Small Q4 GDP Revision, Consumers Take a Rest: February 26 – March 2

A modest downward revision to Q4 GDP growth while consumers slowed down in January. Here are the five things we learned from U.S. economic data released during the week ending March 2.

#1The U.S. economy grew at a slightly slower pace during Q4 than previously believed. The Bureau of Economic Analysis’ (BEA) second estimate of October-December 2017 Gross Domestic Product (GDP) has the U.S. economy expanding at a 2.5 percent seasonally adjusted annualized rate. This was just below the 2.6 percent gain reported a month ago and reaffirms the final three months of 2017 served as the slowest quarter of economic expansion since Q1 2017. GDP grew 2.3 percent for all of 2017, an improvement over the 1.5 percent growth rate for 2016 but below 2015’s 2.9 percent gain. The positive contributors to Q4 economic growth were personal spending (adding 258-basis points to GDP growth), exports (+84-basis points), nonresidential fixed investment (+82-basis points), government expenditures (+49-basis points), and residential fixed investment (+47-basis points). A 14 percent gain in imports produced a 197-basis point drag on Q4 GDP growth. BEA will revise its estimate of Q4 GDP growth once again later this month.GDP 2014-2017 030218

#2Consumers slowed down their spending in January, opting to put away more money. The Bureau of Economic Analysis (BEA) estimates “real” personal consumption expenditures (PCE) slipped 0.1 percent on a seasonally adjusted basis following gains of 0.2 percent and 0.5 percent during the two previous months. Pulling down the inflation-adjusted measure of spending was a sharp 1.6 percent decline in spending on durable goods. Nondurable goods spending was unchanged during the month while that on services eked out a 0.1 percent gain. Over the past year, real PCE has grown 2.7 percent, led by a 7.1 percent increase in durable goods spending, along with gains for nondurables and services of 2.9 percent and 2.0 percent, respectively. January’s pause in spending occurred even as real disposable personal income jumped 0.6 percent, in part reflecting the lowered federal tax withholding. Real disposable personal income has risen 2.3 percent over the past 12 months. Instead of driving more spending, the increased disposable income appears to have gone into the bank as the savings rate jumped by 7/10ths of a percentage point to +3.2 percent (its highest point since last August).

#3Durable goods orders declined in January. New orders for manufactured durable goods dropped 3.7 percent during the month to a seasonally adjusted $239.7 billion, per the Census Bureau. Plummeting were new orders for civilian aircraft (-26.4 percent) and defense aircraft (-45.6 percent), pulling down transportation goods orders 10.0 percent (motor vehicles orders edged up 0.1 percent). Net of transportation goods, new orders decreased 0.3 percent in January following gains of 0.7 percent and 0.4 percent in December and November, respectively. Rising during the month were orders for computers/electronic products (+0.6 percent) and fabricated metal products (+0.5 percent) while orders for primary metals (-0.9 percent), electrical equipment/appliances (-0.8 percent), and machinery (-0.4 percent). Orders for nondefense capital goods net of aircraft (a proxy of business investment) slowed for a second straight month with a 0.2 percent drop. Durable goods shipments grew for the eighth time in nine months (+0.2 percent) to $247.0 billion. Unfilled orders contracted for the fourth consecutive month with a 0.3 percent decrease to $1.141 trillion while inventories expanded for the 18th time in 19 months with a 0.3 percent increase to $408.5 billion.

#4Consumer confidence rises in February. The Conference Board’s Consumer Confidence Index jumped 6.5 points to a seasonally adjusted 130.8 (1985=100), the sentiment measure’s highest reading since November 2000. Improving during the month were measures for both current conditions (up 7.7 points to 154.7) and expected conditions (adding 5.7 points to 109.7). 35.8 percent of survey respondents characterize current business conditions as “good” versus only 10.8 percent seeing them as “bad.” 25.8 percent of respondents expect conditions will improve over the next six months versus a mere 9.4 percent expecting a deterioration. The press release said that “consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”

The Index of Consumer Sentiment from the University of Michigan jumped four full points to a seasonally adjusted reading of 99.7 (1966Q1=100), its second best reading since 2004. The same measure was at 96.3 a year earlier. The current conditions index added 4.4 points to 114.9 (February 2017: 111.5) while the expectations index added 3.7 points to 90.0 (February 2017: 86.5). The press release tied the strong sentiment to Americans’ “favorable assessments of jobs, wages, and higher after-tax pay.” Further, the group indicates that current levels of optimism suggest real personal spending will grow 2.9 percent during 2018.

#5New home sales slumped for a second straight month. The Census Bureau reports that new home sales fell 7.8 percent in January to a seasonally adjusted annualized rate (SAAR) of 593,000 units. This left new home sales 1.0 percent below its year-ago pace. Sales plummeted during the month in the Northeast (-33.3 percent) and the South (-14.2 percent) but gained in the Midwest (+15.4 percent) and West (+1.0 percent). Inventories of unsold new homes improved, growing 2.4 percent during the month to 301,000 homes. This was 15.3 percent above the year-ago inventory and translated into a 6.1 month supply. The median sales price of new homes sold has grown 2.5 percent over the past year to $323,000 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 24, 2018, First-Time Claims, seasonally adjusted): 210,000 (-10,000 vs. previous week; -17,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-8.0% vs. the same week a year earlier).
Chicago Fed National Activity Index (January 2018, Index (0.00=U.S. expanding at its historical rate, seasonally adjusted): +0.12 (down 2-basis points vs. December 2017, up 31-basis points vs. January 2017).
Pending Home Sales (January 2018, Index (2001=100), seasonally adjusted): 104.1 (vs. December 2017: 109.8, vs. January 2017: 108.7).
Vehicle Sales (February 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.08 million vehicles (-0.5% vs. January 2018, -2.1% vs. February 2017).
Construction Spending (January 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.263 trillion (essentially unchanged vs. December 2017, +3.2% vs. January 2017).
ISM Report on Business—Manufacturing (February 2018, Purchasing Managers Index (>50=expanding Manufacturing Activity): 60.8 (vs. January 2018: 59.1, February 2017: 57.7).
FHFA House Price Index (December 2017, Purchase-Only Index, seasonally adjusted): +0.3% vs. November 2017, +6.5% vs. December 2016.
Case-Shiller Home Price Index (December 2017, 20-City Index, seasonally adjusted): +0.6% vs. November 2017, +6.3% vs. December 2016).
Agricultural Prices (February 2017, Prices Received by Farmers): -6.2% vs. December 2017, +0.2% vs. January 2017.

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

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