GDP Bloomed During the Spring, Home Sales Sputtered: July 23 -27

GDP grew at its fastest pace in nearly four years this past spring. Here are the five things we learned from U.S. economic data released during the week ending July 27.

#1Q2 was a good quarter for economic growth. The Bureau of Economic Analysis’ first estimate of second quarter 2018 gross domestic product (GDP) shows 4.1 percent growth on a seasonally adjusted annualized basis. This was the best quarter for GDP since the third quarter of 2014 and up from a revised 2.2 percent annualized growth rate during Q1. Most GDP components made positive contributions during Q1, led by a surge in personal consumption expenditures (adding 269-basis points to GDP growth during the quarter), net exports (+106-basis points, although some of this is believed the result of exporters moving soybeans and other goods out of the U.S. before trade tariffs take effect), nonresidential fixed investment (+94-basis points), and government expenditures (+37-basis points). Drags on Q2 GDP included a contraction in private inventories (costing one full percentage point in GDP growth) and tepid growth in fixed residential investment (i.e., housing, costing four-basis points). The BEA will revise its estimate of Q2 GDP twice over the next two months.GDP Contributors 072718

#2Economic activity accelerated during June. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic measures, surged by 88-basis points during the month to a reading of +0.43. The three-month moving average, which the Federal Reserve Bank of Chicago views as a “more consistent view of national economic growth,” added six basis points to a reading of +0.16. The CFNAI is indexed so that a 0.00 reading reflects economic growth at its historical average. Hence, a positive CFNAI indicates above average economic growth. Forty-five of the 85 economic indicators made positive contributions to the CFNAI during the month. Rebounding strongly from May were indicators related to production, the contribution from which surging from -0.56 to +0.36. Also showing improvement were the components tied to sales/orders/inventories, growing by three-basis points to +0.06. Slipping slightly were indicators linked to employment (off three-basis points to +0.08) and personal consumption/housing (down two-basis points to -0.06).

#3Home sales slowed in June. Sales of previously owned homes declined 0.6 percent during the month to a seasonally adjusted annualized rate of 5.38 million units. This was the third consecutive monthly decline for the National Association of Realtors’ data series, leaving existing home sales 2.2 percent under its year-ago reading. Sales slumped during the month in the West (-2.6 percent) and South (-2.2 percent) but improved in both the Northeast (+5.9 percent) and Midwest (+0.8 percent). Among the four Census regions, only in the South were existing home sales up over the past year. Inventories loosened a bit, growing 4.3 percent to a still tight 1.95 million units (the equivalent to a 4.3 month supply). The median sales price of $276,900 was up 5.2 percent from a year earlier. The press release blames softening sales on a lack of inventory of homes that is keeping home prices “elevated.”

New home sales fell 5.3 percent during June to a seasonally adjusted annualized rate of 631,000 units, per the Census Bureau. Even with the decline, new home sales have grown 2.4 percent over the past year. New home sales slowed in three of four Census regions during the month, with the Northeast being the exception. Homebuilders had 301,000 homes available for sale at the end of June, up 1.7 percent from May and 10.3 percent from a year earlier. This was the equivalent to a 5.7 month supply.

#4Durable goods orders rebounded during June. The Census Bureau estimates new orders for manufactured goods soared 1.0 percent during the month to a seasonally adjusted $251.9 billion. New orders for transportation goods jumped 2.2 percent, led by a 20.2 percent bounce in defense aircraft orders, a 4.3 percent gain in civilian aircraft orders, and a 4.4 percent increase in motor vehicle orders. Net of transportation goods, core durable goods orders grew 0.4 percent. Increasing during the month were new orders for electrical equipment/appliances (+1.5 percent), computers/electronics (+0.6 percent), machinery (+0.2 percent), and fabricated metal products (+0.1 percent). Meanwhile, new orders for primary metals slowed 0.4 percent. New orders for nondefense capital goods net of aircraft—a proxy for business investment—increased 0.6 percent during the month.

#5Consumer sentiment held steady in July. The University of Michigan reports that its Index of Consumer Sentiment slipped by 3/10ths of a point to a seasonally adjusted reading of 97.9 (1966Q1=100). Note that this was an 8/10ths of a point improvement from the preliminary July reading published a few weeks ago and a 4.5 point gain from the same month a year earlier. The current conditions index shed 2.1 points during the month to a reading of 114.4 (July 2017: 113.4) while the expectations index added 7/10ths of a point to 87.3 (July 2017: 80.5). The press release noted that Americans remained confident “due to favorable job and income prospects” even as they expect “higher inflation and higher interest rates.” A potential warning sign is the growing percentage of survey respondents expressing concerns about the impact trade tariffs may have on business conditions and their personal finances. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 21, 2018, First-Time Claims, seasonally adjusted): 217,000 (+9,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-10.7% vs. the same week a year earlier).
FHFA House Price Index (May 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. April 2018, +6.4% vs. May 2017.
Bankruptcy Filings (June 2018, 12-month Bankruptcy Filings): 775,578 (-2.6% vs. 12-month period ending June 30 2017).

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

 

Manufacturing and Retail Thrived in June: July 16 – 20

A series of economic news points to activity heating up during the first days of summer. Here are the five things we learned from U.S. economic data released during the week ending July 20.  

#1Manufacturing (and industrial production as a whole) rebounded in June. The Federal Reserve indicates manufacturing output gained 0.8 percent on a seasonally adjusted basis during the month, following a 1.0 percent pullback in May. Virtually all of June’s gain was on the durable goods side, where production swelled 1.6 percent. This included a 7.8 percent surge in automobile production (which had slumped 8.6 percent in May) and gains of at least one-percent for computers/electronics, wood products, and aerospace/transportation equipment. Nondurable output eked out a 0.1 percent increase during June. Overall industrial production grew 0.6 percent during the month following May’s 0.5 percent drop. Mining output increased 1.2 percent (with oil and gas extraction leading the way). Meanwhile, utility output slumped 1.5 percent. Over the past year, industrial production has grown 3.8 percent, with positive 12-month comparables for manufacturing (+1.9 percent), mining (+12.9 percent), and utilities (+5.0 percent).Industrial Production Manufacturing 072018

#2Retail sales remained solid as we entered the summer. The Census Bureau estimates retail and food service sales grew 0.5 percent during the month to a seasonally adjusted $506.8 billion. This was 6.6 percent ahead of the year-ago sales pace. Net of sales at auto dealers/parts stores (+0.9 percent) and gas stations (+1.0 percent, thanks to higher prices at the pump), core retail sales increased by a still decent 0.3 percent during the month and has grown 5.6 percent over the past year. The report also featured significant upward revisions to May sales, showing the headline and core sales rising 1.3 percent and 1.2 percent, respectively. Sales improved during June at retailers focused on health/personal care (+2.2 percent), building materials (+0.8 percent), and furniture (+0.6 percent). Sales also jumped 1.5 percent at restaurants/bars. But the news was not positive everywhere, with sales slumping at sporting goods/hobby stores (-3.2 percent), apparel retailers (-2.5 percent), electronics/appliance retailers (-0.4 percent), and grocery stores (-0.2 percent). 

#3Forward-looking economic indicators point to an accelerating U.S. economy in June. The Conference Board’s Leading Economic Index (LEI) added a half point to a seasonally adjusted reading of 109.8 (+5.8 percent versus June 2017). Seven of the ten components of the LEI made positive contributions during the month, led by new orders as measured by the Institute for Supply Management and the interest rate spread. The coincident index gained by 3/10ths of a point to 103.9 (+2.3 percent versus June 2017), aided by positive contributions for all four its components (including industrial production and nonfarm payrolls). The lagging index also increased by 3/10ths of a point (to a reading of 105.4, +2.7 percent versus June 2017). Four of the seven lagging index components made positive contributions, including those for the amount of outstanding commercial & industrial loans and the average length of unemployment. The press release said that the results do “not suggest any considerable growth slowdown in the short-term.”

#4Housing construction slowed in June. The Census Bureau reports that housing starts sank 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.173 million units. This represented a 4.2 percent decline from the June 2017 pace. Single-family home starts dropped 9.1 percent to 858,000 units (SAAR), just 0.2 percent under the year-ago pace while multifamily units started fell 20.2 percent to 304,000 units (-15.3 percent versus June 2017). Also declining was the annualized number of building permits, down 2.2 percent for the month to 1.301 million permits (-3.0 percent versus June 2017). The rate of housing completions held firm for the month at 1.261 million homes, which was nevertheless 2.3 percent ahead of that from a year earlier.

#5Homebuilders have remained confident this summer. The Housing Market Index (HMI) from the National Association of Home Builders held steady at a seasonally adjusted reading of 68. Not only was this the third time over the past four months in which the HMI was at 68, it also was the 49th consecutive month the index was above a reading of 50 (indicative of more homebuilders viewing the housing market as being “good” versus being “poor.” The HMI improved in the Midwest, was unchanged in the Midwest but lost ground in both the West and Northeast. The index measuring current sales of single-family homes remained at 74 while the expected sales index shed two points to 73. The index tracking the traffic of prospective buyers added two points to 52. The press release noted that even with the solid level of confidence, homebuilders are “burdened by rising construction material costs.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 14, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -32,000 vs. the same week a year earlier). 4-week moving average: 220,500 (-9.7% vs. the same week a year earlier).
Business Inventories (May 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.937 trillion (+0.4% vs. April 2018, +4.4% vs. May 2017).
Treasury International Capital Flows (May 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$20.3 billion (vs. April 2018: +$22.6 billion, vs. May 2017: +$95.5 billion).
Beige Book

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

Job Openings Outpaces Unemployment Again: July 9 – 13

Employers continue to struggle to fill their job openings. Here are the five things we learned from U.S. economic data released during the week ending July 13.

#1There remain more job openings than people unemployed. The Bureau of Labor Statistics estimates there were a seasonally adjusted 6.638 million job openings at the end of May. While down 202,000 from the prior month, the count of job openings was not only 16.7 percent larger than that of a year earlier but also higher than the 6.065 million people the BLS had reported being jobless in last week’s employment report. Private sector job openings have grown 16.6 percent over the past year, with some of largest year-to-year percentage gains seen for construction (+32.8 percent), transportation/warehousing (+28.9 percent), manufacturing (+24.6 percent), and professional/business services (+20.6 percent). During the same month, hiring grew by 268,000 to 5.754 million (+4.9 percent versus June 2017). Private sector hiring has risen 5.2 percent over the past year, with substantial year-to-year percentage gains seen in transportation/warehousing (+11.6 percent), health care/social assistance (+9.7 percent), accommodation/food services (+9.6 percent), professional/business services (+5.3 percent), and manufacturing (+4.2 percent). 5.468 million people left their jobs during June, an increase of 44,000 for the month and up 3.8 percent from a year earlier. This included a record 3.561 million people voluntarily quitting their jobs (increasing 212,000 for the month and 10.4 percent over the past year), reflecting the robust employment opportunities for workers.Job Openings Unemployment 071318.png

#2Consumer prices grew at a slower rate in June, thanks to lower electricity and natural gas prices. The Consumer Price Index (CPI) increased 0.1 percent on a seasonally adjusted basis, following two consecutive 0.2 percent monthly gains, as reported by the Bureau of Labor Statistics. Energy prices fell 0.3 percent (its first drop since March), thanks to lower electricity and natural gas prices. Meanwhile, gasoline prices grew 0.5 percent. Food CPI increased 0.2 percent. Net of energy and food, core CPI expanded 0.2 percent for the fourth time in five months. Growing during June were prices for used cars/trucks (+0.7 percent), medical care services (+0.5 percent), new vehicles (+0.4 percent), transportation services (+0.2 percent), and shelter (+0.1 percent). On the other end of the spectrum, apparel prices slumped 0.9 percent. CPI has risen 2.9 percent over the past year, while core CPI has a 12-month comparable of +2.3 percent.

#3Meanwhile, wholesale prices firmed further. The Producer Price Index (PPI) for final demand jumped 0.3 percent on a seasonally adjusted basis in June, down from May’s 0.5 percent bounce. The Bureau of Labor Statistics’ core measure for wholesale prices—final demand PPI net of energy, food and trade services—grew by a more modest 0.1 percent. Energy PPI blossomed 0.8 percent, with prices for fuels and lubricants surging 21.8 percent. Food PPI, however, fell 1.1 percent as vegetable prices plummeted 13.8 percent. Net of energy and food, core goods PPI increased 0.3 percent. PPI for final demand services grew 0.4 percent, its largest single-month rise since January. Trade services PPI (a measure of retailer and wholesaler margins) jumped 0.7 percent in June after rising 0.9 percent during May. Over the past year, PPI has increased 3.4 percent, with the core measure of wholesale prices growing 2.7 percent over the past 12 months.

#4Even with a slight pullback, small business owners remained confident in June. The Small Business Optimism Index from the National Federation of Independent Business lost 6/10ths of a point during the month to a seasonally adjusted 107.2 (1986=100). Even with the decline, the index has been above a reading of 100 for 19 consecutive months. Five of the index components improved during the month (including those for current inventories and current job openings) while the other five lost ground (including those for expected real sales and whether it is a good time to expand). The press release argued that the “first six months of the year have been very good to small business thanks to tax cuts, regulatory reform, and policies that help them grow.”

#5The U.S. budget deficit continued to pace ahead of that from last year. Per the Department of the Treasury, the federal government ran a budget deficit of -$74.9 billion. Receipts totaled $316.3 billion for the month (down 6.6 percent from the same month a year earlier) while expenditures were $391.1 billion (8.8 percent smaller than that of June 2017). Over the first nine months of FY2018, the U.S. government has run up a -$607.1 billion trade deficit, up 16.1 percent from the same nine months during the previous fiscal year. Receipt collected over these nine months—$2.540 trillion—was pacing 1.3 percent ahead of that from the same period in FY2018. Over this same time period, personal income tax collections were 8.9 percent larger than that of a year earlier while corporate taxes were down 27.6 percent. Expenditures totaled $3.148 trillion, up 3.8 percent from the nine-month total of a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 7, 2018, First-Time Claims, seasonally adjusted): 214,000 (-18,000 vs. previous week; -30,000 vs. the same week a year earlier). 4-week moving average: 223,000 (-9.2% vs. the same week a year earlier).
Import Prices (June 2018, All Imports, not seasonally adjusted): -0.4% vs. May 2018, +4.3% vs. June 2017. Nonfuel imports: -0.3% vs. May 2018, +1.5% vs. June 2017.
Export Prices (June 2018, All Exports, not seasonally adjusted): +0.3% vs. May 2018, +5.3% vs. June 2017. Nonagricultural exports: +0.4% vs. May 2018, +5.4% vs. June 2017.
University of Michigan Consumer Sentiment (July 2018-preliminary, Index of Consumer Sentiment, seasonally adjusted): 97.1 (vs. June 2018: 98.2, vs. July 2017: 93.4).
Consumer Credit (May 2018, Outstanding Consumer Credit-net of real estate-backed loans, seasonally adjusted): $3.898 trillion (+$24.5 billion vs. April 2018, +4.8% vs. May 2017). 

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