Q4 GDP Growth Just Misses the Mark: January 22 – 26

GDP growth decelerated a bit as 2017 wrapped up, but economic activity was solid in December. Here are the five things we learned from U.S. economic data released during the week ending January 26.  

#1U.S. economic expansion slowed slightly during the fourth quarter. The Bureau of Economic Analysis reports the Gross Domestic Product (GDP) expanded 2.6 percent on a seasonally adjusted annualized rate (SAAR) during the final three months of 2017. This was down from GDP growth rates of 3.2 percent and 3.1 percent during the third and second quarters of the year, respectively. GDP grew 2.3 percent for all of 2017, an improvement from the 1.5 percent gain in 2016 but below the 2014 and 2015 increases of 2.6 percent and 2.9 percent, respectively. The most significant drag on Q4 GDP growth was the 13.9 percent jump in imports, which had cost 196-basis points in GDP growth alone. A contraction in private sector inventories took away another 67-basis points in GDP growth. Contributing to economic expansion during the quarter were personal consumption (adding 258-basis points to GDP growth), fixed nonresidential investment (adding 84-basis points), exports (82-basis points), government expenditures (adding 50-basis point), and fixed residential investment (adding 42-basis points). The BEA will revise its estimate of Q4 GDP growth twice over the next two months.GDP growth 2010-2017 012618

#2December economic activity measures point to strengthening during the month. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators set to equal 0.00 when the U.S. economy is expanding at its historical average, added 16-basis points during December to a seasonally adjusted 0.27. This was the third month of the past four in which the CFNAI had a positive reading. Forty-three of the 85 index components made positive contributions to the CFNAI. Two of the four major groupings of index components improved from their November readings: production/income (up 27-basis points to +0.25) and sales/orders/inventories (up four basis points to +0.08). Losing ground were CFNAI components tied to employment (down 11-basis points to +0.01) and consumption/housing (off four-basis points to -0.07). The three-month moving average for the CFNAI (which removes some of the month-to-month volatility) slipped by a single basis point to +0.42, the third straight month in which it was positive.

The Conference Board’s Leading Economic Index (LEI) grew by 6/10ths of a basis point to 107.0 (2016=100), with the forward-looking measure of activity having increased 5.7 percent over the past year. Seven of the ten components of the LEI made a positive contribution to the LEI. All four components of the coincident index made a positive contribution, resulting in the measure of contemporaneous economic activity to grow 3/10ths of a point to 102.8 (+2.1 percent versus December 2016). The lagging index was at 104.0, up 7/10ths of a point for the month and 2.7 percent from a year earlier as five of seven index components made positive contributions. The press release points out that the strength in the leading index came from “new orders in manufacturing, consumers’ outlook on the economy, improving stock markets and financial conditions.”

#3Tight inventories continued to rein in existing home sales. The National Association of Realtors reports sales of previously owned homes slumped 3.6 percent during December to a seasonally adjusted annualized rate (SAAR) of 5.57 million units. This was 1.1 percent above the December 2016 sales pace. Sales fell in all four Census regions: Northeast (-7.5 percent), Midwest (-6.3 percent), South (-1.7 percent), and West (-1.6 percent). Versus a year earlier, sales have risen in the South and Midwest but were off in the Northeast and West. Inventories contracted further during the month, shrinking 11.4 percent during the month to 1.48 million units. This was the equivalent to an extraordinarily tight 3.2 month supply. As a result, the median sales price of $246,800 was up 5.8 percent from the same month a year earlier. The press release noted that tight inventories and declining housing affordability “ultimately muted what should have been a stronger sales pace.”

#4New homes market gave back some of their November sales gains. New home sales sank 9.3 percent during December to a seasonally adjusted annualized rate of 625,000 units, per the Census Bureau. Even with the decline, sales remained 14.1 percent above that of a year earlier. Like with existing home sales above, new home sales slowed during the month in all four Census regions: Midwest (-10.0 percent), South (-9.8 percent), West (-9.5 percent), and Northeast (-2.4 percent). The inventory of unsold new homes inched up by 10,000 units to 295,000 homes, an increase of 15.2 percent from a year earlier and the equivalent to a 5.7 month supply. The median sales price of $335,400 represented a 2.6 percent gain over the past year.

#5Orders for durable goods jumped in December. The Census Bureau estimates new orders for manufactured durable goods grew for the fourth time in five months, growing 2.9 percent during the month to a seasonally adjusted $249.4 billion. Higher orders for transportation goods surged 7.4 percent, led by increased orders for defense aircraft (+55.3 percent), civilian aircraft (+15.9 percent), and motor vehicles (+0.4 percent). Net of transportation goods, core durable goods orders rose 0.6 percent, capturing order gains for primary metals (+1.4 percent), fabricated metals (+0.9 percent), and machinery (+0.6 percent). Orders declined for electrical equipment/appliances (-0.9 percent) and computers/electronics (-0.2 percent). Durable goods shipments increased for the seventh time in eight months (+0.6 percent to $246.8 billion). Unfilled orders gained 0.6 percent to $1.144 trillion (its fourth consecutive increase) while durable goods inventories expanded for the 17th time in 18 months (+0.3 percent to $406.5 billion). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 20, 2018, First-Time Claims, seasonally adjusted): 233,000 (+17,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 240,000 (-1.9% vs. the same week a year earlier).
State Employment (December 2017, Nonfarm Payroll Employment, seasonally adjusted): Vs. November 2017: 10 states had significant payroll increases, 3 states had significant payroll decreases. Vs. December 2016: 25 states had significant payroll increases.
FHFA House Price Index (November 2017, Purchase-Only Index, seasonally adjusted): +0.4% vs. October 2017, +6.5% vs. November 2016.

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

Industrial Production Grew, Housing Starts Chilled: January 15 – 19

Utilities and mining boost industrial production, while housing construction took a step backward in December. Here are the five things we learned from U.S. economic data released during the week ending January 19.

#1Industrial production surges in December, but the advance in manufacturing was far more modest. The Federal Reserve reports manufacturing output grew 0.1 percent on a seasonally adjusted basis during the month, putting it 2.4 percent ahead of December 2016’s manufacturing output. Durable goods production gained 0.3 percent, led by a 2.0 percent jump in motor vehicles output. Production of nondurables slipped 0.1 percent, hurt by a decline in output of petroleum/coal products, chemicals, and plastics/rubber products. Overall industrial production jumped 0.9 percent during December, leaving it up 3.6 percent versus a year earlier and making 2017 the best year for industrial production since 2010. Cold winter weather drove a 5.6 percent bounce in output at utilities while higher gas/oil extraction led to a 1.6 percent advance in mining output.

#2Home construction paused in December. The Census Bureau estimates the seasonally adjusted annualized rate (SAAR) of homes started slumped 8.2 percent during the month to 1.192 million units. With the decline, the housing starts were 6.0 percent below their year-ago pace. Still, 2017 was the best year for housing starts since 2007. Sales dropped during the month in all four Census regions: South (-14.2 percent), Northeast (-4.3 percent), Midwest (-2.2 percent), and West (-0.9 percent). Single-family home starts plummeted 11.8 percent during December to 836,000 units (+3.5 percent versus December 2016). Starts of multifamily units picked up 2.6 percent to 352,000 (nevertheless was 21.6 percent below the pace of a year earlier). The softness in housing starts may be short-lived as the permitting activity remained ahead of the year-ago pace. The SAAR of issued permits edged down 0.1 percent during the month to 1.302 million permits, which was 2.8 percent ahead of the annualized rate of issued permits of a year earlier. Finally, the annualized rate of homes completed during the month gained 2.2 percent to 1.177 million homes, a 7.4 percent gain from December 2016.Housing Starts 1998-2017--011918

#3Homebuilders remained confident in early 2018. The National Association of Home Builders’ Housing Market Index lost two points during January to a seasonally adjusted 72. Even with the decline, this was seven points ahead of the HMI’s year ago mark and the 43rd consecutive month in which the measure of homebuilder sentiment was above a reading of 50 (which means more builders see the market as “good” as opposed as being “poor”). The HMI surged by nine points in the Northeast (62), but lost ground in the Midwest (down seven points to 69), South (off three points to 72), and West (losing a point to 83). Losing one point were measures of single-family home current (79) and expected sales (78). The index tracking the traffic of prospective buyers shed four points to 54. The press release said the HMI’s continued strength is “a sign that housing demand should continue to grow in 2018.”

#4Consumer sentiment eased in early January. The preliminary January reading from the University of Michigan’s Index of Consumer Sentiment was at a seasonally adjusted 94.4, down 1.5 points from December and off 4.1 points from a year earlier. Further should this number hold when updated at the end of the month, it would be the sentiment measure’s lowest reading since last July. The current conditions index lost 4.6 points during the month to a reading of 109.2 (January 2017: 111.3) while the expectations index added a half point to 84.8. The press release noted that “the survey recorded persistent strength in personal finances and buying plans.”

#5The latest Beige Book points to stable economic growth during the final weeks of 2017. The 12 Federal Reserve District Banks indicated that the economy was growing at a “modest to moderate” rate in 11 of those districts and at a “robust” pace in the area served by the Dallas bank. Retailers said that sales were growing, with some respondents saying that the holiday season had beat expectations. The housing market stagnated, however, because of “limited” inventory while auto sales were “mixed.” Employers indicated challenges in finding qualified workers. Nevertheless, wage continued to grow only at a “modest pace,” although business leaders in some districts were expecting wage pressures in the new year. Respondents also noted that inflation was “modest to moderate” with prices building in manufacturing, construction, and transportation inputs in some regions. Comments received by the district banks indicated business leaders were “optimistic” about 2018 economic prospects. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 13, 2018, First-Time Claims, seasonally adjusted): 220,000 (-41,000 vs. previous week; -21,000 vs. the same week a year earlier, the lowest count since February 1973). 4-week moving average: 244,500 (-0.7% vs. the same week a year earlier).
Treasury International Capital Flows (November 2017, Change in Net Foreign Purchase of U.S. Securities, not seasonally adjusted): +34.8 billion (vs. October 2017: +$10.5 billion, November 2016: +$20.5 billion).

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

Retail Sales Ended 2017 on a Happy Note: January 9 – 13

The 2017 holiday season was merry for many members of the retail sector. Here are the five things we learned from U.S. economic data released during the week ending January 12.  

#1Retail sales ended 2017 on a high note. The Census Bureau estimates U.S. retail and food services sales grew 0.4 percent during the month to a seasonally adjusted $495.4 billion (+5.6 percent versus December 2016). This follows an upwardly revised 0.9 percent gain in November, signaling a healthy retail market during the just completed holiday season. Sales increased 1.2 percent at building material retailers, 0.7 percent at restaurant/bars, and 0.2 percent at auto dealers/parts stores while those at gas stations held firm during the month. Net of all four of those segments, core retail sales gained 0.3 percent during December following a 0.9 percent bump in November. Core retail sales have risen 5.6 percent over the past year. Sales gained in December at grocery stores (+0.7 percent), furniture retailers (+0.6 percent), health/personal care stores (+0.4 percent) but fell at sporting goods/hobby stores (-1.6 percent), department stores (-1.1 percent), apparel retailers (-0.3 percent), and electronics/appliance stores (-0.2 percent). Finally, sales at nonstore retailers (i.e., web retailers) jumped 1.2 percent during December and rose 12.7 percent over the past year. Nonstore retail sales have zoomed up 57.4 percent since December 2012, well above the five-year comparable for overall retail sales (+21.0 percent).December 2017 Retail Sales 011318

#2Core consumer prices grew at their fastest rate since last January. The Consumer Price Index (CPI) increased 0.1 percent on a seasonally adjusted basis during December, leaving the Bureau of Labor Statistics measure up 2.1 percent for all of 2017. Energy CPI declined 1.2 percent during the month, as gasoline prices fell 2.7 percent. Food CPI gained 0.2 percent, as prices for meats/poultry/fish/eggs jumped 0.9 percent. Net of energy and food, core CPI climbed 0.3 percent for the month and 1.8 percent over the past year. This was the largest single-month increase in core consumer prices in 11 months. Rising during the month were prices for used vehicles (+1.4 percent), medical commodities (+1.0 percent), new vehicles (+0.6 percent), shelter (+0.4 percent), transportation services (+0.3 percent), and medical services (+0.2 percent).

#3But wholesale prices chilled, thanks to decreases for food and trade services. Per the Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand declined 0.1 percent on a seasonally adjusted basis during December, following 0.4 percent increases during each of the two previous months. The core measure—final demand PPI net of energy, food, and trade services—grew 0.1 percent during the months, its smallest monthly increase since last August. Final demand goods wholesale prices held steady during November, with prices for food falling 0.7 percent and that for energy goods holding unchanged. Net of energy and food, wholesale goods prices grew 0.2 percent. PPI for final demand services declined 0.2 percent, its first decline since last February. PPI for trade services—measuring retailer and wholesaler margins—dropped 0.6 percent. Over the past year, final demand PPI has grown 2.6 percent while that net of food, energy, and trade services has increased 2.3 percent.

#4Counts of both job openings and people hired slowed slightly during November. The Bureau of Labor Statistics reports that there were a seasonally adjusted 5.879 million job openings at the end of November, down 46,000 from October but still up 4.4 percent from the same month a year earlier. The private sector had 5.360 million job openings at the end of November, a 6.0 percent increase from a year ago. The industries with the largest year-to-year percentage gains in job openings were manufacturing (+18.5 percent), construction (+18.0 percent), financial activities (+17.3 percent), leisure/hospitality (+13.0 percent), and retail (+11.8 percent). Employers hired 5.488 million people during November, off 104,000 for the month but 4.3 percent ahead of the year-ago pace. Private sector hiring has grown 4.0 percent over the past year to 5.110 million workers. Industries with the largest year-to-year percentage increases in hiring were manufacturing (+25.0 percent), financial activities (9.7 percent), professional/business services (+5.8 percent), and health care/social assistance (+4.9 percent). 5.202 million people left their jobs during November, down 49,000 for the month but up 2.5 percent from a year earlier. Voluntary quits have risen 3.9 percent over the past year while layoffs have inched up by a slower 1.6 percent rate.

#5Small business owners’ confidence slipped in December. The National Federation of Independent Business’ Index of Small Business Optimism shed 2.6 points during the month to a seasonally adjusted 104.9 (1986=100). While this reading was off 9/10ths of a point from a year earlier, it was just above the index’s 2017 average of 104.8 (which itself was a record for the measure). Only two of the index’s ten components improved during the month: measures for both plans to make capital outlays and current job openings added a point during December. Falling were measures for expectations for the economy to improve (-11), plans to increase inventories (-8), expectations for real sales (-6), earnings trends (-5), and plans to increase employment (-4).

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 6, 2018, First-Time Claims, seasonally adjusted): 261,000 (+11,000 vs. previous week; +16,000 vs. the same week a year earlier). 4-week moving average: 250,750 (-0.6% vs. the same week a year earlier).
Business Inventories (November 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.895 trillion (+0.4% vs. October 2017, +3.2% vs. November 2016).
Import Prices (December 2017, All Imports, not seasonally adjusted): +0.1% vs. November 2017, +3.0% vs. December 2016. Nonfuel Imports: -0.1% vs. November 2017, +1.4% vs. December 2016.
Export Prices (December 2017, All Exports, not seasonally adjusted): -0.1% vs. November 2017, +2.6% vs. December 2016. Nonagricultural Exports: Unchanged vs. November 2017, +2.7% vs. December 2016.
Consumer Credit (November 2017, Outstanding Consumer Credit Balances-net of real estate-backed loans, seasonally adjusted): $3.827 trillion (+$27.9 billion vs. October 2017, +5.3% vs. November 2016).

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