Consumer Spending Bounced Back: November 26 – 30

Personal spending and overall economic activity were resilient in October.  Here are the five things we learned from U.S. economic data released during the week ending November 30.

#1Consumers continued spending in October. The Census Bureau reports that real personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis during the month, up from a 0.1 percent gain in September. Spending on goods advanced 0.3 percent, with gains for durable and nondurable goods of 0.4 percent and 0.3 percent, respectively. Spending on services expanded 0.5 percent during October. Without adjustments for inflation, PCE rose 0.6 percent, funded by 0.5 percent growth in both nominal personal income and nominal disposable income. With inflation adjustments, real disposable income increased 0.3 percent. Over the past year, real PCE has grown 2.9 percent, funded by a 2.8 percent rise in real disposable income. October’s savings rate of +6.2 percent was 1/10th of a percentage point below that of the prior month.Income and Spending 113018

#2The second estimate of Q3 GDP growth matched that of the first. The Bureau of Economic Analysis estimates Gross Domestic Product (GDP) increased at a seasonally adjusted annualized rate of 3.5 percent, matching the prior month’s published estimate of economic growth. This report reflects larger than previously believed levels of nonresidential fixed investment and private inventory accumulation counterbalanced by lower levels of consumer spending and exports. The contributors to Q3 GDP growth were, in declining order, consumption, private inventory accumulation, government expenditures, and nonresidential fixed investment. Drags on Q3 economic growth were imports, exports, and residential fixed investment. This report also features the first estimate of Q3 corporate profits, which increased 3.4 percent to a seasonally adjusted annualized rate of $2.318 trillion (+10.3 percent from a year earlier).

#3Economic growth picked up slightly in October. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators indexed such that a reading of 0.00 indicates economic growth at the historical average, grew by ten-basis points during the month to a seasonally adjusted +0.24. Fifty of the 85 indicators made positive contributions to the CFNAI, with 51 indicators gaining from their September readings. Among the four major categories of indicators, only those tied to employment made a larger positive contribution to the headline index (rising from a +0.05 to +0.19 contribution). Slumping slightly during the month were indicators linked to production (from a +0.09 to +0.05 ) and personal consumption/housing (from -0.04 to -0.05). Indicators tied to sales/orders/inventories made the same +0.04 contribution that they had made in September.

#4New home sales sank in October. The Census Bureau places new home sales at a seasonally adjusted annualized rate of 544,000 units, down 8.9 percent for the month, 12.0 percent under the year-ago pace, and its worst month since March 2016. Sales fell in all four Census regions, with drops of 22.1 percent in the Midwest, 18.5 percent in the Northeast, 7.7 percent in the South, and 3.2 percent in the West. Further, only the West did not have a negative double-digit percentage 12-month comparable, albeit with a modest 1.3 percent gain. Inventories of unsold new homes grew 4.3 percent to 336,000 units (+17.5 percent versus October 2017), the equivalent to a 7.4 month supply (the most since February 2011).

#5Contract signing activity for home purchases fell in October. The Pending Home Sales Index (PHSI) from the National Association of Realtors lost 2.7 points during the month to a seasonally adjusted 102.1 (2001=100). The measure fell in three of four Census regions: West (-8.9 percent), Midwest (-1.8 percent), and South (-1.1 percent). Contract signing activity edged up 0.7 percent in the Northeast. The PHSI has fallen 6.7 percent over the past year (this was the 10th consecutive month with a negative 12-month comparable), with declines in all four Census regions: West (-15.3 percent), Midwest (-4.9 percent), South (-4.6 percent), and Northeast (-2.9 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 24, 2018, First-Time Claims, seasonally adjusted): 234,000 (+10,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 223,250 (-7.5% vs. the same week a year earlier).
Agricultural Prices (October 2018, Prices Received by Farmers): -3.5% vs. September 2018, -3.0% vs. October 2017.
FHFA House Price Index (September 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. August 2018, +6.0% vs. September 2017.
Case Shiller Home Price Index (September 2018, 20-City Index, seasonally adjusted): +0.3% vs. August 2018, +5.1% vs. September 2017.
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The opinions expressed here are not necessarily those of Kevin’s current employer. No endorsements are implied.

Home Sales & Starts Inched Up: November 19 – 23

Home sales and starts grew in October, but builder confidence stumbled nonetheless.  Here are the five things we learned from U.S. economic data released during the week ending November 23.

#1Existing home sales grew for the first time in seven months in October. Sales of previously owned homes increased 1.4 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.22 million units, its first increase since March. The National Association of Realtors tells us that sales grew in the three of four Census regions: West (+2.8 percent), South (+1.9 percent), and Northeast (+1.4 percent). Sales slipped 0.8 percent in the Midwest. Existing home sales have fallen a sharp 5.1 percent over the past year, with negative 12-month comparables in all four Census regions: West (-11.2 percent), Northeast (-6.8 percent), Midwest (-3.1 percent), and South (-2.3 percent). Inventories of homes available for sale remained very tight as there were 1.85 million homes on the market at the end of October, down 1.6 percent for the month and the equivalent to a 4.3 month supply. The median sales price of homes sold was $255,400, up 3.8 percent from that of a year earlier. This slower growth rate in home prices allowed, according to the press release, “for much more manageable, less frenzied buying conditions.”Existing Home Sales 112318

#2Housing starts grew, but homebuilders were less confident about the market. The Census Bureau reports that housing starts increased 1.5 percent to a seasonally adjusted annualized rate (SAAR) of 1.228 million units. Even with the increase, starts were 2.9 percent behind the year-ago pace. October’s gain was solely on the multi-unit side—starts of five or more unit housing increased 6.2 percent during the month. Meanwhile, single-family home starts slowed 1.8 percent. Looking towards the future, the number of issues building permits slipped 0.6 percent to a SAAR of 1.27 million units (-6.0 percent versus October 2017). Fewer homes were finished as the new home housing completed fell 3.3 percent during the month to 1.111 million units (SAAR).

The Housing Market Index (HMI), the National Association of Home Builder’s measure of builders’ sentiment, plummeted by eight points to a seasonally adjusted 60. While this was the 53rd consecutive month in which the HMI was above a reading of 50—meaning more homebuilders see the housing market as “good” rather than “bad”—it was the index’s lowest mark since August 2016. The HMI fell sharply in all four Census regions: Northeast (down nine points to 52), West (down nine points to 65), Midwest (down six points to 54), and South (down five points to 65). Also losing ground were indices for single-family home sales (down seven points to 67), expected sales (down ten points to 65), and traffic of prospective buyers (down eight points to 45). The press release notes survey respondents had stated consumers were “taking a pause due to concerns over rising interest rates and home prices.”

#3Forward-looking economic indicators suggest moderating growth over the near-term. The Conference Board’s Leading Economic Index (LEI) grew by only 1/10th of a point in October to a seasonally adjusted 112.1, its smallest increase since May and representing a still robust 5.9 percent gain over the past year. Five of the LEI’s ten components made positive contributions during the month, led by consumers’ economic expectations and the interest rate spread. The coincident index added 2/10ths of a point to a reading of 104.7, up 2.2 over the prior 12 months. All four coincident index components made positive contributions, including nonfarm payrolls and personal income net of transfer payments. The lagging index increased by 4/10ths of a point to 105.5 (+2.5 percent versus October 2017), with four of seven components making positive contributions. The press release stressed that the reading still suggests “robust economic growth in early 2019,” but also that rate of economic growth “may already have peaked.”

#4Durable goods orders slumped in October. The Census Bureau estimates new orders for manufactured durable goods plummeted 4.4 percent to a seasonally adjusted $248.5 billion, its third decrease over the past four months. Aircraft orders can be volatile month-to-month and tend to be a primary driver for the headline estimate of durable goods orders, and October was no exception. Civilian aircraft orders fell 21.3 percent and defense aircraft orders slumped 59.3 percent. As a result, overall transportation goods order declined 12.2 percent (motor vehicle orders inched up 0.2 percent). Net of transportation goods, durable goods orders eked out a 0,1 percent gain. Falling during the month were orders for primary metals (-2.3 percent) and machinery (-0.5 percent) while orders rose for electrical equipment/appliances (+2.9 percent), computers/electronics (+1.6 percent), and fabricated metal products (+1.0 percent). Weakness continued for core capital goods (i.e., civilian capital goods net of aircraft—a proxy for business investment), which were unchanged in October after having declined in both August and September.

#5Consumer sentiment edged down in November. The Index of Consumer Sentiment from the University of Michigan lost 1.1 points during the month to a seasonally adjusted reading of 97.5 (1966Q1=100). This reading was 8/10ths of a point below the preliminary November reading reported a few weeks ago and one full point under the November 2017 mark. The index has been within a relatively tight 5.7 point range over the past 12 months. The current conditions index shed 8/10ths of a point during the month to a reading of 112.3 (November 2017: 113.5) while the expectations index fell by 1.2 points to 88.1 (November 2017: 88.9). The press release noted that sentiment among lower-income survey respondents had improved during the month while that of higher income respondents had slumped.

Other U.S. economic data released over the past week:

Jobless Claims (week ending November 17, 2018, First-Time Claims, seasonally adjusted): 224,000 (+3,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 218,500 (-9.0% vs. the same week a year earlier).

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

October Was Better for Retailers: November 12 – 16

Retail sales regained strength in October.  Here are the five things we learned from U.S. economic data released during the week ending November 16.

#1Retail sales expanded in October following declines during the two previous months. The Census Bureau estimates U.S. retail and food services sales were at a seasonally adjusted $511.5 billion during the month, up 0.8 percent from September and 4.6 percent from a year earlier. This follows declines of 0.2 percent and 0.1 percent in August and September, respectively (both representing downward revisions from their previously reported sales levels). Much of October gain came in the form of strong sales at auto dealers/parts stores (+1.1 percent) and gas stations (+3.5 percent, mostly due to higher prices at the pump). Net of both, core retail sales gained 0.3 percent in October following a flat month in September. Core retail sales have risen 4.7 percent over the past 12 months. Experiencing sales increases were department stores (+1.3 percent) and retailers focused on building materials (+1.0 percent), electronics/appliances (+0.7 percent), apparel (+0.5 percent), sporting goods (+0.5 percent), and groceries (+0.2 percent). Sales slowed at furniture retailers (-0.3 percent) and restaurants/bars (-0.2 percent).Retail Sales 2017-8 11162018

#2Manufacturing production gains in October matched that of September. The Federal Reserve indicates that manufacturing output grew 0.3 percent on a seasonally adjusted basis during the month, matching September’s increase and just off August’s 0.4 percent gain. Production of durables increased 0.5 percent (even as that of automobiles declined 2.5 percent) while nondurables output rose 1.8 percent (boosted by chemicals, textiles, and paper). Manufacturing output has expanded 2.7 percent over the past year. Overall industrial production inched up by only 0.1 percent, its smallest gain since May (when industrial output had contracted by 0.8 percent) but still 4.1 percent ahead of the year-ago pace. Output fell at both the utilities (-0.5 percent) and mining (-0.3 percent) sectors.

#3Consumer prices firmed in October. The Consumer Price Index (CPI) rose 0.3 percent on a seasonally adjusted basis during the month, the biggest jump for the Bureau of Labor Statistics measure since January and following a more modest 0.1 percent increase in September. Energy prices gained 2.4 percent, boosted by higher prices for fuel oil (+3.7 percent), gasoline (+3.0 percent), and electricity (+2.3 percent). Food prices slipped 0.1 percent, pulled down by declines for fruits/vegetables, cereals/bakery products, and dairy goods. Net of energy and food, core CPI grew 0.2 percent, following two consecutive 0.1 percent increases. Rising were prices for used cars/trucks (+2.6 percent), shelter (+0.2 percent), medical care services (+0.2 percent), apparel (+0.1 percent), and transportation services (+0.1 percent). Headline CPI has risen 2.5 percent over the past year, while the 12-month comparable for core CPI is +2.1 percent).

#4Small business owners remained chipper about business conditions in October. The Small Business Optimism Index from the National Federation of Independent Business lost a half point during the month to land at a seasonally adjusted 107.4 (1986=100). Even with the decline, the measure of small business owners’ sentiment was 3.8 points above its year-ago reading and places the index above a reading of 100 for 23 consecutive months. Only one of the index’s ten components improved during the month: plans to expand inventories. Taking a step back during October were index components related to whether it is a good time to expand, earning trends, plans to increase employment, expected sales, and current inventories.

#5The U.S. government ran up a huge budget deficit during the first month of FY2019. The Bureau of the Fiscal Service reports that U.S. government receipts totaled $252.7 billion in October (+7.4 percent versus October 2017) while outlays were $353.2 billion (+18.3 percent versus October 2017). The resulting deficit of -$100.5 billion was 59.0 percent larger than that of October 2017. Among the areas driving the rise in expenditures were Social Security, interest payments on the debt, defense, and Veteran Affairs. Note that the timing of receipts and spending can vary sharply month-to-month and some of the difference with year-to-year comparisons may reflect when certain days fall on the calendar (e.g., a certain day is on a weekend).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 10, 2018, First-Time Claims, seasonally adjusted): 216,000 (+2,000 vs. previous week; -34,000 vs. the same week a year earlier). 4-week moving average: 215,250 (-9.8% vs. the same week a year earlier).
State Employment (October 2018, Nonfarm Employment, seasonally adjusted): Payrolls grew in 9 states and were essentially unchanged in 41 states and the District of Columbia vs. September 2018. Payrolls grew in 36 states and were essentially unchanged in 14 states and the District of Columbia vs. September 2018.
Import Prices (October 2018, All Imports, not seasonally adjusted): +0.5% vs. September 2018, +3.5% vs. October 2017. Nonfuel Imports: +0.2% vs. September 2018, +0.7% vs. October 2017.
Export Prices (October 2018, All Exports, not seasonally adjusted): +0.4% vs. September 2018, +3.1% vs. October 2017. Nonagricultural Exports: +0.5% vs. September 2018, +3.9% vs. October 2017
Business Inventories (September 2018, Manufacturer’s and Trade Inventories, seasonally adjusted): $1.968 trillion (+0.3% vs. August 2018, +4.4% vs. September 2017).
Senior Loan Officer Opinion Survey (October 2018) 

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