A Signal Change: June 17 – 21

The Fed sees increased business conditions uncertainty. Here are the five things we learned from U.S. economic data released during the week ending June 21.

#1The Fed held still but sent a more dovish signal. The statement released after this past week’s meeting of the Federal Open Market Committee (FOMC) noted that the U.S. economy was growing at a “moderate rate,” the labor market was “strong,” and that consumer spending had “picked up.” But the committee also saw business investment as being “soft” and that core inflation was remaining below its two-percent target rate. As a result, the FOMC voted to maintain the fed funds target rate at a range between 2.25 and 2.50 percent (one voting member desired a rate cut). Further, the statement turned dovish with language saying that uncertainties “have increased. Nevertheless, the committee believed “sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes.” Notable in the economic projections released in conjunction with the policy statement was that eight of the 17 FOMC participants expects one or two quarter-point rate cuts before 2019 ends. Only one participant anticipates a rate bump in 2019. Further, seven FOMC participants have the fed funds target rate below the current range into 2021.FOMC Projections June 2019 062119

#2Forward-looking economic indicators suggest business activity mellowed in May. The Conference Board’s Leading Economic Index (LEI) held steady at 118.1 for the month and has risen by only a half point since last December. Just five of the LEI’s ten components made a positive contribution to the measure, led by consumers’ expectations for business conditions. The coincident index added 2/10ths of a point to 105.9, up a mere 3/10ths of a point since last December. All four coincident index components made positive contributions to the measure. The lagging index pulled back by 2/10ths of a point to 107.0 (up 7/10ths of a point to 106.3), with only one of seven components improving during May (the ratio of consumer installment credit outstanding to personal income). The press release noted that the LEI’s reading “clearly points to a moderation in growth towards 2 percent by year end.”

#3Existing home sales grew for the first time in three months in May. Sales of previously owned homes increased 2.5 percent during the month to a seasonally adjusted annualized rate of 5.34 million units. Even with the gain, the National Association of Realtors’ measure of existing home sales was 1.1 percent under its year-ago pace. Sales increased in all four Census regions, led by increases of 4.7 percent and 3.4 percent in the Northeast and Midwest, respectively. The only region with a favorable 12-month comparable, however, was the South with a 1.3 percent gain. Inventories of unsold homes expanded to their largest level since last July to 1.92 million units (+4.9 percent versus April 2019 and +2.7 percent versus May 2018) but remained at a tight 4.3 month supply. The press release stated that “[t]he purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

#4Starts of single-family homes slowed in May. The Census Bureau tells us housing starts slipped 0.9 percent during the month to a seasonally adjusted 1.269 million units, representing a 4.7 percent drop from a year earlier. While starts of multi-family units (e.g., condos) jumped 13.8 percent on both a month-to-month and year-to-year basis, they dropped for single-family homes 6.4 percent versus April 2019 and 12.5 percent versus May 2018. Looking towards future activity, permitting activity inched up during May as the annualized count of issued building permits grew 0.5 percent to 1.294 million permits (-1.5 percent versus May 2018). Permits for single-family homes rose 3.7 percent but fell a matching 3.7 percent for permits of homes with five or more units. Housing completions slumped 9.5 percent during the month to an annualized 1.213 million units, a 2.8 percent decline from a year earlier

#5Only one state enjoyed significant jobs growth in May. The Bureau of Labor Statistics reports that nonfarm payrolls grew at a statistically significant rate in only Washington state during the month while remaining “essentially” unchanged in the other 49 states and the District of Columbia. (Note a few weeks earlier, the BLS reported that nonfarm payrolls grew by a relatively modest 75,000 jobs on a seasonally adjusted basis during May.) Over the past year, nonfarm payrolls have increased in 24 states, led by Texas (+286,300), California (+282,700), and Florida (+214,500).

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 15, 2019, First-Time Claims, seasonally adjusted): 216,000 (-6,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 218,750 (-0.5% vs. the same week a year earlier).
Housing Market Index (June 2019, Index (>50=More Homebuilders View Housing Market as “Good” than “Bad,” seasonally adjusted): 64 (May 2019: 66, June 2018: 68).
Treasury International Capital Flows (April 2019, Net Foreign Purchases of U.S. Securities, not seasonally adjusted): +$36.4 billion (March 2019: -$27.8 billion, April 2018: +$22.6 billion).

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

Retail Sales Improve, Job Openings Remain at (Near) Record Levels: June 10 – 14

The retail picture improved while employers continue to struggle filling open positions. Here are the five things we learned from U.S. economic data released during the week ending June 14.

#1Retail sales firmed in May, with an upward revision for April. Retail and food services sales grew 0.5 percent to a seasonally adjusted $519.0 billion, up 3.2 percent since May 2018. The Census Bureau also upwardly revised its April sales estimate from a previously reported 0.2 percent sales drop to a 0.3 percent gain. Sales blossomed at both auto dealers/parts stores (+0.7 percent) and gas stations (+0.3 percent). Netting out both, core retail sales also gained 0.5 percent for the month and 3.2 percent over the past year. Sales increased during May at retailers focused on electronics/appliances (+1.1 percent), sporting goods/hobbies (+1.1 percent), health/personal care (+0.6 percent), and building materials (+0.1 percent). May was not as good of a month for department stores (-0.7 percent) and food/beverage stores (-0.1 percent).Retail Sales 061419

#2Employers continued posting a near-record number of job openings in April. The Bureau of Labor Statistics reports that there were a seasonally adjusted 7.449 million job openings on the final day of April, off 25.000 from the prior month but up 4.8 percent from a year earlier. (By comparison, a separate BLS report indicates that there were “only” 5.824 million unemployed people in April.) Industries reporting significant year-to-year percentage increases in openings were construction (+56.6 percent), financial activities (+11.3 percent), and manufacturing (+11.1 percent), while job openings in retail slumped 18.9 percent. Employers hired 5.937 million workers in Apri1, up 240,000 from March and 4.3 percent from a year earlier. 5.578 million people left their jobs in April, up 70,000 for the month and 2.0 percent over the previous year. This included 3.482 million people quitting their jobs during the month (+4.3 percent versus April 2018) and 1.752 million being laid off (-2.0 percent versus April 2018).

#3Manufacturing output grew in May for the first time since January. The Federal Reserve reports that manufacturing production expanded a seasonally adjusted 0.2 percent during the month, following a 0.5 percent drop during the previous month. Durable goods production gained 0.3 percent, boosted by jumps for wood products, machinery; electrical equipment/appliances, and motor vehicles. The output of nondurables eked out a 0.1 percent bump. Manufacturing output has expanded by only 0.7 percent over the past 12 months. Overall industrial production grew 0.4 percent during the month, rebounding from a 0.4 percent drop in April and leaving the measure up 2.0 percent over the past year. Mining output increased 0.1 percent during the month while production at utilities rose 2.1 percent.

#4Headline inflation was soft in May. The Consumer Price Index (CPI) increased by a modest 0.1 percent on a seasonally adjusted basis during the month, following gains of 0.3 percent and 0.4 percent during the two prior months. The Bureau of Labor Statistics report also notes that consumer energy prices fell 0.6 percent (gasoline CPI: -0.5 percent) while food prices jumped 0.5 percent (thanks to higher prices for non-alcoholic beverages and meat/poultry/fish/eggs). Net of both energy and food, core CPI grew by a 0.1 percent for the fourth consecutive month. Prices rose for medical care services (+0.5 percent), shelter (+0.2 percent), new vehicles (+0.1 percent) but fell for used cars/trucks (-1.4 percent) and medical care commodities (-0.4 percent). CPI has risen 1.8 percent over the past 12 months, while core CPI has gained 2.0 percent over the same period.

The Producer Price Index (PPI) for final demand edged up a seasonally adjusted 0.1 percent, its smallest increase over the past four months. Core PPI for final demand, which removes the impact of food, energy, and trade services, climbed 0.4 percent (matching its increase in April).  Final demand goods PPI dropped 0.2 percent, pulled down by declines in wholesale prices for both energy (-1.0 percent) and food (-0.3 percent). Final demand services PPI grew 0.3 percent, thanks to higher prices for transportation/warehouse services. Headline PPI has risen 1.8 percent over the past year while the core measure has a more robust 12-month comparable of +2.3 percent.

#5Small business owner confidence improved for a fourth straight month in May. The Small Business Optimism Index added 1.5 points during the month to a seasonally adjusted reading of 105.0 (1986=100). This was the highest mark for the National Federation of Independent Business’ measure since last October. Six of the ten index components gained in May, led by whether it is a good time to expand, plans to make capital outlays, expectations for the economy, and expected real sales. Only one index component—expected credit conditions—slipped during the month. The press release noted that “[s]mall business owners are demonstrating a continued confidence in the strength of the economy.”

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 8, 2019, First-Time Claims, seasonally adjusted): 222,000 (+3,000 vs. previous week; -3,000 vs. the same week a year earlier). 4-week moving average: 217,750 (-1.8% vs. the same week a year earlier).
University of Michigan Surveys of Consumers (June 2019, Index of Consumer Sentiment (100=1966Q1), seasonally adjusted): 97.9 (May 2019: 100.0, June 2018: 98.2)
Business Inventories (April 2019, Manufacturers’ and Trade Inventories, seasonally adjusted): $2.230 trillion (+0.5% vs. March 2019, +5.3% vs. April 2018).
Monthly Treasury Statement (1st 8 months of FY19 (May 2019), Budget Surplus/Deficit): -$738.6 billion (vs. 1st 8 months of FY18: -$532.2 billion). 

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

Employers Tap on the Brakes (Again): June 3 – 7

Hiring lost its momentum in May. Here are the five things we learned from U.S. economic data released during the week ending June 7.


Hiring slows way down in May. Nonfarm employers added a seasonally adjusted 75,000 workers during the month, per the Bureau of Labor Statistics. While this was the 104th consecutive month of job gains, it fell short of the additions in March and April of 153,000 and 224,000, respectively. Private sector employers added 90,000 jobs, split between 82,000 in the service sector and 8,000 in the goods-producing sector. Industries adding the most workers during May were professional/business services (+33,000), leisure/hospitality (+26,000), and health care/social assistance (+24,000). Manufacturers added a mere 3,000 workers (perhaps reflecting the impact of rising trade tensions) while retailers shed 7,600 jobs. Average weekly earnings grew by $2.06 during the month (and has risen 2.8 percent over the past year) to $957.35.

A separate survey of households keeps the unemployment rate at a post-recession low of 3.6 percent. The labor force expanded by 176,000 people, keeping the labor force participation rate at 62.8 percent. The labor force participation rate for adults aged 25 to 54 slipped by 1/10th of a percentage point to 82.1 percent (its smallest since last September). The median length of unemployment declined by 3/10ths of a week to 9.1 weeks (May 2018: 9.3 weeks). The number of people with a part-time job but seeking a full-time opportunity contracted by 299,000 to 4.355 million (May 2018: 4.920 million). The broadest measure of labor force underutilization (the “U-6” series) dropped by 2/10ths of a week to a new post-recession low of 7.1 percent (April 2018: 7.7 percent).

#2The trade deficit shrank (but trade activity slowed) in April. The Census Bureau and Bureau of Economic Analysis report that exports fell by $4.6 billion during the month to $206.8 billion (-1.0 percent versus April 2018) while import activity declined by $5.7 billion to $257.6 billion (+0.2 percent April 2018). The resulting budget deficit of -$50.8 billion was $1.1 billion smaller than that of March. The goods deficit narrowed by $1.0 billion to -$71.7 billion while the services surplus expanded by $0.1 billion to +$20.9 billion. The former was the result of sizable declines in imports of non-automotive capital goods, gem diamonds, and motor vehicles while goods exports were pulled down by declines exported aircraft, motor vehicles, and pharmaceutical preparations. 

#3New factory orders declined for the second time in three months in April. The Census Bureau tells us that new orders for manufactured goods slowed 0.8 percent in April to a seasonally adjusted $499.3 billion. Transportation goods orders fell 5.9 percent, hurt by sharp decreases in orders for civilian aircraft (-25.2 percent), defense aircraft (-2.4 percent), and motor vehicles (-1.7 percent). Net of transportation goods, new factory orders grew 0.3 percent. A proxy for business investment—civilian capital goods net of aircraft—fell 1.0 percent. Shipments fell for the first time in three months with a 0.5 percent decline to $504.1 billion, although they gained 0.2 percent net of transportation goods. Unfilled orders shrank a modest 0.1 percent to $1.179 trillion while inventories expanded 0.3 percent to $692.9 billion.

#4Purchasing managers report growth in manufacturing decelerated in May. The PMI, the headline index from the Institute for Supply Management’s Manufacturing Report on Business, lost 7/10ths of a point to a reading of 52.1. This was the PMI’s lowest reading since October 2016 but the measure has remained above a reading above of 50.0 (the threshold between a growing and contracting manufacturing sector) for 33 straight months. Three of the PMI’s five components declined (production, supplier deliveries, and inventories) while the other two increased (new orders and employment). Eleven of 18 manufacturing industries expanded during May, led by printing, furniture, and plastic/rubber products. The press release noted survey respondents had “expressed concern with the escalation in the U.S.-China trade standoff.”

Meanwhile, ISM’s measure of service sector activity—the NMI—added 1.4 points to a reading of 56.9. This was the 112th consecutive month in which the NMI was above a reading of 50.0. Three of four index components rose from their April readings: business activity/production, new orders, and employment. Only the measure for supplier deliveries pulled back during the month. Sixteen of 18 nonmanufacturing industries expanded in May, led by accommodation/food services, education, and management of companies/support services. Survey respondents also here had noted “concerns” about tariffs.

#5Construction spending held steady in April. The Census Bureau estimates the value of construction put in place during the month was at a seasonally adjusted annualized rate (SAAR) of $1.299 billion, virtually unchanged from March and off 1.2 percent from the same month a year earlier. Private sector construction spending slumped 1.7 percent during April to a SAAR of $954.0 billion, 6.0 percent below its April 2018 mark. Private sector residential spending fell 0.6 percent while private sector nonresidential plummeted 2.9 percent. Public sector construction spending, on the other hand, jumped 4.8 percent to an annualized $338.0 billion. Public sector expenditures have risen 15.1 percent over the past year.

Other U.S. economic data released over the past week:
Jobless Claims (week ending June 1, 2019, First-Time Claims, seasonally adjusted): 218,000 (Unchanged vs. previous week; -2,000 vs. the same week a year earlier). 4-week moving average: 215,000 (-3.3% vs. the same week a year earlier).
Productivity (2019 Q1-revision, Nonfarm Business Labor Productivity): +3.4% vs. 2018Q4, +2.4% vs. 2018Q1.
Beige Book

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