Q4 GDP Revised Up, Consumer Spending Paused: March 26 – 30

Q4 GDP was revised upward, but consumer spending has been sluggish during the first two months of 2018. Here are the five things we learned from U.S. economic data released during the week ending March 30.

#1A new estimate finds that the U.S. economy expanded during Q4 more quickly than previously reported. The Bureau of Economic Analysis’ third estimate of Gross Domestic Product (GDP) finds the U.S. economic swelled 2.9 percent on a seasonally adjusted annualized rate (SAAR) during the final three months of 2017. This was up from the 2.5 percent annualized growth rate reported a month earlier. With the upward revision, BEA now estimates the U.S. economy expanded 2.3 percent for all of 2017, which was an improvement from the 1.5 percent growth rate in 2016 but below 2015’s 2.9 percent gain. The latest revision to Q4 GDP was the result of higher than previously believed levels of personal spending and private inventory investment. Positive contributors to GDP growth during the quarter were personal spending, fixed investment, and government spending, while net exports and private inventory accumulation were both drags on economic growth. Corporate profits slipped 0.1 percent during Q4 following a 4.3 percent bump during Q3.Gross Domestic Product 2000-2017-033018

#2The U.S. economy gained momentum in February. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, surged by 86-basis points during the month to a seasonally adjusted reading of +0.88. This was the CFNAI’s best reading since last October. Much of the gain came from production-related economic indicators, which made a +0.50 contribution to the CFNAI (a big improvement from January when the same measures had made a negative -0.15 contribution). Also making positive contributions during the month were indicators tied to employment (+0.31) and sales/orders/inventories (+0.09). Dragging down the CFNAI were indicators related to consumption/housing (-0.02). In all, 63 of the 85 economic indicators made positive contributions to the CFNAI. The CFNAI’s 3-month moving average gained by 21-basis points to +0.37. Since the CFNAI is indexed such that a reading of 0.00 means the U.S. economy is growing at its historical level, the +0.37 moving average indicates the U.S. economy is expanding at an above average rate.

#3Personal spending failed to grow for a second consecutive month. The Bureau of Economic Analysis finds real personal consumption expenditures (PCE) were unchanged during February after having contracted 0.2 percent during January. Even with the recent lack of increases, real PCE has increased 2.8 percent over the past year, matching January’s 12-month comparable. Real spending on services and goods also was steady during February, with the latter split between a 0.6 percent increase in spending on durable goods and a 0.3 percent contraction for nondurables. Over the past year, spending on goods has grown 4.3 percent while that on services was 2.1 percent ahead of year-ago levels. Real disposable personal income gained 0.2 percent during February, slower than January’s 0.6 percent advance. Over the past year, real disposable income has increased 2.1 percent. The gap between spending and income has been covered by a slowdown in savings, although this has recovered in recent months. The personal savings rate was at +3.4 percent in February, up 2/10ths of a percentage point from January. Finally, the Federal Reserve’s preferred gauge of inflation continues to gradually creep up. The PCE deflator has grown 1.8 percent over the past year while the core measure (which removes the impact of energy and food) gained 1.6 percent over the same 12 months.

#4Two measures of consumer sentiment moved in opposite directions during March, although both indicate that Americans remain optimistic. The Conference Board’s Consumer Confidence Index shed 2.3 points during the month to a seasonally adjusted reading of 127.7 (1985=100). Despite losing a step during the month, the measure remained 2.8 points ahead of its year-ago reading and stayed close to the 18-year high achieved in February. The present conditions index lost 1.3 points during March to a reading of 159.9 while the expectations index shed three full points to 106.2. 37.9 percent of survey respondents described current business conditions as “good” versus 13.4 percent seeing them as “bad.” Similarly, 39.9 percent of consumer saw the number of available jobs as “plentiful” while only 14.9 percent viewed them as “hard to get.” The press release noted that the results suggest “suggest further strong [economic] growth in the months ahead.”

The University of Michigan’s Index of Consumer Sentiment added 1.7 points during March to a seasonally adjusted 101.5 (1966Q1=100). While this was a small pullback from the preliminary March reading reported a few weeks earlier, this final reading represented a 14-year high point for the sentiment measure and a 4.5 point improvement over the previous year. The current conditions index jumped 6.3 points to a record-high of 121.2 (March 2017: 113.2) while the expectations index slipped 1.2 points to 88.8 (March 2017: 86.5). The press release indicates that the index readings suggest a real growth rate in real personal spending of 2.6 percent from mid-2018 to mid-2019.

#5Pending home sales picked up in February. The National Association of Realtors says that its measure of contract signings to purchase a previously owned home gained 3.1 percent during the month to a seasonally adjusted index reading of 107.5 (2001=100). Even with the gain, this was 4.1 percent under the year-ago contract signing pace. The index improved during February in all four Census regions, led by a 10.3 percent bounce in the Northeast. The Pending Home Sales Index also grew 3.0 percent in the South, 0.7 percent in the Midwest and 0.4 percent in the West. All four regions had negative 12-month comparables, spanning from a 9.5 percent drop in the Midwest to a 1.5 percent year-to-year slowdown in the South. The press release notes that the “minuscule” number of homes on the market and “its adverse effect on affordability” as weighing on the housing market.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 24, 2018, First-Time Claims, seasonally adjusted): 215,000 (-12,000 vs. previous week; -38,000 vs. the same week a year earlier). 4-week moving average: 224,500 (-11.1% vs. the same week a year earlier).
Case-Shiller House Price Index (January 2018, 20-City Index, seasonally adjusted): +0.8% vs. December 2017, +6.4% vs. January 2017.
Agricultural Prices (February 2018, Prices Received by Farmers (Index (2011=100)): 90.8 (+5.7% vs. January 2018, -0.2% vs. February 2017). 

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

The FOMC Makes Another Move, Will (Likely) Do So Twice More This Year: March 19 – 23

The Federal Reserve raised its short-term interest rate target and signals its intention to do so several more times this year. Here are the five things we learned from U.S. economic data released during the week ending March 23.

#1The Fed bumps up its short-term interest rate target…and its economic forecast. The policy statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the economy was growing “at a moderate rate” and the labor market had “continued to strengthen,” featuring “strong” job gains. Nonetheless, core inflation remained under its two-percent target. As a result, the committee voted without dissent to raise the fed funds target rate by 25-basis points to a range between 1.50 and 1.75 percent. The statement continued to note that economic conditions are likely to “warrant” further hikes, but that interest rates would likely remain accommodative “for some time.”

The expectation of what “some time” may mean is presented with the updated economic forecasts of the FOMC meeting participants published in conjunction with the above policy statement. The median fed funds target rate forecast remains at 2.1 percent at the end of 2018, suggesting two more 25-basis points hikes this year. The consensus forecast places the expected fed funds target at 2.9 percent (i.e., three rate hikes) for 2019 and 3.4 percent (i.e., two rate hikes) for 2020. The same forecast has the U.S. economy growing 2.7 percent for all of 2018 (up from the prior forecast of a 2.5 percent gain) and 2.4 percent in 2019 (up from the previous forecast of 2.1 percent).Fed Funds Target Rate Forecasts 032318

#2Existing homes sales grew for the first time in three months in February. The National Association of Realtors reports that sales of previously owned homes grew 3.0 percent during the month to a seasonally adjusted annualized rate of 5.540 million units. This was 1.1 percent ahead of the year-ago sales pace. During the month, existing home sales surged 11.4 percent in the West and 6.6 percent in the South but slowed 12.3 percent in the Northeast and 2.4 percent in the Midwest. Only two regions—the South (+3.4 percent) and West (+2.4 percent)—reported positive 12-month sales comparables. While inventories of unsold homes grew 4.6 percent during February to 1.590 million units, this was the equivalent to a very tight 3.4 month supply. As a result, the median sales price of existing homes has grown 5.9 percent over the past year to $241,700. The press release noted that “the very healthy U.S. economy and labor market are creating a sizeable interest in buying a home in early 2018,” but also that “affordability continues to be a pressing issue” because of a lack of homes available on the market.

#3…But new home sales slipped again. Sales of new single-family homes inched down 0.6 percent in February to a seasonally adjusted annualized rate (SAAR) of 618,000 units. Even with the decline, the annualized rate of the Census Bureau data series was 0.5 percent above that of a year earlier. Sales during the month in the Northeast (+19.4 percent) and South (+9.0 percent) but dropped in the West (-17.6 percent) and Midwest (-3.7 percent). In comparison to February 2017, sales grew in three regions—Northeast (+8.8 percent), West (+3.1 percent), and South (+0.6 percent)—but declined 8.1 percent in the Midwest. Inventories of new homes continued their gradual expansion—the 305,000 new homes available for sale at the end of February was up 2.0 percent for the month, a 16.0 percent advance from February 2017, and represented a still relatively tight 5.9 month supply. The median sales price of new homes of $326,800 was a 9.7 percent increase from a year earlier.

#4Durable goods orders surged during February. The Census Bureau estimates the value of new durable goods orders was at a seasonally adjusted $247.7 billion. This was the third increase over the past four months and a healthy rebound from January’s 3.5 percent drop. Transportation goods orders surged 7.1 percent, in part due to a jump in increased orders for both civilian (+25.5 percent) and defense aircraft (+37.7 percent) in addition to a 1.8 percent bounce in orders for motor vehicles. Net of transportation orders, new durable goods gained 1.2 percent after pulling backing 0.2 percent in January. New orders grew for primary metals (+2.7 percent), electrical equipment/appliances (+2.6 percent), machinery (+1.6 percent), and fabricated metal products (+0.8 percent). New orders for nondefense capital goods minus aircraft (a proxy for business investment) grew 1.8 percent during February after having pulled back 0.4 percent during the prior month.

#5Forward-looking economic indicators continue to suggest solid growth in 2018. The Conference Board’s Leading Economic Index (LEI) grew by 7/10ths of a point during February to a seasonally adjusted 108.8 (2016=100). The LEI has increased for five straight months, rising 6.5 percent over the past year. Eight of the ten components to the LEI made positive contributions to the index, led by average weekly manufacturing hours, new orders for manufactured goods (per ISM), and jobless claims. The coincident economic index added 3/10ths of a point during the month to a reading of 103.3 (+2.3 percent versus February 2017), with all four components on that index making positive contributions (led by industrial production and nonfarm payrolls). The lagging economic index picked up 4/10ths of a point to 104.3 (+2.6 percent versus February 2017) as four of seven index components making positive contributions (led by the average length of unemployment). The press release notes that the six-month growth rate for the leading index had not been this high since the first quarter of 2011.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 17, 2018, First-Time Claims, seasonally adjusted): 229,000 (+3,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 223,750 (-9.2% vs. the same week a year earlier).
State Employment (February 2018, Nonfarm Employment, seasonally adjusted): Vs. January 2018: 11 states had significant payroll increases. Vs. February 2017: 24 states had significant payroll increases.
FHFA House Price Index (January 2018, Purchase-Only Index, seasonally adjusted): +0.8% vs. December 2017, +7.3% vs. January 2017. 

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

Manufacturing Grows, Retail Sales Pause: March 12 – 16

Moderate winter weather appears to have boosted manufacturing in February, less so for retail. Here are the five things we learned from U.S. economic data released during the week ending March 16.  

#1Manufacturing grew at its fastest pace in four months during February. The Federal Reserve reports that manufacturing output increased a seasonally adjusted 1.1 percent during the month, after having contracted 0.2 percent during the prior month. Manufacturing production has expanded 2.5 percent over the past year. The rebound in manufacturing was widespread with durable goods output jumping 1.8 percent in February while that for nondurables gaining 0.7 percent in February. There were output jumps of at least one percent in orders for business equipment, defense/space equipment, and construction supplies. Overall industrial production increased 1.1 percent during February as mining jumped 4.3 percent (due to improvements in gas/oil extraction and coal mining) and utilities output slumped 4.7 percent (with more moderate weather lessening the demand for heating). Overall capacity utilization hit a three-year high at 78.1 percent (up 7/10ths of a percentage point for the month) while utilization in manufacturing jumped by 9/10ths of a percentage point to 76.9 percent.Capacity Utilization 031618.png

#2Retail sales sputtered for a third straight month. The Census Bureau estimates retail and food services sales slipped 0.1 percent during February to a seasonally adjusted $492.0 billion. This was 4.0 percent ahead of the year-ago sales pace. Dragging down the headline number were slumping sales at auto dealers and parts stores (-0.9 percent). Net of vehicles/parts, retail sales increased 0.2 percent during the month and were 4.4 percent ahead of February 2017 sales. Sales grew at retailers focused on sporting goods/hobbies (+2.2 percent), building materials (+1.9 percent), and apparel (+0.4 percent). Sales also inched up 0.2 percent at restaurants/bars. Falling were sales at gas stations (-1.2 percent), department stores (-0.9 percent), furniture retailers (-0.8 percent), health/personal care retailers (-0.4 percent), and grocery stores (-0.2 percent). Immune from the sluggish activity were nonstore retailers (e.g., web retailers) where sales gained 1.0 percent during February and have risen 10.1 percent over the past year.

#3Inflation cooled off in February. The Consumer Price Index (CPI) gained 0.2 percent on a seasonally adjusted basis after having risen 0.5 percent in January, per the Bureau of Labor Statistics. The slower pace of inflation resulted from lower prices for gasoline (-0.9 percent) and fuel oil (-3.6 percent) after having surged during the previous month. As a result, energy CPI grew by only 0.1 percent after a 3.0 percent bump in January. Food CPI was unchanged for the month. Net of energy and food, core CPI increased 0.2 percent (after a 0.3 percent gain in January). Rising were prices for apparel (+1.5 percent), transportation services (+1.0 percent), and shelter (+0.2 percent) while losing stream were prices for new vehicles (-0.5 percent), used cars (-0.3 percent), and medical care commodities (-0.3 percent). Over the past year, consumer prices have risen 2.2 percent while core CPI has grown 1.8 percent.

The Producer Price Index (PPI) for final demand sliced in half its increase from January with a 0.2 percent gain during February. Net of food, energy and trade services, core PPI increased 0.4 percent, matching its January gain. Reversing course was PPI for final demand goods, dropping 0.1 percent after having surged 0.7 percent during the previous month. Wholesale prices for both energy (-0.5 percent) and food (-0.4 percent) declined, but PPI net of energy and food grew 0.2 percent. PPI for final demand services gained 0.3 percent (matching January’s increase), featuring a 0.9 percent bump in prices for transportation/warehousing services. Final demand PPI has risen 2.8 percent over the past year with a still robust +2.7 percent 12-month comparable after removing the impact of energy, food, and trade services.

#4The number of unfilled job openings grew ever larger in January. There were a seasonally adjusted 6.312 million job openings on the final day, surging by 645,000 from December and 15.9 percent from a year earlier. This is the greatest number of job openings measured since the start of the Bureau of Labor Statistics measure in 2000. The report shows that there were 5.751 private sector job openings at the end of January, up 608,000 from December and 15.7 percent from January 2017. Industries with the largest year-to-year percentage increases in job openings included transportation (+63.1 percent), construction (+57.2 percent), retail (+28.6 percent), leisure/hospitality (+20.8 percent), government (+18.4 percent), professional/business services (+17.2 percent), wholesale trade (+17.2 percent), and manufacturing (+17.0 percent). Hiring grew at a far more modest pace, increasing by 59,000 to 5.583 million jobs (+2.3 percent versus January 2017) while private sector hiring gained 71,000 to 5.244 million jobs (+2.7 percent versus January 2017). Industries with the greatest percentage year-to-year gains in hiring included manufacturing (+16.9 percent), professional/business services (+6.5 percent), health care/social assistance (+4.8 percent), and retail (+4.2 percent). More people left their jobs during January, growing by 95,000 during the month to 5.409 million people (+3.5 percent versus January 2017). The number of people quitting their jobs slipped by 69,000 to 3.271 million workers (+3.2 percent versus January 2017) while layoffs grew by 107,000 to 1.762 million (+6.2 percent versus January 2017).

#5Housing starts slowed in February, especially for multifamily units. The Census Bureau places the seasonally adjusted annualized rate of housing starts at 1.236 million units, down 7.0 percent from the prior month and 4.0 percent behind the year-ago pace. The decline was solely on the multifamily side of the market (e.g., condos), where starts plummeted 28.0 percent during February. Single-family home starts increased 2.9 percent during the month (and from a year earlier) to 902,000 units. Less sanguine was the count of issued building permits, which dropped 5.7 percent during the month to an annualized rate of 1.298 million (+6.5 percent versus February 2017). Permits for multifamily units slumped 14.6 percent during the month while the decline for single-family home permits was a much more modest 0.6 percent. Rising was the annualized count of completed homes, jumping 7.8 percent to 1.319 million homes. This was 13.6 percent ahead of its February 2017 pace. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 10, 2018, First-Time Claims, seasonally adjusted): 226,000 (-4,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 221,500 (-9.1% vs. the same week a year earlier).
Import Prices (February 2018, All Imports, not seasonally adjusted): +0.4% vs. January 2018, +3.5% vs. February 2017. Nonfuel imports: +0.5% vs. January 2018, +2.1% vs. February 2017.
Export Prices (February 2018, All Exports, not seasonally adjusted): +0.2% vs. January 2018, +3.3% vs. February 2017. Nonagricultural exports: +0.2% vs. January 2018, +3.6% vs. February 2017.
Small Business Optimism (February 2018, Optimism Index (1986=100), seasonally adjusted): 107.6 (highest since 1983) (vs. January 2018: 106.9; February 2017: 105.3).
Housing Market Index (March 2018, Index (>50=”Good” Housing Market, seasonally adjusted): 70 (February 2018: 71, March 2017: 71).
Monthly Treasury Statement (February 2018, Surplus/Deficit): -$215.2 billion (vs. February 2017: -$192.0 billion). First 5 months of FY18: -$391.0 billion (vs. first 5 months of FY17: -$350.6 billion).
Business Inventories (January 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.917 trillion (+0.6% vs. December 2017, +3.7% vs. January 2017).
University of Michigan Consumer Sentiment (March 2018-preliminary, Index (1966Q1=100), seasonally adjusted): 102.0 (vs. February 2018: 99.7, vs. March 2017: 96.9).
Treasury International Capital Flows (January 2018, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$63.2 billion (vs. December 2017: +$31.0 billion, vs. January 2017: +$17.1 billion.
State Employment (January 2018, Change in Nonfarm Payrolls, seasonally adjusted):  Vs. December 2017: 3 states had significant increases in payrolls 1 had a significant decrease. Vs. January 2017: 21 states had payrolls increases.

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