The Unemployment Rate Drops Below 4%: April 30 – May 4

Employers continued to add workers while the unemployment rate fell to its lowest point since 2000. Here are the five things we learned from U.S. economic data released during the week ending May 4.  

#1The unemployment rate dropped to a 17.5 year low, but job creation lags a bit. The Bureau of Labor Statistics has nonfarm payrolls growing by a good, but not great 164,000 during April (seasonally adjusted), following increases of 135,000 and 324,000 in March and February. Private sector employers added 168,000 workers during the month, split by 49,000 jobs in the goods-producing side of the economy and 119,000 in the service sector. Industries adding the most workers to their payrolls during April were professionals/business services (+54,000), health care/social assistance (+29,300), manufacturing (+24,000), leisure/hospitality (+18,000), and construction (+17,000). The average workweek remained at 34.5 hours while average hourly earnings added four cents to $26.84. As a result, average weekly earnings grew by $1.38 to $925.98 (+2.8 percent versus April 2018).

Based on a separate household survey, the unemployment slipped by 2/10ths of a percentage point to 3.9 percent, its lowest point since December 2000. Taking some of the steam from this news was that 239,000 people left the labor force during the month, resulting in the labor force participation rate slipping by 1/10th of a percentage point to 62.8 percent. Falling by the same amount was the labor force participation rate for adults aged 25-54 (to 82.0 percent). The median length of unemployment jumped by 7/10ths of a week to 9.8 weeks (April 2017: 10.3 weeks). The BLS’s broadest measure of labor underutilization (the U-6 series) hit another post-recession low with a 2/10ths of a percentage point decline to 7.8 percent.Unemployment Rate 1998-2018 050418

#2The Fed stays put in May, likely to act in June. The policy statement released following this past week’s meeting of the Federal Open Market Committee (FOMC) continued to characterize economic growth as “moderate” and job gains as “strong.” Further, while household spending had “moderated,” business investment continued to grow “strongly.” Finally, core inflation measures continued to approach the Fed’s two-percent target. The FOMC voting members voted unanimously to keep the fed funds target rate between 1.5 and 1.75 percent, a rate the committee considers to be “accommodative.” The statement notes that conditions likely will “warrant further gradual increases” in its short-term interest rate target. The general consensus has the next rate hike at its June 12-13 meeting.

#3Personal spending rebounds in March. The Bureau of Economic Analysis reports that real personal consumption expenditures (PCE) rose 0.4 percent on a seasonally adjusted basis during the month following declines in both January and February. Real spending on durable goods jumped 1.1 percent while expenditures for nondurables and services each gained 0.3 percent. As prices were flat during the month, nominal PCE also grew 0.4 percent during the month. The increased spending was prompted a 0.3 percent gain in both nominal personal income and disposable income. After adjusting for inflation, real disposable income grew by 0.2 percent. Funding the difference was the 2/10ths of a percentage point drop in the savings rate to +3.1 percent. Over the past year, real PCE has increased 2.4 percent while disposable income has gained 1.7 percent.

#4Aircraft exports prompt a sharp narrowing of the trade deficit in March. Per the Census Bureau and Bureau of Economic Analysis, exports increased by $4.2 billion during the month to $208.5 billion (+8.8 percent versus March 2017) while imports slowed by $4.6 billion to $257.5 billion (+8.9 percent versus March 2017). As a result, the trade deficit contracted by 15.2 percent during the month to -$49.0 billion, which was still 9.5 percent larger than that of a year earlier. The goods deficit shrank by $7.5 billion to -$69.5 billion while the services surplus expanded by $1.3 billion to +$20.5 billion. The former was boosted by increased exports of civilian aircraft (+1.9 billion), foods/feeds (+$1.0 billion), and industrial supplies/materials (+$0.9 billion) and decreased imports of capital goods (-$3.6 billion), consumer goods (-$0.9 billion), and crude oil (-$0.5 billion). The U.S. had its biggest goods deficits with China (-$35.4 billion), the European Union (-$12.4 billion), and Mexico (-$7.0 billion).

#5Factory orders grew for the seventh time in eight months during March. The Census Bureau estimates new orders for manufactured goods increased 1.6 percent during the month to a seasonally adjusted $507.7 billion (+8.1 percent versus March 2017). Transportation goods—and, in particular, civilian aircraft—were a major reason for the increase. Net of transportation goods, factory orders increased 0.3 percent during the month and was 6.6 percent ahead of its year-ago pace. Durable goods orders jumped 2.5 percent during March while those for nondurables gained 0.5 percent. Shipments increased for the 15th time in 16 months with 0.4 percent growth to $502.8 billion. Non-transportation goods shipments gained 0.2 percent. The value of manufacturers’ unfilled orders gained 0.8 percent to $1.154 trillion (its sixth increase in seven months) while inventories expanded 0.3 percent to $677.3 billion (its 16th increase over the past 17 months). 

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 28, 2018, First-Time Claims, seasonally adjusted): 211,000 (+2,000 vs. previous week; -31,000 vs. the same week a year earlier). 4-week moving average: 221,500 (-9.3% vs. the same week a year earlier).
Productivity (Q1 2018-preliminary, Nonfarm Labor Productivity, seasonally adjusted): +0.7% vs. Q3 2017, +1.3% vs. Q1 2017).
ISM Report on Business-Manufacturing (April 2018, PMI (Index (>50=expanding manufacturing sector)), seasonally adjusted): 57.3 (-2.0 points vs. March 2018).
ISM Report on Business-Nonmanufacturing (April 2018, NMI (Index (>50=expanding service sector)), seasonally adjusted): 56.8 (-2.0 points vs. March 2018).
Construction Spending (March 2018, Value of Construction Put in Place, seasonally adjusted annualized rate): $1.285 trillion (-1.7% vs. February 2018, +3.6% vs. March 2017).
Vehicle Sales (April 2018, Light Vehicle Retail Sales, seasonally adjusted annualized rate): 17.17 million units (-1.8% vs. March 2018, +0.8% vs. April 2017).
Pending Home Sales (March 2018, Index (2001=100), seasonally adjusted): 107.6 (+0.4% vs. February 2018, -3.0% vs. March 2017).

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

GDP Growth Downshifted in Q1: Week of April 23 – 27

Slower growth in consumer spending pulls back economic expansion during early 2018. Here are the five things we learned from U.S. economic data released during the week ending April 27.

#1The U.S. economic growth decelerated during Q1. The Bureau of Economic Analysis’ advance estimate of Gross Domestic Product (GDP) had the U.S. economy expanding at a seasonally adjusted annualized rate (SAAR) of +2.3 percent. While this was the 16th consecutive quarter of GDP growth, it was the most modest pace of economic expansion in a year. The biggest culprit was a slowdown in the growth rate of consumer spending, which contributed only 73-basis points to Q1 GDP growth after having added 275-basis points during the final three months of 2017. Most other GDP components made positive contributions: fixed nonresidential investment (+0.76), change in private inventories (+0.43), net exports (+0.20), and government expenditures (+0.20). The only component that did not make a positive contribution was fixed residential investment, which had made neither a positive or negative contribution. The BEA will release its estimate of Q1 GDP growth twice over the next two months.2018 Q1 GDP contributors-042718

#2Economic indicators point to the economy expanding at a slower rate in March. The Chicago Fed National Activity Index (CFNAI), a weighted index of 85 economic indicators, shed 88-basis points during the month to a reading of +0.10. Forty-four of the 85 economic indicators made positive contributions to the CFNAI. Only two of the four major categories of economic indicators made net positive contributions (those associated with production and sales/orders/inventories) while measures tied to employment and personal consumption/housing pulled down the headline index. Experiencing a far less significant decline was the CFNAI’s three-month moving average, losing four basis points to +0.27. A reading above 0.00 is indicators of economic growth greater than the historical average.

#3Sales of both existing and new homes increased in March. Sales of previously owned homes grew 1.1 percent during the month to a seasonally adjusted annualized rate (SAAR) of 5.60 million units, per the National Association of Realtors. This was 1.2 percent below the year-ago sales pace. Sales grew in the Northeast (+6.3 percent) and Midwest (+5.7 percent) but slowed in the West (-3.1 percent) and South (-0.4 percent). Inventories remained extraordinarily tight but improved during the month—the 1.67 million homes available for sale at the end of March was a 5.7 percent gain from the prior month but still 5.7 percent fewer than that of a year earlier and translated into a mere 3.6 month supply. The median sales price of $250,400 represented a 5.8 percent increase over the previous year. Despite the upturn in home sales activity, the press release noted the “woefully low” supply of homes that was causing prices to rise “above what some would-be buyers can afford.”

The Census Bureau estimates the seasonally adjusted annualized sales pace of new home sales was at 694,000 in March, up 4.0 percent for the month and 8.8 percent over the past year. Virtually all of the month-to-month gain occurred in the West, where new home sales surged 28.3 percent. The 301,000 new homes available for sale at the end of March matched that of February, was 13.2 percent larger than that of a year earlier and was the equivalent to a 5.2 month supply. The median sales price of new homes was $337,200 in March, up 4.8 percent from the same month a year earlier.

#4Two surveys paint slightly different (if still solid) pictures of consumer sentiment. The Conference Board’s Consumer Sentiment Index added 1.7 points during April to a seasonally adjusted 128.7 (1985=100), leaving the measure near its post-recession high achieved in February. The present conditions index added 1.5 points to 159.6 while the expectations index gained 1.9 points to 108.1. 35.2 percent of survey respondents characterized current business conditions as “good” while only 11.3 percent saw them as “bad.” Similarly, 38.1 percent of consumer perceive the availability of jobs as being “plentiful” while 15.2 percent see them as “hard to get.” The press release noted that only six percent of consumers were “expecting their incomes to decline over the coming months,” the lowest percentage saying so since December 2000.

Losing pace was the Index of Consumer Sentiment, as measured by the University of Michigan. The index shed 2.6 points during April to a seasonally adjusted 98.8 (1966Q1=100). This was a full point improvement from the preliminary April reading reported a few weeks earlier and left the measure 1.8 points ahead of its year-ago mark. The current conditions index dropped 6.3 points to 114.9 while the expectations index pulled back by 4/10ths of a point to 88.4. The press release noted the survey respondents mostly had positive opinions about the recently enacted tax reform policies but were more pessimistic about the effects of recently proposed import tariffs.

#5A surge in aircraft orders led to a jump in durable goods orders in March. The Census Bureau reports that new orders for manufactured durable goods surged 2.6 percent during the month to a seasonally adjusted $254.9 billion. This was the fourth increase in durable orders over the past five months. Civilian aircraft orders swelled 44.5 percent during March, leading to a 7.6 percent increase in overall transportation goods orders. Net of transportation goods, however, new orders were unchanged for the month. Also gaining during the month were new orders for primary metals (+1.4 percent), computer/electronic products (+1.3 percent), and electrical equipment/appliances (+0.1 percent). Falling were new orders for machinery (-1.7 percent) and nondefense capital goods net of aircraft (-0.1 percent). The latter is a proxy for business investment and has declined in three of the past four months.

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 21, 2018, First-Time Claims, seasonally adjusted): 209,000 (-24,000 vs. previous week; -43,000 vs. the same week a year earlier, and the fewest since December 1969). 4-week moving average: 229,250 (-6.0% vs. the same week a year earlier).
Case-Shiller Home Price Index (February 2018, 20-City Index, seasonally adjusted):  +0.7% vs. January 2018, +6.8% vs. February 2017.
FHFA House Price Index (February 2018, Purchase-Only Index, seasonally adjusted): +0.6% vs. January 2018, +7.2% vs. February 2017.
Agricultural Prices (March 2018, Prices Received by Farmers (Index (2011=100)): 94.9 (+4.5% vs. February 2018, +0.9%).

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

Vehicles Drive Manufacturing and Retail Sales: April 16 – 20

Manufacturing activity grew again in March (albeit at a slower pace than in February) while retail sales had its best month since last November. Here are the five things we learned from U.S. economic data released during the week ending April 20.

#1Manufacturing output grows at a slower pace during March. The Federal Reserve estimates manufacturing production increased 0.1 percent on a seasonally adjusted basis during the month following a 1.5 percent gain in February, leaving the measure up 3.0 percent over the past year. Production of durable goods gained 0.4 percent—which included the impact of a 2.7 percent surge in motor vehicle output—and has increased 3.8 percent over the past year. Production of nondurables slowed 0.3 percent during the month but remained 2.7 percent ahead of its March 2017 mark. Overall industrial production rose 0.5 percent during March and has jumped 4.3 percent over the past 12 months. Mining output increased 1.0 percent (down from its 2.9 percent increase in February) while production at utilities surged 3.0 percent. The latter helped lead a 3/10ths of a percentage point in capacity utilization (factory utilization) to 78.0 percent, its highest point in three years.Industrial Production Capacity Utilization 042018

#2Retail sales gained in March. Retail and food services sales increased 0.6 percent during the month to a seasonally adjusted $494.6 billion, per the Census Bureau. This was the largest single-month percentage increase in retail sales since last November and left the measure up 4.5 percent over the past year. Leading the surge in retail sales was the 2.0 percent jump in sales at auto dealers/parts stores. Net of auto dealer/parts stores, retail sales gained a more modest 0.2 percent in March and was 4.5 percent ahead of the year-ago sales pace. Sales grew at retailers focused on health/personal care (+1.4 percent), furniture (+0.7 percent), electronics (+0.5 percent), general merchandisers (+0.3 percent), and groceries (+0.2 percent). Sales also improved at nonstore retailers (+0.8 percent) and restaurants/bars (+0.4 percent). Slipping were sales at sporting goods/hobby stores (-1.8 percent), building materials retailers (-0.6 percent), gas stations (-0.3 percent), and department stores (-0.3 percent).

#3Forward-looking economic indicators foretell continued economic growth in the coming months. The Conference Board’s Leading Economic Index (LEI) added 3/10ths of a point during March to 109.0 (2016=100), rising 6.2 percent over the past year. Six of the ten LEI components made positive contributions to the index, led by the interest rate spread, the new orders index from the Institute for Supply Management, and consumer expectations for future business conditions. The coincident index increased by 2/10ths of a point to 103.4, 2.2 percent ahead of its year-ago reading. All four components of the coincident index made positive contributions, including that for industrial production and personal income net of transfer payments. The lagging index inched up 1/10th of a point to 104.5 (+2.6 percent versus March 2017), with five of seven components making a positive contribution. The press release noted that leading indicators point “to continued solid growth in the U.S. economy for the rest of the year” but that weakness in labor market indicators “bear watching in the future.”

#4Housing starts advanced in March, thanks to gains in multifamily units. The Census Bureau estimates housing starts increased 1.9 percent to a seasonally adjusted annualized rate (SAAR) of 1.319 million units. This was 10.9 percent ahead of the year-ago rate of starts. Starts of multifamily units (e.g., condos, apartments) jumped 16.1 percent during the month to an annualized 439,000 units while those of single-family homes dropped 3.7 percent to 867,000 units (SAAR). Looking towards future construction activity, the annualized count of issued building permits increased 2.5 percent during March to 1.354 million permits (+7.5 percent versus March 2017). Again, the 22.9 percent bump in permits for multifamily units outpaced the 5.5 percent decline in issued permits for single-family homes. Completions of homes slowed 5.1 percent during the month to 1.217 million homes (SAAR)—this was 1.9 percent ahead of March 2017’s pace of completions.

#5Home builders’ confidence held strong in April. The National Association of Home Builders’ Housing Market Index (HMI) lost a point to a seasonally adjusted reading of 69. While this was the HMI’s lowest point since last November, it represented the 46th consecutive month with a reading above 50, indicating more homebuilders see the housing market as “good” rather as “poor.” The index slipped in the South and West, held steady in the Midwest, and inched up in the Northeast. Also losing grounds were indices measuring current and expected sales, with the former shedding two points to 75 and the latter slipping by a point to 77. The index for traffic of prospective buyers was unchanged at 51. The press release said that the housing market “remains on solid ground” thanks to “strong demand” with the NAHB expecting “the market to continue to make gains at a gradual pace.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending April 14, 2018, First-Time Claims, seasonally adjusted): 232,000 (-1,000 vs. previous week; -15,000 vs. the same week a year earlier). 4-week moving average: 231,250 (-5.3% vs. the same week a year earlier).
State Employment (March 2018, Nonfarm Payrolls, seasonally adjusted): Two states had significant increases in payrolls vs. February 2018. 24 states had significant increases in payrolls vs. March 2017.
Treasury International Capital Flows (February 2018, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$57.9 billion (vs. January 2018: +$62.5 billion; vs. February 2017: +$38.3 billion).
Business Inventories (February 2018, Manufacturers’ and Trade Inventories, seasonally adjusted): $1.929 trillion (+0.6% vs. January 2018, +4.0% vs. February 2017).
Beige Book 

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