Shifting to the Slow Lane: September 14 – 18

Retail, manufacturing, and housing all moderated in August. Here are the five things we learned from U.S. economic data released during the week ending September 18.

1. Forward-looking measures suggest the recovery has been fading. The Conference Board’s Leading Economic Indicators (LEI) added 1.3 points in August to a reading of 106.5 (2016=100), which was down 4.7 percent from a year earlier. This followed a 1.9 percent advance in July and a 3.1 point surge in June. Five of ten LEI components made positive contributions, led by jobless claims, manufacturing new orders, and stock prices. The coincident index grew by 6/10ths of a point to 100.8 (-5.6 percent versus August 2019), half of July’s 1.2 percent advance. Three of the coincident index’s components made positive contributions, including nonfarm payrolls, industrial production, and personal income net transfer payments. The lagging index sliced 6/10ths of a point to 107.6 (-0.5 percent versus August 2019), with only two of seven components making positive contributions. The press release warns that the LEI data “suggests that the pace of economic growth will weaken substantially during the final months of 2020.”

2. The Fed does not expect to raise interest rates for years. The statement released following the past week’s meeting of the Federal Open Market Committee acknowledged the pandemic was “causing tremendous human and economic hardships, but also that the business activity and employment “had picked up in recent months.” The committee noted it “seeks to achieve maximum employment” and aims “to achieve inflation moderately above two percent for some time.” As a result, it will keep its fed funds target rate at a range of zero and 0.25 percent and expects the near-zero short-term interest rate target will remain until achieving its employment and inflation targets.

How long could this be? The FOMC members’ economic forecasts released in conjunction with the policy statement place the fed funds target rate at its current near-zero stance through at least the end of 2023. Only four of 17 members’ forecasts anticipate the fed funds rate moving above near-zero percent by 2023. The median projections also place 2021 economic growth at +4.0 percent, 2021 unemployment rate at 5.5 percent, and 2021 core inflation at +1.7 percent.

3. Retail sales growth slackened in August. Retail and food services sales advanced 0.6 percent during the month to a seasonally adjusted $537.5 billion (+2.6 percent versus August 2019), per the Census Bureau. Inching up was sales activity at both auto dealers/parts stores (+0.2 percent) and gas stations (+0.4 percent). Net of both, core retail sales increased 0.7 percent (versus +1.1 percent in July) and were 4.0 percent ahead of August 2019 levels. Sales over the past three months (June through August) were up 15.7 percent over the prior quarter and 2.4 percent over the same three months in 2019. Even with the ongoing retail recovery, sales over the first eight months of 2020 were off 1.8 percent from the same eight months in 2019. During August, sales rose at restaurants/bars (+4.7 percent) and at retailers focused on apparel (+2.9 percent), furniture (+2.1 percent), building materials (+2.0 percent), electronics/appliances (+0.8 percent), health/personal care (+0.8 percent). Slowing were sales at sporting goods/hobby retailers (-5.7 percent), department stories (-2.3 percent), and grocery stores (-1.6 percent),

4. Manufacturing also decelerated in August. The Federal Reserve estimates manufacturing output expanded a seasonally adjusted 1.0 percent during the month, following jumps of 3.9 percent, 7.5 percent, and 3.9 percent in May, June, and July, respectively. Durable goods production grew 0.7 percent (automobile production fell 3.7 percent) while the output of nondurables increased 1.2 percent (boosted by sharp gains for apparel/leather and plastic/rubber products). Manufacturing output remained 6.9 percent below its year-ago pace. Overall industrial production inched up 0.4 percent in August but was 7.7 percent under August 2019 levels. Mining output fell 2.5 percent (due to a decline in oil/gas production), while utility production slipped 0.4 percent.

5. Housing construction pulled back in August. The Census Bureau reports housing starts fell 5.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.416 million units. Even with the decline, starts were 2.8 percent ahead of their year-ago pace. Single-family home starts picked up 4.1 percent in August, while those of multi-family units plummeted 25.4 percent. Looking towards the future, the annualized count issued building permits slipped 0.9 percent to 1.470 million units (only 0.1 percent below the year-ago mark). Permits for single-family homes jumped 6.0 percent while those for multi-family units (five-plus units) plummeted 17.4 percent. Completions fell 7.5 percent to an annualized 1.233 million units.

Other U.S. economic data released over the past week:

  • Jobless Claims (Week ending September 12, First-Time Claims, seasonally adjusted): 860,000 (-33,000 vs. the previous week, +649,000 vs. the same week a year earlier). 4-week moving average: 912,000 (+327.7% vs. the same week a year earlier).
  • University of Michigan Surveys of Consumers (September 2020-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 78.9 (vs. August 2020: 74.1, September 2019: 93.2).
  • Import prices (August 2020, All Imports): +0.9% vs. July 2020, -1.4% vs. August 2020. Nonfuel Imports: +0.7% vs. July 2020, +0.8% vs. August 2019.
  • Export prices (August 2020, All Exports): +0.5% vs July 2020, -2.8% vs. August 2019. Nonagricultural Exports: +0.8% vs. July 2020, -2.8% vs. August 2019.
  • State Employment (August 2020, Nonfarm Payrolls, seasonally adjusted): Vs. July 2020: Payrolls grew in 40 states and were essentially unchanged in 10 states and the District of Columbia. Vs. 2019: Payrolls fell in 49 states and the District of Columbia and was essentially unchanged in one state.
  • Housing Market Index (September 2020, Index (>50=More Homebuilders Seeing the Housing as “Good” versus Being “Bad,” Seasonally Adjusted): 83 (All-Time High, August 2020: 78, September 2019: 68).
  • Business Inventories (July 2020, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.914 trillion (+0.1% vs. June 2020, -5.9% vs. July 2019).
  • Treasury International Capital Flows (July 2020, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$20.8 billion (vs. June 2020: +$91.9 billion, +$67.9 billion).

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

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