Consumers Went Shopping in June: What We Learned During the Week of July 15 – 19

Retail sales accelerated, but overall economic activity slowed in June. Here are the five things we learned from U.S. economic data released during the week ending July 19.  

#1Retail sales shined in June. U.S. retail and food services sales grew 0.4 percent during the month to a seasonally adjusted $519.9 billion, per the Census Bureau. This matched May’s 0.4 percent sales gain and left the measure up 3.4 percent over the past 12 months. Sales at auto dealers & parts stores jumped 0.7 percent but fell 2.8 percent at gas stations (due to lower prices at the pump). Net of sales at auto dealers & parts stores and gas stations, core retail sales expanded 0.7 percent in June and 3.8 percent over the past year. Virtually every retail sector enjoyed sales gains during the month, led by restaurants/bars (+0.9 percent) and matching 0.5 percent jumps at furniture retailers, building materials/garden stores, grocery stores, apparel retailers, and health/personal care stores. Sales fell at department stores (-1.1 percent) and electronics/appliance retailers (-0.3 percent).

#2Forward-looking economic indicators suggest the U.S. economy may have hit the brakes in June. The Conference Board’s Leading Economic Index (LEI) shed 3/10ths of a point to a reading of 111.5 (up 1.6 percent from a year earlier), the measure’s first drop since last December. Even with the slide, six of ten LEI components improved during the month. The coincident index increased 1/10th of a point to 105.9 (+1.6 percent versus June 2018) as three of four index components made a positive contribution. The lagging index jumped 6/10ths of a point to 107.7 (+2.6 percent versus June 2018) with four of seven components making a positive contribution. The press release noted that the “LEI suggests [economic] growth is likely to remain slow in the second half of the year.”

#3Manufacturing output grew in June. The Federal Reserve reports that manufacturing output rose 0.4 percent on a seasonally adjusted basis, up from the 0.2 percent bump in May and April’s 0.7 percent drop. Durable goods production advanced 0.4 percent while that for nondurables increased 0.5 percent. Boosting the former were sizable output gains of motor vehicles, nonmetallic mineral products, and computers/electronics while the latter expanded thanks to a jump for petroleum and coal products. Overall industrial production was flat during June. Mining output eked out a 0.2 percent gain while utilities saw output fall 3.6 percent (thanks to moderate summer weather during June). Overall industrial production has grown a modest 1.3 percent over the past year while 12-month comparable for manufacturing output was a tepid +0.4 percent.

#4Housing starts slowed in June, thanks to multifamily units. The Census Bureau places its seasonally adjusted annualized estimate of housing starts at 1.253 million units, a 0.9 percent decline from May but up 6.2 percent from a year earlier. Even if the headline figure declined, starts of single-family homes grew 3.5 percent—those of multifamily units fell 9.4 percent. Looking towards the future, the annualized count of issued housing permits slumped 6.1 percent to 1.220 million (-6.6 percent versus June 2018). Issued permits for future single-family homes edged up 0.4 percent but plummeted 20.7 percent for properties of five or more units. Housing completions dropped 4.8 percent during June to an annualized 1.161 million units.

#5Homebuilder sentiment solidified in July. The National Association of Home Builders’ Housing Market Index (HMI) added one point during the month to a seasonally adjusted 65. This was a rebound from the two-point drop in June and the 61st straight month of the HMI staying above a reading of 50, indicative of more builders seeing the housing market as “good” versus being “poor.” The HMI grew in the West and South but lost ground in the Midwest and Northeast. Adding a point each were indices that track single-family home sales (72), expected home sales (71), and traffic of prospective buyers (48). The press release noted builders were reporting “solid demand for single-family homes.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 13, 2019, First-Time Claims, seasonally adjusted): 216,000 (+8,000 vs. previous week; +4,000 vs. the same week a year earlier). 4-week moving average: 218,750 (-0.1% vs. the same week a year earlier).
Import Prices (June 2019, All Imports, not seasonally adjusted): -0.9% vs. May 2019, -2.0% vs. June 2018. Nonfuel Imports: -0.3% vs. May 2019, -1.4% vs. June 2018.
Export Prices (June 2019, All Exports, not seasonally adjusted): -0.7% vs. May 2019, -1.6% vs. June 2018. Nonagricultural Exports: -1.1% vs. May 2019, -1.6% vs. June 2018.
University of Michigan Surveys of Consumers (July 2019-preliminary, Index of Consumer Sentiment, seasonally adjusted): 98.4 (June 2019: 98.2, July 2018: 97.9).
Treasury International Capital Flows (May 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$5.7 billion (vs. April 2019: +$36.4 billion, vs. May 2018: +$20.2 billion.
State Employment (June 2019, Nonfarm Payrolls, seasonally adjusted): Vs. May 2019: Increased in 4 states, essentially unchanged in 46 states and the District of Columbia.  Vs. June 2018: Increased in 28 states, essentially unchanged in 22 states and the District of Columbia.
Business Inventories (May 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.036 trillion (+0.3% vs. April 2019, +5.3% vs. May 2018.
Beige Book

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

Mixed Inflation Numbers: July 8 – 12

Core consumer prices rose, but core wholesale prices did not. Here are the five things we learned from U.S. economic data released during the week ending July 12.

#1Core inflation firmed in June. Consumer Price Index (CPI) gained 0.1 percent on a seasonally adjusted basis during the month, per the Bureau of Labor Statistics. Growth in the headline CPI measure was modest as energy prices fell 2.3 percent (including gasoline CPI dropping 3.6 percent) and food prices held steady. Core CPI, which removes the impact of energy and food, jumped 0.3 percent, its most significant single-month increase since January 2018. Rising were prices for used cars/trucks (+1.6 percent), apparel (+1.1 percent), medical care services (+0.4 percent), shelter (+0.3 percent), and new vehicles (+0.1 percent). Over the past year, CPI has risen 1.6 percent while the core measure of consumer prices has a 12-month comparable of +2.1 percent.Consumer Prices 2017-9 071319

#2…While wholesale prices did not. The Producer Price Index (PPI) for final demand inched up by a seasonally adjusted 1/10th of a percentage point during June, matching its May increase. The core wholesale price measure, which nets out foods, energy, and trade services, was unchanged after having jumped 0.4 percent during the two prior months. PPI for final demand goods dropped for a second consecutive month with a 0.2 percent decline. Energy PPI plummeted 3.1 percent, pulled down by plunging wholesale gasoline prices (-5.0 percent), while food PPI grew 0.6 percent (corn prices: +19.9 percent). PPI for final demand services increased 0.4 percent, boosted by trade services PPI (i.e., margins at retailers and wholesalers) jumping 1.3 percent. Over the past year, final demand PPI has grown 1.7 percent (its smallest 12-month comparable since January 2017) while the year-to-year change in core wholesale prices was +2.1 percent.

#3Job openings softened (slightly) in May, hiring more so. The Bureau of Labor Statistics estimates there were a seasonally adjusted 7.323 million job openings at the end of May, off 49,000 from the previous month but up 2.8 percent from a year earlier and keeping it very near the data series high. Industries with sizeable year-to-year percentage increases in job openings included construction (+32.3 percent), accommodation/food services (+8.6 percent), manufacturing (+8.3 percent), and professional/business services (+7.1 percent). Hiring slowed 4.4 percent during May to 5.725 million workers (-2.3 percent vs. May 2018). Also falling were the number of people leaving their job as separations decreased by 192,000 to 5.495 million (May 2018: 5.495 million). The number of people quitting their job—3.425 million—was up 2.5 percent from a year earlier while those affected by a layoff—1.760 million—was down 2.8 percent from May 2018.

#4Small business owner sentiment took a step back in June. The Small Business Optimism Index from the National Federation of Independent Business lost 1.7 points during the month to a seasonally adjusted reading of 103.3. This followed a 1.5 point gain during the prior month. Only three of the index’s ten components advanced during the month: current inventories, expected credit conditions, and plans to increase inventories. Falling during June were index components linked to earnings trends, whether it was a good time to expand, real sales expectations, plans to make capital outlays, plans to increase employment, and current job openings. The press release noted increased “uncertainty” on weighing on business owner sentiment.

#5The U.S. budget deficit continued to track well ahead of last year’s pace. The Bureau of the Fiscal Service reports that the U.S. government had collected $2.609 trillion over the first nine months of FY2019, a 2.7 percent increase over the comparable nine months during the prior fiscal year. Meanwhile, outlays totaled $3.356 trillion during those same nine months, 6.7 percent ahead of the previous year’s total. As a result, the U.S. government has run up a budget deficit totaling -$747.1 billion from the period of October 2018 to June 2019, well ahead of the year-to-date deficit for the first nine months of FY18 of -$607.1 billion. The Bureau currently forecasts a budget deficit for FY19 of -$1.092 trillion

Other U.S. economic data released over the past week:
Jobless Claims (week ending July 6, 2019, First-Time Claims, seasonally adjusted): 209,000 (-13,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 219,250 (-0.7% vs. the same week a year earlier).
FOMC MinutesConsumer Credit (May 2019, Outstanding Consumer Credit (not mortgages) Balances, seasonally adjusted): $4.088 trillion (+$17.1 billion vs. April 2019, +5.2% vs. May 2018).
Wholesale Trade (May 2019, Inventories of Merchant Wholesalers, seasonally adjusted): $679.1 billion (+0.4% vs. April 2019, +7.7% vs. May 2018).

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

Hiring Bounced Back: July 1 – 5

The labor market rebounded in June. Here are the five things we learned from U.S. economic data released during the week ending July 5.  

#1Job creation recovered in June. The Bureau of Labor Statistics tells us that nonfarm payrolls expanded by a seasonally adjusted 224,000 during the month, a sharp surge versus May’s 72,000 created jobs and just above April’s 216,000 payrolls jump. Private sector employers added 191,000 workers (up from an 83,000 gain in May), split between 154,000 in the service sector and 37,000 in the goods-producing sector. Industries adding the most jobs in June included professional/business services (+51,000), health care/social assistance (+50,500), transportation/warehousing (+23,900), and construction (+21,000). Average weekly private sector earnings of $959.76 represented a 2.8 percent increase over the past year.Yearly Wage Increases 070519

A separate survey of households has the unemployment rate inching up 1/10th of a percentage point to 3.7 percent (just above its multi-decade low) as 335,000 people entered the labor force during the month. The labor force participation rate grew by 1/10th of a percentage point to 62.9 percent—the same measure for adults aged 25 to 54 also added 1/10th of a percentage point to 82.2 percent. The median length of unemployment grew by a half week to 9.6 weeks while the number of part-time workers seeking a full-time opportunity essentially held steady at 4.347 million. The U-6 series, the broadest measure of labor underutilization published by BLS, eked out a 1/10th of a percentage point increase to 7.2 percent (just above its almost 19-year low achieved last month).

#2The U.S. trade deficit hit a 2019 high in May. The Census Bureau and the Bureau of Economic Analysis report that while exports grew by $4.2 billion to a seasonally adjusted $210.6 billion (-1.3 percent versus May 2018), imports surged by $8.5 billion to $266.2 billion (+3.3 percent versus May 2018). The resulting trade deficit of -$55.5 billion was up $4.3 billion from April and was a five-month high. The goods deficit blossomed by $4.4 billion to -$76.1 billion while the services surplus widened slightly (+$0.1 billion) to +$20.6 billion. The former resulted from imports of goods swelling $8.1 billion (including from imported automobiles, crude oil, capital goods, and semiconductors), overwhelming the $4.0 billion increase in exported goods (including capital goods, consumer goods, soybeans, and automobiles). The U.S. had its largest goods deficits with China, the European Union, Mexico, and Japan.

#3Factory orders dropped in May. New orders for manufactured goods decreased for the third time in four months with a 0.7 percent decline to a seasonally adjusted $493.6 billion, per the Census Bureau. Transportation goods orders shrank 4.6 percent, hurt by contracting orders for civilian (-28.2 percent) and defense (-15.5 percent) aircraft. Net of transportation orders inched up 0.1 percent, with increased orders for furniture (+3.3 percent), electrical equipment/appliances (+1.0 percent), machinery (+0.8 percent), computers/electronics (+0.7 percent), and primary metals (+0.1 percent). Declining were orders for fabricated metal products (-0.3 percent) and nondurables (-0.2 percent). Meanwhile, shipments grew 0.1 percent to $504.3 billion (its third gain in four months), with shipments unchanged for the month net of transportation goods. Unfilled orders declined 0.5 percent to $1.171 trillion (its third drop in four months) while inventories expanded for the eighth time in nine months with a 0.2 percent increase to $694.1 billion.

#4Purchasing managers suggest a slower pace of economic growth in June. The Institute for Supply Management’s PMI (the headline index from its Manufacturing Report on Business) slipped by 4/10ths of a point to 51.7. While this was the PMI’s lowest reading since October 2016, it also was the measure’s 34th straight month above a reading of 50.0 (the threshold between an expanding and contracting manufacturing sector). Three of five PMI components took a step back in June—new orders, inventories, and supplier deliveries—while the other two—production and employment— both advanced. Twelve of 18 tracked manufacturing industries reported growth, led by furniture, printing, and textiles. The press release noted that survey respondents “expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy.”

The NMI, the headline index from ISM’s Nonmanufacturing Report on Business, declined by 1.8 points in June to a reading of 55.1. The NMI has been above the critical 50.0 threshold for an impressive 113 months, but this is the measure’s lowest reading since July 2017. Only one NMI component (supplier deliveries) grew during the month, while the other three declined (employment, business activity/production, and new orders). Sixteen of 18 tracked nonmanufacturing industries reported growth, led by real estate. The press release characterized survey respondents’ sentiment as “mixed,” as a “degree of uncertainty exists due to trade and tariffs.”

#5Construction spending decelerated in May. The Census Bureau places the seasonally adjusted annualized rate of construction put in place at $1.294 trillion, down 0.8 percent from April and 2.3 percent below the year-ago pace. Residential construction spending dropped 0.7 percent to an annualized $953.2 billion, 6.3 percent less than that of a year ago and its lowest reading since January 2017. Falling were spending on both private sector nonresidential (-0.9 percent) and residential (-0.6 percent) spending. Reversing recent trends, public sector construction spending also slowed, slumping 0.9 percent to an annualized $340.6 billion. Despite May’s decline, public construction spending remained 10.8 percent ahead of its year-ago pace.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 29, 2019, First-Time Claims, seasonally adjusted): 221,000 (-8,000 vs. previous week; -8,000 vs. the same week a year earlier). 4-week moving average: 222,250 (-0.1% vs. the same week a year earlier)

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