GDP Jumped Again in Q3, New Home Sales Slowed in September: October 22 – 26

The U.S. economy chugged along during Q3, albeit at a slower pace than before.  Here are the five things we learned from U.S. economic data released during the week ending October 26.

#1GDP moderated during Q3, propped up in part by inventory gains. The Bureau of Economic Analysis’ first estimate of third-quarter 2018 Gross Domestic Product (GDP) finds the U.S. economy expanded 3.5 percent on a seasonally adjusted annualized basis between July and September. While down from Q2’s 4.2 percent increase, this was the second best quarter for GDP since Q2 2014. The biggest positive contributor to Q3 GDP growth was personal consumption, which added 269-basis points to the final figure. The second largest contributor was the $113.1 billion increase in private inventories, which swelled GDP by 207-basis points. (The large impact of the expansion in inventories may signal a slower GDP growth rate in Q4 as business burn through these stockpiles.) Rising government expenditures contributed 56-basis points to GDP growth while business investment (fixed nonresidential investment) added 12-basis points. Trade became a significant drag on economic growth as falling exports and rising imports led to net exports having a negative GDP contribution of -0.45. Housing also continued to flag with a third straight quarterly negative contribution (-0.16). The BEA will revise its Q3 GDP estimate twice over the next two months.GDP-2015-8 102618

#2Economic growth slowed specifically in September. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, lost ten basis points during the month to a reading of +0.17 (the fourth straight month in which the CFNAI came in with a positive reading). Even though the CFNAI’s three-month moving average slipped by six-basis points to +0.21, the moving average’s continued positive reading was indicative of economic growth above the historical average. Forty-six of the 85 tracked indicators made positive contributions to the CFNAI while 36 indicators advanced during the month. Three of four major categories of indicators made positive contributions to the CFNAI: production (+0.11), employment (+0.07), and sales/orders/inventories (+0.05). Indicators related to consumption/housing had a negative contribution of -0.05.

#3Durable goods flew in September because of defense aircraft orders. The Census Bureau estimates new orders for manufactured durable goods jumped 0.8 percent during the month to a seasonally adjusted $262.1 billion, its third gain in four months. Leading the way was a 1.9 percent gain in orders for transportation goods, boosted by a 119.1 percent surge in orders for defense aircraft and a 1.3 percent rise in orders for motor vehicles. Durable goods orders net of transportation equipment inched up by only 0.1 percent. Rising during the month were orders for machinery (+0.8 percent), and primary metals (+0.1 percent) while orders fell for fabricated metal products (-0.7 percent), electrical equipment/appliances (-0.5 percent), computers (-0.4 percent), and communications equipment (-0.1 percent). Also slumping was a proxy for business investment as non-aircraft civilian capital goods orders slipped 0.1 percent.

#4New home sales slumped again in September. Sales of single-family homes fell 5.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 553,000 units, per the Census Bureau. Sales declined in three of four Census regions: Northeast (-40.6 percent), West (-12.0 percent), and South (-1.5 percent). Transactions increased by 6.9 percent in the Midwest. Sales were off 13.2 percent from a year earlier, with deals down in the Northeast (-51.3 percent), West (-15.8 percent), and South (-11.4 percent). Again, the Midwest was the exception with a positive 12-month comparable of +4.1 percent. Inventories of new homes continued to grow, with a 2.8 percent increase to 327,000 units (+16.8 percent versus September 2017). This was the equivalent to a 7.1 month supply.

#5Consumer sentiment flagged ever so slightly in October. The University of Michigan’s Index of Consumer Sentiment pulled back by 1.5 points during the month to a seasonally adjusted 98.6 (1966Q1=100). While 4/10ths of a point of drop from the preliminary October reading reported a few weeks ago and 2.1 points below the year-ago reading, the sentiment measure remained near its post-recession highs. The current conditions index shed 2.1 points during the month to 113.1 (October 2017: 116.5) while the expectations index’s decline was smaller, losing 1.2 points to 89.3 (October 2017: 90.5). Partisanship continued to have a significant influence on one’s sentiment—the headline index for those identifying as Republican was 126.4, compared to 81.0 for those identifying as a Democrat and 96.2 for those who view themselves of politically independent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 20, 2018, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-11.7% vs. the same week a year earlier).
FHFA House Price Index (August 2018, Purchase-Only Index, seasonally adjusted): +03% vs. July 2018, +6.1% vs. August 2017.
Beige Book

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

A Record Number of Job Openings: October 15 – 19

Employers continued to have difficulty filling job openings in August. Here are the five things we learned from U.S. economic data released during the week ending October 19.

#1The number of job openings jumped to another record high in August. Nonfarm employers had a seasonally adjusted 7.136 million job openings on the final day of August, up 59,000 for the month and 18.1 percent from a year earlier. (By comparison, there were 6.234 million people unemployed during the same month.) Among the industries that the Bureau of Labor Statistics reported having the biggest year-to-year percentage gains in job openings were construction (+38.6 percent), financial activities (+28.7 percent), wholesale trade (+19.6 percent), accommodation/food services (+19.4 percent), retail (+18.0 percent), and manufacturing (+17.3 percent). Employers continued to struggle in filling these jobs as 5.784 million people were hired during August. While lagging the number of job openings, the number of people hired was up 71,000 for the month and 5.0 percent from August 2017. Industries with the greatest year-to-year percentage increases in hiring were retail (+18.6 percent), wholesale trade (+10.9 percent), and accommodation/food services (+6.2 percent). 5.706 million people left their jobs during August, up 110,000 for the month and 6.8 percent from a year earlier. 3.577 million workers voluntarily departed their jobs during the month, 12.7 percent ahead of a year-ago and indicative of workers confident about their job marketplace. Layoffs affected 1.622 million people, down 10.1 percent from the count of 12 months earlier.JOLTS August 18 101918

#2Manufacturing output grew modestly in September. The Federal Reserve reports that manufacturing output grew 0.2 percent on a seasonally adjusted basis during the month, following matching 0.3 percent gains in both July and August. Manufacturing output has increased 3.5 percent over the past 12 months. Durable goods manufacturing jumped 0.6 percent (led by motor vehicles, wood products, primary metals, and aerospace). Nondurable goods output slipped 0.1 percent, pulled down by textiles and apparel. Overall industrial production gained 0.3 percent in September and has risen 5.1 percent over the past year. Mining output jumped 0.5 percent for the month and 13.4 percent since September 2017, boosted by continued strength in both oil and gas extraction. Output at utilities was unchanged during September but has a 12-month comparable of +5.4 percent over the past year.

#3September was a weak month for retail sales. The Census Bureau estimates U.S. retail and food services sales inched up 0.1 percent during the month to a seasonally adjusted $509.0 billion. Even with the modest increase during September, sales have grown 4.7 percent over the past year. Sales at auto dealers/parts stores jumped 0.8 percent while gas station sales slowed 0.8 percent. Net of both, core retail sales were unchanged during September but have expanded 5.0 percent over the past 12 months. Sales improved during the month at retailers focused on furniture (+1.1 percent), electronics/appliances (+0.9 percent), sporting goods/hobbies (+0.7 percent), apparel (+0.5 percent), and building materials (+0.1 percent). Sales slumped, however, at restaurants/bars (-1.8 percent), department stores (-0.8 percent), and grocery stores (-0.1 percent).

#4Existing home sales sputtered again in September. The National Association of Realtors reports that sales of previously owned homes fell 3.4 percent during the month to a seasonally adjusted annualized rate of 5.15 million homes. This was not only a 4.1 percent drop from the same month a year earlier, it also was the measure’s seventh consecutive decline and the slowest pace of existing home sales in nearly three years. Sales failed to increase in all four Census regions, although transaction volume managed to hold even with August levels in the Midwest. All four Census regions had negative 12-month comparables: West (-12.2 percent), Northeast (-5.6 percent), Midwest (-1.5 percent), and the South (0.5 percent). A part of the problem remained a lack of homes on the market—there were 1.88 million homes available for sale at the end of September, down 1.6 percent from August but up 1.1 percent from a year earlier. This was the equivalent to a paltry 4.4 month supply of homes. The resulting median sales price has risen 4.2 percent over the past year to $258,100. NAR’s press release also ties recent sales weakness to “a decade’s high mortgage rates” that it says were “preventing consumers from making quick decisions on home purchases.”

#5The U.S. budget deficit surged 17.0 percent during the just-completed fiscal year. The U.S. Treasury Department reports that the federal government collected $3.329 trillion in receipts during the just completed FY2018, up 0.4 percent from FY2018. Outlays, however, jumped 3.2 percent during the same 12 months to $4.108 trillion. The resulting budget deficit of -$778.996 billion represented a 17.0 percent jump from FY2017. A closer look at receipts finds individual tax collections surged 6.1 percent during FY2018 while corporate tax receipts plummeted 31.1 percent. The U.S. government had accumulated a total debt of $21.460 trillion by September 30, 2018.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 13, 2018, First-Time Claims, seasonally adjusted): 210,000 (-5,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-13.9% vs. the same week a year earlier).
Housing Market Index (October 2018, Index (>50= Greater Percentage of Homebuilders Viewing Housing Market as “Good,” seasonally adjusted): 68 (vs. September 2018: 67, vs. October 2017: 68).
Housing Starts (September 2018, Starts, seasonally adjusted annualized rate): 1.201 million units (-5.3% vs. August 2018, +3.7% vs. September 2017).
State Employment (September 2018, Nonfarm Payrolls, seasonally adjusted): Payrolls declined significantly vs. July 2018 in 3 states and were essentially unchanged in 47 states and the District of Columbia. Payrolls grew significantly vs. August 2017 in 37 states.
Treasury International Capital Flows (August 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$77.1 billion (vs. July 2018: +$32.4 billion, vs. August 2017: +$40.6 billion).
FOMC minutes

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

Inflation Moderates While Business Sentiment Stays Hot: October 8 – 12

Consumer prices grew less quickly while wholesale prices firmed in September. Here are the five things we learned from U.S. economic data released during the week ending October 12.

#1Consumer prices cooled during the last days of summer. The Bureau of Labor Statistics tells us that the Consumer Price Index (CPI) inched up 0.1 percent on a seasonally adjusted basis in September following two consecutive months of 0.2 percent gains. Energy prices dropped 0.5 percent, pulled down by price decreases for utility delivered gas (-1.7 percent), electricity (-0.5 percent), and gasoline (-0.2 percent). Food prices were unchanged. Net of energy and food, core CPI increased 0.1 percent during the month. Falling were prices for vehicles—both used cars/trucks (-3.0 percent) and new vehicles (-0.1 percent)—and medical care commodities (-0.1 percent). Prices increased for apparel (+0.9 percent), transportation services (+0.5 percent), shelter (+0.2 percent), and medical care services (+0.2 percent). CPI has risen 2.3 percent over the past year while core CPI has a 12-month comparable of +2.2 percent.Consumer Prices Mar-Sep 18 101218

#2…But wholesale prices rebounded. The Producer Price Index (PPI) for final demand grew for the first time in three months with a seasonally adjusted 0.2 percent increase, per the Bureau of Labor Statistics. The core measure—PPI less energy, food, and trade services, jumped 0.4 percent for its largest increase since January. Final demand PPI for goods slipped 0.1 percent, pulled down by significant declines in both energy and food prices. PPI for goods net energy and food gained 0.2 percent. PPI for final demand services jumped 0.3 percent (its biggest gain since June), fueled by a 1.8 percent bounce in wholesale prices for transportation/warehousing services. Over the past year, the headline PPI measure had grown 2.6 percent while the 12-month comparable for core wholesale prices has surged 2.9 percent.

#3Small business owner optimism remained new record highs in September. The Small Business Optimism Index from the National Federation of Independent Business lost 9/10ths of a point during the month (giving back exactly what it had gained in August) to lead the index at a seasonally adjusted 107.9 (1986=100). Six of ten index components pulled back from their August readings, including a seven-point drop for plans to increase inventories and three-point decreases for indices tied to plans to increase employment and make capital outlays. Only three index components improved during the month: expected real sales (up three points), current inventories (up two points), and expected credit conditions. The press release noted that small business owners were indicating that “business is booming and prospects continue to look bright.

#4Wholesalers expanded their inventories more rapidly during August. The Census Bureau reports that merchant wholesalers inventories swelled 1.0 percent during the month to a seasonally adjusted $642.7 billion. This left wholesale inventories 5.3 percent larger than what it was a year earlier. Durable goods wholesale inventories grew 0.9 percent while that of nondurables rose 1.2 percent. The former was boosted by sharp increases in the automotive (+3.5 percent), computer equipment (+1.6 percent), and hardware (+1.0 percent) sectors. Wholesale inventories of nondurables expanded thanks to substantial increases for farm products (+4.9 percent), chemicals (+2.2 percent), and drugs (+2.1 percent). Wholesale sales rose 0.8 percent in August to a seasonally adjusted $511.1 billion (+9.2 percent versus August 2017). The resulting inventory-to-sales ratio of 1.26 matched that of July but was down four basis points from a year earlier.

#5Layoffs remained near multi-decade lows. The Department of Labor indicates the first-time claims for unemployment insurance benefits grew by 7,000 during the week ending October 6 to a seasonally adjusted 214,000. Even with the modest increase, initial jobless claims remained 27,000 below that of a year earlier. The four-week moving average inched up by 2,500 to 209,500 claims. This was 16.9 percent below the year-ago moving average and just above the 49-year low achieved just a few weeks ago. 1.422 million people were receiving some form of unemployment insurance benefits during the week ending September 22, 14.0 percent below the count from the same week a year earlier.

Other U.S. economic data released over the past week:
University of Michigan Surveys of Consumer (September 2018—preliminary, Index of Consumer Sentiment): 99.0 (vs. August 2018: 100.1, vs. September 2017: 100.7).
Import Prices (September 2018, Import Prices, not seasonally adjusted): +0.5 % vs. August 2018, +3.5% vs. September 2017. Nonfuel imports: Unchanged vs. August 2018, +0.6% vs. September 2017.
Export Prices (September 2018, Export Prices, not seasonally adjusted): Unchanged vs. August 2018, +2.7% vs. September 2017. Nonagricultural exports: +0.2% vs. August 2018, +3.3% vs. September 2017.

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