Signs Point to Sluggish Growth: January 20 – 24

Late 2019 data–except for housing–fails to impress. Here are the five things we learned from U.S. economic data released during the week ending January 24.

#1Forward-looking economic data point to soft economic growth in 2020. The Conference Board’s Leading Economic Index (LEI) shed 3/10ths of a point in December to a reading of 111.2 (2016=100). This was the LEI’s fourth drop in five months and left the measure just 0.1 percent above its December 2018 reading. Five of ten LEI components made positive contributions, led by stock market gains. The coincident index edged up 1/10th of a point to 107.2, a 1.2 percent increase from a year earlier. Three of four coincident index components gained in December, led by nonfarm payrolls. The lagging index, however, shed 1/10th of a point to 108.8, with only two of seven components advancing. The lagging index has increased 2.3 percent over the past year. The press release noted “positive” financial conditions and consumer outlook “should support growth of about two percent through early 2020.”

#2Business activity sputtered in December. The Chicago Fed National Activity Index (CFNAI) plummeted by 76-basis points during the month to a reading of -0.35. (A reading of 0.00 is indicative of the U.S. economy expanding at its historical average.) Only 25 of the 85 economic indicators that comprise of the CFNAI made a positive contribution to the measure with the other 60 pulling down the index. Among the four major categories of CFNAI components, three dragged down the measure: production (made a negative 26-basis point contribution), employment (made a six-basis point negative contribution), and sales/orders/inventories (made a negative five-basis point contribution). Personal consumption/housing components added three-basis points to the headline index. The CFNAI’s three-month moving average improved by eight-basis points to -0.23, indicative of below-average economic growth.

#3Sales of previously owned homes rose to a two-year high in December. The National Association of Realtors estimates existing home sales jumped 3.6 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.54 million units. This was 10.8 percent ahead of the year-ago sales pace and its highest level since March 2018. Sales grew in three of four Census regions—Northeast (+5.7 percent), South (+5.4 percent), and West (+4.6 percent)—but declined 1.5 percent in the Midwest. Sales were ahead of their year-ago levels in all four Census regions, including double-digit percentage gains in both the South (+12.4 percent) and West (+10.7 percent). The press released noted that “[l]ow inventory remains a problem.” In fact, the already tight inventory of homes on the market constricted even further during the month. The 1.40 million homes on the market at the end of December—a mere 3.0 month supply—represented a 14.6 percent decline from November and 8.5 percent drop from a year earlier.

#4Home price growth mellowed in November. The Federal Housing Finance Agency’s House Price Index (HPI) grew 0.2 percent during the month, its smallest single-month increase since June. The index, which measures transaction prices of previously owned homes purchased with a conforming loan, grew in eight of nine Census regions. Home prices jumped 0.8 percent in the East North Central region but slipped 0.1 percent in the Mountain region. The HPI has risen 4.9 percent over the past year, with the most significant 12-month comparables in the Mountain (+6.3 percent) and East North Central (+5.5 percent) regions.

#5Only three states enjoyed a substantial payroll gain in December. The Bureau of Labor Statistics reports that only Texas (+29,800), Washington state (+10,900), and Arkansas (+5,400) enjoyed substantial payroll increases during the month. Nonfarm payrolls mostly held steady in the other 47 states and the District of Columbia. (We learned a few weeks ago that nonfarm payrolls expanded by a seasonally adjusted 145,000 during December.) In comparison to December 2018, payrolls grew in 26 states but held steady in the other 24 states and the District of Columbia. The states with the largest year-to-year percentage payroll increases were Utah (+3.1 percent), Idaho (+2.9 percent), and Arizona (+2.8 percent). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 18, 2020, First-Time Claims, seasonally adjusted): 211,000 (+6,000 vs. previous week; Unchanged vs. the same week a year earlier). 4-week moving average: 213,250 -3.1% vs. the same week a year earlier).

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

Retail Sales Up, Industrial Production Down: January 13 – 17

Retail sales ended 2019 on a positive note while job openings fell sharply. Here are the five things we learned from U.S. economic data released during the week ending January 17.

#1Holiday retail sales were decent. The Census Bureau estimates retail and food services sales grew 0.3 percent in December to a seasonally adjusted $529.6 billion. Sales slowed 1.3 percent at auto dealers/parts stores but rose 2.8 percent at gas stations. Net of sales at auto dealers/parts stores and gas stations, core retail sales bloomed 0.5 percent in December and were 5.7 percent of the year-ago pace. A quick look at combined November-December sales—a proxy for the recent holiday season—finds core retail sales were a solid 4.2 percent ahead of that of the prior year. In December, sales rose at retailers focused on apparel (+1.6 percent), building materials (+1.4 percent), sporting goods/hobbies (+0.9 percent), groceries (+0.4 percent), and furniture (+0.1 percent). Restaurant sales eked out a 0.2 percent improvement. Sales fell 0.8 percent at department stores.

#2Industrial production slowed for the third time in four months in December. The Federal Reserve estimates industrial production dropped a seasonally adjusted 0.3 percent, following a 0.8 percent increase in November and two consecutive 0.5 percent decreases in September and October. The headline index drop occurred despite a 0.2 percent improvement in manufacturing output (following a 1.0 percent bounce in November). Durable goods production slowed 0.2 percent (including a 4.6 percent slump in motor vehicle/parts output). In contrast, the output of nondurables expanded by 0.6 percent. Mining output advanced for the first time since August with a 1.3 percent gain while utilities production fell 5.6 percent due to moderate winter weather. Industrial production was 1.0 percent below that of a year earlier while manufacturing output was 1.3 percent behind the year-ago pace. 

#3Job openings shrank in November. The Bureau of Labor Statistics states that there were a seasonally adjusted 6.800 million job openings at the end of the month, down 561,000 from October and 10.8 percent from the year earlier. Even with the decline, there were more job openings than the number of unemployed adults (5.753 million). Private-sector job openings were off 12.7 percent from the same month a year earlier, with sizable year-to-year percentage declines in retail (-32.5 percent), construction (-23.3 percent), manufacturing (-22.6 percent), financial activities (-11.7 percent), accommodations/food services (-9.5 percent), and professional/business services (-7.8 percent). The number of job hires grew by 39,000 in November to 5.821 million, which matched the November 2018 count. 5.648 million people left their jobs in November, down a mere 4,000 from October and up a modest 0.9 percent from a year earlier. 3.536 million people quit their jobs during the month (+39,000 vs. October 2019 and +4.6 percent vs. November 2018) while the number of people laid off declined 46,000 to 1.749 million (-7.4 percent vs. November 2018).

#4Inflation took a holiday in December. The Bureau of Labor Statistics indicates that the Consumer Price Index (CPI) increased 0.2 percent on a seasonally adjusted basis during the month, down from gains of 0.4 percent and 0.3 percent in October and November, respectively. Food CPI grew 0.2 percent while energy CPI jumped 1.4 percent, the latter growing due to gasoline prices jumping 2.8 percent. Net of food and energy, core CPI increased 0.1 percent, its smallest gain since September. Rising were prices for medical care commodities (+1.5 percent) and services (+0.4 percent), apparel (+0.4 percent), shelter (+0.2 percent), and new vehicles (+0.1 percent). Prices fell for used cars/trucks (-0.8 percent) and transportation services (-0.3 percent). Both headline and core CPI have risen 2.3 percent over the past year.

Final demand Producer Price Index (PPI) inched up a seasonally adjusted 0.1 percent in December after holding steady during the prior month. The core measure of wholesale prices, which nets out of food, energy, and trade services, had a matching 0.1 percent increase. PPI for goods grew 0.3 percent. Prices jumped 1.5 percent for wholesale energy (gasoline: +3.7 percent) but fell 0.3 percent for wholesale food. PPI for final demand services held steady in December even as trade services PPI (measuring retailer and wholesaler margins) decreased 0.3 percent. Over the past year, final demand PPI has risen a modest 1.3 percent. In contrast, the 12-month comparable for the core measure has gained 1.5 percent.

#5Housing starts rose to a 13-year high in December. The Census Bureau reports housing starts jumped 16.9 percent during the month to a seasonally adjusted annualized rate of 1.375 million units. This was 40.8 percent ahead of the year-ago starts rate and the measure’s highest mark since October 2006. Starts surged for both single-family (+11.2 percent vs. November 2019, +29.6 percent vs. December 2018) and multi-family units (+32.0 percent vs. November 2019, +74.6 percent vs. December 2018). Looking towards the future, the annualized count of issue housing permits declined 3.9 percent in December to 1.416 million (+5.8 percent vs. December 2018). The annualized count of housing completions grew 5.1 percent during the month to 1.277 million homes, up 19.6 percent from the same month a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 11, 2020, First-Time Claims, seasonally adjusted): 204,000 (-10,000 vs. previous week; -13,000 vs. the same week a year earlier). 4-week moving average: 216,250 -3.0% vs. the same week a year earlier).
Import Prices (December 2019, All Imports, not seasonally adjusted): +0.3% vs. November 2019, +0.5% vs. December 2018. Nonfuel Imports: Unchanged vs. November 2019, -1.4% vs. December 2018.
Export Prices (December 2019, All Exports, not seasonally adjusted): -0.2% vs. November 2019, -0.7% vs. December 2018. Non-Agricultural Exports: -0.1% vs. November 2019, -0.6% vs. December 2018.
University of Michigan Surveys of Consumers (January 2020-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted):  99.1 (vs. December 2019: 99.3, January 2019: 91.2.
Housing Market Index (January 2020, Index (>50=More homebuilders view the housing market as “good” versus “poor,” seasonally adjusted): 75 (vs. December 2019: 76, January 2019: 58).
Small Business Optimism Index (December 2019, Index (1986=100), seasonally adjusted): 102.7 (vs. November 2019: 104.7, vs. December 2018: 104.4).
Business Inventories (November 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.037 trillion (-0.2% vs. October 2019, +2.8% vs. November 2018.
Treasury International Capital Flows (November 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$7.3 billion (vs. October 2019: +$4.3 billion, November 2018: -$3.0 billion.
Beige Book

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

Payrolls and the Service Sector Bloom, Manufacturing Struggles: January 6 – 10

The U.S. labor market added 22.6 million jobs during the 2010s. Here are the five things we learned from U.S. economic data released during the week ending January 10.

#12019 was the 10th straight year of job gains. The Bureau of Labor Statistics reports that nonfarm payrolls expanded by a seasonally adjusted 145,000 in December. This was the 111th straight month of job gains, although the smallest single-month gain since last May. The 2.11 million jobs added jobs for all of 2019 also was the fewest for a year since 2011 (although 2017’s count of 2.15 million was not much larger). All of December’s payrolls gain came from the service sector, which added 140,000 jobs, while the goods-producing side of the economy shed 1,000 workers. The industries adding the most jobs during the month were retail (+41,200), leisure/hospitality (+40,000), health care/social assistance (+33,900), and construction (+20,000). Manufacturing employment fell by 12,000 in December. The same report notes that average hourly earnings have grown 2.9 percent over the past year to $28.32.

Nonfarm Payrolls 2009-2019 011020

A separate households survey keeps the unemployment rate at a post-recession low of 3.5 percent and finds 209,000 people entering the labor market during the month. The labor force participation rate held steady at 63.2 percent, with the same measure for adults 25-54 eking out a 1/10th of a percentage point increase to 82.9 percent (its highest point since June 2009). The median length of unemployment declined by 2/10ths of a week to 9.0 weeks (December 2018: 9.4 weeks), while the count of part-time workers seeking a full-time job fell to a post-recession low of 4.148 million (December 2018: 4.655 million). The broadest measure of labor underutilization (the U-6 series) slipped by 2/10ths of a point to 6.7 percent (the lowest ever for the 26-year old data series).

#2Service sector business activity remained robust in December. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business, added 1.1 points to a reading of 55.0. Not only was this the NMI’s best mark since last August, but it also represented the 119th consecutive month in which the measure was above a reading of 50.0, the threshold between a growing and contracting service sector. Two of four NMI components improved in December: business activity/production (up 5.6 points to 57.2) and supplier deliveries (up a full point to 52.5). The other two measures fell: new orders (down 2.2 points to 54.9) and employment (down 3/10ths of a point to 55.2). Eleven of 18-tracked service sector industries reported growth in December, led by retail, arts/entertainment/recreation, and management of companies/support services. 

#3New factory orders continued to struggle in November. The Census Bureau finds new orders for manufactured goods dropped for the third time in four months with a $3.6 billion decrease to a seasonally adjusted $493.0 billion. Durable goods orders fell by $5.2 billion to $242.2 billion, while orders for nondurables grew by $1.6 billion to $250.8 billion. On the bright side, new orders for civilian goods rose 0.7 percent while those for civilian non-aircraft capital goods inched up 0.2 percent. Shipments grew by $1.7 billion to $502.2 billion, with gains for durable and nondurable goods of $0.1 billion and $1.6 billion, respectively. Unfilled orders fell for the second time in three months, shrinking by $4.9 billion to $1.159 trillion while inventories expanded by $2.0 billion to $701.0 billion, its 11th gain in 12 months. 

#4The trade deficit narrowed in November. The Census Bureau and the Bureau of Economic Analysis state that exports increased by $1.4 billion during the month to a seasonally adjusted $208.6 billion (+0.3 percent versus November 2018) while imports fell by $2.5 billion to $251.7 billion (-3.8 percent versus November 2018). The resulting trade deficit of -$43.1 billion was down $3.9 billion from October and its smallest reading in more than three years. The goods deficit narrowed by $3.9 billion to -$63.9 billion while the service surplus mostly held steady at +$20.8 billion. The U.S. had its largest goods deficits with China (down $2.2 billion to -$25.6 billion), European Union (-$13.5 billion), and Mexico (-$8.5 billion).

#5Consumers took on more debt in November, but credit card balances declined. The Federal Reserve estimates consumers had outstanding non-real estate backed credit balances of $4.176 trillion (seasonally adjusted). This represented an increase of $12.5 billion for the month and 4.5 percent from a year earlier. Consumers shed $2.3 billion in outstanding revolving credit—i.e., credit cards—to $1.086 trillion (+2.9 percent versus November 2018). On the flipside, nonrevolving credit balances, including those for student and auto loans, grew by $14.9 billion to $3.090 trillion, up 5.0 percent from a year earlier. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 4, 2020, First-Time Claims, seasonally adjusted): 214,000 (-9,000 vs. previous week; -7,000 vs. the same week a year earlier). 4-week moving average: 224,000 (+0.1% vs. the same week a year earlier).
Wholesale Trade (November 2019, Merchant Wholesaler Inventories, seasonally adjusted): $674.9 billion (-0.1% vs. October 2019, +3.3% vs. November 2018).

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