Retail Sales & Manufacturing Chilled in January: February 12 – 16

Retail sales and manufacturing output paused in January. Here are the five things we learned from U.S. economic data released during the week ending February 16.

#1A drop in auto sales pulled down retail activity in January. The Census Bureau indicates that retail and food services sales were at $492.0 billion during the month, down 0.3 percent from the prior month but still 3.6 percent above that of a year earlier. Some of the drop reflects a sharp 1.3 percent slowdown in sales at auto dealers and parts stores. Net of that, retail sales were unchanged for the month and paced 4.2 percent ahead of the year earlier. Sales grew during the month at gas stations (+1.6 percent, thanks to higher prices at the pump), apparel retailers (+1.2 percent), department stores (+0.8 percent), and electronics/appliance retailers (+0.5 percent). Sales slowed at retailers focused on building materials (-2.4 percent), health/personal care (-1.2 percent), sporting goods/hobbies (-0.8 percent), and furniture (-0.4 percent). Nonstore retailers (including internet retailers) also had a soft month with sales only matching that of December—nevertheless, nonstore retailer activity was 10.2 percent ahead of their January 2017 pace.Retail sales Jan18 Dec 17 021618.png

#2Manufacturing output did not budge for a second straight month. The Federal Reserve estimates manufacturing sector output was unchanged during January, following a similarly flat month in November. Production of durable goods edged up 0.2 percent during the month while nondurable goods output matched that of December. Overall industrial production slowed 0.1 percent during the month after having risen 0.4 percent during December. Mining production dropped for a second straight month (-1.0 percent) while output at utilities gained 0.6 percent. Versus a year earlier, industrial production has grown 3.7 percent while manufacturing sector output was up a more modest 1.8 percent. Factories continued to be somewhat underutilized—capacity utilization in the manufacturing sector held firm for the month at 76.2 percent, up 1.2 percent from a year earlier but two percentage points below its long-run average. Capacity utilization for all industrial production dropped by 2/10ths of a percentage point to 77.5 percent. Nonetheless, this was a 1.2 percent increase from a year earlier.

#3Inflation took a greater hold in January. The Consumer Price Index (CPI) surged 0.5 percent on a seasonally adjusted basis, the biggest single-month gain for the Bureau of Labor Statistics’ measure since last September. A part of the increase was the result of higher prices for both fuel oil (+9.5 percent) and gasoline (+5.7 percent) that led to a 3.0 percent jump in energy CPI. Food prices grew at a more modest 0.2 percent. Net of energy and food, core CPI jumped 0.3 percent for the month. Apparel prices swelled 1.7 percent (its biggest increase since 1990(!) while those for transportation (+0.8 percent) and medical care (+0.6 percent) services also had large gains. Rising more modestly were prices for used cars (+0.4 percent) and shelter (+0.2 percent) while prices slipped 0.1 percent for both new vehicles and medical care commodities. CPI has risen 2.1 percent over the past year while the core measure remained just under the Federal Reserve’s two-percent target rate at +1.8 percent.

The Producer Price Index (PPI) for final demand bounced 0.4 percent on a seasonally adjusted basis during January, after being unchanged in December and gaining 0.4 percent in November. The index’s core measure (which removes the impact of energy, food, and trade services) also swelled 0.4 percent, which was the core measure’s largest increase since last April. PPI for final demand goods jumped 0.7 percent, which included a 3.4 percent rise in energy PPI (wholesale gasoline prices rose 7.1 percent). Wholesale food prices slumped 0.4 percent, pulled down by falling prices eggs (-38.9 percent). Net of energy and food, final demand goods PPI increased 0.2 percent (down from 0.3 percent gains in both last November and December). PPI for final demand services grew 0.3 percent. Over the past year, PPI has risen 2.7 percent while the core measure of wholesale prices has increased 2.5 percent over the same 12 months.

#4Housing starts jumped in January, with data suggesting further gains this year. The Census Bureau reports that housing starts increased 9.7 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.326 million units. This was 7.3 percent ahead of the year-ago rate and its highest point since October 2016. Single-family home units started at a slower pace (+3.6 percent) than had multi-family home units (+19.7 percent). Looking towards the future, the number of issued building permits surged 7.4 percent on both a month-to-month and year-to-year basis to 1.396 million permits (SAAR), its highest point since June 2007. Builders completed 1.166 million homes (SAAR) during January. While this was off 1.9 percent from that of December 2017, it represented a 7.7 percent improvement from a year earlier.

#5Small business owners start 2018 more optimistic. The Small Business Optimism Index, from the National Federation of Independent Business, added two full points during January to a seasonally adjusted 106.9. This was up a full point from a year earlier and “one of the strongest readings” for the measure in its 45-year history. Six of the ten index’s components improved from their December 2017 marks, led by earnings trends (up 11 points), whether it is a good time to expand (up five points), expected economic conditions (up four points), and plans to increase inventories (up four points). Slipping by three points were measures for expected real sales and current inventories. The press release notes that “small business owners have never been more positive about the economy.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 10, 2018, First-Time Claims, seasonally adjusted): 230,000 (7,000 vs. previous week; -18,000 vs. the same week a year earlier). 4-week moving average: 228,500 (-7.4% vs. the same week a year earlier).
Import Prices (January 2018, All Imports, not seasonally adjusted): +1.0% vs. December 2017, +3.6% vs. January 2017. Nonfuel Imports: +0.4% vs. December 2017, +1.9% vs. January 2017.
Export Prices (January 2018, All Exports, not seasonally adjusted): +0.8% vs. December 2017, +3.4% vs. January 2017. Nonagricultural Exports: +0.9% vs. December 2017, +3.7% vs. January 2017.
Housing Market Index (February 2018, Index (>50 = “Good” housing market), seasonally adjusted): 72 (vs. January 2018: 72, vs. February 2017: 67).
Monthly Treasury Statement (January 2018, Budget Surplus/Deficit): +$49.2 Billion (vs. December 2017: -$23.2 billion, January 2017: +$51.3 billion). 1st Four Months of FY2018: -$175.7 billion (+10.8% vs. 1st four months of FY2017).
Business Inventories (December 2017, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.902 trillion (+$7.1 billion vs. November 2017, +3.2% vs. December 2016).
University of Michigan Index of Consumer Sentiment (February 2018-preliminary, Index (1966Q1=100, seasonally adjusted): 99.9 (vs. January 2018: 95.7, vs. February 2017: 96.3).
Treasury International Capital (December 2017, Net Domestic U.S. Securities Purchases by Foreign Investors, not seasonally adjusted): +$34.2 billion (vs. November 2017: +$34.8 billion, vs. December 2016: -$13.1 billion).

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

The U.S. Trade Deficit Hits a 9-Year High: February 5 – 9

Imports grew faster than had exports during the final days of 2017. Here are the five things we learned from U.S. economic data released during the week ending February 9.

#1The trade deficit widened again in December. The Census Bureau and Bureau of Economic Analysis report that exports grew by $3.5 billion during the month to $203.4 billion (+7.3 percent versus December 2016) while imports blossomed by $6.2 billion to $256.5 billion (+9.5 percent versus December 2016). This left the U.S. trade deficit at a seasonally adjusted -$53.1 billion, $2.7 billion larger than that of November, up 19.1 percent over the past year, and the biggest single-month trade deficit since October 2008. The goods deficit widened by $2.6 billion during December to -$73.3 billion while the services surplus narrowed by $0.1 billion to +20.2 billion. The former reflected a $6.0 billion increase in imported goods (led by pharmaceutical preparations, cell phones, automobiles, and capital goods) and a $3.4 billion gain in exported goods (led by industrial suppliers/materials and capital goods). The United States had its largest goods deficits with China (-$34.0 billion), the European Union (-$17.2 billion), and Mexico (-$6.1 billion). The trade deficit was -$566.0 billion for all of 2017, 2.9 percent of the Gross Domestic Product (GDP). This was up from -$504.8 billion (or 2.7 percent of GDP) in 2016 and represented the largest annual trade deficit since 2008.Trade Deficit 2007-2017 020918

#2Hiring held firm as 2017 ended, while the count of job openings slipped. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 5.811 million job openings at the end of December. This was 167,000 under the count from a month earlier but 4.9 percent above that from December 2016. The private sector had 5.290 million open jobs at the end of December, a 4.4 percent increase from a year earlier. Industries seeing the biggest year-to-year percentage gains in job openings were leisure/hospitality (+21.9 percent), state/local government (+20.1 percent), construction (+12.9 percent), retail (+8.2 percent), and manufacturing (+6.4 percent). Employers hired a seasonally adjusted 5.488 million people during December, down by only 5,000 from November but 3.5 percent ahead of the count of hires in December 2016. Private sector employers added 5.129 million workers (+2.9 percent versus December 2016). Industries with the largest percentage hiring gains included manufacturing (+20.1 percent), state/local government (+18.9 percent), wholesale trade (+10.8 percent), and professional/business services (+4.5 percent). 5.238 million people left their jobs during December, up 26,000 for the month and 3.0 percent from a year earlier). Voluntary quits jumped by 98,000 during the month to 3.259 million people (+5.6 percent versus December 2016) while layoffs decelerated by 80,000 to 1.645 million (+1.3 percent versus December 2016).

#3The service sector strengthened in January. The “NMI” from the Institute for Supply Management added 2.9 points during the month to a seasonally adjusted reading of 59.9. This was the 96th consecutive month in which the NMI was above a reading of 50.0, indicative of an expanding nonmanufacturing side of the economy. Three of the four components to the index gained during January: new orders (up 8.2 points to 62.7), employment (up 5.3 points to 61.6), and business activity/production (up 2.0 points to 59.8). The measure for supplier deliveries was unchanged at 55.5. Fifteen of 18 tracked service sector industries expanded during the month, led by company management/support services, arts/entertainment/recreation, and mining. The press release noted that survey respondents shared positive feedback on the business conditions and that “recent tax changes have had a positive impact on their respective businesses.”

#4Consumers slightly slowed their pace of taking on debt in December. Consumers held a seasonally adjusted $3.841 trillion in outstanding non-real estate backed debt at the end of the month, an increase of $18.4 billion from November and 5.4 percent from a year earlier. The Federal Reserve indicates revolving credit balances (e.g., credit cards) grew by $5.1 billion to $1.028 trillion. This represented a 6.0 percent increase since December 2016. Nonrevolving credit balances, which include student and automobile loans, grew by $13.3 billion to $2.813 trillion. Outstanding nonrevolving credit balances have risen 5.1 percent over the past year. 

#5Banks loosened credit standards for their commercial clients, but demand for C&I loans was mostly unchanged. Sixteen percent of the banks responding to the Federal Reserve’s January 2018 Senior Loan Officer Opinion Survey on Bank Lending Practices reported loosening lending standards to their large and middle-market commercial and industrial (C&I) customers while six percent indicated having tightened said standards. The loosening took the form of increasing the maximum size of credit lines, shrinking the spread of loan interest rates over the bank’s cost of funds, lowering the cost of credit lines, loosening loan covenants, and decreasing the premiums charged on riskier loans. Even as the terms and cost of business credit eased, the demand for such loans did not budge significantly on a net basis. Nineteen percent of responding banks reported that demand for commercial & industrial loans from large and middle-market firms was “moderately stronger” while 15.7 percent said that it was “moderately weaker.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 3, 2018, First-Time Claims, seasonally adjusted): 221,000 (-9,000 vs. previous week; -16,000 vs. the same week a year earlier). 4-week moving average: 224,500 (-8.4% vs. the same week a year earlier).

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

Employers Continue to Hire, Consumers Continue to Spend: January 29 – February 2

Employers started the year by adding more workers to their payrolls. Here are the five things we learned from U.S. economic data released during the week ending February 2.

#1Employers picked up their pace hiring in January, and some wage growth followed. Nonfarm employers added a seasonally adjusted 200,000 workers during the month, making it the 88th consecutive month in which payrolls had expanded. The Bureau of Labor Statistics also downwardly revised (by 36,000) its estimate for November to new 216,000 jobs while adding 12,000 jobs to its December payroll estimate (to +160,000). The private sector expanded payrolls by 196,000 workers in January, with construction (+36,000), leisure/hospitality (+35,000), health care/social assistance (+25,800), and professional/business services (+23,000) adding the most jobs. While the average workweek shrank by 2/10th of an hour to 34.3 hours, hourly wages grew by nine cents to $26.74 (+2.9 percent vs. January 2017, its best since June 2009). Average weekly earnings of $917.18 represented a 2.6 percent increase from a year earlier. wage growth 2007-2018-020218

Based on a separate survey of households, the unemployment remained at its post-recession low of 4.1 percent for a fourth consecutive month. The unemployment rate was at 4.8 percent a year earlier. The labor force grew by 185,000 people while the labor force participation rate held firm at 62.7 percent. The labor force participation rate for adults 25-54 slipped by a tenth of a percentage point to 81.7 percent, which was up 3/10ths of a percentage point from a year earlier but still below the 83.2 percent reading from the start of the last recession (December 2007). While the typical length of unemployment crept up by 3/10ths of a week to 9.4 weeks, this was still below the 10.3 week median of January 2017. Finally, the broadest measure of labor underutilization from the BLS—the U-6 series—added 1/10th of a percentage point to 8.2 percent. A year earlier, the same measure was at 9.4 percent.

#2Consumer spending was resilient in December. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.3 percent during the final month of 2017 on a seasonally adjusted basis. While still strong, this was down from the 0.5 percent gain in November. Nonetheless, real spending has grown 2.8 percent over the past year. Real spending on both goods and services each increased 0.3 percent during the month, with the former split between a 0.8 percent gain for durable goods while nondurable goods spending held firm. Without adjustments for inflation, nominal PCE gained 0.4 percent in December, funded by a matching 0.4 percent increase in personal income. Disposable income grew at a slower pace: 0.3 percent on a nominal basis and 0.2 percent after adjustments for inflation. Real disposable income has swelled 2.1 percent over the past year. Americans were putting less money away for a rainy day as the savings rate fell to +2.4 percent (a 12-year low).

#3The FOMC did not make a move at its first 2018 meeting. The policy statement released following this past week’s Federal Open Market Committee (FOMC) meeting noted that the U.S. economy was growing at a “solid rate” and the labor market had “continued to strengthen.” The word “solid” also was used to describe improvements in “household spending, and business fixed investment.” On the other hand, the statement notes the inflation remained under the Federal Reserve’s two-percent target rate (but that FOMC members believe inflation will “move up” this year to the target rate). As a result, the committee unanimously voted to maintain the fed funds target rate at a range between 1.25 and 1.50 percent, which it sees as being “accommodative.” The consensus thinking is that the FOMC will bump up the fed funds target rate by 25-basis points at its March meeting.

#4One measure of consumer sentiment gained in January while another essentially matched its previous month’s mark. The Conference Board’s Consumer Confidence Index rebounded in January following slumping at the end of December, adding 2.3 points to a seasonally adjusted reading of 125.4 (1985=100). A year earlier, the index was at a reading of 111.6. The current conditions index slipped by 1.2 points to 155.3 while the expectations index gained 4.7 points to 105.5. 34.9 percent of survey respondents agreed that current business conditions were “good” versus 12.7 percent saw them as “bad.” Similarly, 37.9 percent of Americans felt that jobs were “plentiful” while only 16.4 percent were reporting that jobs were “hard to get.” The press release noted that perceptions about current economic conditions were “at historically strong levels,” but consumers were “somewhat ambivalent about their income prospects over the coming months.”

The University of Michigan’s Index of Consumer Sentiment lost 2/10ths of a point in January to a seasonally adjusted 95.7 (1966Q1=100). This was 2.8 points below its year-ago reading. The current conditions index dropped 3.3 points to 110.5 (January 2017: 111.3) while the expectations index gained two full points to 86.3 (January 2017: 90.3). The 2017 average for the Index of Consumer Sentiment was 96.8, its best average sine 2000. The press release indicates that stock market advances and the recently passed tax bill “were mentioned by all-time record numbers of consumers.” Further, the group sees real consumer spending growing 2.8 percent based on the survey data. 

#5Manufacturing activity remained strong in January. The Purchasing Managers Index (PMI) edged down by 2/10th of a point to 59.1, according to the Institute for Supply Management. This was the 17th consecutive month in which the PMI was above a reading of 50, indicative of an expanding manufacturing sector. Two of the five PMI components improved from their December 2017 readings: inventories (up 3.8 points to 52.3) and supplier deliveries (up 1.9 points to 59.1). Falling were indices for employment (down 3.9 points to 54.2), new orders (down 2.0 points to 65.4), and production (down 7/10ths of a point to 64.5). Respondents from 14 of 18 manufacturing industries indicated expanding during the month, led by textile mills, fabricated metal products, and plastics/rubber products.

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 27, 2018, First-Time Claims, seasonally adjusted): 230,000 (-1,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 234,500 (-5.1% vs. the same week a year earlier).
Factory Orders (December 2017, New Orders for Manufactured Goods, seasonally adjusted): $498.2 billion (+1.7% vs. November 2017, +8.3% vs. December 2016).
Construction Spending (December 2017, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.253 trillion (+0.7% vs. November 2017, +2.6% vs. December 2016).
Pending Home Sales (December 2017, Index (2001=100), seasonally adjusted): 110.1 (+0.5% vs. November 2017, +0.5% vs. December 2016).
Vehicle Sales (January 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.16 million vehicles (-3.9% vs. December 2017, -1.6% vs. January 2017).
Productivity (4th Quarter 2017, Nonfarm Output Per Hour, seasonally adjusted): -0.1% vs. Q3 2017, +1.1% vs. Q4 2016.
Case-Shiller Home Price Index (November 2017, 20-City Index, seasonally adjusted): +0.7% vs. October 2017, +6.4% vs. November 2016).
Agricultural Prices (December 2017, Prices Received by Farmers (Index: 2011=100)): 91.7 (vs. November 2017: 91.0, vs. December 2016: 87.8).

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