This week’s economic data – What We Learned About the U.S. Economy Last Week

Cash Registers Rang Louder in July: August 13 – 17

August 17, 2018August 17, 2018Kevin Roth

Retail sales expanded while growth in manufacturing slowed. Here are the five things we learned from U.S. economic data released during the week ending August 17.

Retail sales heated up in July. The Census Bureau estimates retail and food services sales rose 0.5 percent to a seasonally adjusted $507.5 billion. This was an improvement from the downwardly revised 0.2 percent sales gain in June. Sales grew 0.2 percent at auto dealers/parts stores and 0.8 percent at gas stations (think higher gas prices). Net of auto dealers and gas stations, core retail sales jumped 0.6 percent in July following a 0.2 percent bump in June. Sales improved during the month at apparel retailers (+1.3 percent), restaurants/bars (+1.3 percent), department stores (+1.2 percent), grocery stores (+0.8 percent), and electronics/appliance retailers (+0.1 percent). Sales lost traction at retailers focused on sporting goods/hobbies (-1.7 percent), furniture (-0.5 percent), and health/personal care (-0.4 percent). Retail sales have risen 6.4 percent over the past year while the core retail sales measure has a 12-month comparable of +5.6 percent.

Industrial production slowed in July. The Federal Reserve reports industrial production crept up a modest 0.1 percent on a seasonally adjusted basis during the month following a 1.0 percent jump in June. Growth in manufacturing slowed to a 0.3 percent increase in July after having surged 0.8 percent during the previous month. Production of durable goods gained 0.4 percent (including increases of around 1.0 percent for motor vehicles and computers/electronics) while the output of nondurables inched up 0.2 percent (with higher output of apparel, petroleum/coal products, chemicals, and plastics/rubber products). Mining output, which has surged 12.9 percent over the past year, slipped 0.3 percent during July (even as oil and gas extraction continued to rise). Utility output slowed for the third straight month with a 0.5 percent decline.

Forward-looking economic indicators further strengthened in July. The Conference Board’s Leading Economic Indicators (LEI) jumped by 7/10^ths of a point to 110.7 (2016=100). This was an improvement from the 6/10^ths of a point gain in June and leaves the LEI 5.1 percent ahead of its year-ago reading. July’s increase was broad-based as nine of the LEI’s ten components made positive contributions, led by the count of jobless claims staying near multi-decade lows. The coincident index grew by 2/10^ths of a point to 104.2, a 2.4 percent increase from a year earlier as all four components made positive contributions. The lagging index slipped by 2/10^ths of a point to 105.2 with only two of seven components growing during the month. The backward-looking measure was still 2.3 percent above its July 2017 mark. The press release noted that the LEI’s reading indicates economic growth will be “at a solid pace for the remainder of this year.”

Housing starts sputtered during July. Housing starts edged up 0.9 percent to a seasonally adjusted annualized rate of 1.168 million units, per the Census Bureau. This was a weak rebound to June’s 12.9 percent drop and left housing starts 1.4 percent below the July 2017 pace. Starts of single-family home gained 1.9 percent while those of construction with more five or more units increased 3.1 percent. Starts weakened in the West (-19.6 percent) and Northeast (-4.0 percent) but improved in both the Midwest (+11.6 percent) and South (+10.4 percent). Looking towards the future, the annualized rate of issued building permits grew 1.5 percent during the month to 1.311 million permits (+4.2 percent versus July 2017). Issued permits increased for both single-family (+1.9 percent) and multi-family (+1.7 percent). Fewer homes were completed during the month—the annualized count of homes completed slumped 1.7 percent to 1.188 million units (-0.8 percent versus July 2017). Single-family home completions plummeted 5.2 percent during the month while multi-family completions gained 8.2 percent.

Small business owner optimism inches ever so close to a 35-year high. The Small Business Optimism Index added 7/10^ths of a point in July to a seasonally adjusted reading of 107.9 (1986=100). This was not only a 2.7 point gain from a year earlier, it was the measure’s best reading since July 1983 (which itself was the best reading for the National Federation of Independent Business index in its 45-year history). Six of the ten index components improved from their June readings, including three-point gains for indices tracking expected real sales, plans to increase employment, and whether it is a good time to expand. Only two measures—current inventories and plans to increase inventories—declined from their June readings. The press release notes that business owners “anticipate more sales and better business conditions.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending August 11, 2018, First-Time Claims, seasonally adjusted): 212,000 (-2,000 vs. previous week; -24,000 vs. the same week a year earlier). 4-week moving average: 215,500 (-10.5% vs. the same week a year earlier).
– Import Prices (July 2018, All Imports, not seasonally adjusted): Unchanged vs. June 2018, +4.8% vs. July 2017. Nonfuel imports: -0.3% vs. June 2018, +1.3% vs. July 2017.
– Export Prices (July 2018, All Exports, not seasonally adjusted): -0.5% vs. June 2018, +4.3% vs. July 2017. Nonagricultural imports: Unchanged vs. June 2018, +5.0% vs. July2017.
– Housing Market Index (August 2018, Index (>50=”Good” housing market, seasonally adjusted): 67 (vs. July 2018: 68, vs. August 2017: 67).
– Productivity (2018 Q2-preliminary, Nonfarm Business Labor Productivity, seasonally adjusted annualized rate): +2.9% vs. 2018Q1 +1.3% vs. 2017Q2.
– State Employment (July 2018, Change in Nonfarm Payrolls, seasonally adjusted): Vs. June 2018: Increased in 6 states, decreased in 1, and essentially unchanged 43 states and the District of Columbia. Vs. July 2017: Increased in 34 states and essentially unchanged in 16 states and the District of Columbia
– University of Michigan Surveys of Consumers (August 2018-preliminary, Index of Consumer Sentiment (1966Q1=100), seasonally adjusted): 95.3 (July 2018: 97.9 August 2017: 96.8).
– Treasury International Capital Flows (June 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): -$45.5 billion (vs. May 2018: +$20.3 billion, vs. June 2017: +$35.5 billion).

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

Prices and Job Openings Remain Firm: August 6 – 10

August 11, 2018August 11, 2018Kevin Roth

Inflation continued to take hold, albeit still at a moderate rate. Here are the five things we learned from U.S. economic data released during the week ending August 10.

Consumer prices have risen 2.9 percent over the past year. The Bureau of Labor Statistics indicates the Consumer Price Index (CPI) grew a seasonally adjusted 0.2 percent during July, up from June’s 0.1 percent bump but matching April and May gains of 0.2 percent. Energy prices pulled back for a second consecutive month (-0.5 percent), with declines reported for gasoline (-0.6 percent), utility delivered gas (-0.5 percent), and electricity (-0.4 percent). Food CPI inched up 0.1 percent. Net of energy and food, core CPI grew 0.2 percent for the fifth time in six months. Rising were prices for used cars/trucks (+1.3 percent), transportation services (+0.5 percent), new vehicles (+0.3 percent), shelter (+0.3 percent), and medical care services (+0.1 percent). Prices dropped for medical care commodities (-1.1 percent) and apparel (-0.3 percent). Over the past year, CPI has risen 2.9 percent, its largest 12-month comparable in more than six years. The core measure has jumped 2.4 percent since last July, its largest 12-month comparable since September 2008. Both increases portend the Federal Reserve raising its short-term interest rate target at its upcoming September meeting.

While pausing in July wholesale prices were 3.3 percent ahead of their year-ago levels. Final demand Producer Price Index (PPI) was unchanged during the month on a seasonally adjusted basis, according to the Bureau of Labor Statistics. This followed gains in May and June of +0.5 percent and +0.3 percent, respectively. The core measure of wholesale prices, removing the impact of energy, food, and trade services, gained 0.3 percent during July. PPI for final demand good eked out a 0.1 percent gain as prices for both energy (-0.5 percent) and food (-0.1 percent) both dropped. PPI for core goods increased 0.3 percent for the sixth time in seven months (pharmaceutical preparations jumped 0.7 percent). Losing ground during July was PPI for final demand services, slipping 0.1 percent. Trade services PPI, a measure of retailer and wholesaler margins, slumped 0.8 percent. Over the past year, final demand PPI has risen 3.3 percent (just under its biggest increase since 2011) while the core measure has a 12-month comparable of +2.8 percent (its highest mark since March).

There remained more job openings than people seeking work in June. Per the Bureau of Labor Statistics, employers had a seasonally adjusted 6.662 million job openings at the end of the month, essentially matching the count from the end of May and up 8.8 percent from the same month a year earlier. Further, this was greater than the 6.564 million people the BLS had estimated were unemployed during the same month. Private sector employers had 6.053 million job openings at the end of June, up 8.6 percent from June 2017. Industries with the particularly sizeable year-to-year percentage gains in job openings included construction (+30.2 percent), retail (+29.7 percent), transportation/wholesale (+25.3 percent), manufacturing (+17.3 percent), and accommodation/food services (+9.7 percent). Hiring slowed by 104,000 to 5.651 million workers, which paced 3.4 percent ahead of year-ago hiring. Private sector employers hired 5.303 million workers during June, up 3.4 percent from a year earlier. 5.502 million people left their jobs during the month, up 83,000 from May and 3.9 percent from June 2017. 3.402 million voluntarily departed their jobs during the month (+7.5 percent versus June 2017) while 1.723 million people were laid off (-2.8 percent versus June 2017).

Consumers slowed the rate of them taking on debt. The Federal Reserve estimates that the American public held a seasonally adjusted $3.908 trillion in outstanding debt (not counting mortgages or other real estate-backed debt) at the end of June, a $10.2 billion increase for the month and up 4.7 percent from a year earlier. As a matter of context, consumer debt holdings had grown by $24.3 billion during May. All June’s gain came in the form of nonrevolving debt (e.g., college loans, auto loans), rising by $10.4 billion to $2.869 trillion (4.7 percent versus June 2017). Revolving credit (i.e., credit card) balances essentially held steady at $1.039 trillion (+4.8 percent June 2017).

The federal budget deficit is more than 20 percent larger than what it was this time last year. The Bureau of the Fiscal Service, a part of the Department of the Treasury, reports that the U.S. government had a budget deficit of $76.9 billion during July. This was up $2.0 billion from June and 79.0 percent from the same month a year earlier. Tax receipts totaled $225.3 billion while outlays were at $302.1 billion. More notable is that the budget deficit generated over the first ten months of FY2018—$684.0 billion—was 20.8 percent greater than that of the first ten months of FY2017. Receipts over this time period were up a mere 1.0 percent while expenditures rose 4.4 percent.

Other U.S. economic data released over the past week:
– Jobless Claims (week ending August 4, 2018, First-Time Claims, seasonally adjusted): 213,000 (-6,000 vs. previous week; -39,000 vs. the same week a year earlier). 4-week moving average: 214,250 (-11.3% vs. the same week a year earlier).
– Wholesale Trade (June 2018, Wholesale Inventories, seasonally adjusted): $632.4 billion (+0.1% vs. May 2018, +5.1% vs. June 2017).
– Senior Loan Officer Opinion Survey on Bank Lending

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

Payrolls Expand, Unemployment Falls: July 30 – August 3

August 3, 2018August 3, 2018Kevin Roth

The frantic pace of hiring cooled a bit while the Fed takes a break. Here are the five things we learned from U.S. economic data released during the week ending August 3.

Employers added fewer jobs while the unemployment rate fell during July. The Bureau of Labor Statistics reports nonfarm employers added a seasonally adjusted 157,000 workers during the month. This was down from the sharply upward estimates of May and June job creation of 268,000 and 248,000, respectively, but also represented the 94^th straight month of payroll expansion. The private sector added 170,000 jobs during July while the public sector shed 13,000 workers. The former was split between 52,000 new jobs in the goods-producing sector and 118,000 added workers in the service sector. Industries adding the most workers were professional/business services (+51,000), leisure/hospitality (+40,000), manufacturing (+37,000), and health care/social assistance (+33,500). The average hour week slowed by 1/10^th of an hour to 34.5 hours (July 2017: 34.4 hours) while mean hourly wages grew by seven cents to 27.05 (July 2017: 26.34). The resulting average weekly earnings of $933.23 was up 3.0 percent from a year earlier.

The unemployment rate slipped by 1/10^th of a percentage point to 3.9 percent, just above the 3.8 percent post-recession low achieved in May (July 2017: 4.3 percent). 105,000 people entered the labor market during the July, which kept the labor force participation rate at 62.9 percent. The labor participation rate for adults aged 25-54 eked out a 1/10^th of a point increase to 82.1 percent. The median length of unemployment jumped to 9.5 weeks (up 6/10^ths of a week from June but still under July 2017’s median of 10.4 weeks). The count of “involuntary” part-time workers—part-time workers who seek a full-time opportunity—dropped by 172,000 to 4.567 million people (July 2017: 3.233 million). Finally, the broadest measure of labor underutilization by the BLS (the “U-6” series) fell to a post-recession low of 7.5 percent, down 3/10^ths of a point from June and a full percentage point of July 2017.

The Fed does not surprise (i.e., does nothing). The policy statement released following last week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as being “at a strong rate” and the labor market as having “continued to strengthen.” Further, it sees core inflation being near its two-percent target rate while consumer and business investment spending having “grown strongly.” Looking towards the future, the Fed sees risks to be “roughly balanced” between those on the upside and downside. As a result, the FOMC voted unanimously to maintain the fed funds target rate at a range between 1.75 and 2.00 percent, a policy that the statement called “accommodative.” The general consensus has the FOMC going for a quarter-point rate hike at its next meeting in September.

The trade deficit grew for the first time in four months during June. The Census Bureau and Bureau of Economic Analysis estimates exports slowed by $1.5 billion to $213.8 billion (+9.8 percent versus June 2017) while imports increased by $1.6 billion to $260.2 billion (+8.6 percent versus June 2017). The resulting trade deficit of -$46.3 billion was up $3.6 billion from May and 3.4 percent larger than June 2017’s deficit. The trade deficit for the first six months of 2018 totaled -$291.2 billion, up 7.2 percent from the same six months in 2017 and 17.7 percent from the first six months in 2016. The goods deficit grew by $3.1 billion during June to -$68.8 billion while the services surplus was virtually unchanged at +$22.5 billion. In the case of the former, exports of goods dropped by $1.7 billion (including declines in exports of pharmaceutical preparations, jewelry, automobiles, and civilian aircraft (and engines)). Imports of goods grew by $1.4 billion, led by increases for pharmaceutical preparations and crude oil. The U.S. had its largest goods deficits with China (-32.5 billion), the European Union (-$12.8 billion), and Mexico (-$6.7 billion).

Consumer spending held firm during the last days of spring. Real personal consumption expenditures (PCE) grew 0.3 percent on a seasonally adjusted basis during June, according to the Bureau of Economic Analysis. Spending on durable goods and services each increased 0.4 percent while that on nondurable goods slipped 0.1 percent. Without adjustments for inflation, nominal PCE grew 0.4 percent, matching the change in nominal personal income and nominal disposable income. After adjusting for price variation, real disposable personal income gained 0.3 percent during June. The savings rate remained steady at +6.8 percent (note that both the savings rate and income data series were revised upward with the publication of this report). Over the past year, real spending has grown 2.8 percent (its best 12-month comparable since last November) while real disposable has increased 3.1 percent (its best 12-month comparable since October 2015).

Businesses appear concerned about the possible effects of tariffs. The Institute for Supply Management’s Purchasing Managers Index (PMI) shed 2.1 points during the month to a reading of 58.1. This was the 23^rd straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of the five PMI components declined during July: supplier deliveries (-6.1 points to 62.1), production (-3.8 points to 62.3), and new orders (-3.3 points to 60.2). Rising were measures for inventories (+2.5 points to 53.3) and employment (up a half point to 56.5). Seventeen of 18 tracked manufacturing industries expanded during the month, led by textile mills, electrical equipment/appliances, and apparel. The press release notes that survey respondents were “overwhelmingly concerned about how tariff-related activity” will impact their business.

The ISM’s measure for business activity in the service sector also slumped as the NMI dropped by 3.4 points to 55.7. Even if this is the lowest reading for the NMI since last August, it represented the 102^nd consecutive month with the index indicating an expansion of the service sector. Three of four NMI components fell from the June readings: business activity/production (down 7.4 points to 56.5), new orders (down 6.2 points to 57.0), and supplier deliveries (off 2.5 points to 53.0). Improving was the measure tracking employment (up 2.5 points to 56.1). Sixteen of 18 tracked nonmanufacturing industries grew during July, led by mining, public administration, and agriculture/forestry/fishing/hunting. The press release blames the “cooling off” of the service sector on concerns about “tariffs and deliveries.”

Other U.S. economic data released over the past week:
– Jobless Claims (week ending July 28, 2018, First-Time Claims, seasonally adjusted): 218,000 (+1,000 vs. previous week; -25,000 vs. the same week a year earlier). 4-week moving average: 214,500 (-11.4% vs. the same week a year earlier).
– Factory Orders (June 2018, New Orders for Manufactured Goods, seasonally adjusted): $501.7 billion (+0.7% vs. May 2018, +6.1% vs. June 2017).
– Pending Home Sales (June 2018, Index (2001=100), seasonally adjusted): 106.9 (+0.9% vs. May 2018, -2.5%
– Vehicle Sales (July 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 16.77 million vehicles (-2.7% vs. June 2018, -0.1% vs. July 2017).
– Construction Spending (June 2018, Value of Construction Put in Place): $1.317 trillion (-1.1% vs. May 2018, +6.1% vs. June 2017).
– Conference Board Consumer Confidence (July 2018, Index (1985=100), seasonally adjusted): 127.4 (May 2018: 127.1).
– Case-Shiller Home Price Index (May 2018, 20-City Index, seasonally adjusted): +0.2% vs. April 2018, +6.5% vs. May 2017).

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

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