Increased Economic Activity, Decreased Durable Goods Orders: December 23 – 27

The U.S. economy expanded more quickly in November, but durable goods orders faltered. Here are the five things we learned from U.S. economic data released during the week ending December 27.

#1Economic activity accelerated in November. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, soared by 132-basis points during the month to its best reading since February 2018: +0.56. Fifty of the 85 indicators made positive contributions to the CFNAI, with 64 measures improving from their October marks. All four major categories of indicators grew in November. Still, the most significant gains came from indicators tied to production (making a +0.49 contribution to the CFNAI) and employment (making a +0.12 contribution). The three-month moving average of the CFNAI improved by ten basis points to a reading of -0.25. (A moving average ranging between 0.00 and -0.70 is indicative of below-average economic growth.)

#2Durable goods orders fell hard in November. The Census Bureau reports that new orders for manufactured goods slumped 2.0 percent during the month to a seasonally adjusted $242.6 billion, its second decline in three months. A primary culprit was the sharp 72.7 percent drop in orders for defense aircraft. Net of defense goods, durable goods orders rose 0.8 percent. Among major industries segments, orders increased for electrical equipment/appliances (+2.0 percent), motor vehicles (+1.9 percent), fabricated metal products (+0.4 percent), computers/electronics (+0.2 percent). Orders declined for civilian aircraft (-1.8 percent), machinery (-1.6 percent), and primary metals (-0.3 percent). 

#3New home sales gained in November. The Census Bureau finds new single-family home sales grew 1.3 percent during the month to a seasonally adjusted annualized rate (SAAR) of 719,000 units. New home sales have risen 16.9 percent over the past year. Sales grew in the Northeast (+52.4 percent), and West (+7.5 percent), held steady in the Midwest, slowed 4.1 percent in the South. Three of four Census regions enjoyed positive 12-month comparables, with only the Midwest experiencing a year-to-year sales decline. There were 323,000 new homes for sale at the end of November (a 5.4 month supply), matching the October count but 3.3 percent below November 2018 levels. The median sales price of $330,800 was up 7.2 percent from a year earlier (it is worth noting that price comparisons are difficult because the mix of homes sold likely differ month-to-month).

#4Jobless claims remained well in check during the final days of 2019. The Department of Labor estimates there were a seasonally adjusted 222,000 first-time claims made for unemployment insurance benefits during the week ending December 21. This was down 13,000 from the prior week and 30,000 from two weeks ago (when the late Thanksgiving holiday had messed with seasonal adjustments), but essentially matched the year-ago count of 223,000 first-time claims. The four-week moving average of first-time claims edged up by 2,250 to 228,000. This represented a 3.1 percent increase from a year earlier.

#5Agricultural prices rose in November. The U.S. Department of Agriculture’s index of the prices received by farmers increased by 4.6 percent to a reading of 88.6 (2011=100). This left the measure 0.2 percent ahead of its year-ago mark. Prices rose for eggs (+176.9 percent from the prior month), lettuce (+66.6 percent), cattle (+5.6 percent), and milk (+4.8 percent) but fell for corn, broilers, apples, and hogs. Meanwhile, cost pressures were held in relative check as the prices paid by farmers index inched up 0.3 percent to 110.4 (November 2018: 109.8). 

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

A Robust Start to the Holiday Shopping Season: December 16 – 20

Consumer spending and sentiment were solid in November. Here are the five things we learned from U.S. economic data released during the week ending December 20.

#1Consumer spending signaled strength in November. The Bureau of Economic Analysis estimates real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during the month, its largest increase since July. Spending on goods increased 0.5, split between gains for durables and nondurables of +1.2 percent and 0.1 percent, respectively. (It is worth noting that just last week, Census Bureau data pointed to modest retail sales during the same month.) Expenditures on services crept up 0.2 percent. Nominal (not inflation-adjusted) PCE rose 0.4 percent in November, funded by 0.5 percent gains for both nominal personal income and nominal disposable income. Real disposable income expanded 0.4 percent. The savings rate edged up 1/10th of a point to 7.9 percent. Over the past year, real personal spending has risen 2.4 percent funded by a 3.1 percent jump in real disposable income.

#2Manufacturing output grew for the second time in five months in November. The Federal Reserve estimates manufacturing production jumped 1.1 percent during the month. Output of durable goods surged 2.2 percent, boosted by a post-GM strike rise in automobile manufacturing and sizable increases for both primary metals and computers/electronics. Nondurable goods output grew 0.1 percent. Overall industrial production gained 1.1 percent. Mining output slipped 0.2 percent as gas/oil drilling slowed. Cold weather in parts of the U.S. led to a 2.9 percent rise in utility output. Even with their November gains, both overall industrial production and manufacturing output have declined 0.8 percent over the past year.

#3The latest revision to Q3 GDP has the U.S. economy growing at a moderate rate. The third estimate of Q3 Gross Domestic Product keeps the seasonally adjusted annualized growth rate at a good but not great +2.1 percent. The Bureau of Economic Analysis’ revision reflects higher than previously believed levels of consumer spending and business investment, offset by lower levels of inventory accumulation. The only sectors of the economy making positive contributions to GDP growth were consumer spending, government spending, fixed residential investment, and exports. The same report finds corporate profits slipping 0.2 percent during the quarter. We will see our first snapshot of Q4 GDP on January 30.

#4Employers continued having difficulty finding people to fill open jobs. The Bureau of Labor Statistics reports that there were a seasonally adjusted 7.267 million open jobs at the end of October, up 235,000 for the month but off by 326,000 from a year earlier (but still near a record high for the data series). (By comparison, the BLS estimates that there were “only” 5.855 million unemployed adults during the same month.) Private-sector employers had 5.515 million open jobs, down 6.2 percent versus October 2018. Employers were unable to fill these jobs as hiring declined by 213,000 to 5.764 million (-1.9 percent versus October 2018). 5.636 million people departed their jobs, down 162,000 from September but essentially matching that of a year earlier. This included a small rise in workers voluntarily quitting their jobs (up 41,000 to 3.512 million, +1.2 percent versus October 2018). Meanwhile, the count of layoffs plummeted by 198,000 to 1.769 million (-4.6 percent versus October 2018).

#5Consumer confidence ends 2019 on a high note. The December Index of Consumer Sentiment reading of 99.3 (seasonally adjusted), essentially matched the preliminary mark reported a few weeks earlier and was up by 2.5 points from November and a full point over the previous year. The University of Michigan also notes that its current conditions index jumped 3.9 points to 115.5 (December 2018: 116.1) while the expectations index added 1.6 points to 88.9 (December 2018: 87.0). The press release stated that the impeachment hearings “had a barely noticeable impact on economic expectations,” with only two percent of survey respondents mentioning it.

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 14, 2019, First-Time Claims, seasonally adjusted): 234,000 (-18,000 vs. previous week; +14,000 vs. the same week a year earlier). 4-week moving average: 225,500 (+0.7% vs. the same week a year earlier).
Leading Indicators (November 2019, Index (2016=100)): 111.6 (Unchanged vs. October 2019, +0.1% vs. November 2018).
Existing Home Sales (November 2019, Sales, seasonally adjusted annualized rate): 5.35 million (-1.7% vs. October 2019, +2.7% vs. November 2018).
Housing Starts (November 2019, Housing Starts, seasonally adjusted annualized rate): 1.365 million units (+3.2% vs. October 2019, +13.6% vs. November 2018).
Housing Market Index (December 2019, Index (>50=Greater Percentage of Homebuilders View the Housing Market as Being “Good” versus Being “Poor,” seasonally adjusted): 76 (vs. November 2019: 71, vs. December 2018: 56).
State Employment (November 2019, Nonfarm Payrolls, seasonally adjusted): Vs. October 2019: Payrolls grew in 6 states, decreased in 1 state, and were essentially unchanged in 43 states and the District of Columbia. Vs. November 2018: Payrolls grew in 25 states and were essentially unchanged in 25 states and the District of Columbia.

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

The Fed Takes a Pause…So Do Consumers: December 9 – 13

FOMC voting members signal that the rate cuts are over, at least for now. Here are the five things we learned from U.S. economic data released during the week ending December 13.

#1The Fed left alone its short-term interest target and expects not making any changes in 2020 either. The policy statement released after last week’s Federal Open Market Committee (FOMC) meeting contained the exact verbiage from last October in describing the state of the U.S. economy. This included noting a “strong” labor market and an economy expanding at a “moderate rate.” As a result, the FOMC voting members agreed unanimously to keep the fed funds target at a range of 1.50 percent and 1.75 percent. The committee saw their monetary policy as “appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective.”

Economic projections released in conjunction with the policy statement indicated that FOMC members do not expect to change course in 2020. The median forecast found the U.S. economy growing 2.0 percent next year with an unemployment rate of 3.5 percent and inflation slightly below the Fed’s 2.0 percent target. The same forecast has no fed funds rate cuts next year. Thirteen of 17 FOMC members expect the fed funds target rate will hold steady in 2020 while four voting members anticipate a quarter-point rate increase.

#2The start of the holiday season retail sales fails to impress. The Census Bureau estimates retail food services sales grew 0.2 percent during the month to a seasonally adjusted $528.0 billion, off from October’s 0.4 percent increase. Boosting the headline sales figures were advances at both car dealers/parts stores (+0.5 percent) and gas stations (+0.7 percent). Net of sales at both car dealers and gas stations, core retail sales were unchanged in November. Sales slumped at health/personal care stores (-1.1 percent), apparel retailers (-0.6 percent), department stores (-0.6 percent), sporting goods/hobby retailers (-0.5 percent), and restaurant/bars (-0.3 percent). Sales grew at stores focused on electronics/appliances (+0.7 percent), and groceries (+0.3 percent), and furniture (+0.1 percent). Both the headline and core retail sales measures have risen a good, but not great 3.3 percent over the past year.

#3Consumer prices rose in November. The Bureau of Labor Statistics reports that the Consumer Price Index (CPI) grew at a 0.3 percent seasonally adjusted rate, following October’s 0.4 percent rise. Energy CPI rose 0.8 percent, down from October’s 2.7 percent surge (gasoline: +1.1 percent versus October 2019), while food CPI edged up 0.1 percent. Net of both energy and food, core CPI increased 0.2 percent, matching October’s advance. Prices rose for used cars/trucks (+0.6 percent), medical care services (+0.4 percent), shelter services (+0.3 percent), apparel (+0.1 percent), and medical care commodities (+0.1 percent). New vehicle prices slipped 0.1 percent. Over the past year, CPI has risen 2.1 percent while core CPI has risen 2.3 percent.

#4Wholesale prices mellowed in November. The Producer Price Index (PPI) for final demand held steady during the month on a seasonally adjusted basis following a 0.4 percent gain in October. Also holding constant was the Bureau of Labor Statistics’ core measure of wholesale prices (final demand PPI net of foods, energy, and trade services), after inching up 0.1 percent during the prior month. Wholesale prices jumped 1.1 percent for food (boosted by eggs and vegetables) and 0.6 percent for energy (gasoline: +2.3 percent). Core goods PPI climbed 0.2 percent, its biggest single-month gain since July. PPI for final demand services dropped 0.3 percent, pulled down a 0.6 percent slump in PPI for trade services. Over the past year, final demand PPI has grown by a mild 1.1 percent while the core measure had a 12-month comparable of +1.3 percent.

#5Small business owners were more positive in November. The Small Business Owner Optimism Index, from the National Federation of Independent Business, added 2.3 points during the month to a seasonally adjusted reading of 104.7 (1986=100). This was the measure’s best reading since July and left it just 1/10th of a point below that of a year earlier. Seven of ten index components improved in November, led by sizeable gains for those related to earnings trends, whether it is a good time to expand, current inventories, and current job openings. Only two index components slipped: expected real sales and plans to increase inventories. The press release said that small business “[o]wners are aggressively moving forward with their business plans.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending December 7, 2019, First-Time Claims, seasonally adjusted): 252,000 (+49,000 vs. previous week; +39,000 vs. the same week a year earlier). 4-week moving average: 224,000 (-0.4% vs. the same week a year earlier).
Import Prices (November 2019, All Imports, not seasonally adjusted): +0.2% vs. October 2019, -1.3% vs. November 2018. Nonfuel Imports: -0.1% vs. October 2019, -1.4% vs. November 2018.
Export Prices (November 2019, All Exports, not seasonally adjusted): +0.2% vs. October 2019, -1.3% vs. November 2018. Nonagricultural Exports: Unchanged vs. October 2019, -1.6% vs. November 2018.
Productivity (Nonfarm Labor Productivity, 2019Q3, seasonally adjusted annualized rate): -0.2% vs. 2019Q2, +1.5% vs. 2018Q3.
Business Inventories (October 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): +0.2% vs. September 2019, +3.1% vs. October 2018. 

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