Personal Incomes Flourished in January: February 24 – 28

The U.S. economy started 2020 with some positive numbers, but questions emerge about the potential impact coming from COVID-19. Here are the five things we learned from U.S. economic data released during the week ending February 28.

#1Personal income rose in January. The Bureau of Economic Analysis reports that nominal (not inflation-adjusted) personal income rose 0.6 percent during the month, its biggest jump in 11 months. Nominal disposable income also advanced 0.6 percent while inflation-adjusted “real” disposable income swelled 0.5 percent. The extra money in the wallet did not, however, translate to significantly increased spending—real personal consumption expenditures (PCE) grew 0.1 percent during the month (the nominal measure advanced 0.2 percent). While durable goods spending surged 0.6 percent and that on services moved forward 0.3 percent, expenditures on nondurables slowed 0.2 percent. The savings rate widened by 4/10ths of a percentage point to +7.9 percent.

#22019 ended with a moderately expanding economy. The Bureau of Economic Analysis’ second estimate of Q4 2019 Gross Domestic Product (GDP) growth matched that of its first estimate with a seasonally adjusted annualized rate (SAAR) of +2.1 percent. This followed a matching +2.1 percent gain during Q3 and a 2.0 percent advance in Q2. The revision reflected a higher than previously believed level of private inventory investment counterbalanced by a smaller estimate of nonresidential fixed investment. Making positive contributions to Q4 growth were (in descending order) imports, personal consumption, government expenditures, and exports. Dragging down economic activity were private inventory investment and nonresidential fixed investment. The BEA will once again update its Q4 GDP estimate on March 26.

#3Signs suggest economic conditions solidified in January. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, improved by 26-basis points to -0.25. The three-month moving average gained by 14-basis points to a reading of -0.09, its best mark since last August. (A CFNAI reading of 0.00 is indicative of the U.S. economy growing at its historical average. A reading of -0.70 suggests an economic contraction.) Thirty-six of the 85 indicators made a positive contribution to the CFNAI, while the other 49 had a negative impact. All four major categories of indicators showed improved from their December readings, although three of them had overall a negative effect on the headline index: production (-0.23), employment (-0.03) sales/orders/inventories (-0.02), and personal consumption/housing (+0.03). 

#4Consumer Sentiment held firm for now. The Conference Board’s Consumer Confidence Index inched up by 3/10ths of a point in February to a seasonally adjusted 130.7 (1985=100). The present conditions index shed 8.8 points to a reading of 165.1 while the expectations index added 6.4 points to 107.8. 38.6 percent of survey respondents viewed current economic conditions as “good” (versus 40.0 percent in the January survey), while 44.6 percent described jobs as being “plentiful” (versus 47.2 percent in the January survey). In noting the consumers view current economic conditions “quite favorably,” the press release said the results “support spending and economic growth in the near term.”

The University of Michigan’s Index of Consumer Sentiment added 1.2 points in February to a seasonally adjusted 101.0 (1966Q1=100), leaving the measure up 7.2 points from a year earlier. The current conditions index edged up by 4/10ths of a point to 114.8 (February 2019: 108.5) while the expected conditions index added 1.6 points to 92.1 (February 2019). Most notable in the press release was the observation about the impact on sentiment from the news surrounding the coronavirus—while only eight percent of survey respondents noted that COVID-19 was affecting their economic expectations, 20 percent of those who completed the survey early last week (after the release of the CDC warnings and freefall in the stock market) said the news was affecting their outlook. (The press release noted that this difference was not statistically significant.)

#5New home sales surged in January. The Census Bureau reports that new home sales rose 7.9 percent to a seasonally adjusted annualized rate of 764,000 units. This was the highest level of new home sales since June 2007 and represented an 18.6 percent gain from a year earlier. Sales grew during the month in three of four Census regions: Midwest (+30.3 percent), West (+23.5 percent), and Northeast (+4.8 percent). The Midwest suffered a 4.4 percent drop in new home sales. There were 324,000 unsold new homes on the market at the end of January (+0.3 percent versus December 2019 and -4.6 percent versus January 2019), the equivalent to a 5.1 month supply. 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 22, 2020, First-Time Claims, seasonally adjusted): 219,000 (+8,000 vs. previous week; -5,000 vs. the same week a year earlier). 4-week moving average: 209,750, -6.6% vs. the same week a year earlier).
Pending Home Sales (January 2020, Index (2001=100), seasonally adjusted): 108.8 (vs. December 2019: 103.4; January 2019: 102.9).
FHFA House Price Index (December 2019, Purchase-Only Index, seasonally adjusted): +0.6% vs. November 2019, +5.2% vs. December 2018.
Agricultural Prices (January 2020, Prices Received by Farmers): -2.2% vs. December 2019, +2.5% vs. January 2019.

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

A Bright Outlook for 2020 (At Least So Far): February 17 – 21

Signs indicate the economic expansion should continue this year. Here are the five things we learned from U.S. economic data released during the week ending February 21.

#1Forward-looking economic data improved in January. The Leading Economic Indicators (LEI) rose by 9/10ths of a point during the month to a reading 112.1 (2016=100). This left the Conference Board measure up 0.9 percent from a year earlier (reflecting the general weakness in the LEI over most of the past year). Eight of ten LEI components made positive contributions, led by jobless claims, building permits, and stock prices. The coincident index added 1/10th of a point to a reading of 107.3 (+1.1 percent versus January 2019), with three of four components making positive contributions (led by nonfarm payrolls). The lagging index held steady at 108.7 (+1.7 percent versus January 2019), with three of seven components making a positive contribution. The press release said the results were consistent with a two percent GDP growth rate, although “the COVID-19 outbreak may impact manufacturing supply chains in the U.S. in the coming months.”

#2Tight supplies continued to constrain home sales. The National Association of Realtors tells us that existing home sales declined 1.3 percent in January to a seasonally adjusted annualized rate (SAAR) of 5.46 million units. Home sales were 9.6 percent above their year-ago sales pace. Sales grew during the month in the Midwest (+2.4 percent) and South (+0.4 percent), held steady in the Northeast, and slumped in the West (-9.4 percent). While inventories of unsold homes increased 2.2 percent to 1.42 million units, they were 10.7 percent below year-ago levels and represented a mere 3.1 month supply. As a result, the median sales price of $266,300 was up 6.8 percent from a year earlier. 

#3Housing starts slowed in January while permitting activity rose. The Census Bureau finds starts of privately-owned homes declined 3.6 percent during the month to a seasonally adjusted rate of 1.567 million units. Even with the drop, starts were a robust 21.4 percent ahead of their year-ago pace. Starts of single-family homes fell 5.9 percent while those for buildings of at least five units gained 3.0 percent. Looking towards the future, the annualized rate of issued building permits grew to an almost 13-year high at 1.551 million permits, up 9.2 percent for the month, and 17.9 percent from a year earlier. Versus a year earlier, permitting for single-family and multi-family units were up 20.2 percent and 16.0 percent, respectively. Completions slowed 3.3 percent to an annualized 1.280 million homes (+1.5 percent versus January 2019). 

#4Homebuilder sentiment slipped in February. The National Association of Home Builders’ Housing Market Index (HMI) lost a point during the month to a seasonally adjusted reading of 74. This was the 68th straight month in which the HMI was above a reading of 50, indicative of more homebuilders’ viewing the housing market as being “good” versus being “poor.” The HMI grew in the Northeast and South but lost ground in both the Midwest and West. Shedding a single point each were measures for single-family home sales (80), expected sales (79), and traffic of prospective buyers (57). The press release noted that “[s]teady job growth, rising wages, and low-interest rates are fueling demand” but that higher costs were weighing on builders.

#5Trade services led to a rise in wholesale prices in January. The Producer Price Index (PPI) for final demand rose a seasonally adjusted 0.5 percent during the month, its largest single-month increase in 15 months. The Bureau of Labor Statistics notes that 90 percent of the rise came from the 0.7 percent jump in services prices, with much of the increase from higher margins at retailers focused on apparel, jewelry, footwear, and accessories. Trade services, reflecting retailer and wholesaler margins, jumped 1.2 percent. PPI for final demand goods grew by a more modest 0.1 percent. This reflects a 0.2 percent increase in foods PPI, a 0.7 percent decline energy wholesale prices, and a 0.3 percent bounce in core PPI. Wholesale prices have grown 2.1 percent over the past year, while the core measure (net of food, energy, and trade services) has advanced 1.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 15, 2020, First-Time Claims, seasonally adjusted): 210,000 (+4,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 209,000, -8.9% vs. the same week a year earlier).
Treasury International Capital (December 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$60.7 billion (vs. November 2019: +$8.1 billion, vs. December 2018: -$87.7 billion).
FOMC Minutes

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

Retailers Had a Good Start to 2020: February 10 – 14

Consumers continued to spend in January while manufacturing remained soft. Here are the five things we learned from U.S. economic data released during the week ending February 14.

#1Retail sales picked up the pace in January. The Census Bureau estimates retail and food services sales grew 0.3 percent during the month to a seasonally adjusted $529.8 billion. Sales at auto dealers & parts store rose 0.2 percent but fell 0.5 percent at gas stations (as prices at the pump mellowed). Net of activity at auto dealers/parts stores and gas stations, core retail sales advanced 0.4 percent, just off December’s 0.5 percent bounce. Sales grew at retailers focused on building materials (+2.1 percent), furniture (+0.6 percent), groceries (+0.3 percent), and sporting goods/hobbies (+0.1 percent). Also, restaurants and bars reported a 1.2 percent sales jump. Losing momentum in January were clothing stores (-3.1 percent), electronics/appliance retailers (-0.5 percent), and health/personal care stores (-0.4 percent). Over the past year, retail sales have risen 4.4 percent, while the 12-month comparable for core retailers was +3.3 percent.

#2A slowdown in aircraft production slowed January manufacturing activity. The Federal Reserve reports that manufacturing production fell for the first time in three months with a seasonally adjusted 0.1 percent decline. Durable goods output sank 0.5 percent, hurt by a 7.4 percent drop in aerospace transportation equipment (think the shutdown of 737 MAX production). Nondurables output weakened 0.6 percent. Overall industrial production shed 0.3 percent, its fourth decline in five months. While mining output gained 1.2 percent, moderate winter weather slackened utilities’ output by 4.0 percent. Both manufacturing and overall industrial production were both 0.8 percent below their year-ago paces.

#3A drop in prices at the pump kept inflation at bay in January. The Bureau of Labor Statistics finds the Consumer Price Index (CPI) increased 0.1 percent on a seasonally adjusted basis, following three consecutive 0.2 percent monthly increases. Food prices grew 0.2 percent while energy CPI declined 0.7 percent (gasoline: -1.6 percent). Net of food and energy, core CPI rose 0.2 percent. Increasing were prices for apparel (+0.7 percent), shelter (+0.4 percent), transportation services (+0.3 percent), and medical services (+0.3 percent). Prices declined for used cars/trucks (-1.2 percent) and medical care commodities (-0.6 percent). Over the past year, CPI has risen 2.5 percent while core CPI has a 12-month comparable of +2.3 percent.

#4The count of job openings narrowed as 2019 ended. Nonfarm employers had a seasonally adjusted 6.423 million unfilled jobs on the final day of 2019, down 364,000 from November and 14.1 percent from a year earlier. The Bureau of Labor Statistics also tells us that were 5.739 million open private-sector jobs, down 16.3 percent from December 2018 levels. Substantial year-to-year percentage declines in job openings were widespread across the economy. This included drops in retail (-29.2 percent), financial activities (-20.3 percent), construction (-20.1 percent), and manufacturing (-17.2 percent). Edging up was the count of hired workers, including by 80,000 to 5.907 million (+3.0 percent versus December 2018), with private sector hiring growing 3.9 percent from a year earlier to 5.563 million. Separations inched up by 21,000 to 5.730 million (+4.8 percent versus December 2018), with 3.488 million people quitting their jobs (up 2.9 percent from a year earlier) and 1.895 million people laid off (up 8.2 percent from a year earlier).

#5Small business owner sentiment solidified in January. The Small Business Optimism Index from the National Federation of Independent Business added 1.6 points during the month to a seasonally adjusted reading of 104.3. The measure has been above a reading of 100 (benchmarked to 1986 sentiment) for 38 straight months. Making positive contributions were six of 10 index components, led by expected real sales, earnings trends, current job openings, and whether it is a good time to expand. The press release said that “2020 is off to an explosive start for the small business economy.” 

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 8, 2020, First-Time Claims, seasonally adjusted): 205,000 (+2,000 vs. previous week; -26,000 vs. the same week a year earlier). 4-week moving average: 212,000, -7,4% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (February 2020-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 100.9 (January 2020: 99.8, February 2019: 93.8).
Import Prices (January 2020, All Imports): Unchanged vs. December 2019, +0.3% vs. January 2019. Nonfuel Imports: +0.2% vs. December 2019, -0.9% vs. January 2019.
Export Prices (January 2020, All Exports): +0.7% vs. December 2019, +0.5% vs. January 2019. Nonagricultural Exports: +0.7% vs. December 2019, +0.2% vs. January 2019.
Business Inventories (December 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.040 trillion (+0.1% vs. November 2019, +2.2% vs. December 2018.
Monthly Treasury Statement (January 2020 (First 4 Months of FY2020, Federal Budget Deficit): -$389.2 billion (vs. First 4 months of FY2019: -$310.3 billion).

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