The Fed Holds Still…For Now: What We Learned During the Week of November 5 – 9

The Federal Reserve finds the U.S. economy continuing to strengthen.  Here are the five things we learned from U.S. economic data released during the week ending November 9.

#1The Fed paused last week but appears primed to move again next month. The statement released following this week’s meeting of the Federal Open Market Committee (FOMC) followed that of prior statements in noting the “the labor market has continued to strengthen and that economic activity has been rising at a strong rate.” Also “strong” was consumer spending but the statement indicates that business fixed investment had “moderated.” The committee expects these vibrant business conditions will remain over the “medium term.” So, while the FOMC voted unanimously to keep the fed funds target rate in a range between 2.0 and 2.25 percent, the statement reaffirmed expectations for “further gradual” rate increases. In fact, the general expectation is for a quarter-point rate boost at the final 2018 FOMC meeting next month.

#2The number of available jobs slipped in September but remained near record levels. The Bureau of Labor Statistics estimates that there were 7.009 million job openings (seasonally adjusted) on the final day of September. Even though this represented a drop of 284,000 from the prior month, the count of job openings has grown 12.5 percent over the past year. By comparison, 5.964 million people were unemployed in September. Private sector job openings totaled 6.407 million, up 11.9 percent from September 2017. The biggest year-to-year percentage gains in job openings were seen in construction (+55.3 percent), accommodation/food services (+38.3 percent), health care/social assistance (+17.9 percent), and wholesale trade (+17.3 percent). Hiring also slowed in September, dropping by 162,000 to 5.744 million. Despite September’s decline, hiring remained 6.9 percent ahead of the year-ago pace. Private sector employers hired 5.393 million workers (+7.2 percent), with large 12-month comparables in health care/social assistance (+16.0 percent), retail (+15.1 percent), and financial activities (+14.7 percent). 5.667 million people left their jobs during September, up 6.0 percent from a year earlier. This included 3.648 million people leaving their jobs voluntarily (+10.6 percent versus September 2017) and 1.700 million layoffs (-3.6 percent versus September 2017).

#3Wholesale prices for energy, food, and services rose in October. Final demand Producer Price Index (PPI) jumped 0.6 percent on a seasonally adjusted basis during the month, its largest single-month gain for the Bureau of Labor Statistics measure since late 2012. More than 60 percent of the surge in wholesale prices can be linked to the 1.6 percent jump in PPI for trade services—i.e., retailer and wholesaler margins—that itself appears to be linked to retailers rising prices just prior to the holiday sales season. Also gaining were wholesale prices for energy (+2.7 percent) and food (+1.0 percent). Gasoline PPI rose 7.6 percent, with higher prices also seen for diesel fuel, vegetables, and beef. Net of energy, food, and trade services, core final demand PPI increased 0.2 percent during October, half of the previous month’s gain. Over the past year, final demand PPI has risen 2.9 percent, while the core measure has a 12-month comparable of +2.8 percent.

#4The service sector expanded at a slightly slower rate in October. The headline index from the Institute for Supply Management’s Non-Manufacturing Report on Business—the NMI—shed 1.3 points during the month to a reading of 60.3. Despite the decline, this was the NMI’s second best reading of 2018 and was the 105th time the measure was above a reading of 50.0 (indicative of an expanding service sector). Three of four NMI component declined during the month: business activity (down 2.7 points), employment (down 2.7 points), and new orders (off 1/10th of a point). The supplier deliveries measure added a half point. Seventeen of 18 tracked industries expanded during the month, led by real estate, information, and transportation/warehousing. While most survey respondents’ comments were “positive,” the press release noted “continued concerns about capacity, logistics, and tariffs.”

#5Wholesale inventories expanded again in September. The Census Bureau estimates inventories of merchant wholesalers widened 0.4 percent during the month to a seasonally adjusted $644.6 billion. This matched August’s 0.4 percent gain and left wholesale inventories up 5.2 percent from a year earlier. Wholesale durable goods inventories grew 0.8 percent during the month to a seasonally adjusted $393.4 billion (+6.8 percent versus September 2017) while inventories of nondurables contracted 0.4 percent to $251.2 billion (+2.8 percent versus September 2017). Inventories grew for every major category of durable goods while the nondurables figure was pulled down by shrinking inventories of farm goods, drugs, and paper. The inventory-to-sales ratio for wholesalers held firm during September at 1.26, although this represented a three-basis point decline from a year earlier. Rising a basis point was the I/S ratio for durable goods (1.59) while shedding a basis point was the I/S ratio for nondurables (0.95).

Other U.S. economic data released over the past week:
Jobless Claims (week ending November 3, 2018, First-Time Claims, seasonally adjusted): 214,000 (-1,000 vs. previous week; -23,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-8.6% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (November 2018-preliminary, Index of Consumer Sentiment (1966Q1=100, seasonally adjusted): 98.3 (vs. October 2018: 98.6; vs. November 2017: 98.5).
Consumer Credit (September 2018, Outstanding Consumer Credit Balances (net of real estate-backed loans), seasonally adjusted): $3.950 trillion (+$11.0 billion vs. August 2018, +4.8% vs. September 2017).

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

Hiring and Wages Both Rise in October: October 29 – November 2

Hiring resumed in October while consumer spending remained solid. Here are the five things we learned from U.S. economic data released during the week ending November 2.

#1Job creation rebounded in October. The Bureau of Labor Statistics reports nonfarm payrolls grew by a seasonally adjusted 250,000 during the month, up from the 118,000 job gain in September (which appeared to have been suppressed by the landfall of Hurricane Florence). Private sector employers added 246,000 workers during the month, split between 67,000 among goods-producing employers and 179,000 in the service sector. Industries adding the most workers during the month were health care/social assistance (+46,700), leisure/hospitality (+42,000), professional/business services (+35,000), manufacturing (+32,000), and construction (+30,000). The average workweek grew by 1/10th of an hour to 34.5 hours (October 2017: 34.4 hours) while average weekly earnings expanded by $4.45 to $941.85 (+3.4 percent versus a year earlier).

A separate household survey kept the unemployment rate at its post-recession low of 3.7 percent. 711,000 people entered the labor force during the month, putting the labor force participation rate of 62.9 percent. The labor force participation rate for adults aged 25 to 54 rose to 82.3, its highest point since the May 2010. The median length of unemployment inched up 2/10ths of a week to 9.4 weeks (October 2017: 9.8 weeks) while the number of part-time workers seeking a full-time opportunity held relatively stable during the month at 4.621 million (October 2017: 4.880 million). The broadest measure of labor underutilization (the “U-6” series) tied that from August with its lowest mark since before the recession at 7.4 percent.

#2Consumers continued spending in September. Real personal spending (adjusted for inflation) grew 0.3 percent during the month, slower than August’s 0.4 percent increase but matching the gains for every preceding month since April. The Census Bureau finds that spending on goods rose 0.7 percent, split between gains for durable and nondurable goods of 1.8 percent and 0.2 percent, respectively. Spending on services was flat during the month. Nominal consumer spending grew at a faster pace than had personal income (+0.3 percent versus +0.2 percent). Nominal personal income gained 0.2 percent while real personal income inched up 0.1 percent. As a result, the real savings rate shed 2/10ths of a percentage point to +6.2 percent. Over the past year, real personal consumption expenditures have grown 3.0 percent, just ahead of the 12-month comparable for real disposable personal income (+2.9 percent).

#3The trade deficit expanded further in September. The Census Bureau and Bureau of Economic Analysis estimates exports grew 1.5 percent during the month to a seasonally adjusted $212.6 billion (+7.2 percent versus September 2017) while imports also increased 1.5 percent to $266.6 billion (+9.8 percent versus September 2017). As a result, the U.S. trade deficit widened by 1.5 percent during the month to -$54.0 billion, 21.6 percent larger than the deficit during the same month a year earlier. The trade deficit for the first nine months of 2018 (-$445.2 billion) was 10.1 percent larger than that of the first nine months of 2017. The goods deficit expanded by $0.6 billion during September to -$77.2 billion while the services surplus shrank by $0.1 billion to +$23.2 billion. The U.S. had its largest goods deficit with China (-$37.4 billion), the European Union (-$14.2 billion), and Mexico (-$7.5 billion).

#4Manufacturing grew in October at its slowest pace since the spring. The headline index from the Institute for Supply Management’s Manufacturing Report on Business (PMI) shed 2.1 points during the month to a reading of 57.7, its lowest reading since April. Four of the PMI’s five components pulled back from their September marks: new orders, production, employment, and inventories. The measure of supplier deliveries was the sole PMI component to improve during the month. Thirteen of 18 manufacturing industries expanded during the month, led by textiles, electrical equipment/appliances, and apparel. The press release noted that comments received from survey respondents “reflect continued expanding business strength” but also that the “expansion of new exports orders softened.”

#5Factory orders grew in September, pulled up by the defense sector. The Census Bureau reports new orders for manufactured goods totaled a seasonally adjusted $515.3 billion, up 0.7 percent for the month (its fourth gain over the past five months). Driving the increase was defense aircraft orders more than doubling (+118.7 percent). Net of all defense goods, new factory orders were flat. Durable goods orders rose 0.7 percent while orders of nondurables gained 0.6 percent. Factory orders over the first nine months of 2018 have totaled $4.495 trillion, up 8.4 percent over the same nine months in 2017. Shipments increased for the 16th time in 17 months, growing 0.9 percent to $509.8 billion. Unfilled orders gained 0.8 percent to $1.187 trillion (its tenth increase in 11 months) while inventories expanded for the 23rd consecutive month with a 0.5 percent bounce.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 27, 2018, First-Time Claims, seasonally adjusted): 214,000 (-2,000 vs. previous week; -20,000 vs. the same week a year earlier). 4-week moving average: 213,750 (-8.9% vs. the same week a year earlier).
Productivity (2018Q3, Nonfarm Labor Productivity, seasonally adjusted annualized rate): +2.2% vs. 2018Q2, +1.3% vs. 2017Q3.
Conference Board Consumer Sentiment (October 2018, Index (1985=100), seasonally adjusted): 137.9 (vs. September 2018: 135.3, vs. October 2017: 126.2).
Case-Shiller Home Price Index (August 2018, 20-City Index, seasonally adjusted): +0.1% vs. July 2018, +5.5% vs. August 2017).
Construction Spending (September 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.329 trillion (Unchanged vs. August 2018, +7.2% vs. September 2017).
Bankruptcy Filings (12-month period ending September 30, 2018, Business and Non-Business Filings): 773,375 (-2.2% vs. 12-month period ending September 30, 2017).
Agricultural Prices (September 2018, Prices Received by Farmers): -1.5% vs. August 2018, -4.6% vs. September 2017.

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

GDP Jumped Again in Q3, New Home Sales Slowed in September: October 22 – 26

The U.S. economy chugged along during Q3, albeit at a slower pace than before.  Here are the five things we learned from U.S. economic data released during the week ending October 26.

#1GDP moderated during Q3, propped up in part by inventory gains. The Bureau of Economic Analysis’ first estimate of third-quarter 2018 Gross Domestic Product (GDP) finds the U.S. economy expanded 3.5 percent on a seasonally adjusted annualized basis between July and September. While down from Q2’s 4.2 percent increase, this was the second best quarter for GDP since Q2 2014. The biggest positive contributor to Q3 GDP growth was personal consumption, which added 269-basis points to the final figure. The second largest contributor was the $113.1 billion increase in private inventories, which swelled GDP by 207-basis points. (The large impact of the expansion in inventories may signal a slower GDP growth rate in Q4 as business burn through these stockpiles.) Rising government expenditures contributed 56-basis points to GDP growth while business investment (fixed nonresidential investment) added 12-basis points. Trade became a significant drag on economic growth as falling exports and rising imports led to net exports having a negative GDP contribution of -0.45. Housing also continued to flag with a third straight quarterly negative contribution (-0.16). The BEA will revise its Q3 GDP estimate twice over the next two months.GDP-2015-8 102618

#2Economic growth slowed specifically in September. The Chicago Fed National Activity Index (CFNAI), a weighted average of 85 economic indicators, lost ten basis points during the month to a reading of +0.17 (the fourth straight month in which the CFNAI came in with a positive reading). Even though the CFNAI’s three-month moving average slipped by six-basis points to +0.21, the moving average’s continued positive reading was indicative of economic growth above the historical average. Forty-six of the 85 tracked indicators made positive contributions to the CFNAI while 36 indicators advanced during the month. Three of four major categories of indicators made positive contributions to the CFNAI: production (+0.11), employment (+0.07), and sales/orders/inventories (+0.05). Indicators related to consumption/housing had a negative contribution of -0.05.

#3Durable goods flew in September because of defense aircraft orders. The Census Bureau estimates new orders for manufactured durable goods jumped 0.8 percent during the month to a seasonally adjusted $262.1 billion, its third gain in four months. Leading the way was a 1.9 percent gain in orders for transportation goods, boosted by a 119.1 percent surge in orders for defense aircraft and a 1.3 percent rise in orders for motor vehicles. Durable goods orders net of transportation equipment inched up by only 0.1 percent. Rising during the month were orders for machinery (+0.8 percent), and primary metals (+0.1 percent) while orders fell for fabricated metal products (-0.7 percent), electrical equipment/appliances (-0.5 percent), computers (-0.4 percent), and communications equipment (-0.1 percent). Also slumping was a proxy for business investment as non-aircraft civilian capital goods orders slipped 0.1 percent.

#4New home sales slumped again in September. Sales of single-family homes fell 5.5 percent during the month to a seasonally adjusted annualized rate (SAAR) of 553,000 units, per the Census Bureau. Sales declined in three of four Census regions: Northeast (-40.6 percent), West (-12.0 percent), and South (-1.5 percent). Transactions increased by 6.9 percent in the Midwest. Sales were off 13.2 percent from a year earlier, with deals down in the Northeast (-51.3 percent), West (-15.8 percent), and South (-11.4 percent). Again, the Midwest was the exception with a positive 12-month comparable of +4.1 percent. Inventories of new homes continued to grow, with a 2.8 percent increase to 327,000 units (+16.8 percent versus September 2017). This was the equivalent to a 7.1 month supply.

#5Consumer sentiment flagged ever so slightly in October. The University of Michigan’s Index of Consumer Sentiment pulled back by 1.5 points during the month to a seasonally adjusted 98.6 (1966Q1=100). While 4/10ths of a point of drop from the preliminary October reading reported a few weeks ago and 2.1 points below the year-ago reading, the sentiment measure remained near its post-recession highs. The current conditions index shed 2.1 points during the month to 113.1 (October 2017: 116.5) while the expectations index’s decline was smaller, losing 1.2 points to 89.3 (October 2017: 90.5). Partisanship continued to have a significant influence on one’s sentiment—the headline index for those identifying as Republican was 126.4, compared to 81.0 for those identifying as a Democrat and 96.2 for those who view themselves of politically independent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending October 20, 2018, First-Time Claims, seasonally adjusted): 215,000 (+5,000 vs. previous week; -19,000 vs. the same week a year earlier). 4-week moving average: 211,750 (-11.7% vs. the same week a year earlier).
FHFA House Price Index (August 2018, Purchase-Only Index, seasonally adjusted): +03% vs. July 2018, +6.1% vs. August 2017.
Beige Book

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