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.

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