Tight Inventory Chokes the Housing Market: February 19 – 23

Existing home sales slowed for a second straight month, but overall business activity remains stout. Here are the five things we learned from U.S. economic data released during the week ending February 23. (OK, there are only four things, as it was a slow week)

#1A lack of homes for sale depressed the real estate market in January. The National Association of Realtors reports that sales of previously owned homes declined 3.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.38 million units. This left the sales pace 4.8 percent below that of January 2017, the largest year-to-year decline in existing home sales since the summer of 2014. Sales slowed in all four Census regions on both a month-to-month and year-to-year basis. Sales were down for the month by 6.0 percent in the Midwest, 5.0 percent in the West, 1.4 percent in the Northeast, and 1.3 percent in the South. Inventories, while growing a bit during the month, remained very tight. There were 1.52 million homes available for sale at the end of January (representing a mere 3.4 month supply of homes), up 4.1 percent for the month but still 9.5 percent smaller than year ago inventories levels. As a result, the median sales price of $240,500 was 5.8 percent above that of a year earlier. The press release lays blame on the “utter lack of sufficient housing supply and its influence on higher home prices” for the decrease in sales activity.

#2Forward-looking economic indicators suggest healthy economic growth during (at least) the first half of 2018. The Conference Board’s Leading Economic Index (LEI) grew by 1.1 points during January to a seasonally adjusted 108.1 (2016=100). The LEI has grown by 6.2 percent over the past year. Eight of the ten LEI components made a positive contribution to the index, led by building permits, new orders for manufactured goods and stock prices. The coincident index inched up by 1/10th of a point to 103.0 and up 2.2 percent over the past year. Three of the four coincident index components made positive contributions: nonfarm payrolls, personal income net of transfer payments, and manufacturing/trade sales. The lagging index also added 1/10th of a point to 104.0 (+2.5 percent versus January 2017), with three of seven components making positive contributions: prices for services, consumer debt as a percentage of personal income, and the prime rate charged by banks. The press release noted that LEI data point to “with widespread strengths coming from financial conditions, manufacturing, residential construction, and labor markets.”

#3Jobless claims decades remained near multi-decade lows. First-time claims made for unemployment insurance benefits dropped by 7,000 during the week ending February 17 to a seasonally adjusted 222,000, down 25,000 from the same week a year ago. The Department of Labor reports four-week moving average declined by 2,250 during the week to 226,000, down 7.9 percent from a year earlier. Except for the reading two weeks earlier, this was the lowest point for the moving average of first-time jobless claims since March 1973. 2,360,760 people were receiving some form of unemployment insurance benefits during the week ending February 3, 5.9 percent below the count during the same week a year earlier.Jobless Claims 1970-2018 022318

#4Inventories of crude oil, gasoline, and distillates are much smaller than they were a year ago. The Energy Information Administration finds commercial crude oil inventories, which does not include the oil held in the Strategic Petroleum Reserve, declined by 1.6 million barrels during the week of February 16 to 420.5 billion barrels. This was 18.9 percent smaller than crude oil inventories during the same week a year earlier. Gasoline inventories grew slightly (300,000 barrels) during the same week 249.3 million barrels (-2.8 percent versus the week of February 17, 2017). Inventories of distillate fuel oil shrank by 2.4 million barrels to 138.9 million barrels, 15.9 percent below year-ago inventories. 

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

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.