GDP Growth Slowed in Q4, Was Solid for 2018: February 25 – March 1

GDP growth slowed during Q4 but was relatively healthy for all of 2018. Here are the five things we learned from U.S. economic data released during the week ending March 1. 

#1The economic expansion slowed a bit during the final three months of 2018. The first estimate of fourth-quarter 2018 gross domestic product (GDP) places economic growth at a seasonally adjusted annualized rate (SAAR) of +2.6 percent, compared to gains of +4.2 percent and +3.4 percent in Q2 and Q3, respectively. GDP has expanded 3.1 percent since Q4 2017. The Bureau of Economic Analysis also reports that GDP grew 2.9 percent for all of 2018, an improvement over gains of +1.6 percent and +2.2 percent in 2016 and 2017, respectively. Positive contributors to Q4 GDP growth were (in decreasing order) personal consumption expenditures, nonresidential fixed investment (i.e., business investment), exports, the change in private inventories, and government spending. Dragging down Q4 GDP were imports and residential fixed investment (i.e., housing). The BEA will update its Q4 GDP estimate twice over the next two months.GDP Growth 2015-2018 03019

#2Personal spending slumped in December, as had personal income in January. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) fell 0.6 percent in December. Real spending on goods slumped 1.4 percent during the month, pulled down by declines for durable and nondurable goods of -1.9 percent and -1.2 percent, respectively. The reduction in spending on services was at a more modest -0.2 percent. Real personal disposable income jumped 1.0 percent in December, with gains for nominal disposable income and nominal personal income growing 1.0 percent the same month. (“Real” measures control for inflation while “nominal” measures do not.) The same report also included January nominal income data, but the story was not as good as nominal personal income slipped 0.1 percent (its first drop since November 2015) while nominal disposable income declined 0.2 percent. Delayed data collection due to the partial federal government shutdown prevented the publication of January data of real disposable income and personal consumption expenditures.

#3Manufacturing activity grew at a slower rate in February. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, lost 2.4 points during the month to a reading of 54.2. Despite the PMI dropping to its lowest point since November 2016, the measure has been above a reading of 50.0 for 30 straight months, indicative of an expanding manufacturing sector. Four of five PMI components declined in February: production (-5.7 points), employment (-3.2 points), new orders (-2.7 points), and supplier deliveries (-1.3 points). The index tracking inventories added 6/10ths of a point during the month. Sixteen of 18 tracked manufacturing sector expanded in February, led by printing, textile mills, and computer/electronics.

#4Housing starts plummeted in December. The Census Bureau estimates housing starts dropped 11.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 1.078 million units. This was 10.9 percent under the year-ago pace of starts. Starts of multi-family units (five or more units) slumped 22.0 percent while single-family home starts slowed 6.7 percent. Starts fell in three of four Census regions during December but held steady in the Northeast. Looking towards the future, the number of issued building permits edged up 0.3 percent to 1.326 million (SAAR), an increase of 0.5 percent from a year earlier. The number of permits issued to build single-family homes dropped 2.2 percent while that for multi-family units of at least five units jumped 5.7 percent. The annualized rate of completed homes slowed 2.7 percent to 1.097 million, an 8.4 percent decline from December 2017.

#5Consumer sentiment rebounded in February. The Conference Board’s Consumer Confidence jumped by 9.7 points during the month to a seasonally adjusted 131.4 (1985=100), its first increase in four months. Much of the gain came from an improved outlook for near-future business conditions as the expectations index surged a full 14 points to 103.4. The current conditions measure added 3.3 points to 173.5. 41.2 percent of surveyed consumers saw current business conditions as “good” compared to just 10.8 percent saying there were “bad.” Similarly, 46.1 percent of survey respondents viewed jobs as being “plentiful” versus 11.8 percent of them as being “hard to get.”

Meanwhile, the University of Michigan’s Index of Consumer Sentiment grew to a seasonally adjusted reading of 93.8 (1966Q1=100), up 2.6 points for the month but still below the year-ago reading of 99.7. The present conditions index edged down by 3/10ths of a point to 84.4 (February 2018: 90.0) while the expectations index improved by 4.5 points to 84.4 (February 2018: 90.0). The press release said that the survey data suggests real personal spending will grow 2.6 percent for all of 2019, which “will mean that the expansion is expected to set a new record length by mid-year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 23, 2019, First-Time Claims, seasonally adjusted): 225,000 (+8,000 vs. previous week; +8,000 vs. the same week a year earlier). 4-week moving average: 229,000 (+2.7% vs. the same week a year earlier).
Chicago Fed National Activity Index (January 2019, Index (0.00=U.S. Expanding at its Historical Average): -0.43 (vs. December 2018: +0.05; January 2018: -0.29).
Factory Orders (December 2018, New Orders for Manufactured Goods, seasonally adjusted): $499.9 billion (+0.1% vs. November 2018, +2.4% vs. December 2017).
Pending Home Sales (January 2019, Index (100=2001), seasonally adjusted): 103.2 (December 2018: 98.7; January 2018: 105.6).
FHFA House Price Index (December 2018, Purchase-Only Index, seasonally adjusted): +0.3% vs. November 2018, +5.6% vs. December 2017.
Case-Shiller Home Price Index (December 2018, 20-City Index, seasonally adjusted): +0.2% vs. November 2018, +4.2% vs. December 2017.
Agricultural Prices (January 2019, Prices Received by Farmers (Index: 2011=100)): -4.5% vs. December 2018, -0.7% vs. January 2018.

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

Home Sales Chilled (Again) in January: February 18 – 22

Home sales faltered again in early 2019. Here are the five things we learned from U.S. economic data released during the week ending February 22.  

#1Sales of previously owned homes fell for the ninth time in ten months in January. The National Association of Realtors’ estimate of existing home sales dropped 1.2 percent during the month to a seasonally adjusted annualized rate (SAAR) of 4.94 million units. This left the count of transactions 8.5 percent below that of a year earlier to its lowest point since November 2015. Sales fell in three of four Census regions: West (-2.9 percent), Midwest (-2.5 percent), and South (-1.0 percent). Only the Northeast enjoyed a sales increase during the month (+2.9 percent). While still tight, the number of homes on the market rose 3.9 percent to 1.59 million units (+4.6 percent vs. January 2018), the equivalent to a 3.9 month supply. The median sales price of $247,500 represented a 2.8 percent increase from January 2018. The press release states NAR’s belief that home sales “have reached a cyclical low.”

#2Meanwhile, homebuilders’ sentiment rebounded in February. The Housing Market Index (HMI) from the National Association of Homebuilders added four points during the month to a seasonally adjusted 62. The HMI has been above a reading of 50—meaning a higher percentage of homebuilders view the housing market as “good” rather than “poor”—for 56 straight months. The HMI improved in the Midwest (55) and South (66) but lost traction in the Northeast (45) and West (67). Also moving forward in February were indices for sales of single-family homes (up three points to 67), expected sales over the next six months (up five points to 68), and traffic of prospective buyers (up four points to 48). The press release stated that “many builders are reporting positive expectations for the spring selling season.

#3Forward-looking economic indicators slipped in January. The Conference Board’s Leading Economic Index (LEI) lost 1/10th of a point to a 111.3 (2016=100), as the measure has stayed within 1/10th of a point range over the past four months. Even with the recent stagnation, the LEI has risen 3.5 percent over the past year. The coincident economic index added 1/10th of a point, placing it 2.3 percent ahead of its year-ago mark. The lagging economic index grew by a half point to 106.7. The measure has risen 2.6 percent since January 2018. The Conference Board, in noting that the LEI “has now been flat essentially since October 2018, indicates economic growth “will likely decelerate to about 2 percent by the end of 2019.” (The press release also noted that the recently ended partial federal government shutdown resulted in three of the ten components to the LEI being unavailable for analysis).

#4Durable goods orders expanded in December. The Census Bureau estimates new orders for manufactured durable goods totaled $254.4 billion, up 1.2 percent for the month. As normal, aircraft orders were a major driver to the headline number—a 28.4 percent increase in orders for civilian aircraft resulted in a 3.3 percent gain in transportation goods (motor vehicle orders increased 2.1 percent). Net of transportation goods, core durable goods orders inched up by a mere 0.1 percent. Losing ground in December were orders for computers/electronics (-8.3 percent), communications equipment (-5.0 percent), machinery (-0.4 percent), and electrical equipment/appliances (-0.1 percent). Rising during the month were orders for fabricated metal products (+0.3 percent). Orders for civilian capital goods net of aircraft—a proxy of business investment—fell 0.7 percent during the month.

#5Agricultural prices grew in December. The Department of Agriculture reports that its index for prices received by farmers grew by 1.8 percent during the month to a reading of 89.9 (2011=100). Despite the increase during the month, the measure remained 2.4 percent below its year-ago mark. Crop prices jumped 4.2 percent, led by higher prices for vegetables/melons, feed grains, and grains/oilseed. Livestock prices slipped 0.4 percent in December, with dairy prices slumping 3.5 percent but poultry/egg prices surging 3.4 percent.

Other U.S. economic data released over the past week:Jobless Claims (week ending February 16, 2019, First-Time Claims, seasonally adjusted): 216,000 (-23,000 vs. previous week; -2,000 vs. the same week a year earlier). 4-week moving average: 235,750 (+3.7% vs. the same week a year earlier)- FOMC Minutes

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

Factories Slowed in January: February 11 – 15

Factories pumped out less output in January. Here are the five things we learned from U.S. economic data released during the week ending February 15.  

#1Manufacturing production fell in January. The Federal Reserve reports manufacturing fell a seasonally adjusted 0.9 percent during the month following a 0.8 percent gain in December. Durable goods production slumped 1.7 percent as motor vehicle output plummeted 8.8 percent. Nondurable goods output was unchanged for the month. Compared to a year earlier, manufacturing output has risen 2.9 percent. Overall industrial production fell 0.6 percent in January after having eked out a 0.1 percent increase in December. Industrial production has grown 3.6 percent over the past year. The rise in mining output slowed to a 0.1 percent gain in January after a 1.5 percent jump in December while output at utilities increased 0.4 percent. Factories were slightly less busy in January as capacity utilization dropped by 6/10ths of a percentage point to 78.2 percent. Manufacturing sector capacity utilization fell by 7/10ths of a point to 75.8 percent.Capacity Utilization 021519

#2Retail sales slumped in December (or at least the seasonally adjusted data had). The Census Bureau estimates retail and food services sales were at a seasonally adjusted $505.8 billion during the final month of 2018, down an unexpectedly sharp 1.2 percent from November. The drop appears, at least at first glance, to be a bit of an outlier to the negative side and may be the result of data issues tied to the recent partial federal government shutdown or other factors. A part of the drop was due to declining prices at the pump as sales at gas stations plummeted 5.1 percent. On the flip side, sales at auto dealers/parts stores grew 1.0 percent. Net of sales at both gas stations and auto dealers/parts stores, core retail sales fell 1.4 percent with sales off at most retail categories. Falling were sales at retailers focused on sporting goods/hobbies (-4.9 percent), health/personal care (-2.0 percent), furniture (-1.3 percent), apparel (-0.7 percent), groceries (-0.5 percent), and electronics/appliances (-0.1 percent), along with department stores (-3.3 percent) and restaurants/bars (-0.7 percent). One thing that also makes this report a bit suspect is the reported 3.9 percent slowdown at nonstore retailers (i.e., online retailers)

#32019 starts with little headline inflation, with core measures staying on target. The Consumer Price Index (CPI) was unchanged on a seasonally adjusted basis for a third consecutive month in January, per the Bureau of Labor Statistics. Energy CPI fell 3.1 percent, pulled down by gasoline prices slumping 5.5 percent. Food prices, however, gained 0.2 percent. Core CPI, which removes both energy and food, increased 0.2 percent for the fifth straight month. Rising were prices for apparel (+1.1 percent), shelter (+0.3 percent), medical care services (+0.3 percent), new vehicles (+0.2 percent), used cars/trucks (+0.1 percent), and medical care commodities (+0.1 percent). Transportation services prices slipped 0.2 percent. Over the past year, CPI has risen 1.6 percent while core inflation has grown 2.2 percent.

Meanwhile, wholesale prices slipped for a second straight month as final demand Producer Price Index (PPI) declined 0.1 percent on a seasonally adjusted basis. The core final demand measure of wholesale prices, which removes the impact of energy, food, and trade services, gained 0.2 percent. Falling were producer prices for both energy (-3.8 percent) and food (-1.7 percent). Rising was PPI for services, half of which resulted from wider margins at apparel/jewelry/footwear apparel retailers. Over the past year, headline PPI has risen 2.0 percent while the core wholesale price measure has a 12-month comparable of +2.5 percent

#4The number of job openings bloomed again to record levels as 2018 wrapped up. There were a seasonally adjusted 7.335 million job openings on the final day of 2018, up 166,000 for the month and a whopping 29.4 percent from a year earlier. The Bureau of Labor Statistics also indicates that private sector job openings totaled 6.707 million, up 30.4 percent from the end of 2017, with virtually every industry reporting double-digit percentage increases. Hiring also increased, although not at the same fast pace as employers continue to experience difficulty to find new employees. There were 5.907 million workers hired in December, up 95,000 for the month and 7.1 percent from December 2017. Private sector employers added 5.555 million workers, a 7.4 percent gain from a year earlier. 5.545 million people left their job during the month, off 18,000 from November but up 4.3 percent over the previous year. Voluntarily quits had risen 4.6 percent over the past year to 3.482 million while layoff activity was up 2.5 percent from December 2017 to 1.697 million.

#5Small business owner optimism fell for a fifth straight month in January. The Small Business Optimism Index from the National Federation of Independent Business shed 3.2 points during the month to a seasonally adjusted 101.2 (1986=100). This was the measure’s lowest mark since November 2016 when it was at 98.4. Seven of the index’s ten components declined in January, including sharp drops for indices tracking expected economic conditions, expected real sales, plans to increase inventories, plans to increase employment, and whether it is a good time to expand. The press release uses the word “shaky” to describe business owners expectations for business conditions, noting that “the political climate is affecting how they view the future.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 9, 2019, First-Time Claims, seasonally adjusted): 239,000 (+4,000 vs. previous week; +5,000 vs. the same week a year earlier). 4-week moving average: 231,750 (+0.8% vs. the same week a year earlier).
Import Prices (January 2019, All Imports, not seasonally adjusted): -0.5% vs. December 2018, -1.7% vs. January 2018. Nonfuel Imports: -0.2% vs. December 2018, -0.2% vs. January 2018.
Export Prices (January 2019, All Exports, not seasonally adjusted): -0.6% vs. December 2018, -0.2% vs. January 2018, Nonagricultural Exports: -0.3% vs. December 2018, -0.2% vs. January 2018.
University of Michigan Consumer Sentiment (February 2019-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 95.5 (vs. January 2019: 91.2, vs. February 2018: 99.7).
Monthly Treasury Statement (December 2018, Deficit for first 3 months of FY19): -$318.9 billion (vs. first 3 months of FY18: -$225.0 billion).
Business Inventories (November 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.981 trillion (-0.1% vs. October 2018, +4.6% vs. November 2017).

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