Inflation Moderates While Business Sentiment Stays Hot: October 8 – 12

Consumer prices grew less quickly while wholesale prices firmed in September. Here are the five things we learned from U.S. economic data released during the week ending October 12.

#1Consumer prices cooled during the last days of summer. The Bureau of Labor Statistics tells us that the Consumer Price Index (CPI) inched up 0.1 percent on a seasonally adjusted basis in September following two consecutive months of 0.2 percent gains. Energy prices dropped 0.5 percent, pulled down by price decreases for utility delivered gas (-1.7 percent), electricity (-0.5 percent), and gasoline (-0.2 percent). Food prices were unchanged. Net of energy and food, core CPI increased 0.1 percent during the month. Falling were prices for vehicles—both used cars/trucks (-3.0 percent) and new vehicles (-0.1 percent)—and medical care commodities (-0.1 percent). Prices increased for apparel (+0.9 percent), transportation services (+0.5 percent), shelter (+0.2 percent), and medical care services (+0.2 percent). CPI has risen 2.3 percent over the past year while core CPI has a 12-month comparable of +2.2 percent.Consumer Prices Mar-Sep 18 101218

#2…But wholesale prices rebounded. The Producer Price Index (PPI) for final demand grew for the first time in three months with a seasonally adjusted 0.2 percent increase, per the Bureau of Labor Statistics. The core measure—PPI less energy, food, and trade services, jumped 0.4 percent for its largest increase since January. Final demand PPI for goods slipped 0.1 percent, pulled down by significant declines in both energy and food prices. PPI for goods net energy and food gained 0.2 percent. PPI for final demand services jumped 0.3 percent (its biggest gain since June), fueled by a 1.8 percent bounce in wholesale prices for transportation/warehousing services. Over the past year, the headline PPI measure had grown 2.6 percent while the 12-month comparable for core wholesale prices has surged 2.9 percent.

#3Small business owner optimism remained new record highs in September. The Small Business Optimism Index from the National Federation of Independent Business lost 9/10ths of a point during the month (giving back exactly what it had gained in August) to lead the index at a seasonally adjusted 107.9 (1986=100). Six of ten index components pulled back from their August readings, including a seven-point drop for plans to increase inventories and three-point decreases for indices tied to plans to increase employment and make capital outlays. Only three index components improved during the month: expected real sales (up three points), current inventories (up two points), and expected credit conditions. The press release noted that small business owners were indicating that “business is booming and prospects continue to look bright.

#4Wholesalers expanded their inventories more rapidly during August. The Census Bureau reports that merchant wholesalers inventories swelled 1.0 percent during the month to a seasonally adjusted $642.7 billion. This left wholesale inventories 5.3 percent larger than what it was a year earlier. Durable goods wholesale inventories grew 0.9 percent while that of nondurables rose 1.2 percent. The former was boosted by sharp increases in the automotive (+3.5 percent), computer equipment (+1.6 percent), and hardware (+1.0 percent) sectors. Wholesale inventories of nondurables expanded thanks to substantial increases for farm products (+4.9 percent), chemicals (+2.2 percent), and drugs (+2.1 percent). Wholesale sales rose 0.8 percent in August to a seasonally adjusted $511.1 billion (+9.2 percent versus August 2017). The resulting inventory-to-sales ratio of 1.26 matched that of July but was down four basis points from a year earlier.

#5Layoffs remained near multi-decade lows. The Department of Labor indicates the first-time claims for unemployment insurance benefits grew by 7,000 during the week ending October 6 to a seasonally adjusted 214,000. Even with the modest increase, initial jobless claims remained 27,000 below that of a year earlier. The four-week moving average inched up by 2,500 to 209,500 claims. This was 16.9 percent below the year-ago moving average and just above the 49-year low achieved just a few weeks ago. 1.422 million people were receiving some form of unemployment insurance benefits during the week ending September 22, 14.0 percent below the count from the same week a year earlier.

Other U.S. economic data released over the past week:
University of Michigan Surveys of Consumer (September 2018—preliminary, Index of Consumer Sentiment): 99.0 (vs. August 2018: 100.1, vs. September 2017: 100.7).
Import Prices (September 2018, Import Prices, not seasonally adjusted): +0.5 % vs. August 2018, +3.5% vs. September 2017. Nonfuel imports: Unchanged vs. August 2018, +0.6% vs. September 2017.
Export Prices (September 2018, Export Prices, not seasonally adjusted): Unchanged vs. August 2018, +2.7% vs. September 2017. Nonagricultural exports: +0.2% vs. August 2018, +3.3% vs. September 2017.

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

A New Low for the Unemployment Rate: October 1 – 5

The unemployment rate dropped to a multi-decade low while the trade deficit widened to a six-month high. Here are the five things we learned from U.S. economic data released during the week ending October 5.  

#1The unemployment rate fell to a 49-year low during September. The Bureau of Labor Statistics reports that nonfarm payrolls grew by a seasonally adjusted 134,000 during the month, below the 165,000 and 270,000 jobs created during July and August. Some of the slowdown in job creation can be linked to the effects of Hurricane Florence, which weighed on the retail (-20,000 jobs) and leisure/hospitality (-17,000) sectors. Private sector employers added 121,000 jobs during September, less than half of the 254,000 private sector jobs added in August. Industries adding the most workers during September were professional/business services (+54,000), health care/social assistance (+29,800), transportation/warehousing (+23,800), and construction (+18,000). The average number of hours worked remained at 34.5 hours (September 2017: 34.3 hours) while average weekly earnings increased by $2.76 to $939.78 (+3.4 percent versus September 2017).

Based on a separate survey of households, the unemployment rate dropped to its lowest reading since December 1969 at 3.7 percent. This was down 2/10ths of a percentage point from August and a half percentage point from the same month a year earlier. 150,000 people entered the labor force during the month, but the labor force participation rate remained at 62.7 percent (September 2017: 63.0). The labor force participation rate for adults aged 25 to 54 shed 2/10ths of a percentage point to 81.8 percent, matching its year-ago reading. The median length of unemployment was 9.2 weeks, off 9/10ths of a week from September 2017 while the number of part-time workers seeking a full-time position has fallen 9.8 percent over the past year to 4.642 million people. Finally, the broadest measure of labor underutilization (the U-6 series) came in at 7.5 percent, just above its post-recession low (September 2017: 8.3 percent).

Unemployment Rate 1968=2018 100518

#2The trade deficit grew to a six-month high in August. Export activity slowed $1.7 billion during the month to a seasonally adjusted $209.4 billion (+7.1 percent versus August 2017) while imports grew by $1.5 billion to $262.7 billion (+9.6 percent versus August 2017), per the Census Bureau and the Bureau of Economic Analysis. The resulting trade deficit of -$52.2 billion represented a $3.2 billion increase for the month, a 20.5 percent jump from the same month a year earlier, and the largest trade deficit since February. The goods deficit blossomed by $3.6 billion to -$76.7 billion (+17.2 percent versus 2017) while the service surplus widened by $0.4 billion to +$23.5 billion (+10.2 percent versus August 2017). The former was hurt by declining exports of crude oil/petroleum products and soybeans and increased imports of automotive vehicles and cell phones. The U.S. had its largest goods deficits with China (-$34.4 billion), the European Union (-$14.9 billion), and Mexico (-$8.7 billion).

#3Aircraft orders fueled factory orders in August, but core capital orders struggled. The Census Bureau reports that new orders for manufactured goods jumped 2.3 percent during the month after falling 0.5 percent in July. The seasonally adjusted $510.5 billion estimate for new orders represented a robust 10.0 percent increase over the past year. As noted with the previous week’s durable goods report, much of the rise was the product of the 69.0 percent surge in civilian aircraft orders and the 17.0 percent bounce in orders for defense aircraft. Net of transportation goods, factory orders managed a mere 0.1 percent increase. Durable goods orders rose 4.4 percent to $259.6 billion while orders for nondurables gained 0.2 percent to $250.9 billion. Civilian capital goods orders net of aircraft—a proxy of business investment—slumped 0.9 percent. Shipments grew 0.5 percent during the month to $504.0 billion (+7.8 percent versus August 2017), with the gain shrinking to a 0.2 percent increase after removing transportation goods. Shipments of core capital goods contracted 0.2 percent during August.

#4Purchasing managers report business activity largely held firm in September. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, slid by 1.5 points to a reading of 59.8. Even with the decline, this was the 25th consecutive month in which the measure was above a reading of 50.0, indicative of an expanding manufacturing sector. Only two of the five PMI components improved during the month:  production (+0.6) and employment (+0.3). Dropping were PMI components linked to supplier deliveries (-3.4), new orders (-3.3), and inventories (-2.1). Fifteen of 18 manufacturing industries expanded during September, led by textile mills, “miscellaneous” manufacturing, and plastics/rubber products. The press release noted that survey respondents remained “overwhelmingly concerned about tariff-related activity.”

The NMI, the headline index from the Nonmanufacturing Report on Business, jumped by 3.1 points to a reading of 61.6. This was the measure’s 104th straight month with a reading above 50.0. All four NMI components jumped during the month: employment (+5.7), business activity/production (+4.5), new orders (+1.2), and supplier deliveries (+1.0). Seventeen of 18 tracked nonmanufacturing industries grew during September, led by mining, real estate, and wholesale trade. The press release noted the survey respondents were “positive” about current market conditions but were concerned about “capacity, logistics and the uncertainty with global trade.”

#5Construction spending inched up in August. The Census Bureau estimates the value of construction put in place grew 0.1 percent during the month to a seasonally adjusted annualized rate of $1.319 trillion. This was 6.5 percent ahead of August 2017’s annualized rate. Private sector construction spending slowed 0.5 percent to $1.007 billion (+4.4 percent versus August 2017). Dropping during the month were expenditures on both private sector residential (-0.7 percent) and nonresidential (-0.2 percent) spending. Public sector spending rose 2.0 percent during August to an annualized $316.7 billion. Public sector construction spending has surged 14.0 percent over the past 12 months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 29, 2018, First-Time Claims, seasonally adjusted): 207,000 (-8,000 vs. previous week; -47,000 vs. the same week a year earlier). 4-week moving average: 207,000 (-24.9% vs. the same week a year earlier).
Consumer Credit (August 2018, Outstanding Non-Real Estate Backed Consumer Credit, seasonally adjusted): $3.935 trillion (+$20.1 billion vs. July 2018, +4.7% vs. August 2017).

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

 

Not Longer Accommodative: September 24 – 28

The Fed made a move and suggests it will do so again before the year is out. Here are the five things we learned from U.S. economic data released during the week ending September 28.

#1The Fed raises its short-term interest rate target while no longer calling its policies “accommodative.” The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) noted that economic activity was “rising at a strong rate” and that the job market had “continued to strengthen.” The word “strong” also was used to describe job gains and growth in both household spending and business fixed investment. Further, the Fed sees core inflation being near its two-percent target. As a result, the FOMC voted without dissent to raise the fed funds target rate by a quarter point to a range between 2.00 and 2.25 percent. Unlike in recent years, the statement did not characterize its fed funds target rate as being “accommodative,” suggesting a shift in the thinking of the committee. Released in conjunction with the policy statement, the median forecast among FOMC members has one more quarter-point rate hike this year, three hikes in 2018, and one in 2019.

#2Personal spending mellowed a bit in August. Real personal consumption expenditures (PCE) grew a seasonally adjusted 0.2 percent, breaking a four-month streak of 0.3 percent increases for the Bureau of Economic Analysis measure. Real PCE has increased 2.8 percent over the past year. Real spending on services grew 0.2 percent during the month while that of goods increased 0.3 percent. Looking closer at the latter, spending on durable goods gained 0.2 percent while that for nondurables rose 0.4 percent. Matching their July gains were nominal personal income (+0.3 percent), nominal disposable income (+0.3 percent), and real disposable income (+0.2 percent). The latter has grown 2.9 percent over the past 12 months. The savings rate held firm at +6.6 percent. The PCE deflator—a measure of inflation—has risen 2.2 percent over the past year while the core measure (net of both energy and food) has a 12-month comparable of +2.0 percent.

#3The third estimate of Q2 GDP matches that of the second estimate. The Bureau of Economic Analysis reports that Gross Domestic Product (GDP) grew 4.2 percent on a seasonally adjusted annualized basis, matching the previous estimate reported in late August and up a smidge from the initial 4.1 percent annualized gain published in late July. Contributors to GDP growth during the quarter were (in decreasing order): personal consumption, net exports, nonresidential fixed investment, and government expenditures. Negative contributors to Q2 GDP growth were private inventory accumulation and residential fixed investment (housing). Downwardly revised were the estimate of corporate profits, with the estimate now indicating a 3.0 percent increase during Q2.

#4Consumer sentiment rose in September. The Conference Board’s Consumer Confidence Index grew by 3.7 points during the month to a seasonally adjusted 138.4 (1985=100), its best reading since September 2000. The current conditions index grew by a small 3/10ths of a point to 173.1—it was the expectations index that had a big increase, adding a full six points to 115.3. 41.1 percent of survey respondents described current business conditions as “good” while only 9.1 percent see them as “poor.” Similarly, 45.7 percent of Americans see jobs as being “plentiful” while 13.2 percent describe jobs as “hard to get.” The press release said that current confidence levels “should continue to support healthy consumer spending.”

The Index of Consumers Sentiment from the University of Michigan came in at a seasonally adjusted reading of 100.1 (1966Q1 = 100). While this was off 7/10ths of a point from the preliminary September reading a few weeks ago, it represented increases from August 2018 and September 2017 of 3.9 points and 5.0 points, respectively. The current conditions grew by 4.9 points during the month to 115.2 (September 2017: 111.7) while the expectations index added 3.4 points to 90.5 (September 2017: 84.4). The press release noted that most of the improved sentiment was reported by lower income survey respondents—the headline index for households in the bottom third of incomes hit its highest reading in nearly 18 years.

#5Rising aircraft sales fueled durable goods orders in August, but business investment lagged. The Census Bureau estimates new orders for durable goods jumped 4.5 percent during the month to a seasonally adjusted $259.6 billion, the second increase in three months. Transportation goods orders surged 13.0 percent, supported by large gains for orders of both civilian (+69.1 percent) and defense aircraft (+17.0 percent). New orders for motor vehicles dropped 1.0 percent. Net of transportation goods, new orders for durable goods managed a mere 0.1 percent gain. Rising during the month were orders for primary metals (+0.9 percent), electrical equipment/appliances (+0.6 percent), and machinery (+0.1 percent). New orders for civilian capital orders net of aircraft (a proxy for business investment) dropped 0.5 percent.

Other U.S. economic data released over the past week:
Jobless Claims (week ending September 22, 2018, First-Time Claims, seasonally adjusted): 214,000 (+12,000 vs. previous week; -44,000 vs. the same week a year earlier). 4-week moving average: 206,250 (-23.1% vs. the same week a year earlier).
New Home Sales (August 2018, New Home Sales, seasonally adjusted annualized rate): 629,000 (+3.5% vs. July 2018, +12.7% vs. August 2017).
Pending Home Sales (August 2018, Index (2001=100), seasonally adjusted): 104.2 (-1.8% vs. July 2018, -2.3% vs. August 2017).
Chicago Fed National Activity Index (August 2018, Index (0.00 = U.S. economic growth at historical average): +0.18 (vs. July 2018: +0.18, vs. August 2017: -0.08). 3-month moving average: +0.24 (vs. July 2018: +0.02, vs. August 2017: -0.05).
Case-Shiller Home Price Index (July 2018, 20-City Index, seasonally adjusted): +0.1% vs. June 2018, +5.9% vs. July 2017.
FHFA House Price Index (July 2018, Purchase-Only Index, seasonally adjusted): +0.2% vs. June 2018, +6.4% vs. July 2017.
Agricultural Prices (August 2018, Prices Received by Farmers): -2.2% vs. July 2018, -4.9% vs. August 2018).

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