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.
Even 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.
Indicators 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.”
Consumer 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.
Sales 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.
Consumer 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.
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