Consumers Check Their Spending: November 25 – 29

Personal spending and overall economic activity chilled in the fall weather. Here are the five things we learned from U.S. economic data released during the week ending November 29.

#1Personal spending reflected caution in October. The Bureau of Economic Analysis indicates real personal consumption expenditures (PCE) increased 0.1 percent on a seasonally adjusted basis during the month, its smallest increase since February. Real spending on goods slumped 0.2 percent, pulled down by a 0.8 percent drop for durable goods. Expenditures on both nondurable goods and services each grew 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.3 percent, even as nominal personal income held steady and nominal personal income slipped 0.1 percent. Real disposable income dropped 0.3 percent. As a result, the savings rate shed 3/10ths of a point to +7.8 percent, its lowest point since July. Over the past year, real PCE has risen 2.3 percent, while real disposable income has grown 2.8 percent.Real Personal Consumption Expenditures: January - October 2019

#2The U.S. economy grew more robustly in Q3 than previously thought. The Bureau of Economic Analysis’ second estimate of Q3 Gross Domestic Product (GDP) now places the quarter’s economic expansion at a seasonally adjusted annualized rate (SAAR) +2.1 percent, up from the previously reported 1.9 percent gain. The upward revision was due to higher than previously reported levels of private inventory accumulation, business investment, and personal spending. Of the major components of the economy, only those tied to personal spending, government spending, fixed residential investment, and private inventory accumulation led to GDP growth. The same report finds Q3 corporate profits were soft, edging up by a mere 0.2 percent during the quarter and off 0.8 percent from a year earlier. The BEA will update its Q3 GDP and corporate profits data once again on December 20. 

#3…But the rate of economic expansion appears to have decelerated sharply in October. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic data points, lost 36-basis points during the month to a reading of -0.71. The CFNAI’s three-month moving average, which removes some of the month-to-month volatility, fell to its lowest mark since May with a ten-basis point loss to -0.31. The negative reading does not imply the U.S. economy contracted during the month, however, as the moving average remained above -0.70 (the marker for negative growth). Still, only 27 of the 85 economic indicators made a positive contribution to the CFNAI, while the other 58 measures had a negative impact. Indicators linked to production and employment had the most substantial negative impact on the CFNAI in October.

#4Durable goods orders showed some life in October. The Census Bureau estimates new orders for manufactured durable goods grew 0.6 percent during the month to a seasonally adjusted $248.7 billion. Transportation goods orders rose 0.7 percent, boosted by increases for both defense (+18.1 percent) and civilian (+10.7 percent) aircraft. Net of transportation goods, core durable goods orders gained 0.6 percent. Rising were orders for fabricated metal products (+1.8 percent), machinery (+1.3 percent), and computers/electronics (+0.7 percent). Orders slowed for electrical equipment/appliances (-1.7 percent) and primary metals (-1.4 percent). Signaling some vigor was business investment as civilian capital goods orders net of aircraft grew 1.2 percent in October.

#5New home sales slipped in October. The Census Bureau reports sales of new single-family homes decreased 0.7 percent during the month to a seasonally adjusted annualized rate of 733,000 units. Even with the decline, new home sales were 31.6 percent ahead of their year-ago pace. Sales grew during the month in two Census regions—West (+7.1 percent) and Midwest (+4.2 percent)—but slowed in the Northeast (-18.2 percent) and South (-3.3 percent). There were 322,000 new homes available for sale at the end of the month, up a modest 0.3 percent from September but off 3.3 percent from a year earlier. This was equivalent to a 5.3 month supply of homes on the market (versus a 7.2 month supply a year earlier).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 23, 2019, First-Time Claims, seasonally adjusted): 213,000 (-15,000 vs. previous week; -21,000 vs. the same week a year earlier). 4-week moving average: 219,750 (-2.1% vs. the same week a year earlier).
Consumer Confidence Index (November 2019, Index (1985=100), seasonally adjusted): 125.5 (vs. October 2019: 126.1).
Pending Home Sales (October 2019, Index (2001=100), seasonally adjusted): 106.7 (vs. September 2019: 108.6; vs. October 2018: 102.2).
FHFA House Price Index (September 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. August 2019, +5.1% vs. September 2018.
Agricultural Prices (October 2019, Prices Received by Farmers): -2.6% vs. September 2019, -0.6% vs. October 2018.
Beige Book

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Economic Data Sends Mixed Messages: November 18 – 22

While leading indicators suggest economic weakness, both housing and sentiment gained momentum. Here are the five things we learned from U.S. economic data released during the week ending November 22.

#1Forward-looking economic indicators remained sluggish in October. The Conference Board’s Leading Economic Index (LEI) pulled back for a third consecutive month with a 1/10th of a point decline to 111.7 (2016=100). The LEI has remained within a small range over the past year. Only five of ten LEI components made positive contributions, led by building permits while manufacturing index components dragged down the measure. The coincident index held steady at a reading of 106.5, up 1.4 percent from a year earlier. Three of four coincident index components made positive contributions, led by personal income. The lagging index inched up 1/10th of a point to a reading of 108.1, with three of seven index components making a positive contribution (led by the length of unemployment). The press release says the results suggest “the economy will end the year on a weak note, at just below two percent growth.”

#2Previously home sales bounced back in October. Existing home sales, as measured by the National Association of Realtors, increased 1.9 percent during the month to a seasonally adjusted annualized rate of 5.46 million units. Sales expanded in the South (+4.4 percent) and Midwest (+1.6 percent) but slowed in the Northeast (-1.4 percent) and West (-0.9 percent). Sales have risen 4.6 percent over the past year, with three of four Census regions enjoying positive 12-month comparables. Sales matched that of a year earlier in the Northeast. The supply of homes tightened further, falling 2.7 percent to 1.77 million units, the equivalent to a 3.9 month supply. The median sales price of $270,900 was up 6.2 percent from a year earlier. The press release attributes the improvement in sales to “[h]istorically-low interest rates, continuing job expansion, higher weekly earnings and low mortgage rates.”

#3Housing starts rebounded in October. The Census Bureau reports that housing starts gained 3.8 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.314 million units. Starts were 8.5 percent ahead of their year-ago mark. Single-family home starts grew 2.0 percent in October while those of multi-family units rose 6.5 percent. Permit activity presents a positive outlook—the number of issues permits increased 5.0 percent during the month to an annualized 1.391 million permits. This was up 14.1 percent from a year earlier. The annualized count of completed homes surged 10.3 percent in October to 1.256 million homes (+12.4 percent versus October 2019).

#4Sentiment among homebuilders remained solid in November. The National Association of Home Builders’ Housing Market Index (HMI) came in at a seasonally adjusted reading of 70. The measure was off a point from October but up ten points from a year earlier. Further, the HMI has been above a reading of 50—indicative of more homebuilders seeing the housing market as “good” as opposed to being “poor”—for 65 straight months. The HMI grew three in four Census regions: Northeast (up three points to 63), West (up two points to 85), and Midwest (up a point to Midwest). The HMI shed two points in the South to a reading of 74. The press release notes that builders report “ongoing positive conditions,” boosted by low interest rates and a robust labor market.

#5Consumer confidence rose to its highest level since the summer. The University of Michigan’s Index of Consumer Sentiment added 1.3 points in November to a seasonally adjusted reading of 96.8 (1966Q1=100). Even with the increase, the measure was off 7/10ths of a point from a year earlier. While the current conditions index shed 1.6 points during the month to 111.6 (November 2018: 111.6), the expectations index improved by 3.1 points to 87.3 (November 2018: 88.1). The press release points out that the headline index has been above a reading of 95.0 in 30 of the past 35 months, a show of strength not seen since a period between 1998 and 2000.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 16, 2019, First-Time Claims, seasonally adjusted): 227,000 (Unchanged vs. previous week; +3,000 vs. the same week a year earlier). 4-week moving average: 221,000 (+0.1% vs. the same week a year earlier).
State Employment (October 2019, Nonfarm Payrolls, seasonally adjusted): vs. September 2019: up in 4 states, down in 1 state, and essentially unchanged in 45 states and the District of Columbia. Vs. October 2018: Up in 27 states and essentially unchanged in 23 states and the District of Columbia.
Treasury International Capital Flows (September 2019, Net Foreign Purchases of Domestic Securities, not seasonally adjusted): +15.4 billion (vs. August 2019: -$42.0 billion, vs. September 2018: +$8.5 billion.
FOMC Minutes

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Retail Sales Gain, Manufacturing Does Not: November 11 – 15

Retail sales made a small comeback in October while manufacturing let up again. Here are the five things we learned from U.S. economic data released during the week ending November 15.

#1Retail sales bounced back in October. Retail and food services sales grew 0.3 percent during the month to a seasonally adjusted $526.5 billion. This followed a 0.3 percent drop in September for the Census Bureau measure. Sales rose at both auto dealers & parts stores (+0.5 percent) and gas stations (+1.1 percent). Net of both, core retail sales inched up 0.1 percent after slipping 0.1 percent during the prior month. Sales gained at general merchandisers (+0.4 percent) and grocery stores (+0.4 percent) but stumbled at stores focused on apparel (-1.0 percent), furniture (-0.9 percent), sporting goods/hobbies (-0.8 percent), building materials (-0.5 percent), and electronics/appliances (-0.4 percent). Retail sales have risen 3.1 percent over the past year, while core retail sales have a more robust 12-month comparable of +3.7 percent.

#2A now-ended strike dampened manufacturing output in October. The Federal Reserve estimates that manufacturing output fell 0.6 percent during the month following a 0.5 percent decline in September. Durable goods product slumped 1.2 percent, harmed in part by the now-settled General Motors strike. Net of automobiles, durable goods manufacturing slowed 0.2 percent. Nondurables output held steady during the month. Overall industrial production had its worst month in 17 months with a 0.8 percent decline. Mining output declined 0.7 percent while utilities production plummeted 2.6 percent. Manufacturing production was 1.5 percent below that of a year earlier, while overall industrial production was 1.1 percent behind its October 2018 pace. 

#3Higher gasoline prices heated up not only consumer inflation in October… The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) jumped 0.4 percent on a seasonally adjusted basis during the month, the biggest single-month gain since March. Gasoline prices surged 3.7 percent, pushing up energy CPI 2.7 percent. Food CPI jumped 0.2 percent (its highest one-month gain since May). Net of energy and food, core CPI increased 0.2 percent. Rising in October were prices for used cars/trucks (+1.3 percent), medical care commodities (+1.2 percent), medical care services (+0.9 percent), shelter (+0.1 percent), and transportation services (+0.1 percent). Prices decreased for apparel (-1.8 percent) and new vehicles (-0.2 percent). CPI has risen 1.8 percent over the past year, while the core measure has a 12-month comparable of +2.3 percent.

#4…But also wholesale prices. Final demand Producer Price Index (PPI) also rose a seasonally adjusted 0.4 percent in October, the biggest gain in six months for the Bureau of Labor Statistics gauge. The core measure, which nets out energy, food, and trade services, had a more modest 0.1 percent increase. Goods PPI jumped 0.7 percent, half of which came from a 7.3 percent surge in wholesale gasoline prices. Netting out gains for energy (+2.8 percent) and food (+1.3 percent), core goods PPI held steady in October. Final demand services PPI gained 0.3 percent, pushed up by a 0.8 percent rise in trade services (wholesale and retail margins). Headline PPI has grown a relatively modest 1.1 percent over the past year while the core measure has risen 1.5 percent.

#5Optimism improved slightly among small business owners. The Small Business Owner Optimism Index from the National Federation of Independent Business added 6/10ths of a point during October to a seasonally adjusted reading of 102.4 (1986=100). While this was the first increase in three months, the measure remained five full points below its year-ago mark. Eight of the index’s ten components improved during the month, led by gains for measures tied plans to increase both inventories and capital outlays. Two components dropped during the month: earnings trends and current job openings. The press release noted small business owners “are not experiencing the predicted turmoil” of a recession.

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 9, 2019, First-Time Claims, seasonally adjusted): 225,000 (+14,000 vs. previous week; +2,000 vs. the same week a year earlier). 4-week moving average: 217,000 (-1.0% vs. the same week a year earlier).
Import Prices (October 2019, All Imports, not seasonally adjusted): -0.5% vs. September 2019, -3.0% vs. October 2018. Nonfuel Imports: -0.2% vs. September 2019, -1.4% vs. October 2018.
Export Prices (October 2019, All Exports, not seasonally adjusted): -0.1% vs. September 2019, -2.2% vs. October 2018. Nonagricultural Exports: -0.1% vs. September 2019, -2.7% vs. October 2018.
Monthly Treasury Statement (October 2019, Federal Budget Deficit): -$134.5 billion (vs. October 2018: -$100.5 billion).
Business Inventories (September 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.042 trillion (unchanged vs. August 2019, +3.7% vs. September 2018).

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