Consumer Spending Rises, Q2 GDP Growth Narrows: August 26 – 30

Consumers have been a bright spot for the U.S. economy, but their outlook may be tenuous. Here are the five things we learned from U.S. economic data released during the week ending August 30.

#1Consumers’ spending spree continued in July. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) grew 0.4 percent on a seasonally adjusted basis during the month, up from June’s 0.2 percent advance and matching the increases for both April and May. Spending rose for goods by 0.8 percent, with solid gains for both durable (+1.1 percent) and nondurable goods (+0.6 percent). Services spending grew 0.3 percent. Without adjustments for inflation, nominal PCE rose 0.6 percent. The increased spending outpaced gains in nominal personal income (+0.1 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.1 percent). As a result, the savings rate narrowed by 3/10ths of a percentage point to +7.7 percent. Over the past year, personal spending has risen 2.7 percent as real disposable income advanced 3.0 percent.

#2Q2 GDP growth was smaller than previously believed. The Bureau of Economic Analysis‘ second estimate of Q2 2019 Gross Domestic Product (GDP) has the U.S. economy growing at a seasonally adjusted annualized rate (SAAR) of +2.0 percent, down from 2.1 percent gain reported a month ago. The downward revision was the product of lower than previously estimated levels of state/local government spending, exports, private inventory accumulation, and fixed residential investment. Counterbalancing those revisions was a higher than previously reported estimate for consumer spending. In fact, consumers were by far the most significant positive contributor to Q2 GDP growth. The same report finds corporate profits rose 5.3 percent during the quarter to an annualized $2.113 trillion. The BEA will revise its Q2 estimates of both GDP and corporate profits again in late September.

#3Economic growth also was modest in July. The Chicago Fed National Activity Index (CFNAI) plummeted by 39-basis points during the month to a reading of -0.36. Only 26 of the weighted index’s 85 components made a positive contribution to the CFNAI as only 30 improved from their June marks. All four major categories of index components made negative contributions: production (-25 basis points), personal consumption/housing (-6 basis points), sales/orders/inventories (-5 basis points), employment (-1 basis point). A bright spot is the 16-basis point improvement for the CFNAI’s three-moving average, growing June’s -0.30 reading to -0.16 in July. The moving average’s reading, however, is indicative of below-average economic growth.

#4Aircraft orders boosted durable goods orders in July. The Census Bureau estimates new orders for manufactured goods jumped 2.1 percent during the month to a seasonally adjusted $250.4 billion, following a 1.8 percent gain in June. Much of the increase came from the 7.0 percent surge in orders for transportation goods, with substantial monthly gains in orders for civilian aircraft (+47.8 percent), defense aircraft (+34.4 percent), and motor vehicles (+0.5 percent). Net of transportation goods, durable goods fell 0.4 percent in July, reversing a 0.8 percent increase during the prior month. Rising were new orders for electrical equipment/appliances (+1.1 percent) and computers/electronics (+0.2 percent). Orders fell for primary metals (-1.0 percent), fabricated metals (-0.9 percent), and machinery (-0.6 percent).

#5Consumer sentiment waned in August. The University of Michigan’s Index of Consumer Sentiment suffered its largest single-month drop in nearly seven years with an 8.6 point decline to a seasonally adjusted 89.8 (1966Q1=100). Whereas the measure tracking current sentiment decreased by 5.4 points to 105.3, it was the huge drop in longer-term optimism that pulled down the headline index. The expectations index plummeted by 10.6 points to 79.9. The press release notes that trade tariffs were the chief cause of weakening confidence, with one in three survey respondents “spontaneously” noting the issue in their comments. Those concerned about tariffs were more likely to “voice higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes.”

The Consumer Confidence from the Conference Board slipped by a more modest 7/10ths of a point to a seasonally adjusted 135.1 (1985=100). The present conditions rose to a nearly 19-year high at 177.2 (up 6.3 points versus July 2019) while the expectations index shed 5.4 points to 107.0. A robust 42.0 percent of survey respondents described current business conditions as “good,” while 51.2 percent said that jobs were “plentiful.” The press release did warn that “if the recent escalation in trade and tariff tensions persists, it could potentially dampen consumers’ optimism regarding the short-term economic outlook.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 24, 2019, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; Unchanged vs. the same week a year earlier). 4-week moving average: 214,500 (-0.1% vs. the same week a year earlier).
Pending Home Sales (July 2019, Index (2001=100), seasonally adjusted): 105.6 (-2.5% vs. June 2019, -0.3% vs. July 2018).
FHFA House Price Index (June 2019, Purchase-Only Index, seasonally adjusted): +0.2% vs. May 2019, +4.8%. vs. June 2018.
Case-Shiller Home Price Index (June 2019, 20-City Index, seasonally adjusted): Unchanged vs. May 2019, +2.1% vs. June 2018.

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

Leading Indicators Suggest Modest Growth: August 19 – 23

Leading economic measures rebounded in July. Here are the five things we learned from U.S. economic data released during the week ending August 23.

#1Forward-looking economic indicators brightened a bit in July. The Conference Board’s Leading Economic Index (LEI) jumped by a half-point to a reading of 112.2. This followed two monthly declines and left the LEI up a somewhat modest 1.6 percent over the past year. Only five of the LEI’s ten components made positive contributions to the index, led by housing building permits and jobless claims. A warning sign: manufacturing-related components pulled down the LEI. The coincident index added 2/10ths of a point to 106.2, up 1.8 percent from July 2018. Three of four coincident index components made positive contributions, led by nonfarm payrolls. The lagging index jumped by 7/10ths of a point to 108.5, leaving the measure up 3.5 percent over the past year. Four of seven lagging index components made positive contributions, led by the average duration of unemployment. The press release said the U.S. economy would likely expand “at a moderate pace” during the second half of 2019.

#2Existing sales improved in July. Sales of previously owned homes gained 2.5 percent during the month to a seasonally adjusted annualized rate of 5.42 million units. The National Association of Realtors’ measure was 0.6 percent ahead of its year-ago mark. Sales improved in three Census regions—the West, South, and Midwest—when compared to June but were only up in the South and Midwest when compared to a year earlier. Inventories tightened in July as the count of homes on the market slipped 1.6 percent to 1.89 million units. This was the equivalent to a 4.2 month supply. The median sales price of homes sold has risen 4.3 percent over the past year to $280,800.

#3But sales of new homes fell during the same month. The Census Bureau estimates new home sales slumped 12.8 percent in July to a seasonally adjusted annualized rate of 635,000 units. This placed the annualized sales pace 4.3 percent below that of July 2018. New home sales fell in three of four Census regions during the month, with Northeast being the exception. Compared to a year earlier, however, sales have grown in the West, South, and Northeast. There was a 6.4 month supply of new homes on the market at the end of July with an inventory of 337,000 units (+1.2 percent versus June 2019 and +7.3 percent versus July 2018).

#4Jobless claims remained near multidecade lows in mid-August. The Department of Labor reports that the seasonally adjusted count of first-time claims made for unemployment insurance benefits dropped by 15,000 to 209,000. This was 2.3 percent below that of a year earlier and continued a remarkable streak for the proxy of layoff activity of sub-300,000 claims going back five years (except for a handful of weeks). The 4-week moving average of first-time claims edged up by 500 to 214,500 (-0.7 percent versus the same week a year earlier). 1,704,365 people were receiving some form of unemployment insurance during the week ending August 3rd, essentially matching the count from the same week a year earlier.

#5Internet retailers continued to grab market share during Q2. The Census Bureau indicates that sales at U.S. e-commerce retailers grew 4.2 percent during the three months from April to June to a seasonally adjusted $146.2 billion. Total retail sales were $1.362 trillion over the same period (up only 1.6 percent from the prior quarter), meaning internet retailers owned 10.7 percent of all sales during the quarter. E-commerce sales have risen 13.3 percent over the past year with the four-quarter comparable for all retail sales at 3.2 percent.

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

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

Mixed Data as a Curve Inverts: August 12 – 16

In a week where the yield curve momentarily inverted, economic data pointed in different directions. Here are the five things we learned from U.S. economic data released during the week ending August 16.

#1On the good news side, retail sales flourished in July. The Census Bureau estimates U.S. retail and food services sales increased 0.7 percent during the month to a seasonally adjusted $523.5 billion, up 3.4 percent from a year earlier. Sales at car dealers/parts stores slumped 0.6 percent but rose 1.8 percent at gas stations (thanks to higher prices at the pump). Net of both, core retail sales jumped 0.9 percent in July and 4.2 percent over the past year. Rising were sales at department stores (+1.2 percent) and restaurants/bars (+1.1 percent) and at retailers focused on electronics/appliances (+0.9 percent), apparel (+0.8 percent), groceries (+0.7 percent), furniture (+0.3 percent), and building materials (+0.2 percent).

#2But manufacturing production fell in July. The Federal Reserve estimates manufacturing output dropped 0.4 percent on a seasonally adjusted basis, its first decline in three months. Durable goods production slowed 0.2 percent, with output declines of greater than one percent for wood products, nonmetallic products, and machinery. Nondurable goods production plummeted 0.5 percent, hurt by greater than one percent drops for plastic/rubber, textiles, and printing. Manufacturing has slumped 0.5 percent over the past year. Overall industrial production slipped 0.2 percent during July but remained a half percentage ahead of the year-ago pace. During the month, mining output slowed 1.8 percent (oil and gas well drilling: -3.3 percent) while production at utilities surged 3.1 percent (think hot summer weather).

#3Consumer inflation bloomed in July. The Bureau of Labor Statistics reports that the consumer price index (CPI) grew 0.3 percent on a seasonally adjusted basis during the month, its fastest increase since April. Prices for energy jumped 1.3 percent, pulled up by a 2.5 percent surge in gasoline prices. Food CPI, however, held steady in July. Net of both energy and food, core CPI grew 0.3 percent for a second consecutive month. Rising were prices for used cars/trucks (+0.9 percent), medical care services (+0.5 percent), apparel (+0.4 percent), shelter (+0.3 percent), transportation services (+0.3 percent), and medical care commodities (+0.2 percent). Over the past year, CPI has risen 1.8 percent while core CPI had a 12-month comparable of +2.2 percent.

#4Housing starts slowed in July, or at least they did for condos. The Census Bureau indicates starts of privately-owned homes slid 4.0 percent during the month to a seasonally adjusted annualized rate of 1.241 million units. Despite the decline, housing starts were 0.6 percent ahead of their year-ago pace. July’s drop in starts was on the multi-unit side, which saw a 17.2 percent slump compared to a 1.3 percent increase for single-family home starts. Looking towards the future, the annualized count of issued building permits rose 8.4 percent in July to 1.336 million (+1.5 percent versus July 2018), with monthly gains for both single-family homes (+1.8 percent) and multi-family units (+24.8 percent). The annualized count of completed homes jumped 7.2 percent to 1.250 million, up 6.3 percent from the same month a year earlier.

#5And despite it all, small business owners remained confident in July. The Small Business Optimism Index from the National Federation of Independent Business added 1.4 points during the month to a seasonally adjusted reading of 104.7 (1986=100). This followed a 1.7 point drop during June. Seven of the index’s ten components improved during the month, led by higher readings for expected real sales, expectations for the economy to improve, plans to increase employment, and earnings trends. Only two components—current inventories and expected credit conditions—declined in July. The press release noted the dichotomy of “many are talking about a slowing economy” and the general optimism among its survey respondents and stated that “the small business sector remains exceptional.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending August 10, 2019, First-Time Claims, seasonally adjusted): 220,000 (+9,000 vs. previous week; +5,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-1.4% vs. the same week a year earlier).
Import Prices (July 2019, All Imports): +0.2% vs. June 2019, -1.8% vs. July 2018. Nonfuel Imports: -0.1% vs. June 2019, -1.3% vs. July 2018.
Export Prices (July 2019, All Exports): +0.2% vs. June 2019, -0.9% vs. July 2018. Nonagricultural Exports: +0.2% vs. June 2019, -1.5% vs. July 2018.
Housing Market Index (August 2019, Index (>50 = More Homebuilders See the Housing Market as “Good” versus “Poor,” seasonally adjusted):  66 (vs. July 2019: 65, vs. August 2018: 68.
Monthly Treasury Statement (July 2019, Federal Budget Surplus/Deficit Over First 10 Months of FY2019): -$866.8 billion (+26.9% vs. First 10 Months of FY2018)
Productivity (2019 Q2, Nonfarm Business Labor Productivity, seasonally adjusted): 2.3% vs. 2019 Q1, +1.8% vs. 2018 Q2).
University of Michigan Surveys of Consumers (August 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted):  92.1 (vs. July 2019: 98.4, vs. August 2018: 96.2).
State Employment (July 2019, Nonfarm Payrolls, seasonally adjusted): Vs. June 2019: Increased in 5 states and essentially unchanged in 45 states and the District of Columbia. Vs. July 2018: Increased in 25 states and essentially unchanged in 25 states and the District of Columbia.
Treasury International Capital Flows (June 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$63.8 billion (vs. May 2019: -$4.6 billion, vs. June 2018: -$45.6 billion).
Business Inventories (June 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.036 trillion (Unchanged vs. May 2019, +5.2% vs. June 2018).

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