Consumer Spending & Sentiment Signal Uncertainty: September 23 – 27

Consumer spending, a critical contributor to GDP growth, wobbled in August. Here are the five things we learned from U.S. economic data released during the week ending September 27.

#1Personal spending growth weakened in August. The Bureau of Economic Analysis reports that “real” personal consumption expenditures (PCE) increased by only 0.1 percent (seasonally adjusted) during the month, its slowest growth rate since a decline in February. Spending on goods rose 0.3 percent, split between a 0.9 percent bounce for durable products and nondurable goods eking out a 0.1 percent increase. Spending on services held steady during the month. Nominal (not adjusted for inflation) consumer spending also grew 0.1 percent, funded by a 0.4 percent increase in nominal personal income and sharp gains for both nominal (+0.5 percent) and real (+0.4 percent) disposable income. The savings rate edged up by 3/10ths of a percentage point to +8.1 percent. Real personal spending has risen 2.3 percent over the past year, while real disposable income has grown 3.0 percent.Real Personal Consumption Expenditures data August 2018 - August 2019

#2The third estimate of Q2 GDP continued to indicate modest growth earlier this year, held up by consumer spending. The Bureau of Economic Analysis’ third estimate of gross domestic product (GDP) has the U.S. economy expanding 2.0 percent on a seasonally adjusted annualized rate (SAAR) of +2.0 percent. This matched the second estimate reported a month earlier and was slower than the 3.1 percent annualized growth estimate for the first three months of 2019. Consumers and government spending drove Q2’s economic expansion—the former contributed 303-basis points to GDP growth while government expenditures (both federal and state/local) added 82-basis points. Dragging down economic activity were net exports (shedding 98-basis points to GDP growth), changes in private inventories (-91-basis points), fixed business investment (-25-basis points), and fixed residential investment (-11-basis points). The same report finds corporate profits rose 3.8 percent during Q2, although they were up by a more moderate 1.3 percent compared to the same quarter a year earlier. We will see the first estimate of Q3 GDP on October 30. 

#3A snapshot of economic measures suggests business activity picked up in August. A weighted index of 85 economic measures, the Chicago Fed National Activity Index (CFNAI), jumped by 51-basis points during the month to a reading of +0.10. Since a 0.00 reading for the CFNAI suggests the U.S. economy is expanding at its historical rate, the positive mark here indicates above-average economic growth during August. The CFNAI’s three-month moving average crept up by eight-basis points to -0.06 (its best reading since January). Forty-four of the 85 indicators made positive contributions to the headline index. All four major categories of indicators improved during the month: production (up 42-basis points to +0.16), sales/orders/inventories (up five-basis points to -0.02), employment (up three-basis points to -0.02), and personal consumption/housing (up a basis point to -0.02).

#4Consumer sentiment measures in September reflected uncertainty. The Conference Board’s Consumer Confidence Index shed 9.2 points during the month to a seasonally adjusted reading of 125.1 (1985=100). Both the current and expected conditions indices fell—the former lost 7.0 points to 169.0 while the latter slumped by 10.6 points to 95.8. While 37.3 percent of survey respondents view current economic conditions as “good” (versus 12.7 percent seeing them as “bad), only 19.0 percent expect conditions will be “better” six months from now (versus 14.3 percent expecting them to “worsen”). The press release said that the “escalation in trade and tariff tensions in late August appears to have rattled consumers,” leading to a “plateauing” of consumer confidence.

Meanwhile, the University of Michigan’s Index of Consumer Sentiment added 3.4 points in August to a seasonally adjusted 93.2 (1966Q1=100). Even with gain over the past month, the measure was 6.9 percent below that of a year earlier, reflecting a “slow erosion” in sentiment. Both the current and expected conditions indices advanced during the month (although each had negative 12-month comparables): current conditions (up 3.2 points to 108.5—September 2018: 115.2) and anticipated conditions (up 3.5 points to 83.4—September 2018: 90.5). The press release noted “rising levels” of uncertainty—some “rooted in partisanship” and some based on trade tensions.

#5Durable goods gained thanks to defense aircraft orders. The Census Bureau estimates new orders for durable manufactured goods increased 0.2 percent in August to a seasonally adjusted $250.7 billion. Even as orders for defense aircraft surged 30.3 percent, transportation goods orders fell 0.4 percent (hurt by a 17.1 percent drop for civilian aircraft and a 0.8 percent decline for motor vehicles). Net of transportation goods, core orders increased 0.5 percent—but the data shows mixed results. New orders rose for primary metals (+1.5 percent), fabricated metals (+1.3 percent), and machinery (+0.6 percent) but fell for electrical equipment/appliances (-1.3 percent) and computers/electronics (-0.3 percent). Also giving pause is the 0.2 percent slip in orders for civilian non-aircraft capital goods, a proxy for business investment.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 21, 2019, First-Time Claims, seasonally adjusted): 213,000 (+3,000 vs. previous week; -1,000 vs. the same week a year earlier). 4-week moving average: 212,000 (+0.7% vs. the same week a year earlier).
New Home Sales (August 2019, New Single-Family Home Sales, seasonally adjusted annualized rate): 713,000 (+7.1% vs. July 2019, +18.0% vs. August 2018).
Pending Home Sales (August 2019, Index (2001=100), seasonally adjusted): 107.3 (vs. July 2019: 105.6, vs. August 2018: 104.7).
Agricultural Prices (August 2019, Prices Received by Farmers (Index: 2011=100)): +0.8% vs. July 2019, +0.9% vs. August 2018.

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

Fed Cuts Again, Unclear on Next Steps: September 16 – 20

The Federal Reserve cuts its short-term interest rate target and sent a mixed message on what may be next. Here are the five things we learned from U.S. economic data released during the week ending September 20.

#1A divided Fed lowered its short-term interest rate target. In the statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was “rising at a moderate rate,” the “labor market remains strong,” and household spending was robust. But the statement also indicated that both business investment and exports “have weakened” and inflation remains below the Fed’s two-percent target. As a result, the FOMC voted to cut the fed funds target rate by a quarter-percent point to a range of 1.75 percent and 2.00 percent because “of the implications of global developments for the economic outlook as well as muted inflation pressures.” The decision was not unanimous: two voting members wanted to leave the fed funds target rate unchanged while one member sought a half-point rate cut.

Looking at economic forecasts by FOMC members released in conjunction with the policy statement, it is clear that there is even more disagreement on what is next. Seven voting members anticipate at least one more rate cut before the end of 2019, while five members expect this past week’s rate cut would be the final cut of the year and five had not expected even this rate cut. The same forecasts have the U.S. economy expanding at 2.0 percent next year with an unemployment rate of 3.7 percent and inflation just below the Fed’s target at 1.9 percent.FOMC Fed Funds Forecast 092019

#2Forward-looking economic measures suggest slowing growth. The Conference Board’s Leading Economic Index (LEI) held steady in August at a reading of 112.1, following a 4/10ths of a point increase during the prior month. The LEI has grown a modest 1.1 percent over the past year. Five of the ten LEI components made positive contributions, led by housing building permits. The coincident index added 3/10ths of a point to 106.4 (+1.6 percent versus August 2018). All four components of the coincident index made positive contributions, led by industrial production. The lagging index shed 3/10ths of a point to 108.2 (+3.0 percent versus August 2018) as only three of seven components made a positive contribution. The press release said that the leading index was “consistent with a slow but still expanding economy, which has been primarily driven by strong consumer spending and robust job growth.”

#3Manufacturing production rebounded in August. The Federal Reserve tells us that manufacturing output grew a seasonally adjusted 0.5 percent during the month following a 0.4 percent pullback in July. Output for durable and nondurable goods each rose 0.5 percent, with the former boosted by higher than one-percent gains for machinery, primary metals, and nonmetallic mineral goods. Plastics/rubber products and chemicals lifted the nondurables figure. Overall industrial production grew 0.6 percent in August after having had slipped 0.1 percent during the prior month. Mining output jumped 1.4 percent following a 1.5 percent decline in July (caused by a temporary slowdown in oil extraction resulting from Hurricane Barry). Production at utilities grew 0.6 percent in August. Even with its expansion in August, manufacturing output was 0.4 percent smaller than that of a year earlier while the 12-month comparable for overall industrial production was a modest +0.4 percent.

#4Existing home sales edged up in August. Sales of previously owned homes gained 1.3 percent in August to a seasonally adjusted annualized rate (SAAR) of 5.49 million units (up 2.6 percent from August 2018). The National Association of Realtors’ measure grew in three of four Census regions—Northeast (+7.6 percent), Midwest (+3.1 percent), and South (+0.9 percent)—but fell 3.4 percent in the West. Home sales in four Census regions had positive 12-month comparables. Inventories of unsold homes remained tight, falling 2.1 percent during the month to 1.86 million houses (-2.6 percent versus August 2018). This was the equivalent to a 4.1 month supply. The median sales price has grown 4.7 percent over the past year to $278,200. The press release credits the recent drop in mortgage interest rates for the rise in home sales.

#5Housing starts bloomed in August. The Census Bureau reports that housing starts rose 12.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.215 million units. This left the measure 6.6 percent ahead of its year-ago mark. Single-family home starts increased 4.4 percent while those of multi-family units surged 30.9 percent. Leading towards the future, the number of issued housing permits gained 7.7 percent in August to an annualized 1.419 million permits (+12.0 percent versus August 2018). The annualized count of permits for single-family homes grew 4.5 percent during the month while that for homes with five or more units jumped 14.9 percent. Housing completions gained 2.4 percent in August to an annualized 1.294 million homes, up 5.0 percent from a year earlier.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 14, 2019, First-Time Claims, seasonally adjusted): 208,000 (+6,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 212,250 (+0.5% vs. the same week a year earlier).
Housing Market Index (September 2019, Index (>50 = ”Good” housing market), seasonally adjusted): 68 (vs. August 2019: 67, vs. September 2018: 67).
State Employment (August 2019, Nonfarm Payrolls, seasonally adjusted):  vs. July 2019: Grew in 5 states, Decreased in 1 state, and Unchanged in 44 states and the District of Columbia.  Vs. August 2018: Grew in 26 states and Unchanged in 34 states and the District of Columbia.
Treasury International Capital (July 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +$72.3 billion (vs. June 2019: +$65.3 billion, vs. July 2018: +$34.5 billion).

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

Autos Fuel Retail Sales, Prices Firm: September 9 – 13

Consumers were buying vehicles in August. Here are the five things we learned from U.S. economic data released during the week ending September 13.

#1Auto sales outpaced an otherwise modest retail sales report for August. The Census Bureau reports that retail and food services sales totaled $526.1 billion, up 0.4 percent from July and 4.1 percent from a year earlier. Sales at auto dealers and parts stores jumped 1.8 percent while those at gas stations fell 0.9 percent (due to lower prices at the pump). Net of both, core retail sales grew a tepid 0.1 percent following a 0.9 percent surge in July (12-month comparable: +4.2 percent). Sales rose during the month at building material/garden stores (+1.4 percent), sporting goods/hobby retailers (+0.9 percent), and health/personal care stores (+0.7 percent). Sales slumped, however, at department stores (-1.1 percent), furniture retailers (-0.5 percent), and grocery stores (-0.3 percent).

#2Core consumer prices rose for a third straight month in August. The Consumer Price Index (CPI) grew 0.1 percent on a seasonally adjusted basis for the third time over the past four months, per the Bureau of Labor Statistics. Energy CPI fell 1.9 percent (pulled down by a 3.5 percent drop in gasoline prices) while food CPI held steady. Net of both, core CPI grew 0.3 percent for a third consecutive month. Rising were prices for used cars/trucks (+1.1 percent), medical care services (+0.9 percent), transportation services (+0.4 percent), medical care commodities (+0.3 percent), apparel (+2.2 percent), and shelter (+0.2 percent). Prices slipped 0.1 percent for new vehicles. While headline CPI has grown by “only” 1.7 percent over the past year, the core measure of consumer prices has climbed 2.4 percent over the same 12 months.

#3And wholesale prices firmed too. The Bureau of Labor Statistics indicates that the Producer Price Index (PPI) for final demand increased 0.1 percent on a seasonally adjusted basis in August after rising 0.2 percent in July. The core measure—PPI net of energy, food, and trade services—jumped 0.4 percent after slipping 0.1 percent during the prior month. PPI for final demand goods dropped 0.5 percent, pulled down by declines for both energy (-2.5 percent—gasoline prices plummeted 6.6 percent) and food (-0.6 percent). Core goods PPI was unchanged for the month. PPI for final demand services grew 0.3 percent—but more notable was the core measure (which nets out trade services and transportation/warehousing) growing 0.5 percent. Over the past year, headline PPI has risen 1.8 percent while the 12-month comparable for the core wholesale prices was +1.9 percent.

#4The number of job openings pulled back slightly, but workers continued to quit their jobs. The Bureau of Labor Statistics estimates that there were a seasonally adjusted 7.217 million open jobs on the final day of July. While still near the historical high for the data series, this was off 31,000 from June and 3.0 percent from a year earlier. While both construction (+18.8 percent) and manufacturing (+7.0 percent) had sizable year-to-year percentage increases in job openings, other industries reported negative 12-month comparables: financial activities (-15.3 percent), retail trade (-15.2 percent), and accommodation/food services (-10.2 percent). Hiring picked up during July, rising by 237,000 to 5.953 million (+2.1 percent versus July 2018). 5.759 million people departed their jobs during the same month, up 246,000 from June and 1.5 percent ahead of the year-ago pace. This included 3.592 million people who voluntarily quit their jobs (up 130,000 for the month and 4.3 percent from July 2018), a signal suggesting Americans remain confident about the labor market. 1.799 million left their jobs due to a layoff, up 88,000 for the month but down 3.2 percent from a year earlier.

#5The federal budget deficit crossed the trillion dollar threshold, and the fiscal year is not even over yet. The Department of the Treasury reports that the U.S. government has collected $3.088 trillion in receipts through the first 11 months of FY2019, up 3.5 percent from the same 11-month period last year. Expenditures, however, have grown 7.0 percent over the same period to $4.155 trillion. The resulting budget deficit of $1.067 trillion was 18.9 percent ahead of that from the first 11 months of FY2018. Year-to-date individual income tax revenues were 0.9 percent ahead of that a year earlier while corporate tax receipts have expanded 4.5 percent. Among the notable gainers in expenditures were defense (+9.0 percent), debt service (+9.0 percent), and health & human services (+8.4 percent)

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 7, 2019, First-Time Claims, seasonally adjusted): 204,000 (-15,000 vs. previous week; -4,000 vs. the same week a year earlier). 4-week moving average: 212,500 (+0.3% vs. the same week a year earlier).
Import Prices (August 2019, All Imports, not seasonally adjusted): -0.5% vs. July 2019, -2.0% vs. August 2018; Nonfuel Imports: Unchanged vs. July 2019, -1.0% vs. August 2018.
– Export Prices (August 2019, All Exports, not seasonally adjusted): -0.6% vs. July 2019, -1.4% vs. August 2018; Nonagricultural Exports: -0.4% vs.
NFIB Small Business Optimism (August 2019, Index (1986=100), seasonally adjusted): 103.1 (vs. July 2019: 104.7, August 2018: 108.8).
University Surveys of Consumers (September 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 92.0 (vs. August 2019: 89.8, vs. September 2018: 100.1).
Business Inventories (July 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.043 trillion (+0.4% vs. June 2019, +4.8% vs. July 2018).
Consumer Credit (July 2019, Outstanding Consumer (non-real estate-backed) Loan Balances, seasonally adjusted): $4.123 trillion (+$23.3 billion vs. June 2019, +5.2% vs. July 2018).

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