Home Sales Sputtered Again: January 21 – 25

Home sales disappointed again during the final days of 2018.  Here are the five things we learned from U.S. economic data released during the week ending January 25.

Note that the partial shutdown of the federal government has delayed the release of certain economic data reports.

#1Existing home sales plummeted as 2018 ended. The National Association of Realtors indicates sales of previously owned homes dropped 6.4 percent in December to a seasonally adjusted annualized rate (SAAR) of 4.99 million units. This was the measure’s worst showing since November 2015 and represented a 10.3 percent decline from a year earlier. Sales fell in all four Census regions on both a month-to-month and year-to-year basis, including double-digit percentage drops over the previous year in the West (-15.0 percent) and Midwest (-10.5 percent). Also falling during the month was the number of unsold homes on the market, with inventories shrinking 5.1 percent to 1.550 million units. This was equivalent to a very tight 3.7 month supply (smallest since last March). The median sales price of $253,600 was a 2.9 percent gain from a year earlier. NAR’s press release included a bit of optimism for the near-term, stating that “with mortgage rates lower, some revival in home sales is expected going into spring.”

#2Forward-looking economic indicators suggest a showdown in December. The Conference Board’s Leading Economic Indicators (LEI) lost 1/10th of a point to a reading of 111.7 (2016=100), its second drop in three months. Even with the December’s decline, the LEI has risen 4.3 percent over the past year. The partial federal government shutdown delayed the release of some government economic data, which forced the Conference Board to estimate values of some LEI components. With that caveat in mind, six of the LEI’s ten components made positive contributions in December, led by first-time jobless claims, the Leading Credit Index, and the interest rate spread. Improving during the month were both the coincident and lagging indices. The former gained 2/10ths of a point to 105.1 (+2.1 percent versus December 2017) while the latter added a half point to 106.7 (+2.8 percent versus December 2017). The press release stated that the effects of the partial government shutdown had not yet been reflected in the data, but the drop in the LEI suggests “the economy could decelerate towards 2 percent growth by the end of 2019.”

#3Jobless claims fell to a nearly 50-year low in mid-January. The Department of Labor estimates there were a seasonally adjusted 199,000 first-time claims made for unemployment insurance benefits during the week ending January 19. This was 13,000 claim decline from the prior week and the fewest reported since the week ending November 15, 1969(!). By comparison, there were 229,000 first-time claims made during the same week a year ago. The four-week moving average of first-time claims was at 215,000, off 9.5 percent from a year earlier. 2.216 million people were receiving some form of unemployment insurance benefits during the week ending January 5, down 9.7 percent over the previous year

#4Home prices rose at a solid pace in November. The Federal Housing Finance Administration (FHFA) reports that its purchase-only House Price Index grew 0.4 percent during the month on a seasonally adjusted basis. This matched October’s gain, along with that of June, July, and August (September’s increase was slightly smaller 0.3 percent.) The index grew in six of nine Census regions, including sizable gains in the South Atlantic (+1.1 percent), Middle Atlantic (+1.0 percent), West South Central (+1.0 percent), and East South Central (+0.9 percent). Prices fell in the Pacific (-0.8 percent), East North Central (-0.2 percent), and West North Central (-0.1 percent) regions. FHFA’s price measure of homes purchased with a conforming mortgage has risen 5.8 percent over the past year with favorable 12-month comparables in all nine Census regions.

#5Crude oil and gasoline inventories expanded in mid-January. The Energy Information Administration tells us that U.S. crude oil inventories—net of what is held in the Strategic Oil Reserve—grew by 8.0 million barrels during the week ending January 18 to 445.0 million barrels. This was up 8.1 percent from the same week a year earlier and “about” nine percent above the five-year average for this time of the year. Gasoline inventories grew 4.0 million barrels during the same week to 295.6 million barrels, up 6.4 percent from a year earlier. Inventories of distillates contracted by 0.6 million barrels to 142.4 million barrels (+1.9 percent versus the week ending January 19, 2018). The average retail prices of gasoline—$2.25—was 12.3 percent below that of mid-January 2018.

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

Manufacturing Ends 2018 on a High Note: January 14 – 18

Factories were more active as 2018 wrapped up, but consumer sentiment softened in the early days of 2019. Here are the five things we learned from U.S. economic data released during the week ending January 18. 

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

#1Manufacturing output surged in December. The Federal Reserve reports that manufacturing production jumped a seasonally adjusted 1.1 percent during the month, its biggest gain since last February and leaving output up 3.2 percent over the past 12 months. Durable goods production blossomed by 1.3 percent, boosted by significant gains for motor vehicles, nonmetallic mineral products, wood products, aerospace, and computers/electronics. Production of nondurables increased 0.9 percent, pulled up by petroleum/coal products and food/beverage/tobacco goods. Manufacturing output has grown by 3.2 percent over the past year. Overall industrial production gained 0.3 percent during December and had expanded 4.0 percent since December 2017. Mining output jumped 1.5 percent for the month and had swelled 13.4 percent over the past year (boosted by oil and gas extraction). Relatively moderate weather in December led to a 6.3 percent drop in output at utilities (-4.3 percent versus December 2017).Manufacturing 2016-8 011819.png

#2Wholesale prices fell in December. The Producer Price Index (PPI) for final demand dropped by 0.2 percent on a seasonally adjusted basis during the month. This was the first decline in the Bureau of Labor Statistics’ wholesale price measure since February 2017. The core measure of wholesale prices, which removes the impact of energy, food and trade services, was unchanged in December. PPI for energy plummeted by 5.4 percent (slightly greater than November’s 5.0 percent drop) as gasoline prices fell 13.1 percent. PPI for final demand food swelled 2.4 percent, as prices for fresh fruit surged 48.9 percent. PPI for final demand services contracted by 0.1 percent, pulled down by lower prices for trade services (-0.3 percent) and transportation & warehousing (-0.2 percent). For all of 2018, final demand PPI has risen 2.5 percent while the core measure gained 2.8 percent.

#3Many issued weighed heavily on consumers during the opening days of the new year. The preliminary January reading of the University of Michigan’s Index of Consumer Sentiment came in at 90.7, 7.6 points below the final December reading, five full points below the January 2018 mark, and its lowest reading since 2016. The current conditions slumped by 6.1 points to 110.0 (January 2018: 110.5) while the expectations index plummeted by 8.7 points to 78.3 (January 2018: 86.3). The press release noted that survey respondent’s “year-ahead outlook for the national economy [was] judged the worst since mid 2014,” blaming the greater pessimism on the “partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.” Look for the release of final January sentiment figures on February 1.

#4Homebuilder confidence slightly rebounded in January. The Housing Market Index (HMI) added two points during the month to a seasonally adjusted reading of 58. Even with its first increase since October, the National Association of Home Builders’ measure is 14 points below its January 2018 mark. Nonetheless, this was the 55th consecutive month with an HMI above a reading of 50, indicative of a higher percentage of homebuilders saying the housing market was “good” as opposed as being “poor.” The HMI improved in two Census regions (Northeast, up 12 points to 48, and West, up five points to 70), was steady in the South (at 61), and shed three points in the Midwest (49). Improving from January were indices for current sales of single-family homes (up two points to 63), expected sales of new homes (up three points to 64), and traffic of prospective buyers (up a point to 44). The press release stated that “the gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment.”

#5Much of December’s job growth was centered about eight states. The Bureau of Labor Statistics state-level employment report finds the following states had “statistically significant” increases in nonfarm payrolls during the month: Texas (+38,000), Florida (+22,800), Georgia (+16,700), Indiana (+13,200), Washington state (+11,400), South Carolina (+10,800), Colorado (+9,800), and Alabama (+8,100). Employment also had grown at other states, but not at “statistically significant” level. Relative to a year earlier, nonfarm payrolls increased in size in 40 states, with the largest year-to-year percentage gains in Nevada (+3.9 percent), Arizona (+3.4 percent), and Texas (+3.2 percent).

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 12, 2019, First-Time Claims, seasonally adjusted): 213,000 (-3,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 220,750 (-8.3% vs. the same week a year earlier).
Import Prices (December 2018, All Imports, not seasonally adjusted): -1.0% vs. November 2018, -0.6% vs. December 2017. Nonfuel Imports: Unchanged vs. November 2018, +0.5% vs. December 2017.
Export Prices (December 2018, All Exports, not seasonally adjusted): -0.6% vs. November 2018, +1.1% vs. December 2017.
Beige Book

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

Gas Prices Dropped as 2018 Ended: January 7 – 11

Core consumer prices grew at a steady, moderate pace in December. Here are the five things we learned from U.S. economic data released during the week ending January 11.  

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

#1Consumer prices fell in December, but core prices inched up. The Consumer Price Index (CPI) declined 0.1 percent on a seasonally adjusted basis during the month, per the Bureau of Labor Statistics. This was the first drop in consumer prices since last March, with gasoline prices being the main culprit. Energy CPI slumped by 3.5 percent (its third decline in four months) with gasoline prices plummeting 7.5 percent. Prices for both electricity (+1.8 percent) and utility delivered natural gas (+0.7 percent) both rose. Also rising were food prices (+0.4 percent—its biggest single-month gain since May 2014), pulled up by increased costs for fruit and vegetables. Net of energy and food, core CPI gained 0.2 percent. Rising were prices for medical care services (+0.4 percent) and shelter (+0.3 percent) while prices fell 0.2 percent for transportation services, used cars/trucks, and medical care commodities. Over the past year, CPI has increased by 1.9 percent while core consumer prices have risen 2.2 percent.CPI December 2018 111119.png

#2Even with a decline in November, there were more job openings than the number of unemployed people. The Bureau of Labor Statistics reports that there were 6.888 million open jobs on the final day of November, down 243,000 from October but 16.1 percent ahead of the November 2017 count. This was greater than the BLS’s estimate of 6.018 million unemployed people during the month. Private sector employers had 6.266 million open jobs in November, up 15.5 percent from a year earlier. Most industries reported double-digit percentage increases in job openings, with notable exceptions being retail (-6.2 percent), wholesale trade (+5.4 percent), and financial activities (+8.9 percent). Also dropping during the month was the number of people hired, declining by 218,000 to 5.710 million people (+3.7 percent versus November 2017). Industries reporting particularly large year-to-year percentage increases in hiring included wholesale trade (+31.7 percent), transportation/warehousing (+16.1 percent) health care/social assistance (+14.0 percent), financial activities (+10.9 percent), and manufacturing (+9.9 percent). 

#3Service sector activity chilled a bit as 2018 wrapped up. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business, shed 3.1 points to a reading of 57.5. This was the measure’s lowest reading since July but also represented the 107th consecutive month in which it was higher than 50.0 (indicative of an expanding service sector). Three of the NMI’s four components lost ground relative to November: business activity/production (down 5.3 points), supplier deliveries (down 5.0 points), and employment (off 2.1 points). Eking a small gain was the component tied to new orders, which added 2/10ths of a point. Sixteen of 18 tracked nonmanufacturing industries reported growth during December, led by arts/entertainment/recreation, transportation/warehousing, and health care/social assistance. Whereas the comments from survey respondents were “mostly optimistic about overall business conditions,” highlighted comments noted potential adverse effects resulting from the tariffs.

#4Small business owner optimism slipped again in December but remained near post-recession highs. The Small Business Optimism Index shed 4/10ths of a point during the month to a seasonally adjusted 104.4 (1986=100). Even though this was the fourth straight monthly decline, the National Federation of Independent Business’s measure has been above a reading of 100.0 for 25 consecutive months. Four of the index’s ten components improved from their November readings: plans to increase inventories (up six points), current job openings (up five points), current inventories (up four points), and plans to increase employment (up a point). Of the six declining components, the largest decreases were for expected economic conditions (off six points), whether it is a good time to expand (off five points), and plans to make capital outlays (down four points). The press release emphasized that small businesses “need workers to generate more sales, provide services, and complete projects.”

#5Consumer borrowing rose in November. The Federal Reserve estimates consumers held a seasonally adjusted $3.979 trillion in outstanding non-real estate related debt (e.g., mortgages) at the end of November. This represented an increase of $22.2 billion from October and a 4.3 percent gain over the past year. Revolving credit (e.g., credit card) expanded by $4.8 billion to $1.042 trillion (+2.2 percent versus November 2017). Nonrevolving credit balances rose by $17.3 billion in November to $2.937 trillion. Nonrevolving consumer credit balances, which includes both college and auto loans, have increased by 5.1 percent over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 5, 2019, First-Time Claims, seasonally adjusted): 216,000 (-17,000 vs. previous week; -31,000 vs. the same week a year earlier). 4-week moving average: 221,750 (-9.4% vs. the same week a year earlier).
FOMC Minutes

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