percent as oil and gas extraction rebounded following hurricane caused slowdowns during the prior month. Utility output fell 1.9 percent in October. Manufacturing output has risen 2.4 percent over the past year while the 12-month comparable for all industrial production was +3.4 percent.

#3Retailers enjoyed a good start to the holiday shopping season in November. The Census Bureau estimates retail and food services sales gained 0.8 percent during the month to a seasonally adjusted $492.7 billion. This was an improvement from the upwardly revised 0.5 percent sales gain during October and left sales 5.8 percent ahead of the year-ago sales pace. Sales at auto dealers/parts stores cooled 0.2 percent while those at gas stations rose 2.8 percent (as gasoline prices increased). Net of both auto dealers and gas stations, retail sales gained 0.8 percent during November following a 0.4 percent increase in October. Sales swelled 2.1 percent at electronics/appliance stores, 1.2 percent at both furniture stores and building material retailers, 0.9 percent at sporting goods/hobby retailers, and 0.7 percent at both apparel retailers and restaurants/bars. The ongoing shift away from brick and mortar retailers continued as nonstore retailers enjoyed a 2.5 percent month-to-month gain in sales, with activity up a sharp 10.4 percent from a year earlier.

#4Higher gasoline prices pulled up consumer prices during November. The Consumer Price Index (CPI) rose a seasonally adjusted 0.4 percent during the month following a much more modest 0.1 percent increase during October, per the Bureau of Labor Statistics. Energy CPI gained 3.9 percent, resulting from a 7.1 percent bump in gasoline prices. Food CPI held steady. Net of energy and food, core CPI increased 0.1 percent during November following a 0.1 percent gain in October. Rising during the month were prices for used cars/trucks (+1.0 percent), medical care commodities (+0.6 percent), new vehicles (+0.3 percent), shelter (+0.2 percent), and transportation services (+0.1 percent). Prices for apparel (-1.3 percent) and medical care services (-0.1 percent) dropped during the month. CPI has risen 2.2 percent over the past year while core CPI has a 12-month comparable of +1.7 percent.

Meanwhile, wholesale prices continued to firm during the same month. The Producer Price Index (PPI) for final demand increased 0.4 percent on a seasonally adjusted basis for the third consecutive month and has risen 3.1 percent over the past 12 months. The core final demand wholesale price measure, which nets out the impacts of food, energy and trade services, also gained 0.4 percent for the month and has a 12-month comparable of +2.4 percent. Prices for final demand goods jumped 1.0 percent, led by increases for wholesale energy and food of +4.6 percent and +0.3 percent, respectively. The former included the impact of the 15.8 percent surge in gasoline prices. Net of energy and food, PPI for final demand goods grew 0.3 percent. PPI for final demand services increased 0.2 percent despite a 0.3 percent drop in the measure for trade services prices (reflecting tighter margins for wholesalers and retailers).   

#5Employers expect to add more workers in early 2018. Twenty-one percent of the more than 11,500 employers responding to a survey by Manpower anticipate increasing staff levels during Q1 2018 while five percent expect to contract payrolls. The difference of +16 translates into a Net Employment Outlook of +19 after seasonal adjustments, which was its best reading in more than a decade. The Net Employment Outlook was positive all 13-tracked industries, led by led by leisure/hospitality (+28), transportation/utilities (+26), professional/business services +23), and wholesale/retail trade (+23). Net Employment Outlook readings improved in the Northeast (+17) and South (+18) but softened in the Midwest (+20) and West (+19). The press release noted seeing “a renaissance in industries like construction and manufacturing,” but also employers are “struggling” to find “people with the right skills” to fill open positions.

Other U.S. economic data released over the past week:

Jobless Claims (week ending December 9, 2017, First-Time Claims, seasonally adjusted): 225,000 (-11,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 234,750 (-7.2% vs. the same week a year earlier).
Job Openings and Labor Turnover (October 2017, Number of Job Openings, seasonally adjusted): 5.996 million (-204,000 vs. September 2017, +7.3% vs. October 2016). Hiring: 5.552 million (+232,000 vs. September 2017, +6.8% vs. October 2016).
Import Prices (November 2017, All Imports, not seasonally adjusted): +0.7% vs. October 2017, +3.1% vs. November 2016. Nonfuel Imports: Unchanged vs. October 2017, +1.4% vs. November 2016.
Export Prices (November 2017, All Exports, not seasonally adjusted): +0.5% vs. October 2017, +3.1% vs. November 2016. Nonagricultural Exports: +0.6% vs. October 2017, +3.1% vs. November 2016).
Small Business Optimism (November 2017, Index (1986=100), seasonally adjusted): 107.5 (34-year high, vs. October 2017=103.8, November 2016: 98.4).
Monthly Treasury Statement (November 2017, Federal Government Surplus/Deficit): -$138.6 billion (vs. November 2016: -$136.7 billion). First 2 months of FY2018: -$201.8 billion (vs. first 2 months of FY2017: -$182.5 billion).
Business Inventories (October 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.886 trillion (-0.1% vs. September 2017, +3.5% vs. October 2016).
Treasury International Flows (October 2017, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$7.5 billion (vs. September 2017: +$60.8 Billion, vs. October 2016: -$10.0 billion).

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