A Slowdown in Growth: March 25 – 29

Economic activity was lukewarm in Q4 and early 2019. Here are the five things we learned from U.S. economic data released during the week ending March 29.

#1Q4 economic growth was less robust than previously believed. The Bureau of Economic Analysis’ third release of fourth quarter 2018 gross domestic product (GDP) finds the U.S. economy grew 2.2 percent on a seasonally adjusted annualized basis. This was a downward revision from the Q4 GDP report published a month ago that had indicated a 2.6 percent increase, and it was below Q3’s 3.4 percent annualized gain. Even with the downward revision, GDP grew 2.9 percent for all of 2018, ahead of increases of 2.2 percent and 1.6 percent for 2017 and 2016, respectively. The downward revision was the result of lower than previously believed levels of personal consumption expenditures, government spending, and business spending. The same report indicates that business profits slipped 0.4 percent from Q3 to an annualized $2.311 trillion. Corporate earnings for all of 2018 were $2.263 trillion, up 7.8 percent from 2017. The first view of Q1 2019 GDP comes out in late April, with early indications suggesting a weaker report (see next).GDP 2007-2018 032919

#2Meanwhile, economic activity appears to have been tepid in February. The Chicago Fed National Activity Index lost four basis points during the month to a reading of -0.29. This was the third consecutive month in which the CFNAI was negative, indicative of below-average economic growth. Of the 85 data points included in the CFNAI, only 38 made positive contributions, and just 37 indicators showed improvement from their January readings. Among the four major categories of indicators, two improved from the previous month: production (up 13-basis points to a contribution of -0.16) and sales/orders/inventories (up two-basis points to +0.02). Slipping in February were measures related to employment (down 17-basis points to a -0.10 contribution) and personal consumption/housing (down three-basis points to -0.03). The CFNAI’s three-month moving average fell to its lowest reading since October 2016, shedding 18-basis points to a reading of -0.18 (again, indicative of below-average economic growth). 

#3Real personal spending slightly grew in January. Real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month following December’s 0.6 percent decline, per the Bureau of Economic Analysis. Spending grew for both nondurable goods (+0.5 percent) and services (+0.2 percent) but plummeted 1.6 percent for durable goods. Nominal (not inflation adjusted) spending also grew 0.1 percent. The modest gain in spending occurred despite a 0.1 percent drop in nominal personal income and with disposable income (both nominal and real) falling 0.2 percent. Over the past year, real disposable income has grown 3.0 percent while real PCE increased 2.3 percent. January’s saving rate of 7.5 percent was off 2/10ths of a percentage point from December.

#4The trade deficit narrowed (but remained rather wide) in January. The Census Bureau and the Bureau of Economic Analysis reports that exports grew by $1.9 billion to $207.3 billion (+3.0 percent versus January 2018) during January while imports shrank by $6.8 billion to $258.5 billion (+1.6 percent versus January 2018). The resulting trade deficit of -$51.1 billion was down $8.8 billion from the previous month and 3.7 percent smaller than that of January 2018. The goods deficit plummeted by $8.2 billion to -$73.3 billion (down 2.8 percent from a year earlier) while the services surplus grew by $0.5 billion to +$22.1 billion (off 0.7 percent over the previous year). The former was the result in a $1.8 billion gain in exported goods (due to increased food and automotive exports) and a $6.5 billion decline in imported goods (due to a decrease in imports of capital goods and crude oil). The U.S. had its biggest goods deficits with China (-$33.2 billion), the European Union (-$13.1 billion), and Mexico (-$7.2 billion).

#5Differing stories from two measures of consumer sentiment. The Conference Board’s Consumer Confidence Index shed 7.3 points during March to a seasonally adjusted reading of 124.1 (1985=100). Also falling were indices for present conditions (slumping 12.2 points to 160.6) and expected conditions (off 4.0 points to 99.8). Dropping hard was the percentage of survey respondents who viewed current business conditions as “good,” declining from 40.6 percent to 33.4 percent. However, only 13.6 percent of consumers viewed current conditions as “poor.” The press release characterized sentiment as “volatile,” as consumers “have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report.”

Presenting a different story was the University of Michigan’s Index of Consumer Sentiment, which added 4.6 points during March to a seasonally adjusted reading of 98.4 (1966Q1=100). The present conditions grew by 4.8 points to 113.3 (March 2018: 121.2) while the expectations index rose by 4.4 points to 88.8 (which matched its reading from a year earlier). The press release noted that the improvement in the headline measure “was entirely due to households with incomes in the bottom two-thirds of the income distribution.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 23, 2019, First-Time Claims, seasonally adjusted): 211,000 (-5,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 217,250 (-1.6% vs. the same week a year earlier).
New Home Sales (February 2019, New Houses Sold, seasonally adjusted annualized rate): 667,000 (+4.9% vs. January 2019, +0.6% vs. February 2018).
Housing Starts (February 2019, Housing Starts, seasonally adjusted annualized rate): 1.162 million (-8.7% vs. January 2019, -9.9% vs. February 2018).
Pending Home Sales (February 2019, Index (2001=100), seasonally adjusted): 101.9 (-1.0% vs. January 2019, -4.9% vs. February 2018).
Case-Shiller Home Price Index (January 2019, 20-City Index, seasonally adjusted): +0.1% vs. December 2018, +3.6% vs. January 2018).
FHFA Housing Price Index (January 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. December 2018, +5.6% vs. January 2018. 

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

A Dovish Fed: March 18 – 22

The Fed signals that it will not hike short-term interest rates this year. Here are the five things we learned from U.S. economic data released during the week ending March 22.

#1The Fed’s campaign of raising short-term interest rates is over (for now). The policy statement published after the past week’s Federal Open Market Committee (FOMC) noted that economic activity growth had “slowed from its solid rate” but that the labor market “remains strong.” Also decelerating were growth rates of both household spending and business investment. Inflation fell below the Fed’s two-percent target rate—largely due to lower energy prices—with core inflation closer to the target. As a result, the FOMC voted unanimously to keep the fed funds target rate at a range between 2.25 and 2.50 percent and (perhaps more notably) stated that it would be “patient” as to if/when it would again raise rates. The Fed bases its patience on “global economic and financial developments and muted inflation pressures.” Written another way, the Fed no longer expects to raise its interest rate target in 2019—not long ago up to three rate increases had been the consensus expectation for this year.

#2Forward-looking measures suggest economic activity was picking back up in early 2019. The Conference Board’s Leading Economic Index (LEI) added 2/10ths of a point during February to a reading of 111.5 (2016=100), its best reading since last September. This measure had sputtered along since last October—trading within a 2/10ths of a point range—but has risen 3.0 percent over the past year. Six of ten LEI components grew in February, with the most significant positive contributor being rising stock prices. The coincident index also added 2/10ths of a point to 105.9 (+2.5 percent versus February 2018) as all four index components making positive contributions. The lagging index held firm at 107.0 during February, growing by a modest 0.8 percent over the past year. The press release notes that the results—particularly, the recent sluggishness in the leading index—suggest economic growth “could decelerate by year end.” 

#3Existing home sales bounced back big in February. The National Association of Realtors reports that sales of previously owned homes surged 11.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.51 million units. This was the best month for existing home sales since last March but still left sales 1.8 percent behind the year-ago sales pace. Sales expanded in three of four Census regions in February: West (+16.0 percent), South (+14.9 percent), and Midwest (+9.5 percent). Meanwhile, sales in Northeast matched January’s pace. There were 1.63 million homes available for purchase at the end of February, up 2.5 percent from January and 3.2 percent from a year earlier. Nonetheless, inventories represented a very tight 3.5 month supply. The median sales price of $249,500 was up 3.6 percent from a year earlier. NAR’s press release tie February’s strong housing report to “a powerful combination of lower mortgage rates, more inventory, rising income and higher consumer confidence.”

#4Homebuilders sentiment was stable in March. The National Association of Homebuilders’ Housing Market Index (HMI) remained at a seasonally adjusted reading of 62. This was the 57th consecutive month the HMI was above a reading of 50, indicative of a higher percentage of survey respondents viewing the housing market as “good” as opposed to being “poor.” The HMI improved in three of four Census regions, with only the Midwest seeing a decline in the sentiment measure. Improving during the month with indices measuring present sales of single-family homes (up two points to 68) and expected home sales (up three points to 71, while the measure tracking the traffic of prospective buyers lost four points to 44. The press release noted that homebuilders are challenged by a “skilled worker shortage, lack of buildable lots and stiff zoning restrictions in many major metro markets.”

#5Factory orders grew slightly in January. The Census Bureau reports that new orders for manufactured goods increased for a second straight month, albeit at a modest 0.1 percent to a seasonally adjusted $500.5 billion. Net of transportation goods, factory orders slowed 0.2 percent while core capital goods orders (which are nondefense capital goods net of aircraft) jumped 0.8 percent. Durable goods orders gained 0.3 percent those of nondurables pulled back 0.2 percent. Shipments dropped for the fourth straight month with a 0.4 percent decline to $503.1 billion while nontransportation goods shipments slowed by a more modest 0.2 percent. Unfilled orders swelled for the first time in four months with a 0.1 percent bump to $1.182 trillion while inventories grew 0.5 percent to $685.7 billion (its 26th gain in 27 months).

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 16, 2019, First-Time Claims, seasonally adjusted): 221,000 (-9,000 vs. previous week; -6,000 vs. the same week a year earlier). 4-week moving average: 225,000 (Unchanged vs. the same week a year earlier).
State Employment (February 2019, Nonfarm Payrolls, seasonally adjusted): Vs. January 2019: Increased in 2 states and was essentially unchanged in 48 states and the District of Columbia. Vs. February 2018: Grew in 22 states and was essentially unchanged in 28 states and the District of Columbia.
Wholesale Trade (January 2019, Merchant Wholesalers’ Inventories, seasonally adjusted): $669.9 billion (+1.2% vs. December 2018, +7.7% vs. January 2018). 

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

Retailers and Manufacturers Started 2019 in Different Directions: March 11 – 15

Retail sales improved in January but manufacturing output struggled in February. Here are the five things we learned from U.S. economic data released during the week ending March 15.  

#1Retail sales modestly rebounded in January. The Census Bureau estimates U.S. retail and food services sales grew 0.2 percent during the month to a seasonally adjusted $504.4 billion. This compares favorably to December’s 1.6 percent sales slump (revised from a previously reported 1.2 percent drop) and places sales 2.3 percent ahead of January 2018 levels. Sales fell a sharp 2.4 percent at auto dealers/parts stores and 2.0 percent at gas stations. Net of sales at auto dealers/parts stores and gas stations, core retail sales jumped 1.2 percent following a 1.6 percent drop in December and have grown 3.2 percent since January 2018. Growing during the month were sales at sporting goods/hobby retailers (+4.8 percent), building material/garden stores (3.3 percent), health/personal care stores (+1.6 percent), grocery stores (+1.2 percent), general merchandisers (+0.8 percent), and restaurants/bars (+0.7 percent). Sales declined at stores focused on apparel (-1.3 percent), furniture (-1.2 percent), and electronics/appliances (-0.3 percent).

#2Manufacturing production dropped for the second straight month in February. The Federal Reserve reports the manufacturing output fell 0.4 percent on a seasonally adjusted basis, following a 0.5 percent drop in January. Durable goods production slipped 0.1 percent (matching the modest decline in motor vehicle production) while nondurable goods output declined 0.7 percent as production fell for petroleum/coal products, apparel, and printing. Overall industrial production increased 0.1 percent as the manufacturing slowdown was counterbalanced by increased utilities (+3.7 percent) and mining (+0.3 percent) output. Over the past year, manufacturing output has grown a modest 1.0 percent while overall industrial production has risen 3.5 percent. 

#3Employers continued struggling to fill open jobs during January. There were a seasonally adjusted 7.581 million open nonfarm jobs at the end of January, up 102,000 from December and 15.0 percent above year-ago levels. Further, the Bureau of Labor Statistics’ count of open positions was well above the 6.535 million people who had reported being unemployed during the same month. Among the industries reporting large year-to-year percentage increases in job openings were wholesale trade (+32.5 percent), construction (+23.3 percent), health/social assistance (+21.0 percent), professional/business services (+19.5 percent), accommodation/food services (+19.1 percent), and financial activities (+15.3 percent). Lagging behind the growth in new job openings was hiring, which grew by 84,000 to 5.801 million workers. This was 5.0 percent ahead of the January 2018 pace of hiring. 5.550 million people left their jobs in January, up 81,000 for the month and 4.4 percent from a year earlier. Indicative of confident workers, 3.490 million quit their jobs voluntarily (+15.5 percent versus January 2018) while the count of people laid off—1.723 million—was 10.9 percent year-ago layoff activity

#4Inflation measures remained under control in February. The Bureau of Labor Statistics reports the Consumer Price Index (CPI) grew 0.2 percent on a seasonally adjusted basis during the month, its first increase since October. Pulling up the headline number were 0.4 percent gains for both food and energy. The latter included the first increase in gasoline prices since October (+1.5 percent). Net of food and energy, core CPI advanced 0.1 percent, its smallest increase since last August. While prices for shelter and apparel each grew 0.3 percent, falling were prices for medical care commodities (-1.0 percent), used cars/trucks (-0.7 percent), new vehicles (-0.2 percent), and transportation services (-0.1 percent). Over the past year, CPI has risen 1.5 percent while the core measure has a 12-month comparable of +2.1 percent.

Meanwhile, the Producer Price Index (PPI) for final demand grew for the first time in four months with a 0.1 percent seasonally adjusted increase in February, per the Bureau of Labor Statistics. The core measure of wholesale prices, which removes the impact of energy, food and trade services, also grew 0.1 percent for the month. Energy prices increased for only the third time in eight months with a 1.8 percent gain (including a 3.3 percent advance in wholesale gasoline prices). PPI for final demand food slumped 0.3 percent. PPI for final demand goods gained 0.4 percent while that for final demand services was unchanged. Final demand PPI has risen 1.9 percent, the first time since June 2017 in which the 12-month comparable has fallen under two percent. The core measure for wholesale prices has grown 2.3 percent over the past year.

#5Durable goods orders grew for a third straight month in January. The Census Bureau tells us that new orders for manufactured durable goods grew 0.4 percent to a seasonally adjusted $255.3 billion. Transportation goods orders rose 1.2 percent, with increases for civilian (+15.9 percent) and defense aircraft (+4.5 percent) and a 1.0 percent slowdown in motor vehicle orders. Net of transportation goods, durable goods orders slipped 0.1 percent. Rising were orders for computers (+7.6 percent), communications equipment (+3.8 percent), electrical equipment/appliances (+1.7 percent), and machinery (+1.4 percent). New orders for primary metals slumped 1.5 percent. New orders for civilian non-aircraft capital goods—a proxy for business investment—gained 0.8 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending March 9, 2019, First-Time Claims, seasonally adjusted): 229,000 (+6,000 vs. previous week; +3,000 vs. the same week a year earlier). 4-week moving average: 223,750 (+0.4% vs. the same week a year earlier).
Import Prices (February 2019, All Imports, not seasonally adjusted): +0.6% vs. January 2019, -1.3% vs. February 2018. Nonfuel Imports: Unchanged vs. January 2019, -0.6% vs. February 2018.
Export Prices (February 2019, All Exports, not seasonally adjusted): +0.6% vs. January 2019, +0.3% vs. February 2018. Nonagricultural Exports: +0.7% vs. January 2019, +0.3% vs. February 2018.
State Employment (January 2019, Nonfarm Payrolls, seasonally adjusted): Vs. December 2018: Payrolls grew in 13 states and were essentially unchanged in 37 states and the District of Columbia. Vs. January 2018: Payrolls grew in 26 states and were essentially unchanged 24 states and the District of Columbia.
New Home Sales (January 2019, New Homes Sold, seasonally adjusted annualized rate): 607,000 (-6.9% vs. December 2018, -4.1% vs. January 2018).
Business Inventories (December 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.995 trillion (+0.6% vs. November 2018, +4.8% vs. December 2017).
Small Business Optimism Index (February 2019, Index (1986=100), seasonally adjusted): 101.7 (vs. January 2019: 101.2, vs. February 2018: 107.6).
Construction Spending (January 2019, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.279 trillion (+1.3% vs. December 2018, +0.3% vs. January 2018).
University of Michigan Surveys of Consumers (March 2019-preliminary, Index of Consumer Sentiment (100=1966Q1), seasonally adjusted): 97.8 (vs. February 2019: 93.8, vs. March 2018: 101.4).

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