The Trade Deficit Narrowed in November as Exports and Imports Both Fell: Week of February 4 – 8

The trade deficit shrank in November, as had factory orders. Here are the five things we learned from U.S. economic data released during the week ending February 8.  

#1The trade deficit narrowed in November. The Census Bureau and the Bureau of Economic Analysis estimates export activity slowed $1.3 billion to $209.9 billion (+3.7 percent versus November 2017) while imports fell by $7.7 billion to $259.2 billion (+3.2 percent). The resulting trade deficit of -$49.3 billion was down $6.4 billion from October but 0.7 percent larger than that of a year earlier. The goods deficit contracted by $6.7 billion to -$71.6 billion while the services surplus shrank by $0.3 billion to +$22.3 billion. The former was the result a $7.9 billion drop in imported goods, including steep declines for consumer goods (including cell phones) and industrial supplies/oil. The U.S. had its biggest goods deficits in November with China (-$35.4 billion, down $2.8 billion from October), the European Union (-$13.8 billion), Mexico (-$6.8 billion), and Japan (-$5.7 billion).

#2Factory orders slowed for a second consecutive month in November. The Census Bureau estimates new orders for manufactured goods declined by $3.1 billion during the month to a seasonally adjusted $499.2 billion. This was 4.1 percent greater than the value of November 2017 factory orders. Transportation goods orders grew 3.0 percent, boosted by strong gains for ships/boats (+72.6 percent), defense aircraft (+31.2 percent), and civilian aircraft (+6.9 percent). Net of transportation goods, core factory orders dropped 1.3 percent following a 0.2 percent gain in October. While orders grew for fabricated and primary metals (+0.9 percent and +0.8 percent, respectively), they slowed for nondurable goods (-1.9 percent), machinery (-1.7 percent), electrical equipment/appliances (-1.1 percent), and computers/electronics (-0.3 percent). New orders for civilian capital goods orders net of aircraft (a proxy for business investment) slumped 0 6 percent in November. 

#3Service sector activity remained strong, but softened, in January. The NMI, the headline index from the Institute for Supply Management’s Nonmanufacturing Report on Business slipped by 1.3 points during the month to a reading of 56.7. Even with the pullback, the NMI has been above a reading of 50.0 for 108 consecutive months, indicative of an expanding service sector. Only one of the NMI’s four components grew during the month, with employment adding 1.2 points to 57.8. Shedding points from December were components for new orders (down 5.0 points to 57.7) and business activity/production (down 1.5 points to 59.7. Holding firm was the measure for supplier deliveries at a reading of 51.5. Only 11 of 18 tracked nonmanufacturing industries expanded during the month, however, with the most robust expansion reported in transportation/warehousing, health care/social assistance, and mining. The press released noted continued optimism but also stated that “[r]espondents are concerned about the impacts of the government shutdown.

#4Manufacturing sector productivity edged up during Q4 2018. The Bureau of Labor Statistics tells us that manufacturing productivity grew 1.3 percent on a seasonally adjusted annualized basis during the final three months of 2018, an improvement from Q3’s 1.1 percent gain. Manufacturing output had expanded 2.3 percent, supported by a 1.0 percent advance in hours worked. The productivity gain for the past year was much softer, with a 0.7 percent increase. During Q4, durable manufacturing productivity increased 2.6 percent while the productivity improvement for nondurable manufactured goods was 1.2 percent. (The BLS was unable to report on overall productivity for the U.S. economy due to the partial government shutdown.)

#5Consumers took on credit at a marginally slower pace in December. American households had $4.010 trillion in outstanding consumer debt (not including mortgages and other real estate-backed loans) in December, according to the Federal Reserve. This was up $16.5 billion from November (smaller than the prior month’s $22.4 billion gain) and a 12-month increase of 4.7 percent. Consumers had $1.045 trillion in outstanding revolving credit balances at the end of December, up $1.7 billion for the month and 2.0 percent from a year earlier. Nonrevolving credit balances expanded $14.9 billion to $2.966 trillion (+5.6 percent versus December 2017).

Other U.S. economic data released over the past week:
Jobless Claims (week ending February 2, 2019, First-Time Claims, seasonally adjusted): 234,000 (-19,000 vs. previous week; +11,000 vs. the same week a year earlier). 4-week moving average: 224,750 (-1.4% vs. the same week a year earlier).
Senior Loan Officers Survey (January 2019)

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

The Fed Is ‘Patient,’ Employers Speed Hiring: January 28 – February 1

The Fed hits the breaks while the job creation motors on. Here are the five things we learned from U.S. economic data released during the week ending February 2.

Note that the partial shutdown of the federal government delayed the release of certain economic data reports.

#1The FOMC leaves its short-term interest rate target unchanged and suggests that they may stay put for a while. The statement released following the past week’s meeting of the Federal Open Market Committee noted that “the labor market has continued to strengthen and that economic activity has been rising at a solid rate.” As a result, the committee decided to keep the fed funds target rate at a range between 2.25 and 2.50 percent. The statement also said that it is the “most likely” outcome that “sustained” economic growth will continue with inflation remaining near the Fed’s two-percent target. But at the same time, the FOMC “will be patient” as to if/when it decides to change the fed funds target rate, noting “global economic and financial developments.” Written another way, it appears the Fed’s campaign to hike its short-term interest rate target may be taking an extended hiatus.

#2U.S. payrolls expanded for a 100th consecutive month in January. Nonfarm payrolls expanded by 304,000 on a seasonally basis during the month, the largest single-month gain in employment since last February. The Bureau of Labor Statistics’ revisions to November and December knocked payrolls estimates for the two months by a net 70,000 jobs. Private sector employers added 296,000 workers in December, split between 72,000 on the goods-producing side of the economy and 224,000 in the service sector. Among the industries added the most jobs in January were leisure/hospitality (+74,000), construction (+52,000), health care/social assistance (+45,400), professional/business services (+30,000), and transportation/warehousing (+26,600). Average hourly earnings inched up by three cents during the month to $27.56 (+3.2 percent versus January 2018) while average weekly earnings grew by $1.03 to $950.82 (+3.5 percent versus Januar 2018).

Based on a separate survey of households, the unemployment rate inched up by 1/10th of a point to 4.0 percent (just under January 2018’s 4.1 percent unemployment rate). The labor force participation rate also added 1/10th of a point to 63.2 percent. The same measure for adults aged 25-54 added 1/10th of a point 82.4 percent. The median length of unemployment decreased by 2/10ths of a week to 8.9 weeks (January 2018: 9.4 weeks) while the count of part-time workers seeking a full-time opportunity blossomed by 490,000 to 5.147 million (the increase reflecting private sector contractors losing work from the partial federal government shutdown). Also reflecting the impact from the shutdown was the broadest measure of the labor underutilization (the U-6 series), which swelled by a half point to 8.1 percent. 

#3Economic activity picked up slightly in December. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, added six-basis points during the month to a reading of +0.27. This was the measure’s best reading since last August. Forty-six of the economic indicators made positive contributions to the CFNAI during the month while the other 35 made negative contributions. Of the four major categories of economic indicators, two made larger positive contributions during December: production-related contributions (a positive 22-basis point contribution, up from a two-basis point contribution in November) and employment (a basis point increase to a +0.11 contribution). Smaller contributions came from indicators tied to sales/orders/inventories (a neutral contribution versus a +0.12 contribution in November) and personal consumption/housing (a negative six-basis point contribution versus -0.03 in November). The CFNAI’s three-month moving average grew by four-basis points to +0.16, indicative of above-average economic growth.

#4January was a harsh month for consumer sentiment. The Conference Board’s Consumer Confidence Index shed 6.4 points during the month to a seasonally adjusted reading of 120.2 (1985=100), its lowest reading since July 2017. A weaker outlook for the future was the cause of most of the decline in the headline index—the expectations index fell 10.4 points to 87.3. The present conditions index had a far more modest decline as it decreased by 3/10ths of a point to 169.6. The press release linked the depressed headline and expectation indices on “financial market volatility and the government shutdown.” 37.4 percent of survey respondents described current business conditions as “good” versus 11.1 percent said that they were “bad.” Similarly, 46.6 percent of consumers reported that jobs were “plentiful” versus a mere 12.9 percent saying that were “hard to find.”

Also falling was the University of Michigan’s Index of Consumer Sentiment, which declined by 7.1 points to a seasonally adjusted 91.2 (1966Q1=100). The measure was 4.5 points below its January 2018 mark as it fell to its lowest reading since the 2016 election. The current conditions index lost 7.3 points to a reading of 108.8 (January 2018: 110.5) while the expectations index declined 7.1 points to 79.9 (January 2018: 86.3).  The press release warned that it the continuing budget “standoff” continues, it could result in sustained declines in consumer sentiment and spending that “could push the economy into a recessionary downturn.”

#5Manufacturing activity picked up in January. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business—added 2.3 points during January to a reading of 56.6. “This represented a partial rebound from December’s 4.5 point drop and was the 29th straight month in which the PMI was above a reading of 50.0, indicative of an expanding manufacturing sector. Three of five PMI components improved from their December marks: new orders (up 6.9 points), production (up 6.4 points), and inventories (up 1.6 points). Components for supplier deliveries (-2.8 points) and employment (-0.5 points) dropped versus December. Fourteen of 18 tracked manufacturing industries expanded during December, led by textiles, computer/electronics, and plastic/rubber products. The press release noted while the sector “continues to expand, reversing December’s weak expansion, but inputs and prices indicate fundamental changes in supply chain constraints.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending January 26, 2019, First-Time Claims, seasonally adjusted): 253,000 (+53,000 vs. previous week; +19,000 vs. the same week a year earlier). 4-week moving average: 220,250 (-5.9% vs. the same week a year earlier).
Pending Home Sales (December 2018, Index (2001=100), seasonally adjusted): 99.0 (-2.2% vs. November 2018, -9.8% vs. December 2017).
New Home Sales (November 2018, New Homes Sold, seasonally adjusted annualized rate): 657,000 (+16.9% vs. October 2018, -7.7% vs. November 2017).
Construction Spending (November 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.300 (+0.8% vs. October 2018, +3.4% vs. November 2017).
Bankruptcy Filings (12-month period ending December 31, 2018, Business and Nonbusiness Filings): 773,418 (-2.0% vs. 12-month period ending December 31, 2017).
Agricultural Prices (November 2018, Prices Received by Farmers): +3.5% vs. October 2018, -3.6% vs. November 2017. 

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

Home Sales Sputtered Again: What We Learned During the Week of January 21 – 25

Home sales disappointed again during the final days of 2018.  Here are the five things we learned from U.S. economic data released during the week ending January 25.

Note that the partial shutdown of the federal government has delayed the release of certain economic data reports.

#1Existing home sales plummeted as 2018 ended. The National Association of Realtors indicates sales of previously owned homes dropped 6.4 percent in December to a seasonally adjusted annualized rate (SAAR) of 4.99 million units. This was the measure’s worst showing since November 2015 and represented a 10.3 percent decline from a year earlier. Sales fell in all four Census regions on both a month-to-month and year-to-year basis, including double-digit percentage drops over the previous year in the West (-15.0 percent) and Midwest (-10.5 percent). Also falling during the month was the number of unsold homes on the market, with inventories shrinking 5.1 percent to 1.550 million units. This was equivalent to a very tight 3.7 month supply (smallest since last March). The median sales price of $253,600 was a 2.9 percent gain from a year earlier. NAR’s press release included a bit of optimism for the near-term, stating that “with mortgage rates lower, some revival in home sales is expected going into spring.”

#2Forward-looking economic indicators suggest a showdown in December. The Conference Board’s Leading Economic Indicators (LEI) lost 1/10th of a point to a reading of 111.7 (2016=100), its second drop in three months. Even with the December’s decline, the LEI has risen 4.3 percent over the past year. The partial federal government shutdown delayed the release of some government economic data, which forced the Conference Board to estimate values of some LEI components. With that caveat in mind, six of the LEI’s ten components made positive contributions in December, led by first-time jobless claims, the Leading Credit Index, and the interest rate spread. Improving during the month were both the coincident and lagging indices. The former gained 2/10ths of a point to 105.1 (+2.1 percent versus December 2017) while the latter added a half point to 106.7 (+2.8 percent versus December 2017). The press release stated that the effects of the partial government shutdown had not yet been reflected in the data, but the drop in the LEI suggests “the economy could decelerate towards 2 percent growth by the end of 2019.”

#3Jobless claims fell to a nearly 50-year low in mid-January. The Department of Labor estimates there were a seasonally adjusted 199,000 first-time claims made for unemployment insurance benefits during the week ending January 19. This was 13,000 claim decline from the prior week and the fewest reported since the week ending November 15, 1969(!). By comparison, there were 229,000 first-time claims made during the same week a year ago. The four-week moving average of first-time claims was at 215,000, off 9.5 percent from a year earlier. 2.216 million people were receiving some form of unemployment insurance benefits during the week ending January 5, down 9.7 percent over the previous year

#4Home prices rose at a solid pace in November. The Federal Housing Finance Administration (FHFA) reports that its purchase-only House Price Index grew 0.4 percent during the month on a seasonally adjusted basis. This matched October’s gain, along with that of June, July, and August (September’s increase was slightly smaller 0.3 percent.) The index grew in six of nine Census regions, including sizable gains in the South Atlantic (+1.1 percent), Middle Atlantic (+1.0 percent), West South Central (+1.0 percent), and East South Central (+0.9 percent). Prices fell in the Pacific (-0.8 percent), East North Central (-0.2 percent), and West North Central (-0.1 percent) regions. FHFA’s price measure of homes purchased with a conforming mortgage has risen 5.8 percent over the past year with favorable 12-month comparables in all nine Census regions.

#5Crude oil and gasoline inventories expanded in mid-January. The Energy Information Administration tells us that U.S. crude oil inventories—net of what is held in the Strategic Oil Reserve—grew by 8.0 million barrels during the week ending January 18 to 445.0 million barrels. This was up 8.1 percent from the same week a year earlier and “about” nine percent above the five-year average for this time of the year. Gasoline inventories grew 4.0 million barrels during the same week to 295.6 million barrels, up 6.4 percent from a year earlier. Inventories of distillates contracted by 0.6 million barrels to 142.4 million barrels (+1.9 percent versus the week ending January 19, 2018). The average retail prices of gasoline—$2.25—was 12.3 percent below that of mid-January 2018.

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