Not Longer Accommodative: September 24 – 28

The Fed made a move and suggests it will do so again before the year is out. Here are the five things we learned from U.S. economic data released during the week ending September 28.

#1The Fed raises its short-term interest rate target while no longer calling its policies “accommodative.” The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted that economic activity was “rising at a strong rate” and that the job market had “continued to strengthen.” The word “strong” also was used to describe job gains and growth in both household spending and business fixed investment. Further, the Fed sees core inflation being near its two-percent target. As a result, the FOMC voted without dissent to raise the fed funds target rate by a quarter point to a range between 2.00 and 2.25 percent. Unlike in recent years, the statement did not characterize its fed funds target rate as being “accommodative,” suggesting a shift in the thinking of the committee. Released in conjunction with the policy statement, the median forecast among FOMC members has one more quarter-point rate hike this year, three hikes in 2018, and one in 2019.

#2Personal spending mellowed a bit in August. Real personal consumption expenditures (PCE) grew a seasonally adjusted 0.2 percent, breaking a four-month streak of 0.3 percent increases for the Bureau of Economic Analysis measure. Real PCE has increased 2.8 percent over the past year. Real spending on services grew 0.2 percent during the month while that of goods increased 0.3 percent. Looking closer at the latter, spending on durable goods gained 0.2 percent while that for nondurables rose 0.4 percent. Matching their July gains were nominal personal income (+0.3 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.2 percent). The latter has grown 2.9 percent over the past 12 months. The savings rate held firm at +6.6 percent. The PCE deflator—a measure of inflation—has risen 2.2 percent over the past year while the core measure (net of both energy and food) has a 12-month comparable of +2.0 percent.

#3The third estimate of Q2 GDP matches that of the second estimate. The Bureau of Economic Analysis reports that Gross Domestic Product (GDP) grew 4.2 percent on a seasonally adjusted annualized basis, matching the previous estimate reported in late August and up a smidge from the initial 4.1 percent annualized gain published in late July. Contributors to GDP growth during the quarter were (in decreasing order): personal consumption, net exports, nonresidential fixed investment, and government expenditures. Negative contributors to Q2 GDP growth were private inventory accumulation and residential fixed investment (housing). Downwardly revised were the estimate of corporate profits, with the estimate now indicating a 3.0 percent increase during Q2.

#4Consumer sentiment rose in September. The Conference Board’s Consumer Confidence Index grew by 3.7 points during the month to a seasonally adjusted 138.4 (1985=100), its best reading since September 2000. The current conditions index grew by a small 3/10ths of a point to 173.1—it was the expectations index that had a big increase, adding a full six points to 115.3. 41.1 percent of survey respondents described current business conditions as “good” while only 9.1 percent see them as “poor.” Similarly, 45.7 percent of Americans see jobs as being “plentiful” while 13.2 percent describe jobs as “hard to get.” The press release said that current confidence levels “should continue to support healthy consumer spending.”

The Index of Consumers Sentiment from the University of Michigan came in at a seasonally adjusted reading of 100.1 (1966Q1 = 100). While this was off 7/10ths of a point from the preliminary September reading a few weeks ago, it represented increases from August 2018 and September 2017 of 3.9 points and 5.0 points, respectively. The current conditions grew by 4.9 points during the month to 115.2 (September 2017: 111.7) while the expectations index added 3.4 points to 90.5 (September 2017: 84.4). The press release noted that most of the improved sentiment was reported by lower income survey respondents—the headline index for households in the bottom third of incomes hit its highest reading in nearly 18 years.

#5Rising aircraft sales fueled durable goods orders in August, but business investment lagged. The Census Bureau estimates new orders for durable goods jumped 4.5 percent during the month to a seasonally adjusted $259.6 billion, the second increase in three months. Transportation goods orders surged 13.0 percent, supported by large gains for orders of both civilian (+69.1 percent) and defense aircraft (+17.0 percent). New orders for motor vehicles dropped 1.0 percent. Net of transportation goods, new orders for durable goods managed a mere 0.1 percent gain. Rising during the month were orders for primary metals (+0.9 percent), electrical equipment/appliances (+0.6 percent), and machinery (+0.1 percent). New orders for civilian capital orders net of aircraft (a proxy for business investment) dropped 0.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 22, 2018, First-Time Claims, seasonally adjusted): 214,000 (+12,000 vs. previous week; -44,000 vs. the same week a year earlier). 4-week moving average: 206,250 (-23.1% vs. the same week a year earlier).
New Home Sales (August 2018, New Home Sales, seasonally adjusted annualized rate): 629,000 (+3.5% vs. July 2018, +12.7% vs. August 2017).
Pending Home Sales (August 2018, Index (2001=100), seasonally adjusted): 104.2 (-1.8% vs. July 2018, -2.3% vs. August 2017).
Chicago Fed National Activity Index (August 2018, Index (0.00 = U.S. economic growth at historical average): +0.18 (vs. July 2018: +0.18, vs. August 2017: -0.08). 3-month moving average: +0.24 (vs. July 2018: +0.02, vs. August 2017: -0.05).
Case-Shiller Home Price Index (July 2018, 20-City Index, seasonally adjusted): +0.1% vs. June 2018, +5.9% vs. July 2017.
FHFA House Price Index (July 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. June 2018, +6.4% vs. July 2017.
Agricultural Prices (August 2018, Prices Received by Farmers): -2.2% vs. July 2018, -4.9% vs. August 2018).

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

Home Sales Steady, Leading Indicators Firm: September 17 – 21

Existing home sales stalled while housing starts picked up. Here are the five things we learned from U.S. economic data released during the week ending September 21.

#1Sales of previously owned homes held constant in August. The National Association of Realtors places the seasonally adjusted annualized sales rate of existing homes at 5.34 million units, matching July’s sales pace and off 1.5 percent from a year earlier. Sales improved during the month in the Northeast (+7.6 percent) and Midwest (+2.4 percent) but slipped in the West (-5.9 percent) and South (-0.4 percent). Only in the South were existing home sales ahead of their year-ago pace. Also unchanged for the month was the inventory of unsold homes—the 1.92 million homes available for sale at the end of August was 2.7 percent larger than that of a year earlier but also represented a very tight 4.3 month supply. The resulting median sales price of homes sold has grown 4.6 percent over the past 12 months to $264,800. The press release was optimistic: “With inventory stabilizing and modestly rising, buyers appear ready to step back into the market.”Existing Home Sales Aug17-18 092118

#2Housing starts rebounded in August. The Census Bureau reports that housing starts rose 9.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.282 million units. This was 9.4 percent ahead of the August 2017 annualized rate of housing starts. Much of the gain was with multifamily units—starts of buildings with five or more units surged 27.3 percent to 392,000 (SAAR) while single-family unit starts gained a more modest 1.9 percent to 876,000 (SAAR). Looking towards the future, the number of issued construction permits slumped 5.7 percent to an annualized 1.303 million (-5.5 percent versus August 2017). The rate of issued permits fell during the month for single-family (-6.1 percent) and multi-family units (-8.0 percent). Housing completions increased 2.5 percent during August to a SAAR of 1.213 million homes. This represented an 11.2 percent improvement from the August 2017 rate of completions.

#3Homebuilder sentiment remained robust in September. The National Association of Home Builder’s Housing Market Index (HMI) stayed at a seasonally adjusted reading of 67 during the month. This was the 52nd straight month in which the HMI was above a reading of 50, meaning a greater percentage of homebuilders saw the housing market as being “good” as opposed to being “poor.” The HMI improved in the Northeast (61), slipped in the South (69) and Midwest (56), and held steady in the West (73). Gaining during the month were measures for current sales (up a point to 74) and expected sales (up two points to 74) of single-family homes while the measure of traffic of prospective buyers held steady of 49. The press release reported “firm demand for housing” but expressed concerned about both the trade tariffs’ impact on builders’ costs and rising interest rates possibly stemming housing demand.

#4Forward-looking economic indicators continued to point towards more growth this year and into 2019. The Conference Board’s Leading Economic Indicators (LEI) added 4/10ths of a point to 111.2 (2016=100), up 6.4 percent from a year earlier. This was slightly smaller than the 6/10ths and 8/10ths of a point increases during the two prior months. Seven of the ten components that make up the LEI made positive contributions. The coincident index gained by 2/10ths of a point to 104.3 (+2.5 percent versus August 2017). All four components of the coincident index made positive contributions. The lagging index also increased by 2/10ths of a point to 105.4 (+2.3 percent versus August 2017), although only two of seven index components improved during August. While noting that the “strengths among the LEI’s components were very widespread,” the press release pointed out that its “growth trend has moderated since the start of the year.”

#5August’s job gains were centered mainly in just four states. The Bureau of Labor Statistics deeper state-level dive at employment trends for August finds that nonfarm payrolls had statistically meaningful increases in just four states: California, Texas, Arizona, and Florida. Payrolls were “essentially unchanged” in the other 46 states and the District of Columbia. Earlier this month, we had learned that nonfarm payrolls expanded by a seasonally adjusted 201,000 during August. Over the past year, employment had grown in 35 states with the biggest percentage gains in Utah (+3.5 percent), Nevada (+3.3 percent), and Washington state (+3.3 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 15, 2018, First-Time Claims, seasonally adjusted): 201,000 (-3,000 vs. previous week; -54,000 vs. the same week a year earlier, lowest since November 1969). 4-week moving average: 205,750 (-21.8% vs. the same week a year earlier).
Treasury International Capital Flows (July 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$40.6 billion (vs. June 2018: -$45.5 billion, vs. July 2017: +$0.8 billion)

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

Retail Sales and Inflation Took August Off: September 10 – 14

Retail sales and inflation moderated their trajectory as summer wrapped up. Here are the five things we learned from U.S. economic data released during the week ending September 14.  

#1Retail sales cooled a bit from their recent torrid pace during August. The Census Bureau estimates retail and food services sales totaled $509.0 billion, up 0.1 percent for the month and 6.6 percent ahead of its August 2017 sales levels. July’s sales were revised upward to 0.7 percent gain (had been reported previously as a 0.5 percent gain). Slumping were sales at car dealers, where activity fell 0.8 percent. Higher prices at the pump led to a 1.7 percent sales gain at gas stations. Net of auto dealers and gas stations, core retail sales edged up 0.2 percent following a 0.9 percent jump in July. Growing were sales at retailers focused on health/personal care (+0.5 percent), electronics/appliances (+0.4 percent), sporting goods/hobbies (+0.2 percent), and general merchandisers (+0.1 percent). Sales also grew 0.2 percent at bars/restaurants. August was not a strong sales month at apparel retailers (-1.7 percent), department stores (-1.0 percent), and furniture stores (-0.3 percent).Retail Sales July-August 2018 091418

#2Core inflation slowed in August. The Consumer Price Index (CPI) grew 0.2 percent on a seasonally adjusted basis during the month, per the Bureau of Labor Statistics. This matches July’s 0.2 percent gain and left CPI up 2.7 percent over the past year. Energy CPI grew for the first time in three months with a 1.9 percent gain—gasoline prices rose 3.0 percent in August and have surged 20.3 percent over the past year. Food CPI increased 0.1 percent. Net of energy and food, core CPI grew by 0.1 percent, its smallest gain since April. Rising were prices for used cars/trucks (+0.4 percent), shelter (+0.3 percent), transportation services (+0.3 percent). Prices fell for apparel (-1.6 percent), medical commodities (-0.3 percent), and medical care (-0.2 percent). Even with the slight slowdown, core CPI has risen 2.2 percent over the past year.

Final demand wholesale prices dropped 0.1 percent in August on a seasonally adjusted basis, the first decline in the Producer Price Index (PPI) since February 2018 and follows a flat report for July. The core PPI measure—which removed energy, food, and trade services—inched up 0.1 percent.  The former has grown 2.8 percent over the past year while the latter has a 12-month comparable of +2.9 percent. PPI for final demand goods was flat for August, including a 0.6 drop for PPI for final demand foods (including the impact of falling prices for fruits/melon, meats, and eggs) and a 0.4 percent gain for final demand energy (including rises for residential electricity and gasoline). Final demand PPI for services slipped 0.1 percent as trade services PPI (measuring wholesaler and retailer margins) slumped 0.9 percent and that for transportation/warehousing fell 0.6 percent.   

#3The number of job openings continued to rise this summer. There were a seasonally adjusted 6.939 million open jobs at the end of July, per the Bureau of Labor Statistics. This was up 117,000 from June, 11.9 percent ahead from a year earlier, and higher than the 6.234 million people that had indicated being unemployed. Private sector employers reported having 6.319 million job openings (+11.3 percent versus July 2017), with the industries enjoying the largest year-to-year percentage gains being manufacturing (+29.4 percent), leisure/hospitality (+21.1 percent), retail (+15.6 percent), and trade/transportation/utilities (+14.9 percent). Hiring was flat during July at 5.679 million (+3.3 percent versus July 2017 (+3.3 percent versus July 2017), with private sector hiring at 5.339 million. Hiring has grown the greatest over the past year on a percentage basis in manufacturing (+15.9 percent), retail (+14.2 percent), trade/transportation/utilities (+10.7 percent), and accommodation/food services (+7.7 percent). Also flat during the month were the number of separations as 5.534 million people left their jobs during the month (+2.4 percent versus July 2017). The number of people voluntarily departing their jobs continued to rise, growing by 106,000 during July to 3.583 million (up 10.6 percent over the past year) while layoffs dropped by 50,000 to 1.602 million (-11.8 percent versus July 2017).

#4Manufacturing output grew at a slower pace in August. The Federal Reserve reports that manufacturing output increased 0.2 percent on a seasonally adjusted basis during the month, down from gains of 0.7 percent and 0.3 percent during June and July, respectively. Production in the manufacturing sector has grown 3.1 percent over the past year. Production of durable goods jumped 1.0 percent, boosted by strong output increases for motor vehicles, primary metals, and machinery. Production of nondurables slumped 0.5 percent as only textiles were the only segment to report an output gain. Overall industrial production increased 0.4 percent during August, matching July’s gain but off from June’s 0.6 percent increase. Industrial production has soared 4.9 percent over the past year. The oil and gas sectors led a 0.7 percent bounce in mining output (+14.1 percent versus August 2017) while hotter weather pushed up utility output 1.2 percent (+4.8 percent versus August 2017).

#5Small business owner optimism rises to an at least 45-year high. The Small Business Optimism Index from the National Federation of Independent Business grew by 9/10ths of a point in August to 108.8 (1986=100), up 3.5 points from the same month a year earlier and representing the highest reading for the index since its launch in 1983. Six of the 10 index components improved from their July readings, led by plans to expand inventories (up six points), plans to increase employment (up three points) and plans to make capital outlays (up three points). Falling were index components linked to expected real sales (down three points), expected credit conditions (down two points), and expectations for the economy to improve (down one point).

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 8, 2018, First-Time Claims, seasonally adjusted): 204,000 (-1,000 vs. previous week; -63,000 vs. the same week a year earlier, lowest since December 1969). 4-week moving average: 208,000 (-19.6% vs. the same week a year earlier).
Import Prices (August 2018, All Imported Goods, not seasonally adjusted): -0.6% vs. July 2018, +3.7% vs. August 2017.  Nonfuel Imports: -0.1% vs. July 2018, +0.9% vs. August 2017.
Export Prices (August 2018, All Exported Goods, not seasonally adjusted): -0.1% vs. July 2018, +3.6% vs. August 2017. Nonagricultural Exports: -0.2% vs. July 2018, +4.1% vs. August 2017.
University of Michigan Surveys of Consumers (September 2018-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 100.8 (vs. August 2018: 96.2, vs. September 2017: 95.1).
Business Inventories (July 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.950 trillion (+0.6% vs. June 2018, +4.3% vs. July 2017).
Consumer Credit (July 2018, Outstanding Consumer Credit (Non-Real Estate) Balances, seasonally adjusted): $3.918 trillion (+$17.6 billion vs. June 2018, +4.6% vs. July 2017).
Beige Book

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