Economic Activity Grew, Sentiment Did Not: December 24 – 28

Economic activity was above average in November, but consumers were less cheery about the future as 2018 ended. Here are the five things we learned from U.S. economic data released during the week ending December 28.

Note that the partial shutdown of the federal government has and will delay the release of certain economic data reports.

#1Economic activity picked up in November. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic measures, rose from showing average economic growth (with a reading of 0.00) in October to indicating above-average growth with a reading of +0.22 in November. Forty-eight of 85 economic measures made a positive contribution to the CFNAI while the other 37 made negative contributions. Among the four major categories of economic indicators, those associated with production and sales/orders/production had greater positive contributions in November, with the former up 17-basis points to a +0.08 contribution and the latter up 11-basis points to +0.09. Making smaller contributions were economic indicators associated with employment (down five basis points to +0.10) and consumption/housing (off a basis point to a negative contribution of -0.05). The CFNAI’s three-month moving average lost 11-basis points during the month to a reading of +0.12. This reading is consistent with above average economic growth.

#2Consumer confidence mellowed in December. The Conference Board’s Consumer Confidence Index shed 8.3 points during the month to fall to a seasonally adjusted reading of 128.1 (1986=100). Most of the decline came from consumers’ lowered enthusiasm for the future as the expectations index lost 13.2 points to 99.1. The drop in the present conditions index was far more modest as it lost 1.1 points to 171.6. The former was pulled down by fewer survey respondents anticipating business conditions will improve over the next six months (18.3 percent of respondents) and there to be more jobs available in the near future (16.6 percent). The press release noted that overall sentiment was “ending 2018 on a strong note” but also stated that the lowered expectations reflected “an increasing concern that the pace of economic growth will begin moderating in the first half of 2019.”

#3Home purchase contract signing activity slipped again. The Pending Home Sales Index (PHSI) from the National Association of Realtors lost 7/10ths in November to a seasonally adjusted 101.4 (2001=100), its lowest mark since 2014. While the measure of contracts signed to purchase a previously owned home declined on a national basis, it managed to increase in both the Northeast (up 2.5 points to 95.1) and West (up 2.4 points to 87.2). The index fell both the South (down 3.2 points to 115.7) and Midwest (off 2.3 points to 98.1). The PHSI has slumped 7.7 percent over the past year (the 11th consecutive month with year-to-year declines), with negative 12-month comparables in all four Census regions. The press release laid the blame for the slower activity on lower home affordability (home prices and interest rates) and warned the partial government shutdown could harm the housing market (due to the shutdown’s starving off the availability of flood insurance).

#4One measure of home prices signals a cooling. The purchase-only House Price Index (HPI) from the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, grew 0.3 percent on a seasonally adjusted basis during October. While this was larger than September’s 0.2 percent gain, it was under the 0.4 percent increase experienced each month from April through July. The HPI, which tracks the prices of previously owned homes purchased with a conforming mortgage, grew in seven of nine tracked Census regions, led by the Pacific (+1.4 percent), West North Central (+1.1 percent), and East North Central (+0.7 percent). Home prices fell in both the South Atlantic (-0.6 percent) and Middle Atlantic (-0.2 percent). The HPI has risen 5.7 percent over the past year, the smallest 12-month comparable since the Spring of 2016.

#5…As does another. The 20-city Case-Shiller Home Price Index increased 0.4 percent on a seasonally adjusted basis in October after having risen 0.7 percent during the prior month. Home prices have risen 5.0 percent over the past year, down from a +5.2 percent 12-month comparable reported a month earlier. The index rose in 18 of the 20 tracked metropolitan areas, led by a 0.8 percent jump in Las Vegas and 0.7 percent increases in Atlanta, Boston, New York, and Phoenix. Home prices dropped in San Francisco (-0.6 percent) and Seattle (-0.3 percent). All 20-tracked metro areas enjoyed positive 12-month comparables, with the largest year-to-year percentage price gains in Las Vegas (+12.8 percent), San Francisco (+7.9 percent), Phoenix (+7.7 percent), and Seattle (+7.3 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 22, 2018, First-Time Claims, seasonally adjusted): 216,000 (+2,000 vs. previous week; +26,000 vs. the same week a year earlier). 4-week moving average: 218,000 (-8.0% vs. the same week a year earlier).

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

The Fed Shares One Final Gift Before the Holidays: December 17 – 21

The Federal Reserve hiked its short-term interest rate target for a fourth and final time in 2018. Here are the five things we learned from U.S. economic data released during the week ending December 21.

#1The Fed bumps up short-term rates but forecasts fewer hikes in 2019. The statement released following last week’s meeting of the Federal Open Market Committee once again noted that “the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” Also, it indicated that core inflation was near its two-percent target rate, but also pointed out that business investment had “moderated.” Unlike with previous statements, this one included a comment that the committee “will continue to monitor global economic and financial developments and assess their implications for the economic outlook.” This is a reference to (among other things) the potential impact of tariffs, Brexit and partial government shutdowns. With all of this in mind, the committee voted unanimously to bump up the fed funds target rate by a quarter point to range between 2.25 and 2.50 percent. The hike was widely expected, despite some external cajoling to the contrary.

Released in conjunction with the policy statement was economic projections of Federal Reserve Board members and Federal Reserve Bank presidents and one big takeaway was an expectation for slightly slower economic growth than previously predicted. The median forecast now has gross domestic product (GDP) growing 2.3 percent in 2019, whereas the previous prediction had growth at 2.5 percent. The median projection for the unemployment rate next year remained at 3.5 percent, but the core inflation rate now is expected to be 2.1 percent in 2019 (versus the previous 2.0 percent forecast). Most notable is the median prediction among FOMC members now has two hikes in the fed funds target rate in 2019—previously, FOMC members had anticipated three hikes next year.Fed Funds Target Rate Forecast.png

#2A revised Q3 GDP estimate continued to show robust economic growth. The Bureau of Economic Analysis’ third estimate of Q3 gross domestic product has the U.S. economy expanding at a healthy 3.4 percent seasonally adjusted annualized rate. This was just below the 3.5 percent rate of expansion reported in the first two previously published estimates. The downward revision was a product of lower than previously believed estimates of consumer spending and exports (only partially counterbalanced by an upward revision to private inventory accumulation). Corporate profits (with inventory valuation and capital consumption adjustments rose 3.5 percent to $2.321 trillion (+10.4 percent versus 2017 Q3).

#3Personal spending remained resilient in November. The Bureau of Economic Analysis estimates real (inflation-adjusted) personal consumption expenditures (PCE) increased 0.3 percent on a seasonally adjusted basis during the month. While this was half of October’s 0.6 percent bounce, it leaves real PCE up 2.8 percent over the past year. Real spending on goods rose 0.9 percent during November while services expenditures expanded at a more modest 0.2 percent. The 12-month comparables for both were a solid +3.4 percent and +2.8 percent, respectively. Funding the increased spending were 0.2 percent gains for nominal personal income and both real and nominal disposable income. Real disposable income has grown by 2.8 percent over the past year. The savings rate was +6.0 percent, down 1/10th of a percentage point from October.

#4Sales of previously owned homes grew for a second straight month after showing general weakness for much of 2018. The National Association of Realtors reports existing home sales increased 1.9 percent in November to a seasonally adjusted annualized rate of 5.32 million units. Despite the rise, home sales were 7.0 percent under its year-ago market, representing the largest negative 12-month comparable since November 2011. Sales grew during the month in three of four Census regions, with the West’s 6.3 percent decline being the outlier. All four Census regions experienced negative year-to-year sales trends: West (-15.4 percent), South (-5.6 percent), Midwest (-4.3 percent), and Northeast (-2.6 percent). Inventories contracted 5.9 percent during November to 1.74 million units (+4.2 percent versus November 2017 and the equivalent to a 3.9-month supply). The median sales price has risen 4.2 percent over the past year to $257,700.

#5Consumer sentiment ends the year on a high note. The University of Michigan’s Index of Consumer Sentiment added 8/10ths of a point in December to a seasonally adjusted 98.3. This places the sentiment measure 2.4 points ahead of its year-ago mark and keeps it within the same five-point range where it has been over the past two years. In December, the present conditions index added 3.8 points to 116.1 (December 2017: 113.8) while the expectations index shed 1.1 points to 87.0 (December 2017: 84.3). The press release notes that 2018 was the best year for the headline index’s 12-month average (98.4) since 2000.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 15, 2018, First-Time Claims, seasonally adjusted): 214,000 (-27,000 vs. previous week; +8,000 vs. the same week a year earlier). 4-week moving average: 222,000 (-6.0% vs. the same week a year earlier).
Leading Indicators (November 2018, Index (2016=100), seasonally adjusted): 111.8 (+0.2% vs. October 2018, +5.2% vs. November 2017).
Durable Goods (November 2018, New Orders for Manufactured Durable Goods, seasonally adjusted): $250.8 billion (+0.8% vs. October 2018). Nontransportation goods new orders: $163.8 billion (-0.3% vs. October 2018).
Housing Starts (November 2018, Housing Units Started, seasonally adjusted annualized rate): 1.256 million (+3.2% vs. October 2018, -3.6% vs. November 2017).
Housing Market Index (December, Index (>50 = “Good” housing market, seasonally adjusted): 56 (vs. November 2018: 60; December 2017: 74).
Treasury International Capital Flows (October 2018, Net Purchases of U.S. Securities, not seasonally adjusted): -$6.5 billion (vs. September 2018: +$7.5 billion; vs. October 2017: +$10.5 billion.
State Employment (November 2018, Nonfarm Payrolls, seasonally adjusted): Vs. October 2018: Payrolls grew in 4 states and were essentially unchanged in 46 states and the District of Columbia. Vs. November 2017: Payrolls grew in 37 states and were essentially unchanged in 13 states and the District of Columbia.

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

Retail Shines, Factory Activity Does Not: December 10 – 14

Consumers started the holiday season with gusto, while manufacturing took another break.  Here are the five things we learned from U.S. economic data released during the week ending December 14.  

#1Retail sales were solid in November. U.S. retail and food services sales totaled a seasonally adjusted $513.5 billion, according to the Census Bureau. This was up a modest 0.2 percent for the month, but one should note that the headline figures were pulled down by falling gasoline prices (sales at gas stations plummeted 2.3 percent). Net of sales at gas stations and car dealers/parts stores (where sales increased 0.2 percent), core retail sales gained 0.5 percent for the month and were up 4.6 percent over the past year. Rising during the month were sales at retailers focused on electronics/appliances (+1.2 percent), furniture (+1.2 percent), health/personal care (+0.9 percent), and groceries (+0.4 percent), and at department stores (+0.4 percent). Sales slowed at restaurants/bars (-0.5 percent), building material stores (-0.3 percent), and apparel retailers (-0.2 percent). Nonstore retailers (e.g., internet retailers) saw sales jump 2.3 percent during the month, with a year-to-year sales increase of 10.8 percent).Retail Sales 2012-2018 121418

#2Manufacturing output failed to grow for a second consecutive month. The Federal Reserve’s report on industrial production finds manufacturing output was unchanged (on a seasonally adjusted basis) in November, following a 0.1 percent drop during the prior month. Durable goods output inched up 0.2 percent, boosted by a 2.5 percent increase for primary metals. Nondurable output slowed 0.2 while that of “other manufacturing” (which includes publishing and logging) slumped 0.9 percent. Overall industrial production jumped 0.6 percent during November (its biggest gain since August) and has increased 2.5 percent over the past year. Rising during the month were output both in mining (+1.7 percent) and at utilities (+3.3 percent, boosted by cold weather driving demand for utility-delivered natural gas).

#3Job openings remained at near-record levels in October. The Bureau of Labor Statistics estimates there were 7.059 million (seasonally adjusted) available nonfarm jobs at the end of October, up 119,000 from September and 16.8 percent from the same month a year ago. Private sector job openings have risen 17.7 percent over the past 12 months to 6.489 million. The industries with the largest double-digit year-to-year percentage increases in job openings were wholesale trade (+52.0 percent), manufacturing (+27.3 percent), accommodation/food services (+26.0 percent), construction (+25.3 percent), and retail (+22.4 percent). Hiring picked up in October, rising by 196,000 to 5.892 million hires (+5.2 percent versus October 2017), with larger 12-month comparables in transportation/warehousing (+49.5 percent), retail (+14.0 percent), and manufacturing (+12.0 percent). Even though dropping by 85,000 during October, the number of people leaving their jobs was up 5.4 percent over the past year to 5.556 million. This included 3.514 million people who quit their jobs (+9.0 percent versus October 2017) and 1.691 million layoffs (-1.2 percent versus October 2017).

#4Consumer prices failed to rise in November. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) held steady during the month on a seasonally adjusted basis, the first month not to show a rise since March. Energy CPI slumped 2.2 percent as gasoline prices fell 4.1 percent. On the flip side, food CPI gained 0.2 percent, its largest single-month increase since June (boosted by higher prices for cereals/bakery and meat). Net of both energy and food, core CPI grew 0.2 percent, matching its October increase. Rising were prices for used cars/trucks (+2.4 percent), medical commodities and services (both +0.4 percent), and shelter (+0.3 percent). Prices fell for apparel (-0.9 percent) and transportation services (-0.3 percent). Both the headline and core CPI measures have risen 2.2 percent over the past year.

#5Wholesale prices also moderated in November. The Producer Price Index (PPI) for final demand grew by a seasonally adjusted 0.1 percent during the month following a 0.6 percent surge in October. At the same time, the Bureau of Labor Statistics’ core measure (netting out prices for energy, food and trade services) gained 0.3 percent, greater than October’s 0.2 percent increase. PPI for final demand goods dropped 0.4 percent, pulled down a 5.0 percent decline in energy PPI (final demand gasoline PPI: -14.0 percent). PPI for final demand food jumped 1.0 percent (pulled up by rising prices for fresh/dry vegetables). Net of energy and food, final demand goods PPI gained 0.3 percent. Final demand PPI for services also increased 0.3 percent, with rising margins at gas stations a significant factor. Final demand PPI has risen 2.5 percent over the past year (the smallest 12-month comparable since last December) while core final demand PPI has expanded 2.8 percent over the past year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 8, 2018, First-Time Claims, seasonally adjusted): 206,000 (-27,000 vs. previous week; -23,000 vs. the same week a year earlier). 4-week moving average: 224,750 (-4.6% vs. the same week a year earlier).
Import prices (November 2018, All Imports, not seasonally adjusted): -1.6% vs. October 2018, +0.7% vs. November 2017. Nonfuel imports: -0.3% vs. October 218, +0.3% vs. November 2017.
Export prices (November 2017, All Exports, not seasonally adjusted): -0.9% vs. October 2018, +1.8% vs. November 2o17. Nonagricultural Exports: -1.0% vs. October 2018, +2.2% vs. November 2017.
Business Inventories (October 2018, Manufacturing and Trade Inventories, seasonally adjusted): $1.982 trillion (+0.6% vs. September 2018, +5.2% vs. October 2017).
NFIB Small Business Optimism (November 2018, Index (1986=100), seasonally adjusted): 104.8 (vs. October 2018: 107.4, vs. November 2017: 107.5.
Monthly Treasury Statement (November 2018, Federal Budget Surplus/Deficit): (first two months of FY2019) -$306.4 billion (vs. first two months of FY 2018: -$201.8 billion). 

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